FreeCast (CAST) S-1IPO registration

As filed with the Securities and Exchange Commission on February 18, 2020

Registration No. 333-                

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

FREECAST, INC.
(Exact name of registrant as specified in its charter)

6901 TPC Drive, Suite 200
Orlando, Florida 32822
(407) 374-1603

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

William A. Mobley, Jr., Chief Executive Officer

FreeCast, Inc.
6901 TPC Drive, Suite 200

Orlando, Florida 32801
(407) 374-1603

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registrationstatement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

CALCULATIONOF REGISTRATION FEE

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion,

Preliminary Prospectus dated

[______] [__], 2020

FREECAST, INC.

           shares of common stock (par value, $0.0001)

This is our initial public offering of common stock. No public market currently exists for our common stock. We anticipate the initial public offering price will be between $           and $           per share.

We are selling            shares of common stock.

We anticipate applying to list our common stock on the Nasdaq Capital Market, or Nasdaq, prior to the date of this preliminary prospectus.

We expect to be a “controlled company” under Nasdaq corporate governance standards because more than 50% of the voting power of our common stock following the completion of this offering will be held by Nextelligence, Inc., which is majority owned and controlled by our Chief Executive Officer. As a “controlled company,” we are permitted to, and will, elect not to comply with certain Nasdaq corporate governance standards, including majority “independent director” requirements and certain requirements relating to independent compensation and nominating committees. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Stock Market.

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced reporting requirements for this prospectus and other filings with the Securities and Exchange Commission after this offering. See “Prospectus Summary—Emerging Growth Company Status.”

Investing in our securities involves a high degree of risk. You should carefully consider the risk factors beginning on page 5 of this prospectus before purchasing shares of our common stock.

We have granted the underwriters the right to purchase additional shares of our common stock to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on           , 2020.

The date of this prospectus is                     , 2020.

TABLE OF CONTENTS

Neither we nor the underwriter has authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. When you make a decision about whether to invest in our common stock, you should not rely upon any information other than the information in this prospectus or in any free writing prospectus that we may authorize to be delivered or made available to you. Neither the delivery of this prospectus nor the sale of our common stock means that the information contained in this prospectus or any free writing prospectus is correct after the date of this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy shares of common stock in any circumstances under which the offer or solicitation is unlawful.

Market, Industry and Other Data

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Third-party industry publications and forecasts generally state that the information contained therein has been obtained from sources generally believed to be reliable. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not independently verified any third-party information. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary Note Regarding Forward-Looking Statements.”

Among others, we refer to estimates compiled by the following industry sources:

Trademarks and Service Marks

This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

RISK FACTORS

You should carefully consider the risks described below and elsewhere in this report, which could materially and adversely affect our business, results of operations or financial condition. If any of these risks occur, the trading price of our common stock could decline and you may lose all or part of your investment.

Risks Relating to Our Business

We may not be able to continue as a going concern without additional financing, and if such financing is not available to us or is not available to us on acceptable terms, we may be forced to cease operations.

We have a limited operating history and have incurred recurring losses from operations. As of December 2019, we have an accumulated a deficit of $13,535,698, and a stockholders’ deficit of $2,286,294. For the six months ended December 31, 2019 and 2018, we incurred a net loss of $704,782 and $496,159, respectively, and for the fiscal years ended June 30, 2019 and 2018, we incurred net losses of $1,085,834 and $1,560,357, respectively. Our failure to generate sufficient revenues, effectively manage expenses or raise additional capital could adversely affect our ability to achieve our intended business objectives. These matters, among others, raise substantial doubt about our ability to continue as a going concern.

We funded our initial operations primarily through sales of common stock to accredited investors, debt financing, and exchange of common stock for services received by us. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If we are not able to raise additional capital when required or on acceptable terms, we may have to: (i) significantly delay, scale back or discontinue the development or commercialization of SelectTV; (ii) seek collaborators for further development and commercialization of SelectTV; or (iii) relinquish or otherwise dispose of some or all of our rights to technologies or the products that we would otherwise seek to develop or commercialize.

Our SmartGuide relies on a technology that we license from Nextelligence, and any interruption of our rights as a licensee could have a significant adverse impact on some major aspects of our business, such as product development, customer retention and sales.

Our SmartGuide has been built on technology developed by Nextelligence and used by us pursuant to the Technology Agreement. Nextelligence is principally owned and controlled by William A. Mobley, Jr., our founder, Chief Executive Officer and Chairman of our board of directors. The Technology Agreement provides that Nextelligence is obligated to provide all further development, improvement, modification, maintenance, management and enhancement services related to the technology in exchange for certain payments to Nextelligence by us. The Technology Agreement may be terminated if, among other things, we breach the Technology Agreement, if we become insolvent or subject to the bankruptcy laws, or if there is a change of control (as defined in the Technology Agreement). If we were not able to use the technology for any reason, it could have a significant adverse impact on some major aspects of our business, such as product development, customer retention and sales.

If our efforts to attract and retain members are not successful, our business will be adversely affected.

