FOMO WORLDWIDE, INC. - Quarter Report: 2023 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 001-13126
FOMO WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
| California | 83-3889101 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
831 W North Ave, Pittsburgh, PA 15233
(Address of principal executive offices)
(630) 708-0750
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common | FOMC | OTC Pink |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files.) Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| Non-Accelerated Filer | ☐ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were shares of common stock, no par value, of the Registrant issued and outstanding as of August 21, 2023.
FOMO WORLDWIDE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOMO WORLDWIDE, INC.
INDEX TO FINANCIAL STATEMENTS
| 3 |
FOMO WORLDWIDE, INC and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 111,170 | $ | 96,954 | ||||
| Accounts receivable – net | 536,548 | 1,682,654 | ||||||
| Loan receivable - related party | 40,277 | 45,261 | ||||||
| Inventory – net | 295,505 | 382,457 | ||||||
| Prepaids and other | 18,267 | 9,458 | ||||||
| Total Current Assets | 1,001,767 | 2,216,784 | ||||||
| Property and equipment – net | 77,722 | 80,844 | ||||||
| Operating lease - right-of-use asset | 247,414 | 281,937 | ||||||
| Intangible assets- net | 481,851 | 514,476 | ||||||
| Goodwill | 350,110 | 350,110 | ||||||
| Investments | 542,406 | 140,006 | ||||||
| Total Assets | $ | 2,701,270 | $ | 3,584,157 | ||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,424,453 | $ | 1,657,084 | ||||
| Accounts receivable credit facility | 1,079,962 | 1,276,467 | ||||||
| Operating lease liability | 64,836 | 63,556 | ||||||
| Deferred revenue | 298,936 | 578,354 | ||||||
| Warranty reserve | 5,510 | |||||||
| Loans payable - related parties | 9,238 | 25,048 | ||||||
| Convertible notes payable – net | 319,501 | 645,006 | ||||||
| Loans payable- other | 628,027 | 243,692 | ||||||
| Preferred dividend payable | 220,637 | 171,646 | ||||||
| Derivative liabilities | 918,158 | 981,766 | ||||||
| Total Current Liabilities | 4,969,258 | 5,642,619 | ||||||
| Long Term Liabilities | ||||||||
| Loans payable - related parties | 234,046 | 284,480 | ||||||
| Operating lease liability | 195,276 | 227,701 | ||||||
| Total Long-Term Liabilities | 429,322 | 512,181 | ||||||
| Total Liabilities | 5,398,580 | 6,154,800 | ||||||
| Commitments and Contingencies (Note 10) | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, Class A, $ par value, shares designated, and shares issued and outstanding, respectively | 2,473 | 575 | ||||||
| Preferred stock, Class B, $ par value, shares designated, and shares issued and outstanding, respectively | 573 | 529 | ||||||
| Preferred stock, Class C, $ par value, shares designated, and shares issued and outstanding, respectively | 100 | 100 | ||||||
| Common stock, par value, shares authorized and shares issued and outstanding, respectively | 9,310,440 | 9,023,334 | ||||||
| Additional paid-in capital | 13,035,826 | 12,503,100 | ||||||
| Accumulated deficit | (25,046,722 | ) | (24,098,281 | ) | ||||
| Total Stockholders’ Equity (Deficit) | (2,697,310 | ) | (2,570,643 | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 2,701,270 | $ | 3,584,157 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
FOMO WORLDWIDE, INC. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Sales - net | $ | 899,327 | $ | 2,888,628 | $ | 1,451,655 | $ | 3,480,919 | ||||||||
| Cost of sales | 691,684 | 2,668,240 | 1,089,255 | 3,189,087 | ||||||||||||
| Gross profit | 207,643 | 220,388 | 362,400 | 291,832 | ||||||||||||
| General and administrative expenses | 410,665 | 457,485 | 961,531 | 1,681,309 | ||||||||||||
| Loss from operations | (203,022 | ) | (237,097 | ) | (599,131 | ) | (1,389,477 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (252,949 | ) | (189,070 | ) | (486,162 | ) | (247,172 | ) | ||||||||
| Amortization of debt discount | (146,916 | ) | (31,200 | ) | (352,692 | ) | ||||||||||
| Change in fair value of derivative liabilities | 2,951,434 | (14,109 | ) | (503,972 | ) | (16,825 | ) | |||||||||
| Derivative expense | (182,695 | ) | (194,887 | ) | ||||||||||||
| Gain on debt extinguishment (derivative liabilities - convertible debt) | 747,926 | 747,926 | 100,693 | |||||||||||||
| Gain (loss) on debt extinguishment | (402,294 | ) | (7,896 | ) | (402,294 | ) | (213,587 | ) | ||||||||
| Change in fair value of marketable equity securities | 48,557 | (289,263 | ) | 375,383 | (578,907 | ) | ||||||||||
| Total other income (expense) - net | 3,092,674 | (829,949 | ) | (300,319 | ) | (1,503,377 | ) | |||||||||
| Net income (loss) | 2,889,652 | (1,067,046 | ) | (899,450 | ) | (2,892,854 | ) | |||||||||
| Preferred stock dividends | (27,860 | ) | (47,833 | ) | (48,991 | ) | (92,892 | ) | ||||||||
| Net income (loss) available to common shareholders | $ | 2,861,792 | $ | (1,114,879 | ) | $ | (948,441 | ) | $ | (2,985,746 | ) | |||||
| Income (loss) per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
FOMO WORLDWIDE, INC and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Deficit
For the Six Months Ended June 30, 2023
(Unaudited)
| Preferred Stock - Class A | Preferred Stock - Class B | Preferred Stock - Class C | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| December 31, 2022 | 5,750,000 | $ | 575 | 5,289,982 | $ | 529 | 1,000,000 | $ | 100 | 8,620,188,088 | $ | 9,023,334 | $ | 12,503,100 | $ | (24,098,281 | ) | $ | (2,570,643 | ) | ||||||||||||||||||||||||
| Issuance of stock for services | - | 10,000 | 1 | - | - | 999 | 1,000 | |||||||||||||||||||||||||||||||||||||
| Warrants issued for services - related party | - | - | - | - | 32,309 | 32,309 | ||||||||||||||||||||||||||||||||||||||
| Preferred dividends | (21,131 | ) | (21,131 | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss – 2023 | - | - | - | - | (3,789,102 | ) | (3,789,102 | ) | ||||||||||||||||||||||||||||||||||||
| March 31, 2023 | 5,750,000 | $ | 575 | 5,299,982 | $ | 530 | 1,000,000 | $ | 100 | 8,620,188,088 | $ | 9,023,334 | $ | 12,536,408 | $ | (27,908,514 | ) | $ | (6,347,567 | ) | ||||||||||||||||||||||||
| Issuance of Series B Preferred stock for services | - | 100,000 | 10 | - | - | 49,990 | 50,000 | |||||||||||||||||||||||||||||||||||||
| Conversion of accrued salary to Series A Preferred shares | 3,333,333 | 333 | - | - | - | 66,334 | 66,667 | |||||||||||||||||||||||||||||||||||||
| Conversion of accrued salary to Series B Preferred shares | - | 333,334 | 33 | - | - | 149,967 | 150,000 | |||||||||||||||||||||||||||||||||||||
| Conversion of accrued salary to common stock | - | - | - | 254,166,667 | 25,750 | 25,750 | ||||||||||||||||||||||||||||||||||||||
| Conversion of Related Party Loan to Common Shares | - | - | - | 50,000,000 | 50,000 | 50,000 | ||||||||||||||||||||||||||||||||||||||
| Conversion of convertible debt and accrued interest to common stock | - | - | - | 422,711,666 | 211,356 | 211,356 | ||||||||||||||||||||||||||||||||||||||
| Conversion of convertible debt to Series A Preferred Stock | 15,646,159 | 1,565 | - | - | - | 233,127 | 234,692 | |||||||||||||||||||||||||||||||||||||
| Preferred dividends | - | - | - | - | (27,860 | ) | (27,860 | ) | ||||||||||||||||||||||||||||||||||||
| Net Income | - | - | - | - | 2,889,652 | 2,889,652 | ||||||||||||||||||||||||||||||||||||||
| June 30, 2023 | 24,729,492 | $ | 2,473 | 5,733,316 | $ | 573 | 1,000,000 | $ | 100 | 9,347,066,421 | $ | 9,310,440 | $ | 13,035,826 | $ | (25,046,722 | ) | $ | (2,697,310 | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
FOMO WORLDWIDE, INC and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Deficit
For the Three Months Ended June 30, 2022
(Unaudited)
| Preferred Stock - Class A | Preferred Stock - Class B | Preferred Stock - Class C | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| December 31, 2021 | 5,750,000 | $ | 575 | 5,249,982 | $ | 525 | 1,000,000 | $ | 100 | 7,177,931,757 | $ | 8,631,776 | $ | 11,301,942 | $ | (20,245,145 | ) | $ | (310,227 | ) | ||||||||||||||||||||||||
| Issuance of stock in cashless exercise of warrants | - | - | - | 437,500,000 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of stock for services | - | 650,000 | 65 | - | - | 534,935 | 535,000 | |||||||||||||||||||||||||||||||||||||
| Acquisition of Smart Solutions Technologies, Inc. - net of broker fees | - | 1,000,000 | 100 | - | - | 699,900 | 700,000 | |||||||||||||||||||||||||||||||||||||
| Issuance of stock in conversion of debt and accrued interest | - | - | - | 301,448,152 | 310,059 | 310,059 | ||||||||||||||||||||||||||||||||||||||
| Conversion of Series B preferred stock into common stock | - | (60,000 | ) | (6 | ) | - | 60,000,000 | 6 | ||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | 209,713 | 209,713 | ||||||||||||||||||||||||||||||||||||||
| Warrants issued for services - related party | - | - | - | - | 13,981 | 13,981 | ||||||||||||||||||||||||||||||||||||||
| Reclassification of financial instruments that ceased to be derivative liabilities (warrants) | - | - | - | - | 325,000 | 325,000 | ||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | (45,059 | ) | (45,059 | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,825,808 | ) | (1,825,808 | ) | ||||||||||||||||||||||||||||||||||||
| March 31, 2022 | 5,750,000 | 575 | 6,839,982 | 684 | 1,000,000 | 100 | 7,976,879,909 | 8,941,835 | 13,085,477 | (22,116,012 | ) | (87,341 | ) | |||||||||||||||||||||||||||||||
| Issuance of stock in cashless exercise of warrants | - | - | - | 208,333,333 | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B preferred stock into common stock | (250,000 | ) | (25 | ) | 250,000,000 | 25 | ||||||||||||||||||||||||||||||||||||||
| Reclassification of financial instruments that ceased to be derivative liabilities (warrants) | - | - | - | - | 100,000 | 100,000 | ||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | (47,833 | ) | (47,833 | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,067,046 | ) | (1,067,046 | ) | ||||||||||||||||||||||||||||||||||||
| June 30, 2022 | 5,750,000 | $ | 575 | 6,589,982 | $ | 659 | 1,000,000 | $ | 100 | 8,435,213,242 | $ | 8,941,860 | $ | 13,185,477 | $ | (23,230,891 | ) | $ | (1,102,220 | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
FOMO WORLDWIDE, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities | ||||||||
| Net loss | $ | (899,450 | ) | $ | (2,892,854 | ) | ||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| Stock based compensation | 51,000 | 535,000 | ||||||
| Warrants issued for services | 209,713 | |||||||
| Warrants issued for service - related party | 32,309 | 13,981 | ||||||
| Amortization of debt discount | 31,200 | 352,692 | ||||||
| Amortization of operating lease - right-of-use asset | 34,523 | 28,769 | ||||||
| Depreciation and amortization expense | 35,747 | 2,314 | ||||||
| Change in fair value of derivative liabilities | 503,972 | 16,825 | ||||||
| Derivative expense | 194,887 | |||||||
| Gain on debt extinguishment | (747,926 | ) | (100,693 | ) | ||||
| Loss on debt extinguishment | 402,294 | 213,587 | ||||||
| Change in fair value of marketable equity securities | (375,383 | ) | 578,907 | |||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) decrease in | ||||||||
| Accounts receivable | 1,146,106 | (489,799 | ) | |||||
| Inventory | 86,952 | (282,689 | ) | |||||
| Prepaids and other | (8,809 | ) | (63,140 | ) | ||||
| Increase (decrease) in | ||||||||
| Accounts payable and accrued expenses | (122,819 | ) | 603,390 | |||||
| Deferred revenue | (279,418 | ) | 433,998 | |||||
| Warranty reserve | 5,510 | |||||||
| Operating lease liability | (31,145 | ) | (23,807 | ) | ||||
| Net cash used in operating activities | (135,337 | ) | (668,919 | ) | ||||
| Investing activities | ||||||||
| Cash acquired in acquisition of SMARTSolution Technologies, L.P. | 223,457 | |||||||
| Purchase of securities - net of sales | (41,651 | ) | ||||||
| Repayment - loan receivable - related party | 13,825 | |||||||
| Advance (payment) - loan receivable - related party | (22,033 | ) | (1,225 | ) | ||||
| Net cash provided (used) by investing activities | (22,033 | ) | 194,406 | |||||
| Financing investing | ||||||||
| Proceeds from loans payable | 680,940 | 266,000 | ||||||
| Proceeds from loans payable - related party | 3,091 | |||||||
| Proceeds from issuance of convertible notes | 378,750 | |||||||
| Proceeds from issuance of convertible note - related party | 195,000 | |||||||
| Repayments of notes payable - government - SBA | (150,000 | ) | ||||||
| Repayment on convertible notes | (32,244 | ) | ||||||
| Repayments of loans payable - related parties | (19,335 | ) | (211,804 | ) | ||||
| Repayment of notes payable | 0 | (525,028 | ) | |||||
| Repayment of loans payable | (296,605 | ) | (61,392 | ) | ||||
| Proceeds from accounts receivable credit facility | 1,687,417 | 3,796,719 | ||||||
| Repayment on accounts receivable credit facility | (1,883,922 | ) | (3,042,024 | ) | ||||
| Net cash provided by financing activities | 171,586 | 613,977 | ||||||
| Net increase (decrease) in cash | 14,216 | 139,464 | ||||||
| Cash - beginning of period | 96,954 | 94,224 | ||||||
| Cash - end of period | $ | 111,170 | $ | 233,688 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 475,938 | $ | 76,638 | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Acquisition of SST in exchange for Class B preferred stock | $ | $ | 700,000 | |||||
| Debt discount recorded in connection with derivative liability | $ | $ | 66,851 | |||||
| Issuance of Series A preferred shares in conversion of debt and accrued interest | 234,692 | |||||||
| Issuance of common shares in conversion of debt and accrued interest | $ | 211,356 | $ | 166,850 | ||||
| Conversion of Related Party Loan to Common Shares | $ | 50,000 | $ | |||||
| Conversion of Accrued Salary to Common Shares | $ | 25,750 | $ | |||||
| Conversion of Accrued Salary to Series A Preferred shares | 66,667 | |||||||
| Conversion of Accrued Salary to Series B Prefereed shares | 150,000 | |||||||
| Conversion of Class B preferred stock into common stock | $ | $ | 31 | |||||
| Reclassification of financial instruments that ceased to be derivative liabilities (notes and warrants) | $ | $ | 425,000 | |||||
| Preferred stock dividends | $ | 48,991 | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 8 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Note 1 - Organization and Nature of Operations
Organization and Nature of Operations
FOMO WORLDWIDE, INC. (“FOMO,” “we,” “our” or “the Company”), is focused on the sale of its smart board technology as well as related installation services. Additionally, the Company markets and sells clean air disinfection products.
