American Picture House Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s discussion and analysis of financial condition and results of operations Organizational History of the Company and Overview American Picture House Corporation aka American Picture House Pictures plans to be a premiere entertainment company with a focus on feature films, limited series, and content-enhancing technologies. APHP is managed by astute financiers and supported by seasoned creatives. To date, the Company has provided general consulting services to entertainment industry-based clients. These clients were interested in our entertainment industry expertise and general business knowledge. The services provided included the strategy, development, and procurement of materials including; business plans, financial projections, and corporate marketing materials for the entertainment industry. The Company has refocused its efforts and will no longer be providing these services to independent clients. Going forward, APHP plans to partner with filmmakers, showrunners, content developers and strategic technology partners to develop, package, finance, and produce high-quality feature films and television shows with broad-market appeal. The Company’s management, Board of Directors and advisors have had relationships with major studios due to many of them having worked within the entertainment industry on many films and shows in a variety of specialties including: writing, producing, directing, casting, sales, and licensing. Although these relationships have not yet yielded results to APHP to date, the Company anticipates it will be able to access these relationships to benefit the Company in its future endeavors. The Company intends to specialize in mid-budgeted productions where more than 100% of the budget can be collateralized by a film’s or show’s intellectual property (‘IP”), unsold licensing sales projections, pre-sold licensing contracts, incentive agreements, tax rebates, and grants. The Company’s management and advisors will use these assets to limit risk and guarantee greater profitability. The IP (e.g., the book rights, script, screenplay, etc.) of a particular film or show usually has a quantifiable value, especially if such IP was written by a recognized author or by a WGA (“Writers Guild of America”) writer and further enhanced by the addition of competent producers, proven directors and directors of photography, and talented actors. While the IP itself has value, the previously mentioned elements plus the addition of factors like choosing favorable filming locales to film in (that provide monetary and/or tax incentives) and formulating lean budgets, enable third party financiers to quantify a film’s or show’s value and this quantifiable-value can be utilized to secure additional equity investors and or be utilized to secure loans. Through the development of a strong package, APHP can limit its overall financial exposure, mitigate financial risk, and reduce the equity required from the Company to produce a film or show Loans and additional equity, are usually only secured for films that have a package that has strong elements and additional factors; therefore, a reduction in equity combined with third-party participation also is expected to increase profitability to the Company. The Company will strive to become synonymous with creative ability, financial sophistication, and leading-edge technology. The Company has optioned IP with the intent to co-finance and co-produce feature films and limited series shows. Filmmaking Stages and Our Strategy To understand our business strategy, it is useful to think of filmmaking in five stages - often with different teams involved at different stages: ● Development: The first stage in which the ideas for the film are created, rights to books/plays are acquired and the screenplay is written. Financing for the project has to be sought and obtained; ● Pre-Production: Arrangements and preparations are made for the shoot, such as hiring cast and film crew, selecting locations and constructing sets; ● Production: The raw footage and other elements for the film are recorded during the film shoot; ● Post-Production: The images, sound, and visual effects of the recorded film are edited and combined into a finished product; and ● Distribution: The completed film is distributed, marketed, and screened in cinemas and/or released to video or steaming services. 2 Table of Contents Our Strategy to Build Value Our business strategy is to purchase and/or option “entertainment properties” ( e.g., book rights, screenplays, scripts, etc. ). that have had some level of financial investment in the development stage before we acquire the entertainment property where the initial owner or development team decided to stop development for financial or other reasons after making a substantial investment in development. For this investment, we may share with the original team rights to revenue from the acquired entertainment properties. This strategy will allow the Company to reduce our initial cash outlay when acquiring intellectual properties, allows us to allocate more funds in moving the entertainment property up the filmmaking chain, gives us assistance and goodwill from the original development team, and reduces our financial risks. Our strategy requires us to make an informed assessment that our management team has the ability to move the script forward where the initial team failed while allowing APHP to capitalize on the initial investment. We seek to build value in our entertainment properties by many means, including the following: ● Hiring other qualified Writers Guild of America (“WGA”) writers to further develop, polish, or re-write entertainment properties; ● Securing or attaching quality talent ( e.g., producers, director, actors, etc.); ● Determining pre-sales values; ● Securing some pre-sales (mostly in international markets) ; ● Securing financial and banking relations; ● Hiring a talent agency, retaining attorneys; ● Determining shooting locations, including the best place to obtain financial incentives and/or grants; ● Developing a comprehensive budget and devising financing strategy; ● Securing a completion bond; and ● Developing production and marketing materials ( e.g., look-book, location scouting, poster-design, etc.). Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or “GAAP.” The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are fully described in Note 2 to our financial statements appearing elsewhere in this Quarterly Report, and we believe those accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements. COVID-19 Update To date, the COVID-19 pandemic has not had a material impact on the Company, particularly due to our current lack of operations. The pandemic may, however, have an impact on our ability to evaluate and acquire an operating entity through a reverse merger or otherwise. Off-Balance Sheet Arrangements None. 3 Table of Contents Results of Operations Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023: Three Months Ended September 30, 2024 2023 Change $ Revenues $ - $ - $ - Cost of revenues - - - - - - Operating Expenses: General and administrative 315,570 495,257 (179,687 ) Research and development - 8,803 (8,803 ) Total Operating Expenses 315,570 504,060 (188,490 ) Net operating income (loss) (315,570 ) (504,060 ) 188,490 Other Income (Expenses): Interest income 1,332 340 992 Interest expense (12,276 ) (2,993 ) (9,283 ) Net Other Income (Expenses) (10,944 ) (2,653 ) (8,291 ) Income (loss) before income taxes (326,514 ) (506,713 ) 180,199 Income taxes - - - Net income (loss) $ (326,514 ) $ (506,713 ) $ 180,199 Revenues and Cost of Revenues The Company did not have any revenues during the quarters ended September 30, 2024 and 2023. General and Administrative Expenses General and administrative expenses for the three months ended September 30, 2024 were approximately $316,000 compared to approximately $495,000 for the three months ended September 30, 2023, a decrease of approximately $180,000. The 2023 period included approximately $92,000 of legal and professional fees associated with filing the Company’s Form 10 and $50,000 related to investment due diligence. Additionally, the travel expenses were approximately $21,000 higher during the 2023 period. Research and Development Expenses Research and development expenses for the three months ended September 30, 2024 were $0 compared to $8,803 for the nine months ended September 30, 2023. 4 Table of Contents Other Income (Expense) Interest Income. Interest income for the three months ended September 30, 2024 and 2023 was minimal and consisted of interest earned on invested cash balances. Interest Expense. Interest expense for the three months ended September 30, 2024 and 2023 was $12,276 and $2,993, respectively, and was primarily related to our Economic Injury Disaster Loan (“EIDL ”), commercial line of credit and related party working capital loans. Liquidity and Capital Resources We had an accumulated deficit of approximately $7.2 million, incurred a net loss of approximately $327,000, and had cash outflows from operations of approximately $773,000 as of and for the three months ended September 30, 2024. Further, we expect to continue to incur significant costs in the pursuit of our business plans. We cannot assure you that our plans to raise capital or to complete our film development and production activities will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we develop and produce feature films. To date, we have funded our operations with proceeds from sales of Common Stock and borrowings from related parties under promissory notes. As of September 30, 2024, our cash and cash equivalents were negligible and we were not able to meet our current obligations as they became due and payable. Operating Activities During the three months ended September 30, 2024, operating activities consumed approximately $31,000 of cash, representing substantially all of the Company’s cash on hand. Accounts payable and accrued expenses increased by approximately $301,000 during the quarter due to a lack of liquidity to meet current obligations as they became due and payable. During the three months ended September 30, 2023, operating activities used approximately $398,000 of cash, primarily resulting from our net loss of approximately $507,000, partially offset by non-cash charges and changes in our operating assets and liabilities of $108,000. Investing Activities During the three months ended September 30, 2024 and 2023, investing activities included approximately $2,000 and $27,000 of produced and licensed film production costs. Financing Activities During the three months ended September 30, 2024, net cash provided by financing activities was $26,000 which included approximately $37,000 of related party borrowings net of approximately $11,000 of debt repayments. During the three months ended September 30, 2023, net cash provided by financing activities was approximately $700,000 including approximately $803,000 of proceeds from the sale of Common Stock partially offset by net repayments of $103,000 on related party borrowings. 