Joshua Jackson’s Liquid Media dream dies a nightmare

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Two years ago, Joshua Jackson’s Vancouver-based Liquid Media was the toast of TIFF thanks to a splashy launch party at Toronto’s globally important film festival. A year ago, the bloom was off the rose, and the company was struggling.

Now, investors consider the company worthless.

Because of the persistently low prices of Liquid Media shares, the Nasdaq stock exchange kicked it off in late August, sending the shares to trade on the over-the-counter “pink sheets.” They went into free fall, with the most recent trade at one-tenthousandth of a cent, or US$0.000001.

The Nasdaq’s action was just the capper for what has been an awful 12 months for Liquid Media, including lawsuits, defaults, and a failure to file financial statements that got it crossways with British Columbia regulators.

The whole sorry string of events, however, shows that the folks who thought there wasn’t much to Mr. Jackson’s enterprise were right all along.

Let’s go back in time to a moment of what seemed like great promise. Through a “Liquid Lounge” and a red-carpet party at TIFF 2021, Mr. Jackson’s venture promoted the idea that it was a transformational entertainment company. It would use cutting-edge technology to bring the spoils of filmmaking to independent content creators. “I want to recreate Warner Bros., but in 2021,” Mr. Jackson, best-known for his roles on Dawson’s Creek and The Affair, and most recently the star of the series Dr. Death, told The Globe and Mail in an interview at the festival.

By September, 2022, however, serious problems became apparent. Liquid Media posted little revenue and recorded large losses. Two of the company’s top officers departed and the stock price plummeted, leaving the company worth just US$8-million. Nasdaq warned Liquid Media in March, 2022, that it risked being delisted from the exchange because its price had dropped below the required minimum of US$1, but the exchange gave Liquid Media an extension to get its stock price back up.

It did not succeed, because a litany of bad news gave investors every reason to stay away.

In October, 2022, Liquid Media reported it lost US$1.42-million on revenue of US$1.53-million in its most recent quarter ended Aug. 31. It had less than US$450,000 of cash against just over US$4-million in accounts payable. It reiterated a “going concern” warning that it may go out of business absent new financing.

Those would be the last financial statements Liquid Media would issue. It failed to file its annual report when due at the end of February, 2023, and said the British Columbia Securities Commission had issued a cease trade order as a result, blocking the company’s shares from trading in Canada. (Nasdaq soon followed, telling Liquid Media that a lack of financial statements was an additional reason to delist the shares.)

In the meantime, the company said on Feb. 23 that it had issued US$3.125-million in debt to an unnamed institutional investor. Not only was the bond convertible to Liquid Media stock at a discount, but the company threw in more than 11 million warrants for additional shares, which was huge, given the 19.3 million shares issued and outstanding at the time.

Amazingly, Liquid Media said on May 9 that the lender issued it a notice of default on the loan from just 10 weeks earlier, saying its failure to file financial statements was a breach. The penalties? Liquid Media now owed more than $4.5-million – 150 per cent of the principal amount. The debt would now pay interest of 18 per cent. The discount on the shares in the conversion feature got even bigger. And the institutional investor was entitled to sweep cash out of the company’s bank accounts each month in an amount equal to 20 per cent of revenue.

Meanwhile, Ben Buitendag, the former owner of Digital Cinema United Ltd., which Liquid Media bought in February, 2022, sued the company. Among a number of allegations, he said Liquid Media had failed to issue three million Liquid Media shares it owed him because Digital Media United hit a revenue milestone laid out in the sale agreement.

In response, Liquid Media admitted none of the allegations and denied most of them, adding some counter-allegations of its own – including that Mr. Buitendag and other former Digital Cinema executives had failed to provide enough documents that proved the it hit the revenue milestone – or to allow Liquid Media to compile financial statements for Digital Cinema. That, in turn, caused Liquid Media’s failure to file its own financial statements, it said in a court filing. (Contacted for comment for this column, Liquid Media provided court documents and pointed to previous press releases.)

There were two last-ditch attempts to stave off delisting. On Aug. 4, Liquid Media said it would do a reverse, 1-for-4 stock split to boost the per-share price fourfold, to get it above $1.

And on Aug. 14, it said it had received “a non-binding term sheet in respect of a proposed restructuring transaction from a fast-growing, category-leading company that has attracted top-tier investor interest and demonstrated strong revenue scaling over the previous two years.” Sounds very exciting but not very specific. There has been no word since.

Such puffery was par for the course for Mr. Jackson’s company – but investors have had enough. On Aug. 23, Liquid Media said the Nasdaq axe had fallen and the delisting would proceed. The share price fell off a cliff and settled down about as close to zero as you can get. The company says it “continues to work to resolve the late reporting from subsidiary Digital Cinema United in order to bring financial statement reporting into compliance with the British Columbia Securities Commission’s requirements.”

A year earlier, in August, 2022, Mr. Jackson said in a television interview that the company would take Canadian filmmakers global: “That’s my dream for the Canadian industry.” Instead, his company became a nightmare for everyone it touched, particularly its investors.

With a report from Stephanie Chambers