On May 18, 2021, FOMO incorporated FOMO ADVISORS LLC, a Wyoming limited liability company, as a wholly owned private merchant banking subsidiary. Currently, this entity is inactive.
On December 14, 2021, FOMO incorporated FOMO CORP., a Wyoming C-Corp., as a wholly owned subsidiary for the purposes of providing back office services to its employees and for its wholly-owned and majority-owned businesses.
On February 28, 2022, the Company acquired SMARTSolution Technologies, L.P. and SMARTSolution Technologies, Inc. (together “SST”).
In June 2022, the Company applied with the State of California for a name change to FOMO WORLDWIDE, INC. The name change was subsequently approved.
On June 21, 2023, the Company established Diamond Technology Solutions LLC (“DTS”) in Pennsylvania. The Company intends DTS to offer education technology and services, including interactive flat panels, computer equipment, communications, security and access control products, and audio-visual solutions from U.S.-based vendors.
On June 27, 2023, the Company transferred 100% of the operating assets, customer lists and data, and software systems and support contracts from SST to DTS.
The parent (FOMO Worldwide, Inc.) and subsidiaries are organized as follows:
| Company Name | Incorporation Date | State of Incorporation | |||||
| FOMO WORLDWIDE, INC. (“FOMO” or the “Company”) | 1990 | California | |||||
| SMARTSolution Technologies L.P. and SMARTSolution Technologies, Inc. (together “SST”) | 1995 | 1 | Pennsylvania | ||||
| IAQ Technologies, LLC (“IAQ”) | 2020 | 2 | Pennsylvania | ||||
| Energy Intelligence Center LLC (“EIC”) | 2021 | 3 | Wyoming | ||||
| Diamond Technology Solutions LLC (“DTS”) | 2023 | 4 | Pennsylvania |
| 1 | The Company was acquired on February 28, 2022 |
| 2 | The Company was acquired in 2020 |
| 3 | The Company was formed in 2021 |
| 4 | The Company was formed in 2023 |
| 9 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
IAQ Technologies, LLC
On October 19, 2020, the Company acquired 100% of the membership interests of Purge Virus, LLC in exchange for the issuance of Series B Preferred Shares valued at $800,000 to its member. We subsequently changed the name of the company to IAQ Technologies LLC (“IAQ”). IAQ, which is based in Philadelphia, PA, is engaged in the marketing and sale of disinfection products and services to businesses, including hotels, hospitals, cruise ships, offices, and government facilities, as well as to individuals. Products and services marketed by IAQ include:
| ● | Ultraviolet-C in-duct and portable devices, | |
| ● | Hybrid disinfection devices with UVC, carbon filtration and HEPA filtration, | |
| ● | Hybrid disinfection devices with UVC and Photo Plasma, | |
| ● | Bio-polar ionization disinfection for virus and Volatile Organic Compound disinfection; and | |
| ● | PPE (personal protective equipment) ranging from masks to gloves with factory-direct supply side logistics. |
Operating results for IAQ since its acquisition have not met expectations, Accordingly, the chief executive is in the process of reorganizing IAQ. Accordingly, we determined that IAQ’s value was impaired at December 31, 2021.
In August 2022, IAQ was merged into EIC and is no longer a separate operating company.
Independence LED Lighting, LLC and Energy Intelligence Center, LLC
On February 12, 2021, the Company purchased the assets of Independence LED Lighting, LLC (“iLED”), an affiliate of IAQ, in exchange for the issuance of Series B Preferred Shares valued at $3.3 million, iLED is in the sale of clean air products intended for use in disinfecting and improving air quality.
On March 7, 2021, the Company purchased the assets of Energy Intelligence Center, LLC (“EIC PA”) in exchange for the issuance of Series B Preferred Shares and warrants valued at $1,479,121. EIC is engaged in the commercialization, marketing and licensing of software and hardware designed to work in conjunction with a commercial building’s HVAC system to reduce energy consumption and optimize operating efficiency.
Following the acquisitions of the assets of iLED and EIC, the Company combined the assets and businesses of iLED and EIC into a newly formed wholly owned subsidiary, Energy Intelligence Center LLC (“EIC Wyoming”).
The Founder and Former Managing Member of IAQ, iLED and EIC stayed on following the asset acquisitions to run their businesses. However, in July 2021, he stepped down and assumed a consulting role and a new chief executive operating officer was hired to run the businesses of IAQ and EIC Wyoming. Such individual resigned from his position on March 2, 2022 and we then appointed an interim chief executive officer.
On August 3, 2023, the Company approved the transfer of 100% of the assets of EIC Wyoming to its wholly owned subsidiary Diamond Solution Technologies LLC (“DTS”). These assets include EIC Wyoming’s clean technology installation group’s employee contracts, vehicles, tools, and equipment and intellectual property and websites used to perform services for EIC contracts and orders as well as for other vendors and markets in the United States.
See Note 9.
| 10 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
SMARTSolution Technologies L.P. and SMARTSolution Technologies, Inc. (together “SST”)
On February 28, 2022, FOMO closed the acquisition of the general and all the limited partnership interests of SMARTSolution Technologies L.P. and shares of SMARTSolution Technologies, Inc. (collectively “SST”) pursuant to a Securities Purchase Agreement dated February 28, 2022 (the “SPA”), by and between the Company and Mitchell Schwartz (“Seller”), the beneficial owner of the general and limited partnership interests in SST. SST is a Pittsburgh, Pennsylvania–based audio/visual systems integration company that designs and builds presentation, teleconferencing and collaborative systems for businesses, educational institutions, and other nonprofit organizations.
Pursuant to the SPA, FOMO:
| ● | issued to Seller shares of its authorized but unissued Series B Preferred Shares; | |
| ● | paid approximately $927,600 of SST’s indebtedness to the Seller and third parties; | |
| ● | entered into an “at will” employment agreement with Seller, pursuant to which Seller will continue to serve as SST’s Chief Executive Officer at an annual salary of $100,000; and | |
| ● | as an incentive to retain SST’s other employees, issued to such employees, a total of three-year common stock purchase warrants (the “Incentive Warrants”), each entitling the holder to purchase one share of SST common stock at an exercise price of $ per share (subsequently reduced to $0.0005). |
SST has been engaged in the education technology and services business for over 25 years. SST markets its systems to and installs these systems in elementary, middle and high schools, as well as colleges, universities, and commercial facilities. These interactive smartboards provide students with interactive remote access from home or other locations to classrooms and teachers via personal computers, laptops, tablets, and similar devices. SST currently markets its systems primarily in Pennsylvania, Ohio and West Virginia, is in the process of expanding into the Alabama and Michigan markets and plans to expand further throughout the United States as opportunities present themselves either organically or through strategic acquisitions.
As a result of the growth in remote learning driven in part by the COVID-19 pandemic and government funding including ESSER Funds (Elementary Secondary School Emergency Relief) and the CARES Act (Coronavirus Aid, Relief, and Economic Security), SST experienced a significant increase in orders and sales in 2022 due to a backlog in orders. In 2023 sales have dropped back to more historical levels.
The digital smartboards which form the key element of SST’s interactive audio-visual systems are primarily supplied by a leading manufacturer based in Canada, which is a subsidiary of a large multi-national company Hon Hai Precision Industry Co., Ltd., trading as Hon Hai Technology Group in China and Taiwan and Foxconn internationally. SST believes that its relationship with its supplier is excellent, although there can be no assurance that if the relationship with the supplier was interrupted or otherwise adversely affected that an alternative source of supply at commercially reasonable cost would be available or that SST’s business would not be seriously harmed.
On June 12, 2023, we filed with the Commonwealth of Pennsylvania to merge SMARTSolution Technologies LP with SMARTSolution Technologies, Inc. The combination was subsequently approved, thereby dissolving the limited partnership and combining its assets and liabilities with SMARTSolution Technologies, Inc., which is now the successor entity.
On June 27, 2023, the Company transferred 100% of the operating assets, customer lists and data, and software systems and support contracts from SST to DTS.
See note 9.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of June 30, 2023 and the results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period.
These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.
Management acknowledges its responsibility for the preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.
Principles of Consolidation
These consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Significant estimates during the six months ended June 30, 2023 and the year ended December 31, 2022, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of investments, valuation of goodwill and intangible assets, valuation of loss contingencies, valuation of derivative liabilities, valuation of stock-based compensation, estimated useful lives related to intangible assets and property and equipment, uncertain tax positions, warranty reserve, and the valuation allowance on deferred tax assets.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.
Cash
Cash consists of deposits in large national banks. On June 30, 2023 and December 31, 2022, respectively, the Company had $111,170 and $96,954 in cash in the United States. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
Fair Value of Financial Instruments
The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
The three tiers are defined as follows:
| ● | Level 1 - Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; | |
| ● | Level 2 - Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and | |
| ● | Level 3 - Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
Although the Company believes that the recorded fair value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.
The Company’s financial instruments, including cash, accounts receivable, inventory, accounts payable and accrued expenses, loans payable and notes payable are carried at historical cost. At March 31, 2023 and December 31, 2022, respectively, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (“fair value option”). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding financial instruments.
The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made.
Assets and liabilities measured at fair value at June 30, 2023 and December 31, 2022 are as follows:
| June 30, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Investments | $ | 6 | 477,400 | $ | 65,000 | $ | 542,406 | |||||||||
| Total Assets | $ | 6 | $ | 477,400 | $ | 65,000 | $ | 542,406 | ||||||||
| Liabilities | ||||||||||||||||
| Derivative liabilities | $ | $ | 918,158 | $ | 918,158 | |||||||||||
| Total | $ | $ | $ | 918,158 | $ | 918,158 | ||||||||||
| December 31, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Investments | $ | 75,006 | $ | 65,000 | $ | 140,006 | ||||||||||
| Total Assets | $ | 75,006 | $ | $ | 65,000 | $ | 140,006 | |||||||||
| Liabilities | ||||||||||||||||
| Derivative liabilities | $ | $ | 981,766 | $ | 981,766 | |||||||||||
| Total | $ | $ | $ | 981,766 | $ | 981,766 | ||||||||||
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Level 1 Investments consist of common stock, options, and warrants of publicly traded companies which are considered to be highly liquid and easily tradeable. The Company also holds Level 3 investments in the common stock of a private company.
Derivative liabilities are derived from certain convertible notes payable and warrants.
Cash and Cash Equivalents and Concentration of Credit Risk
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents. At June 30, 2023 and December 31, 2022, the Company did not have any cash equivalents.
The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC, which is $250,000. At June 30, 2023 and December 31, 2022, the Company did not experience any losses on cash balances in excess of FDIC insured limits.
Accounts Receivable
The Company has a policy of reserving for uncollectible accounts based on the best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support accounts receivable and perform ongoing credit evaluations of customers and maintain an allowance for potential bad debts if required.
It is determined whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. The Company may also record a general allowance, as necessary.
Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate the collectability of receivables.
