UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
For
the Quarterly Period Ended
OR
For the transition period from ______________ to ______________
Commission
File No.
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| OTC Pink |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ |
| ☐ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
There were shares of common stock, no par value, of the Registrant issued and outstanding as of November 21, 2023.
FOMO WORLDWIDE, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOMO WORLDWIDE, INC.
INDEX TO FINANCIAL STATEMENTS
| 3 |
FOMO WORLDWIDE, INC and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| September 30, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable - net | ||||||||
| Loan receivable - related party | ||||||||
| Inventory - net | ||||||||
Prepaids and other | ||||||||
| Total Current Assets | ||||||||
| Property and equipment - net | ||||||||
| Operating lease - right-of-use asset | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Investments | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts receivable credit facility | ||||||||
| Operating lease liability | ||||||||
| Deferred revenue | ||||||||
| Warranty reserve | ||||||||
| Loans payable - related parties | ||||||||
| Convertible notes payable - net | ||||||||
| Loans payable- other | ||||||||
| Preferred dividend payable | ||||||||
| Derivative liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Loans payable - related parties | ||||||||
| Convertible notes payable - related party - net | ||||||||
| Operating lease liability | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 10) | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, Class A, $ par value, shares designated, and shares issued and outstanding, respectively | ||||||||
| Preferred stock, Class B, $ par value, shares designated, and shares issued and outstanding, respectively | ||||||||
| Preferred stock, Class C, $ par value, shares designated, and shares issued and outstanding, respectively | ||||||||
| Common stock, par value, shares authorized and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
FOMO WORLDWIDE, INC. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| For the Three Months | For the Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Sales - net | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||||||||||
| Derivative expense | ( | ) | ||||||||||||||
| Gain on debt extinguishment (derivative liabilities – convertible debt) | ||||||||||||||||
| Loss on debt extinguishment | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in fair value of marketable equity securities | ( | ) | ( | ) | ||||||||||||
| Total other expense - net | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Preferred stock dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss available to common shareholders | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss per share - basic and diluted | $ | $ | ) | $ | ) | $ | ) | |||||||||
| Weighted average number of shares - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
FOMO WORLDWIDE, INC and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Deficit
For the Nine Months Ended September 30, 2023
(Unaudited)
| Preferred Stock - Class A | Preferred Stock - Class B | Preferred Stock - Class C | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of stock for services | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services - related party | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred dividends | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of Series B preferred stock for services | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Accrued Salary to Series A Preferred shares | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Accrued Salary to Series B Prefereed shares | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of accrued salary to common stock | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Related Party Loan to Common Shares | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible debt and accrued interest to common stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible debt to Series A Preferred Stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Preferred dividends | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net Loss | ||||||||||||||||||||||||||||||||||||||||||||
| June 30. 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of Series B preferred stock for services | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Accrued Salary to Series B Prefereed shares | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of accrued salary to common stock | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of convertible debt and accrued interest to common stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Preferred dividends | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net Loss | ||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
FOMO WORLDWIDE, INC and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Deficit
For the Nine Months Ended September 30, 2022
(Unaudited)
Preferred Stock - Class A | Preferred Stock - Class B | Preferred Stock - Class C | Common Stock | Additional | Accumulated | Total | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of stock in cashless exercise of warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of stock for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Acquisition of Smart Solutions Technologies, Inc. - net of broker fees | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of stock in conversion of debt and accrued interest | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B preferred stock into common stock | - | ( | ) | ( | ) | - | ||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services - related party | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Reclassification of financial instruments that ceased to be derivative liabilities (warrants) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of stock in cashless exercise of warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B preferred stock into common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Reclassification of financial instruments that ceased to be derivative liabilities (warrants) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 7 |
FOMO WORLDWIDE, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations | ||||||||
| Stock based compensation | ||||||||
| Warrants issued for services | ||||||||
| Warrants issued for service - related party | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of operating lease - right-of-use asset | ||||||||
| Depreciation and amortization expense | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Bad debt expense | ||||||||
| Gain on debt extinguishment | ( | ) | ( | ) | ||||
| Loss on debt extinguishment | ||||||||
| Derivative expense | ||||||||
| Change in fair value of marketable equity securities | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) decrease in | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaids and other | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Increase (decrease) in | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Warranty Reserve | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Cash acquired in acquisition of Smart Solutions Technologies, Inc. | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Proceeds from sales of securities - net of purchases | ( | ) | ||||||
| Repayment - loan receivable - related party | ||||||||
| Advance - loan receivable - related party | ( | ) | ( | ) | ||||
| Net cash provided by investing activities | ( | ) | ||||||
| Financing investing | ||||||||
| Proceeds from loans payable | ||||||||
| Proceeds from loans payable - related party | ||||||||
| Proceeds from issuance of convertible notes | ||||||||
| Proceeds from issuance of convertible note - related party | ||||||||
| Repayment of loans payable | ( | ) | ( | ) | ||||
| Repayments of notes payable - government - SBA | ( | ) | ||||||
| Repayments of loans payable - related parties | ( | ) | ( | ) | ||||
| Repayment of notes payable | ( | ) | ||||||
| Proceeds from draw downs on accounts receivable credit facility | ||||||||
| Repayment on accounts receivable credit facility | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Issuance of Preferred B shares to acquire businesses | $ | $ | ||||||
| Debt discount recorded in connection with derivative liability | $ | $ | ||||||
| Issuance of Series A preferred shares in conversion of debt and accrued interest | ||||||||
| Issuance of common shares in conversion of debt and accrued interest | $ | $ | ||||||
| Conversion of Class B preferred stock into common stock | $ | $ | ||||||
| Conversion of Related Party Loan to Common Shares | $ | $ | ||||||
| Conversion of Accrued salary to common stock | $ | $ | ||||||
| Conversion of Accrued Salary to Series A Preferred shares | ||||||||
| Conversion of Accrued Salary to Series B Preferred shares | ||||||||
| Reclassification of financial instruments that ceased to be derivative liabilities (notes and warrants) | $ | $ | ||||||
| Preferred stock dividends | $ | $ | ||||||
| Common stock issued for debt | $ | $ | ||||||
| Right-of-use asset obtained in exchange for new operating lease liability | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 8 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Note 1 - Organization and Nature of Operations
Organization and Nature of Operations
FOMO WORLDWIDE, INC. (“FOMO,” “we,” “our” or “the Company”), is a business incubator with subsidiaries focused on the sale of its smart board technology as well as related installation services. Additionally, the Company markets and sells clean air disinfection products.
On May 18, 2021, FOMO incorporated FOMO ADVISORS LLC, a Wyoming limited liability company, as a wholly owned private merchant banking subsidiary. Currently, this entity is inactive.
On December 14, 2021, FOMO incorporated FOMO CORP., later renamed “FOMO WORLDWIDE, INC.”, a Wyoming C-Corp., as a wholly owned subsidiary for the purposes of providing back office services to its employees and for its wholly owned and majority-owned businesses. The Company is currently performing a short-form merger of parent FOMO WORLDWIDE, INC. (CA) into and with FOMO WORLDWIDE, INC. (WY).
On February 28, 2022, the Company acquired SMARTSolution Technologies, LP and SMARTSolution Technologies, Inc. (together “SST”).
