10-K: FOMO Worldwide Reports $1.58 Million Net Loss in Unaudited 2023 Annual Results Amidst Operational Challenges

FOMO Worldwide's unaudited 2023 annual report reveals a significant net loss of $1.58 million, a 67% decrease in revenue, and substantial doubt about the company's ability to continue as a going concern.

Summary

• FOMO Worldwide reported a net loss of $1,583,738 for the year ended December 31, 2023, compared to a net loss of $3,681,490 in 2022.
• The company's operating revenues decreased by 67% from $7,515,451 in 2022 to $2,498,566 in 2023, primarily due to a decline in sales at SMARTSolution Technologies (SST).
• Gross profit decreased from $1,047,551 in 2022 to $578,424 in 2023, with gross profit as a percentage of sales dropping from 23% to 14%.
• Operating expenses were $2,241,606 in 2023, including $1,031,638 in non-cash expenses, compared to $2,645,480 in 2022 with $981,594 in non-cash expenses.
• The company's independent auditor has expressed substantial doubt about its ability to continue as a going concern.
• As of December 31, 2023, FOMO had an accumulated deficit of $25,799,891, a stockholders deficit of $3,120,474, and a working capital deficit of $3,701,663.
• Net cash used in operating activities was $176,588 in 2023, compared to $858,229 in 2022.
• The company is pursuing additional capital raising opportunities and exploring strategic partnerships to improve its financial position.
• SST has been placed into receivership by its senior lender effective April 1, 2024, and will be carried as a discontinued operation for accounting purposes.

Sentiment

Score: 2

Explanation: The document paints a very negative picture due to significant revenue decline, substantial net losses, a going concern warning from the auditor, and the receivership of a key subsidiary. The company is facing multiple legal challenges and has a weak financial position, indicating a high level of risk for investors.

Positives

• The net loss decreased from $3,681,490 in 2022 to $1,583,738 in 2023.
• Operating expenses decreased from $2,645,480 in 2022 to $2,241,606 in 2023.
• Net cash used in operating activities decreased from $858,229 in 2022 to $176,588 in 2023.
• The company is actively pursuing additional capital raising opportunities.

Negatives

• Operating revenues decreased by 67% year-over-year.
• Gross profit decreased from $1,047,551 in 2022 to $578,424 in 2023.
• The company has a significant accumulated deficit of $25,799,891.
• The company has a working capital deficit of $3,701,663.
• The company's auditor has expressed substantial doubt about its ability to continue as a going concern.
• SST has been placed into receivership.
• The company is facing multiple lawsuits and judgments.

Risks

• The company's ability to continue as a going concern is in doubt due to significant losses and negative cash flows.
• The company's dependence on future debt or equity investments to implement its business plan is a significant risk.
• The company faces the risk of not being able to raise sufficient capital, which could force it to reduce its business development activities or cease operations.
• The company is exposed to credit risk on its cash and cash equivalents.
• The company is facing legal challenges that could further strain its financial resources.
• The company's reliance on a single supplier for its smart boards poses a risk to its business.
• The company's financial covenants with its senior lender are in default.

Future Outlook

The company expects expenses to increase due to operational expansion and development of its clean air and audio/visual businesses. It will depend on future debt or equity investments to expand through mergers and acquisitions and grow sales. There is no assurance that the company will be able to obtain necessary amounts of additional capital or that its estimates of its capital requirements will prove to be accurate.

Management Comments

• Management's strategic plans include pursuing additional capital raising opportunities, increasing operational efficiency, exploring partnerships, and identifying unique market opportunities.
• Management believes that internal controls over financial reporting as set forth above shows some weaknesses and are not effective.
• Management does not believe that any of these weaknesses materially affected the results and accuracy of its financial statements.

Industry Context

The company's struggles reflect challenges in the education technology and clean air sectors, which have seen increased competition and fluctuating demand. The shift to remote learning, initially a boon, has not sustained the company's growth. The company's reliance on a single supplier for its smart boards also highlights a vulnerability in its supply chain.

Comparison to Industry Standards

• The 67% revenue decline is significantly worse than industry averages for companies in the education technology and clean air sectors, which have generally seen more moderate fluctuations.
• The company's gross profit margin of 14% is below the industry average, indicating potential issues with pricing or cost management.
• The substantial doubt about the company's ability to continue as a going concern is a major red flag, as most companies in these sectors are not facing such existential threats.
• Compared to competitors like Clear Touch and Galaxy Next Generation, FOMO's financial performance is significantly weaker, as these companies have shown more stable revenue and profitability.
• The receivership of SST is a major setback, as it indicates a failure to manage debt and operations effectively, which is not typical for established companies in the industry.

Legal Proceedings

• The company has been named in lawsuits by a former salesperson for unpaid commissions.
• The company is facing lawsuits from merchant cash advance providers CFS, Globex, and Swift Funding for a total of $475,713.81 plus interest.
• The company is being sued by its senior lender Thermo Communications Funding, LLC for $1,074,276.15 plus interest.

Related Party Transactions

• The Company has a loan receivable from Himalaya Technologies, Inc., an affiliate of the company's CEO.
• The company assumed a loan due to SST's Chief Executive Officer as part of the acquisition of SST.
• The company's CEO has converted accrued compensation into shares of preferred and common stock.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial instability and the potential for further dilution.
• Employees of SST are impacted by the receivership and potential job losses.
• Customers may experience disruptions in service due to the company's financial difficulties.
• Suppliers may face uncertainty regarding payment for goods and services.
• Creditors face the risk of not being fully repaid due to the company's financial distress.

Next Steps

• The company plans to pursue additional capital raising opportunities.
• The company intends to continue executing its strategic plan while increasing operational efficiency.
• The company will continue to explore and execute prospective partnering or distribution opportunities.
• The company will identify unique market opportunities that represent potential positive short-term cash flow.

Key Dates

Keywords

FOMO Worldwide, financial results, annual report, net loss, revenue decline, going concern, SMARTSolution Technologies, receivership, capital raise, debt, equity, disinfection products, audio/visual systems, smart boards, legal proceedings