EDITOR’S NOTE: So a few months back, I took a long hard look at Imagination Park (IP.C) and didn’t like what I saw. Insider trading, faked footage of supposed productions, images in the investor deck that had been taken from other companies’ properties, supposed partnerships with major Hollywood studios that don’t actually exist, deals with ‘Asia’s largest video portal’ that turned out to not be partnerships and not be Asia’s largest anything.
I’m okay with that. Call it how I see it, and history has proved me right. But some time has passed and I hear rumours about IP trying to get financings happening again, so I wanted to see if they’d learned anything or just been rolling out the same bullshit again.
To that end, I asked someone at a private virtual reality firm I know to look over IP’s website and tell me if he thought it was legit. He said, “Nothing I see here would take one of my guys more than an afternoon to create using stock footage and basic tools. I don’t know why they’d be worth $20 million.”
So I started gearing up for another run, but…
Man, if I go berko on IP again, we’re going to hear the same old crap we heard last time – you have a grudge, you’re working for shorters, you’re betting against them, etc etc.
So I decided to flip the task to someone else. in Braden Maccke.
If you’ve ever met Braden, you know he doesn’t suffer fools at all, he’s a straight shooter, and he’s whip smart. That’s why I often bring him in to give a second set of eyes to companies that I’ve written enough about.
Braden’s mission is simple: Be honest, even if you disagree with me. Here’s his work:
I didn’t choose to write about this company, and normally I wouldn’t have looked at it twice. But an assignment is an assignment, so let’s give it a shot.
First, we’ll have a look at the type of business it’s in.
Imagination Park bills itself as “an emerging digital content production company.”
Briefly, the business concerns itself with the production of entertainment products, then creating revenue from the equity that they have created by making that content. Studios usually accomplish this by licensing or selling the content to larger companies with networks suitable for the commercial distribution. Indeed, vast amounts of money has been made in this fashion by studios who have created hit content.
And hit content is the whole point. When a franchise becomes a name brand, it becomes a bankable commodity and a virtual ATM. That’s why the organizations at the top of the entertainment food-chain lean on known brands as their bread and butter. We get a new Star Wars movie every Christmas because it’s a lock to be a draw. Superhero franchises never die, they just get rebooted. I’m running out of fingers and toes upon which to count Fast and the Furious installments, because once something works, the horse gets beaten until they squeeze every ounce. The Disneys and Sonys of the universe are enormous machines that have to publish content, and that content has to make money lest they anger their shareholders and cease to be relevant. Those studios aren’t in the business of taking risks, they’re in the businesses of buying or licensing successful properties and applying their marketing weight for leverage.
In that kind of environment, the holders of the rights to media that finds enough success for the major studios to become interested in it may as well have struck an oil well that is contaminated with gold. The opportunity isn’t limited to Disney and Sony, either. It’s a streaming world. Netflix, Amazon, and HBO need stuff to fill their screens and have the money to pay for it.
So, in the entertainment ecosystem, venture-stage production companies like IP finance productions that they hope may one day be of value to larger studios or some consortium of publishers and distribution companies. Imagination Park makes a point of having an office on the Universal back lot in Studio City, which telegraphs a relationship with a name brand and an association with companies who would be interested in the development of their content.
That all sounds like fertile ground. Lions Gate Entertainment started much the same way. It was a $16 M Frank Guistra venture in 1997. They made movies and sold them and now they’re a NYSE-listed stock with a $4 billion market cap – yet another big studio in need of proven concepts to turn into watchable properties to feed their machine. Chris Parry’s last article on the company painted IP’s relationship with Lionsgate as tenuous and possibly imagined.
The VR Cash-In
There is a feeling that that the entertainment properties of the future will be delivered not on theater and laptop screens, but on VR headsets. Imagination Park is one of many companies who have bought into a near term projection that we are all going to have our heads in VR sets in no time, and use them for all sorts of work and play – including movies. Now they’re trying to sell that concept to investors.
