FREEDOM INTERNET GROUP INC. The information in this Annual Report contains forward-looking statements. All statements other than statements of historical fact made in this Annual Report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as "believes," "estimates," "could," "possibly," "probably," anticipates," "projects," "expects," "may," "will," or "should" or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations. See sections titled "Forward-Looking Statements" and "Risk Factors" appearing elsewhere in this Annual Report.
The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
COVID-19
In
The impacts of the current COVID-19 pandemic are broad reaching and have impacted the Company's licensing royalty interests. Due to the COVID-19 outbreak, there is significant uncertainty surrounding the potential impact on the Company's future results of operations and cash flows and its ability to raise capital. While we believe we are well positioned in the marketplace to navigate difficult market conditions in times of economic uncertainty, we believe continued impacts of the pandemic could materially adversely affect our Company's near-term and long-term revenues, earnings, liquidity, and cash flows as the Company's customers and /or licensees may request temporary relief, delay or not make scheduled payments on their royalty commitments.
Background Overview
We are engaged in the business of acquiring, holding and managing royalty interests derived from Internet based businesses. Royalty interests are passive (non-operating) agreements that provide us with contractual rights to revenue produced from our operators. The revenue generated by our operators is typically from physical or digital product sales, subscriptions and advertising.
Our purchase of royalty interests enables entrepreneurs to raise non-dilutive capital and retain control of their businesses. When we enter into royalty interest agreements, our primary objectives are to generate revenue streams from our operators and increase our corporate cash flow. In some cases, we may also generate a premium on our original purchase price if a royalty interest is redeemed by an operator or third-party such as a buyer of an operator. We plan to acquire royalty interests that can generate a 15% to 30% internal rate of return, although there can be no guarantee that we will achieve this target.
Royalty interests are purchased for a fixed amount of capital in exchange for pre-determined royalty payments. Depending on the unique agreement, (i) royalty payments can be made monthly, quarterly or annually, (ii) royalty payments can be made in perpetuity or for a limited amount of time, (iii) royalty payment calculations can change during the term of the royalty interest agreement based on certain performance metrics or time and (iv) royalty payments can be calculated off gross revenue of each operator, or off net-revenue, which accounts for certain defined adjustments to gross revenue, or off unit sales. Although we presently do not have a plan in place to do so now, we may issue shares of our Company common stock to operators, in addition to the payment of cash, in exchange for royalty payments from the operator.
We primarily intend to negotiate royalty interests directly from operators, but we may also acquire existing royalty interests from third parties. A key element of our business model is the building of a diversified portfolio of high-quality royalty interests from Internet based businesses.
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We use a series of quantitative, qualitative, financial, and legal criteria by which we evaluate the potential acquisition of royalty interests. We plan to acquire assets with an income focus, and our target is to acquire assets generating uncorrelated income of 15% to 30% internal rate of return, although there can be no guarantee that we will achieve this target. Among the factors considered are: (1) the business track record of revenue and earnings; (2) the type of business that generates royalties; (3) the experience and skill of the active management team of the business; (4) our assessment of the longevity and staying power of the underlying business; and (5) the potential for revenue growth and capital appreciation.
We currently, and generally at any time, have royalty interest acquisition opportunities in various stages of active review. At this time, we cannot provide assurance that any of the possible transactions under review by us will be concluded successfully.
Wiz Motions, LLC
On
Growth Stack, Inc.
On
Pick A Toilet LLC
On
Artist Holdings, LLC
On
RhymeMakers, LLC
On
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RhymeMakers for
Offito, LLC
On
The Operator went out of business, therefore, the value of the royalty interest
is
Results of Operations
Fiscal year ended
Revenues
We recognized
Operating Expenses
Our operating expenses of
We expect our operating expenses to increase in 2021-2022 as a result of increased operating activity to implement our business plan.
Other Income (expenses)
We generated other income of
We incurred
In
The Company received a PPP loan of
Net Loss
We recorded a net loss of
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--------------------------------------------------------------------------------Liquidity and Capital Resources
At
During the fiscal year ended
Analysis of Cash Flows
For the years ended
Sources and Uses of Cash
For the years ended
The Company allocated
For the year ended
At
We expect that our cash used in operations will continue to increase during 2022 and beyond as a result of the following planned activities: increased advertising and the build-up of our permanent staffing.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates, including the assumptions and judgments underlying them, are disclosed in the Notes to the Financial Statements. We have consistently applied these policies in all material respects. We do not believe that our operations to date have involved uncertainty of accounting treatment, subjective judgment, or estimates, to any significant degree, except as noted below and it is unlikely that material different amounts would be reported under different assumptions.
Royalty Interests
We have a total of
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--------------------------------------------------------------------------------Revenue Recognition
We recognize revenue under royalty interest agreements when earned and collection is reasonably assured.
We recognized revenue from royalty interest agreements under ASC 606-10-55-65 which apply to sales-based or Usage-Based royalties. Guidance under this section stipulates that revenue recognition should be based when the later of the following events occur: (1) the subsequent sales occur or (2) the performance obligation to which some or all for the sales-based royalty has been allocated has been satisfied or partially satisfied. The Company deems collection efforts to be the key performance obligation being satisfied, and therefore has adopted the approach of recognizing revenue based on customer collections. The operators that are parties to the royalty agreements, are typically structured to report and pay percentages of revenue earned over a quarterly period, some of which do not line up with the quarterly reporting period of the Company.
Cryptocurrencies
The Company made investments in cryptocurrencies, including bitcoin, during the
year ended
Cryptocurrencies held are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. Volatility in the cryptocurrency market may have an adverse affect on the fair value of assets held by the entity.
Contractual Obligations SAFE Agreements
The Company had a Simple Agreement for Future Equity program ("SAFE"). The
initial SAFE agreement was the first in a planned series of simple agreements
for future equity (collectively, the "Series 1 SAFEs") issued by the Company to
investors with identical terms and on the same form, except that the holder,
purchase price and date of issuance may differ in each SAFE. Pursuant to the
definitions of the Series 1 SAFEs, as amended, the price per share of the Next
Equity Financing minus a discount of 45% will be the conversion price. The
conversion price will be subject to a Valuation Cap of
During the period ended
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
New Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
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