5 Table of Contents Nine months ended September 30, 2024 Compared to nine months ended September 30, 2023 The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023: Nine Months ended September 30, 2024 2023 Change $ Revenues $ 23,003 $ 169,111 $ (146,108 ) Cost of revenues - 36,701 (36,701 ) 23,003 132,410 (109,407 ) Operating Expenses: General and administrative 2,197,584 1,073,980 1,123,604 Research and development 703 8,803 (8,100 ) Sales and marketing 25,325 - 25,325 Total Operating Expenses 2,223,612 1,082,783 1,140,829 Net Operating Loss (2,200,609 ) (950,373 ) (1,250,236 ) Other Income (Expenses): Interest income 1,818 2,793 (975 ) Interest expense (28,281 ) (6,934 ) (21,347 ) Net Other Income (Expenses) (26,463 ) (4,141 ) (22,322 ) Loss before income taxes (2,227,072 ) (954,514 ) (1,272,558 ) Income taxes - - - Net loss $ (2,227,072 ) $ (954,514 ) $ (1,272,558 ) Revenues and Cost of Revenues During the nine months ended September 30, 2023 and 2022, the Company had revenues of approximately $23,000 and $169,000, respectively. The 2024 revenues were derived from the Company’s interest in the Buffaloed CAMA. The Company’s 2023 revenue came from contracts with customers for consulting services and from the licensing and distribution of film and other entertainment rights. General and administrative expenses for the nine months ended September 30, 2024 were approximately $2,198,000 compared to approximately $1,074,000 for the nine months ended September 30, 2023, an increase of approximately $1.1M. The increase was primarily attributable to the Company recording approximately $1,258,000 of stock option expense in the 2024 period along with a $43,000 net increase in consulting fees. The 2023 period included approximately $194,000 of bad debt expense. As a public company, we expect general and administrative costs to continue to increase in future periods. Research and Development Expenses Research and development expenses for the nine months ended September 30, 2024 were approximately $700 compared to $8,800 for the nine months ended September 30, 2023. Sales and Marketing Expenses Sales and marketing expenses for the nine months ended September 30, 2024 were approximately $25,000 compared to $0 for the three months ended September 30, 2023. Sales and marketing expenses relate to our engagement of a part-time marketing consultant during the period and related expenses. Other Income (Expense) Other Income (Expense) Interest Income. Interest income for the nine months ended September 30, 2024 and 2023 was $1,818 and $2,793, respectively, and consisted of interest earned on invested cash balances. Interest Expense. Interest expense for the nine months ended September 30, 2024 and 2023 was $28,281 and $6,934, respectively, and was primarily related to our Economic Injury Disaster Loan (“EIDL ”) and working capital loan. Liquidity and Capital Resources During the first nine months of 2024, the Company sold 691,000 shares of Common Stock for $0.25 per share resulting in total proceeds of approximately $469,000. During the nine months ended September 30, 2023, the Company sold 7,147,498 shares of Common Stock at prices between $0.15 and $0.20 per share resulting in total proceeds of approximately $716,000. We had an accumulated deficit of approximately $7.2 million, incurred a net loss of approximately $2.2 million, and had cash outflows from operations of approximately $773,000 as of and for the nine months ended September 30, 2024. Further, we expect to continue to incur significant costs in the pursuit of our business plans. We cannot assure you that our plans to raise capital or to complete our film development and production activities will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we develop and produce feature films. To date, we have funded our operations with proceeds from sales of Common Stock and borrowings from related parties under promissory notes. As of September 30, 2024, we had cash and cash equivalents of approximately $0. Operating Activities During the nine months ended September 30, 2024, operating activities consumed substantially all of the Company’s available cash resources of approximately $773,000. During the nine months ended September 30, 2023, operating activities used approximately $717,000 of cash, primarily resulting from our net loss of approximately $954,000, partially offset by non-cash charges and changes in our operating assets and liabilities of $238,000. 6 Table of Contents Investing Activities During the nine months ended September 30, 2024 and 2023, investing activities included approximately $10,000 and $37,000 of produced and licensed film production costs. Additionally, during the 2024 and 2023 periods, the Company invested approximately $22,000 and $9,000 in website development costs, respectively. Financing Activities During the nine months ended September 30, 2024, net cash provided by financing activities was approximately $601,000 including $169,000 of proceeds from the sale of Common Stock and $432,000 from net related party borrowings. During the nine months ended September 30, 2023, net cash provided by financing activities was $1.3 million of proceeds from the sale of Common Stock. Additionally, during 2023 period the Company borrowed and fully repaid $178,500 under a promissory note with the Company’s chief executive officer. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to our market risk during the first nine months of 2024. For a discussion of our exposure to market risk, please see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our 2023 Form 10-K.