In June 2022, the Company applied with the State of California for a name change to FOMO WORLDWIDE, INC. The name change was subsequently approved.
On June 21, 2023, the Company established Diamond Technology Solutions LLC (“DTS”) in Pennsylvania. The Company intends DTS to offer education technology and services, including interactive flat panels, computer equipment, communications, security and access control products, and audio-visual solutions from U.S.-based vendors.
On
June 27, 2023, the Company assigned
On
August 3, 2023, the Company approved the transfer of
The parent (FOMO WORLDWIDE, INC.) and subsidiaries are organized as follows:
| Company Name | Incorporation Date | State of Incorporation | ||||
| FOMO WORLDWIDE, INC. (“FOMO” or the “Company”) | ||||||
| SMARTSolution Technologies, Inc. (“SST”) | 1 | |||||
| Energy Intelligence Center LLC (“EIC”) | 2 | |||||
| Diamond Technology Solutions, LLC | 3 |
| 1 | |
| 2 | |
| 3 |
| 9 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
SMARTSolution Technologies LP and SMARTSolution Technologies, Inc. (together “SST”)
On February 28, 2022, FOMO closed the acquisition of the general and all the limited partnership interests of SMARTSolution Technologies LP and shares of SMARTSolution Technologies, Inc. (collectively “SST”) pursuant to a Securities Purchase Agreement dated February 28, 2022 (the “SPA”), by and between the Company and Mitchell Schwartz (“Seller”), the beneficial owner of the general and limited partnership interests in SST. SST is a Pittsburgh, Pennsylvania–based audio/visual systems integration company that designs and builds presentation, teleconferencing and collaborative systems for businesses, educational institutions, and other nonprofit organizations.
Pursuant to the SPA, FOMO:
| ● | issued to Seller shares of its authorized but unissued Series B Preferred Shares; | |
| ● | paid
approximately $ | |
| ● | entered
into an “at will” employment agreement with Seller, pursuant to which Seller will continue to serve as SST’s Chief
Executive Officer at an annual salary of $ | |
| ● | as
an incentive to retain SST’s other employees, issued to such employees, a total of three-year common stock purchase
warrants (the “Incentive Warrants”), each entitling the holder to purchase one share of SST common stock at an exercise
price of $ per share (subsequently reduced to $ |
SST has been engaged in the education technology and services business for over 25 years. SST markets its systems to and installs these systems in elementary, middle and high schools, as well as colleges, universities, and commercial facilities. These interactive smartboards provide students with interactive remote access from home or other locations to classrooms and teachers via personal computers, laptops, tablets, and similar devices. SST currently markets its systems primarily in Pennsylvania, Ohio and West Virginia, is in the process of expanding into the Alabama and Michigan markets and plans to expand further throughout the United States as opportunities present themselves either organically or through strategic acquisitions.
As a result of the growth in remote learning driven in part by the COVID-19 pandemic and government funding including ESSER Funds (Elementary Secondary School Emergency Relief) and the CARES Act (Coronavirus Aid, Relief, and Economic Security), SST experienced a significant increase in orders and sales in 2022 due to a backlog in orders. In 2023 sales have dropped back to more historical levels.
The digital smartboards which form the key element of SST’s interactive audio-visual systems are primarily supplied by a leading manufacturer based in Canada, which is a subsidiary of a large multi-national company Hon Hai Precision Industry Co., Ltd., trading as Hon Hai Technology Group in China and Taiwan and Foxconn internationally. SST believes that its relationship with its supplier is stable, although there can be no assurance that if the relationship with the supplier was interrupted or otherwise adversely affected that an alternative source of supply at commercially reasonable cost would be available or that SST’s business would not be seriously harmed.
On June 12, 2023, because we owned both the limited partner and general partner interests, we filed with the Commonwealth of Pennsylvania to merge SMARTSolution Technologies LP with SMARTSolution Technologies, Inc. The combination was subsequently approved, thereby dissolving the limited partnership and combining its assets and liabilities with SMARTSolution Technologies, Inc., which is now the successor entity.
On
June 27, 2023, the Company approved the transfer of
See note 9.
| 10 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements.
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2023 and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period.
These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.
Principles of Consolidation
These consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Significant estimates during the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively, include, allowance for doubtful accounts and other receivables, inventory reserves and classifications, valuation of investments, valuation of goodwill and intangible assets, valuation of loss contingencies, valuation of derivative liabilities, valuation of stock-based compensation, estimated useful lives related to intangible assets and property and equipment, uncertain tax positions, warranty reserve, and the valuation allowance on deferred tax assets.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.
| 11 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Fair Value of Financial Instruments
The Company’s financial instruments, including cash, accounts receivable, inventory, accounts payable and accrued expenses, loans payable and notes payable are carried at historical cost. At September 30, 2023 and December 31, 2022, respectively, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
Assets and liabilities measured at fair value at September 30, 2023 and December 31, 2022 are as follows:
| September 30, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Investments | $ | $ | $ | |||||||||||||
| Total Assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | |||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Investments | $ | $ | $ | |||||||||||||
| Total Assets | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | |||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Level 1 Investments consist of common stock, options, and warrants of publicly traded companies which are considered to be highly liquid and easily tradeable. The Company also holds Level 2 investments in the preferred stock of a publicly traded company, whose values are derived as if converted from the public company’s common stock. .The Company also holds Level 3 investments in the common stock of a private company.
Derivative liabilities are derived from certain convertible notes payable and warrants.
Accounts Receivable
Allowance
for doubtful accounts at September 30, 2023 and December 31, 2022, was $
The Company had the following concentrations at September 30, 2023 and December 31, 2022, respectively. All concentrations relate solely to the operations of SST.
| 12 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
| Nine Months Ended | Year Ended | |||||||
| Customer | September 30, 2023 | December 31, 2022 | ||||||
| A | % | % | ||||||
| B | % | % | ||||||
| C | % | % | ||||||
| Total | % | % | ||||||
Inventory
At September 30, 2023 and December 31, 2022 inventory consisted of:
| Classification | September 30, 2023 | December 31, 2022 | ||||||
| Smart Boards | $ | $ | ||||||
| Clean Technology | ||||||||
| Total Inventory | $ | $ | ||||||
The Company had the following vendor purchase concentrations at September 30, 2023 and 2022, respectively. All concentrations relate solely to the operations of SST.
| Nine Months Ended September 30, | ||||||||
| Customer | 2023 | 2022 | ||||||
| A | % | % | ||||||
| Total | % | % | ||||||
Revenue Recognition
The following represents the Company’s disaggregation of revenues for the three months and nine months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Revenue | Revenue | % of Revenues | Revenue | % of Revenues | Revenue | % of Revenues | Revenue | % of Revenues | ||||||||||||||||||||||||
| Smart boards and installation | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Installation Services | % | % | % | % | ||||||||||||||||||||||||||||
| Clean Technology products | % | ( | ) | % | % | % | ||||||||||||||||||||||||||
| Total Revenues | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
The Company had the following sales concentrations at September 30, 2023 and 2022, respectively. All concentrations relate solely to the operations of SST.
