As filed with the U.S. Securities and Exchange Commission on
February 6,
2020
Registration No. 333-235873
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM S-1/A
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
Freedom
Internet Group Inc.
(Name of small business issuer in its
charter)
Puerto Rico
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|
[ ]
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66-0910894
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(State
or other jurisdiction of incorporation or
organization)
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|
(Primary
Standard Industrial Classification Code
Number)
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|
(I.R.S.
Employer Identification Number)
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151 Calle San Francisco Suite 200
San Juan, Puerto Rico 00901
855-422-4200
(Address,
including zip code, and telephone number,
including
area code, of registrant's principal executive offices
and
principal place of business)
Alton “Ace” Chapman, Jr.
Chief Executive Officer
Freedom Internet Group Inc.
151 Calle San Francisco, Suite 200
San Juan, Puerto Rico 00901
855-422-4200
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copies
to:
Joel
Arberman
Meraki Partners, LLC
11932 Fountainside Circle
Boynton Beach, Florida 33437
Telephone: 516-299-9092
Facsimile:
516-299-9094
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Approximate
date of commencement of proposed sale to the public:
As soon
as practicable after the effective date of this Registration
Statement.
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If any
of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box.
☒
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act Registration Statement
number of the earlier effective Registration Statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act Registration Statement number of the earlier
effective Registration Statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act Registration Statement number of the earlier
effective Registration Statement for the same
offering. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer or a smaller
reporting company.
Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☒
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Smaller
reporting company
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☒
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Emerging
growth company
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☒
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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 7(a)(2)(B) of the Securities
Act. ☐
CALCULATION
OF REGISTRATION FEE
Title
of Securities to be Registered
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Amount to
be
Registered
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Proposed
Maximum
Offering
Price
Per Share
(1)
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Proposed
Maximum
Aggregate
Offering Price
(2)
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Amount
of
Registration
Fee
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|
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Common Stock, $.01
par value
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300,000
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$6
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$1,800,000
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$233.64
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(1)
No current trading
market exists for our common shares. The offering price has been
arbitrarily determined by us and bears no relationship to assets,
earnings or other valuation criteria. No assurance can be given
that the shares offered hereby will have a market value or that
they may be sold at this, or at any price.
(2)
Calculated pursuant
to Rule 457(a) based on the Amount of Securities to be Registered
multiplied by the Proposed Maximum Offering Price per
Unit.
The
Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
THE INFORMATION IN THIS
PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL
THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED
FEBRUARY , 2020
PROSPECTUS
FREEDOM INTERNET GROUP INC.
300,000 shares of
common stock offered at $6.00 per share
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Sale Total
Depending on
Percentage of
Securities Sold
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||||
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Per
Share
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100%
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75%
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50%
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25%
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Public Offering
Price
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$6.00
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$1,800,000
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$1,350,000
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$900,000
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$450,000
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Underwriting
Discounts and Commissions
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$-
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$-
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$-
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$-
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$-
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Proceeds to
Company
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$0
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$1,800,000
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$1,350,000
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$900,000
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$450,000
|
This prospectus relates to the registration of 300,000
shares of common stock in
Freedom Internet Group Inc., a Puerto Rico corporation (referred to herein as the
“Company,” “we,” “our,”
“us,” or other similar pronouns). The Company is
registering 300,000 shares of common stock at $6.00 per share in
a direct public offering. The
shares of our common stock subject to the offering are
referred to herein collectively as our “shares.”
The shares will be sold on a “best efforts” basis,
directly through the efforts of our Chief Executive Officer and our
Chief Financial Officer.
Should
we be successful in selling all the shares offered, we will receive
$1,800,000 in gross proceeds before expenses. We cannot assure you
that all or any of the shares will be sold. We estimate our total offering costs to be
approximately $245,234, which will be paid from existing corporate
funds, thus not affecting the proceeds of this offering. There is
no minimum number of shares that must be sold by us for the
offering to proceed. Each investor is required to purchase
at least 1,000 shares to participate in our offering. See “Plan of Distribution” beginning
on page 16 of this prospectus for more
information.
This
offering is our initial public offering and no public
market currently exists for the shares we are offering you.
Upon completion of this
offering, we intend to have our shares quoted on the
OTCQB operated by OTC Markets Group, Inc., although we have
made no arrangements to have our shares quoted on the OTCQB as of
the date of this prospectus. We cannot assure you that our shares
will ever be quoted on the OTCQB. Consequently, if you
purchase shares in this offering you will not be able
to sell your shares in any organized marketplace and may be limited
to selling your shares privately. Accordingly, an investment in our
shares is an illiquid investment.
This
offering shall begin upon the effectiveness of the registration
statement of which this prospectus is a part and will terminate on
the earlier of: (i) the date when the sale of all 300,000 shares is
completed, (ii) 120 days from the effective date of this prospectus
or (iii) if the Board of Directors decides to terminate the
offering earlier.
Our
Company qualifies as an “emerging growth company” as
defined in the Jumpstart Our Business Startups Act, which became
law in April 2012 and we will be subject to reduced public company
reporting requirements.
We are subject to many risks and an investment in our shares
involves a high degree of risk. You should only purchase shares if
you can afford a complete loss of your investment. Carefully
consider all the factors described under the heading “Risk
Factors” beginning on page 3 before investing in any of our
shares. You should rely only on the
information contained in this prospectus or any prospectus
supplement or amendment thereto. We have not authorized anyone to
provide you with different information.
The securities described in this prospectus will not be
“Covered Securities” as that term is defined in Section
18(b) of the Securities Act of 1933, as amended, and therefore,
will be subject to material restrictions and additional
registration requirements at state law. See, the sections
“Section 15(g) of the Exchange Act - Penny Stock
Disclosure” and “Blue Sky,” below.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of the
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is [_______], 2020
Table of Contents
Description
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Page
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Prospectus
Summary
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1
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Offering
Summary
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1
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Risk
Factors
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3
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Cautionary
Note Regarding Forward-Looking Statements
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12
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Use of
Proceeds
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13
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Determination
of Offering Price
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14
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Capitalization
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14
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Dilution
of the Price You Pay For Your Shares
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15
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Plan
of Distribution and Terms of the Offering
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16
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Description
of Securities
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17
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Market
for Common Equity and Related Stockholders Matters
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18
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Principal
Shareholders
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20
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Equity
Compensation Plan Information
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21
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Description
of Our Business
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22
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Directors,
Executive Officers, Promoters and Control Persons
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28
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Conflicts
of Interest
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31
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Related
Party Transactions
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31
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Executive
Compensation
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31
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Indemnification
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34
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Interest
of Named Experts and Counsel
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34
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Management
Discussion and Analysis of Financial Condition
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35
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Where
You Can Find More Information
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38
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Index
to Financial Statements
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F-1
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You
should rely only upon the information contained in this prospectus.
We have not authorized anyone to provide you with information
different from that which is contained in this prospectus. We are
offering to sell shares of common stock and seeking offers to buy
shares of common stock only in jurisdictions where offers and sales
are permitted.
You
should also assume that the information appearing in this
prospectus is accurate only as of the date on the front cover of
this prospectus. Our business, financial condition, results of
operations and prospects may have changed since that
date.
This prospectus includes forward-looking statements that involve
risks and uncertainties. See “Cautionary Note Regarding
Forward-Looking Statements.”
PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in
this prospectus. This summary is not complete and does not contain
all the information that you should consider before investing in
the securities being offered here. Before making an investment
decision, you should read the entire prospectus carefully,
including the sections entitled “Risk Factors”,
“Management’s Discussion and Analysis or Plan of
Operation,” and our financial statements and the related
notes included elsewhere in this prospectus. In this prospectus, unless context requires
otherwise, references to “we,”
“our,” “us” and “our Company”
refer to Freedom Internet Group Inc., a Puerto Rico
corporation.
Our Business and Corporate History
We are an early stage company engaged in the business of
acquiring, holding and managing royalty interests derived from
Internet based businesses, referred to as operators. Royalty
interests are passive (non-operating) agreements that provide us
with contractual rights to a percentage of revenue produced from
operators. The revenue generated by operators is typically from
physical or digital product sales, subscriptions and advertising.
To date, we have had limited operations.
We were incorporated in Puerto Rico on November 15, 2018. Our
business address is 151 Calle San Francisco, Suite 200, San Juan,
Puerto Rico 00901 and our telephone number is 855-422-4200. Our
website is www.FIGIRoyalty.com.
Information contained on our website does not constitute part of
this Prospectus.
Offering Summary
Securities offered
by Company:
300,000 shares of
common stock (the “shares”).
Offering
price:
Fixed at $6 per
share. The offering price bears no relationship to any objective
criterion of value and has been arbitrarily determined. The
offering price does not bear any relationship to our assets, book
value, historical earnings, or net worth.
Offering
term:
The offering will
terminate upon the earliest of (i) such time as all the shares have
been sold pursuant to this offering or (ii) 120 days from the
effective date of this prospectus, except that we may terminate the
offering at any time and for any reason.
Number of common
shares outstanding before the offering:
3,076,800
shares.
Number of shares
outstanding after the offering
if
all
shares are sold:
3,925,891(1)(2)(3)
Proceeds to us if
all the shares are sold in the offering:
$1,800,000 before
expenses associated with this offering, which we estimate at
$245,234 which will be paid from
existing corporate funds, thus not affecting the proceeds of this
offering.
Use of
proceeds:
To purchase
additional royalty interests.
Market for the
shares.
There is currently
no public market for the shares. We intend to apply to trade the
shares on the OTCQB, but we cannot assure you that the shares will
be approved for trading on the OTCQB or any other trading
exchange.
1)
Excludes
700,000 shares of common stock reserved for future issuance under
our 2019 Stock Incentive Plan.
2)
Our Company issued
a series of simple agreements for future equity (collectively, the
"Series 1 SAFEs"). Pursuant
to the terms of the Series 1 SAFEs, as amended, each outstanding
Series 1 SAFE will automatically convert into common shares of
Company upon the closing of the Next Equity Financing (as defined).
The SAFE conversion price is the price per share of the Next Equity
Financing minus a discount of 45%. Next Equity Financing means the next sale (or
series of related sales) by the Company of its common stock from
which the Company receives gross proceeds of not less than
$500,000. See “Description of Securities, Series 1
SAFEs” on Page 18.
3)
Assumes the Series
1 SAFEs automatically convert into 549,901 shares of Company common
stock upon the occurrence of the Next Equity
Financing.
We are
subject to many risks and an investment in our shares involves a
high degree of risk. You should only purchase shares if you can
afford a complete loss of your investment. Carefully consider all
the factors described under the heading “Risk Factors”
beginning on page 3 before investing in any of our
shares.
1
Implications of Being an Emerging Growth Company
We qualify as an emerging growth company as defined in the JOBS Act
because we had less than $1.07 billion in revenues during our
last fiscal year. As an emerging growth company, we expect to take
advantage of reduced reporting requirements that are otherwise
applicable to public companies. These provisions include, but are
not limited to:
●
being
permitted to present only two years of audited financial
statements, in addition to any required unaudited interim financial
statements, with correspondingly reduced “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” disclosure in this prospectus;
●
not
being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002, as amended
(“Sarbanes-Oxley”);
●
reduced
disclosure obligations regarding executive compensation in our
periodic reports, proxy statements and registration statements;
and
●
exemptions
from the requirements of holding a nonbinding advisory vote on
executive compensation and shareholder approval of any golden
parachute payments not previously approved.
We may use these provisions until the last day of our fiscal year
following the fifth anniversary of the completion of our initial
public offering. However, if certain events occur prior to the end
of such five-year period, including if we become a “large
accelerated filer,” our annual gross revenues exceed
$1.07 billion or we issue more than $1.0 billion of
non-convertible debt in any three-year period, we will cease to be
an emerging growth company prior to the end of such five-year
period.
As an emerging growth company, we intend to take advantage of an
extended transition period for complying with new or revised
accounting standards as permitted by the JOBS Act. To the extent
that we continue to qualify as a “smaller reporting
company,” as such term is defined in Rule 12b-2 under
the Securities Exchange Act of 1934, after we cease to qualify as
an emerging growth company, certain of the exemptions available to
us as an emerging growth company may continue to be available to us
as a smaller reporting company, including: (i) not being
required to comply with the auditor attestation requirements of
Section 404(b) of the Sarbanes Oxley Act; (ii) scaled
executive compensation disclosures; and (iii) the requirement
to provide only two years of audited financial statements, instead
of three years.
2
RISK FACTORS
An investment in the securities offered involves a high degree of
risk and represents a highly speculative investment. In addition to
the other information contained in this prospectus, prospective
investors should carefully consider the following risks before
investing in our common stock. If any of the following risks occur,
our business, operating results and financial condition could be
materially adversely affected. As a result, the price of our common
stock could decline from the offer price and, if the common stock
ever trades, the trading price could decline, and you may lose all
or part of your investment in our common stock. The risks discussed
below also include forward-looking statements, and our actual
results may differ substantially from those discussed in these
forward-looking statements. See “Special Note Regarding
Forward Looking Statements” in this prospectus.
Additional risks and uncertainties not currently known to us or
that we presently deem to be immaterial may also materially and
adversely affect our business, prospects, financial condition,
results of operations and value of our stock. You should not
purchase the securities offered unless you can afford the loss of
your entire investment.
RISKS RELATED TO OUR BUSINESS
Because we have a limited operating history, you may not be able to
accurately evaluate our operations.
We have
had limited operations to date. Therefore, we have a limited
history upon which to evaluate the merits of investing in our
company. Potential investors should be aware of the difficulties
normally encountered by new companies and the high rate of failure
of such enterprises. The likelihood of success must be
considered in light of the problems, expenses, difficulties,
complications and delays encountered in connection with the
operations that we plan to undertake. These potential
problems include, but are not limited to, unanticipated problems
relating to the ability to generate sufficient cash flow to operate
our business, and additional costs and expenses that may exceed
current estimates. We may incur significant losses into the
foreseeable future. We recognize that if the effectiveness of
our business plan is not forthcoming, we will not be able to
continue business operations. There is no history upon
which to base any assumption as to the likelihood that we will
prove successful, and it is doubtful that we will ever achieve
profitable operations. If we are unsuccessful in
addressing these risks, our business will most likely
fail.
We have experienced operating losses in the past and we may not
generate sufficient funds to sustain a level of profitability in
the future.
Since
our inception, we have incurred significant losses and experienced
negative operating cash flow. We incurred a net loss from
operations of $169,977 from inception to October 31, 2019, and we
anticipate that we will continue to incur significant operating
losses through at least 2021. Additionally, we expect to continue
to make significant operating and capital expenditures in 2019 and
beyond in connection with our growth and expansion plans. As a
result, we may require additional debt or equity financing to
sustain our operations and subsequently generate significant
additional revenue to achieve profitability, and we cannot assure
you that either of these things will ever occur.
Our profitability is tied to the strength of the companies from
whom we purchase royalty interests, which are subject to a number
of general business and macroeconomic conditions beyond our
control.
Our
profitability is closely related to the strength of companies from
whom we purchase royalty interests, which can be cyclical in nature
and affected by changes in national, state and local economic
conditions which are beyond our control. Macroeconomic conditions
that could adversely impact the growth of our business and those we
have royalty interests with include, but are not limited to,
economic slowdown or recession, increased unemployment, increased
energy costs, reductions in the availability of credit or higher
interest rates, increased costs of conducting business, inflation,
disruptions in capital markets, declines in the stock market,
adverse tax policies or changes in other regulations, lower
consumer confidence, lower wage and salary levels, war or terrorist
attacks, natural disasters or adverse weather events, or the public
perception that any of these events may occur. Unfavorable general
economic conditions, such as a recession or economic slowdown, in
the United States or other markets we enter and operate within
could negatively affect the affordability of, and consumer demand
for, our services, or the services of the companies with whom we
have royalty stream agreements, which could have a material adverse
effect on our business and profitability.
We may not receive the cash amounts that we expect, or any at all,
from any royalty interest and we may never generate sufficient
income to become profitable.
Our
ability to generate income from royalty interests and become
profitable will depend, among other things, upon our ability to
successfully evaluate, target and access royalty interests that
have the potential to generate significant royalty payments,
acquire an interest in the royalty interests for an appropriate
purchase price, and enforce the contracts for royalty interests and
collect our payments with respect to these royalty interests. Even
if we are able to successfully do these and other things that are
within our control, there are numerous other factors, some of which
are not within our control, that could impact our ability to
generate income or cash flows or be profitable, including those
discussed in these risk factors.
In
addition, there are numerous risks and uncertainties associated
with the royalty interests, including that the success of the
royalty interests will depend upon the contributions, success and
longevity of each operator. We are unable to predict the timing or
amount of future cash receipts, or when or whether we will be able
to achieve or maintain profitability. Even if we acquire and manage
royalty interests as described above, we anticipate incurring
significant costs associated with our efforts to achieve or
maintain profitability. Further, we may not receive the cash
amounts that we expect, or any at all, from any of our current or
future royalty interests.
3
Our business strategy depends in large part on our ability to
acquire a number of royalty interests by entering into additional
contracts to purchase royalty interests. We may not be able to
enter into additional contracts in the future, or enter into the
number of additional contracts that we anticipate would be
necessary to support our business model.
Our
strategy of acquiring, holding and managing royalty interests
depends in large part on our ability to benefit from economies of
scale. Accordingly, we are actively pursuing additional contracts
to purchase royalty interests that we intend to enter into in the
future. However, we have no current commitments to enter into
another contract to purchase royalty interests.