We have experienced significant member decline over the past several years. As of June 30, 2018, we had 227,198 members, as of June 30, 2019, we had 126,803 members, which includes and accounts for a major fall-off of expiring former Rabbit TV users. Our ability going forward to attract members will depend in part on our ability to consistently provide our newly acquired members with newly launched SelectTV, with a more robust, valuable and quality experience for selecting and viewing TV shows, movies and channels and access to online radio stations. Furthermore, the relative service levels, content offerings, pricing and related features of competitors to our service may adversely impact our ability to attract and retain members. If consumers do not perceive our service offering to be of value, or if we introduce new or adjust existing services that are not favorably received by them, we may not be able to attract members. In addition, many of our members are rejoining our service or originate from word-of-mouth advertising from existing members. Our attracting and retaining members may depend on our ability to: 

If our efforts to satisfy our existing members are not successful, we may not be able to attract new members, and as a result, our ability to maintain or grow our business will be adversely affected. Members cancel their membership to our service for many reasons, including a perception that they do not use the service sufficiently, the need to cut household expenses, availability of content is limited, competitive services provide a better value or experience and customer service issues are not satisfactorily resolved. We must continually add new members both to replace members who cancel and to grow our business beyond our current member base. If too many of our members cancel our service, or if we are unable to attract new members in numbers sufficient to grow our business, our operating results will be adversely affected. If we are unable to successfully compete with current and new competitors in both retaining our existing members and attracting new members, our business will be adversely affected. Further, if excessive numbers of members cancel our service, we may be required to incur significantly higher marketing expenditures than we currently anticipate in order to replace these members with new members.

If we are not able to continue to innovate or if we fail to adapt to changes in our industry, our business, financial condition and results of operations would be materially and adversely affected.

The market for online video, radio and games is characterized by rapidly changing technology, evolving industry standards, new service and product introductions and changing customer demands. Although we have developed new products and services in order to meet customer demands, new technologies and evolving business models for delivery of entertainment video continue to develop at a fast pace and we may not be able to keep up with all of the changes. Consumers are afforded various means for consuming online video, radio and games. The various economic models underlying these differing means of entertainment video delivery include subscription, pay-per-view, ad-supported and piracy-based models. Several competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. New entrants may enter the market with unique service offerings or approaches to distributing online video, radio and games and other companies also may enter into business combinations or alliances that strengthen their competitive positions. The changes and developments taking place in our industry may also require us to re-evaluate our business model and adopt significant changes to our long-term strategies and business plan. If we are unable to successfully or profitably compete with current and new competitors, programs and technologies, our business will be adversely affected, and we may not be able to increase or maintain market share, revenues or profitability.

We may not be able to maintain or grow our revenue or our business.

Since the beginning of fiscal year 2019, we have been focused on investing in and developing new technologies, which we anticipate will drive future growth and give us a sustainable revenue stream. In addition, we have transitioned to a “multi license” model from a ’single-license’ model. We believe that the new technology, coupled with our new sales and marketing strategy, will enable us to grow our revenue, as we are no longer limited by a single licensed vendor to sell our products. However, there can be no assurance that we will be able to sell sufficient memberships to fund our operations in the future. In addition, our growth may become stagnant for many other reasons, including decreasing consumer spending, increasing competition, slowing growth of the consumption of online video, radio and games, changes in government policies or general economic conditions.

If we are not able to manage our growth, our business could be adversely affected.

We are currently engaged in an effort to grow our service by introducing online access renewal, developing new products, expanding internationally and to residents of rural areas. As we undertake all these changes, if we are not able to manage the growing complexity of our business, including improving, refining or revising our systems and operational practices, our business may be adversely affected.

If our efforts to build strong brand identity and improve member satisfaction and loyalty are not successful, we may not be able to attract or retain members, and our operating results may be adversely affected.

We must continue to build and maintain strong brand identity for our products and services, which have expanded over time. We believe that strong brand identity will be important in attracting members. If our efforts to promote and maintain our existing brands and brands we develop in the future are not successful, our operating results and our ability to attract members may be adversely affected. From time to time, our members express dissatisfaction with our service, including, among other things, title availability, processing and service interruptions. To the extent dissatisfaction with our service is widespread or not adequately addressed, our brand may be adversely impacted and our ability to attract and retain members may be adversely affected. With respect to our planned international expansion, we will also need to establish our brand and to the extent we are not successful, our business in new markets would be adversely impacted.

If we are unable to manage the mix of member acquisition sources, our member levels and marketing expenses may be adversely affected.

We utilize a broad mix of marketing programs to promote our service to potential new members. We obtain new members through our online marketing efforts, including paid search listings, banner ads, text links and permission-based e-mails. In addition, we have engaged in various offline marketing programs, including TV and radio advertising, direct mail and print campaigns, consumer package and mailing insertions. We maintain an active public relations program to increase awareness of our service and drive member acquisition. We opportunistically adjust our mix of marketing programs to acquire new members at a reasonable cost with the intention of achieving overall financial goals. If we are unable to maintain or replace our sources of members with similarly effective sources, or if the cost of our existing sources increases, our member levels and marketing expenses may be adversely affected.

If we are unable to continue using our current marketing channels, our ability to attract new members may be adversely affected.

We may not be able to continue to support the marketing of our service by current means if such activities are no longer available to us, become cost prohibitive or are adverse to our business. If companies that currently promote our service decide that we are negatively impacting their business, that they want to compete more directly with our business or enter a similar business or decide to exclusively support our competitors, we may no longer be given access to such marketing through them. In addition, if advertising rates increase, we may curtail marketing efforts or otherwise experience an increase in our marketing costs. Laws and regulations impose restrictions on the use of certain channels, including commercial e-mail and direct mail. We may limit or discontinue use or support of e-mail and other activities if we become concerned that members or potential members deem such activities intrusive, which could affect our goodwill or brand. If the available marketing channels are curtailed, our ability to attract new members may be adversely affected.

Although we do not distribute content through our service, if we are sued for content accessed through our service, our results of operations would be adversely affected.

Although we do not distribute content through our service, we face potential liability for negligence, copyright, patent or trademark infringement or other claims based on content accessed through our service. We also may face potential liability for content uploaded from our users in connection with our community-related content or reviews. If we become liable for such activities, then our business may suffer. Litigation to defend these claims could be costly and the expenses and damages arising from any liability could harm our results of operations. We cannot assure you that we are insured or indemnified to cover claims of these types or liability that may be imposed on us.

We rely upon a number of partners to offer our service.