Allowance for doubtful accounts at June 30, 2023 and December 31, 2022, was $15,587 and $19,587, respectively. For the six months ended June 30, 2023 and 2022, the Company recorded bad debt expense of $670 and $0, respectively.
Bad debt expense (recovery) is recorded as a component of general and administrative expenses in the accompanying consolidated statements of operations.
The Company had the following concentrations at June 30, 2023 and December 31, 2022, respectively. All concentrations relate solely to the operations of SST.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
| Six Months Ended | Year Ended | |||||||
| Customer | June 30, 2023 | December 31, 2022 | ||||||
| A | 18 | % | 22 | % | ||||
| B | 12 | % | 16 | % | ||||
| Total | 30 | % | 38 | % | ||||
Inventory
Inventory consists of finished products purchased from third-party suppliers. The Company’s inventory primarily consists of Smart Boards which are sold by SST.
Inventory is stated at the lower of cost or net realizable value. Cost is determined using the specific identification method for finished goods. Management compares the cost of inventory with the net realizable value and, if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower than cost, inventory is reviewed for potential write-down for estimated obsolescence or unmarketable inventory based upon forecasts for future demand and market conditions. Generally, the Company only keeps inventory on hand for sales made and in which a deposit has been received.
At June 30, 2023 and December 31, 2022 inventory consisted of:
| Classification | June 30, 2023 | December 31, 2022 | ||||||
| Smart Boards | $ | 295,403 | $ | 382,355 | ||||
| Clean Technology | 102 | 102 | ||||||
| Total Inventory | $ | 295,505 | $ | 382,457 | ||||
During the six months ended June 30, 2023 and 2022 , impairment expense was $0 and $0, respectively.
The Company had the following vendor purchase concentrations at June 30, 2023 and 2022, respectively. All concentrations relate solely to the operations of SST.
| Six Months Ended June 30, | ||||||||
| Customer | 2023 | 2022 | ||||||
| A | 58 | % | 88 | % | ||||
| Total | 58 | % | 88 | % | ||||
Business Combinations
The Company accounts for business acquisitions using the acquisition method of accounting, in accordance with which assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date.
The fair value of the consideration paid, including contingent consideration, is assigned to the assets acquired and liabilities assumed based on their respective fair values. Goodwill represents excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Significant judgments are used in determining fair values of assets acquired and liabilities assumed, as well as intangibles. Fair value and useful life determinations are based on, among other factors, estimates of future expected cash flows, and appropriate discount rates used in computing present values. These judgments may materially impact the estimates used in allocating acquisition date fair values to assets acquired and liabilities assumed, as well as the Company’s current and future operating results. Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded within the Company’s operating results.
On February 28, 2022 (the “closing”, the “closing date”), the Company and SST executed a securities purchase agreement, which is treated as a business combination, and accounted for using the acquisition method. SST became a wholly owned subsidiary of the Company. See Note 9.
At June 30, 2023 and December 31, 2022, goodwill was $350,110 and $350,110, respectively.
As a result of the SST acquisition, the consolidated financial statements include the balance sheet of SST at June 30, 2023 and December 31, 2022, as well as the results of operations and cash flows of SST for the six months ended June 30, 2023 and from the date of acquisition through June 30, 2022.
Goodwill and Intangible Assets
The Company initially records intangible assets at their estimated fair values and reviews these assets periodically for impairment. Goodwill represents the excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination and is tested at least annually for impairment.
For the six months ended June 30, 2023 and 2022, impairment expense was $0 and $0, respectively.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets, which range from to seven years.
Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations.
Management reviews the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
There was no impairment expense during the six months ended June 30, 2023 and 2022.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Business Segments and Concentrations
The Company uses the “management approach” to identify its reportable segments. The management approach requires companies to report segment financial information consistent with information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. The Company manages its business as a single reportable segment. Customers in the United States accounted for 100% of our revenues. We do not have any property or equipment outside of the United States.
Derivative Liabilities
The Company assessed the classification of its derivative financial instruments as of June 30, 2023 and December 31, 2022, which consist of convertible notes payable and certain warrants (excluding those for compensation) and has determined that such instruments qualify for treatment as derivative liabilities as they meet the criteria for liability classification under ASC 815.
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic No. 480, (“ASC 480”), “Distinguishing Liabilities from Equity” and FASB ASC Topic No. 815, (“ASC 815”) “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each reporting period, with any increase or decrease in the fair value recorded in the results of operations (other income/expense) as change in fair value of derivative liabilities. The Company uses a binomial pricing model to determine fair value of these instruments.
Upon conversion or repayment of a debt instrument in exchange for shares of common stock, where the embedded conversion option has been bifurcated and accounted for as a derivative liability (generally convertible debt and warrants), the Company records the shares of common stock at fair value, relieves all related debt, derivatives, and debt discounts, and recognizes a net gain or loss on debt extinguishment. In connection with the debt extinguishment, the Company typically records an increase to additional paid-in capital for any remaining liability balance.
Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
Debt Issue Cost
Debt issuance cost paid to lenders, or third parties are recorded as debt discounts and amortized to interest expense over the life of the underlying debt instrument, in the Consolidated Statements of Operations.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Operating Lease
From time to time, we may enter into operating lease or sub-lease agreements, including our corporate headquarters. We account for leases in accordance with ASC Topic 842: Leases, which requires a lessee to utilize the right-of-use model and to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of operations. In addition, a lessor is required to classify leases as either sales-type, financing or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor does not convey risk and rewards or control, the lease is treated as operating. We determine if an arrangement is a lease, or contains a lease, at inception and record the lease in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over the lease term. Lease right-of-use assets and liabilities at commencement are initially measured at the present value of lease payments over the lease term. We generally use our incremental borrowing rate based on the information available at commencement to determine the present value of lease payments except when an implicit interest rate is readily determinable. We determine our incremental borrowing rate based on market sources including relevant industry data.
We may have lease agreements with lease and non-lease components and have elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, from both a lessee and lessor perspective with the exception of direct sales-type leases and production equipment classes embedded in supply agreements. From a lessor perspective, the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease.
We have elected not to present short-term leases on the balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of our leases do not provide an implicit rate of return, we used our incremental borrowing rate based on the information available at lease commencement date in determining the present value of lease payments.
Our leases, where we are the lessee, do not include an option to extend the lease term. Our lease does not include an option to terminate the lease prior to the end of the agreed upon lease term. For purposes of calculating lease liabilities, lease term would include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, included as a component of general and administrative expenses, in the accompanying consolidated statements of operations.
Certain operating leases provide for annual increases to lease payments based on an index or rate, our lease has no stated increase, payments were fixed at lease inception. We calculate the present value of future lease payments based on the index or rate at the lease commencement date. Differences between the calculated lease payment and actual payment are expensed as incurred.
See Note 10.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that the Company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:
| ● | Identification of the contract, or contracts, with a customer | |
| ● | Identification of the performance obligations in the contract | |
| ● | Determination of the transaction price | |
| ● | Allocation of the transaction price to the performance obligations in the contract | |
| ● | Recognition of the revenue when, or as, performance obligations are satisfied |
Identify the contract with a customer.
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
Identify the performance obligations in the contract.
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Determine the transaction price.
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of June 30, 2023 and 2022, contained a significant financing component.
Allocate the transaction price to performance obligations in the contract.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
Recognize revenue when or as the Company satisfies a performance obligation.
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
When determining revenues, no significant judgements or assumptions are required. For all transactions, the sales price is fixed and determinable (no variable consideration). All consideration from contracts is included in the transaction price. The Company’s contracts all contain single performance obligations.
For our contracts with customers, payment terms generally range from advance payments prior to product delivery and/or installation to certain cases where payment is due within 30 days from job completion. The timing of satisfying our performance obligations does not vary significantly from the typical timing of payment.
For each revenue stream we do not offer any returns, refunds or warranties, and no arrangements are cancelable. However, the Company acts as a reseller of warranties for its Smart Boards, which are serviced by the manufacturer, and in some cases requires SST to perform warranty related services.
Sales taxes and other similar taxes are excluded from revenue.
Smart Boards and Installation Services
Smart Boards are sold to customers and may require an upfront deposit. The Company also installs its Smart Boards in connection with the sale. All revenue is recognized at a point in time upon completion of any installation, which typically occurs within thirty (30) days of delivering the product.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Installation Services
Certain customers contract with the Company to perform installation only services where they have acquired products from a different company/seller. All revenue is recognized at a point in time upon completion of any installation.
Clean Technology
All sales are recognized upon delivery of products to the customer.
Contract Liabilities (Deferred Revenue)
Contract liabilities represent deposits made by customers before the satisfaction of a performance obligation and recognition of revenue. Upon completion of the performance obligation that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue is recognized.
At June 30, 2023 and December 31, 2022, the Company had deferred revenue of $298,936 and $578,354, respectively.
The following represents the Company’s disaggregation of revenues for the three months and six months ended June 30, 2023 and 2022:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Revenue | Revenue | % of Revenues | Revenue | % of Revenues | Revenue | % of Revenues | Revenue | % of Revenues | ||||||||||||||||||||||||
| Smart boards and installation | $ | 783,682 | 87 | % | $ | 2,664,885 | 92 | % | $ | 1,229,772 | 85 | % | $ | 3,191,542 | 91 | % | ||||||||||||||||
| Installation Services | 115,645 | 13 | % | 212,290 | 7 | % | 221,883 | 15 | % | 265,198 | 8 | % | ||||||||||||||||||||
| Clean Technology products | % | 11,453 | 1 | % | % | 24,179 | 1 | % | ||||||||||||||||||||||||
| Total Revenues | $ | 899,327 | 100 | % | $ | 2,888,628 | 100 | % | $ | 1,451,655 | 100 | % | $ | 3,480,919 | 100 | % | ||||||||||||||||
The Company had the following sales concentrations at June 30, 2023 and 2022, respectively. All concentrations relate solely to the operations of SST.
| Six Months Ended June 30, | ||||||||
| Customer | 2023 | 2022 | ||||||
| A | 16 | % | 27 | % | ||||
| B | 11 | % | 18 | % | ||||
| C | % | 6 | % | |||||
| Total | 27 | % | 51 | % | ||||
Cost of Sales
Cost of sales primarily consists of product sales, purchased supplies, materials and overhead.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Income Taxes
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of June 30, 2023 and December 31, 2022, respectively, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded for the six months ended June 30, 2023 and 2022.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the consolidated statements of operations.
The Company recognized $8,697 and $23,724 in marketing and advertising costs during the six months ended June 30, 2023 and 2022.
The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options.
The fair value of stock-based compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
When determining fair value, the Company considers the following assumptions in the Black-Scholes model:
| 23 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
| ● | Exercise price, |
| ● | Expected dividends, |
| ● | Expected volatility, |
| ● | Risk-free interest rate; and |
| ● | Expected life of option |
Stock Warrants
In connection with certain financing (debt or equity), consulting and collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of warrants issued for compensation using the Black-Scholes option pricing model as of the measurement date. However, for warrants issued that meet the definition of a derivative liability, fair value is determined based upon the use of a binomial pricing model.
Warrants issued in conjunction with the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued. All other warrants are recorded at fair value and expensed over the requisite service period or at the date of issuance if there is not a service period.
Pursuant to ASC 260-10-45, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the periods presented. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. In the event of a net loss, diluted loss per share is the same as basic loss per share since the effect of the potential common stock equivalents upon conversion would be anti-dilutive.
| June 30,2023 | ||||
| Series A, preferred stock (1) | 1,236,474,600 | |||
| Series B, preferred stock (2) | 5,733,316,000 | |||
| Series C, preferred stock (3) | 1,000,000 | |||
| Convertible notes and related accrued interest (4) | 2,662,500,000 | |||
| Warrants (5) | 1,563,541,667 | |||
| Total | 11,196,832,267 | |||
| 1 – | Each share converts into shares of common stock. |
| 2 – | Each share converts into shares of common stock. |
| 3 – | Each share converts into share of common stock. |
| 24 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
| 4 - | Certain notes have exercise prices that have a discount to market and cause variability into the potential amount of common stock equivalents outstanding at each reporting period. As a result, the amount computed for common stock equivalents could change given the quoted closing trading price at each reporting period. |
| 5 - | Represents those that are vested and exercisable. |
Based on the potential common stock equivalents noted above at June 30, 2023, and the potential variability in stock prices, which directly affect the Company’s ability to determine if it has sufficient shares to settle all possible debt or equity conversions, the Company has determined that it does not have sufficient authorized shares of common stock () to settle any potential exercises of common stock equivalents.
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent Accounting Standards
Changes to accounting principles are established by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability and impact of all ASUs on our consolidated financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the consolidated financial statements of the Company.
Note 3 - Liquidity, Going Concern and Management’s Plans
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying consolidated financial statements, for the six months ended June 30, 2023, the Company had:
| ● | Net loss of $899,450; and |
| ● | Net cash used in operations was $135,337 |
Additionally, at June 30, 2023, the Company had:
| ● | Accumulated deficit of $25,046,722 |
| ● | Stockholders’ deficit of $2,697,310; and |
| ● | Working capital deficit of $3,967,491 |
| 25 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand of $111,170 at June 30, 2023. Although the Company intends to raise additional debt or equity capital, the Company expects to continue to incur significant losses from operations and have negative cash flows from operating activities for the near-term. These losses could be significant as product and service sales ramp up along with continuing expenses related to compensation, professional fees, development and regulatory are incurred.