We do
not know if future potential operators will agree to enter into
additional contracts to sell royalty interests and we may not be
able to attract sufficient additional contracts. For example,
future potential operators may not view the contract to sell
royalty interests as an attractive value proposition to them due to
any number of factors, including differing expectations of an
appropriate purchase price, which may be based on any number of
factors, such as:
●
we and
future potential operators may not agree on the assumptions and
estimates used to determine the estimated future earnings of
potential royalty interests;
●
potential future
operators may not want to incur legal, tax and other burdens
associated with entering into a contract, including, for example,
ongoing information and disclosure requirements;
●
the
potential impact of possible disclosure of the terms of material
contracts, and the impact that these disclosure obligations may
have on the ability of a contract party to enter into additional
deals;
●
any
negative perception by the media or others of our business
model;
●
any
negative perception by the media or others of any of our current
contract parties or other future operators, as a result of their
decision to sell royalty interests to us, or otherwise;
and
●
the
performance of royalty interests that we may enter into in the
future, and/or the performance of our common stock, which may be
worse than anticipated.
As a
result, we may be forced to revise our business model to attract
additional royalty interests.
We are entirely dependent on the revenue stream from three royalty
interests and if we are unable to build a portfolio of royalty
interests, the lack of diversification may negatively impact our
operating results.
We
acquired our first royalty interests in October 2019. We may not be
able to purchase additional royalty interests in a timely manner or
at all. Since we only have three royalty interests, our lack of
diversification may subject us to numerous additional risks, any or
all of which may have a substantial adverse impact upon our
business.
It is difficult to estimate with precision the projected future
royalty payments under any royalty interest because such estimation
is necessarily based on future events that may or may not occur and
that could change based on a number of factors that are hard to
control. As a result, it is difficult to predict an accurate return
on investment or rate of return for an investment in our common
stock.
Due to
the inherent uncertainty in predicting the future, it is difficult
to estimate with precision the projected future royalty payments
associated with royalty interests. These estimations are based on
future events that may or may not occur. Additionally, future
events change based on a number of factors that are difficult or
impossible to control. As a result, it is difficult to predict an
accurate return on investment or rate of return of an investment in
any royalty interest, and our competitive position, results of
operations, financial condition and cash flows could be materially
adversely impacted if we receive less revenue from royalty
interests than estimated.
Our business may be adversely affected by competitive market
conditions and we may not be able to execute our business
strategy.
We
expect to increase revenue and cash flow over time through a
business strategy which requires us, among other things, to
purchase additional royalty interests. We face competition in the
acquisition of royalty interests from royalty holders and may not
be successful in acquiring royalty interests. Even if we are
successful in acquiring additional royalty interests, competition
may compel us to purchase such royalty interests at prices that are
higher than would otherwise be the case.
Expanding
on our portfolio of royalty interests will require sustained
management focus, organization and coordination over significant
periods of time. This will also require success in building
relationships with third parties and in anticipating and keeping up
with technological developments and consumer preferences. The
results of our strategy and the success of our implementation of
this strategy will not be known for some time in the future. If we
are unable to implement our strategy successfully or properly react
to changes in market conditions, our financial condition, results
of operations and cash flows could be adversely
affected.
4
The valuation of the royalty interests and expected royalty
payments requires us to make estimates and material assumptions
that may ultimately prove to be incorrect. In such an event, we
could suffer significant losses that could materially and adversely
affect our results of operations.
Our
principal assets are expected initially to consist of royalty
interests. Those assets are considered “Level 3”
assets under Accounting Standards Codification
(“ASC”) 820, Fair Value Measurements and
Disclosures, as there is currently no active market where we are
able to observe quoted prices for identical assets. As a result,
our valuation of those assets incorporates significant inputs that
are not observable. Fair value of future expected payments is
determined by measuring expected returns on the royalty interests.
However, valuation of the expected royalty payments is highly
speculative and is inherently difficult due to the uniqueness of
each operator.
The
fair value measurement of Level 3 assets is inherently
uncertain and creates additional volatility in our financial
statements that are not necessarily related to the performance of
the underlying assets. To determine the amount of our purchase
price and the fair values of royalty interests, we applied discount
rates subjectively determined in our analysis based on assumptions
that have not been reviewed by any independent financial advisor.
If we determine in the future that the discount rates we used were
too low, then our estimate of the fair value of royalty interests
may be too high.
We may need additional capital in the future, which may not be
available to us on favorable terms, or at all, and may dilute your
ownership of our securities.
We have
historically relied on outside financing and cash from operations
to fund our operations, capital expenditures and expansion. We may
require additional capital from equity or debt financing in the
future to fund our operations and purchase royalty
interests.
We may
not be able to secure timely additional financing on favorable
terms, or at all. The terms of any additional financing may place
limits on our financial and operating flexibility. If we raise
additional funds through issuances of equity, convertible debt
securities or other securities convertible into equity, our
existing shareholders could suffer significant dilution in their
percentage ownership of our Company, and any new securities we
issue could have rights, preferences and privileges senior to those
of the securities we are offering herein. If we are unable to
obtain adequate financing or financing on terms satisfactory to us,
when we require it, our ability to grow or support our business and
to respond to business challenges could be significantly
limited.
We may expand through acquisitions of, or investments in, other
companies or through business relationships, all of which may
divert our management’s attention, resulting in additional
dilution to our shareholders and consumption of resources that are
necessary to sustain our business.
We may
acquire competing or complementary services, technologies or
businesses. Any future acquisition, investment or business
relationship may result in unforeseen operating difficulties and
expenditures. We may encounter difficulties assimilating or
integrating the acquired businesses, technologies, products,
personnel or operations of the acquired companies, particularly if
the key personnel of the acquired company choose not to work for us
and we may have difficulty retaining the customers of any acquired
business due to changes in management and ownership. Acquisitions
may also disrupt our ongoing business, divert our resources and
require significant management attention that would otherwise be
available for ongoing development of our business. Moreover, we
cannot assure you that the anticipated benefits of any acquisition,
investment or business relationship would be realized or that we
would not be exposed to unknown liabilities, nor can we assure you
that we will be able to complete any acquisitions on favorable
terms or at all.
If we are unable to negotiate and purchase royalty interests on a
cost-effective basis, our business and results of operations will
be affected adversely.
To
succeed, we must negotiate acceptable agreements to purchase
royalty interests on a cost-effective basis, many of whom have not
previously entered into royalty stream agreements like ours. We
will rely on a variety of methods to attract new customers, such as
paying providers of online services, search engines, directories
and other websites to provide content, advertising banners and
other links that direct customers to our website, direct sales and
partner sales. If we are unable to use any of our current marketing
initiatives or the cost of such initiatives were to significantly
increase or such initiatives or our efforts to satisfy our existing
customers are not successful, we may not be able to attract new
customers or retain customers on a cost-effective basis and, as a
result, our revenue and results of operations would be affected
adversely.
If we fail to develop our brand cost-effectively, our business may
be adversely affected.
Successful
promotion of our brand will depend largely on the effectiveness of
our marketing efforts and on our ability to provide reliable and
useful services at competitive prices. Brand promotion activities
may not yield increased revenue, and even if they do, any increased
revenue may not offset the expenses we incur in building our
brands. If we fail to successfully promote and maintain our brand
or incur substantial expenses in an unsuccessful attempt to promote
and maintain our brand, we may fail to attract enough new operators
to the extent necessary to realize a sufficient return on our
brand-building efforts, and our business and results of operations
could suffer.
The market in which we participate is competitive and, if we do not
compete effectively, our operating results could be
harmed.
The
market for our services is competitive and rapidly changing, and
the barriers to entry are relatively low. We experience competition
from large established businesses possessing large, existing
customer bases, substantial financial resources and established
distribution channels. We expect competition to persist and
intensify in the future. Competition could result in reduced sales,
reduced margins or the failure of our services to achieve or
maintain more widespread market acceptance, any of which could harm
our business and our operating results could be harmed. Our
principal competitors include any entity or individual providing
businesses with capital, including but not limited to investment
banking firms, investment funds, financial institutions, government
agencies and private individuals.
Our
current and potential competitors may have significantly more
financial, technical, marketing and other resources than we do and
may be able to devote greater resources to the development,
promotion, sale and support of their offerings. Our current and
potential competitors may have more extensive customer bases and
broader customer relationships than we have. If we are unable to
compete with such companies, the demand for our offering could
substantially decline.
5
We will incur significant costs complying with our obligations as a
reporting issuer, which will decrease our
profitability.
Upon
the effectiveness of our registration statement, we will elect to
file periodic reports with the U.S. Securities and Exchange
Commission (“SEC”), including financial statements and
disclosure regarding changes in our operations. In order to comply
with these requirements, our independent registered public
accounting firm will have to review our financial statements on a
quarterly basis and audit our financial statements on an annual
basis. Moreover, our legal counsel will have to review and assist
in the preparation of such reports. The costs charged by these
professionals for such services cannot be accurately predicted at
this time because factors such as the number and type of
transactions that we engage in and the complexity of our reports
cannot be determined at this time and will have a major impact on
the amount of time to be spent by our auditors and attorneys.
However, we estimate that these costs will exceed $100,000 per year
for the next few years. Those fees will be higher if our business
volume and activity increases. Those obligations will
reduce our resources to fund our operations and may prevent us from
meeting our normal business obligations. Compliance costs will be
charged to operations and will negatively impact our
profitability.
Risks Relating to Our Operators
Operators do not owe any fiduciary duties to us or our
stockholders, and they have no obligation to enhance the value of
the royalty interests or disclose information to our
stockholders.
Although
operators will be contractually obligated to disclose all material
facts to us, we cannot guarantee that the operators will comply
with such disclosure requirements or that we can independently
verify or uncover material events. In addition, operators have no
obligation to enhance the value of the royalty interests. For
example, the entrepreneur(s) managing an operator may determine to
retire which may have the effect of decreasing future royalty
payments on the royalty interests. Furthermore, the operators do
not owe any fiduciary duties to us or our stockholders. Our
stockholders will have no recourse directly against operators under
state or federal laws.
We will own passive interests in royalty interests, and it will be
difficult or impossible for us to ensure the businesses are
operated in our best interest. We will not have the ability to
direct the operations of the assets we have a royalty interest
in.
All our
future revenue will be derived from royalty interests on assets
operated or managed by third parties. We will have limited or no
authority regarding the promotion, exploitation, or enforcement of
the underlying business. Our strategy of having a royalty interest
puts us generally at risk to the decisions of others regarding
operating decisions. Although we will attempt to secure contractual
rights that will permit us to protect our interests to a degree,
there can be no assurance that such rights will always be available
or sufficient.
Operators may refuse or fail to make payments to us under royalty
agreements.
Our
cash flows depend on operators making royalty payments to us. An
operator may dispute amounts to which we believe we are entitled or
may be unwilling or unable to make payments to which we are
entitled, including for reasons discussed elsewhere in these risk
factors. In either event, we may become involved in a dispute with
an operator regarding the payment of such amounts, including
possible litigation. Disputes of this nature could harm the
relationship between us and operators and could be costly and
time-consuming for us to pursue. Failure of operators to make
royalty payments to us for any reason would adversely affect our
business and, in particular, the value of our common
stock.
In
addition, if an operator who may be obligated to make payments to
us were to become the subject of a proceeding under the United
States Bankruptcy Code or a similar proceeding or arrangement under
another state, federal or foreign law, our rights and interests
under royalty interests or otherwise may be prejudiced or impaired,
perhaps significantly so. In such circumstances, we may be
precluded, stayed or otherwise limited in enforcing some or all of
our rights under royalty interests or otherwise and realizing the
economic and other benefits contemplated therein.
Royalty payments may decrease due to factors outside our control,
including operational decisions and other risks faced by
operators.
Our
ability to receive royalty payments from royalty interests depends
in part on the operational success of operators. Actions taken by
operators may have the result of decreasing royalty payments. Our
financial results are indirectly subject to hazards and risks
normally associated with the continued success of business in
general.
An investor must rely on us to pursue remedies against operators in
the event of any default.
There
can be no assurances that an operator will have adequate resources,
if any, to satisfy any obligations to us under a royalty agreement.
Moreover, royalty payments are an obligation of an operator to us,
not obligations to our stockholders. Our stockholders will have no
recourse directly against operators.
Royalty interests do not restrict operators from incurring
unsecured or secured debt, nor does it impose any other financial
restrictions on operators.
If
operators incur additional secured or unsecured debt after entering
into an agreement with us, or if the operators incur excessive
expenses, the operators may be impaired in their ability to make
royalty payments to us under a royalty agreement. In addition,
additional debt or expenses may adversely affect the
operator’s creditworthiness generally, and could result in
the financial distress, insolvency, or bankruptcy of the operator.
To the extent that an operator has or incurs other indebtedness and
expenses and cannot pay all of their indebtedness or expenses, an
operator may choose to make payments to other creditors rather than
us.
To the
extent an operator incurs other indebtedness that is secured, such
as mortgage, accounts receivable financing or line of credit, the
ability of secured creditors to exercise remedies against the
assets of the operator may impair the operators’ ability to
make payments to us under the royalty agreement. The operator may
also choose to repay obligations under secured indebtedness before
making required royalty payments on the royalty
agreement.
6
RISKS RELATED TO OUR MANAGEMENT
If we fail to retain our key personnel, we may not be able to
achieve our anticipated level of growth and our business could
suffer.
Our
future depends, in part, on our ability to attract and retain key
personnel. Our future also depends on the continued contributions
of our executive officers, each of whom would be difficult to
replace. Alton “Ace” Chapman, Jr., our Chief Executive
Officer, Noah Rosenfarb our Chief Financial Officer and Ronald
Rosenfarb, our Chief Operating Officer, are critical to the
management of our business and operations and the development of
our strategic direction. The loss of the services of any of these
executive officers or key personnel and the process to replace any
of our key personnel would involve significant time and expense and
may significantly delay or prevent the achievement of our business
objectives. Our anticipated growth could strain our personnel
resources and infrastructure, and if we are unable to implement
appropriate controls and procedures to manage our anticipated
growth, we may not be able to successfully implement our business
plan.
Because our officers and directors engage in other business
activities, they may not be able or willing to devote a sufficient
amount of time to our business operations, causing our business to
fail.
Alton
“Ace” Chapman, Jr., our Chief Executive Officer, Noah
Rosenfarb our Chief Financial Officer and Ronald Rosenfarb, our
Chief Operating Officer, currently devote approximately 40 hours
per week (collectively) providing management services to us. While
they presently possess adequate time to attend to our interests, it
is possible that their demands from their other obligations could
increase, with the result that they would no longer be able to
devote sufficient time to the management of our business. The loss
of any of our officers or directors could negatively impact our
business development.
We are anticipating a period of rapid growth in our operations,
which may place, to the extent that we are able to sustain such
growth, a significant strain on our management and our
administrative, operational and financial reporting
infrastructure.
Our
success will depend in part on the ability of our senior management
to manage this expected growth effectively. To do so, we believe we
will need to continue to hire, train and manage new employees or
contractors as needed. If our new team members perform poorly, or
if we are unsuccessful in hiring, training, managing and
integrating these new team members, or if we are not successful in
retaining our existing employees or contractors, our business may
be harmed. To manage the expected growth of our operations and
personnel, we will need to continue to improve our operational and
financial controls and update our reporting procedures and systems.
The expected addition of new team members and the capital
investments that we anticipate will be necessary to manage our
anticipated growth will increase our cost base, which will make it
more difficult for us to offset any future revenue shortfalls by
reducing expenses in the short term. If we fail to successfully
manage our anticipated growth, we will be unable to execute our
business plan.
None of our officers and directors have any meaningful public
company accounting or financial reporting education or experience,
which increases the risk we may be unable to comply with all rules
and regulations.
Our
ability to meet our ongoing reporting requirements on a timely
basis will be dependent to a significant degree on advisors and
consultants. Our officers and directors have no meaningful public
company accounting or financial reporting education or experience.
As such, there is risk about our ability to comply with all
financial reporting requirements accurately and on a timely
basis.
If we are unable to implement and maintain effective internal
control over financial reporting in the future, investors may lose
confidence in the accuracy or completeness of our financial reports
and the market price of our common stock may decline.
We need
to improve the design, implementation, and testing of the internal
controls over financial reporting requirements. If we are unable to
remedy material weaknesses or if our independent registered public
accounting firm is unable to express an opinion as to the
effectiveness of its internal control over financial reporting when
required, investors may lose confidence in the accuracy and
completeness of our financial reports and the market price of the
Common Stock could be negatively affected. We also could become
subject to investigations by the stock exchange if we are ever
listed on an exchange, Securities and Exchange Commission, or the
Commission, or other regulatory authorities, which could require
additional financial and management resources.
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 October 31, 2019:
●
We do not have
written documentation of our internal control policies and
procedures.
●
Due to our size and
nature, segregation of all conflicting duties may not always be
possible and may not be economically feasible. To the extent
possible, the initiation of transactions, the custody of assets and
the recording of transactions should be performed by separate
individuals. As of December 31, 2019, the initiation of
transactions and recording of transactions are performed by Ronald
Rosenfarb, our Chief Operating Officer.
7
We do not have a compensation or an audit committee, so
shareholders will have to rely on our directors to perform these
functions.
We do
not have an audit or compensation committee comprised of
independent directors. These functions are performed by the members
of our board of directors. Until we have an audit committee, there
may be less oversight of management decisions and activities and
little ability for minority shareholders to challenge or reverse
those activities and decisions, even if they are not in the best
interests of minority shareholders.
Our officers and directors own a controlling interest in our voting
stock and investors will not have any voice in our management,
which could result in decisions adverse to our general
shareholders.
