Freedom Internet Group Inc. - Quarter Report: 2020 July (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

For the quarterly period ended: July 31, 2020

 

Or

 

 

Commission File Number: 000-56149 

 

Freedom Internet Group Inc.

(Exact name of registrant as specified in its charter)

 

Puerto Rico	66-0910894
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

151 Calle San Francisco, Suite 200San Juan, Puerto Rico	00901
(Address of principal executive offices)	(Zip Code)

855-422-4200

(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: None

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

 

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 (§232.405 of this chapter) 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “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 ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,076,800 shares of common stock as of September 14, 2020

 

 

Freedom Internet Group Inc.

Table of Contents

 

	Page
PART I – FINANCIAL INFORMATION	F-1
Item 1. Financial Statements:	F-1
Condensed Balance Sheets (unaudited)	F-1
Condensed Statements of Operations (unaudited)	F-2
Condensed Statements of Stockholders’ Equity (Deficit) (unaudited)	F-3
Condensed Statements of Cash Flows (unaudited)	F-4
Notes to Condensed Financial Statements (unaudited)	F-5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
PART II – OTHER INFORMATION	15
Item 1. Legal Proceedings.	15
Item 1A. Risk Factors.	15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3. Defaults Upon Senior Securities	15
Item 4. Mine Safety Disclosures	15
Item 5. Other Information.	16
Item 6. Exhibits	16
SIGNATURES	17

 

 

PART I –  FINANCIAL INFORMATION

 

FREEDOM INTERNET GROUP INC.

 

CONDENSED BALANCE SHEETS

As of July 31, 2020 (unaudited) and October 31, 2019

 

	July 31, 2020 (Unaudited)	October 31, 2019
ASSETS
Cash and cash equivalents	$578,944	$1,179,497
Due from related party	-	2,839
Prepaid expenses	-	5,000
Total Current Assets	578,944	1,187,336
Royalty interests, net of accumulated amortization of $42,625 and $0, respectively	883,050	495,675
Total assets	$1,461,994	$1,683,011
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable and accrued liabilities	$23,569	$7,943
Reserve for share-based payment transactions (SAFE convertible contributions)	1,812,000	1,812,000
Total current liabilities	1,835,569	1,819,943
Non-current Liabilities
Notes payable	7,400	-
Total Liabilities	1,842,969	1,819,943
COMMITMENTS AND CONTINGENCIES (See Note 6)
Stockholders’ Deficit
Preferred Stock; $0.01 par value; 5,000,000 shares authorized; none issued and outstanding	-	-
Common stock; $0.01 par value; 200,000,000 shares authorized, 3,076,800 shares issued and outstanding	30,768	30,768
Common stock subscribed	14,375	-
Additional paid in capital	625	-
Accumulated deficit	(426,743)	(167,700)
Total Stockholders’ Deficit	(380,975)	(136,932)
Total Liabilities and Stockholders’ Deficit	$1,461,994	$1,683,011

 

The accompanying notes are an integral part of these condensed financial statements.

 

FREEDOM INTERNET GROUP, INC.

 

CONDENSED STATEMENTS OF OPERATIONS

For the three months ended July 31, 2020 and 2019 and the period since November 15, 2018 (inception) to July 31, 2019 and for the nine months ended July 31, 2020

(unaudited)

 

	For the Three Months ended July 31,		For the period since November 15, 2018 (Inception) to July 31, 2019 and for the nine-months ended July 31,
	2020	2019	2020	2019
Revenues
Royalties	$40,103	$-	$61,636	$-
Operating Expenses
Advertising	9,487	-	12,032	-
Professional and consulting	27,710	16,045	183,743	107,619
Salaries and payroll taxes	29,931	10,546	77,910	21,457
Rent expense	125	225	575	698
Amortization of royalty interests	15,417	-	42,625	-
Other expenses	696	1,179	17,565	2,324
Total Operating Expenses	83,366	27,995	334,450	132,098
Loss from operations	(43,263)	(27,995)	(272,814)	(132,098)
Other Income (Expense)
Interest expense	-	-	(48)	-
Interest income	181	-	6,488	-
Other	6,736	15	7,331	40
Total other income (expense)	6,917	15	13,771	40
Net Loss	$(36,346)	$(27,980)	$(259,043)	$(132,058)
Net loss per common share - basic and fully diluted	$(0.01)	$(0.01)	$(0.08)	$(0.06)
Weighted average shares outstanding - basic	3,076,800	3,076,800	3,076,800	2,176,000
Weighted average shares outstanding - diluted	3,076,800	3,076,800	3,076,800	2,176,000