| 13 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
| Nine Months Ended September 30, | ||||||||
| Customer | 2023 | 2022 | ||||||
| A | % | % | ||||||
| Total | % | % | ||||||
Advertising Costs
The
Company recognized $
| September 30,2023 | ||||
| Series A, preferred stock (1) | ||||
| Series B, preferred stock (2) | ||||
| Series C, preferred stock (3) | ||||
| Convertible notes and related accrued interest (4) | ||||
| Warrants (5) | ||||
| Total | ||||
| 1 – | |
| 2 – | |
| 3 – | |
| 4 - | |
| 5 - |
Based
on the potential common stock equivalents noted above at September 30, 2023, and the potential variability in stock prices, which directly
affect the Company’s ability to determine if it has sufficient shares to settle all possible debt or equity conversions, the Company
has determined that it does not have sufficient authorized shares of common stock () to settle all potential exercises
of common stock equivalents. Accordingly, the Company has filed for a
Recent Accounting Standards
Changes to accounting principles are established by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability and impact of all ASUs on our consolidated financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the consolidated financial statements of the Company.
| 14 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Note 3 - Liquidity, Going Concern and Management’s Plans
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying consolidated financial statements, for the nine months ended September 30, 2023, the Company had:
| ● | Net
loss of $ |
| ● | Net
cash used in operations was $ |
Additionally, at September 30, 2023, the Company had:
| ● | Accumulated
deficit of $ |
| ● | Stockholders’
deficit of $ |
| ● | Working
capital deficit of $ |
We
manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand
of $
The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended December 31, 2023, and our current capital structure including equity-based instruments and our obligations and debts.
If the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.
These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include the following:
| ● | Pursuing additional capital raising opportunities (debt or equity), |
| ● | Continue to execute on our strategic planning while increasing operational efficiency, |
| ● | Continuing to explore and execute prospective partnering or distribution opportunities; and |
| ● | Identifying unique market opportunities that represent potential positive short-term cash flow. |
| 15 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Note 4 – Loan Receivable – Related Party
During 2021, the Company has advanced funds to an affiliate of the Company’s Chief Executive Officer, Himalaya Technologies, Inc. aka Homeland Resources Ltd. (OTC: HMLA) to pay for corporate operating expenses. The Company expects to receive repayment in 2024.
Effective
September 1, 2022, the Company increased our available loan to Himalaya of $
On
May 10, 2023, the Company purchased
The following is a summary of the Company’s advances – related party is as follows:
| Loan Receivable | ||||
| Terms | Related Party | |||
| Issuance dates of advances | ||||
| Maturity date | ||||
| Interest rate | % | |||
| Collateral | ||||
| Balance - December 31, 2021 | $ | |||
| Advances | ||||
| Repayments | ( | ) | ||
| Balance - December 31, 2022 | ||||
| Advances | ||||
| Repayments | ( | ) | ||
| Acquisition of KANAB CORP. | ( | ) | ||
| Exercise of warrant for Preferred A Shares | ( | ) | ||
| Balance – September 30, 2023 | $ | |||
| 16 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Note 5 – Property and Equipment
Property and equipment consisted of the following:
| Estimated | ||||||||||||
| September 30, 2023 | December 31, 2022 | Useful Lives (Years) | ||||||||||
| Leasehold Improvements | $ | $ | ||||||||||
| Vehicles | ||||||||||||
| Furniture | ||||||||||||
| Equipment | ||||||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||||||
| Total property and equipment - net | $ | $ | ||||||||||
Depreciation
expense for the three months ended September 30, 2023 and 2022, was $
Depreciation
expense for the nine months ended September 30, 2023 and 2022, was $
These amounts are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.
In
connection with the acquisition of SST on February 28, 2022, the Company acquired property and equipment with a net carrying amount of
$
See Note 9.
Note 6 – Investments
The Company’s marketable securities consist of investments in equity securities. Dividends and interest income are accrued as earned. Realized gains and losses are determined on a specific identification basis. The Company reviews marketable securities for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. The changes in the fair value of these securities are recognized in current period earnings in accordance with ASC 825.
During
the year ended December 31, 2019, the Company issued
shares of preferred class B stock in exchange for
shares of Peer-to-Peer Inc (PTOP). The shares were valued at the market price of $
per share, or $
During
the year ended December 31, 2019, the Company received shares of KANAB CORP. for consulting services provided by the Company’s
CEO, Vikram Grover. The shares were valued at $ per share or $
| 17 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
The warrants were initially valued at zero due to their illiquid nature and subsequently measured at their fair value. The shares of series A and B preferred stock were valued at the fair value of HMLA as-if converted. The warrants were valued utilizing the Black-Scholes option pricing model. The warrants were converted in June 2023.
On
May 10, 2023, the Company purchased
The
total Series A and Series B Preferred shares of Himalaya were valued at $
On
October 4, 2021, the Company invested $
In 2021, the Company’s Chief Executive Officer assigned his investment brokerage account with Interactive Brokers to the Company. The investments in the account are marketable equity securities.
The following is a summary of the Company’s investments at September 30, 2023 and December 31, 2022.
| September 30, 2023 | ||||||||||||||||||||
| Securities Held | Acquisition Date | Shares Held | Price per Share | Value of Securities | ||||||||||||||||
| Securities | Stock, options, and warrants | Various | Various | Various | $ | 1 | ||||||||||||||
| Himalaya Technologies, Inc. (HMLA) | Series B, preferred stock | $ | 2,5 | |||||||||||||||||
| Series A, preferred stock | 3,4 | |||||||||||||||||||
| GenBio Inc. | Private company | $ | 6 | |||||||||||||||||
| $ | ||||||||||||||||||||
| 1 - | |
| 2 - | during
2021, the Company exchanged shares of KANAB CORP. for shares of Series B, preferred stock in HMLA. During 2021,
a subsidiary of the Company also received The shares of series B preferred stock were valued at the fair value of HMLA as-if converted. The warrants were valued utilizing the Black-Scholes option pricing model. |
| 3 - |
| 18 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
| 4 - | |
| 5 - | |
| 6 - |
| December 31, 2022 | ||||||||||||||||||||
| Securities Held | Acquisition Date | Shares Held | Price per Share | Value of Securities | ||||||||||||||||
| Securities | Stock, options, and warrants | Various | Various | Various | $ | 1 | ||||||||||||||
| Himalaya Technologies, Inc. (HMLA) | Series B, preferred stock and warrants | $ | 2 | |||||||||||||||||
| Peer to Peer Network (PTOP) | Common stock | $ | 3 | |||||||||||||||||
| GenBio, Inc. | Private company | $ | 4 | |||||||||||||||||
| $ | ||||||||||||||||||||
| 1 - | |
| 2 - | |
| 3 - | |
| 4 - |
During
2022, the Company purchased shares of GenBio, Inc. for $
Note 7 – Debt
The following represents a summary of the Company’s convertible notes payable, convertible note payable – related party, accounts receivable credit facility, and loans payable – related parties, key terms, and outstanding balances at September 30, 2023 and December 31, 2022, respectively:
Convertible Notes Payable
The Company executed several convertible notes with various lenders as follows:
| GS Capital | PowerUp Lending | Sixth Street Lending | ||||||||||
| Issuance Dates of Convertible Notes | ||||||||||||
| Maturity Dates of Convertible Notes | ||||||||||||
| Interest Rate | % | % | % | |||||||||
| Default Interest Rate | % | % | % | |||||||||
| Collateral | ||||||||||||
| Conversion Rate | $ |
|||||||||||
| 19 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
| GS Capital | PowerUp Lending | Sixth Street Lending | Total | |||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ||||||||||||
| Proceeds from issuance of notes | ||||||||||||||||
| Conversion of accrued interest to note | ||||||||||||||||
| Repayment of notes | ( | ) | ( | ) | ||||||||||||
| Conversion of debt to common stock | ( | ) | ( | ) | ( | ) | ||||||||||
| 676,206 | - | - | 676,206 | |||||||||||||
| Less: unamortized debt discount | ( | ) | ( | ) | ||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| GS Capital | PowerUp Lending | Sixth Street Lending | Total | |||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Proceeds from issuance of notes | ||||||||||||||||
| Repayment of notes | ||||||||||||||||
| Conversion of debt to preferred stock | ( | ) | ( | ) | ||||||||||||
| Conversion of debt to common stock | ( | ) | ( | ) | ||||||||||||
| 240,000 | - | - | 240,000 | |||||||||||||
| Less: unamortized debt discount | ||||||||||||||||
| Balance – September 30, 2023 | $ | $ | $ | $ | ||||||||||||
| 20 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
During
the nine months ended September 30, 2023, third-party lender GS Capital converted $
During
the nine months ended September 30, 2022, third-party lenders converted $
On
April 19, 2022, the Company modified the terms of a loan it had with GS Capital for $
Loans Payable – Related Parties
In
2022, the Company, in connection with the acquisition of SST, assumed a loan due to SST’s Chief Executive Officer for $
In 2021 and prior, the Company’s current Chief Executive Officer and former Chief Executive Officer made advances for business operating expenses.