Our
officers and directors, in the aggregate, will beneficially own or
have the right to vote more than 75% of our outstanding common
shares on a fully diluted basis, assuming all the shares we are
offering are sold and assuming none of the shares are purchased by
any of our officers or directors. As a result, these
shareholders, acting together, will have the ability to control
substantially all matters submitted to our shareholders for
approval including: election of our board of directors; removal of
any of our directors, amendment of our certificate of incorporation
or by-laws; and adoption of measures that could delay or prevent a
change in control or impede a merger, takeover or other business
combination involving us.
As a
result of their ownership and positions, our officers and directors
collectively can influence all matters requiring shareholder
approval, including the election of directors and approval of
significant corporate transactions. The interests of our officers
may differ from the interests of the other shareholders, and they
may influence decisions with which the other shareholders may not
agree. Such decisions may be detrimental to our business plan
and/or operations and they may cause the business to fail in which
case you may lose your entire investment.
RISKS RELATED TO OUR SYSTEMS
Cybersecurity incidents could disrupt business operations, result
in the loss of critical and confidential information, and adversely
impact our reputation and results of operations.
We face
growing risks and costs related to cybersecurity threats to our
data and customer, employee and operator data, including but not
limited to:
●
the failure or
significant disruption of our operations from various causes,
including human error, computer malware, ransomware, insecure
software, zero-day threats, or other events related to our critical
information technologies and systems
●
the increasing
level and sophistication of cybersecurity attacks, including
distributed denial of service attacks, data theft, fraud or
malicious acts on the part of trusted insiders, social engineering,
or other unlawful tactics aimed at compromising the systems and
data of our officers, employees, operators and their customers
(including via systems not directly controlled by us, such as those
maintained by independent sales agents, joint venture partners and
third party service providers)
●
the reputational
and financial risks associated with a loss of data or material data
breach (including unauthorized access to our proprietary business
information or personal information of our customers, employees and
independent sales agents), the transmission of computer
malware.
Global
cybersecurity threats can range from uncoordinated individual
attempts to gain unauthorized access to information technology
systems via viruses, worms, and other malicious software, to
phishing to advanced and targeted hacking launched by individuals
or organizations. These attacks may be directed at the Company, its
employees, operators, third-party service providers, joint venture
partners and others.
In the
ordinary course of our business, we and our third-party service
providers store sensitive data, including our proprietary business
information and intellectual property and that of our clients as
well as personally identifiable information, sensitive financial
information and other confidential information of our employees,
customers and the customers of our operators. Additionally, we
increasingly rely on third-party data processing, storage
providers, and critical infrastructure services, including cloud
solution providers. The secure processing, maintenance and
transmission of this information are critical to our operations and
with respect to information collected and stored by our third-party
service providers, we are reliant upon their security procedures. A
breach or attack affecting one of our third-party service providers
or partners could harm our business even if we do not control the
service that is attacked.
In
addition, the increasing prevalence and the evolution of
cyber-attacks and other efforts to breach or disrupt our systems or
those of our employees, customers, third-party service providers,
joint venture partners, and/or operators and their customers, has
led, and will likely continue to lead, to increased costs to us
with respect to preventing, investigating, mitigating and
remediating these risks, as well as any related attempted or actual
fraud.
Our facilities and systems are vulnerable to natural disasters and
other unexpected events and any of these events could result in an
interruption of our ability to execute our business
operations.
We will
depend on the efficient and uninterrupted operations of our
third-party data centers and hardware systems. The data centers and
hardware systems are vulnerable to damage from earthquakes,
tornados, hurricanes, fire, floods, power loss, telecommunications
failures and similar events. If any of these events results in
damage to third-party data centers or systems, we may be unable to
provide our clients with our service until the damage is repaired
and may accordingly lose clients and revenues. In addition, subject
to applicable insurance coverage, we may incur substantial costs in
repairing any damage.
8
Any significant disruption in service on our website or in our
computer systems, or in our customer support services, could reduce
the attractiveness of our services and result in a loss of
customers.
The
satisfactory performance, reliability and availability of our
services are critical to our operations, level of customer service,
reputation and ability to attract new customers and retain
customers. Most of our computing hardware are co-located in
third-party hosting facilities. None of the companies who host our
systems guarantee that our customers’ access to our products
will be uninterrupted, error-free or secure. Our operations depend
on their ability to protect their and our systems in their
facilities against damage or interruption from natural disasters,
power or telecommunications failures, air quality, temperature,
humidity and other environmental concerns, computer viruses or
other attempts to harm our systems, criminal acts and similar
events. If our arrangements with third-party data centers are
terminated, or there is a lapse of service or damage to their
facilities, we could experience interruptions in our service as
well as delays and additional expense in arranging new facilities.
Any interruptions or delays in access to our services, whether as a
result of a third-party error, our own error, natural disasters or
security breaches, whether accidental or willful, could harm our
relationships with customers and our reputation. These factors
could damage our brand and reputation, divert our employees’
attention, reduce our revenue, subject us to liability and cause
customers to cancel their accounts, any of which could adversely
affect our business, financial condition and results of
operations.
We do not have a disaster recovery system, which could lead to
service interruptions and result in a loss of
customers.
We do
not have any disaster recovery systems. In the event of a disaster
in which our software or hardware are irreparably damaged or
destroyed, we would experience interruptions in access to our
services. Any or all these events could cause our customers to lose
access to our services.
We rely on third-party computer hardware and software that may be
difficult to replace or that could cause errors or failures of our
service, which could cause us to suffer a decline in revenues and
profitability.
We rely
on computer hardware purchased and software licensed from third
parties in order to offer our services. This hardware and software
may not continue to be available on commercially reasonable terms,
or at all. If we lose the right to use any of this hardware or
software or such hardware or software malfunctions, our customers
could experience delays or be unable to access our services until
we can obtain and integrate equivalent technology or repair the
cause of the malfunctioning hardware or software. Any delays or
failures associated with our services could upset our customers and
harm our business.
RISKS RELATED TO OUR SECURITIES AND THIS OFFERING
We have broad discretion to use the net proceeds from this offering
to purchase royalty interests.
Our
management has broad discretion in the application of the net
proceeds from this offering to purchase royalty interests. If we do
not use the net proceeds effectively, our business, financial
condition, results of operations, and prospects could be harmed,
and the market price of our common stock could decline. Pending
their use, we may invest the net proceeds from this offering in
short-term, investment-grade, interest-bearing securities such as
money market accounts, certificates of deposit, commercial paper,
and guaranteed obligations of the U.S. government that may not
generate a high yield to our shareholders.
You will experience substantial and immediate dilution because the
price that you pay will be substantially greater than the as
adjusted net tangible book value per share of the common stock that
you acquire.
Dilution
is due in large part to the fact that our earlier investors paid
substantially less than the offering price when they purchased
shares of our common stock. Our Company issued a series of simple
agreements for future equity (collectively, the "Series 1 SAFEs"). Pursuant to the terms
of the Series 1 SAFEs, as amended, each outstanding Series 1 SAFE
will automatically convert into common shares of Company upon the
closing of the Next Equity Financing (as defined). The SAFE
conversion price is the price per share of the Next Equity
Financing minus a discount of 45%. Next Equity Financing means the next sale (or
series of related sales) by the Company of its common stock from
which the Company receives gross proceeds of not less than
US$500,000. See “Description of Securities, Series 1
SAFEs.”
You
will experience additional dilution upon exercise of the
outstanding stock options and other equity awards that may be
granted under our equity incentive plans, and when we otherwise
issue additional shares of our common stock.
Because we can issue additional shares of common stock, our
shareholders may experience dilution in the future.
We are
authorized to issue up to 200,000,000 shares of common stock.
Immediately prior to the closing of this offering, we will have
approximately 3,625,891 shares of common stock issued and
outstanding, assuming all outstanding convertible securities are
automatically converted into equity. Our board of directors has the
authority to cause us to issue additional shares of common stock
without the consent of any of our shareholders. Consequently, you
may experience more dilution in your ownership of our securities in
the future.
9
Our board of directors has the authority, without shareholder
approval, to issue preferred stock with terms that may not be
beneficial to existing security holders and with the ability to
affect adversely shareholder voting power and perpetuate their
control over us.
Our
certificate of incorporation allows us to issue shares of preferred
stock without any vote or further action by our common or preferred
shareholders. Our board of directors has the authority to fix and
determine the relative rights and preferences of preferred stock.
Our board of directors also has the authority to issue preferred
stock without further shareholder approval, including large blocks
of preferred stock. As a result, our board of directors could
authorize the issuance of a series of preferred stock that would
grant to holders the preferred right to our assets upon
liquidation, the right to receive dividend payments before
dividends are distributed to the holders of common stock or other
preferred shareholders and the right to the redemption of the
shares, together with a premium, prior to the redemption of our
common stock.
Preferred
stock could be used to dilute a potential hostile acquirer.
Accordingly, any future issuance of preferred stock or any rights
to purchase preferred shares may have the effect of making it more
difficult for a third party to acquire control of us. This may
delay, defer or prevent a change of control or an unsolicited
acquisition proposal. The issuance of preferred stock also could
decrease the amount of earnings attributable to, and assets
available for distribution to, the holders of our common stock and
could adversely affect the rights and powers, including voting
rights, of the holders of our common stock and preferred
stock.
We do not intend to pay any cash dividends on our securities, so
you will not be able to receive a return on your investment unless
you sell your shares.
We
intend to retain any future earnings to finance the development and
expansion of our business. We do not anticipate paying any cash
dividends on our securities. Unless we pay dividends, our security
holders will not be able to receive a return on their securities
unless they sell them.
There is no current trading market for our securities and if a
trading market does not develop, purchasers of our securities may
have difficulty selling their shares.
There
is currently no established public trading market for our
securities and an active trading market in our securities may not
develop or, if developed, may not be sustained. We intend to
apply for admission to quotation of our securities on the OTCQB.
If for any reason our securities are not quoted on the OTCQB
or a public trading market does not otherwise develop, purchasers
of the securities may have difficulty selling their shares should
they desire to do so. No market makers have committed to
becoming market makers for our common shares and it may be that
none will do so. As a result, you should purchase shares only as a
long-term investment, and you must be prepared to hold your shares
for an indefinite period.
Financial Industry Regulatory Authority (FINRA) sales practice
requirements may limit your ability to buy and sell our
shares.
FINRA
rules require that in recommending an investment to a customer, a
broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending
speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain
information about the customer’s financial status, tax
status, investment objectives and other information. Under
interpretations of these rules, FINRA believes that there is a high
probability that speculative low-priced securities will not be
suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers
buy our common stock, which may limit your ability to buy and sell
our stock and have an adverse effect on the market for our shares,
depressing our share price.
State securities laws may limit secondary trading, which may
restrict the states in which, and conditions under which, you can
sell the securities sold in this offering.
Secondary
trading in securities sold in this offering will not be possible in
any state in the U.S. unless and until the securities are qualified
for sale under the applicable securities laws of the state or there
is confirmation that an exemption, such as listing in certain
recognized securities manuals, is available for secondary trading
in such state. We cannot assure you that we will be successful in
registering or qualifying our securities for secondary trading or
identifying an available exemption for secondary trading in our
securities in every state. If we fail to register or qualify,
or to obtain or verify an exemption for the secondary trading of,
the securities in any state, the securities could not be offered or
sold to, or purchased by, a resident of that state. If a
significant number of states refuse to permit secondary trading in
our securities, the market for our securities could be adversely
affected.
The price of our common stock may fluctuate
significantly.
The
market price for our common stock could fluctuate significantly for
various reasons, many of which are outside our control. Broad
market and industry factors may materially reduce the market price
of our common stock, regardless of our operating performance. In
addition, price volatility may be greater if the public float and
trading volume of our common stock is low. If any of the foregoing
occurs, it could cause our stock price to fall and may expose us to
litigation, including class action lawsuits that, even if
unsuccessful, could be costly to defend and a distraction to
management.
The offering price of our securities was arbitrarily
determined.
The
offering price of the securities we are offering you in this
offering has been arbitrarily determined, and it does not
necessarily bear any relationship to our asset value, net worth or
other established criteria of value. As a result, if you invest in
this offering, you will be exposed to a substantial risk of a
decline in the value of your securities. Each prospective investor
should make an independent evaluation of the fairness of the
offering price.
10
Cautionary Note Regarding Forward-Looking Statements
This prospectus contains forward-looking statements.
Forward-looking statements are neither historical facts nor
assurances of future performance. Instead, they are based only on
our current beliefs, expectations and assumptions regarding the
future of our business, future plans and strategies, projections,
anticipated events and trends, the economy and other future
conditions. Forward-looking statements can be identified by words
such as: anticipate, intend, plan, goal, seek, believe, project,
estimate, expect, strategy, future, likely, may, should, will and
similar references to future periods. Examples of forward-looking
statements include, among others, statements we make regarding
●
Expected
operating results, such as revenue growth and
earnings.
●
Anticipated
amounts of cash payments from royalty interests we
purchase.
●
Anticipated
uses of proceeds
●
Anticipated
cost to purchase royalty interests.
●
Expected
ability to acquire royalty interests.
●
Anticipated
diversification of our portfolio of royalty interests.
●
Strategy
for marketing to operators who may be interested in the sale of
royalty interests.
●
Ability
to purchase royalty interests that achieve our estimated revenue
stream.
Because forward-looking statements relate to the future, they are
subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict and many of which are
outside of our control. Our actual results and financial condition
may differ materially from those indicated in the forward-looking
statements. Therefore, you should not rely on any of these
forward-looking statements. Important factors that could cause our
actual results and financial condition to differ materially from
those indicated in the forward-looking statements include, among
others, the following:
●
Our
ability to generate enough revenue to sustain a level of
profitability in the future.
●
Our
ability to effectively manage growth.
●
Our
ability to negotiate favorable royalty interests.
●
Economic
and financial conditions.
●
The
impact of availability of bank financing and market interest
rates.
●
The
competitiveness of royalty agreements compared to alternative forms
of financing.
●
Our
ability to collect the correct amount of royalty payments on
time.
●
Disruptions
to our technology network including computer systems and software,
as well as natural events such as severe weather, fires, floods and
earthquakes or man-made or other disruptions of our operating
systems, structures, or equipment.
●
Such
other factors as discussed throughout the "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" section[s] of this prospectus.
Any forward-looking statement made by us in this prospectus is
based only on information currently available to us and speaks only
as of the date on which it is made. We undertake no obligation to
publicly update any forward-looking statement whether as a result
of new information, future developments or otherwise.
11
USE OF PROCEEDS
We are
conducting this offering on a best-effort basis. There is no
minimum number of shares we are required to sell nor is there a
minimum amount of money we are required to raise from this
offering. If we sell all the shares offered, we will receive
$1,800,000 in gross proceeds, but there can be no assurance that
all or any of the shares will be sold.
We
believe our anticipated funds from operations and the cash we
currently have, will provide us with enough funds to meet our cash
requirements for our business operations for at least twelve months
following the date of this registration statement. Any funds we
raise from this offering will be used to purchase royalty interests
that are not integral to the success of our business. We do not
expect that our business will suffer if we are unable to raise any
funds from this offering.
Our
officers and directors will have broad discretion in allocating the
proceeds of this offering in connection with the purchasing of
additional royalty interests. We primarily intend to negotiate
royalty interests from Internet based businesses, but we may also
acquire existing royalty interests from third parties. 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.
We
anticipate spending between $100,000 and $500,000 to purchase each
future royalty interest. Our officers have discretion to determine
how much to pay for each royalty interest, however, a key element
of our business model is the building of a diversified portfolio of
high-quality royalty interests from Internet based businesses. We
believe that each $450,000 in gross proceeds from this offering
will provide us with enough capital to purchase one or two royalty
interests. If we sell all the shares offered, we believe the
$1,800,000 in gross proceeds will provide us with enough capital to
purchase four to eight royalty interests.
We use
a series of quantitative, qualitative, financial, and legal
criteria by which we evaluate the potential acquisition of royalty
interests. We plan to acquire assets with an income focus, and our
target is to acquire assets generating uncorrelated income of 15%
to 30% internal rate of return, although there can be no guarantee
that we will achieve this target. Among the factors considered are:
(1) the business track record of revenue and earnings; (2) the type
of business that generates royalties; (3) the experience and skill
of the active management team of the business; (4) our assessment
of the longevity and staying power of the underlying business; and
(5) the potential for revenue growth and capital
appreciation.
We
currently, and generally at any time, have royalty interest
opportunities in various stages of review. At this time, we cannot
provide assurance that any of the possible transactions under
review by us will be concluded successfully. We do not have any
letters of intent or agreements to purchase any royalty interest.
We will not acquire any royalty interests from affiliates or their
family.
We will
invest proceeds not immediately required for the purposes described
above principally in United States government securities,
short-term certificates of deposit, money market funds or other
short-term interest-bearing investments.
There
have been no services performed, and we do not anticipate that
there will be any, by our officers, directors, principal
shareholders, their affiliates or associates that will be
reimbursed with proceeds from this offering. None of the offering
proceeds we receive will be used to make loans to officers,
directors or affiliates.
Our
anticipated use of proceeds represents our best estimate of the
allocation of the net proceeds of this offering based upon the
current status of our business. Our estimates may prove to be
inaccurate. We based this estimate on various assumptions,
including our anticipated sales and marketing expenditures, gross
margins, general operating expenses and revenues. If any of these
factors change, we may find it necessary to reallocate a portion of
the proceeds away from purchasing royalty interests. We may
undertake new activities that will require considerable additional
expenditures, or unforeseen expenses may occur.