 

The accompanying notes are an integral part of these condensed financial statements.

 

 FREEDOM INTERNET GROUP INC.

 

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIT)

 

From the period since November 15, 2018 (inception) to July 31, 2019 and from the period November 1, 2019 to July 31, 2020

(unaudited)

	Preferred Stock		Common Stock
	Shares	Amount	Shares	Amount	Common Stock Subscribed	Additional Paid-in Capital	Accumulated Deficit	Total Stockholders’ Equity (Deficit)
Balance November 15, 2018 (inception)	-	$-	-	$-	$-	-	$-	$-
Shares issued to founders	-	-	2,076,800	20,768	-	-	-	20,768
Net loss	-	-	-	-	-	-	(2,245)	(2,245)
Balance, January 31, 2019			2,076,800	20,768	-	-	(2,245)	18,523
Shares issued to founders	-	-	1,000,000	10,000	-	-	-	10,000
Net loss	-	-	-	-	-	-	(101,832)	(101,832)
Balance April 30, 2019 (unaudited)	-	$-	3,076,800	$30,768	-	$-	$(104,077)	$(73,309)
Net loss	-	-	-	-	-	-	(27,980)	(27,980)
Balance July 31, 2019 (unaudited)	-	3	3,076,800	$30,768	-	$-	$(132,057)	$(101,289)

 

	Preferred Stock		Common Stock
	Shares	Amount	Shares	Amount	Common Stock Subscribed	Additional Paid-in Capital	Accumulated Deficit	Total Stockholders’ Equity (Deficit)
Balance November 1, 2019)	-	$-	3,076,800	$30,768	$-	-	$(167,700)	$(136,932)
Net loss	-	-	-	-	-	-	(126,287)	(126,287)
Balance, January 31, 2020			3,076,800	30,768	-	-	(293,987)	(263,219)
Net loss	-	-	-	-	-	-	(96,410)	(96,410)
Balance April 30, 2020 (unaudited)	-	$-	3,076,800	$30,768	-	$-	$(390,397)	$(359,629)
Common Stock – subscribed in private placement	-	-	-	-	14,375	-	-	14,375
Warrants issued	-	-	-	-	-	625	-	625
Net loss	-	-	-	-	-	-	(36,346)	(36,346)
Balance July 31, 2020 (unaudited)	-	$-	3,076,800	$30,768	$14,375	$625	$(426,743)	$(380,975)

The accompanying notes are an integral part of these condensed financial statements.

 

FREEDOM INTERNET GROUP, INC.

 

CONDENSED STATEMENTS OF CASH FLOWS

For the nine months ended July 31, 2020 and from the period since November 15, 2018 (inception) to July 31, 2019

(unaudited)

 

	For the nine months ended July 31, 2020	For the period since November 15, 2018 (inception) to July 31, 2019
Cash flows from operating activities:
Net loss	$(259,043)	$(132,058)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of royalty interests	42,625	-
Due from related party	2,839	(2,839)
Prepaid expenses	5,000	-
Accounts payable and accrued liabilities	15,626	13,547
Net cash used in operating activities	(192,953)	(121,350)
Cash flows from investing activities
Purchase of royalty interest	(430,000)	(250,000)
Net cash used in investing activities	(430,000)	(250,000)
Cash flows from financing activities
Proceeds from Paycheck Protection Program	7,400	-
Stock subscription	14,375	-
Sale of warrants	625	-
Issuance of founders’ shares	-	30,768
Issuance of SAFE instruments	-	1,812,000
Net cash provided from financing activities	22,400	1,842,768
Net change in cash and cash equivalents	(600,553)	1,471,418
Cash and cash equivalents, at beginning of period	1,179,497	-
Cash and cash equivalents, at end of period	$578,944	$1,471,418
Supplemental cash flow information:
Interest paid	$48	$-
Income taxes paid	$-	$-

 

The accompanying notes are an integral part of these condensed financial statements.