We currently offer members the ability to easily navigate available sources of online video, radio and games and consume such media through their computers and other Internet-connected devices. If we are not successful in maintaining existing, and creating new, relationships, or if we encounter technological, content licensing or other impediments to our ability to organize content, our ability to grow our business could be adversely impacted. Furthermore, devices are manufactured and sold by entities other than FreeCast and while these entities should be responsible for the devices’ performance, the connection between these devices and FreeCast may nonetheless result in consumer dissatisfaction toward FreeCast and such dissatisfaction could result in claims against us or otherwise adversely impact our business.

Any significant disruption in our computer systems or those of third-parties that we utilize in our operations could result in a loss or degradation of service and could adversely impact our business.

Members and potential members access our service through our Web site or their TVs, computers, game consoles, or streaming or mobile devices. Our reputation and ability to attract, retain and serve our members is dependent upon the reliable performance of our computer systems and those of third-parties that we utilize in our operations. Interruptions in these systems, or with the Internet in general, including discriminatory network management practices, could make our service unavailable or degraded. Much of our software is proprietary, and we rely on the expertise of our engineering and software development teams for the continued performance of our software and computer systems. Service interruptions, errors in our software or the unavailability of computer systems used in our operations could diminish the overall attractiveness of our service to existing and potential customers.

Our servers and those of third-parties we use in our operations are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions and delays in our service and operations as well as loss, misuse or theft of data. Our Web site periodically experiences directed attacks intended to cause a disruption in service. Any attempts by hackers to disrupt our service or our internal systems, if successful, could harm our business, be expensive to remedy and damage our reputation. Our insurance does not cover expenses related to attacks on our Web site or internal systems. Efforts to prevent hackers from entering our computer systems are expensive to implement and may limit the functionality of our services. Any significant disruption to our service or internal computer systems could result in a loss of members and adversely affect our business and results of operations.

We utilize our own communications and computer hardware systems located either in our facilities or in that of a third-party Web hosting provider. In addition, we utilize third-party Internet-based or “cloud” computing services in connection with our business operations. Problems faced by our third-party Web hosting or cloud computing providers, including technological or business-related disruptions, could adversely impact the experience of our members. In addition, fires, floods, earthquakes, power losses, telecommunications failures, break-ins and similar events could damage these systems and hardware or cause them to fail completely. As we do not maintain entirely redundant systems, a disrupting event could result in prolonged downtime of our operations and could adversely affect our business.

We rely upon third parties to host certain aspects of our service and any disruption of, or interference with, our use of such third party services would impact our operations and our business would be adversely impacted.

We make use of a number of services provided by third parties, including distributed computing infrastructure platform for business operations, or what is commonly referred to as a cloud computing service. We have architected our software and computer systems so as to utilize data processing, storage capabilities and other services provided by such third parties. Given this, along with the fact that we cannot easily switch our operations to other providers, any disruption of or interference with our use of current service providers would impact our operations and our business would be adversely impacted.

We rely heavily on our proprietary technology to locate and organize online video, radio and games and to manage other aspects of our operations, and the failure of this technology to operate effectively could adversely affect our business.

We continually enhance or modify the technology used for our operations. We cannot be sure that any enhancements or other modifications we make to our operations will achieve the intended results or otherwise be of value to our members. Future enhancements and modifications to our technology could consume considerable resources. If we are unable to maintain and enhance our technology, our ability to retain existing members and to add new members may be impaired. In addition, if our technology or that of third-parties we utilize in our operations fails or otherwise operates improperly, our ability to retain existing members and to add new members may be impaired. Also, any harm to our members’ personal computers or other devices caused by software used in our operations could have an adverse effect on our business, results of operations and financial condition.

Privacy concerns could limit our ability to leverage our member data and our disclosure of or unauthorized access to member data could adversely impact our business and reputation.

In the ordinary course of business and, in particular, in connection with merchandising our service to our members, we collect and utilize data supplied by our members. We currently face certain legal obligations regarding the manner in which we treat such information. Other businesses have been criticized by privacy groups and governmental bodies for attempts to link personal identities and other information to data collected on the Internet regarding users’ browsing and other habits. Increased regulation of data utilization practices, including self-regulation or findings under existing laws, that limit our ability to use collected data, could have an adverse effect on our business. In addition, if unauthorized access to our member data were to occur or if we were to disclose data about our members in a manner that was objectionable to them, our business reputation could be adversely affected, and we could face potential legal claims that could impact our operating results.

Our reputation and relationships with members would be harmed if our member data, particularly billing data, were to be accessed by unauthorized persons.

We maintain personal data regarding our members, including names and, in many cases, mailing addresses. With respect to billing data, such as credit card numbers, we rely on licensed encryption and authentication technology to secure such information. We take measures to protect against unauthorized intrusion into our members’ data. If, despite these measures, we, or our payment processing services, experience any unauthorized intrusion into our members’ data, current and potential members may become unwilling to provide the information to us necessary for them to become members, we could face legal claims, and our business could be adversely affected. Similarly, if a well-publicized breach of the consumer data security of any other major consumer Web site were to occur, there could be a general public loss of confidence in the use of the Internet for commerce transactions which could adversely affect our business.

In addition, we do not obtain signatures from members in connection with the use of credit cards by them. Under current credit card practices, to the extent we do not obtain cardholders’ signatures, we are liable for fraudulent credit card transactions, even when the associated financial institution approves payment of the orders. From time to time, fraudulent credit cards are used on our Web site to obtain service. Typically, these credit cards have not been registered as stolen and are therefore not rejected by our automatic authorization safeguards. While we do have a number of other safeguards in place, we nonetheless experience some loss from these fraudulent transactions. We do not currently carry insurance against the risk of fraudulent credit card transactions. A failure to adequately control fraudulent credit card transactions would harm our business and results of operations.

We may not be able to protect our intellectual property rights.