If our
plans change or our assumptions prove to be inaccurate, we may need
to seek additional financing sooner than currently anticipated or
to curtail our operations. If we are required to raise additional
capital in the future, we cannot assure you that we will be
successful in raising any additional capital, whether in the form
of debt or equity, when it is needed or on suitable terms. The cost
of debt financing could be high, which may prevent us from earning
a profit and the cost of equity financing could be substantially
dilutive to our shareholders. If we are unable to raise the capital
we need in the time required or on suitable terms, our business
will fail and investors could lose their entire
investment.
12
DETERMINATION OF OFFERING PRICE
There
is no established public market for the securities being
registered. As a result, the offering price and other terms and
conditions relative to our shares have been arbitrarily determined
by us and do not necessarily bear any relationship to assets,
earnings, book value or any other objective criteria of value. In
addition, no investment banker, appraiser or other independent,
third party has been consulted concerning the offering price for
the shares or the fairness of the price used for the shares.
Accordingly, the offering price should not be considered an
indication of the actual value of our securities.
In
determining the initial public offering price of the shares we
considered several factors including the following:
● the
risks we face as a business;
● prevailing
market conditions, including the history and prospects for the
industry in which we compete;
● the
experience of the officers;
● our
future prospects; and
● our
capital structure.
13
CAPITALIZATION
The
following table shows our cash and cash equivalents and
capitalization as of October 31, 2019:
●
on an actual
basis;
●
on a pro forma
basis to give effect to the automatic conversion of the Series 1
SAFE’s into 549,091 shares of Company common stock upon the
occurrence of the Next Equity Financing (as defined).
The pro
forma below is illustrative only, and our cash and cash equivalents
and total capitalization following the completion of this offering
will be adjusted based on the actual initial public offering price
and other terms of our initial public offering determined at
pricing.
You
should read the following table together with
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the financial
statements and related notes thereto appearing elsewhere in this
prospectus.
|
October
31,
2019
|
Pro
Forma
|
ASSETS
|
|
|
|
|
|
Current
Assets
|
|
|
Cash and cash
equivalents
|
$1,179,497
|
$1,179,497
|
Prepaid
expenses
|
5,000
|
5,000
|
Due from related
party
|
2,839
|
2,839
|
Total
Current Assets
|
$1,187,336
|
$1,187,336
|
|
|
|
Royalty
Interests
|
495,675
|
495,675
|
|
|
|
Total
assets
|
$1,683,011
|
$1,683,011
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
Current
Liabilities
|
|
|
Accounts payable
and accrued liabilities
|
$7,943
|
$7,943
|
Commitment reserved
for SAFE Agreements
|
1,812,000
|
-
|
|
|
|
Total
Liabilities
|
$1,819,943
|
$7,943
|
|
|
|
Stockholders’
Deficit
|
|
|
Preferred
Stock; $0.01 par value; 5,000,000 shares authorized; - issued and
outstanding
|
-
|
-
|
Common
stock; $0.01 par value; 200,000,000 shares authorized, 3,076,800
shares issued and outstanding and 3,625,891 shares issued and
outstanding (1)
|
30,768
|
36,259
|
Additional paid in
capital
|
-
|
1,806,509
|
Accumulated
deficit
|
(167,700)
|
(167,700)
|
Total
Stockholders’ Equity (Deficit)
|
(136,932)
|
1,675,068
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
$1,683,011
|
$1,683,011
|
(1) Assumes the Series 1 SAFEs automatically convert into
549,091 shares of Company common stock upon the occurrence of the
Next Equity Financing (as defined).
14
DILUTION OF THE PRICE YOU PAY FOR YOUR SHARES
Dilution
represents the difference between the offering price and the net
tangible book value per share immediately after completion of this
offering. Net tangible book value is the amount that results from
subtracting total liabilities and intangible assets from total
assets. Dilution arises mainly as a result of our arbitrary
determination of the offering price of the shares being offered.
Dilution of the value of the shares you purchase is also a result
of the lower book value of the shares held by our existing
stockholders.
The
calculations below are based upon (a) 3,076,800 common shares
issued and outstanding (excluding the conversion of any outstanding
securities) and (b) 3,625,891 common shares issued and outstanding
(assuming the Series 1 SAFEs automatically convert into 549,091
shares of common stock upon the occurrence of the Next Equity
Financing (as defined)) and, a net tangible book value of
$1,187,336 or $0.385 per share of common stock as of October 31,
2019.
Pursuant
to the terms of the Series 1 SAFEs, as amended, each outstanding
Series 1 SAFE will automatically convert into common shares of the
Company upon the closing of the Next Equity Financing (as defined).
Next Equity Financing means the next
sale (or series of related sales) by the Company of its common
stock from which the Company receives gross proceeds of not less
than $500,000.
You
will suffer substantial dilution in the purchase price of your
stock compared to the net tangible book value per share immediately
after the purchase.
The
following assumes the sale of 100% of the shares of common stock in
this offering. After giving effect to the sale of 300,000 shares at
an offering price of $6 per share of common stock our net tangible
book value as of the closing of this offering would increase from
$0.385 to $0.898per share. This represents an immediate increase in
the net tangible book value of approximately $0.513 per share to
current shareholders, and immediate dilution of about $5.11 per
share to new investors, as illustrated in the following
table:
Public offering
price per share of common stock
|
$6.00
|
Net tangible book
value per share prior to offering
|
$0.385
|
Increase per share
attributable to new investors
|
$0.513
|
Net tangible book
value per share after offering
|
$0.898
|
Dilution per share
to new investors
|
$5.10
|
Percentage
dilution
|
85%
|
The
following assumes the sale of 50% of the shares of common stock in
this offering. After giving effect to the sale of 150,000 shares at
an offering price of $6 per share of common stock our net tangible
book value as of the closing of this offering would increase from
$0.385 to $0.646 per share. This represents an immediate increase
in the net tangible book value of $0.261 per share to current
shareholders, and immediate dilution of $5.32 per share to new
investors, as illustrated in the following table:
Public offering
price per share of common stock
|
$6.00
|
Net tangible book
value per share prior to offering
|
$0.385
|
Increase per share
attributable to new investors
|
$0.261
|
Net tangible book
value per share after offering
|
$0.646
|
Dilution per share
to new investors
|
$5.35
|
Percentage
dilution
|
91%
|
The
following assumes the sale of 25% of the shares of common stock in
this offering. After giving effect to the sale of 75,000 shares at
an offering price of $6 per share of common stock our net tangible
book value as of the closing of this offering would increase from
$0.385to $0.519 per share. This represents an immediate increase in
the net tangible book value of $0.134 per share to current
shareholders, and immediate dilution of $5.42 per share to new
investors, as illustrated in the following table:
Public offering
price per share of common stock
|
$6.00
|
Net tangible book
value per share prior to offering
|
$0.385
|
Increase per share
attributable to new investors
|
$0.134
|
Net tangible book
value per share after offering
|
$0.519
|
Dilution per share
to new investors
|
$5.48
|
Percentage
dilution
|
91%
|
15
PLAN OF DISTRIBUTION AND TERMS OF THE OFFERING
Offering
We are
offering on a best-efforts basis up to 300,000 shares of our common
stock at a price of $6 per share. There is no minimum number of
shares we are required to sell nor is there a minimum amount of
money we are required to raise from this offering. If we sell all
the shares offered, we will receive $1,800,000 in gross proceeds,
but there can be no assurance that all or any of the shares will be
sold.
This
offering shall begin upon the effectiveness of the registration
statement of which this prospectus is a part and will terminate on
the earlier of: (i) the date when the sale of all 300,000 shares is
completed, or (ii) 120 days from the effective date of this
document.
No Broker Is Being Utilized in This Offering
This
offering is a self-underwritten or a
“direct public offering,” which means that it
does not involve the participation of an underwriter or broker, and
as a result, no broker for the sale of our securities will be used.
In the event a broker-dealer is retained by us to participate in
the offering, we must file a post-effective amendment to the
registration statement to disclose the arrangements with the
broker-dealer, and that the broker-dealer will be acting as an
underwriter and will be so named in the prospectus. Additionally,
FINRA’s corporate finance department must issue a “no
objection” position on the terms of the underwriting
compensation before the broker-dealer may participate in the
offering.
Plan of Distribution
The shares will be sold in a “direct public offering”
through Alton “Ace” Chapman, Jr., our Chief
Executive Officer, and Noah Rosenfarb, our Chief Financial
Officer, each of whom may be
considered an underwriter as that term is defined in Section 2(a)
(11). Neither of Messrs. Chapman or Rosenfarb will receive any
commission in connection with the sale of shares, although we may
reimburse them for expenses incurred in connection with the offer
and sale of the shares. Messrs. Chapman and Rosenfarb intends to
sell the shares being registered according to the following plan of
distribution:
Shares will be offered to friends, family, business associates and
other associates of Messrs. Chapman or Rosenfarb.
Messrs. Chapman or Rosenfarb will be relying on, and complying
with, Rule 3a4-1(a)(4)(ii) of the Exchange Act as a “safe
harbor” from registration as a broker-dealer in connection
with the offer and sale of the shares. In order to rely on such
“safe harbor” provisions provided by Rule 3a4-1(a) (4)
(ii), each of Messrs. Chapman or Rosenfarb must be in compliance
with all of the following:
●
they must not be
subject to a statutory disqualification;
●
they must not be
compensated in connection with such selling participation by
payment of commissions or other payments based either directly or
indirectly on such transactions;
●
they must not be an
associated person of a broker-dealer; they must primarily perform,
or is intended primarily to perform at the end of the offering,
substantial duties for or on behalf of the Company otherwise than
in connection with transactions in securities; and
●
they must perform
substantial duties for the Company after the close of the offering
not connected with transactions in securities, and not have been
associated with a broker or dealer for the preceding 12 months, and
not participate in selling an offering of securities for any issuer
more than once every 12 months.
Each of Messrs. Chapman or Rosenfarb will comply with the
guidelines enumerated in Rule 3a4-1(a) (4) (ii). Neither of Messrs.
Chapman or Rosenfarb, nor any of their affiliates, will be
purchasing shares in the offering.
You may purchase shares by completing and manually executing a
simple subscription agreement and delivering it with your payment
in full for all shares, which you wish to purchase, to our offices.
A copy of the form of that subscription agreement is attached as an
exhibit to our registration statement of which this Prospectus is a
part. Your subscription shall not become effective until accepted
by us. Acceptance will be based upon confirmation that you have
purchased the shares in a state providing for an exemption from
registration. Our subscription process is as follows:
●
If you decide to
subscribe for any shares in this offering, you will be required to
execute a Subscription Agreement and tender it, together with a
check or certified funds to us. All checks for subscriptions should
be made payable to Freedom Internet Group Inc.
●
Subscriptions for
shares are irrevocable once made, and funds will only be returned
if the subscription is rejected. There will be no escrow account so
the proceeds from the sale will be placed directly into our
corporate account and all funds received can be immediately used by
us upon acceptance of the subscription.
●
We have the right
to accept or reject subscriptions in whole or in part, for any
reason or for no reason. Subscriptions not accepted will be
returned with all funds sent with the subscription within three
business days of the Company’s receipt of the
subscription, without interest or deduction of any
kind.
Regulation M
We are
subject to Regulation M of the Securities Exchange Act of 1934.
Regulation M governs activities of underwriters, issuers, selling
security holders, and others in connection with offerings of
securities. Regulation M prohibits distribution participants and
their affiliated purchasers from bidding for purchasing or
attempting to induce any person to bid for or purchase the
securities being distributed.
16
DESCRIPTION OF SECURITIES
The
following is a summary of the material rights and restrictions
associated with our securities. This description does not purport
to be a complete description of all of the rights of our
stockholders and is subject to, and qualified in its entirety by,
the provisions of our most current certificate of incorporation and
bylaws, which are included as exhibits to this Registration
Statement.
Common Stock
Our
authorized capital stock consists of 200,000,000 shares of common
stock, par value of $0.01 per share. As of October 31, 2019, there
were 3,076,800 shares of common stock held by 3 holders of
record.
Dividends:
|
|
The
holders of our common stock are entitled to dividends as our board
of directors may declare, from time to time, from funds legally
available, subject to the preferential rights of the holders of our
preferred stock, if any, and any contractual limitations on our
ability to declare and pay dividends.
As
of the date of this prospectus, we have not paid any cash dividends
to stockholders. The declaration of any future cash dividend will
be at the discretion of our board of directors and will depend upon
our earnings, if any, our capital requirements and financial
position, our general economic conditions, and other pertinent
conditions. It is our present intention not to pay any cash
dividends, but rather to reinvest earnings, if any, in our business
operations.
|
|
|
|
Distribution to
holders of common stock:
|
|
Upon
any voluntary or involuntary liquidation, dissolution, or winding
up of our affairs, the holders of our common stock are entitled to
share ratably in all assets available for distribution after
payment of creditors and subject to prior distribution rights of
our preferred stock, if any.
|
|
|
|
Non-cumulative voting:
|
|
The holders of our common stock are entitled to one
vote per share on any matter to be voted upon by shareholders,
subject to certain exceptions relating, among other matters, to our
preferred stock, if any. Our certificate of incorporation
does not provide for cumulative voting
in connection with the election of directors, and accordingly,
holders of more than 50% of the shares voting will be able to elect
all of the directors elected each year, subject to the voting
rights of our preferred stock, if any. Except as otherwise provided
by law, the holders of a majority in voting power of the shares
issued and outstanding and entitled to vote at such meeting of
shareholders will constitute a quorum at such meeting of the
shareholders for the transaction of business subject to the voting
rights of our preferred stock, if any.
|
|
|
|
Preemptive rights:
|
|
Upon
the consummation of this offering, no holder of our common stock
will have any preemptive right to subscribe for any shares of our
capital stock issued in the future.
|
Series 1 SAFE’s
Our
Company issued a series of simple agreements for future equity
(collectively, the "Series 1 SAFEs"). Pursuant to the terms of the
Series 1 SAFEs, as amended, each outstanding Series 1 SAFE will
automatically convert into common shares of Company upon the
closing of the Next Equity Financing (as defined). The SAFE
conversion price is the price per share of the Next Equity
Financing minus a discount of 45%. Next Equity Financing means the next sale (or
series of related sales) by the Company of its common stock from
which the Company receives gross proceeds of not less than
$500,000.
As of
October 31, 2019, there were $1,812,000 in aggregate value of
Series 1 SAFEs held by 13 holders of record. In the event our Company raises at
least $500,000 from the sale of common stock, the Series 1 SAFEs
automatically convert at $3.30 per share, into 549,091 shares of
Company common stock.
Preferred Stock
Our certificate of incorporation provides that our board of directors may, by
resolution, establish one or more classes or series of preferred
stock having the number of shares and relative voting rights,
designations, dividend rates, liquidation, and other rights,
preferences, and limitations as may be fixed by them without
further shareholder approval. The holders of our preferred stock
may be entitled to preferences over common shareholders with
respect to dividends, liquidation, dissolution, or our winding up
in such amounts as are established by the resolutions of our board
of directors approving the issuance of such
shares.
17
The issuance of our preferred stock may have the effect of
delaying, deferring or preventing a change in control of us without
further action by the holders and may adversely affect voting and
other rights of holders of our common stock. In addition, issuance
of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes,
could make it more difficult for a third party to acquire a
majority of the outstanding shares of voting stock. As of
October 31, 2019, no shares of our
preferred stock have been issued and we have no plans to issue any
shares of preferred stock.
Options
Our
board of directors has authorized the 2019 Stock Incentive Plan
which provides us with the ability to issue options on up to
700,000 common shares. As of December 31, 2019, there were no stock
options issued.
Warrants
As of
December 31, 2019, there were no warrants issued or
outstanding.
Anti-takeover provisions
There
are no anti-takeover provisions that may have the effect of
delaying or preventing a change in control.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
No Public Market for Common Stock
This is
our initial public offering and no public market currently exists
for the securities being offered. Consequently, our shareholders
will not be able to sell their shares in any organized marketplace
and may be limited to selling their shares privately. Accordingly,
an investment in our shares is an illiquid investment.
Following
the closing of this offering, we intend to apply to trade our
shares on the OTCQB. We cannot
guarantee you that we will ever be able to list our securities on
the OTCQB or any other trading medium or exchange. Investors should
view an investment in our stock as a long-term
investment.
Blue Sky
Our
common stockholders and persons who desire to purchase our common
stock shares in any trading market that may develop should be aware
that there may be significant state law restrictions upon the
ability of investors to resell our shares. Accordingly, even if we
are successful in having our shares available for trading on the
OTCQB or other trading medium, investors should consider any
secondary market for our securities to be a limited
one.
We
intend to seek coverage and publication of information about us in
an accepted publication which permits a “manual
exemption”. This manual exemption permits a security to be
distributed in a particular state without being registered if the
company issuing the security has a listing for that security in a
securities manual recognized by the state. The listing entry must
contain: (1) the names of issuers, officers, and directors;
(2) an issuer’s balance sheet; and (3) a profit and
loss statement for either the fiscal year preceding the balance
sheet or for the most recent fiscal year of operations. We may be
unable to secure a listing containing all of this information.
Furthermore, the manual exemption is a non-issuer exemption
restricted to secondary trading transactions, making it unavailable
for issuers selling newly issued securities. The manual exemption
services, offered by Mergent, currently “Blue Sky”
securities up to 39 states. Securities quoted on the OTCQX and
OTCQB may be covered in the 29 states that have provided the OTC
Markets with a manual exemption through formal rule changes,
no-action letters, administrative orders.
The
shares may not be offered or sold in certain jurisdictions unless
they are registered or otherwise comply with the applicable
securities laws of such jurisdictions by exemption, qualification
or otherwise. We intend to sell the shares only in the states in
which this offering has been qualified or an exemption from the
registration requirements is available, and purchases of shares may
be made only in those states.