 

FREEDOM INTERNET GROUP INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

 

On November 15, 2018, (commencement of operations) Freedom Internet Group Inc. (the “Company”) was organized in Puerto Rico to provide Internet-focused entrepreneurs with business consulting services, centralized management services and revenue-based financing. The Company is engaged in the business of acquiring, holding and managing royalty interests derived from Internet based businesses. Royalty interests are passive (non-operating) agreements that provide the Company with contractual rights to revenue produced from operators.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-months ended July 31, 2020, are not necessarily indicative of the results for the full year. While management of the Company believes that the disclosures presented herein is adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the period ended October 31, 2019.

  

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America, and, as such, include amounts based on judgments, estimates, and assumptions made by management that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company is in the development stage, which is defined as an entity devoting substantially all of its efforts to establishing a new business and for which its primary line of business has not yet begun. As of July 31, 2020, the Company was still in the process of developing its accounting policies and procedures. Following is a description of the more significant accounting policies followed by the Company:

  

Cash and Cash Equivalents

  

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

  

Royalty Interests

 

The Company has a total of $925,675 invested in royalty interests. Royalty interests are passive (non-operating) agreements that provide us with contractual rights to a percentage of revenue produced from companies we provide funds to. The Company amortizes the cost of royalty interests over the estimated life of the cash flows produced by the agreement, which is initially estimated at 15 years. Royalty interests are considered a long-lived asset that is required to be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. The Company evaluates royalty agreement at subsequent reporting periods to determine if a change in the underlying agreement or cash flows warrants a change in the estimate. Impairment exists for the royalty interests if the carrying amount exceeds the estimates of future net undiscounted cash flows expected to be generated by such assets. An impairment charge is required to be recognized if the carrying amount of the asset, or asset group, exceeds its fair value.

 

 

During the nine and three months ended July 31, 2020, the Company amortized $42,625 and $15,417 of the royalty interests into expense.

  

Revenue Recognition

  

The Company recognizes revenue under royalty interest agreements when earned and collection is reasonably assured.

 

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The new guidance provides a five-step process for recognizing revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also requires expanded qualitative and quantitative disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for public companies with annual reporting periods beginning after December 31, 2017, and is to be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial adoption. Early adoption is permitted for all entities but not before the original effective date for public entities. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. Under ASU 2014-09, the Company will be required to estimate the amount of royalties on the accrual basis. The Company has elected to delay the application of new accounting standards under the provisions of our status as an emerging growth company pursuant to the JOBS Act. We will adopt this standard using the full retrospective methodology for our annual period ending on October 31, 2020 as allowed by the JOBS Act. Adoption is not anticipated to have a material effect on our financial statements.

 

The Company plans to recognize revenue from royalty interest agreements under ASC 606-10-55-65 which apply to sales-based or Usage-Based royalties. Guidance under this section stipulates that revenue recognition should be based when the later of the following events occur: (1) the subsequent sales occur or (2) the performance obligation to which some or all for the sales-based royalty has been allocated has been satisfied or partially satisfied. The Company deems collection efforts to be the key performance obligation being satisfied, and therefore has adopted the approach of recognizing revenue based on customer collections. The operators that are parties to the royalty agreements, are typically structured to report and pay percentages of revenue earned over a quarterly period, some of which do not line up with the quarterly reporting period of the Company.

