FREEDOM INTERNET GROUP INC. Forward-Looking Information
This quarterly report on Form 10-Q contains forward-looking statements within
the meaning of the safe harbor provisions of the
Examples of forward-looking statements include:
·the timing of the development of future products;
·projections of costs, revenue, earnings, capital structure and other financial items;
·statements of our plans and objectives;
·statements regarding the capabilities of our business operations;
·statements of expected future economic performance;
·statements regarding competition in our market; and
·assumptions underlying statements regarding us or our business.
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 recently filed Annual Report on Form 10-K filed
on
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 and 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.
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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.
We primarily intend to negotiate royalty interests directly from operators, but we may also acquire existing royalty interests from third parties. A key element of our business model is the building of a diversified portfolio of high-quality royalty interests from Internet based businesses.
We currently, and generally at any time, have royalty interest acquisition opportunities in various stages of active review. At this time, we cannot provide assurance that any of the possible transactions under review by us will be concluded successfully.
Unless the context otherwise requires, all references to "our Company," "we,"
"our" or "us" and other similar terms means
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 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 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.
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Results of Operations for the three months ended
Three months ended Three months ended
April 30, 2022 April 30, 2021 Variance
Revenues $12,685 $17,885 $(5,200)
Operating Expenses:
Advertising and Marketing 500 882 (382)
Professional and consulting fees 41,833 62,626 (20,793)
Salaries and payroll taxes 30,481 40,904 (10,423)
Rent expense 50 75 (25)
Amortization of Royalty Interests 11,250 13,689 (2,439)Other expenses 7,079 7,942 (863) Total operating expenses 91,193 126,118 (34,925) Other income 3,505 226 3,279 Net loss$(75,003) $(108,007) $33,004
Revenues: We generated
Operating Expenses: Overall operating expenses decreased to
Our net loss decreased from
Results of Operations for the six months ended
Six months ended Six months ended
April 30, 2022 April 30, 2021 Variance
Revenues $25,640 $42,369 $(16,729)
Operating Expenses:
Advertising and Marketing 570 6,968 (6,398)
Professional and consulting fees 104,940 91,254 13,686
Salaries and payroll taxes 60,840 60,841 (1)
Rent expense 100 150 (50)
Amortization of Royalty Interests 22,500 25,855 (3,355)
Other expenses 18,098 14,221 3,877
Total operating expenses 207,048 199,289 7,759
Other income (expense) (9,052) 616 (8,436)
Net loss $(190,460) $(156,304) $34,156 Revenues: We generated
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Operating Expenses: Overall operating expenses increased to
Our net loss increased from
Liquidity and Capital Resources
Our balance sheet as of
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.
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.
Impact of Covid-19 Pandemic
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.
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.
Revenue Recognition
The Company recognized revenue from royalty interest agreements under ASC 606-10-55-65 which apply to sales-based or usage-based royalties. Guidance under this section stipulates that revenue recognition should be based when the later of the following events occur: (1) the subsequent sales occur or (2) the performance obligation to which some or all for the sales-based royalty has been allocated has been satisfied or partially satisfied. The Company deems collection efforts to be the key performance obligation being satisfied, and therefore has adopted the approach of recognizing revenue based on customer collections. The operators that are parties to the royalty agreements, are typically structured to report and pay percentages of revenue earned over quarterly or monthly periods, some of which do not line up with the quarterly reporting period of the Company.
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
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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 its royalty
agreements 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.
Off-Balance Sheet Arrangements
As of
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