18
Stock transfer agent
We have
not engaged the services of a transfer agent at this time. We plan
to retain the services of an independent stock transfer agent upon
closing of this offering.
Recent sales of unregistered securities
Set
forth below is information regarding all securities issued by our
Company since inception on November 15, 2018.
1.
Equity
Financing
In
connection with organizing our Company, on January 24, 2019 we
issued 3,076,800 shares of Company common stock to Alton
“Ace” Chapman, Jr., Noah Rosenfarb and Ronald Rosenfarb
for total consideration of $30,768, or $0.01 per share. The fair
value was determined to be $0.01 per share because the shares were
issued after our company was formed and at the time, the company
had no assets or revenue. The shares issued to our founders are not
being registered by this registration statement and we have no
plans to register their shares in the future.
2.
Series 1 SAFE
Financing
On
March 13, 2019, our Company closed on the issuance of a series of
simple agreements for future equity (collectively, the "Series 1
SAFEs") in the principal amount of $1,812,000. Pursuant to the
terms of the Series 1 SAFEs, as amended, each outstanding Series 1
SAFE will automatically convert into common shares of Company upon
the closing of the Next Equity Financing (as defined). The SAFE
conversion price is the price per share of the Next Equity
Financing minus a discount of 45%. Next Equity Financing means the next sale (or
series of related sales) by the Company of its common stock from
which the Company receives gross proceeds of not less than
$500,000.
We
issued these securities in reliance upon the exemption under
Section 4(2) of the Securities Act of 1933 based on the fact that
the issuance of these shares did not involve a “public
offering” due to the insubstantial number of persons involved
in the deal, size of the offering, manner of the offering and
quantity of securities offered. In addition, the investors had the
necessary investment intent as required by Section 4(2) since they
agreed to receive a share certificate bearing a legend stating that
such shares are restricted pursuant to Rule 144 of the Securities
Act. This restriction ensures that these shares would not be
immediately redistributed into the market and therefore not be part
of a "public offering."
The
investors who purchased securities made representations that (a)
the investor is acquiring the securities for his, her or its own
account for investment and not for the account of any other person
and not with a view to or for distribution, assignment or
resale in connection with any distribution within the meaning of
the Securities Act, (b) the investor agrees not to sell or
otherwise transfer the purchased securities unless they are
registered under the Securities Act and any applicable state
securities laws, or an exemption or exemptions from such
registration are available, (c) the investor has knowledge and
experience in financial and business matters such that he, she or
it is capable of evaluating the merits and risks of an investment
in us, (d) the investor had access to all of our documents,
records, and books pertaining to the investment and was provided
the opportunity to ask questions and receive answers regarding the
terms and conditions of the offering and to obtain any additional
information which we possessed or were able to acquire without
unreasonable effort and expense, and (e) the investor has no need
for the liquidity in its investment in us and could afford the
complete loss of such investment.
The
investors negotiated the terms of the transactions directly with
our executive officers. No general solicitation was used, no
commission or other remuneration was paid in connection with these
transactions, and no underwriter participated. Based on an analysis
of the above factors, these transactions were affected in reliance
on the exemption from registration provided in Section 4(a)(2) and
Regulation D of the Securities Act for transactions not involving
any public offering.
Other
than the securities mentioned above, we have not issued or sold any
securities.
19
PRINCIPAL SHAREHOLDERS
The
following tables set forth the ownership, as of the date of this
prospectus, of our common stock by each person (including any
group) known by us to be the beneficial owner of more than 5% of
our outstanding common stock, our directors, and our executive
officers and directors as a group. As of the date of this
prospectus, assuming the Series 1 SAFEs automatically convert into
549,091 shares of common stock upon the occurrence of the Next
Equity Financing (as defined), there are 3,625,891 shares of common
stock outstanding and no preferred stock outstanding.
Each
stockholder's address is in care of our company at 151 Calle San
Francisco, Suite 200, San Juan, Puerto Rico 00901
Title of Class
|
|
Name and Address of
Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
(2)
|
|
Percentage
Before
Offering
|
|
Percentage
After Offering
(3)
|
Common
Stock
|
|
Alton
“Ace” Chapman, Jr, Chief Executive Officer and
Director
|
|
1,461,500
shares
|
|
40.3%
|
|
37.2%
|
Common
Stock
|
|
Noah
Rosenfarb Chief Financial Officer and Director
|
|
1,461,500
shares
|
|
40.3%
|
|
37.2%
|
Common
Stock
|
|
Ronald
RosenfarbChief Operating Officer
|
|
153,800
shares
|
|
4.2%
|
|
3.9%
|
Common
Stock
|
|
SAFE
conversions
|
|
549,091
|
|
15.2%
|
|
14.0%
|
Common
Stock
|
|
Shares
issued under this prospectus (1)
|
|
300,000
|
|
-
|
|
7.6%
|
|
All
officers and directors as a group (3)
|
|
3,076,800
shares
|
|
100%
|
|
100%
|
(1)
All shares are
directly owned, and no shares are indirectly owned.
(2)
Assumes the sale of
the maximum amount of this offering (300,000 shares of common
stock) by us and the conversion of all outstanding convertible
securities assuming we raise at least $500,000 from this offering.
The aggregate number of shares to be issued and outstanding after
the offering is 3,925,891.
All
persons named in the table have sole voting and investment power
with respect to all shares of the common stock beneficially owned
by them. There are no
greater than 5% beneficial owners underlying the SAFE conversion.
Officers and directors do not intend to acquire shares in the
offering.
Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than ten percent
of our common stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes of
ownership of our common stock upon the Company becoming a fully
reporting company under the Exchange Act by the Company filing a
Form 8-A. The Company intends to file a Form 8-A
immediately upon effectiveness of this registration statement thus
registering a class of securities under Section 12 of the Exchange
Act. Until such time, the officers and directors and
persons who own more than ten percent will not have to file such
reports. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish us
with copies of all Section 16(a) forms they file.
We
intend to ensure to the best of our ability that all Section 16(a)
filing requirements applicable to our officers, directors and
greater than ten percent beneficial owners are compiled within a
timely fashion.
20
Shares Available For Future Sales
Future sales of our common stock in the public market, or the
availability of such shares for sale in the public market, could
adversely affect market prices prevailing from time to
time.
Based on the number of shares of our common stock outstanding as
of December 31, 2019, upon the
completion of this offering, 3,925,891 shares of our common stock
will be outstanding, assuming all 300,000 shares are issued in
this offering and the SAFE conversion.
Approximately 300,000 of our outstanding shares will be freely
tradable except that any shares held by our affiliates, as that
term is defined in Rule 144 under the Securities Act, may only be
sold in compliance with the limitations described
below.
Rule 144
In general, under Rule 144 of the Securities Act, as in effect on
the date of this prospectus, any person who is not our affiliate at
any time during the preceding three months, and who has
beneficially owned the relevant shares of our common stock for at
least six months, including the holding period of any prior owner
other than one of our affiliates, would be entitled to sell an
unlimited number of shares of our common stock into the public
markets provided current public information about us is available,
and, after owning such shares for at least one year, including the
holding period of any prior owner other than one of our affiliates,
would be entitled to sell an unlimited number of shares of our
common stock into the public markets without
restriction.
A person who is our affiliate or who was our affiliate at any time
during the preceding three months, and who has beneficially owned
restricted securities for at least six months, including the
affiliates, is entitled to sell within any three-month period a
number of shares that does not exceed 1% of the number of
shares of our common stock then outstanding.
Sales under Rule 144 by our affiliates are also subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Equity Compensation Plan Information
Plan
category
|
Number of
securities to beissued upon exercise of outstanding
options,warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans approved by security holders
|
700,000
|
Not
applicable
|
700,000
|
Equity
compensation plans not approved by security holders
|
0
|
Not
applicable
|
0
|
Total
|
700,000
|
Not
applicable
|
700,000
|
(a)
In September 2019,
the board of directors approved the 2019 Plan and our stockholders
approved its adoption. We have reserved seven hundred thousand
(700,000) shares of our common stock for issuance under the 2019
Plan.
(b)
As of December 31,
2019, we have not issued any stock options under the 2019
Plan.
(c)
As of December 31,
2019, we have 700,000 shares that can be issued under the 2019
Plan.
21
DESCRIPTION OF OUR BUSINESS
Business Summary
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.
We were
incorporated in Puerto Rico on November 15, 2018. Our address is
151 Calle San Francisco, Suite 200, San Juan, Puerto Rico 00901 and
our telephone number is 855-422-4200.
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.
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.
22
Customers
We
primarily intend to negotiate royalty interests from Internet based
businesses, 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.
Wiz Motions, LLC
On
October 10, 2019, we 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. We purchased a royalty interest from
Wiz for $300,000 which provides us with a perpetual 10% of all
future gross sales generated by Wiz through www.WizMotions.com and
all other sources. We expect our first royalty payment from Wiz in
February 2020. Royalties payments are due quarterly.
The royalty has a
perpetual duration.
Under the
agreement, the term Website is defined as www.wizmotions.com,
including all existing and future applications, software, source
code, updates, improvements and the like and term Operator is
defined as Wiz Motions, LLC.
In the event of
default, we are entitled to liquidated damages of $750,000. An
event of default is defined as (a) the Operator fails to pay any
amount due under the agreement on the due date for payment; (b) the
Operator breaches the agreement (other than through a failure to
pay any amounts due hereunder) and, if such breach is curable,
fails to cure such breach within ten (10) days of the
Company’s written notice of such breach; (c) the Operator
fails to maintain continuous operation of the Website in accordance
with the agreement; (d) the Operator (i) is dissolved or liquidated
or takes any corporate action for such purpose, (ii) becomes
insolvent or is generally unable to pay, or fails to pay, its debts
as they become due, (iii) files or has filed against it a petition
for voluntary or involuntary bankruptcy under any applicable law,
(iv) makes or seeks to make a general assignment for the benefit of
creditors, or (v) applies for or has a receiver, trustee,
custodian, or similar agent appointed by order of any court of
competent jurisdiction to take charge of or sell any material
portion of its property or business; or (e) the Operator undergoes
a Change of Control. “ Change of Control ” means, with
respect to the Operator: (x) an acquisition, merger,
reorganization, or consolidation in which the holders of the voting
securities of the Operator outstanding immediately before such
transaction cease to beneficially own at least fifty percent (50%)
of the combined voting power of the surviving entity, directly or
indirectly, immediately after such transaction; (y) a transaction
or series of related transactions in which any other person or
entity becomes the beneficial owner of fifty percent (50%) or more
of the combined voting power of the outstanding securities of the
Operator; or (z) the sale or other transfer to any other person or
entity of all or substantially all of the assets of the Operator,
including, without limitation, the Website.
In the event Wiz
fails to timely pay any liquidated damages, we have the right to
(a) terminate the agreement, (b) take control over the Website and
(c) seek any other remedies available.
In the event Wiz
receives a bona fide written offer from a third party that it
wishes to accept, and which will result in a change of control, we
have the right of first refusal to purchase the Website on the same
terms. In the event we do not elect to purchase the Website and Wiz
consummates the third-party transaction which results in a change
of control, we have the option to (a) continue to receive royalties
in accordance with our agreement or (b) recover $750,000 in
liquidated damages.
In the event of the
death or permanent disability of the owner(s) of a majority
interest of Wiz, the Website shall be released from escrow to our
control and we will assume ownership and operation of the Website
thereafter. Upon such occurrence, the royalty payment we were to
receive would instead be paid to the estate or guardian of the
deceased or disabled owner(s) for a period not to exceed twelve
months.
23
Offito, LLC
On
October 15, 2019, we 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. We purchased a royalty
interest from Offito for $195,000 which provides us with a
percentage of all future Net Sales (defined below) as follows: 50%
of the first $10,000, 35% of the next $10,000 and 25% of any amount
over $20,000.
Under
the agreement with Offito, Net Sales is defined as the gross
revenue received by the operator from operations of the business of
www.Offito.com minus certain deductions or offsets including (i)
discounts allowed in amounts customary in the trade, (ii) sales,
tariff duties, and use taxes directly imposed and with reference to
particular sales, (iii) outbound transportation prepaid or allowed
and (iv) amounts allowed or credited on returns. No deductions from
Net Sales shall be made for commissions paid to sales agents or
employees, overhead expenses or for costs of collections. We expect
our first royalty payment from Offito in February
2020. Royalty payments are due quarterly.
The royalty has a perpetual
duration.
Under the
agreement, the term Website is defined as www.offito.com, including
all existing and future applications, software, source code,
updates, improvements and the like and the term Operator is defined
as Offito, LLC.
In the event of
default, we are entitled to liquidated damages of $487,500. An
event of default is defined as (a) the Operator fails to pay any
amount due under the agreement on the due date for payment; (b) the
Operator breaches the agreement (other than through a failure to
pay any amounts due hereunder) and, if such breach is curable,
fails to cure such breach within ten (10) days of the
Company’s written notice of such breach; (c) the Operator
fails to maintain continuous operation of the Website in accordance
with the agreement; (d) the Operator (i) is dissolved or liquidated
or takes any corporate action for such purpose, (ii) becomes
insolvent or is generally unable to pay, or fails to pay, its debts
as they become due, (iii) files or has filed against it a petition
for voluntary or involuntary bankruptcy under any applicable law,
(iv) makes or seeks to make a general assignment for the benefit of
creditors, or (v) applies for or has a receiver, trustee,
custodian, or similar agent appointed by order of any court of
competent jurisdiction to take charge of or sell any material
portion of its property or business; or (e) the Operator undergoes
a Change of Control. “ Change of Control ” means, with
respect to the Operator: (x) an acquisition, merger,
reorganization, or consolidation in which the holders of the voting
securities of the Operator outstanding immediately before such
transaction cease to beneficially own at least fifty percent (50%)
of the combined voting power of the surviving entity, directly or
indirectly, immediately after such transaction; (y) a transaction
or series of related transactions in which any other person or
entity becomes the beneficial owner of fifty percent (50%) or more
of the combined voting power of the outstanding securities of the
Operator; or (z) the sale or other transfer to any other person or
entity of all or substantially all of the assets of the Operator,
including, without limitation, the Website.
In the event Offito
fails to timely pay any liquidated damages, we have the right to
(a) terminate the agreement, (b) take control over the Website and
(c) seek any other remedies available.
In the event Offito
receives a bona fide written offer from a third party that it
wishes to accept, and which will result in a change of control, we
have the right of first refusal to purchase the Website on the same
terms. In the event we do not elect to purchase the Website and
Offito consummates the third-party transaction which results in a
change of control, we have the option to (a) continue to receive
royalties in accordance with our agreement or (b) recover $487,500
in liquidated damages.
In the event of the
death or permanent disability of the owner(s) of a majority
interest of Offito, the Website shall be released from escrow to
our control and we will assume ownership and operation of the
Website thereafter. Upon such occurrence, the royalty payment we
were to receive would instead be paid to the estate or guardian of
the deceased or disabled owner(s) for a period not to exceed twelve
months.
Growth Stack, Inc.
On
November 22, 2019, we 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. We 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. We will also receive 1% of the Net Sales in excess of
$200,000 per month, until we receive a total of $500,000 in
aggregate royalty payments from Growth Stack.
24
Under
the agreement with Growth Stack, Net Sales is defined as the gross
revenue received by the operator from operations of the business of
www.SocialTools.me, www.StorageUnitAuctionList.com,
www.PicReel.com, www.OnlinePRnews.com, and www.LongTailPro.com
minus certain deductions or offsets including (i) discounts allowed
in amounts customary in the trade, (ii) sales, tariff duties, and
use taxes directly imposed and with reference to particular sales,
(iii) outbound transportation prepaid or allowed and (iv) amounts
allowed or credited on returns. No deductions from Net Sales shall
be made for commissions paid to sales agents or employees, overhead
expenses or for costs of collections. We expect our first royalty
payment from Growth Stack in April 2020. Royalties payments are due
monthly.
Under the
agreement, the term Website is defined as SocialTools.me,
Storageunitauctionlist.com, Picreel.com, and Onlineprnews.com,
including all existing and future applications, software, source
code, updates, improvements and the like and the term Operator is
defined as Growth Stack, Inc.
Upon a Change of
Control of the Operator or a sale of the Websites, we are entitled
to receive a payment (the “Change of Control Payment”)
equal to the greater of (i) $500,000.00 or (ii) $1,000,000.00 less
all royalties received through such date. “Change of
Control” means, with respect to the Operator: (x) an
acquisition, merger, reorganization, or consolidation in which the
holders of the voting securities of the Operator outstanding
immediately before such transaction cease to beneficially own at
least fifty percent (50%) of the combined voting power of the
surviving entity, directly or indirectly, immediately after such
transaction; (y) a transaction or series of related transactions in
which any other person or entity becomes the beneficial owner of
fifty percent (50%) or more of the combined voting power of the
outstanding securities of the Operator; or (z) the sale or other
transfer to any other person or entity of all or substantially all
of the assets of the Operator, including, without limitation, the
Websites.
The Operator has
the option to buy out the remaining payment obligations to us and
terminate the royalty agreement provided that: (i) the Operator
gives us 30 days’ prior written notice of exercise of the
buy-out option; and (ii) the Operator pays us an amount equal to
the Change of Control Payment.