  

Income Taxes

 

Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established for deferred tax assets that, based on management’s evaluation, are not expected to be realized, therefore no income tax provision/benefit has been recorded in the accompanying condensed statements of operations.

  

Tax benefits of uncertain tax positions are recorded only where the position is “more likely than not” to be sustained based on their technical merits. The amount recognized is the amount that represents the largest amount of tax benefit that is greater than 50% likely of being ultimately realized. A liability is recognized for any benefit claimed or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalty (if applicable) in such excess. The Company has no uncertain tax positions as of July 31, 2020.

 

3. ROYALTY INTERESTS

  

Wiz Motions, LLC

  

On October 10, 2019, the Company acquired a royalty interest from Wiz Motions, LLC (“Wiz”), a limited liability company formed in the State of Wyoming. Wiz provides their clients with custom video animation explainer videos. The Company purchased a royalty interest from Wiz for $300,000 which provides it with a perpetual 10% of all future gross sales generated by Wiz through www.WizMotions.com and all other sources. The Company recognized $18,603 and $31,678 in revenue during the three and nine months ended July 31, 2020, respectively.

   

Offito, LLC

  

On October 15, 2019, the Company acquired a royalty interest from Offito, LLC (“Offito”), a limited liability company formed in the State of Wyoming. Offito provides their clients with an application to help monetize their website traffic. The Company purchased a royalty interest from Offito for $195,000 which provides it with a percentage of all future Net Sales as follows: 50% of the first $10,000, 35% of the next $10,000 and 25% of any amount over $20,000. The Company had no revenue from Offito, during the three and nine months ended July 31, 2020.

 

Growth Stack, Inc.

  

On November 22, 2019, the Company acquired a royalty interest from Growth Stack, Inc. (“Growth Stack”), a corporation formed in the State of Nevada. Growth Stack provides their clients with various Internet applications, website tools and information services. The Company purchased a royalty interest from Growth Stack for $250,000, which provides us with a percentage of all future Net Sales (defined below) as follows: 5% of the first $100,000 of Net Sales per month, and 3% of the next $100,000 of Net Sales per month. The Company will also receive 1% of the Net Sales in excess of $200,000 per month, until it receives a total of $500,000 in aggregate royalty payments from Growth Stack. The Company is also entitled to a payment of between $500,000 and $1 million in the event (i) Growth Stack elects to buy-out the royalty interest or (ii) Growth Stack undergoes a change of control. In addition, the Company has the right of first refusal to acquire Growth Stack assets in the event the operator decides to sell, and we have received a personal guarantee for royalty payments due by the principal shareholder of Growth Stack. Royalty payments are due monthly.

 

During the three and nine months ended July 31, 2020, the Company recognized revenue of $12,500 and $20,682, respectively related to Growth Stack, Inc.

 

Pick A Toilet LLC

 

On April 1, 2020, the Company acquired a royalty interest from Pick A Toilet, LLC (“Pick A Toilet”), a limited liability company formed in Wyoming. Pick A Toilet provides their clients with advertising and reviews related to the toilet industry. The Company purchased a royalty interest from Pick A Toilet for $180,000, which provides the Company a royalty based on 26% of the net sales from the revenues of the websites. At the end of each quarter, the Company will receive the results from the Operator and subsequently invoice the operator for its share of revenue. Estimated payments of 5% of the value of the $180,000 paid for the royalty interest are due no later than the 5th day of the month following the calendar quarter. The estimates are then compared to the actual and trued up on the Company’s invoice.

 

For the three and nine months ended July 31, 2020, the Company recognized $ 9,000 and $9,000, respectively, related to Pick a Toilet.

 

The Company recorded total amortization expense related to the original royalty agreement purchases of $15,417 and $42,625 for the three and nine-month periods ended July 31, 2020. No such agreements existed during the three and nine-month periods ended July 31, 2019.

