Reposting without the "profanity" ... the Mormon version lol
Back in April 2016 when the deal was struck BIG had received cash receipts for $2.2m for the entire year, and was cashflow negative to the tune of $2.8m, while the share price was 16c giving the company a market cap of $16m. Not exactly high grade investment material!
Along came a company that said "we'll pay for some of those customer videos in return for access to your client database, some customer referrals, and ongoing advertising on your video platform". The value of this sponsorship was estimated at $300k.
Now being a reasonably financially astute company (they after all, are a finance company), FCC probably didnt feel comfortable just handing over $300k and just crossing their fingers, lighting some incense sticks, and praying to the share market gods that everything would turn out rainbows and unicorns. No, they wanted to cover themselves, after all, they have shareholders too. So in the event that BIG did a 1PG/GSW and failed to actually get any revenue generating customers, continued to burn cash, and eventually went out of business and shut down the BigReviewTV platform; thus providing neither further client referrals or ongoing advertising - FCC thought it prudent that they take some sort of security that ensured they might get some of that money back if BIG went belly up.
That's why it secures "performance obligations". So long as BIG lives up to its end of the bargain, everything is good, and the security will never be exercised. If BIG goes under, FCC has first dibs on the assets to get some (or maybe even all) of its sponsorship money back.
In return for FCC being prepared to back BIG when its a small penny dreadful with a high cash burn rate, selling a product that no-one thought anyone would ever really buy, they also got some options to buy shares. Lucky them. But if you take the risk, you reap the rewards.
This folks, is how you structure commercial deals to cover yourself in the event of bad things happening. You keep the upside unlimited, while you cap your downside.
As for the customer who complained, she was getting a free video. As they say, if you are not paying for the product, you are the product. People should really read the T&Cs they sign (like the 140 page Apple ones). In return for the FREE video FCC provides a credit account. That was the deal. If she didnt want the deal, she didnt have to take the free video - she could have paid BIG upfront for it, or paid FCC on terms for it. As for asking for a new video, BIG was entitled to say if you want another one you pay for it - because for sure FCC wasnt going to be coughing up a second time. And as FCC paid for that video, they of course want it on the site, running their advertising, regardless of whether the client wants to use it. No doubt, that is probably also in those T&Cs she didnt bother to read.
As for interest costs - that cash is not free cashflow, its in the bank for maybe days or a few weeks before being spent on video production costs. BIG get paid, then they have to immediately pay people to produce the video. Cash in end of the month, cash out first of the next month. The 4C cash in bank is only a snapshot - one day it might be $30m the next day they pay all their suppliers and its down to $2m. Anyone who thinks that cash is just sitting there for months doing nothing but earning interest, clearly doesnt understand the concept of advance payments and working capital float.
Lastly lets tackle that statement "its unclear if the security charge applies to the parent company" (the one with the cash). Well, if it did, the security charge would say so, or be seperately registered (its the law, and its invalid if its not, and you would end up in the queue with all the other unsecured creditors) so if there was one, Shapiro would have easily found it when he searched the register and found the one for Big Review TV. Especially since you can search for all security interests held by FCC. But hey, most people dont know about corporate law or the PPSR, so with a clever twist of wording, everyone is once again running around like chickens with their heads chopped off making up wild stories about FCC running off with all BIG's money. Meanwhile the AFR gets more clicks, sells more advertising, and maybe even scares enough investors into taking out a subscription so they can keep up with the next corporate scandal. Maybe little Johnny even gets nominated for one of those fancy journalism awards where you get to attend a nice dinner, get free booze, and maybe pick up a cute blonde TV reporter at the end of the night.
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