In the event of
default, we are entitled to liquidated damages of $625,000. An
event of default is defined as (a) the Operator fails to pay any
amount due under the agreement on the due date for payment; (b) the
Operator breaches the agreement (other than through a failure to
pay any amounts due hereunder) and, if such breach is curable,
fails to cure such breach within ten (10) days of the
Company’s written notice of such breach; (c) the Operator
fails to maintain continuous operation of the Websites in
accordance with the agreement; (d) the Operator (i) is dissolved or
liquidated or takes any corporate action for such purpose, (ii)
becomes insolvent or is generally unable to pay, or fails to pay,
its debts as they become due, (iii) files or has filed against it a
petition for voluntary or involuntary bankruptcy under any
applicable law, (iv) makes or seeks to make a general assignment
for the benefit of creditors, or (v) applies for or has a receiver,
trustee, custodian, or similar agent appointed by order of any
court of competent jurisdiction to take charge of or sell any
material portion of its property or business; or (e) the Operator
fails to pay royalties to us in an amount equal to or greater than
$250,000 within the first seven (7) years following the date of the
agreement. A principal of the Operator has assumed personal
liability to us in the Event of Default for any and all payments
due to us by the Operator under our agreement.
In the event Growth
Stack receives a bona fide written offer from a third party that it
wishes to accept, and which will result in a change of control, we
have the right of first refusal to purchase the Website on the same
terms. In the event we do not elect to purchase the Website and
Growth Stack consummates the third-party transaction which results
in a change of control, we have the option to (a) continue to
receive royalties in accordance with our agreement or (b) recover
Change of Control Payment and terminate the royalty
agreement.
In the event of the
death or permanent disability of the owner(s) of a majority
interest of Growth Stack, the Website shall be released from escrow
to our control and we will assume ownership and operation of the
Website thereafter. Upon such occurrence, the royalty payment we
were to receive would instead be paid to the estate or guardian of
the deceased or disabled owner(s) for a period not to exceed twelve
months.
For additional information regarding the above-mentioned royalty
agreements, you should review in their entirety each of the royalty
agreements which are attached as exhibits to the registration
statement of which this prospectus is a part.
25
Sales and Marketing
We
presently identify prospective royalty opportunities through
personal relationships of our CEO Alton “Ace” Chapman,
Jr. In the future, we plan to pay for online advertisements and may
enter into third-party marketing agreements to expand our reach. At
present, there is no direct correlation between revenues and
marketing expenses.
Competition
The
market for our services is competitive and rapidly changing, and
the barriers to entry are relatively low. We experience competition
from large established businesses possessing large, existing
customer bases, substantial financial resources and established
distribution channels. We expect competition to persist and
intensify in the future, which could harm our ability to increase
sales, limit customer attrition and maintain our prices.
Competition could result in reduced sales, reduced margins or the
failure of our services to achieve or maintain more widespread
market acceptance, any of which could harm our business and our
operating results could be harmed. Our principal competitors
include any entity or individual providing businesses with capital,
including but not limited to investment banking firms, investment
funds, financial institutions, government agencies and private
individuals.
Our
current and potential competitors may have significantly more
financial, technical, marketing and other resources than we do and
may be able to devote greater resources to the development,
promotion, sale and support of their products. Our current and
potential competitors may have more extensive customer bases and
broader customer relationships than we have. If we are unable to
compete with such companies, the demand for our products could
substantially decline.
Intellectual Property
We do
not own any patents, trademarks, licenses, franchises or
concessions aside from the FIGIroyalty.com domain
name.
26
Technology
We
currently use off the shelf technology to operate our
business.
Regulation of our Business
We are
subject to common business, tax and regulations pertaining to the
operation of our business. We believe that compliance of
governmental regulations will be additional responsibilities of our
management.
Employees
We have
no full-time employees. We have three part-time
employees:
- Our Chief
Executive Officer
- Our Chief
Operating Officer
- Our Chief
Financial Officer
We also
have one part-time subcontracted accountant in the United
States.
Properties
Our
corporate headquarters is located in San Juan, Puerto Rico. We rent
our corporate headquarters for $75 per month, on a month to month
basis. We believe that additional space may be required as our
business expands and believe that we can obtain suitable space as
needed.
Material agreements
Consulting Agreement with Maxim Partners, LLC
We
entered into two agreements with Maxim Partners, LLC, a Puerto Rico
limited liability company, to provide us with business consulting
services until January 31, 2021, including to consult and advise
about: (a) our corporate structure and strategic advice in
connection with going public; (b) engaging appropriate SEC
counsel, auditors, transfer agents and other professionals for the
purpose of going public as a registered fully reporting public
company; (c) assistance in the compilation of information necessary
for preparation of this registration statement; (d) advice on
responses to registration statement comments by the Securities and
Exchange Commission and comments by FINRA regarding quotation of
our securities and (e) compilation of the information necessary to
achieve a Standard Manual exemption for secondary
trading.
We have paid Maxim
Partners, LLC a cash consulting fee of $130,000. We are obligated
to pay additional cash consulting fees of $70,000 upon achievement
of the following milestones: $15,000 upon notification
effectiveness of this registration statement, $35,000 upon
notification that the common shares have been approved for
publication, listing or quotation, $15,000 upon submission of the
first Form 10-Q and $5,000 upon submission of the first Form 10-K.
There can be no assurance that all or any of the milestones will be
achieved.
Please
see “Executive Compensation - Employee, Severance, Separation and Change in
Control Agreements” for a description of our
employment agreements with our officers and directors.
Legal proceedings
We may
from time to time be involved in routine legal matters incidental
to our business; however, we are currently not involved in any
litigation, nor are we aware of any threatened or impending
litigation.
27
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The
name, age and position of our officers and directors is set forth
below:
Name
|
|
Age
|
|
Title
|
|
Held Position
Since
|
Alton
“Ace” Chapman, Jr.
|
|
39
|
|
Chief
Executive Officer, Director
|
|
November
2018
|
Noah
Rosenfarb
|
|
43
|
|
Chief
Financial Officer, Principal Accounting Officer, Chairman of the
Board of Directors
|
|
November
2018
|
Ronald
Rosenfarb, Esq.
|
|
47
|
|
Chief
Operating Officer, Secretary
|
|
November
2018
|
The
term of office of each director of the Company ends at the next
annual meeting of the Company's stockholders or when such
director's successor is elected and qualifies. No date
for the next annual meeting of stockholders is specified in the
Company's bylaws or has been fixed by the Board of
Directors. The term of office of each officer of the
Company ends at the next annual meeting of the Company's Board of
Directors, expected to take place immediately after the next annual
meeting of stockholders, or when such officer's successor is
elected and qualifies.
BACKGROUND
INFORMATION ABOUT OUR OFFICERS AND DIRECTORS
The board of directors believes that each of the directors set
forth above has the necessary qualifications to be a member of the
board of directors. Each of the directors has exhibited during his
prior service as a director the ability to operate cohesively with
the other members of the board of directors. Moreover, the board of
directors believes that each director brings a strong background
and skill set to the board of directors, giving the board of
directors as a whole competence and experience in diverse areas,
including corporate governance and board service, finance,
management and industry experience.
The
following information sets forth the backgrounds and business
experience of the directors and executive officers.
Alton “Ace” Chapman, Jr. has been Director and
Chief Executive Officer since November 2018. Mr. Chapman is also
the Founder and Manager of Partners Equity Fund since the year
2000. Mr. Chapman has a BA in Business Administration from Colgate
University.
Mr.
Chapman’s qualifications to serve on our board of directors
include his knowledge of our company and the Internet industry and
his leadership at our company.
Noah Rosenfarb, CPA has been Chairman of the board of
directors since November 2018 and Chief Financial Officer since
January 2019. Mr. Rosenfarb is also Chief Executive Officer of
Freedom adVentures, Inc. an accounting and consulting firm since
February 2018, Chief Executive Officer of Freedom Wealth Advisors,
LLC an investment advisory firm since April 2007 and Chief
Executive Officer of Freedom Advisors, LLC, a consulting firm since
January 2007. In addition, Mr. Rosenfarb presently serves on
committees for Entrepreneurs' Organization Global Deal Exchange,
United Way of Broward County Legacy Society, member of United Way
of Broward Toqueville Society, Jewish Federation of Broward County
Legacy Society and Jewish Federation of South Palm Beach County
Legacy Society.
Mr.
Rosenfarb has a BS in Accounting from Rutgers College and has been
a CPA since 2000.
Mr.
Rosenfarb’s qualifications to serve on our board of directors
include his knowledge of our company and the Internet industry and
his leadership at our company.
Ronald Rosenfarb, Esq. has been Chief Operating Officer
since January 2019. Mr. Rosenfarb is also Chief Operating Officer
of Freedom adVentures, Inc. an accounting and consulting firm since
January 2018. From August 2011 to December 2017, Mr. Rosenfarb was
a Senior Manager at Rosenfarb LLC. Mr. Rosenfarb has a JD from
Rutgers Law School and was a member of the New York and New Jersey
bar from 1997 to 2018. He is also the author of "Winning with
Financial Damages Experts: A Guide for Litigators."
28
Director Compensation
Directors
are entitled to reimbursement for expenses in attending meetings
but receive no other compensation for services as directors.
Directors who are employees may receive compensation for services
other than as director. No compensation has been paid to directors
for services. There are no formal or informal arrangements or
agreements to compensate directors for services provided as a
director.
Director Independence
Although we do not currently trade on the NASDAQ or any other
trading medium, our Board of Directors has reviewed each of the
Directors’ relationships with the Company in conjunction with
NASDAQ Listing Rule 5605(a)(2) that provides that an
“independent director” is ‘a person other than an executive officer or
employee of the Company or any other individual having a
relationship which, in the opinion of the Company's Board of
Directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director.’
Our Board of Directors has affirmatively determined that none of
our directors are independent directors that are independent of
management or free of any relationship that would interfere with
their independent judgment as members of our Board of Directors.
The following members of our Board of Directors, Alton
“Ace” Chapman, Jr. and Noah Rosenfarb are not independent directors pursuant to the
standards described above.
Committees of the Board of Directors
The
Board of Directors has no nominating, auditing or compensation
committees or any committee performing a similar function. The
functions of those committees are being undertaken by the entire
board as a whole. Prospective investors should bear in mind our
current lack of corporate governance measures in formulating their
investment decisions.
Code of Ethics
In connection with the consummation of this offering, we plan to
adopt a written code of business conduct and ethics, to be known as
our code of conduct, which will apply to our chief executive
officer, our chief financial officer, our chief accounting officer
and all persons providing similar functions.
A code
of ethics is a written standard designed to deter wrongdoing and to
promote
- honest and
ethical conduct,
- full, fair,
accurate, timely and understandable disclosure in regulatory
filings and public statements,
- compliance
with applicable laws, rules and regulations,
- the prompt
reporting violation of the code, and
-
accountability for adherence to the code.
A copy
of our Code of Business Conduct and Ethics has been filed with the
Securities and Exchange Commission as an exhibit to this Form S-1
filing. Any person desiring a copy of the Code of Business Conduct
and Ethics, can obtain one by going to www.sec.gov and looking at
the attachments to this Form S-1.
Term of office
Directors
are elected to serve until the next annual meeting of stockholders
and until their successors have been elected and qualified.
Officers are appointed to serve until the meeting of the board of
directors following the next annual meeting of stockholders and
until their successors have been elected and qualified. Officers
hold their positions at the will of the Board of
Directors.
29
No legal proceedings
During
the past ten years, none of our directors or officers have been
subject of the following events:
1.
A petition under
the Federal bankruptcy laws or any state insolvency law was filed
by or against, or a receiver, fiscal agent or similar officer was
appointed by a court for the business or property of such person,
or any partnership in which he was a general partner at or within
two years before the time of such filing, or any corporation or
business association of which he was an executive officer at or
within two years before the time of such filing;
2.
Convicted in a
criminal proceeding or is a named subject of a pending criminal
proceeding (excluding traffic violations and other minor
offenses);
3.
The subject of any
order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining him from, or otherwise limiting, the
following activities;
ii)
Acting as a futures
commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the Commodity
Futures Trading Commission, or an associated person of any of the
foregoing, or as an investment adviser, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any
conduct or practice in connection with such
activity;
ii)
Engaging in any
type of business practice; or
iii)
Engaging in any
activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of Federal or State
securities laws or Federal commodities
laws;
4.
The subject of any
order, judgment or decree, not subsequently reversed, suspended or
vacated, of any Federal or State authority barring, suspending or
otherwise limiting for more than 60 days the right of such person
to engage in any activity described in paragraph 3.i in the
preceding paragraph or to be associated with persons engaged in any
such activity;
5.
Was found by a
court of competent jurisdiction in a civil action or by the
Commission to have violated any Federal or State securities law,
and the judgment in such civil action or finding by the Commission
has not been subsequently reversed, suspended, or
vacated;
6.
Was found by a
court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any Federal
commodities law, and the judgment in such civil action or finding
by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated;
7.
Was the subject of,
or a party to, any Federal or State judicial or administrative
order, judgment, decree, or finding, not subsequently reversed,
suspended or vacated, relating to an alleged violation
of:
i)
Any Federal or
State securities or commodities law or regulation; or
ii)
Any law or
regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction,
order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or
prohibition order, or
iii)
Any law or
regulation prohibiting mail or wire fraud or fraud in connection
with any business entity; or
8.
Was the subject of,
or a party to, any sanction or order, not subsequently reversed,
suspended or vacated, of any self-regulatory organization (as
defined in Section 3(a)(26) of the Exchange Act (15 U.S.C.
78c(a)(26))), any registered entity (as defined in Section 1(a)(29)
of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any
equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with
a member.
Other than Alton “Ace” Chapman, Jr., Noah Rosenfarb and
Ronald Rosenfarb, no other person[s] served as a promoters or
control person for our Company.
Family Relationships
Noah
Rosenfarb and Ronald Rosenfarb are brothers.
30
CONFLICTS OF INTEREST
Our
directors and officers are and may become, in their individual
capacity, officers, directors, controlling shareholders and/or
partners of other entities engaged in a variety of businesses.
There exist potential conflicts of interest including allocation of
time between us and their other business activities.
There
are no arrangements, agreements or understandings between
non-management shareholders and management under which
non-management shareholders may directly or indirectly participate
in or influence the management of our affairs.
No
proceeds from this offering will be loaned to any present
shareholder, officer, director or promoter. We also will not use
proceeds of this offering to purchase the assets of any company
which is beneficially owned by any of our current or future
officers, directors, promoters or affiliates.
RELATED PARTY TRANSACTIONS
The following sets forth certain transactions involving us and our
directors, executive officers and affiliates.
The Company has entered into transactions with related parties, at
terms and conditions agreed upon by management of the Company and
related parties. Amounts due from/to related parties are
non-interest bearing and do not have fixed repayment terms. These
amounts are payable and received in the normal course of business
and related to operating transactions and cash flows needs. There
is no net amount due from related parties as of January 31,
2020.
Other than the arrangements described under “Executive
Compensation,” and “Material Agreements” there
has not been, and there is not currently proposed, any transaction
or series of similar transactions to which we were or will be a
party in which the amount involved exceeds the lesser of $120,000
or one percent of the average of the Company's total assets at
year-end for the last two completed fiscal years,
and in which any related person had or
will have a direct or indirect material
interest.
Our Company does not have any formal written policies or procedures
for related party transactions, however in practice, our board of
directors reviews and approves all related party transactions and
other matters pertaining to the integrity of management, including
potential conflicts of interest and adherence to standards of
business conduct.
EXECUTIVE COMPENSATION
Introduction
The
information below provides an overview of our executive
compensation program, together with a description of the material
factors underlying the decisions that resulted in the compensation
provided to our Chief Executive Officer and the other executive
officers who were the highest paid during the fiscal year ended
October 31, 2019 (collectively, the “named executive
officers”), as presented in the tables which follow this
introduction.
Objective of Compensation Policy
The objective of our compensation policy is to provide a total
compensation package to each named executive officer that will
enable us to:
●
attract,
motivate and retain outstanding individual named executive
officers;
●
reward
named executive officers for attaining desired levels of profit and
shareholder value; and
●
align
the financial interests of each named executive officer with the
interests of our shareholders to encourage each named executive
officer to contribute to our long-term performance and
success.
31
Overall, our compensation program is designed to reward individual
and Company performance. As discussed further below a significant
portion of named executive officer compensation is comprised of a
combination of annual cash bonuses, which reward annual company and
executive performance, and equity compensation, which rewards
long-term company and executive performance. We believe that by
weighting total compensation in favor of the bonus and long-term
incentive components of our total compensation program, we
appropriately reward individual achievement while at the same time
providing incentives to promote company performance. We also
believe that salary levels should be reflective of individual
performance and therefore factor this into the adjustment of base
salary levels each year.
Employee, Severance, Separation and Change in Control
Agreements
Alton “Ace” Chapman, Jr.
Mr.
Chapman is our Chief Executive Officer. Under the terms of our
verbal agreement, beginning January 1, 2020, he will be paid a
salary of $36,000 per year and is entitled to reimbursement of
reasonable business expenses, vacation and sick days in accordance
with our corporate policy and any health benefits we may offer
employees in the future. Mr. Chapman will devote up to 10 hours per
week to our company. He does not have a non-competition agreement
with the company but is not separately engaged, nor does he
anticipate being separately engaged, in the purchase of royalty
interests from Internet based businesses.
For the
fiscal year ended October 31, 2019, we paid Mr. Chapman $0 in
salary.
Noah Rosenfarb
Mr.
Rosenfarb is our Chief Financial Officer. Under the terms of our
verbal agreement, beginning January 1, 2020, he will be paid a
salary of $36,000 per year and is entitled to reimbursement of
reasonable business expenses, vacation and sick days in accordance
with our corporate policy and any health benefits we may offer
employees in the future. Mr. Rosenfarb will devote up to 10 hours
per week to our company. He does not have a non-competition
agreement with the company but is not separately engaged, nor does
he anticipate being separately engaged, in the purchase of royalty
interests from Internet based businesses.