 

 

4. NOTE PAYABLE

 

On July 1, 2020, the Company closed a loan of $7,400 (the “PPP loan”) from a commercial bank, pursuant to the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (the “SBA”) pursuant to

the CARES Act. The PPP loan matures on June 30, 2025, and bears an interest rate of 1% per annum. Payments of principal and interest of any unforgiven balance commence on December 1, 2020. Under the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”), (i) the first payment date for the PPP loan will be the earlier of (a) 10 months after the end of the “covered period” (as determined under the PPP) or (b) the date the bank receives a remittance of the forgiven amount from the SBA, and (ii) the PPP loan’s maturity is extended to five years (from 2 years).

 

All or a portion of the PPP loan may be forgiven by the lender upon application by the Company beginning 60 days after the loan approval and upon documentation of expenditures in accordance with the requirements set forth by the SBA pursuant to the CARES Act. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during either, at the Company’s election, the eight-week period or twenty-four-week period beginning on the date of disbursement of proceeds from the PPP loan. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000 prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced, under certain circumstances, if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced. In the event the PPP loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The balance of the loan at July 31, 2020 was $7,400.

 

5. COMMON STOCK 

 

In June 2020, the Company, through a private offering, offered an aggregate of $1,800,000 of units, each unit consists of a subscription for 100 shares of Company $0.01 par value common stock and a warrant to purchase an additional 100 shares of Company common stock at an exercise price of $8.00 per share. Units are offered, at a purchase price of $600 per unit. In July 2020, the Company sold 25 units, or a subscription for 2,500 shares of common stock for an aggregate purchase price of $15,000. The subscription included detachable warrants to purchase an additional 2,500 shares at $8.00 per share with a term ending on December 31, 2021.

  

6. STOCK PURCHASE WARRANTS

 

In July 2020, the Company issued warrants in connection with the sales of stock subscriptions as referenced above. Warrants outstanding are as follows:

 

	Warrant Shares	Weighted Average Exercise Price
Balance at April 30, 2020	-	-
Granted	2,500	$8.00
Forfeit or cancelled	-	-
Exercised	-	-
Balance at July 31, 2020	2,500	$8.00

 

 

The fair value of the warrants at July 22, 2020 was $625 and was determined using the Black-Scholes option pricing model with the following assumptions:

 

Expected Life		1.42 years
Volatility		28% *
Dividend Yield		0% **
Risk Free Interest Rate		0.14% ***

  

 

7. COMMITMENTS AND CONTINGENCIES

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus disease (“COVID-19”) as a pandemic, which continues to spread throughout the U.S. COVID-19 is having an unprecedented impact on the U.S economy as federal, state, and local governments react to this public health crisis.

 

The impacts of the current COVID-19 pandemic are broad reaching and the impacts on the Company’s licensing royalty interests is to date unknown. Due to the COVID-19 outbreak, there is significant uncertainty surrounding the potential impact on the Company’s future results of operations and cash flows and its ability to raise capital. Continued impacts of the pandemic could materially adversely affect the Company’s near-term and long-term revenues, earnings, liquidity, and cash flows as the Company’s customers and /or licensees may request temporary relief, delay or not make scheduled payments on their royalty commitments.

 

The Company received two economic injury disaster loan (“EIDL”) grants in the amount of $1,500 and $5,000. These amounts are included in other income during the three and nine months ended July 31, 2020.

 

8. SUBSEQUENT EVENTS

 

In August and September 2020, the Company pursuant to a private offering has received $471,800 for the purchase of 786 units or subscriptions for 78,633 shares of common stock and 78,633 warrants to purchase additional shares at $8.00 per share. Of the total funds received, 556 units subscriber for remain subject to legal review and verification. If the investors are not verified as accredited investors, the Company would need to refund approximately $333,798.

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward-Looking Information

 

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.