Indeed, many many headsets are being made by companies like Microsoft, Vive, and Facebook’s Occulus. Amid rosy growth projections, VR has become a popular means for investment banks to show the street how forward-thinking they are. Witness B of A / Merryl Lynch plastering ads all over Bloomberg podcasts, and producing flashy web content that is dead-set on showing us how much they “get it,” but remains light on details about what they plan on doing about it.
Presumably, they’ll have all sorts of VR ideas for someone who walks in off the street with a lot of zeroes, keen on paying them to manage it, and some of those ideas may well be production companies with a chance of hit titles to keep these sets flying… eventually.
I get the sense that the VR-AR-MR world is still waiting for its nightly news / I love Lucy / e-mail level killer app. A game or movie that makes the hardware a must-have for people who otherwise wouldn’t consider it more than a novelty. I gave it a shot once. I liked that Rick and Morty game, but not enough to buy a headset.
So, in an environment eager for a hit, Imagination Park has set out to make stuff to watch and play on the VR headsets that are soon to infest our faces and those of our children. They qualify themselves to do this based on prior experience doing the same thing in film and TV.
That amounts to a simple business here consisting 2 parts: 1) create entertainment properties, 2) sell (or license) those entertainment properties for more than they cost to make, in aggregate. There are bound to be losers, but if they gin up the next Toy Story, they’re the next Pixar, and nobody is going to care about the flops.
First, the content. Chris and Gaalen were pretty hard on IP back in the spring, so I’m going to do my best to look at it objectively. Let’s see what we’ve got here….
Steven Seagal!? I LOVE Steven Segal! Y’all ever see that Uzimon video about Steven Seagal?
As Toronto’s favorite white Rastafarian points out: “Oh why my mon always go straight to video!?”
The modern equivalent of straight to video is “on-demand,” which is exactly where late-stage (fat) Seagal star vehicle Absolution ended up. IP’s interest in the film is itself an interest in another interest, which is owned by Infinity Media, the production company of Timothy Marlowe, a company executive. Absolution hasn’t made any money yet. When it does, theoretically speaking of course, the project will pay Infinity Media, and Infinity Media will then pay Imagination Park. This “check’s in the mail” type of profit sharing relationship and its general structure is germane here.
The Golden Goose Egg
The Net Profits Interest Hustle is as old as business itself, and it’s at the core of this mess. It doesn’t ONLY happen in film. This happens in resources to prospectors with incompetent legal counsel, but let’s stick in the movies because there’s nothing like a classic.
Paramount pictures buys the option to produce a movie based on Winston Groom’s novel. Mr. Groom is convinced to take a small amount of money for the rights to the story, way below market value, because it will come with an interest in the net profits of the film. The author believes in his story, and correctly surmises that Paramount Pictures wants to be in the Forrest Gump business. They’ve got Tom Hanks on board to play Forrest… they aren’t in this to lose… Groom was ready to bet on their success, and cash in later on.
Gump grossed more than $600M worldwide in 1994 at the box office, but when Groom showed up for his check, he was out of luck. It turns out that it’s really expensive to produce, market and distribute a motion picture. Expenses must be deducted from the gross to calculate the net upon which Groom’s royalty was based, and by the time all of the expenses (payable to Paramount subsidiaries?) were taken care of, and royalties payable on the Gross revenue (including Tom Hanks’ $40 M) were figured in… the Academy Award Winning picture that everyone was talking about lost money. Sorry Winston.
Groom sued and eventually dropped the suit on the heels of a 7 figure option on another book, and that’s generally how NPIs go… when they’re worth suing over.
I make Imagination Park being paid on a twice-removed NPI in a straight-to-video late stage Steven Seagal movie at pretty long odds, but only because Steven Seagal is SO underrated.
The trouble is, NPIs like this are IP’s bread and butter. It’s impossible to tell for sure without seeing the contracts, but all licensing deals described in their literature read like NPIs. Notably, the company entered into an LOI with a company owned by its then CEO, Gabriel Napora, to acquire interests in six feature films. The films themselves are un-named, and it remains undetermined who, exactly will pay for the production of these yet-to-be-named features or the sizzle reels that will eventually allow them to be sold to someone who will finance them. Since the deal was contingent upon IP doing a raise, I can guess. They bought the interest in the notional Triton Films films by issuing $0.075 paper. Upon failing to complete the $250,000 raise on time, they paid a $25,000 penalty fee to Triton, and issued another 115,000 shares to this guy for good measure.