Loans payable - related parties is as follows:
| 1 | 2 | 3 | ||||||||||||||
| Loan Payable | Loan Payable | Loan Payable | ||||||||||||||
| Related Party | Related Party | Related Party | Total | |||||||||||||
| Issuance Date of Loan | ||||||||||||||||
| Maturity Date of Convertible Note | ||||||||||||||||
| Interest Rate | % | % | % | |||||||||||||
| Default Interest Rate | % | % | % | |||||||||||||
| Collateral | ||||||||||||||||
| Conversion Rate | ||||||||||||||||
| Balance - December 31, 2021 | ||||||||||||||||
| Debt acquired in SST acquisition | ||||||||||||||||
| Advances | ||||||||||||||||
| Repayments | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Balance - December 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Advances | ||||||||||||||||
| Repayments | ( |
) | ( |
) | ( |
) | ||||||||||
| Conversion | ( |
) | ( |
) | ||||||||||||
| Balance – September 30, 2023 | $ | $ | $ | $ | ||||||||||||
| Short term Portion of Balance | $ | $ | $ | $ | ||||||||||||
| Long term Portion of Balance | $ | $ | $ | $ |
| 21 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
| 1 - | |
| 2 - | |
| 3 - |
Loan Payable – Other
The Company has various merchant cash advances (“MCAs”). The following summarizes the borrowings:
| Loan 1 | Loan 2 | Loan 3 | Loan 4 | Loan 5 | Loan 6 | |||||||||||||||||||||||
| Issuance Date | ||||||||||||||||||||||||||||
| Maturity Date | ||||||||||||||||||||||||||||
| Interest Rate | % | % | % | % | % | % | ||||||||||||||||||||||
| Default Interest Rate | % | % | % | % | % | % | ||||||||||||||||||||||
| Collateral | ||||||||||||||||||||||||||||
| Conversion | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Borrowings | ||||||||||||||||||||||||||||
| Repayments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
At
September 30, 2023, the Company was in default on its debt arrangements with four providers of MCAs that funded against expected shipments
from its primary vendor SMART Technologies, who subsequently reduced our credit line for equipment from $
| 22 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Accounts Receivable Credit Facility
The Company, in connection with the acquisition of SST, entered into an accounts receivable credit facility.
On
February 28, 2022, SST entered into a revolving accounts receivable and term loan financing and security agreement in the aggregate amount
of $
The
Facility is paid from collections of accounts receivable and is secured by all assets of SST. The AR Facility has an interest rate of
the lesser of (a) maximum rate allowed by law and (b) prime plus
The lender charges the following fees:
| 1. | ||
| 2. | Monitoring
fee of |
The Company is subject to financial covenants (unless waived by lender) as follows:
| 1. | Debt
service coverage ratio of | |
| 2. | Fixed
charge coverage ratio of | |
| 3. | Tangible
net worth of $ |
At December 31, 2022, the Company is in default on the financial covenants noted above, however, the lender has not exercised its rights of default. The Company and the lender continue to operate under the terms of the agreement without disruption.
The Company and its subsidiaries are guarantors of this Agreement.
| Accounts Receivable | ||||
| Credit Facility | ||||
| Issuance Date of credit facility | ||||
| Maturity Date of credit facility | ||||
| Interest Rate | % | |||
| Default Interest Rate | % | |||
| Collateral | ||||
| Conversion Rate | ||||
| Balance - December 31, 2021 | $ | |||
| Proceed from drawdowns | ||||
| Repayments | ( | ) | ||
| Balance - December 31, 2022 | ||||
| Balance - December 31, 2022 | ||||
| Proceeds from drawdowns | ||||
| Repayments | ( | ) | ||
| Balance – September 30, 2023 | $ | |||
| 23 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Note 8 – Derivative Liabilities
The Company used the binomial pricing model to estimate the fair value of its embedded conversion option and warrant liabilities on both the commitment date and the remeasurement date with the following inputs:
| Nine Months Ended | Year Ended | |||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Exercise price | $ | | $ | | ||||
| Expected volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (in years) | ||||||||
| Expected dividend rate | % | % | ||||||
A reconciliation of the beginning and ending balances for the derivative liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows at September 30 30, 2023 and December 31, 2022:
| Convertible Debt | Warrants | Total | ||||||||||
| Derivative liabilities - December 31, 2021 | ||||||||||||
| Fair value - commitment date | ||||||||||||
| Fair value - mark to market adjustment | ( | ) | ||||||||||
| Gain on debt extinguishment (derivative liabilities - convertible debt) | ( | ) | ( | ) | ||||||||
| Reclassification to APIC for financial instruments that ceased to be derivative liabilities | ( | ) | ( | ) | ||||||||
| Derivative liabilities – December 31, 2022 | ||||||||||||
| Fair value - commitment date | ||||||||||||
| Fair value - mark to market adjustment | ( | ) | ||||||||||
| Derivative liabilities – March 31, 2023 | ||||||||||||
| Fair value - mark to market adjustment | ( | ) | ( | ) | ( | ) | ||||||
| Gain on debt extinguishment (derivative liabilities - convertible debt) | ( | ) | ( | ) | ||||||||
| Derivative liabilities – June 30, 2023 | ||||||||||||
| Fair value - mark to market adjustment | ( | ) | ( | ) | ( | ) | ||||||
| Gain on debt extinguishment (derivative liabilities - convertible debt) | ( | ) | ( | ) | ||||||||
| Derivative liabilities – September 30, 2023 | ||||||||||||
| 24 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Note 9 – Acquisition and Pro Forma Financial Information
Acquisitions for the Nine Months Ended September 30, 2022
On
February 28, 2022, the Company issued shares of Class B, convertible preferred stock (convertible into shares
of common stock) having a fair value of $
The valuation of the consideration was determined on an as converted basis by multiplying the Series B preferred shares by the conversion rate of shares of common stock for each one (1) share of Series B preferred stock held, then multiplying by the quoted closing trading price of the common stock.