 

Examples of forward-looking statements include:

 

 

The ultimate correctness of these forward-looking statements depends upon several known and unknown risks and events. We discuss our known material risks under “Risk Factors” in our most recent Registration Statement on Form S-1 filed with the Securities and Exchange Commission on February 19, 2020; However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly any future Annual Reports on Form 10- K, any Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. Many factors could cause our actual results to differ materially from the forward-looking statements. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

We caution you that actual outcomes and results may differ materially from what is expressed, implied, or forecast. We caution you that actual outcomes and results may differ materially from what is expressed, implied, or forecast by our forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

 

Overview

 

We are engaged in the business of acquiring, holding and managing royalty interests derived from Internet based businesses. Royalty interests are passive (non-operating) agreements that provide us with contractual rights to revenue produced from our operators.

  

Unless the context otherwise requires, all references to “our Company,” “we,” “our” or “us” and other similar terms means Freedom Internet Group Inc.

  

Principal Services

 

We are engaged in the business of acquiring, holding and managing royalty interests derived from Internet based businesses. Royalty interests are passive (non-operating) agreements that provide us with contractual rights to revenue produced from our operators. The revenue generated by our operators is typically from physical or digital product sales, subscriptions and advertising.

 

Our purchase of royalty interests enables entrepreneurs to raise non-dilutive capital and retain control of their businesses. When we enter into royalty interest agreements, our primary objectives are to generate revenue streams from our operators and increase our corporate cash flow. In some cases, we may also generate a premium on our original purchase price if a royalty interest is redeemed by an operator or third-party such as a buyer of an operator. We plan to acquire royalty interests that can generate a 15% to 30% internal rate of return, although there can be no guarantee that we will achieve this target.

  

Royalty interests are purchased for a fixed amount of capital in exchange for pre-determined royalty payments. Depending on the unique agreement, (i) royalty payments can be made monthly, quarterly or annually, (ii) royalty payments can be made in perpetuity or for a limited amount of time, (iii) royalty payment calculations can change during the term of the royalty interest agreement based on certain performance metrics or time and (iv) royalty payments can be calculated off gross revenue of our operators, or off net-revenue, which accounts for certain defined adjustments to gross revenue, or off unit sales.

  

Strategy

  

We look for businesses operated by managers, referred to as operators, and acquire a passive interest so that we can participate in the revenue generated by paying up front for the royalty interest.

  

We use a series of quantitative, qualitative, financial, and legal criteria by which we evaluate the potential acquisition of royalty interests. We plan to acquire assets with an income focus, and our target is to acquire assets generating uncorrelated income of 15% to 30% internal rate of return, although there can be no guarantee that we will achieve this target. Among the factors considered are: (1) the business track record of revenue and earnings; (2) the type of business that generates royalties; (3) the experience and skill of the active management team of the business; (4) our assessment of the longevity and staying power of the underlying business; and (5) the potential for revenue growth and capital appreciation.

  

We have established our business model based on the premise that acquiring non-operating, passive royalty interests in businesses that can produce above average returns. The key elements of our business model and growth strategy are as follows:

 

1.Focus on non-operating royalty interests in high-quality Internet based businesses.

 

2.Negotiate new royalty interest agreements with operators.

 

3.Acquire pre-existing royalty interests from third parties.

 

4.Partner with experienced managers that have a proven track record.

 

5.Provide flexible royalty interest acquisition terms that work for operators and us.

 

Results of Operations for the three months ended July 31, 2020 and 2019

 

	Three months ended July 31, 2020	Three months ended July 31, 2019	Variance
Revenues	$40,103	-	$40,103
Operating Expenses:
Advertising and Marketing	9,487	-	9,487
Consulting and Professional fees	27,710	16,045	11,665
Salaries and payroll taxes	29,931	10,546	19,385
Amortization of Royalty Interests	15,417	-	15,417
Other business expenses	821	1,404	(583)
Total Operating expenses	83,366	27,995	55,371
Other income	6,917	15	6,902
Net loss	$(36,346)	$(27,980)	$(8,366)

 

Revenues: We generated $40,103 and $0 of revenues for the three months ended July 31, 2020 and 2019, respectively. Our revenues came from collection from royalty interests of 3 operators. We currently have royalty interests associated with 4 operators.