The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended December 31, 2023, and our current capital structure including equity-based instruments and our obligations and debts.
If the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.
These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include the following:
| ● | Pursuing additional capital raising opportunities (debt or equity), |
| ● | Continue to execute on our strategic planning while increasing operational efficiency, |
| ● | Continuing to explore and execute prospective partnering or distribution opportunities; and |
| ● | Identifying unique market opportunities that represent potential positive short-term cash flow. |
Note 4 – Loan Receivable – Related Party
During 2021, the Company has advanced funds to an affiliate of the Company’s Chief Executive Officer, Himalaya Technologies, Inc. aka Homeland Resources Ltd. (OTC: HMLA) to pay for corporate operating expenses. The Company expects to receive repayment in 2023.
Effective September 1, 2022, the Company increased our available loan to Himalaya of $50,000 to $100,000 to fund its operations. On or around that date we waived all defaults on the loan and extended the maturity of the loan to December 31, 2023.
On April 12, 2023, the Company exercised warrants issued by HMLA to purchase Series A Preferred shares of HMLA’s stock that convert 1-50 into HMLA common stock and vote on an as converted basis. For the purchase, the Company used $10,000 consideration of its credit line made available to HMLA in cash funding since June 28, 2021 and maturing December 31, 2023.
On May 10, 2023, the Company purchased 100% of KANAB CORP. from Himalaya for partial forgiveness of monies loaned to the business on June 28, 2021 and as amended on November 9, 2021 and September 1, 2022. The transaction was subsequently unwound on June 15, 2023 thereby returning 100% of KANAB CORP. To Himalaya. The loan reduction remained and HMLA issued Series B Preferred stock for the return of Kanab Club.
The following is a summary of the Company’s advances – related party is as follows:
| 26 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
| Loan Receivable | ||||
| Terms | Related Party | |||
| Issuance dates of advances | 2021 | |||
| Maturity date | Due on Demand | |||
| Interest rate | 0 | % | ||
| Collateral | Unsecured | |||
| Balance - December 31, 2021 | $ | 53,732 | ||
| Advances | 25,149 | |||
| Repayments | (33,620 | ) | ||
| Balance - December 31, 2022 | 45,261 | |||
| Advances | 43,030 | |||
| Repayments | (20,997 | ) | ||
| Acquisition of KANAB CORP. | (17,017 | ) | ||
| Exercise of warrant for Preferred A Shares | (10,000 | ) | ||
| Balance – June 30, 2023 | $ | 40,277 | ||
Note 5 – Property and Equipment
Property and equipment consisted of the following:
| Estimated Useful | ||||||||||||
| June 30, 2023 | December 31, 2022 | Lives (Years) | ||||||||||
| Leasehold Improvements | $ | 178,278 | $ | 178,278 | 40 | |||||||
| Vehicles | 53,777 | 53,777 | 5 - 10 | |||||||||
| Furniture | 19,595 | 19,595 | 10 | |||||||||
| Equipment | 9,408 | 9,408 | 5 | |||||||||
| 261,058 | 261,058 | |||||||||||
| Accumulated depreciation | (183,336 | ) | (180,214 | ) | ||||||||
| Total property and equipment - net | $ | 77,722 | $ | 80,844 | ||||||||
Depreciation expense for the three months ended June 30, 2023 and 2022, was $1,561 and $1,735, respectively.
Depreciation expense for the six months ended June 30, 2023 and 2022, was $3,122 and $2,314, respectively.
These amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.
In connection with the acquisition of SST on February 28, 2022, the Company acquired property and equipment with a net carrying amount of $82,553.
See Note 9.
| 27 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Note 6 – Investments
The Company’s marketable securities consist of investments in equity securities. Dividends and interest income are accrued as earned. Realized gains and losses are determined on a specific identification basis. The Company reviews marketable securities for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. The changes in the fair value of these securities are recognized in current period earnings in accordance with ASC 825.
During the year ended December 31, 2019, the Company issued shares of preferred class B stock in exchange for shares of Peer-to-Peer Inc (PTOP). The shares were valued at the market price of $ per share, or $483,000, at the acquisition date. The shares are valued at the market prices at December 31, 2022 of $per share, for a total investment of $42,000. On June 12, 2023, the Company sold its common shares of PTOP to Himalaya for Series A Preferred shares of Himalaya stock. The shares are convertible into shares of our common stock (1-50 conversion ratio).
During the year ended December 31, 2019, the Company received shares of KANAB CORP. for consulting services provided by the Company’s CEO, Vikram Grover. The shares were valued at $ per share or $12,220 at the acquisition date. On July 31, 2021, the Company transferred the shares to Himalaya Technologies Inc (HMLA) for shares of the preferred B stock in HMLA. The Company valued the investment of HMLA and the carrying value of KANAB CORP. at the time the shares were exchanged as HMLA is a related party as it has common officers and control. On June 28, 2021, FOMO Advisors LLC was also granted 50,000,000 warrants with a -year expiration and $.0001 exercise price of Himalaya Technologies Inc (HMLA). The warrants were initially valued at zero due to their illiquid nature and subsequently measured at their fair value. The shares of series B preferred stock were valued at the fair value of HMLA as-if converted. The warrants were valued utilizing the Black-Scholes option pricing model. The valuation of series B preferred stock and warrants were $165,000 and $54,172, respectively, at June 30, 2023. On April 12, 2023, the Company exercised 50,000,000 warrants issued by HMLA to purchase Series A Preferred shares of HMLA’s stock that convert 1-50 into HMLA common stock and vote on an as converted basis. For the purchase, the Company used $10,000 consideration of its credit line made available to HMLA in cash funding since June 28, 2021 and maturing December 31, 2023.
On May 10, 2023, the Company purchased 100% of KANAB CORP. from Himalaya for partial forgiveness of monies loaned to the business on June 28, 2021 and as amended on November 9, 2021 and September 1, 2022. The transaction was subsequently unwound on June 15, 2023 thereby returning 100% of KANAB CORP. To Himalaya. The loan reduction remained and HMLA issued Series B Preferred stock for the return of Kanab Club.
The total Series A and Series B Preferred shares of Himalaya were valued at $202,400 and $275,000, respectively, at June 30, 2023 on an as-converted basis.
On October 4, 2021, the Company invested $25,000 for a $25,000 convertible note and common shares in GenBio, Inc. The Company valued the shares at $1/share, the Company’s cash investment. On January 24, 2022, March 3, 2022, April 6, 2022 and April 7, 2022, the Company invested an additional $15,000 for shares, $10,000 for shares, $7,500 for shares and $7,500 for shares of GenBio, Inc., respectively. GenBio, Inc is a private Biotechnology Company that researches natural products that act on new molecular pathways, primarily to suppress inflammation at critical points in these biochemical pathways. The Company’s preliminary research has shown that the pending patents’ active compounds may decrease obesity-induced increases in abdominal fat pads, blood pressure, fatty liver, and insulin resistance.
In 2021, the Company’s Chief Executive Officer assigned his investment brokerage account with Interactive Brokers to the Company. The investments in the account are marketable equity securities.
The following is a summary of the Company’s investments at June 30, 2023 and December 31, 2022.
| 28 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
| June 30, 2023 | ||||||||||||||||||
| Securities Held | Acquisition Date | Shares Held | Price per Share | Value of Securities | ||||||||||||||
| Securities | Stock, options, and warrants | Various | Various | Various | $ | 6 | 1 | |||||||||||
| Himalaya Technologies, Inc. (HMLA) | Series B, preferred stock | 2021 | 250,000 | $ | 0.08 | 275,000 | 2,5 | |||||||||||
| Series A, preferred stock | 2023 | 3,680,000 | 0.06 | 202,400 | 3,4 | |||||||||||||
| GenBio Inc. | Private company | 2021 and 2022 | 50,000 | $ | 1.00 | 65,000 | 6 | |||||||||||
| $ | 542,406 | |||||||||||||||||
| 1 - | all investments are held at our third-party independent broker. |
| 2 - | during 2021, the Company exchanged shares of KANAB CORP. for shares of Series B, preferred stock in HMLA. During 2021, a subsidiary of the Company also received 50,000,000 warrants with a -year expiration and $.0001 exercise price of HMLA. The Company’s CEO is also the CEO of HMLA. The shares of series B preferred stock were valued at the fair value of HMLA as-if converted. The warrants were valued utilizing the Black-Scholes option pricing model. |
| 3 - | In April 2023, the company exercised HMLA warrants for 2,000,000 shares of Series A stock in HMLA |
| 4 - | In June 2023, the company sold its shares in PTOP to HMLA in exchange for series A preferred stock in HMLA |
| 5 - | In May 2023, the company sold Kanab Club back to HMLA in exchange for series B preferred shares in HMLA |
| 6 - | based on cost method. |
| December 31, 2022 | ||||||||||||||||||
| Securities Held | Acquisition Date | Shares Held | Price per Share | Value of Securities | ||||||||||||||
| Securities | Stock, options, and warrants | Various | Various | Various | $ | 6 | 1 | |||||||||||
| Himalaya Technologies, Inc. (HMLA) | Series B, preferred stock and warrants | 2021 | 150,000 | $ | 0.08 | 12,000 | 2 | |||||||||||
| Peer to Peer Network (PTOP) | Common stock | 2019 | 210,000,000 | $ | 0.0007 | 63,000 | 3 | |||||||||||
| GenBio, Inc. | Private company | 2021 | 25,000 | $ | 1.00 | 65,000 | 4 | |||||||||||
| $ | 140,006 | |||||||||||||||||
| 1 - | all investments are held at our third-party independent broker. |
| 2 - | during 2021, the Company exchanged shares of KANAB CORP. for shares of Series B, preferred stock in HMLA. During 2021, a subsidiary of the Company also received 50,000,000 warrants with a -year expiration and $.0001 exercise price of HMLA. The Company’s CEO is also the CEO of HMLA. |
| 3 - | based upon the quoted closing trading price. |
| 4 - | based on cost method. |
During 2022, the Company purchased shares of GenBio, Inc. for $40,000 ($/share).
| 29 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Note 7 – Debt
The following represents a summary of the Company’s convertible notes payable, convertible note payable – related party, accounts receivable credit facility, and loans payable – related parties, key terms, and outstanding balances at June 30, 2023 and December 31, 2022, respectively:
Convertible Notes Payable
The Company executed several convertible notes with various lenders as follows:
| GS Capital | PowerUp Lending | Sixth Street Lending | ||||||||||
| Issuance Dates of Convertible Notes | June 2021 - April 2022 | September 2021 | October 2021 - January 2022 | |||||||||
| Maturity Dates of Convertible Notes | June 2022 - December 2023 | September 2022 | October 2022 - January 2023 | |||||||||
| Interest Rate | 10 | % | 12 | % | 12 | % | ||||||
| Default Interest Rate | 24 | % | 22 | % | 22 | % | ||||||
| Collateral | Unsecured | Unsecured | Unsecured | |||||||||
| Conversion Rate | $0.001 or 60% of the average of the two (2) lowest prices in the prior 20-day period | 61% of the average of the two (2) lowest prices in the prior 20-day period | 61% of the average of the two (2) lowest prices in the prior 20-day period | |||||||||
| GS Capital | PowerUp Lending | Sixth Street Lending | Total | |||||||||||||
| Balance - December 31, 2021 | $ | 380,000 | $ | 43,750 | $ | 78,750 | $ | 502,500 | ||||||||
| Proceeds from issuance of notes | 335,000 | 43,750 | 378,750 | |||||||||||||
| Conversion of accrued interest to note | 16,206 | 16,206 | ||||||||||||||
| Repayment of notes | (122,500 | ) | (122,500 | ) | ||||||||||||
| Conversion of debt to common stock | (55,000 | ) | (43,750 | ) | (98,750 | ) | ||||||||||
| 676,206 | - | - | 676,206 | |||||||||||||
| Less: unamortized debt discount | (31,200 | ) | (31,200 | ) | ||||||||||||
| Balance - December 31, 2022 | $ | 645,006 | $ | $ | $ | 645,006 | ||||||||||
| 30 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
| GS Capital | PowerUp Lending | Sixth Street Lending | Total | |||||||||||||
| Balance - December 31, 2022 | $ | 676,206 | $ | $ | $ | 676,206 | ||||||||||
| Proceeds from issuance of notes | ||||||||||||||||
| Repayment of notes | ||||||||||||||||
| Conversion of debt to preferred stock | (335,000 | ) | (335,000 | ) | ||||||||||||
| Conversion of debt to common stock | (21,705 | ) | (21,705 | ) | ||||||||||||
| 319,501 | - | - | 319,501 | |||||||||||||
| Less: unamortized debt discount | ||||||||||||||||
| Balance – June 30, 2023 | $ | 319,501 | $ | $ | $ | 319,501 | ||||||||||
On May 30, 2023, the Company exchanged two convertible notes held by third-party lender GS Capital Partners, LLC in the amounts of $220,000 dated January 14, 2022, with a current balance of $260,842 and a $115,000 dated April 5, 2022, with a current balance of $130,312, totaling $391,154 for 15,646,159 shares of Series A Preferred stock at a price per share equal to $0.025 per share. On an as converted basis, the Series A Preferred shares can convert into 782,307,950 common shares. As consideration for the exchange, we reduced the strike price on a total of 557,424,483 common stock purchase warrants held by the lender to $0.0005 and extended their expiration dates to May 26, 2026. This resulted in a gain on debt extinguishment of $156,462.