We made an initial allocation of the purchase price at the date of acquisition based on our understanding of the fair value of assets acquired and liabilities assumed. The allocation of the purchase price consideration is considered preliminary as of March 31, 2022, with the excess purchase price allocated to goodwill and is subject to change. We completed the valuation and allocation of purchase price in April 2023. The final valuation and allocation is reflected in the table below.
The acquisition of SST was reflected in the accompanying consolidated financial statements at March 31, 2023 and 2022, the results of operations and cash flows are included in the consolidated financial statements as of and from the acquisition date.
| Consideration | ||||
| Value of earn out agreement | $ | |||
| Fair value of consideration transferred | ||||
| Recognized amounts of identifiable assets acquired and liabilities assumed: | ||||
| Cash | ||||
| Accounts receivable | ||||
| Inventory | ||||
| Property and equipment | ||||
| Operating lease - right-of-use asset | ||||
| Supplier relationships | ||||
| Trade name | ||||
| Total assets acquired | ||||
| Accounts payable and accrued expenses | ||||
| Contract liabilities (deferred revenue) | ||||
| Loan payable - related party | ||||
| Note payable - government – SBA | ||||
| Notes payable | ||||
| Operating lease liability | ||||
| Total liabilities assumed | ||||
| 25 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
| Total net liabilities assumed | ( | ) | ||
| Goodwill in purchase of SMARTSolution Technologies L.P. | $ |
In
connection with the purchase of SST, $
The
Company initially granted shares of Series B preferred stock, valued at $
The
goodwill of $
Goodwill is not deductible for tax purposes.
The estimated future amortization of the acquired supplier relationships and trade name are as follows at September 30, 2023:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| $ |
The following summarizes the intangible assets at September 30, 2023 and December 31, 2022:
| September 30, 2023 | December 31, 2022 | Useful Life | ||||||||
| Supplier relationships | $ | $ | ||||||||
| Trade name | ||||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||||
| $ | $ | |||||||||
On or around December 19, 2022, FOMO WORLDWIDE, INC. entered into a Employment Status and Compensation Change Agreement which consisted of the following elements:
Element
1: Total Dollar Value: $
| 1. | In
March of 2022, Mitchell Schwartz issued a cash loan to FOMO WORLDWIDE in the amount of $ | |
| 2. | Mr.
Schwartz received a single payment of $ |
| 26 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
| 3. | In
exchange for the remainder of Insider Loan, ($ | |
| 4. | The
remaining balance of the Insider Loan, equal to $ | |
| 5. | This
agreement retained Mr. Schwartz residual salary through Feb. 2023, equal to $ |
Element
2: Total Dollar Value: $
| 1. | At
point of purchase of SMARTSolution Technologies L.P. and Inc., FOMO WORLDWIDE agreed to a |
Element
3: Total Dollar Value: $
| 1. | At point of purchase of SMARTSolution Technologies, L.P. & Inc., FOMO WORLDWIDE issued One-Million Series B Shares to Mr. Schwartz. This was included in the purchase agreement. | |
| 2. | At the point of the Employment Status and Compensation Change Agreement, Mr. Schwartz agreed to return to FOMO these shares as a goodwill gesture and for exclusion of liability for any accounting discrepancy that may have occurred prior to his new employee agreement. | |
| 3. | FOMO
WORLDWIDE, along with accepting the return of the aforementioned shares, included as part of the new purchase and employee agreement,
agreed to a single payment of $ |
Summary:
| 1. | All
items associated with this agreement were equal in value to $ |
Note 10 – Commitments and Contingencies
Right-of-Use Operating Lease
On
February 28, 2022, in connection with the acquisition of SST, the Company assumed a Right-of-Use (“ROU”) operating lease
for its office space. The lease is for an initial term of five (
At September 30, 2022, the Company has no financing leases as defined in ASC 842, “Leases.”
The tables below present information regarding the Company’s operating lease assets and liabilities at September 30, 2023:
| 27 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
| September 30, 2023 | ||||
| Assets | ||||
| Operating lease - right-of-use asset - non-current | $ | |||
| Liabilities | ||||
| Operating lease liability | $ | |||
| Weighted-average remaining lease term (years) | ||||
| Weighted-average discount rate | % | |||
| The components of lease expense were as follows: | ||||
| Operating lease costs | ||||
| Amortization of right-of-use operating lease asset | $ | |||
| Lease liability expense in connection with obligation repayment | ||||
| Total operating lease costs | $ | |||
| Supplemental cash flow information related to operating leases was as follows: | ||||
| Operating cash outflows from operating lease (obligation payment) | $ | |||
Future minimum lease payments required under leases that have initial or remaining non-cancelable lease terms in excess of one year at September 30, 2023:
| 2023 (6 Months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
2027 | ||||
| Total undiscounted cash flows | ||||
| Less: amount representing interest | ( | ) | ||
| Present value of operating lease liability | ||||
| Less: current portion of operating lease liability | ( | ) | ||
| Long-term operating lease liability | $ |
| 28 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Note 11– Stockholders’ Deficit
At September 30, 2023 and December 31, 2022, the Company had various classes of stock:
Class A, Convertible Preferred Stock
| - | Par value - $ | |
| - | Conversion – each share of Class A converts into shares of common stock ( and equivalent shares of common stock, at September 30, 2023 and December 31, 2022, respectively) | |
| - | Voting
– on an as-converted basis – | |
| - | Dividends
– $ | |
| - | Liquidation
preference – | |
| - | Rights
of redemption – |
Class B, Convertible Preferred Stock
| - | shares authorized | |
| - | , and shares designated, issued and outstanding at September 30, 2023 and December 31, 2022, respectively | |
| - | Stated
value – | |
| - | Par value - $ | |
| - | Conversion – each share of Class B converts into shares of common stock ( and equivalent shares of common stock, at September 30, 2023 and December 31, 2022, respectively) | |
| - | Voting
– on an as-converted basis – | |
| - | Dividends
– | |
| - | Liquidation
preference – | |
| - | Rights
of redemption – |
Class C, Convertible Preferred Stock
| - | shares authorized | |
| - | and shares designated, issued and outstanding at September 30, 2023 and December 31, 2022, respectively | |
| - | Stated
value – | |
| - | Par value - $ | |
| - | Conversion – each share of Class C converts into share of common stock ( and equivalent shares of common stock, at September 30, 2023 and December 31, 2022, respectively) | |
| - | Voting
– on an as-converted basis – | |
| - | Dividends
– | |
| - | Liquidation
preference – | |
| - | Rights
of redemption – |
Common Stock
,
| - | shares authorized | |
| - | par value | |
| - |
| 29 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Equity Transactions for the Nine Months Ended September 30, 2023
Stock Issued for Services – Common Stock
During
the nine months ended September 30, 2023, the Company issued common shares for $
Stock Issued from Conversion of Convertible Debt and Loss on Debt Extinguishment
During
the nine months ended September 30, 2023, the Company issued shares of common stock in connection with the conversion of convertible
debt (which had embedded derivative liabilities) and accrued interest totaling $
During
the nine months ended September 30, 2023, the Company issued shares of Series A Preferred stock in connection with the conversion
of convertible debt (which had embedded derivative liabilities) and accrued interest totaling $
Stock Issued for Services – Class A, Preferred Stock
During
the nine months ended September 30, 2023, the Company issued Series A Preferred shares for $
Stock Issued for Services – Class B, Preferred Stock
During
the nine months ended September 30, 2023, the Company also issued Series B Preferred shares to its CEO Vikram Grover for $
Equity Transactions for the Nine Months Ended September 30, 2022
Stock Issued for Cashless Exercise of Warrants
The
Company issued shares of common stock in exchange for the cashless exercise of
Stock Issued for Services – Class B, Preferred Stock
The
Company issued shares of Class B, preferred stock for services rendered, having a fair value of $
| 30 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Acquisition of SST
On
February 28, 2022, the Company issued shares of Series B preferred stock ( as converted common stock) having a
fair value of $
See Note 9.