We rely on a combination of trademark, fair trade practice, patent, copyright and trade secret protection laws, as well as confidentiality procedures and contractual provisions, to protect our intellectual property rights. We also enter into confidentiality agreements with our employees and any third parties who may access our proprietary information, and we rigorously control access to our proprietary technology and information.

Intellectual property protection may not be sufficient and confidentiality agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights, including our rights under the Technology Agreement with Nextelligence. In addition, policing any unauthorized use of our intellectual property is difficult, time-consuming and costly and the steps we have taken may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we would prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.

Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our Web site, technology, title selection processes and marketing activities.

Trademark, copyright, patent and other intellectual property rights are important to us. Our intellectual property rights extend to our technology, business processes and the content on our Web site. We use the intellectual property of third-parties in merchandising our products and marketing our service through contractual and other rights. From time to time, third-parties allege that we have violated their intellectual property rights. If we are unable to obtain sufficient rights, successfully defend our use, or develop non-infringing technology or otherwise alter our business practices on a timely basis in response to claims against us for infringement, misappropriation, misuse or other violation of third-party intellectual property rights, our business and competitive position may be adversely affected. Many companies are devoting significant resources to developing patents that could potentially affect many aspects of our business. There are numerous patents that broadly claim means and methods of conducting business on the Internet. We have not searched patents relative to our technology. Defending ourselves against intellectual property claims, whether they are with or without merit or are determined in our favor, results in costly litigation and diversion of technical and management personnel. It also may result in our inability to use our current Web site and technology, or our inability to market our service or merchandise our products. As a result of a dispute, we may have to develop non-infringing technology, enter into royalty or licensing agreements, adjust our merchandising or marketing activities or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us.

If we are unable to protect our domain names, our reputation and brand could be adversely affected.

We currently hold various domain names relating to our brand, including freecast.com. Failure to protect our domain names could adversely affect our reputation and brand and make it more difficult for users to find our Web site and our service. The acquisition and maintenance of domain names generally are regulated by governmental agencies and their designees. The regulation of domain names in the United States may change in the near future. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. We may be unable, without significant cost or at all, to prevent third-parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights.

We depend on key management as well as experienced and capable personnel generally, and any failure to attract, motivate and retain our staff could severely hinder our ability to maintain and grow our business.

We rely on the continued service of our senior management, including our founder and Chief Executive Officer and Chairman of our board of directors, William A. Mobley, Jr., other members of our executive team and other key employees to develop our products, services and solutions. In our industry, there is substantial and continuous competition for highly skilled business, product development, technical and other personnel. As a result, our human resources organization focuses significant efforts on attracting and retaining individuals in key technology positions. If we lose the services of any member of management or key personnel, and are unable to attract or locate suitable or qualified replacements, or otherwise hire talented personnel, we may incur additional expenses to recruit and train new staff, making it more difficult to meet our business objectives, which could severely disrupt our business and growth.

We cannot be assured we can obtain or retain third-party contractors for our specific services or development needs, which could disrupt our business operations or growth.

If we experience a substantial loss of, or an inability to attract, talented personnel, we may experience difficulty in meeting our business objectives.

Our brand name and our business may be harmed by aggressive marketing and communications strategies of our competitors.

Due to competition in our industry, we have been and may be the target of incomplete, inaccurate and false statements about our company and our services that could damage our and our management’s reputation and our brand and materially deter consumers from using our service. Our brand name and our business may be harmed if we are unable to promptly respond to our competitors’ misleading marketing efforts.

Risks Related to our Industry

Changes in consumer viewing habits, including more widespread usage of demand methods of entertainment video consumption could adversely affect our business.

The manner in which consumers seek entertainment online is changing rapidly. Digital cable, wireless and Internet content providers are continuing to improve technologies, content offerings, user interfaces and business models that allow consumers to access entertainment video-on-demand with interactive capabilities. The devices through which online video, radio and games can be consumed are also changing rapidly. For example, content from cable service providers may be viewed on laptops and mobile devices and content from Internet content providers may be viewed on TVs. If competitors providing similar services address the changes in consumer habits in a manner that is better able to meet content distributor and consumer needs and expectations, our business could be adversely affected.

Our business depends on continued and unimpeded access to the Internet at non-discriminatory prices, and Internet access providers and Internet backbone providers may be able to block, limit, degrade or charge for access to certain of our products and services, which could lead to additional expenses and the loss of users.

Our products and services depend on the ability of our customers’ viewers to access the Internet, and certain of our customers’ products require significant bandwidth to work effectively. Currently, this access is provided by companies that have significant and increasing market power in the broadband and Internet access marketplace, including incumbent telephone companies, cable companies and mobile communications companies. Some of these providers have stated that they may take measures that could degrade, disrupt or increase the cost of user access by restricting or prohibiting the use of their infrastructure to support or facilitate offerings, or by charging increased fees to provide offerings, while others, including some of the largest providers of broadband Internet access services, have committed to not engaging in such behavior.

The ability of the FCC to regulate broadband Internet access services was called into question by an April 2010 ruling of the United States Court of Appeals for the D.C. Circuit. The FCC then proposed rules regulating broadband Internet access, but on January 14, 2014, the D.C. Circuit Court of Appeals struck down the net neutrality rules adopted by the FCC, determining that the FCC did not have the authority to issue or enforce net neutrality rules, as it had failed to identify certain service providers as “common carriers.” On February 26, 2015, the FCC approved a new rule that reclassifies broadband Internet access service as a telecommunication service and regulates broadband Internet access as a public utility (Title II Order). In 2016, a divided panel of the D.C. Circuit Court of Appeals upheld the Title II Order, concluding that the FCC’s classification of broadband Internet access service was permissible. However, under President Donald Trump’s administration, the FCC reversed course and in December 2017 adopted a new rule referred to as the Restoring Internet Freedom Order, which went into effect on June 11, 2018. The Restoring Internet Freedom Order (RIFO): (i) reinstated the information service classification of broadband Internet access service; (ii) reinstated the determination that mobile broadband Internet access service is not a commercial mobile service; and (iii) eliminated the Internet conduct standard and the non-exhaustive list of factors intended to guide application of that rule. On October 1, 2019, D.C. Circuit Court of Appeals upheld most provisions of the RIFO. One aspect of the RIFO that the court did not uphold relates to the FCC’s assertion that it could preempt state-level actions involving Net Neutrality and the Open Internet. More than 30 states have introduced bills to add their own net neutrality protections. The U.S. House of Representatives on April 10, 2019 passed a bill, called the Save the Internet Act, requiring internet service providers to treat all online content the same.