During the six months ended June 30, 2023, third-party lender GS Capital converted $25,363 of principal, interest and penalties into shares of common stock. This resulted in a loss on debt extinguishment of $185,993.
During the six months ended June 30, 2022, third-party lenders converted $104,367 of principal, interest and penalties into shares of common stock. This resulted in a loss on debt extinguishment of $205,691.
On April 19, 2022, the Company modified the terms of a loan it had with GS Capital for $325,000. The note retained all terms of the initial debt agreement, however, the maturity date was extended from April 19, 2022 to October 19, 2022. The note, along with accrued interest of $16,206, resulted in the issuance of a new convertible note for $341,206. On May 30, 2023, this note was further extended to a maturity date of December 31, 2023, with all other terms unchanged.
Convertible Note Payable – Related Party
In March 2022, the Chief Executive Officer of SST advanced funds to the Company as follows:
| Convertible Debt | ||||
| Related Party | ||||
| Issuance Date of Convertible Note | March 31, 2022 | |||
| Maturity Date of Convertible Note | September 30, 2022 | |||
| Interest Rate | 11.50 | % | ||
| Default Interest Rate | 0.00 | % | ||
| Collateral | 1 | |||
| Conversion Rate | 2 | |||
| Balance - December 31, 2021 | $ | |||
| Proceeds from issuance of note | 195,000 | |||
| Repayments | (195,000 | ) | ||
| Balance – December 31, 2022 | $ | |||
| 1 | shares of Series B, Preferred Stock |
| 2 | Converts into Series B, preferred stock at $1/share ($/share in common stock – 1:1,000 ratio) |
| 31 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
During the year ended December 31, 2022, $50,000 of this loan was repaid. On December 19, 2022, the remaining $145,000 was exchanged as part of the SST Founder Employment Status and Compensation Change Agreement.
Loans Payable – Related Parties
In 2022, the Company, in connection with the acquisition of SST, assumed a loan due to SST’s Chief Executive Officer for $321,705.
In 2021 and prior, the Company’s current Chief Executive Officer and former Chief Executive Officer made advances for business operating expenses.
Loans payable - related parties is as follows:
| 1 | 2 | 3 | ||||||||||||||
| Loan Payable | Loan Payable | Loan Payable | ||||||||||||||
| Related Party | Related Party | Related Party | Total | |||||||||||||
| Issuance Date of Loan | Various | Various | Various | |||||||||||||
| Maturity Date of Convertible Note | Due on Demand | Due on Demand | Due on Demand | |||||||||||||
| Interest Rate | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||
| Default Interest Rate | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||||
| Collateral | Unsecured | Unsecured | Unsecured | |||||||||||||
| Conversion Rate | None | None | None | |||||||||||||
| Balance - December 31, 2021 | 5,168 | 17,546 | 22,714 | |||||||||||||
| Debt acquired in SST acquisition | 321,705 | 321,705 | ||||||||||||||
| Advances | 326,911 | 14,741 | 341,652 | |||||||||||||
| Repayments | (364,136 | ) | (12,407 | ) | (376,543 | ) | ||||||||||
| Balance - December 31, 2022 | $ | 284,480 | $ | 5,168 | $ | 19,880 | $ | 309,528 | ||||||||
| Advances | 3,090 | 3,090 | ||||||||||||||
| Repayments | (50,434 | ) | (18,900 | ) | (69,334 | ) | ||||||||||
| Balance – June 30, 2023 | $ | 234,046 | $ | 5,168 | $ | 4,070 | $ | 243,284 | ||||||||
| Short term Portion of Balance | $ | $ | 5,168 | $ | 4,070 | $ | 9,238 | |||||||||
| Long term Portion of Balance | $ | 234,046 | $ | $ | $ | 234,046 |
| 1 - | reflects activity related to the Company’s former Chief Executive Officer of SST. |
| 2 - | reflects activity related to the Company’s former Chief Executive Officer of EIC. |
| 3 - | reflects activity related to the Company’s current Chief Executive Officer of FOMO. |
| 32 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Loan Payable – Other
In 2022, the Company executed two loans with a third-party lender for $443,060, including interest of $138,050, resulting in net proceeds of $305,010. The Company is required to pay $5,116 over a period of 52 weeks to repay the loan.
| Loan Payable - Other | ||||
| Issuance Date | April 1, 2022 and refinance December 2, 2022 | |||
| Maturity Date | December 2, 2023 | |||
| Interest Rate | 16.00 | % | ||
| Default Interest Rate | 0.00 | % | ||
| Collateral | Unsecured | |||
| Conversion Rate | ||||
| Balance - December 31, 2021 | $ | |||
| Proceeds | 443,060 | |||
| Repayments | (199,368 | ) | ||
| Balance – December 31, 2022 | $ | 243,692 | ||
| Proceeds | ||||
| Repayments | (118,787 | ) | ||
| Balance – June 30, 2023 | $ | 124,905 | ||
In 2023, the Company executed four loans with 3 third-party lenders for $658,790, including interest of $229,790, resulting in net proceeds of $429,000. The Company is required to pay $8,902 over a period of 52 weeks to repay the first two loans, 5,833 over a period of 24 weeks to repay the third loan and 1,499 per business day over a period of 20 weeks to repay the fourth loan.
| Loan Payable - Other | ||||||||||||||||
| Loan 1&2 | Loan 3 | Loan 4 | Total | |||||||||||||
| Issuance Date of Loan | January 17, 2023 and March 27, 2023 | May 5, 2023 | May 23, 2023 | |||||||||||||
| Maturity Date of Loan | January 17, 2024 and March 27, 2024 | October 20, 2023 | October 10, 2023 | |||||||||||||
| Interest Rate | 18.00 – 33 .00% | |||||||||||||||
| Default Interest Rate | 0.00 | % | ||||||||||||||
| Collateral | Unsecured | Unsecured | Unsecured | |||||||||||||
| Conversion Rate | None | None | ||||||||||||||
| Balance – December 31, 2022 | $ | |||||||||||||||
| Proceeds | 368,800 | 368,800 | ||||||||||||||
| Repayments | (40,720 | ) | (40,720 | ) | ||||||||||||
| Balance – March 31, 2023 | $ | 328,080 | 328,080 | |||||||||||||
| Proceeds | 0.00 | 140,000 | 149,990 | 289,990 | ||||||||||||
| Repayments | (70,624 | ) | (26,333 | ) | (17,991 | ) | (114,948 | ) | ||||||||
| Balance – June 30, 2023 | $ | 257,456 | $ | 113,667 | $ | 131,999 | $ | 503,122 | ||||||||
At June 30, 2023, the Company was in default on its debt arrangements with four providers of merchant cash advances (“MCAs”) that funded against expected shipments from its primary vendor SMART Technologies, who subsequently reduced our credit line for equipment from $1,000,000 to $350,000. The Company is working with these third parties on a reduced payment basis and analyzing proposals from new capital providers to refinance the positions.
Accounts Receivable Credit Facility
The Company, in connection with the acquisition of SST, entered into an accounts receivable credit facility.
On February 28, 2022, SST entered into a revolving accounts receivable and term loan financing and security agreement in the aggregate amount of $1,000,000 (subject to adjustment by the lender). The financing provides for advances up to $1,000,000, based upon 85% of eligible accounts receivable (as defined in the agreement) and subject to adjustment at the discretion of the lender. The amount was increased on June 21, 2022 to a total availability of $1,500,000.
The Facility is paid from collections of accounts receivable and is secured by all assets of SST. The AR Facility has an interest rate of the lesser of (a) maximum rate allowed by law and (b) prime plus 5.25%. The minimum rate of interest is 11.50%.
The lender charges the following fees:
| 1. | 2% commitment fee for the establishment of the Facility (1% due at funding and 1% due on February 28, 2023); and | |
| 2. | Monitoring fee of 0.40% of the outstanding credit Facility at the end of each month |
The Company is subject to financial covenants (unless waived by lender) as follows:
| 1. | Debt service coverage ratio of 1.25 to 1, | |
| 2. | Fixed charge coverage ratio of 1.25 to1; and | |
| 3. | Tangible net worth of $350,000 |
At December 31, 2022, the Company is in default on the financial covenants noted above, however, the lender has not exercised its rights of default. The Company and the lender continue to operate under the terms of the agreement without disruption.
The Company and its subsidiaries are guarantors of this Agreement.
| Accounts Receivable | |||||
| Credit Facility | |||||
| Issuance Date of credit facility | February 28, 2022 | ||||
| Maturity Date of credit facility | February 28, 2024 | ||||
| Interest Rate | 11.50 | % | |||
| Default Interest Rate | 0.00 | % | |||
| Collateral | All assets | ||||
| Conversion Rate | |||||
| Balance - December 31, 2021 | $ | ||||
| Proceed from drawdowns | 7,269,906 | ||||
| Repayments | (5,993,439 | ) | |||
| Balance - December 31, 2022 | 1,276,467 | ||||
| Proceed from drawdowns | 1,112,819 | ||||
| Repayments | (949,024 | ) | |||
| Balance - March 31, 2023 | $ | 1,440,262 | |||
| Proceeds from drawdowns | 574,599 | ||||
| Repayments | (934,899 | ) | |||
| Balance – June 30, 2023 | $ | 1,079,962 | |||
| 33 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Note 8 – Derivative Liabilities
Certain of the above convertible notes contained an embedded conversion option with a conversion price that could result in issuing an undeterminable amount of future common stock to settle the host contract. Accordingly, the embedded conversion option is required to be bifurcated from the host instrument (convertible note) and treated as a liability, which is calculated at fair value, and marked to market at each reporting period.
Additionally, the Company has accounted for outstanding warrants (those issued with the above debt) as derivative liabilities as there is an insufficient amount of authorized common stock to settle all potential conversions.
The Company used the binomial pricing model to estimate the fair value of its embedded conversion option and warrant liabilities on both the commitment date and the remeasurement date with the following inputs:
| Six Months Ended | Year Ended | |||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Exercise price | $ | 0.0001 - $0.01 | $ | 0.0001 - $0.01 | ||||
| Expected volatility | 282% - 292 | % | 196% - 377 | % | ||||
| Risk-free interest rate | 4.64 | % | 0.73% - 2.99 | % | ||||
| Expected term (in years) | 0.01 - 2.02 | 0.30 - 3.00 | ||||||
| Expected dividend rate | 0 | % | 0 | % | ||||
A reconciliation of the beginning and ending balances for the derivative liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows at June 30, 2023 and December 31, 2022:
| Convertible Debt | Warrants | Total | ||||||||||
| Derivative liabilities - December 31, 2021 | 330,294 | 775,243 | 1,105,537 | |||||||||
| Fair value - commitment date | 300,137 | 61,600 | 361,737 | |||||||||
| Fair value - mark to market adjustment | 404,695 | (238,813 | ) | 165,882 | ||||||||
| Gain on debt extinguishment (derivative liabilities - convertible debt) | (226,391 | ) | (226,391 | ) | ||||||||
| Reclassification to APIC for financial instruments that ceased to be derivative liabilities | (425,000 | ) | (425,000 | ) | ||||||||
| Derivative liabilities – December 31, 2022 | 808,736 | 173,030 | 981,766 | |||||||||
| Fair value - commitment date | ||||||||||||
| Fair value - mark to market adjustment | 3,466,013 | (10,607 | ) | 3,455,406 | ||||||||
| Gain on debt extinguishment (derivative liabilities - convertible debt) | ||||||||||||
| Reclassification to APIC for financial instruments that ceased to be derivative liabilities | ||||||||||||
| Derivative liabilities – March 31, 2023 | $ | 4,274,750 | $ | 162,423 | $ | 4,437,173 | ||||||
| Fair value - mark to market adjustment | (2,930,214 | ) | (21,221 | ) | (2,951,435 | ) | ||||||
| Gain on debt extinguishment (derivative liabilities - convertible debt) | (567,580 | ) | (567,580 | ) | ||||||||
| Derivative liabilities – June 30, 2023 | 776,956 | 141,202 | 918,158 | |||||||||
Changes in fair value of derivative liabilities (mark to market adjustment) are included in other income (expense) in the accompanying Consolidated Statements of Operations.
In 2023 and 2022, in connection with the conversion of certain debt and warrants, the corresponding derivative liabilities were market to market on the conversion date and the remaining derivative liability balance was reclassified to gain on debt extinguishment for derivative liabilities related to debt and to additional paid-in capital for derivative liabilities classified as warrants.
| 34 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Note 9 – Acquisition and Pro Forma Financial Information
Acquisitions for the Six Months Ended June 30, 2022
On February 28, 2022, the Company issued shares of Class B, convertible preferred stock (convertible into shares of common stock) having a fair value of $700,000 ($/share), based upon the quoted closing trading price on the acquisition date, in exchange for 100% of the issued and outstanding member ownership interests held by SST, in a transaction treated as a business combination. With the acquisition, the Company entered the audio-visual systems integration business that designs and builds presentation, teleconferencing and collaborative systems for businesses, education, and nonprofits.