Stock Issued from Conversion of Convertible Debt and Loss on Debt Extinguishment
The
Company issued shares of common stock in connection with the conversion of convertible debt (which had embedded derivative
liabilities) and accrued interest totaling $
Conversion of Class B Preferred Stock to Common Stock
The
Company issued shares of common stock in connection with the conversion of shares of Class B preferred stock. The
transaction had a net effect of $
Note 12 – Warrants
Warrant activity for the nine months ended September 30, 2023 and the year ended December 31, 2022 are summarized as follows:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Warrants | Number of Warrants | Exercise Price | Contractual Term (Years) | Intrinsic Value | ||||||||||||
| Outstanding and exercisable - December 31, 2021 | $ | $ | ||||||||||||||
| Granted | $ | - | - | |||||||||||||
| Exercised | ( | ) | $ | - | - | |||||||||||
| Cancelled/Forfeited | ( | ) | $ | - | - | |||||||||||
| Outstanding – December 31, 2022 | $ | $ | ||||||||||||||
| Exercisable – December 31, 2022 | $ | $ | - | |||||||||||||
| Granted | $ | - | - | |||||||||||||
| Exercised | - | - | ||||||||||||||
| Cancelled/Forfeited | ( | ) | $ | - | - | |||||||||||
| Outstanding – September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable – September 30, 2023 | $ | $ | ||||||||||||||
| 31 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Warrant Transactions for the Nine Months Ended September 30, 2023
On February 28, 2023, the Company issued incentive stock options to employees of its wholly owned subsidiary SMARTSolution Technologies L P with a strike price of and a three-year expiration. The options expire at close of business on March 1, 2026 and do not vest unless each employee is employed by SST on or after March 1, 2024.
Warrant Transactions for the Year Ended December 31, 2022
Convertible Debt Issuances
In connection with convertible debt issued to various lenders, the Company granted , three-year () warrants. These warrants have an exercise price of $ - $. See Note 7 for derivative liabilities and related mark to market accounting.
Employee Compensation
Concurrent with the acquisition of SST, the Company granted , three-year () warrants to employees of SST for services rendered.
The
fair value of these services rendered was $
| Exercise price | $ | |||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Expected term (in years) | ||||
| Expected dividend rate | % |
Employee Compensation
The Company granted , three-year () warrants for services rendered.
The
fair value of these services rendered was $
| Exercise price | $ | |||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Expected term (in years) | ||||
| Expected dividend rate | % |
Cashless Exercise of Warrants
The
Company issued shares of common stock in connection with cashless exercises of
| 32 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
Note 13 – Income Taxes
The Company did not file its federal or state tax returns for fiscal years from 2012 through 2017. Previous management had believed that it would not have any material impact on the Company’s financials because the Company did not have any tax liabilities due to net losses incurred during those years. During the year ended December 31, 2021, the Company under new management since 2019 filed returns for 2018, 2019 and 2020. During the year ended December 31, 2022, the Company filed returns for 2021 as well. The Company has filed an extension for its federal and state tax returns for the year ended December 31, 2022. The Company missed the extended filing date but does not believe that it will owe any taxes.
Based on available information, management believes it is more likely than not that any potential net deferred tax assets as of September 30, 2023 and December 31, 2022 may not be fully realizable.
Due
to recurring losses, the Company’s tax provisions for the nine months ended September 30, 2023 and 2022 were $
The difference between the effective income tax rate and the applicable statutory federal income tax rate is summarized as follows:
| 2023 | 2022 | |||||||
| Statutory federal rate | - | % | - | % | ||||
| State income tax rate, net of federal benefit | - | % | - | % | ||||
| Permanent differences, including stock-based compensation and impairment of acquired assets | % | % | ||||||
| Change in valuation allowance | % | % | ||||||
| Effective tax rate | % | % | ||||||
At September 30, 2023 and December 31, 2022, the Company’s deferred tax assets were as follows:
| September 30, 2023 | December 31, 2022 | |||||||
| Tax benefit of net operating loss carry forward | $ | $ | ||||||
| less valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
As
of September 30, 2023 the Company had unused net operating loss carry forwards of approximately $
The Company’s ability to offset future taxable income, if any, with tax net operating loss carry-forwards may be limited due to the non-filing of tax returns and the impact of the statute of limitations on the Company’s ability to claim such benefits. Furthermore, changes in ownership may result in limitations under Internal Revenue Code Section 382. Due to these limitations, and other considerations, management has established full valuation allowances on deferred tax assets relating to net operating loss carry-forward, as the realization of any future benefits from these assets is uncertain.
| 33 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
The
Company’s valuation allowance at September 30, 2023 and December 31, 2022 was $
Net Operating Loss Carry-Forwards
| 2013 | $ | ||||||
| 2014 | |||||||
| 2015 | |||||||
| 2016 | |||||||
| 2017 | |||||||
| 2018 | |||||||
| 2019 | |||||||
| 2020 | |||||||
| 2021 | |||||||
| 2022 | |||||||
| 2023 | |||||||
| $ |
Note 14 – Letters of Intent Signed for Potential Acquisitions
| 34 |
FOMO WORLDWIDE, INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
UNAUDITED
On
February 27, 2023, the Company signed a non-binding letter of intent to purchase a provider of modular buildings and construction services
generating an estimated $
On
March 29, 2023, the Company executed a non-binding letter of intent to acquire a manufacturer and provider of analog and digital signage
and services based in Southwest Florida. The business generates annual revenues of approximately $
On
or around August 7, 2023, we signed a letter of intent for a purchase order (“PO”) financing agreement with Gateway Trade
Funding for up to $
On
or around August 14, 2023, we finalized a purchase order (“PO”) financing agreement with Aurous Financial Srvcs LLC to provide
financing for up to $
Note 15 – Corporate Actions
On
July 24, 2023, the Company mailed a Form 14C notifying investors of our intent to
Note 16 – Subsequent Events
Stock Issued for Services – Class A, Preferred Stock
Subsequent
to the nine months ended September 30, 2023, the Company issued Series A Preferred shares for $
Stock Issued for Services – Class B, Preferred Stock
Subsequent
to the nine months ended September 30, 2023, the Company also issued Series B Preferred shares to its CEO Vikram Grover for $
| 35 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this Quarterly Report on Form 10-Q to “the Company,” “FOMO,” “us,” “we,” “our,” and similar terms refer to FOMO WORLDWIDE, INC. and its subsidiaries.