 

Operating Expenses: Overall operating expenses increased to $83,366 for the three months ended July 31, 2020 as compared to $27,995 for the three months ended July 31, 2019, generally because of increasing our advertising and marketing by $9,487, increases in salaries for our founders of $19,385, amortization of royalty interests of $15,417, offset by a decrease in other expenses of $583. Our net loss increased from $27,980 to $36,346 primarily due to the increase in marketing efforts. Other income increased by $6,902 due to receiving two EIDL grants associated with the COVID relief totaling $6,500.

  

Results of Operations for the nine months ended July 31, 2020 and the period from November 15, 2018 (inception) to July 31, 2019

 

	Nine-months ended July 31, 2020	Period from November 15, 2018 (inception) to July 31, 2019	Variance
Revenues	$61,636	-	$61,636
Operating Expenses:
Advertising and Marketing	12,032	-	12,032
Consulting and Professional fees	183,743	107,619	76,124
Salaries and payroll taxes	77,910	21,457	56,453
Website development	12,250	-	12,250
Amortization of Royalty Interests	42,625	-	42,625
Other business expenses	5,890	3,022	2,868
Total Operating expenses	334,450	132,098	202,352
Other income (net of interest expense)	13,771	40	13,731
Net loss	$(259,043)	$(132,058)	$(126,985)

 

Revenues: We generated $61,636 and $0 of revenues for the nine months ended July 31, 2020 and the period ended 2019, respectively. Our revenues came from collection from royalty interests of 3 operators. We currently have royalty interests in 4 operators.

 

Operating Expenses: Our operating expenses increased from $132,098 during the period ending July 31, 2019 to $334,450 for the nine months ended July 31, 2020. The increase of $202,352 was primarily due to the increase of $76,124 in consulting and professional fees related to fees paid to third parties for the public offering process; and increase of $56,453 in salaries and payroll tax expense for our founders; increased costs related to branding and development of our website of $12,250 and other marketing costs of $12,032 and amortization of our royalty interests of $42,625. The increase in operating expenses for the nine months period ended July 31, 2020 as compared to the period ended July 31, 2019 was offset by our increase in revenue of $61,636 recognized from our collection of royalties from the operators and interest income from government grants totaling $6,500 related to COVID-19 economic injury relief.

 

Liquidity and Capital Resources

 

Our balance sheet as of July 31, 2020 as compared to October 31, 2019 reflects a decrease of cash assets of $600,553 due primarily to a net loss of $259,043 and purchases of royalty interests in operators of $430,000, offset by the amortization of royalty interest of $42,625. Net cash provided by financing activities totaled $22,400 and consisted of $7,400 loan under the Paycheck Protection Plan offered under the CARES Act and proceeds from the sale of common stock subscriptions totaling $15,000.

 

Our cash increased from November 18, 2028 (inception) through July 31, 2019 $1,471,418 and primarily came from the issuance of a series of simple agreements for equity (collectively, the “Series 1 SAFE’s”) in March 2019 in which we raised $1,812,000, offset by operating net loss of $132,058 and purchase of royalty interests of $250,000.

 

Over the next 12 months, we anticipate needing approximately $100,000 for accounting, legal, interest payments and working capital. We will utilize the cash currently held by the company to pay such expenses.

 

In the future, we plan to try and raise additional capital through the issuance of additional shares of common stock or preferred stock. If we issue additional shares of common stock in the future, our then-existing shareholders may face substantial dilution. If we issue preferred stock, we may be obligated to pay a substantial amount of interest which would reduce our cash available for working capital. In addition, holders of preferred stock may be entitled to be paid out of any assets we have in the event of any liquidation, dissolution or winding up of the corporation, before the holders of common stock would be paid anything.

 

Currently, we are offering $1,800,000 of units consisting of common stock and warrants to purchase common stock for sale under a private offering. However, we can provide no assurances to investors that we will be able to obtain additional financing when required. The only cash currently available to us is the cash in our bank account. We have no other sources of capital.