The valuation of the consideration was determined on an as converted basis by multiplying the Series B preferred shares by the conversion rate of shares of common stock for each one (1) share of Series B preferred stock held, then multiplying by the quoted closing trading price of the common stock.
We made an initial allocation of the purchase price at the date of acquisition based on our understanding of the fair value of assets acquired and liabilities assumed. The allocation of the purchase price consideration is considered preliminary as of March 31, 2022, with the excess purchase price allocated to goodwill and is subject to change. We completed the valuation and allocation of purchase price in April 2023. The final valuation and allocation is reflected in the table below.
The acquisition of SST was reflected in the accompanying consolidated financial statements at March 31, 2023 and 2022, the results of operations and cash flows are included in the consolidated financial statements as of and from the acquisition date.
| Consideration | ||||
| Value of earn out agreement | $ | 75,328 | ||
| Fair value of consideration transferred | 75,328 | |||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | ||||
| Cash | 223,457 | |||
| Accounts receivable | 669,580 | |||
| Inventory | 208,431 | |||
| Property and equipment | 82,553 | |||
| Operating lease - right-of-use asset | 345,229 | |||
| Supplier relationships | 149,000 | |||
| Trade name | 420,000 | |||
| Total assets acquired | 2,098,250 | |||
| Accounts payable and accrued expenses | 268,553 | |||
| Contract liabilities (deferred revenue) | 671,217 | |||
| Loan payable - related party | 421,799 | |||
| Note payable - government – SBA | 150,000 | |||
| Notes payable | 516,234 | |||
| Operating lease liability | 345,229 | |||
| Total liabilities assumed | 2,373,032 |
| 35 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
| Total net liabilities assumed | (274,782 | ) | ||
| Goodwill in purchase of SMARTSolution Technologies L.P. | $ | 350,110 |
In connection with the purchase of SST, $50,000 was paid as a broker fee. This amount has been included in the consolidated statements of operations as a component of general and administrative expenses. There were no other additional transaction costs incurred.
The Company initially granted shares of Series B preferred stock, valued at $700,000 based upon the quoted closing trading price on date of issuance on as-converted basis to common stock. The agreement was amended in December 2022, and all of the shares returned to the Company.
The goodwill of $350,110 is primarily related to factors such as synergies and market share.
Goodwill is not deductible for tax purposes.
The estimated future amortization of the acquired supplier relationships and trade name are as follows at June 30, 2023:
| 2023 | $ | 48,937 | |||
| 2024 | 65,250 | ||||
| 2025 | 65,250 | ||||
| 2026 | 34,123 | ||||
| 2027 | 28,000 | ||||
| Thereafter | 256,604 | ||||
| $ | 498,164 |
The following summarizes the intangible assets at June 30, 2023 and December 31, 2022:
| June 30, 2023 | December 31, 2022 | Useful Life | ||||||||
| Supplier relationships | $ | 149,000 | $ | 149,000 | 4 years | |||||
| Trade name | 420,000 | 420,000 | 15 years | |||||||
| 569,000 | 569,000 | |||||||||
| Accumulated amortization | (87,149 | ) | (54,524 | ) | ||||||
| $ | 481,851 | $ | 514,476 | |||||||
On or around December 19, 2022, FOMO WORLDWIDE, INC. entered into a Employment Status and Compensation Change Agreement which consisted of the following elements:
Element 1: Total Dollar Value: $45,480
| 1. | In March of 2022, Mitchell Schwartz issued a cash loan to FOMO WORLDWIDE in the amount of $185,000 with a Success Fee of $10,000 for a total repayment of $195,000; non-amortized. | |
| 2. | Mr. Schwartz received a single payment of $50,000 from SST for partial repayment of this loan. |
| 36 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
| 3. | In exchange for the remainder of Insider Loan, ($145,000) Mr. Schwartz agreed to take assignment of a $100,000 Real Estate Loan, made by SST to an affiliate. This note included the repayment to Mr. Schwartz of the $10,000 Success Fee and monthly interest of $1,250 which matured Feb. 28, 2022. Total value of this note now issued to Mr. Schwartz and no longer associated with FOMO was $118,750 | |
| 4. | The remaining balance of the Insider Loan, equal to $26,250 ($145,000 - $118,750) | |
| 5. | This agreement retained Mr. Schwartz residual salary through Feb. 2023, equal to $19,230 |
Element 2: Total Dollar Value: $139,000
| 1. | At point of purchase of SMARTSolution Technologies L.P. and Inc., FOMO WORLDWIDE agreed to a 1.5% override of gross revenues for the prior year, ending December 2021. This, plus the extension of the closing date causing an add-on of the agreement, was equivalent to $139,000 and was included in the purchase agreement, of which $75,328 was the estimated value of the earn-out. |
Element 3: Total Dollar Value: $100,000
| 1. | At point of purchase of SMARTSolution Technologies, L.P. & Inc., FOMO WORLDWIDE issued One-Million Series B Shares to Mr. Schwartz. This was included in the purchase agreement. | |
| 2. | At the point of the Employment Status and Compensation Change Agreement, Mr. Schwartz agreed to return to FOMO these shares as a goodwill gesture and for exclusion of liability for any accounting discrepancy that may have occurred prior to his new employee agreement. | |
| 3. | FOMO WORLDWIDE, along with accepting the return of the aforementioned shares, included as part of the new purchase and employee agreement, agreed to a single payment of $100,000 for the total value of the shares returned by Mr. Schwartz. |
Summary:
| 1. | All items associated with this agreement were equal in value to $284,480 and are to be paid to Mr. Schwartz as monthly payroll outlay over 36 months, beginning in March of 2023. |
Note 10 – Commitments and Contingencies
Right-of-Use Operating Lease
On February 28, 2022, in connection with the acquisition of SST, the Company assumed a Right-of-Use (“ROU”) operating lease for its office space. The lease is for an initial term of five (5) years at $7,000 per month. There are no stated renewal terms. There were no other ROU leases in effect prior to the acquisition of SST.
At June 30, 2022, the Company has no financing leases as defined in ASC 842, “Leases.”
The tables below present information regarding the Company’s operating lease assets and liabilities at June 30, 2023:
| 37 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
| June 30, 2023 | ||||
| Assets | ||||
| Operating lease - right-of-use asset - non-current | $ | 247,414 | ||
| Liabilities | ||||
| Operating lease liability | $ | 260,112 | ||
| Weighted-average remaining lease term (years) | 3.84 | |||
| Weighted-average discount rate | 8 | % | ||
| The components of lease expense were as follows: | ||||
| Operating lease costs | ||||
| Amortization of right-of-use operating lease asset | $ | 34,523 | ||
| Lease liability expense in connection with obligation repayment | 10,855 | |||
| Total operating lease costs | $ | 45,378 | ||
| Supplemental cash flow information related to operating leases was as follows: | ||||
| Operating cash outflows from operating lease (obligation payment) | $ | 31,145 | ||
Future minimum lease payments required under leases that have initial or remaining non-cancelable lease terms in excess of one year at June 30, 2023:
| 2023 (6 Months) | $ | 42,000 | ||
| 2024 | 84,000 | |||
| 2025 | 84,000 | |||
| 2026 | 84,000 | |||
| 2027 | 7,000 | |||
| Total undiscounted cash flows | 301,000 | |||
| Less: amount representing interest | (40,888 | ) | ||
| Present value of operating lease liability | 260,112 | |||
| Less: current portion of operating lease liability | (64,836 | ) | ||
| Long-term operating lease liability | $ | 195,276 |
| 38 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Note 11– Stockholders’ Deficit
At June 30, 2023 and December 31, 2022, the Company had various classes of stock:
Class A, Convertible Preferred Stock
| - | Par value - $ | |
| - | Conversion – each share of Class A converts into shares of common stock (1,236,474,600 and 287,500,000 equivalent shares of common stock, at June 30, 2023 and December 31, 2022, respectively) | |
| - | Voting – on an as-converted basis – 50 votes for each share held (1,236,474,600 and 287,500,000 votes, at June 30, 2023 and December 31, 2022, respectively) | |
| - | Dividends – $0.0035 per share per annum accrued whether or not declared by the Board of Directors | |
| - | Liquidation preference – none | |
| - | Rights of redemption – none |
Class B, Convertible Preferred Stock
| - | shares authorized | |
| - | and shares designated, issued and outstanding at June 30, 2023 and December 31, 2022, respectively | |
| - | Stated value – none | |
| - | Par value - $ | |
| - | Conversion – each share of Class B converts into shares of common stock ( and equivalent shares of common stock, at June 30, 2023 and December 31, 2022, respectively) | |
| - | Voting – on an as-converted basis – 1,000 votes for each share held (5,733,316 and 5,289,982,000 votes, at June 30, 2023 and December 31, 2022, respectively) | |
| - | Dividends – 1% per annum accrued whether or not declared by the Board of Directors | |
| - | Liquidation preference – none | |
| - | Rights of redemption – none |
Class C, Convertible Preferred Stock
| - | shares authorized | |
| - | and shares designated, issued and outstanding at June 30, 2023 and December 31, 2022, respectively | |
| - | Stated value – none | |
| - | Par value - $ | |
| - | Conversion – each share of Class C converts into share of common stock ( and equivalent shares of common stock, at June 30, 2023 and December 31, 2022, respectively) | |
| - | Voting – on an as-converted basis – 100,000 votes for each share held (100,000,000,000 and 100,000,000,000 votes, at June 30, 2023 and December 31, 2022, respectively) | |
| - | Dividends – 1% per annum accrued whether or not declared by the Board of Directors | |
| - | Liquidation preference – none | |
| - | Rights of redemption – none |
| 39 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Common Stock
| - | shares authorized | |
| - | par value | |
| - | Voting at 1 vote per share |
Equity Transactions for the Six Months Ended June 30, 2023
Stock Issued for Services – Common Stock
During the quarter, the Company issued common shares for $60,000 of accrued compensation owed to its CEO Vikram Grover and common shares for $10,000 of monies loaned to the Company by its CEO Vikram Grover.
Stock Issued for Services – Class A, Preferred Stock
During the quarter, the Company issued Series A Preferred shares for $10,000 of accrued compensation owed to its CEO Vikram Grover.
Stock Issued for Services – Class B, Preferred Stock
During the quarter, the Company also issued Series B Preferred shares to its CEO Vikram Grover for $20,000 of accrued compensation. Further, the Company also issued Series B Preferred shares to employees as a bonus for work performed during the period. Additionally, the Company issued shares of Series B Preferred stock for a consultant.
Equity Transactions for the Six Months Ended June 30, 2022
Stock Issued for Cashless Exercise of Warrants
The Company issued shares of common stock in exchange for the cashless exercise of 750,000,000 warrants. The net effect on stockholders’ equity was $0.
Stock Issued for Services – Class B, Preferred Stock
The Company issued shares of Class B, preferred stock for services rendered, having a fair value of $535,000 ($ - $/share), based upon the quoted closing trading price of the Company’s common stock, on an as-converted basis of 1,000 shares of common stock for each share of Class B, preferred stock.
Acquisition of SST
On February 28, 2022, the Company issued shares of Series B preferred stock ( as converted common stock) having a fair value of $700,000 ($/share), based upon the quoted closing trading price on the acquisition date, in exchange for 100% of the issued and outstanding member ownership interests held by SST, in a transaction treated as a business combination.
See Note 9.
Stock Issued from Conversion of Convertible Debt and Loss on Debt Extinguishment
The Company issued shares of common stock in connection with the conversion of convertible debt (which had embedded derivative liabilities) and accrued interest totaling $104,368, having a fair value of $310,059 ($ - $/share), based upon the quoted closing trading price on the date of conversion/extinguishment. As a result of the debt conversion, the Company recognized a loss on debt extinguishment of $205,691.
| 40 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Conversion of Class B Preferred Stock to Common Stock
The Company issued shares of common stock in connection with the conversion of shares of Class B preferred stock. The transaction had a net effect of $0 on stockholders’ deficit.
Note 12 – Warrants
Warrant activity for the six months ended June 30, 2023 and the year ended December 31, 2022 are summarized as follows:
| Weighted | |||||||||||||||||
| Weighted | Average | ||||||||||||||||
| Average | Remaining | Aggregate | |||||||||||||||
| Warrants | Number of Warrants | Exercise Price | Contractual Term (Years) | Intrinsic Value | |||||||||||||
| Outstanding and exercisable - December 31, 2021 | 2,002,113,095 | $ | 0.0016 | $ | 450,000 | ||||||||||||
| Granted | 660,000,000 | $ | 0.0011 | - | - | ||||||||||||
| Exercised | (750,000,000 | ) | $ | 0.0001 | - | - | |||||||||||
| Cancelled/Forfeited | (618,571,428 | ) | $ | .00034 | - | - | |||||||||||
| Outstanding – December 31, 2022 | 1,293,541,667 | $ | 0.0013 | $ | |||||||||||||
| Exercisable – December 31, 2022 | 1,143,541,667 | $ | 0.0014 | $ | - | ||||||||||||
| Granted | 300,000,000 | $ | 0.0005 | - | - | ||||||||||||
| Exercised | - | - | |||||||||||||||
| Cancelled/Forfeited | - | - | |||||||||||||||
| Outstanding – June 30, 2023 | 1,563,541,667 | $ | 0.0007 | $ | |||||||||||||
| Exercisable – June 30, 2023 | 1,263,541,667 | $ | 0.0007 | $ | |||||||||||||
Warrant Transactions for the Six Months Ended June 30, 2023
On February 28, 2023, the Company issued incentive stock options to employees of its wholly owned subsidiary SMARTSolution Technologies L.P. with a strike price of and a three-year expiration. The options expire at close of business on March 1, 2026 and do not vest unless each employee is employed by SST on or after March 1, 2024.