Cautionary Note Regarding Forward- Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “may,” “could,” “should,” “expect,” “plan,” “project,” “strategy,” “forecast,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” or similar expressions help identify forward-looking statements.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and management cannot assure any reader that such statements will be realized, or the forward-looking events and circumstances will in fact occur. The Company’s actual results may differ materially from those anticipated, estimated, projected, or expected by management.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise.
Company Overview
General
Acquisition of IAQ Technologies LLC
On October 19, 2020, the Company acquired 100% of the membership interests of Purge Virus, LLC. We subsequently changed the name of the company to IAQ Technologies LLC (“IAQ”).
The assets if the busness were subsequently merged into our Energy Intelligence Center LLC subsidiary.
Acquisitions of Independence LED Lighting LLC and Energy Intelligence Center LLC
On February 12, 2021, the Company purchased the assets of Independence LED Lighting LLC (“iLED”).
On March 7, 2021, the Company purchased the assets of Energy Intelligence Center LLC (“EIC of PA”), an affiliate of iLED.
Following the acquisitions of the assets of ILED and EIC, the Company combined the assets and businesses of iLED and EIC PA into a newly formed wholly- owned subsidiary, Energy Intelligence Center, LLC (“EIC Wyoming”).
| 36 |
Acquisitions of SMARTSolution Technologies LP and SMARTSolution Technologies, Inc.
On February 28, 2022, FOMO closed the acquisition of the general and all the limited partnership interests of SMARTSolution Technologies LP and shares of SMARTSolution Technologies, Inc. (collectively “SST”) pursuant to a Securities Purchase Agreement dated February 28, 2022 (the “SPA”), by and between the Company and the beneficial owner of the general and limited partnership interests in SST. SST is a Pittsburgh, Pennsylvania–based audio/visual systems integration company that designs and builds presentation, teleconferencing and collaborative systems for businesses, educational institutions, and other nonprofit organizations.
Costs and Resources
FOMO WORLDWIDE, INC. is currently pursuing additional funding resources that will potentially enable it to maintain its current and planned operations through the next 12 months. The Company anticipates that it will need to raise additional capital in order to sustain and grow its operations over the next few years. To the extent that the Company’s capital resources are insufficient to meet current or planned operating requirements, the Company will seek additional funds through equity or debt financing, collaborative, or other arrangements with corporate partners, licensees, or others, and from other sources, which may have the effect of diluting the holdings of existing shareholders. As of September 30, 2023, the Company had no current arrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders or creditors will provide any portion of the Company’s future financing requirements. No assurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its programs that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company.
Critical Accounting Policies
See Note 2 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report.
Results of Operations
Nine months ended September 30, 2023 as compared to nine months ended September 30, 2022
Sales. During the nine months ended September 30, 2023 and 2022, the Company had $2,060,282 and $4,436,352 in sales, respectively. The decrease from 2022 to 2023 was $2,376,070 (54%).
Cost of Sales. During the nine months ended September 30, 2023 and 2022, the Company incurred $1,568,678 and $4,074,424 in cost of sales, respectively. The decrease from 2022 to 2023 was $2,505,746 (61%). Cost of sales include product sales and payroll.
Gross Profit. Gross profit expressed as a percentage of sales for the nine months ended September 30, 2023 was 24%, which was an increase from 8% for the nine months ended September 30, 2022.
General and Administrative Expenses. During the nine months ended September 30, 2023 and 2022, the Company incurred general and administrative expenses of $1,222,641 and $2,045,799, respectively, consisting primarily of salaries and professional fees. The decrease from the 2022 quarter to the 2023 quarter was $823,158(40%). The decrease primarily relates to a decrease in shares and warrants issued for services in 2023.
Other Income (Expense). For the nine months ended September 30, 2023 and 2022, the Company reflected other income (expense) – net of $123,055 and $(1,537,513), respectively. The decrease from the prior period was $(1,660,568) (108%), primarily related to the change in valuation of derivative liabilities.
| 37 |
For the nine months ended September 30, 2023, other income (expenses) consisted of interest expense of $547,263, loss on debt extinguishment of $409,805, amortization of debt discount of $31,200 and change in fair value of derivative liabilities of $122,640 , offset by a gain on the change in fair value of derivative liabilities of $375,383 and a gain on debt extinguishment of $858,580.
For the nine months ended September 30, 2022, other income (expenses) consisted of interest expense of $364,161, loss on debt extinguishment of $199,103, derivative expense of $194,887, amortization of debt discount of $519,598 and change in fair value of marketable equity securities of $646,237 , offset by a gain on the change in fair value of derivative liabilities of $160,082 and a gain on debt extinguishment of $226,391.
Net Loss. For the nine months ended September 30, 2023, the Company incurred a net loss of $(607,982).
For the nine months ended September 30, 2022, the Company incurred a net loss of $(3,221,384).
The decrease in net loss from the 2022 quarter to the 2023 quarter was a result in the decrease in other expenses related to the remeasurement of derivative liabilities, offset by a decline in shares and warrants issued for services in 2023.
Three months ended September 30, 2023 as compared to three months ended September 30, 2022
Sales. During the three months ended September 30, 2023 and 2022, the Company had $608,627 and $955,433 in sales, respectively. The decrease from the 2022 quarter to the 2023 quarter was $346,806 (36%).
Cost of Sales. During the three months ended September 30, 2023 and 2022, the Company incurred $479,423 and $885,337 in cost of sales, respectively. The decrease from the 2022 quarter to the 2023 quarter was $405,914 (46%). Cost of sales include product sales and payroll.
Gross Profit. Gross profit expressed as a percentage of sales for the three months ended September 30, 2023 was 21%, which was an increase from 7% for the three months ended September 30, 2022.
General and Administrative Expenses. During the three months ended September 30, 2023 and 2022, the Company incurred general and administrative expenses of $261,110 and $364,490, respectively, consisting primarily of salaries and professional fees. The decrease from the 2022 quarter to the 2023 quarter was $103,380 (28%). The decrease primarily relates to a decrease in shares and warrants issued for services in 2023 and a correction to interest expense.
Other Income (Expense). For the three months ended September 30, 2023 and 2022, the Company reflected other income (expense) – net of $423,374 and $(34,136), respectively. The decrease from the prior period was $(457,510) (1,340%), primarily related to the change in valuation of derivative liabilities.
For the three months ended September 30, 2023, other income (expenses) consisted of interest expense of $61,101 and a loss on debt extinguishment of $7,511, offset by a gain on the change in fair value of derivative liabilities of $381,332 and a gain on debt extinguishment of $110,654.
For the three months ended September 30, 2022, other income (expenses) consisted of interest expense of $116,989, loss on debt extinguishment of $67,330, amortization of debt discount of $166,906, offset by a gain on the change in fair value of derivative liabilities of $176,907 and a gain on debt extinguishment of $125,698.