Unless either the Court overturns or Congress passes legislation that supersedes the FCC’s new rule, it is possible that broadband service providers could impose restrictions on bandwidth and service delivery that may adversely impact our download speeds or ability to deliver content over those facilities, or impose significant end user or other fees that could impact the cost of our services to end users, or our delivery costs. If no action is taken by the Court or Congress, current and future actions by broadband Internet access providers may also result in limitations on access to our services, a loss of existing users, or increased costs to us, our users or our customers, thereby impairing our ability to attract new users, or limiting our opportunities and models for revenue and growth.

Changes in how network operators handle and charge for access to data that travel across their networks could adversely impact our business.

We rely upon the ability of consumers to access our service through the Internet. To the extent that network operators implement usage based pricing, including meaningful bandwidth caps, or otherwise try to monetize access to their networks by data providers, we could incur greater operating expenses and our member acquisition and retention could be negatively impacted.

Most network operators that provide consumers with access to the Internet also provide these consumers with multichannel video programming. As such, companies like Comcast, Time Warner Cable and Cablevision have an incentive to use their network infrastructure in a manner adverse to our continued growth and success. While we believe that consumer demand, regulatory oversight and competition will help limit these incentives, to the extent that network operators are able to provide preferential treatment to their data as opposed to ours, our industry and business could be negatively impacted.

Risks Related to the Offering

An active trading market for our common stock may not develop, which may cause our common stock to trade at a discount from the initial offering price and make it difficult for you to sell the shares you purchase.

Prior to this offering, there has been no public trading market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development or maintenance of an active trading market. The initial public offering price per share of our common stock has been determined by agreement among us and the underwriters and may not be indicative of the price at which our common stock will trade in the public trading market after this offering. If an active trading market does not develop, there may be difficulty selling any shares of our common stock.

The offering price of our common stock may not be indicative of future market prices of our common stock.

The offering price of the shares of our common stock has been arbitrarily determined by us and should not be considered an objective indication of our actual value, as it bears no relationship to our assets, earnings, book value or any other objective financial statement criteria of value.

Our management will have considerable discretion as to the use of the net proceeds to be received by us from this offering, and such use may not improve our financial results or increase the trading price of our common stock.

We have not allocated a significant portion of the net proceeds to be received by us in this offering to any particular purpose, and our use of such proceeds will be based on our current growth strategies and business conditions. Our management will have considerable discretion in the application of the net proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our efforts to maintain profitability or increase the trading price of our common stock. The net proceeds from this offering, pending investment in operating assets or businesses, may be placed in investments that do not produce income or that lose value.

After this offering, William A. Mobley, Jr., our founder, Chief Executive Officer and Chairman of our board of directors, individually and through Nextelligence, Inc., which is majority owned and controlled by him, will own or control in excess of      % of our outstanding common stock.

After this offering, William A. Mobley, Jr., our Chief Executive Officer and Chairman of our board of directors, individually and through Nextelligence, Inc., which is majority owned and controlled by him, will own or control in excess of       % of our outstanding common stock. As a result, Mr. Mobley is able to exercise significant influence over our company, including, but not limited to, any shareholder approvals for the election of our directors and, indirectly, the selection of our senior management, the amount of dividend payments, if any, our annual budget, increases or decreases in our share capital, new securities issuance, mergers and acquisitions and any amendments to our amended and restated articles of incorporation. Furthermore, this concentration of ownership may delay or prevent a change of control or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which could decrease the market price of our shares.

Following this offering, we will be a “controlled company” as such term is defined in the rules of Nasdaq, and, therefore, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

Upon the completion of this offering, we expect that our common stock will be listed on Nasdaq. We expect to be a “controlled company” under Nasdaq corporate governance standards because more than 50% of the voting power of our common stock following the completion of this offering will be held by Nextelligence, Inc. A “controlled company” may elect not to comply with certain Nasdaq corporate governance standards, including the requirements that: (i) we have a majority of our board of directors consists of “independent directors,” as defined under Nasdaq rules; (ii) we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and (iii) we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Following this offering, in reliance upon the foregoing exemptions, a majority of our board of directors will not consist of independent directors, we will not have a nominating and corporate governance committee, and our compensation committee will not be composed entirely of independent directors, and we may use any of these exemptions for so long as we are a controlled company. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

The market price of our common stock may be volatile, which could cause the value of your investment to decline.

Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as the factors listed below, some of which are beyond our control, could affect the market price of our common stock:

If you purchase common stock sold in this offering, you will experience immediate and substantial dilution.

Based upon our unaudited financial statements at December 31, 2019, if you purchase common stock sold in this offering, you will experience immediate and substantial dilution of $      per share based on an offering price of $     , because the price that you pay per share will be greater than the net tangible book value per share. Our existing shareholders will experience an immediate increase in net tangible book value of $     per share. In addition, you may face additional dilution if we issue additional securities in the future to finance our operations.

If securities or industry analysts do not publish research or reports about our business, if they change their recommendations regarding our common stock adversely, or if we fail to achieve analysts’ earnings estimates, the market price and trading volume of our common stock could decline.