Warrant Transactions for the Year Ended December 31, 2022
Convertible Debt Issuances
In connection with convertible debt issued to various lenders, the Company granted , three-year () warrants. These warrants have an exercise price of $ - $. See Note 7 for derivative liabilities and related mark to market accounting.
Employee Compensation
Concurrent with the acquisition of SST, the Company granted , three-year () warrants to employees of SST for services rendered.
| 41 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
The fair value of these services rendered was $209,713, based upon the following weighted average assumptions:
| Exercise price | $ | 0.001 | ||
| Expected volatility | 375 | % | ||
| Risk-free interest rate | 1.62 | % | ||
| Expected term (in years) | ||||
| Expected dividend rate | 0 | % |
Employee Compensation
The Company granted , three-year () warrants for services rendered.
The fair value of these services rendered was $91,127, of which $59,648 was unvested at December 31, 2022, based upon the following weighted average assumptions:
| Exercise price | $ | 0.001 | ||
| Expected volatility | 374 | % | ||
| Risk-free interest rate | 1.76 | % | ||
| Expected term (in years) | ||||
| Expected dividend rate | 0 | % |
Cashless Exercise of Warrants
The Company issued shares of common stock in connection with cashless exercises of 750,000,000 warrants. The net effect on stockholders’ equity was $0.
Note 13 – Income Taxes
The Company did not file its federal or state tax returns for fiscal years from 2012 through 2017. Previous management had believed that it would not have any material impact on the Company’s financials because the Company did not have any tax liabilities due to net losses incurred during those years. During the year ended December 31, 2021, the Company under new management since 2019 filed returns for 2018, 2019 and 2020. During the year ended December 31, 2022, the Company filed returns for 2021 as well. The Company has filed an extension for its federal and state tax returns for the year ended December 31, 2022.
Based on available information, management believes it is more likely than not that any potential net deferred tax assets as of June 30, 2023 and December 31, 2022 may not be fully realizable.
Due to recurring losses, the Company’s tax provisions for the sic months ended June 30, 2023 and 2022 were $0.
The difference between the effective income tax rate and the applicable statutory federal income tax rate is summarized as follows:
| 2023 | 2022 | |||||||
| Statutory federal rate | -21.0 | % | -21.0 | % | ||||
| State income tax rate, net of federal benefit | -3.6 | % | -3.6 | % | ||||
| Permanent differences, including stock-based compensation and impairment of acquired assets | 8.6 | % | 8.6 | % | ||||
| Change in valuation allowance | 16.0 | % | 16.0 | % | ||||
| Effective tax rate | 0.0 | % | 0.0 | % | ||||
| 42 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
At June 30, 2023 and December 31, 2022, the Company’s deferred tax assets were as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| Tax benefit of net operating loss carry forward | $ | 5,170,801 | $ | 4,248,077 | ||||
| less valuation allowance | (5,170,801 | ) | (4,248,077 | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
As of June 30, 2023 the Company had unused net operating loss carry forwards of approximately $21.0 million available to reduce future federal taxable income. Net operating loss carry-forwards expire through fiscal years beginning in 2023 and extending to indefinite. Internal Revenue Code Section 382 places a limitation on the amount of taxable income that can be offset by carry-forwards after a change in control (generally a greater than 50% change in ownership).
The Company’s ability to offset future taxable income, if any, with tax net operating loss carry-forwards may be limited due to the non-filing of tax returns and the impact of the statute of limitations on the Company’s ability to claim such benefits. Furthermore, changes in ownership may result in limitations under Internal Revenue Code Section 382. Due to these limitations, and other considerations, management has established full valuation allowances on deferred tax assets relating to net operating loss carry-forward, as the realization of any future benefits from these assets is uncertain.
The Company’s valuation allowance at June 30, 2023 and December 31, 2022 was $5,170,801 and $4,248,077, respectively. The change in the valuation allowance during the six months ended June 30, 2023 was an increase of approximately $922,000.
| 2013 | $ | 84,206 | 2023 | ||||||
| 2014 | 494,301 | 2024 | |||||||
| 2015 | 680,549 | 2025 | |||||||
| 2016 | 651,537 | 2026 | |||||||
| 2017 | 1,239,493 | 2027 | |||||||
| 2018 | 1,843,498 | Indefinite | |||||||
| 2019 | 48,201 | Indefinite | |||||||
| 2020 | 140,808 | Indefinite | |||||||
| 2021 | 9,262,185 | Indefinite | |||||||
| 2022 | 2,823,829 | Indefinite | |||||||
| 2023 | 3,750,911 | Indefinite | |||||||
| $ | 21,019,518 |
| 43 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Note 14 – Letters of Intent Signed for Acquisitions of Learning Management Systems and Training Content Providers
On January 13, 2023, FOMO signed a non-binding letter of intent (“LOI”) to acquire a UK-based provider of learning management systems (“LMS”), which are software applications for the administration, documentation, tracking, reporting, automation, and delivery of educational courses, training programs, materials or learning and development programs. The business generates revenues of several hundred thousand British pounds and is growing its top line at a double digit % annual rate (unaudited). Total consideration is as follows: 1) GBP £800,000 cash at close, plus 2) GBP £400,000 in a non-interest-bearing seller’s note (paid in one year after close), plus 3) a performance-based payment of up to GBP £200,000 subject to 30% revenue growth for the calendar year after the Closing Date. The Company’s balance sheet will remain as-is during the term the LOI is active and until the Closing Date, with no distributions, capital calls, bonuses to management or shareholders, salary increases, adjustments to working capital, etc. for any purpose, unless otherwise agreed by FOMO in writing. The process is conditioned on the completion of due diligence, legal and accounting review, documentation that is satisfactory to all parties, and the successful raise by us of certain financing, if any. Execution of a securities purchase agreement (“SPA”) and related definitive agreements are targeted as soon as practical but not later than April 30, 2023 (the “Closing” and such date, the “Closing Date”). The Agreement has since expired and is under review for renewal.
On January 17, 2023, we signed a binding purchase agreement to acquire the assets of a provider of online training and compliance software, services, and content primarily to the agriculture and food industries based in the Midwest. The business was founded in 1980, generates roughly $400,000 - $500,000 in annual revenues, is EBITDA+(unaudited), and can potentially be grown organically into other regions of the country and into new verticals including education, manufacturing, healthcare, and other. We intend to place the assets, which have a total purchase price of $280,000 cash including closing funds of $155,000, seller notes of $110,000 and an earn-out valued at $15,000 but with no ceiling, into our wholly owned subsidiary SMARTSolution Technologies Inc., a sister entity to our wholly owned education technology subsidiary SMARTSolution Technologies LP. Closing is targeted by March 17, 2023, though we intend to work vigorously to consummate the deal sooner. Our auditors have indicated the size of the business relative to FOMO will not trigger an audit requirement for the target. We made $15,000 non-refundable earnest payments towards closing. There is a $5,000 non-refundable equity component added to the consideration for this transaction in the form of 5,000 Series B Preferred shares issued to extend the closing deadline to May 17, 2023. The Agreement has since expired and is under review for renewal.
On February 3, 2023, we signed a non-binding letter of intent (“LOI”) to acquire the assets of a USA-based learning management system (“LMS”) and training content provider for $400,000, including $150,000 cash, $150,000 in Series B Preferred stock, and a $100,000 earn-out plus incentive stock options for employees. Execution of a definitive agreement for the proposed transaction is required by May 31, 2023. The Agreement has since expired and is under review for renewal.
On February 27, 2023, the Company signed a non-binding letter of intent to purchase a provider of modular buildings and construction services generating an estimated $8 million annual revenues and $800,000 annual EBITDA in 2022 (unaudited). The Target’s customers include K12 schools, police departments, fire departments, and municipalities in the state of Florida. There are no assurances FOMO will be able to complete the transaction based on planned due diligence or required financing. The transaction expired on June 30, 2023 and is under review by both Buyer and Seller for renewal.
On March 29, 2023, the Company executed a non-binding letter of intent to acquire a manufacturer and provider of analog and digital signage and services based in Southwest Florida. The business generates annual revenues of approximately $5 million (unaudited), is profitable, and has backlog of over $2 million with homeowner associations (HOAs), municipalities, and enterprise customers including K12 schools, transportation hubs, and other. Consideration is $500,000 cash, $1.5 million in Series B Preferred stock (valued using a common stock price of $), refinancing or rollover of SBC loans of $1,840,435, and an earn-out of up to $1.0 million over three years (terms to be negotiated). The transaction expired on June 30, 2023 and is under review by both Buyer and Seller for renewal.
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FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
UNAUDITED
Note 15 – Subsequent Events
Subsequent to June 30, 2023, the Company had the following transactions:
On July 24, 2023, we mailed a Form 14C notifying investors of our intent to reverse split our common stock by a ratio of 1-100, redomicile the Corporation to the State of Wyoming, and change our name to FOMO WORLDWIDE, INC. Earlier, on May 1, 2023, the Board of Directors of the Company, approved a change the Company’s common stock symbol to IGOT from FOMC, to apply to FINRA to change the Company’s name to FOMO WORLDWIDE, INC. from FOMO CORP. to match the Company’s legal name in the state of California and on the SEC’s EDGAR system, to apply under Rule 15c2-11 to reinstate market makers for the Company’s common stock, to redomicile the Corporation to the State of Wyoming from the State of California, and reverse split all issued and outstanding shares of all classes of stock and authorized shares of all classes of stock equally by a ratio of 1-100 or similar adjustment to conversion ratios of preferred stock into common stock. The above actions are not yet approved by FINRA.
On or around August 7, 2023, we signed a letter of intent for a purchase order (“PO”) financing agreement with Gateway Trade Funding for up to $1,000,000 of order financing per annum. Final paperwork is pending.
On or around August 14, 2023, we finalized a purchase order (“PO”) financing agreement with Aurous Financial Srvcs LLC to provide financing for up to $20 million per transaction. Aurous has simultaneously entered into an intercreditor agreement with our asset backed lender Thermo Credit LLC and with our primary vendor SMART Technologies to fulfill substantial backlog of orders this summer.
Subsequent to quarter end, our CEO Vikram Grover converted $8,000 of accrued compensation into common shares.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this Quarterly Report on Form 10-Q to “the Company,” “FOMO,” “us,” “we,” “our,” and similar terms refer to FOMO WORLDWIDE, INC. and its subsidiaries.
Cautionary Note Regarding Forward- Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “may,” “could,” “should,” “expect,” “plan,” “project,” “strategy,” “forecast,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” or similar expressions help identify forward-looking statements.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and management cannot assure any reader that such statements will be realized, or the forward-looking events and circumstances will in fact occur. The Company’s actual results may differ materially from those anticipated, estimated, projected, or expected by management.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.
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Company Overview
General
Acquisition of IAQ Technologies LLC
On October 19, 2020, the Company acquired 100% of the membership interests of Purge Virus, LLC in exchange for the issuance of 2,000,000 Series B Preferred Shares valued at $800,000 to its member. We subsequently changed the name of the company to IAQ Technologies LLC (“IAQ”). IAQ, which is based in Philadelphia, PA, is engaged in the marketing and sale of disinfection products and services to businesses, including hotels, hospitals, cruise ships, offices, and government facilities, as well as to individuals. Products and services marketed by IAQ include:
| ● | Ultraviolet-C in-duct and portable devices; | |
| ● | Hybrid disinfection devices with UVC, carbon filtration and HEPA filtration; | |
| ● | Hybrid disinfection devices with UVC and Photo Plasma; | |
| ● | Bio-polar ionization disinfection for virus and Volatile Organic Compound disinfection; and | |
| ● | PPE (personal protective equipment) ranging from masks to gloves with factory-direct supply side logistics. |
IAQ markets and sells its disinfection products and services through two in-house sales managers.
Acquisitions of Independence LED Lighting LLC and Energy Intelligence Center LLC
On February 12, 2021, the Company purchased the assets of Independence LED Lighting LLC (“iLED”), later rebranded as IAQ Technologies, LLC, in exchange for the issuance of 250,000 Series B Preferred Shares valued at $3.3 million iLED, is in the sale of clean air products intended for use in disinfecting and improving air quality.
On March 7, 2021, the Company purchased the assets of Energy Intelligence Center LLC (“EIC of PA”), an affiliate of iLED, in exchange for the issuance of 125,000 Series B Preferred Shares valued at $1,479,121. EIC is engaged in the commercialization, marketing and licensing of software designed to work in conjunction with a commercial building’s HVAC system to clean the air that circulates within the building.
Following the acquisitions of the assets of ILED and EIC, the Company combined the assets and businesses of iLED and EIC PA into a newly formed wholly- owned subsidiary, Energy Intelligence Center, LLC (“EIC Wyoming”).