 

No assurance can be given that we will obtain access to capital markets in the future or that adequate financing to satisfy the cash requirements of implementing our business strategies will be available on acceptable terms. Our inability to gain access to capital markets or obtain acceptable financing could have a material adverse effect upon the results of our operations and financial condition. Our failure to raise additional funds if needed in the future will adversely affect our business operations, which may require us to suspend our operations and lead you to lose your entire investment.

 

It is likely that our operating losses will increase in the future and it is very possible we will never achieve or sustain profitability. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall or other unanticipated changes in our industry. Any failure by us to accurately make predictions would have a material adverse effect on our business, results of operations and financial condition.

 

COVID-19

 

We continue to seek to expand and diversify the types of licensed royalty interests we pursue. However, the impacts of the current COVID-19 pandemic are broad reaching and the total impact on our royalty business is to date unknown. The COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the pandemic, and actions that would be taken by governmental authorities to contain the pandemic or to treat its impact, makes it difficult to forecast any effects on our 2020 results. However, as of the date of this filing, we do not expect our results for 2020 to be significantly affected.

  

Critical Accounting Policies

 

Our critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the Notes to the Financial Statements. We have consistently applied these policies in all material respects. We do not believe that our operations to date have involved uncertainty of accounting treatment, subjective judgment, or estimates, to any significant degree.

  

Off-Balance Sheet Arrangements

 

As of July 31, 2020, we do not have an interest in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Contractual Obligations

 

There have been no material changes outside the ordinary course of business in our contractual commitments during the three months ended July 31, 2020.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures.

 

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of July 31, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost- benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of July 31 2020, our Principal Executive Officer and Principal Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

 

In connection with management’s assessment of our internal control over financial reporting, we identified the following material weaknesses in our internal control over financial reporting as of July 31, 2020:

  

 

 

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the nine months ended July 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

Not Applicable.

 

ITEM 1A. RISK FACTORS.

 

The following risk factors supplement the Risk Factors described in our Form S-1 Registration Statement filed on February 26, 2020 and should be read in conjunction therewith.

 

The novel strain of coronavirus (“COVID-19”) could have an adverse effect on our business operations.

 

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. The World Health Organization has declared COVID-19 to constitute a global pandemic. Disruptions to our business operations could occur as a result of quarantines of employees and suppliers in areas affected by the outbreak, facility closures, and travel and logistics restrictions in connection with the outbreak.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

  

During the period covered by this report, our Company has sold the following securities without registering the securities under the Securities Act:

 

Securities issued for cash

 

Date		Security
July 2020		25 Units for total proceeds of $15,000. In the aggregate there were 2,500 shares of common stock and warrants to purchase 2,500 shares of common stock contained in the units.
August – September 2020		786 units for total proceeds of $481,800. In the aggregate there were 78,633 shares of common stock and warrants to purchase an additional 78,633 shares of common stock contained in the units.

 

No underwriters were utilized and no commissions or fees were paid with respect to any of the above transactions. We relied on Rule 506(c) of Regulation D of the Securities Act since the transaction did not involve any public offering.

      

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

  

Not Applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES.

  

Not Applicable.

 

 

ITEM 5. OTHER INFORMATION.

 

Not Applicable.

ITEM 6. EXHIBITS.  

 

SEC Reference Number		Title of Document		Location
31.1		Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Executive Officer of the Company		Filed herewith
31.2		Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, executed by the Principal Financial Officer of the Company		Filed herewith
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Executive Officer of the Company		Filed herewith
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by the Principal Financial Officer of the Company		Filed herewith
101		XBRL data files of Condensed Financial Statements and Notes contained in this Quarterly Report on Form 10-Q

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on September 14, 2020.

 

	Freedom Internet Group Inc. Registrant
	By:	/s/ Alton Chapman
		Alton Chapman
		Principal Executive Officer
		/s/ Noah Rosenfarb
		Noah Rosenfarb
		Principal Financial Officer