The trading market for our common stock may be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us or our industry make unfavorable comments about our market opportunity or business, the market price of our common stock would likely decline. If one or more of these analysts ceases coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the market price of our common stock or trading volume to decline. In addition, if we fail to achieve analysts’ earnings estimates, the market price of our common stock would also likely decline.

If we are unable to meet the continued listing requirements of Nasdaq, Nasdaq will delist our common stock.

Upon the consummation of this offering, our common stock will be listed on Nasdaq. In the future, if we are not able to meet Nasdaq’s continued listing standards, we could be subject to suspension and delisting proceedings. A delisting of our common stock and our inability to list on another national securities exchange could negatively impact us by: (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to our employees.

Because we do not intend to pay dividends for the foreseeable future, investors in the offering will benefit from their investment in shares only if our common stock appreciates in value.

We currently intend to retain our future earnings, if any, to finance the operation and growth of our business and do not expect to pay any dividends in the foreseeable future. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. Our common stock may not appreciate in value or even maintain the price at which investors in this offering have purchased their shares.

We cannot predict our future capital needs. As a result, we may need to raise significant amounts of additional capital. We may be unable to obtain the necessary capital when we need it, or on acceptable terms, if at all.

Our business depends on the availability of adequate funding and regulatory capital under applicable regulatory requirements. We currently anticipate that our available cash resources will be sufficient to meet our presently anticipated working capital and capital expenditure requirements for at least the next 12 months. We may need to raise additional funds to:

Additional financing may not be available when needed on terms favorable to us.

For as long as we are an “emerging growth company,” we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.

We are an “emerging growth company,” as defined in the Securities Act of 1933, as amended, or the Securities Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes–Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy and information statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and of shareholder approval of any golden parachute payments not previously approved. Because we intend to take advantage of these exemptions, some investors may find our common stock less attractive, which may result in a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period for complying with new or revised accounting standards.

We could remain an “emerging growth company” until June 30, 2025 or, if earlier: (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion; (ii) if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of the second fiscal quarter of any fiscal year, the last day of such fiscal year; or (iii) the date on which we have issued more than $1 billion in non-convertible debt securities during the preceding three-year period. If we are still a smaller reporting company (a company with a public float of less than $75 million) after we no longer qualify as an emerging growth company, we may be able to make use of some of the same exemptions (such as the exemption to the auditor attestation requirements of Section 404(b) of the Sarbanes–Oxley Act) as were available to us when we qualified as an emerging growth company.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

We are not currently required to comply with Section 404(a) of the Sarbanes–Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the U.S. Securities and Exchange Commission’s, or SEC’s, rules implementing Sections 302 and 404 of the Sarbanes–Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Although we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. However, as an “emerging growth company,” our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an “emerging growth company.” At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

In addition, to comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. In addition, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

In the past, we have had weaknesses in our internal control over financial reporting.

Although we are not yet required to assess our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer have determined that there have been, in the past, weaknesses in our internal control over financial reporting, relating to our failure to receive documentation prior to paying certain invoices. As is the case with many companies of our size: (i) we did not have written documentation of our internal control policies and procedures; (ii) we did not have sufficient segregation of duties within accounting functions; (iii) we did not have adequate staff and supervision within our accounting function; and (iv) we lacked a sufficient process for periodic financial reporting, including timely preparation and review of financial reports and statements. Our Chief Executive Officer and Chief Financial Officer believe that such weaknesses have been substantially remediated through, among other things, our hiring of the CFO Squad, LLC in December 2018 as a technical accounting expert in financial reporting and controlling function in accordance with the U.S. Generally Accepted Accounting Principles (GAAP).

Shareholders may be diluted by the future issuance of additional common stock in connection with acquisitions or otherwise.

After this offering, we will have approximately            shares of common stock authorized but unissued, assuming the underwriters do not exercise their option to purchase additional shares. Our amended and restated articles of incorporation authorizes us to issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for the consideration and on the terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions, in future common stock offerings or otherwise. Any common stock that we issue after this offering will dilute the percentage ownership held by the investors who purchase common stock in this offering.

Substantial future sales or perceived potential sales of our common stock in the public market could cause the price of our common stock to decline significantly.

Sales of our common stock or other equity securities in the public market after this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline significantly. Upon completion of this offering, we will have             shares of common stock outstanding, assuming the underwriters do not exercise their option to purchase additional shares, of which             shares of our common stock, representing      % of our outstanding common stock immediately after this offering, will not be subject to lock-up agreements. All shares of common stock sold in this offering will be freely transferable by persons other than our “affiliates” without restriction or further registration under the Securities Act. The common stock outstanding after this offering will be available for sale, upon the expiration of the lock-up periods described elsewhere in this prospectus beginning from the date of this prospectus (if applicable to such holder), subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. Any or all of these shares may be released prior to the expiration of the applicable lock-up period at the discretion of one of the designated representatives. To the extent shares are released before the expiration of the applicable lock-up period and sold into the market, the market price of our common stock could decline significantly.

Certain holders of our common stock will have the right to cause us to register under the Securities Act the sale of their shares, subject to the applicable lock-up periods in connection with this offering. Registration of these shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the public market could cause the price of our common stock to decline significantly.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this prospectus or in the documents incorporated by reference herein that are not descriptions of historical facts are forward-looking statements that are based on management’s current expectations and are subject to risks and uncertainties that could negatively affect our business, operating results, financial condition and stock price. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology.. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we do not intend to update any of these forward-looking statements after the date of this prospectus or to conform these statements to actual results or revised expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $      million, based on an assumed initial public offering price of $      per share, which is the midpoint of the price range set forth on the cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares, we estimate that we will receive an additional $      million in net proceeds.