For the
fiscal year ended October 31, 2019, we paid Mr. Rosenfarb $0 in
salary.
Ronald Rosenfarb
Mr.
Rosenfarb is our Chief Operating Officer. Under the terms of our
verbal agreement, he is currently paid a salary of $36,000 per year
and is entitled to reimbursement of reasonable business expenses,
vacation and sick days in accordance with our corporate policy and
any health benefits we may offer employees in the future. Mr.
Rosenfarb will devote up to 20 hours per week to our company. He
does not have a non-competition agreement with the company but is
not separately engaged, nor does he anticipate being separately
engaged, in the purchase of royalty interests from Internet based
businesses.
For the
fiscal year ended October 31, 2019, we paid Mr. Rosenfarb $29,642
in salary.
32
Summary Compensation Table
The
table set forth below summarizes the annual and long-term
compensation for services in all capacities to us payable to our
officers and directors:
Name
|
Year1
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Nonqualified
Deferred Compensation Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
Alton
“Ace” Chapman, Jr.
|
2019
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Chief Executive
Officer
|
2018
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
|
Noah
Rosenfarb
|
2019
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Chief Financial
Officer
|
2018
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
|
Ronald
Rosenfarb
|
2019
|
29,642
|
0
|
0
|
0
|
0
|
0
|
0
|
29,642
|
Chief Operating
Officer
|
2018
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
1 Since inception on November 15, 2018
Pension, retirement or similar benefit plans
There
are no annuity, pension or retirement benefits proposed to be paid
to the officer or director or employees in the event of retirement
at normal retirement date pursuant to any presently existing plan
provided or contributed to by the company or any of its
subsidiaries, if any.
Stock Option Grants
We did
not grant any stock options to anyone during the most recent fiscal
period ended October 31, 2019.
Outstanding Equity Awards at October 31, 2019
There
are no outstanding equity awards for the most recent fiscal period
ended October 31, 2019.
Potential Payments Upon Termination or Change In
Control
Not
applicable
33
INDEMNIFICATION
Pursuant
to the certificate of incorporation and bylaws of our Company, we
may indemnify an officer or director who is made a party to any
proceeding, including a law suit, because of his position, if he
acted in good faith and in a manner he reasonably believed to be in
our best interest. In certain cases, we may advance
expenses incurred in defending any such proceeding. To
the extent that the officer or director is successful on the merits
in any such proceeding as to which such person is to be
indemnified, we must indemnify him against all expenses incurred,
including attorney’s fees. With respect to a
derivative action, indemnity may be made only for expenses actually
and reasonably incurred in defending the proceeding, and if the
officer or director is judged liable, only by a court
order. The indemnification is intended to be to the
fullest extent permitted by the laws of the Commonwealth of Puerto
Rico.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons
pursuant to the provisions above, or otherwise, we have been
advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Securities Act, and is, therefore,
unenforceable.
In the
event that a claim for indemnification against such liabilities,
other than the payment by us of expenses incurred or paid by one of
our directors, officers, or controlling persons in the successful
defense of any action, suit or proceeding, is asserted by one of
our directors, officers, or controlling person in connection with
the securities being registered, we will, unless in the opinion of
our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the
Securities Act, and we will be governed by the final adjudication
of such issue.
At
present, there is no litigation or proceeding involving a director
or officer of ours as to which indemnification is being sought, nor
are we aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
INTEREST OF NAMED EXPERTS AND COUNSEL
No
expert or counsel named in this prospectus as having prepared or
certified any part of this prospectus or having given an opinion
upon the validity of the securities being registered or upon other
legal matters in connection with the registration or offering of
the securities was employed on a contingency basis, or had, or is
to receive, in connection with the offering, a substantial
interest, direct or indirect, in the registrant or any of its
parents or subsidiaries. Nor was any such person connected with the
registrant or any of its parents or subsidiaries as a promoter,
managing or principal underwriter, voting trustee, director,
officer, or employee.
Legal
The validity of the shares covered by the registration statement of
which this prospectus is a part has been passed upon for us
by David M. Bovi, P.A.
Accounting
The
financial statements included in this Prospectus and in the
Registration Statement have been audited by Hancock Askew &
Co., LLP, to the extent and for the period set forth in their
report appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon
the authority of said firm as experts in auditing and
accounting.
34
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
Cautionary statement
The
following discussion and analysis should be read in conjunction
with the financial statements as included with this Form S-1. The
results shown herein are not necessarily indicative of the results
to be expected for any future periods.
This
discussion contains forward-looking statements, based on current
expectations with respect to future events and financial
performance and operating results, which statements are subject to
risks and uncertainties, including but not limited to those
discussed below and elsewhere in this Prospectus that could cause
actual results to differ from the results contemplated by these
forward looking statements. We urge you to carefully consider the
information set forth in this Prospectus under the heading
“Special Note Regarding Forward Looking Statements” and
“Risk Factors”.
Background overview
We are
engaged in the business of acquiring, holding and managing royalty
interests derived from Internet based businesses, referred to as
operators. Royalty interests are passive (non-operating) agreements
that provide us with contractual rights to revenue produced from
operators. The revenue generated by 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 operators and increase our
corporate cash flow. In some cases, we may also generate a premium
on our original purchase price if a royalty interest is redeemed by
an operator or third-party such as a buyer of an operator. We plan
to acquire royalty interests that can generate a 15% to 30%
internal rate of return, although there can be no guarantee that we
will achieve this target.
Royalty
interests are purchased for a fixed amount of capital in exchange
for pre-determined royalty payments. Depending on the unique
agreement, (i) royalty payments can be made monthly, quarterly or
annually, (ii) royalty payments can be made in perpetuity or for a
limited amount of time, (iii) royalty payment calculations can
change during the term of the royalty interest agreement based on
certain performance metrics or time and (iv) royalty payments can
be calculated off gross revenue of each operator, or off
net-revenue, which accounts for certain defined adjustments to
gross revenue, or off unit sales.
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 use
a series of quantitative, qualitative, financial, and legal
criteria by which we evaluate the potential acquisition of royalty
interests. We plan to acquire assets with an income focus, and our
target is to acquire assets generating uncorrelated income of 15%
to 30% internal rate of return, although there can be no guarantee
that we will achieve this target. Among the factors considered are:
(1) the business track record of revenue and earnings; (2) the type
of business that generates royalties; (3) the experience and skill
of the active management team of the business; (4) our assessment
of the longevity and staying power of the underlying business; and
(5) the potential for revenue growth and capital
appreciation.
We
currently, and generally at any time, have royalty interest
acquisition opportunities in various stages of active review. At
this time, we cannot provide assurance that any of the possible
transactions under review by us will be concluded
successfully.
Wiz Motions, LLC
On
October 10, 2019, we 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. We purchased a royalty interest from
Wiz for $300,000 which provides us with a perpetual 10% of all
future gross sales generated by Wiz through www.WizMotions.com and
all other sources. We expect our first royalty payment from Wiz in
February 2020. Royalties payments are due quarterly.
Offito, LLC
On
October 15, 2019, we 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. We purchased a royalty
interest from Offito for $195,000 which provides us with a
percentage of all future Net Sales (defined below) as follows: 50%
of the first $10,000, 35% of the next $10,000 and 25% of any amount
over $20,000.
Under
the agreement with Offito, Net Sales is defined as the gross
revenue received by the operator from operations of the business of
www.Offito.com minus certain deductions or offsets including (i)
discounts allowed in amounts customary in the trade, (ii) sales,
tariff duties, and use taxes directly imposed and with reference to
particular sales, (iii) outbound transportation prepaid or allowed
and (iv) amounts allowed or credited on returns. No deductions from
Net Sales shall be made for commissions paid to sales agents or
employees, overhead expenses or for costs of collections. We expect
our first royalty payment from Offito in February
2020. Royalties payments are due quarterly.
35
Growth Stack, Inc.
On
November 22, 2019, we 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. We 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. We will also receive 1% of the Net Sales in excess of
$200,000 per month, until we receive a total of $500,000 in
aggregate royalty payments from Growth Stack. We are 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, we have 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.
Under
the agreement with Growth Stack, Net Sales is defined as the gross
revenue received by the operator from operations of the business of
www.SocialTools.me, www.StorageUnitAuctionList.com,
www.PicReel.com, www.OnlinePRnews.com, and www.LongTailPro.com
minus certain deductions or offsets including (i) discounts allowed
in amounts customary in the trade, (ii) sales, tariff duties, and
use taxes directly imposed and with reference to particular sales,
(iii) outbound transportation prepaid or allowed and (iv) amounts
allowed or credited on returns. No deductions from Net Sales shall
be made for commissions paid to sales agents or employees, overhead
expenses or for costs of collections. We expect our first royalty
payment from Growth Stack in April 2020. Royalties payments are due
monthly.
For
additional information regarding the above-mentioned royalty
agreements, you should review in their entirety each of the royalty
agreements which are attached as exhibits to the registration
statement of which this prospectus is a part.
Results of Operations
For
fiscal year ending October 31, 2019:
Revenues
We
generated no revenue from inception to our fiscal year ending
October 31, 2019. We do not expect to achieve revenues from royalty
interests until February 2020.
Operating Expenses
Our
operating expenses of $169,977 from inception to our fiscal year
ending October 31, 2019 consisted primarily of incorporation
services, rent, accounting services and consulting services. We
expect our operating expenses to increase in 2019-2020 as a result
of increased operating activity to implement our business plan and
the added expenses associated with the filing of a public offering
and thereafter reporting with the Securities and Exchange
Commission.
Other Income
We
generated other income of $2,277 from inception to our fiscal year
ending October 31, 2019 consisting primarily of interest income in
the amount of $2,226 and other rebates.
Net Loss
We
recorded a net loss of $167,700 for our fiscal year ending October
31, 2019.
36
Liquidity and Capital Resources
As of
October 31, 2019, we had total current assets of $1,187,336
consisting primarily of cash and we had total current liabilities
of 1,819,943 as of October 31, 2019. Of the liabilities recorded at
October 31, 2019, $1,812,000 is related to amounts received under
convertible SAFE agreements.
From
inception through October 31, 2019, the Company used $167,596 of
cash in operating activities. Our primary source of cash outflows
include payroll, accounting services, audit services, legal
services, regulatory expense and consulting services. Cash outflows
typically occur in close proximity of expense
recognition.
From
inception through October 31, 2019, the Company raised $1,842,768
in cash from financing activities. Our primary source of cash
inflows totaling $1,812,000 is capital raised from investors and
$30,468 was invested by the founders. We believe that our existing
cash on hand and additional cash generated from operations will
provide us with sufficient liquidity to meet our operating needs
for the next 12 months.
At
October 31, 2019, we had no non-cancellable lease obligations and
we had we had no other off-balance sheet arrangements, commitments
or guarantees that require additional disclosure or
measurement.
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.
In
connection with the acquisition of royalty interests, we expect to
adopt the following significant accounting policies:
Revenue Recognition
We
intend to recognize revenue upon cash receipt of royalty payments.
We have the right to conduct audits of the operators’
calculations to ensure that all performances are included and that
the appropriate royalty rates are utilized.
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 will not have a
material effect on our financial statements.
Royalty Interests
We
intend to adopt the policy of amortizing the cost of royalty
interests using the straight-line method over a period of 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. 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.
37
SAFE Agreements
The
Company has a Simple Agreement for Future Equity program ("SAFE").
This SAFE is one of a series of simple agreements for future equity
(collectively, the "Series 1 SAFEs") issued by the Company to
investors with identical terms and on the same form, except that
the holder, purchase price and date of issuance may differ in each
SAFE. Pursuant to the definitions of the Series 1 SAFEs, as
amended, the price per share of the Next Equity Financing minus a
discount of 45% will be the conversion price. The conversion price
will be subject to a Valuation Cap of $15 million. As of October
31, 2019, SAFE convertible contributions amounted to $1,812,000.
This amount is presented as a liability because upon conversion,
the amounts will be converted into common stock.
Off-Balance Sheet Arrangements
We do
not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or
capital resources that is material to investors.
Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1, including exhibits and schedules, under the
Securities Act that registers the shares of our common stock to be
sold in this offering. This prospectus does not contain all the
information contained in the registration statement and the
exhibits and schedules filed as part of the registration statement.
For further information with respect to us and our common stock, we
refer you to the registration statement and the exhibits and
schedules filed as part of the registration statement. Statements
contained in this prospectus as to the contents of any contract or
other document are not necessarily complete. If a contract or
document has been filed as an exhibit to the registration
statement, we refer you to the copies of the contract or document
that has been filed. Each statement in this prospectus relating to
a contract or document filed as an exhibit is qualified in all
respects by the filed exhibit.
Upon the completion of this offering, we will file annual,
quarterly and current reports, proxy statements and other
information with the SEC under the Exchange Act. You can read our
SEC filings, including the registration statement, at the
SEC’s website at www.sec.gov.
Our website address is www.
FIGIroyalty.com. The
information contained in, and that can be accessed through, our
website is not incorporated into and shall not be deemed to be part
of this prospectus. We have included our website address in this
prospectus solely as an inactive textual
reference.
38
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Balance
Sheet as of October 31, 2019
|
F-3
|
|
|
|
|
Statement
of Operations for the period from November 15, 2018 (inception) to
October 31, 2019
|
F-4
|
|
|
|
|
Statement
of Changes in Stockholders’ Deficit for the period from
November 15, 2018 (inception) to October 31, 2019
|
F-5
|
|
|
|
|
Statement
of Cash Flows for the period from November 15, 2018 (inception) to
October 31, 2019
|
F-6
|
|
|
|
|
Notes
to Financial Statements
|
F-7
|
F-1
F-2
FREEDOM INTERNET GROUP, INC.
BALANCE SHEET
|
October 31,
2019
|
ASSETS
|
|
|
|
Current
Assets
|
|
Cash and cash
equivalents
|
$1,179,497
|
Prepaid
expenses
|
5,000
|
Due from related
party
|
2,839
|
Total
Current Assets
|
1,187,336
|
|
|
Royalty
interests, net
|
495,675
|
|
|
Total
Assets
|
$1,683,011
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
Current
Liabilities
|
|
Accounts payable
and accrued liabilities
|
$7,943
|
Commitment reserved
for SAFE agreements
|
1,812,000
|
Total
Current Liabilities
|
1,819,943
|
|
|
Total
Liabilities
|
1,819,943
|
|
|
COMMITMENTS
AND CONTINGENCIES (NOTE 8)
|
|
|
|
Stockholders’
Deficit
|
|
Preferred
Stock; $0.01 par value; 5,000,000 shares authorized; - issued and
outstanding
|
-
|
Common
stock; $0.01 par value; 200,000,000 shares authorized, 3,076,800
shares issued and outstanding
|
30,768
|
Additional paid-in
capital
|
-
|
Accumulated
deficit
|
(167,700)
|
Total
Stockholders’ Deficit
|
(136,932)
|
Total
Liabilities and Stockholders’ Deficit
|
$1,683,011
|
The accompanying notes are an integral part of these financial
statements.
F-3
FREEDOM INTERNET GROUP, INC.
STATEMENT OF OPERATIONS
|
For the period
since
November
15,
2018
(inception)
to
October 31,
2019
|
|
|
Revenue
|
$--
|
|
|
Operating
expenses
|
|
Bank
fees
|
208
|
Computer
|
749
|
Consulting
fees
|
90,000
|
Contractors
|
551
|
Salaries and
payroll taxes
|
31,986
|
Professional
fees
|
27,642
|
Office
Supplies
|
13,278
|
Occupancy and
related expenses
|
922
|
Other
expenses
|
4,641
|
Total
operating expenses
|
169,977
|
|
|
Loss
from operations
|
(169,977)
|
|
|
Other
income
|
|
Interest
income
|
2,226
|
Other
income
|
51
|
Total
other income
|
2,277
|
|
|
Net
loss before income taxes
|
(167,700)
|
Income tax
provision
|
-
|
Net
loss after income taxes
|
(167,700)
|
|
|
|
|
Net loss per common
share - basic and fully diluted
|
(0.05)
|
|
|
Weighted average
common shares outstanding - basic and diluted
|
3,076,800
|
The accompanying notes are an integral part of these financial
statements.
F-4
FREEDOM INTERNET GROUP, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
From the period since November 15, 2018 (inception) to October 31,
2019
|
Preferred
Stock
|
Common
Stock
|
Additional
Paid-in
|
Accumulated
|
Total
Stockholders’
|
||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Deficit
|
|
|
|
|
|
|
|
|
Balance,
November 15, 2018 (inception)
|
-
|
$-
|
-
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
Shares issued to
founders
|
|
|
3,076,800
|
30,768
|
-
|
|
30,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
(167,700)
|
(167,700)
|
|
|
|
|
|
|
|
|
Balance October
31, 2019
|
-
|
$
|
3,076,800
|
$30,768
|
$-
|
$(167,700)
|
$(136,932)
|
The accompanying notes are an integral part of these financial
statements.
F-5
FREEDOM INTERNET GROUP, INC.
STATEMENT OF CASH FLOWS
|
From
November 15,
2018
(inception) to
October 31,
2019
|
Cash flows from
operating activities:
|
|
Net
loss
|
$(167,700
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
Prepaid
expenses
|
(5,000)
|
Due
from related parties
|
(2,839)
|
Accounts
payable and accrued liabilities
|
7,943
|
Net cash used in
operating activities
|
(167,596)
|
|
|
Cash flows used in
investing activities
|
|
Investments
in royalty interests
|
(495,675)
|
|
|
Cash flows from
financing activities
|
|
Contributions
from S.A.F.E agreements
|
1,812,000
|
Shares
issued to founders
|
30,768
|
Net cash provided
from financing activities
|
1,842,768
|
|
|
Net change in cash
and cash equivalents
|
1,179,497
|
Cash
and cash equivalents, at beginning of period
|
-
|
Cash
and cash equivalents, at end of period
|
$1,179,497
|
|
|
Supplemental cash
flow information:
|
|
Interest
paid
|
$-
|
Income
taxes paid
|
$-
|
The accompanying notes are an integral part of these financial
statements.
