Yes in US parlance this is referred to as "Restricted Cash" The...

Yes in US parlance this is referred to as "Restricted Cash"

The issue with their model appears to be in the terms associated with the financier and their absolute (~90%) reliance upon this structure to generate sales and its cost = 24% sales comm/interest with a further 24% payable if the customer doesn't accept product and is not replaced with another customer within a defined period.

They key metric BIG needs to disclose is the % of customers that accept their video and agree to and are legally bound by the 12 month payment plan. This will show the level of 'churn' that BIG salespeople need to replace to ensure that FC doesn't take the additional 24% 'Cancellation Fee' that will be swept from the 'Security Deposit'. From looking at page 36 I am guessing that this 'churn' is running at 53.7%. and any 'Adjustment Amount' (see below) is not disclosed.

When this churn rate is so high the harder and harder it becomes to replace the existing customer just to stand still. I suppose some empathy with Bernie Madoff's conundrum could be appreciated here ! Page 37 clause 13 provides an overview of the quantum of the SME targets (~17,700) for the boiler-room to pursue to back fill the hole. They also state in this clause that ~2,000 of these SME's are being targeted to swap into the existing Churn so that the 24% Cancellation Fee doesn't kick in.

I am not clear on how long in terms of time frame BIG has to replace the customer before the 'Cancellation Fee' kicks in.

IMO the company needs to disclose how long it has to swap them in before FC grabs the additional 24%.

The Financing Agreement is locked in for a further 10 months (1 January 2019) and BIG needs to be able to pay out all outstanding obligations to FC post termination or otherwise be liable to pay a further 24% interest on all outstanding monies.

BRTV must ensure that certain financial covenants, being the sales conversion ratio, sales value conversion ratio, customer contracts sponsored percentage and market capitalisation Test are met. IMO this is potentially an issue here if the market cap falls materially given that the facility is operating at near capacity with no material available headroom. The sales conversion ratio is also an interesting covenant here and may put BIG's sales practices under the microscope - watch this space !

Events of Default

Annexure

1(j) - in FC's opinion, an event occurs that has a Material Adverse Effect on BRTV;
1(q) - any representation, warranty, reply to requisition or any financial or other information provided to FC inconnection with the Sponsorship Pool is or becomes untrue, false or misleading;

There is also "Adjustment Amount" that deals with a situation whereby the 'potential customer' doesn't like the list price ('Offer Price') of the video that was agreed and in return for accepting delivery retrospectively negotiates a discounted rate with BIG ('Contract Value'). This adjustment is based upon a figure that has already accounted for FC taking its 24% sales comm on the original Offer Price.

For the quarter ended 31 December ~88.5% of BIG's sales are reliant upon this financing structure - one word here IMO - TOXIC !