Each $1.00 increase or decrease in the assumed initial public offering price would increase or decrease, as applicable, the net proceeds to us by approximately $         million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Each increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the net proceeds to us by approximately $         million, assuming that the assumed initial public offering price, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. If the underwriters’ over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $         million. 

Although we have not yet determined with any certainty the manner in which we will allocate these net proceeds, we currently intend to use the net proceeds of this offering primarily to increase our sales and marketing efforts and expand our geographical presence. By hiring additional sales, marketing and technical personnel, we expect to accelerate our growth and take advantage of the momentum that we believe currently exists in the market for services like ours. We also intend to build out our infrastructure to handle the anticipated growth in our membership base and our product offerings.

Our management will retain broad discretion in the allocation and use of the net proceeds from this offering. The amounts and timing of these expenditures will vary depending on a number of factors, including the amount of cash generated by our operations, competitive and technological developments, and the rate of growth, if any, of our business. For example, if we were to expand our operations more rapidly than anticipated by our current plans, a greater portion of the proceeds would likely be used for the construction and expansion of facilities, working capital and other capital expenditures. Alternatively, if we were to engage in an acquisition that contained a significant cash component, some or all of the proceeds might be used for that purpose.

Pending specific utilization of the net proceeds as described above, we intend to invest the net proceeds of the offering in short-term investment grade and U.S. government securities.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends after the offering or for the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our common stock will be made at the discretion of our board of directors and will depend upon, among other factors, our financial condition, operating results, current and anticipated cash needs, plans for expansion and other factors that our board of directors may deem relevant. In addition, the terms of our credit facilities contain restrictions on our ability to declare and pay cash dividends on our capital stock.

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2019:

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included elsewhere in this prospectus.

The pro forma number of shares to be outstanding immediately after this offering as shown above is based on shares outstanding as of December 31, 2019 and does not take into account:

DILUTION

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share you will pay in this offering and the pro forma net tangible book value per share of our common stock after this offering. Our pro forma net tangible book value as of December 31, 2019 was $23,988,706, or $0.62 per share of common stock. Our pro forma net tangible book value per share set forth below represents our total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding on December 31, 2019.

After giving effect to our issuance and sale of              shares of common stock in this offering at an assumed initial public offering price of $       per share, the mid-point of the estimated price range shown on the cover of this prospectus, after deducting the estimated underwriting discounts and offering expenses payable by us, the pro forma net tangible book value as of December 31, 2019 would have been $             or $      per share. This represents an immediate increase in net tangible book value to existing shareholders of $      per share. The initial public offering price per share will significantly exceed the net tangible book value per share. Accordingly, new investors who purchase shares of common stock in this offering will suffer an immediate dilution of their investment of $___ per share. The following table illustrates this per share dilution to the new investors purchasing shares of common stock in this offering without giving effect to the over-allotment option granted to the underwriters:

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the pro forma net tangible book value by $                million, the pro forma net tangible book value per share after this offering by $      per share and the dilution in pro forma net tangible book value per share to investors in this offering by $      per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and offering expenses payable by us.

Similarly, a 1.0 million increase or decrease in the number of shares of our common stock offered by us would increase or decrease our pro forma as adjusted net tangible book value by approximately $         per share and the dilution per share to investors in this offering by $         per share, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions payable by us. If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value per share of our common stock would be $         per share, and the dilution in pro forma net tangible book value per share to investors purchasing shares in this offering would be $         per share.

If the underwriters exercise their over-allotment option in full, the pro forma net tangible book value will increase to $      per share, representing an immediate increase to existing shareholders of $      per share and an immediate dilution of $      per share to new investors. If any shares are issued in connection with outstanding options, you will experience further dilution.

The tables above assume no exercise of warrants to purchase, or conversion of debt into, shares of common stock outstanding as of December 31, 2019. At December 31, 2019, there were 24,367,072 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $0.88 per share, 4,240,364 shares of common stock issuable upon the exercise of outstanding convertible debt at a conversion price of $0.25 per share and 258,850 shares of common stock issuable upon the exercise of outstanding convertible debt at a conversion price of $0.60 per share. The tables above also do not take into account shares of common stock issuable upon the exercise of Representative’s warrants at a weighted average exercise price of $ per share.

If the underwriters exercise their over-allotment option in full, the number of shares held by new investors will increase to               , or      % of the total number of shares of common stock outstanding after this offering.

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The following table presents our selected historical financial data for the periods presented and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statement and notes thereto included elsewhere in this prospectus. The statements of operations data for the fiscal years ended June 30, 2019 and 2018 and the statements of financial condition data as of June 30, 2019 and 2018 are derived from our audited financial statements included elsewhere in this prospectus. The statements of operations data for the six months ended December 31, 2019 and 2018 and the statements of financial condition data as of December 31, 2019 are derived from our unaudited financial statements included elsewhere in this prospectus.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and the related notes thereto and other financial information appearing elsewhere in this prospectus.The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the section titled “Risk Factors.”

Overview

Revenue for the six months ended December 31, 2019 decreased by 45%, or $73,009, to $90,006, as compared with the six months ended December 31, 2018, and the net loss increased by 42% to $704,782.

Revenue for the fiscal year ended June 30, 2019 decreased by 74%, or $763,652, to $269,791, as compared with the fiscal year ended June 30, 2018, while our net loss decreased by 30%, or $474,523, to $1.085 million.

The Telebrands “single license” agreement ended on December 31, 2017, opening up the opportunity to raise additional capital for rebuilding our new “multi-license” product platform. Whereby following a two-year technology platform upgrade enabled FreeCast in late 2019 to begin to distribute numerous licenses to retail, device manufacturers/distributors (mobile, tablets, set top boxes, “smart” TV, streaming equipment, gaming systems), including private labeled models for hotel/hospitality, broadband carriers, telecommunications, and promotion companies.