F-6
FREEDOM INTERNET GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
For the period from November 15, 2018 (inception) to October 31,
2019
1. NATURE 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 October 31, 2019, 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. There were
no cash equivalents as of October 31, 2019.
Royalty Interests
The
Company has a total of $495,675 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. We intend to adopt the
policy of amortizing the cost of royalty interests using the
straight-line method over a period of 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. 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.
Revenue Recognition
We
intend to recognize revenue as earned based on underlying royalty
agreements.
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 will not have a
material effect on our financial statements.
Expenses
are recognized when incurred. No revenue was recognized for the
period ended October 31, 2019, as the primary line of business has
not yet begun.
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.
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
October 31, 2019.
F-7
Recent Accounting Standard Updates:
Cash Flows
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows
(Topic 230): Restricted Cash (a consensus of the Emerging Issues
Task Force), which require entities to present the changes in total
cash, cash equivalents, restricted cash and restricted cash
equivalents in the statement of cash flows. The new guidance also
requires a reconciliation of the totals in the statement of cash
flows to the related captions in the balance sheet if restricted
cash and restricted cash equivalents are presented in a different
line item in the balance sheet. The amendments in this Update are
effective for public business entities for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal
years. For all other entities, the amendments are effective for
fiscal years beginning after December 15, 2018, and interim periods
within fiscal years beginning after December 15, 2019. Early
adoption is permitted, including adoption in an interim period.
Management is currently evaluating this standard and will be
closely monitoring developments and additional guidance to
determine impact on the Company’s financial statements
presentation. In addition to those described in detail above, the
Company is also in the process of evaluating the following ASUs and
does not expect them to have a material impact on the
Company’s business, financial position, results of operations
or disclosures:
●
ASU 2018-09,
Codification Improvements
●
ASU 2018-17,
Consolidation (Topic 810): Targeted Improvements to Related Party
Guidance for Variable Interest Entities
Other Recently Issued Accounting Guidance
During
the period from November 15, 2018 through October 31, 2019, the
FASB issued certain other accounting standard updates that were not
relevant to the Company’s operations.
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 expects its
first royalty payment from Wiz in February 2020. Royalty payments
are due quarterly.
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 expects its first royalty payment
from Offito in January 2020. Royalty payments are due
quarterly.
4. INCOME TAXES
The
Company has a tax grant (Case No. 2019-Act20-000614) pursuant to
Act No. 20 of January 17, 2012, as amended. The tax exemption grant
is in accordance with the applicable terms of the Act covering the
performance of the eligible service activities for markets outside
of Puerto Rico. The Company specializes in Consulting Services,
Centralized Management Services and Trading Companies. The Company
is entitled to an exemption period of twenty (20) years. During the
term of the tax grant, the Company will participate
in:
●
A fixed income tax
rate of four percent (4%) on its Export Services Income
("ESI").
●
Sixty percent (60%)
exemption with respect to the municipal license tax payments
imposed by the municipal ordinance in force at the date of approval
of this Grant by the Secretary, in the semester of commencement of
operations.
●
One hundred percent
(100%) exemption from Municipal and State taxes on real and
personal property used in the Centralized Management Services
activity starting on the date of commencement of operations up
until five (5) years thereafter. Once the five (5) year term of
total exemption expires, the Company will be subject to the ninety
percent (90%) tax exemption for real and personal property used in
the Centralized Management Services activity for the remaining
period of the Grant.
●
Ninety percent
(90%) of tax exemption for real and personal property used in the
Trading Companies activity that will commence for the effective
date of the Grant but it shall never be before July 26, 2018, date
in which Act No. 157-2018, amending the Act was enacted. On
December 10, 2018, the Governor of the Commonwealth of Puerto Rico
signed into law Act No. 257-2018 (the “Act”), which
amends several provisions of the Puerto Rico Internal Revenue Code
of 2011, as amended.
F-8
As of
October 31, 2019, Management is evaluating the Act’s impact
in the Company’s financial statements. However, there are
uncertainties as to how certain Act provisions will be interpreted
and implemented, which could impact Management’s overall
assessment and the Company’s tax provision and analysis for
future years. The components of deferred tax asset at October 31,
2019, are as follow:
|
2019
|
Tax loss
carryforward related to operations not covered by tax
grant
|
$67,000
|
Less: Valuation
Allowance
|
$(67,000)
|
Net Deferred tax
asset
|
$-
|
A
valuation allowance is recorded if, based on the weight of
available evidence, it is more likely than not that some portion or
all of the deferred tax assets may not be realized. At October 31,
2019, the Company recorded a valuation allowance for the entire
deferred tax asset due to the uncertainty surrounding the timing of
realizing certain tax benefits in future income tax returns. The
Company has carryforward losses available to offset future taxable
income not covered by the tax grants amounting to $167,700 which
expires on 2029.
5. RELATED PARTY TRANSACTIONS
The
Company is a member of a group of entities affiliated through
common management. The Company regularly enters into transactions
with related parties, at terms and conditions agreed upon by
management of the Company and related parties. Amounts due from/to
related parties are non-interest bearing and do not have fixed
repayment terms. These amounts are payable and received in the
normal course of business and related to operating transactions and
cash flows needs. Net amount due from related parties as of October
31, 2019, amounted to $2,839.
6. SAFE CONVERTIBLE CONTRIBUTIONS
The
Company has a Simple Agreement for Future Equity program ("SAFE").
This SAFE is one of a series of simple agreements for future equity
(collectively, the "Series 1 SAFEs") issued by the Company to
investors with identical terms and on the same form, except that
the holder, purchase price and date of issuance may differ in each
SAFE. Pursuant to the definitions of the Series 1 SAFEs, the price
per share of the Next Equity Financing minus a discount of 45% will
be the conversion price. The conversion price will be subject to a
Valuation Cap of $15 million. As of October 31, 2019, SAFE
convertible contributions amounted to $1,812,000.
7. RETIREMENT PLAN
The
Company established the Freedom Internet Group Inc. 401K Plan (i.e.
the “Plan”) effective January 1, 2019. The Plan covers
all eligible employees that complete at least 1,000 hours of
service in a 12-consecutive months period beginning with the first
day of employment. Eligible employees can make Employee Deferral
Contributions and Voluntary Contributions and received Matching
Contributions and Profit Sharing Contributions on the: a) first day
of the first month of the Plan year or b) first day of the seventh
month of the Plan year coincident with or next following the date
where the employee attain an age of 21 years old and one year of
Eligible Service have been completed. The employees may elect to
make contributions to the Plan on a pre-tax basis (i.e. Employee
Deferral Contributions) up to 100% of the employee’s
compensation on a pretax basis or after-tax basis (i.e. Voluntary
Contributions) up to 100% of employee’s compensation.
However, the combination of the two contributions may not exceed
100% of the employee compensation.
The
Company is not obligated to perform matching contributions to the
plan and could perform discretionary contributions as decided by
management. As of October 31, 2019, no contributions to the Plan
were made by the Company.
8. COMMITMENTS AND CONTINGENCIES
Rent Commitment
On
November 21, 2018, the Company entered into an ongoing "Virtual
Membership Agreement" for the use of an office space with a monthly
fixed rate of $75. During the period ended October 31, 2019, rent
expense amounted to $922.
F-9
Other Commitments
The
Company entered into two consulting agreements with a third party.
These services are related to the process of registering the
corporation as a public company. The first consulting agreement had
an effective date until January 31, 2019, with a consulting fee of
$15,000. Then, a second agreement was made with a term of earlier
of a (a) Company files its first 10-k or (b) April 30, 2020. Total
consulting fees for this agreement is $185,000, which will be
payable in the following phases:
●
$75,000 upon
engagement
●
$15,000 upon filing
of a prospectus
●
$15,000 upon
notification by the applicable regulatory agency that the review of
the prospectus has been completed
●
$15,000 upon
submission of the first 10Q
●
$35,000 upon
notification that the common shares have been approved for
publication, listing, or quotation;
●
$15,000 upon
submission of the second 10Q
●
$10,000 upon
submission of the third 10Q and
●
$5,000 upon
submission of the first 10K
Total
expense relating to these agreements for the period ended October
31, 2019, amounted to approximately $90,000.
9. RISK CONCENTRATIONS
Financial
instruments that potentially expose the Company to certain
concentrations of credit risk include cash in bank accounts. The
cash deposits, at times, may exceed the amount insured by the
Federal Deposit Insurance Corporation (“FDIC”).
Beginning January 1, 2013, as per FDIC, all deposit accounts,
including checking and savings accounts, money market deposit
accounts and certificates of deposit are standardly insured for up
to $250,000. The standard insurance coverage is per depositor, per
insured bank. At October 31, 2019, the Company’s uninsured
cash deposits amounted to $929,497. The Company has not experienced
any losses on such accounts.
10. SUBSEQUENT EVENTS
During
the period from October 31, 2019, until the date the financial
statements were available to be issued, the Company evaluated
subsequent events and have summarized a listing below.
Acquisition of Royalty Interest
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 will be due monthly.
F-10
Prospectus
_______________________
Freedom Internet Group Inc.
151 Calle San Francisco, Suite 200
San Juan, Puerto Rico 00901
Until_______________,
all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers’ obligation to
deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution
The following table sets forth all costs and expenses, payable by
us in connection with the sale of the shares being registered. All
amounts shown are estimates except for the SEC registration
fee.:
Expenses
|
Amount
|
SEC Registration
Fee
|
$234
|
Legal
Fees
|
$10,000
|
Professional
Fees
|
$200,000
|
Accounting and
Audit Fees
|
$25,000
|
EDGAR Filing
Fees
|
$3,000
|
Blue Sky
Qualifications
|
$7,000
|
|
|
Total*
|
$245,234
|
*All
amounts are estimates. We have already paid approximately $148,000
of expenses and will pay the remaining expenses from our cash on
hand. None of the proceeds from the offering will be needed or used
to pay for any of the offering expenses.
Item 14. Indemnification of Directors and
Officers.
Our
certificate of incorporation and bylaws provide for the
indemnification of a present or former director or officer. We
indemnify any director, officer, employee or agent who is
successful on the merits or otherwise in defense on any action or
suit. Such indemnification shall include, but not necessarily be
limited to, expenses, including attorney’s fees actually or
reasonably incurred by him. Commonwealth of Puerto Rico law also
provides for discretionary indemnification for each person who
serves as or at our request as an officer or director. We may
indemnify such individual against all costs, expenses, and
liabilities incurred in a threatened, pending or completed action,
suit, or proceeding brought because such individual is a director
or officer. Such individual must have conducted himself in good
faith and reasonably believed that his conduct was in, or not
opposed to, our best interests. In a criminal action, he/he must
not have had a reasonable cause to believe his conduct was
unlawful.
We have
agreed to the fullest extent permitted by applicable law, to
indemnify all our officers and directors. We believe that our
charter and bylaw provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and
officers.
At
present, there is no litigation or proceeding involving a director
or officer of ours as to which indemnification is being sought, nor
are we aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling
persons of ours, we have been advised that in the opinion of the
Securities and Exchange Commission that the indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
Item 15. Recent Sales of Unregistered
Securities.
Set
forth below is information regarding all securities issued by our
Company since inception on November 15, 2018.
Equity
Financing
In
connection with organizing our Company, on January 24, 2019 we
issued 3,076,800 shares of Company common stock to Alton
“Ace” Chapman, Jr., Noah Rosenfarb and Ron Rosenfarb
for total consideration of $30,768, or $0.01 per share. The fair
value was determined to be $0.01 per share because the shares were
issued after our company was formed and at the time, the company
had no assets or revenue. The shares issued to our founders are not
being registered by this registration statement and we have no
plans to register their shares in the future.
II-1
Series
1 SAFE Financing
On
March 13, 2019, our Company closed on the issuance of a series of
simple agreements for future equity (collectively, the "Series 1
SAFEs") in the principal amount of $1,812,000. Pursuant to the
terms of the Series 1 SAFEs, as amended, each outstanding Series 1
SAFE will automatically convert into common shares of Company upon
the closing of the Next Equity Financing (as defined). The SAFE
conversion price is the price per share of the Next Equity
Financing minus a discount of 45%. Next Equity Financing means the next sale (or
series of related sales) by the Company of its common stock from
which the Company receives gross proceeds of not less than
$500,000.
We
issued these securities in reliance upon the exemption under
Section 4(2) of the Securities Act of 1933 based on the fact that
the issuance of these shares did not involve a “public
offering” due to the insubstantial number of persons involved
in the deal, size of the offering, manner of the offering and
quantity of securities offered. In addition, the investors had the
necessary investment intent as required by Section 4(2) since they
agreed to receive a share certificate bearing a legend stating that
such shares are restricted pursuant to Rule 144 of the Securities
Act. This restriction ensures that these shares would not be
immediately redistributed into the market and therefore not be part
of a "public offering."
The
investors who purchased securities made representations that (a)
the investor is acquiring the securities for his, her or its own
account for investment and not for the account of any other person
and not with a view to or for distribution, assignment or
resale in connection with any distribution within the meaning of
the Securities Act, (b) the investor agrees not to sell or
otherwise transfer the purchased securities unless they are
registered under the Securities Act and any applicable state
securities laws, or an exemption or exemptions from such
registration are available, (c) the investor has knowledge and
experience in financial and business matters such that he, she or
it is capable of evaluating the merits and risks of an investment
in us, (d) the investor had access to all of our documents,
records, and books pertaining to the investment and was provided
the opportunity to ask questions and receive answers regarding the
terms and conditions of the offering and to obtain any additional
information which we possessed or were able to acquire without
unreasonable effort and expense, and (e) the investor has no need
for the liquidity in its investment in us and could afford the
complete loss of such investment.
The
investors negotiated the terms of the transactions directly with
our executive officers. No general solicitation was used, no
commission or other remuneration was paid in connection with these
transactions, and no underwriter participated. Based on an analysis
of the above factors, these transactions were effected in reliance
on the exemption from registration provided in Section 4(a)(2) and
Regulation D of the Securities Act for transactions not involving
any public offering.
Other
than the securities mentioned above, we have not issued or sold any
securities.
II-2
Item 16. Exhibits Index.
The
listed exhibits are filed with this Registration
Statement:
SEC Reference Number
|
Title of Document
|
Location
|
|
|
|
Certificate
of Incorporation
|
Previously
filed
|
|
Bylaws
|
Previously filed
|
|
Form of
SAFE Agreement
|
Previously filed
|
|
SAFE
Addendum
|
Previously filed
|
|
Opinion
Regarding Legality
|
Previously filed
|
|
2019
Stock Incentive Plan
|
Previously filed
|
|
Maxim
Partners, LLC Agreement
|
Previously filed
|
|
Maxim
Partners, LLC Agreement Addendum
|
Previously filed
|
|
Wiz
Motions LLC Royalty Agreement
|
Previously filed
|
|
Offito
LLC Royalty Agreement
|
Previously filed
|
|
Growth
Stack LLC Royalty Agreement
|
Previously filed
|
|
Code of
Ethics
|
Previously filed
|
|
Consent
of Hancock Askew & Co., LLP
|
Previously filed
|
All
other Exhibits called for by Rule 601 of Regulation S-K are not
applicable to this filing. Information pertaining to our common
stock is contained in our Certificate of Incorporation and
By-Laws.
II-3
Item 17. Undertakings.
The
undersigned hereby undertakes:
(1)
to file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration
Statement:
(i) To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To
reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424 (b) if,
in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth
in the “Calculation of Registration Fee” table in the
effective registration statement.
(iii) To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2)
That, for
the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering
thereof.
(3)
To remove
from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination
of the offering.
(4)
That, for the purpose of determining
liability under the Securities Act of 1933 to any purchaser, if the
registrant is subject to Rule 430C, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as
of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such
document immediately prior to such date of first
use.
(5) That, for the purpose of determining liability of the
registrant under the Securities Act of 1933 to any purchaser in the
initial distribution of the securities:
The
undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities
to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant
to Rule 424;
(ii)
Any free writing prospectus relating to the offering prepared by or
on behalf of the undersigned registrant or used or referred to by
the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by
the undersigned registrant to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to the directors, officers, and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
II-4
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused
this registration statement to be signed on our behalf by the
undersigned, in the City of San Juan, Commonwealth of Puerto Rico,
on February 6, 2020.
|
FREEDOM INTERNET GROUP
INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Alton
“Ace” Chapman, Jr.
|
|
|
|
Alton
“Ace” Chapman, Jr.
|
|
|
|
Chief Executive
Officer
|
|
Pursuant to the requirements of the Securities Act
of 1933, as amended, the Registrant has duly caused this Amendment
No. 1 to the Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of San Juan, Commonwealth of Puerto Rico, on February 6,
2020.
Signature
|
|
Title
|
|
|
|
/s/ Alton
“Ace” Chapman, Jr.
|
|
Chief
Executive Officer, Director,
|
Alton
“Ace” Chapman, Jr.
|
|
|
|
|
|
/s/ Noah Rosenfarb
|
|
Chief
Financial Officer, Treasurer, Principal Financial and Accounting
Officer, Chairman of the Board of Directors
|
Noah Rosenfarb
|
|
|
|
|
|
/s/ Ronald
Rosenfarb
|
|
Chief
Operating Officer, Secretary
|
Ronald
Rosenfarb
|
|
|
II-5