So the CEO of IP paid the CEO of IP for an interest in the movies the CEO of IP would one day make, but would have to be financed by IP and when IP didn’t finance them, the CEO paid himself a penalty.
There are more movie deals, including a production services contract for an unnamed full-length feature but, by newsflow, one would anticipate that the bulk of their activity is in VR.
I’m Still Working Out How To Handle Actual Reality
Their latest news release has Imagination Park launching an “Exclusive Worldwide Joint Venture“ with InterKnowlogy, LLC to create yet another portmanteau called XENOHolographic Inc. The company will either make VR / AR content, make and license software that allows holograms to be displayed within VR / AR environments, or both (if anyone can parse it, please get a hold of me). As near as I can tell, this is what CEO Gabrial Napora was talking about when he and then-Chairman Colin Weibe (Weibe since stepped down, but still a Director) did an interview with Small Cap Power, proudly posted on the investors section of their website, despite feeling like a Tom Vu infomercial.
Gabriel effectively tells us that Imagination Park is “able to do 3D virtual reality,” and are “able to add in Hollywood-Style virtual effects” to VR products.
EDITOR’S NOTE: Equity.Guru is able to do 3D virtual reality too. The camera costs $5k. You can get it on Amazon, like we did.
He boasts that they are among the worlds top 3 companies at “stitching,” blending video from different camera angles together. This comes immediately after Napora extols the virtues of a $5,000 investment that he made and became a “$70 million dollar major film,” which was “incredibly profitable!”
Mr. Napora “doesn’t even remember what the percentage he made on it was, it was so high.” Presumably higher than he can count.
As the interview finishes of, Smallcap Power’s Rachel Lee asks Weibe the simple, direct and reasonable question that all investors should ask of venture-stage, no revenue companies: “How much money do you have right now?”
Weibe does not answer the question with a figure, instead talking about the fact that the company is young and just did its first financing.
At the end of February, the company showed $21,000 in cash. A $500,000 financing proposed at the beginning of June led to $261,000 worth of subscriptions at the end of June. They’ve committed to fund their JV with InterKnowlodgy to the tune of $500,000 over the first 12 months of the venture, which leaves roughly -$240,000 to develop all of the film properties with the amazing returns. Maybe InterKnowlodgy will take stock?
VR is new and exciting and has the attention of the market. Industrial applications are being written for headsets that are going to create enormous value in sectors like commercial education and vocational training.
One might believe that “stitching” could play a crucial role in such industrial products, and that the greatest stitching software was IP’s to sell, if the claim was coming from a more believable source. Instead, we’re to believe that a guy who turned a $5,000 investment into an un-named project into an “incredibly profitable” $70 million feature has decided to rent his acumen to a $20 million CSE company with $260,000 in the bank, so that he can finance similar deals, in which the shareholders are to take Net Profits Interests.
Suddenly, with VR heating up, our Midas has stumbled onto a top 3 stitching technology that’s going to change the world.
What if it’s all performance art? What if Imagination Park is really just research for a movie? I’ve always wanted to write for the movies.
IP management, if you’re reading, I would like to option this log treatment / trailer voiceover to your portfolio. Please call me to work out an option agreement:
“In a world where mass produced screens need to be filled with content, the level of quality deemed acceptable for consumption has never been lower. One company has collected a few derivative options on D grade content and listed them publicly.
But the world is changing… D grade content can be optioned for headsets now, too. Will their claims that they have the world’s greatest “stitching” technology mean anything? Does anyone want to watch an MMA show on a VR headset? What would that even look like? Neither Hollywood or Howe St. style net profits interests are big enough to hold the huge dreams of this wacky crew! Buckle up for wacky antics with Imagination Park!
IP was up X% on XXXday on XXX,000 shares to close at $0.XX for a market cap of about $25 million.