Net Loss. For the three months ended September 30, 2023, the Company generated net income of $291,468.
For the three months ended September 30, 2022, the Company incurred a net loss of $(328,530).
The decrease in net loss from the 2022 quarter to the 2023 quarter was a result in the decrease in other expenses related to the remeasurement of derivative liabilities, offset by a decline in shares and warrants issued for services in 2023.
| 38 |
Going Concern
Management has assessed its ability to continue to operate as a going concern and concluded that the unaudited consolidated financial statements in this report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the unaudited consolidated financial statements, these conditions raise substantial doubt from the Company’s ability to continue as a going concern. The Company’s plans in regard to these matters are also described in the notes to the Company’s unaudited consolidated financial statements. The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying consolidated financial statements, for the nine months ended September 30, 2023, the Company had:
| ● | an operating loss of $131,906; and |
| ● | net cash used in operations of $365,826. |
Additionally, at September 30, 2023, the Company had:
| ● | an accumulated deficit of $24,783,553; |
| ● | stockholders’ deficit of $2,229,613; and |
| ● | a working capital deficit of $3,510,733. |
Liquidity and Capital Resources
Cash Flows
Operating Activities
For the nine months ended September 30, 2023 and 2022, the Company reflected net cash used in operating activities of $365,826 and $858,229, respectively, a decrease of $492,403 (57%). Operating activities primarily consist of a net loss of $607,982, offset by non-cash net expenses of $448,586, and increases in accounts receivable and inventory, offset by decreases in accounts payable, deferred revenue and operating lease liability.
Investing Activities
For the nine months ended September 30, 2023 and 2022, the Company reflected net cash provided by investing activities of $(27,075) and $89,941; primarily repayments of related party loans.
Financing Activities
For the nine months ended September 30, 2023 and 2022, the Company reflected net cash provided by financing activities of $298,424 and $817,612, respectively, a decrease of $519,188 (64%). Financing activities primarily consisted of proceeds and repayments from debt, drawdown on the accounts receivable credit facility and proceeds from the issuance of common stock and Class A preferred stock.
During the nine months ended September 30 2023, the Company received $441,829 net of borrowed funds from non-related parties through MCA loans and PO Financing, $(93,133) net in an asset backed loan against the accounts receivable of SST.
During the nine months ended September 30, 2022, the Company received $378,750 of borrowed funds from non-related parties through the sale of convertible notes payable, $1,142,320 in an asset backed loan against the accounts receivable of SST and $195,000 loan from a related party (CEO of SST). The Company also repaid $647,528 in non-related party loans, $233,914 in related party loans, $150,000 in an SBA loan and $133,016 in the asset backed loan.
| 39 |
We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand of $2,477 at September 30, 2023. Although the Company intends to raise additional debt or equity capital, the Company expects to continue to incur significant losses from operations and have negative cash flows from operating activities for the near-term. These losses could be significant as product and service sales ramp up along with continuing expenses related to compensation, professional fees, development and regulatory are incurred.
The Company has incurred significant losses since its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the twelve months ended June 30, 2024, and our current capital structure including equity-based instruments and our obligations and debts.
If the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company continues to explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.
These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include the following:
| ● | Pursuing additional capital raising opportunities (debt or equity), |
| ● | Continue to execute on our strategic planning while increasing operational efficiency, |
| ● | Continuing to explore and execute prospective partnering or distribution opportunities; and |
| ● | Identifying unique market opportunities that represent potential positive short-term cash flow. |
We expect our expenses will continue to increase during the foreseeable future as a result of increased operational expenses and the development of our clean air and audio/visual businesses. However, we do not expect and have already generating revenues from our operations for the audio/visual business. Consequently, our dependence on the proceeds from future debt or equity investments will be used to implement our business plan of expanding our business through mergers and acquisition and expanding revenues through growing sales in the clean air and audio/visual businesses. If we are unable to raise sufficient capital, we will be required to delay or forego some portion of our business plan, which would have a material adverse effect on our anticipated results from operations and financial condition. There is no assurance that we will be able to obtain necessary amounts of additional capital or that our estimates of our capital requirements will prove to be accurate. As of the date of this Report we did not have any commitments from any source to provide such additional capital. Even if we are able to secure outside financing, it may be unavailable in the amounts or the times when we require. Furthermore, such financing would likely take the form of bank loans, private placement of debt or equity securities or some combination of these. The issuance of additional equity securities would dilute the stock ownership of current investors while incurring loans, leases or debt would increase our capital requirements and possible loss of valuable assets if such obligations were not repaid in accordance with their terms.
Contractual Obligations and Commitments
The Company had a material change in contractual obligations related to its right-of-use operating lease, which was acquired in March 2022. There were no commitments at December 31, 2022 as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022.
Delinquent Loans
At September 30, 2023, the Company was in default on its debt arrangements with four providers of merchant cash advances (“MCAs”) that funded against expected shipments from its primary vendor SMART Technologies, who subsequently reduced our credit line for equipment from $1,000,000 to $350,000. The Company is working with these third parties on a reduced payment basis and analyzing proposals from new capital providers to refinance the positions. The Company is also in default on the covenants of its secured asset backed credit line funded by Thermo Credit LLC, though the lender is amicable and not enforcing its rights.
| 40 |
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required under Regulation S-K for “smaller reporting companies.”
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the PCAOB standards, a control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive, financial and accounting officer), we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our management has determined that, as of September, 2023, the Company’s disclosure controls are not effective for the reasons set forth in our Annual Report on Form 10-K for the year ended December 31, 2022, including the following:
● The Company lacks segregation of duties similar to other companies our size
We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report on Form 10-Q, our President and Chief Financial Officer performed an evaluation of the effectiveness of and the operation of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our President and Chief Financial Officer concluded that as of the end of the period covered by this report on Form 10-Q, our disclosure controls and procedures are not effective in timely alerting them to material information relating to FOMO WORLDWIDE, INC. required to be included in our Exchange Act filings.
Limitations on the Effectiveness of Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
FOMO, its wholly owned subsidiary SST, our CEO Vikram Grover, and our 10-99 consultant SVP Finance Mary Kirk have been served with a civil lawsuit by a former employee seeking $483,000 or more in unpaid commissions, damages, interest and penalties. We have calculated a significantly lower audited calculated amount and intend to defend ourselves vigorously.
Additionally, two providers of merchant cash advances have filed complaints in Utah and New York Courts demanding $171,343.35 and $147,186.68, respectively, for breach of contract, plus potential penalties and fees. We are currently reviewing the matters with counsel and in direct communication with the complainant.
Item 1A. Risk Factors.
Not required under Regulation S-K for “smaller reporting companies.”
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits.
(a) Exhibits.
| Exhibit | Item | |
| 31.1* | Section 302 Sarbanes-Oxley Act Certification | |
| 32.1* | Section 906 Sarbanes-Oxley Act Certification | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed herein. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FOMO WORLDWIDE, INC. | |
| Date: November 21, 2023 | /s/ Vikram Grover |
| Vikram Grover, President | |
| (Principal Executive. Financial and Accounting Officer) |
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