The managing member of IAQ, iLED and EIC stayed on following the acquisitions to run their businesses. However, in July 2021, the former managing member stepped down and assumed a consulting role and a new chief executive officer was hired to run the businesses of IAQ and EIC Wyoming. This individual resigned from his position on March 2, 2022 and we appointed a chief executive officer of the businesses.
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Operating results for IAQ since its acquisition have not met expectations, Accordingly, the chief executive is in the process of reorganizing IAQ. Accordingly, we determined that IAQ’s value was impaired at December 31, 2021.
In addition, the software developer responsible for completing development and implementation of EIC Wyoming left the company and has refused to assist us with completing the software and transitioning the work to other individuals. Accordingly, we are now in the process of identifying another person or entity to take over and complete development of the software. As a result of this delay, we determined that EIC Wyoming’s value was impaired at December 31, 2021.
Acquisitions of SMARTSolution Technologies L.P. and SMARTSolution Technologies, Inc.
On February 28, 2022, FOMO closed the acquisition of the general and all the limited partnership interests of SMARTSolution Technologies L.P. and shares of SMARTSolution Technologies, Inc. (collectively “SST”) pursuant to a Securities Purchase Agreement dated February 28, 2022 (the “SPA”), by and between the Company and Mitchell Schwartz (“Seller”), the beneficial owner of the general and limited partnership interests in SST. SST is a Pittsburgh, Pennsylvania–based audio/visual systems integration company that designs and builds presentation, teleconferencing and collaborative systems for businesses, educational institutions, and other nonprofit organizations.
Pursuant to the SPA, FOMO:
| ● | issued to Seller 1,000,000 shares of its authorized but unissued Series B Preferred Shares; | |
| ● | paid approximately $927,600 of SST’s indebtedness to the Seller and third parties; | |
| ● | entered into an “at will” employment agreement with Seller, pursuant to which Seller will continue to serve as SST’s Chief Executive Officer at an annual salary of $100,000; and | |
| ● | as an incentive to retain SST’s other employees, issued to such employees, a total of 300,000,000 three-year common stock purchase warrants (the “Incentive Warrants”), each entitling the holder to purchase one share of SST common stock at an exercise price of $0.001 per share. |
SST has been engaged in the education technology and services business for over 25 years. SST markets its systems to and installs these systems in elementary, middle and high schools, as well as colleges, universities, and commercial facilities. These interactive smartboards provide students with interactive remote access from home or other locations to classrooms and teachers via personal computers, laptops, tablets, and similar devices. SST currently markets its systems primarily in Pennsylvania, Ohio and West Virginia, is in the process of expanding into the Alabama and Michigan markets and plans to expand further throughout the United States as opportunities present themselves either organically or through strategic acquisitions.
As a result of the growth in remote learning driven in part by the COVID-19 pandemic and government funding including ESSER Funds (Elementary Secondary School Emergency Relief) and the CARES Act (Coronavirus Aid, Relief, and Economic Security), SST is currently experiencing a significant increase in orders and sales and continuous growth in backlog. Since the closing of the acquisition, FOMO has secured several millions dollars financing to support SST’s fulfillment of additional orders and delivery of its backlog.
The digital smartboards which form the key element of SST’s interactive audio visual systems are primarily supplied by a leading manufacturer based in Canada, which is a subsidiary of a large multi-national company Hon Hai Precision Industry Co., Ltd., trading as Hon Hai Technology Group in China, Taiwan and Foxconn internationally. SST believes that its relationship with its supplier is excellent, although there can be no assurance that if the relationship with the supplier was interrupted or otherwise adversely affected that an alternative source of supply at commercially reasonable cost would be available or that SST’s business would not be seriously harmed.
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The primary competitor of SST in Pennsylvania, Ohio and West Virginia is a Philadelphia-based entity which also markets and sells interactive whiteboards. SST believes that it competes effectively based on its contacts and relationships with its existing and potential customers. However, there can be no assurance that additional competitors with greater financial and other resources will not enter SST’s market or that SST will be able to successfully compete as it enters new geographic markets.
SST currently employs 11 people, including 4 in administration, 1 in sales and 6 in installation. As a result of its growing backlog, SST is currently seeking to expand its installation and sales staff.
Costs and Resources
FOMO WORLDWIDE, INC. is currently pursuing additional funding resources that will potentially enable it to maintain its current and planned operations through the next 12 months. The Company anticipates that it will need to raise additional capital in order to sustain and grow its operations over the next few years. To the extent that the Company’s capital resources are insufficient to meet current or planned operating requirements, the Company will seek additional funds through equity or debt financing, collaborative, or other arrangements with corporate partners, licensees, or others, and from other sources, which may have the effect of diluting the holdings of existing shareholders. As of March 31, 2023, the Company had no current arrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders or creditors will provide any portion of the Company’s future financing requirements. No assurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its programs that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company.
Critical Accounting Policies
See Note 2 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report.
Results of Operations
Six months ended June 30, 2023 as compared to six months ended June 30, 2022
Sales. During the six months ended June 30, 2023 and 2022, the Company had $1,451,655 and $3,480,919 in sales, respectively. The decrease from the 2022 quarter to the 2023 quarter was $2,029,264 (58%).
Cost of Sales. During the six months ended June 30, 2023 and 2022, the Company incurred $1,089,255 and $3,189,087 in cost of sales, respectively. The decrease from the 2022 quarter to the 2023 quarter was $2,099,832 (66%). Cost of sales include product sales and payroll.
Gross Profit. Gross profit expressed as a percentage of sales for the six months ended June 30, 2023 was 25%, which was an increase from 8% for the six months ended June 30, 2022.
General and Administrative Expenses. During the six months ended June 30, 2023 and 2022, the Company incurred general and administrative expenses of $961,531 and $1,681,309, respectively, consisting primarily of salaries and professional fees. The decrease from the 2022 quarter to the 2023 quarter was $719,778 (43%). The decrease primarily relates to a decrease in shares and warrants issued for services in 2023, which decreased by $725,385 during the six months ended June 30, 2023.
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Other Income (Expense). For the six months ended June 30, 2023 and 2022, the Company reflected other expense – net of $300,319 and $1,503,377, respectively. The decrease from the prior period was $(1,013,847) (67%), primarily related to the change in valuation of derivative liabilities.
For the quarter ended June 30, 2023, other income (expenses) consisted of interest expense of $252,949, , loss on debt extinguishment of $402,294 and change in fair value of marketable equity securities of $140,654 , offset by a gain on the change in fair value of derivative liabilities of $2,951,434 and a gain on debt extinguishment of $747,926.
For the quarter ended June 30, 2022, other income (expenses) consisted of interest expense of $189,070, amortization of debt discount of $146,916, change in fair value of derivative liabilities of $14,109, derivative expense of $182,695, loss on debt extinguishment of $7,896, and change in fair value of marketable securities of $289,263.
Net Loss. For the three months ended June 30, 2023, the Company incurred a net income of $2,889,652.
For the three months ended June 30, 2022, the Company incurred a net loss of $(1,067,046).
The decrease in net loss from the 2022 quarter to the 2023 quarter was a result in the decrease in other expenses related to the remeasurement of derivative liabilities, offset by a decline in shares and warrants issued for services in 2023.
Our Auditors Have Issued a Going Concern Opinion
The Company’s independent registered public accounting firm has expressed substantial doubt as to the Company’s ability to continue as a going concern as of June 30, 2023. The unaudited consolidated financial statements in this report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the unaudited consolidated financial statements, these conditions raise substantial doubt from the Company’s ability to continue as a going concern. The Company’s plans in regard to these matters are also described in the notes to the Company’s unaudited consolidated financial statements. The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying consolidated financial statements, for the six months ended June 30, 2023, the Company had:
| ● | a net loss of $899,450; and |
| ● | net cash used in operations of $135,337. |
Additionally, at June 30, 2023, the Company had:
| ● | an accumulated deficit of $25,046,722; |
| ● | stockholders’ deficit of $2,697310; and |
| ● | a working capital deficit of $3,967,491. |
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Liquidity and Capital Resources
Cash Flows
Operating Activities
For the six months ended June 30, 2023 and 2022, the Company reflected net cash used in operating activities of $135,337 and $668,919, respectively, a decrease of $533,582 (80%). Operating activities primarily consist of a net loss of $899,450, offset by non-cash net expenses of 24,342, and increase in accounts receivable, and inventory, offset by decreases in deferred revenues.
Investing Activities
For the six months ended June 30, 2023 and 2022, the Company reflected net cash provided by investing activities of $(22,033) and $194,406; primarily repayments of related party loans.
Financing Activities
For the six months ended June 30, 2023 and 2022, the Company reflected net cash provided by financing activities of $171,586 and $613,977, respectively, a decrease of $442,391 (72%). Financing activities primarily consisted of proceeds and repayments from debt, drawdown on the accounts receivable credit facility and proceeds from the issuance of common stock and Class A preferred stock.
During the six months ended June 30 2023, the Company received $384,335 net of borrowed funds from non-related parties through MCA loans and $(196,505) net in an asset backed loan against the accounts receivable of SST
During the three months ended March 31, 2022, the Company received $253,750 of borrowed funds from non-related parties through the sale of convertible notes payable, $1,022,749 in an asset backed loan against the accounts receivable of SST and $195,000 loan from a related party (CEO of SST). The Company also repaid $516,234 in non-related party loans, $194,049 in related party loans, $150,000 in an SBA loan and $40,232 in the asset backed loan.
We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand of $111,170 at June 30, 2023. Although the Company intends to raise additional debt or equity capital, the Company expects to continue to incur significant losses from operations and have negative cash flows from operating activities for the near-term. These losses could be significant as product and service sales ramp up along with continuing expenses related to compensation, professional fees, development and regulatory are incurred.
The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended June 30, 2024, and our current capital structure including equity-based instruments and our obligations and debts.
If the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.
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These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include the following:
| ● | Pursuing additional capital raising opportunities (debt or equity), |
| ● | Continue to execute on our strategic planning while increasing operational efficiency, |
| ● | Continuing to explore and execute prospective partnering or distribution opportunities; and |
| ● | Identifying unique market opportunities that represent potential positive short-term cash flow. |
We expect our expenses will continue to increase during the foreseeable future as a result of increased operational expenses and the development of our clean air and audio/visual businesses. However, we do not expect and have already generating revenues from our operations for the audio/visual business. Consequently, our dependence on the proceeds from future debt or equity investments will be used to implement our business plan of expanding our business through mergers and acquisition and expanding revenues through growing sales in the clean air and audio/visual businesses. If we are unable to raise sufficient capital, we will be required to delay or forego some portion of our business plan, which would have a material adverse effect on our anticipated results from operations and financial condition. There is no assurance that we will be able to obtain necessary amounts of additional capital or that our estimates of our capital requirements will prove to be accurate. As of the date of this Report we did not have any commitments from any source to provide such additional capital. Even if we are able to secure outside financing, it may be unavailable in the amounts or the times when we require. Furthermore, such financing would likely take the form of bank loans, private placement of debt or equity securities or some combination of these. The issuance of additional equity securities would dilute the stock ownership of current investors while incurring loans, leases or debt would increase our capital requirements and possible loss of valuable assets if such obligations were not repaid in accordance with their terms.
Contractual Obligations and Commitments
The Company had a material change in contractual obligations related to its right-of-use operating lease, which was acquired in March 2022. There were no commitments at December 31, 2022 as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022.
Delinquent Loans
At June 30, 2023, the Company was in default on its debt arrangements with four providers of merchant cash advances (“MCAs”) that funded against expected shipments from its primary vendor SMART Technologies, who subsequently reduced our credit line for equipment from $1,000,000 to $350,000. The Company is working with these third parties on a reduced payment basis and analyzing proposals from new capital providers to refinance the positions. The Company is also in default on the covenants of its secured asset backed credit line funded by Thermo Credit LLC, though the lender is amicable and not enforcing its rights.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for “smaller reporting companies.”
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive, financial and accounting officer), we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our management has determined that, as of March 31, 2023, the Company’s disclosure controls are not effective for the reasons set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, including the following:
● The Company lacks segregation of duties similar to other companies our size
We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report on Form 10-Q, our President and Chief Financial Officer performed an evaluation of the effectiveness of and the operation of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our President and Chief Financial Officer concluded that as of the end of the period covered by this report on Form 10-Q, our disclosure controls and procedures are not effective in timely alerting them to material information relating to FOMO WORLDWIDE, INC. required to be included in our Exchange Act filings.
Limitations on the Effectiveness of Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the quarter ended March 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
FOMO, its wholly owned subsidiary SST, our CEO, and our SVP Finance have been served with a civil lawsuit by a former employee seeking $600,000 or more in unpaid commissions, damages, interest and penalties. We have a significantly lower audited calculated amount and intend to defend ourselves vigorously.
Item 1A. Risk Factors.
Not required under Regulation S-K for “smaller reporting companies.”
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits.
(a) Exhibits.
| Exhibit | Item | |
| 31.1* | Section 302 Sarbanes-Oxley Act Certification | |
| 32.1 | Section 906 Sarbanes-Oxley Act Certification | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed herein. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FOMO WORLDWIDE, INC. | |
| Date: August 21, 2023 | /s/ Vikram Grover |
| Vikram Grover, President | |
| (Principal Executive. Financial and Accounting Officer) |
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