We see opportunities for growth in international sales, free-trial pre-loads in manufactured devices, including mobile devices and laptops, and introducing SelectTV into the in-home market. However, we can only take advantage of these opportunities if we have sufficient capital to do so, are able to recruit the necessary staff, and are able to expand our current infrastructure. We may also face additional challenges from new competitors that may be able to launch new businesses at relatively low cost, with consumers easily being able to shift spending from one provider to another. In order to combat this, we must continue to deliver a product that is more advanced than that of competitors.

Components of our Operating Results

Revenue

Membership Revenue

We generate membership revenue through the sale of our retail facing product SelectTV, a digital interactive SmartGuide that aggregates media content on the Internet and facilitates access for our customers. Sales are originated from nationwide TV infomercials via 800-number, online website and third-party online resellers.

We also generate “renewal” membership revenue from the surviving Rabbit TV members through our Rabbit TV Plus website. Rabbit TV and Rabbit TV Plus are no longer marketed directly to consumers and serves as a separately operated platform for former Rabbit TV customers who want to maintain service. We anticipate seeking to transition the members of Rabbit TV Plus to SelectTV in the near future to eliminate the cost associated with maintaining that independent platform that continues to decrease in memberships annually.

Membership revenue is recognized ratably on a straight-line basis over the duration of the membership period, generally ranging from one to five years. All membership fees are collected at the time of purchase. Revenue is recognized when the service has been provided.

Membership revenue is presented net of cash or equity instruments provided as sales incentives to customers and distributors of the Company’s memberships. When classification of sales incentives as a reduction of revenue results in negative revenue for a specific customer or distributor on a cumulative basis (that is, since inception of the overall relationship between the Company and the customer or distributor), then the amount of the cumulative shortfall is classified as an expense.

Licensing Revenue

SelectTV is also licensed to device manufacturers, hospitality chains and telcom/broadband providers both as the SelectTV brand and through private labeling.

Advertising and Other Revenue

We generate advertising revenue pursuant to arrangements with advertising agencies and brokers. Under these arrangements, we provide the agencies and brokers the ability to sell advertising on our service directly to advertisers. We report this revenue net of amounts due to agencies and brokers because we are neither the primary obligor under these arrangements, nor do we set the pricing or establish or maintain the relationship with the advertisers.

Premium services are also available, for an additional fee, to allow single or time-limited use of private, decrypted viewing of movies, sporting events, concerts or other types of events.

Deferred revenue

Deferred revenue consists principally of both prepaid but unrecognized membership revenue and advertising fees received or billed in advance of the delivery or completion of the delivery of services. We may pay sales incentives, in cash or by issuing equity instruments, to distributors of our memberships. Such sales incentives are not recognized as deferred revenue. Rather, sales incentives are recognized in current operations when issued, regardless of amounts in deferred revenue, which may have resulted from the distributor’s efforts. Deferred revenue is recognized as revenue when the services are provided and all other revenue recognition criteria have been met.

Cost of Revenue

Cost of revenue consists primarily of hosting, product development, and infrastructure costs and the salaries and benefits related to employees in software engineering, facilities-related expenses, and information technology associated with supporting those functions. Hosting costs consist of content streaming, maintaining our Internet service and creating and serving advertisements through third-party ad servers. We make payments to third-party advertising servers in the period in which the advertising impressions are delivered or click-through actions occur, and accordingly record this as a cost of revenue in the related period. We incur product development expenses primarily for improvements to our website and related apps, development of new advertising products and development and enhancement of the guide and streaming system. Product development costs are generally expensed as incurred.

Operating Expenses

Compensation and Benefits

Compensation and benefits consist primarily of employee-related costs, including salaries and benefits related to employees in finance, accounting, internal information technology and other administrative personnel and stock-based compensation.

Sales and Marketing

Sales and marketing consist primarily of employee-related costs, including salaries, commissions and benefits related to employees in sales, sales support and marketing departments. In addition, sales and marketing expenses include external sales and marketing expenses such as third-party marketing, TV infomercials, branding, advertising, public relations expenses, commissions, facilities-related expenses, and infrastructure costs.

General and Administrative

General and administrative expenses include professional services costs for outside legal and accounting services, facilities-related expenses, travel costs, third party customer support, and credit card fees.

Six Months Ended December 31, 2019 Compared to Six Months Ended December 31, 2018

Revenue

We generally have two major components of revenue: membership revenue and other revenue.

Membership revenue decreased by 43%, or $67,424, to $89,920, in the six months ended December 31, 2019, as compared with the same period in the prior year. The decrease in membership revenue is attributable to expiration of the Amended Distribution Agreement with Telebrands on December 31, 2017 and our subsequent distribution of numerous licenses to retail, device manufacturers/distributors (mobile, tablets, set top boxes, “smart” TV, streaming equipment, gaming systems), private labeled for hotel/hospitality, broadband carriers, telecommunications, and promotion companies. We generate an average of $10.00 to $12.50 for each new annual membership we sell.

Other revenue decreased by 98%, or $5,585, to $86, in the six months ended December 31, 2019, as compared with the same period in the prior year. The decline in other revenue is relatively proportionate to the decrease in paid registered members.

Cost of Revenue

Cost of revenue increased by 163%, or $123,058, to $198,423 in the six months ended December 31, 2019, as compared with the same period in the prior year. The increase in cost of revenue is attributable to higher hosting and development costs as we continue to enhance our products’ functionality and content.

Operating Costs and Expenses

Operating expenses increased by 92%, or $512,746, to $1,068,095 in the six months ended December 31, 2019, as compared with the same period in the prior year. The increase in operating expenses resulted from additional employee headcount, professional service fees related to PCAOB accounting and auditing, and law firms in preparation of this registration statement on Form S-1, plus higher marketing costs relating to regional and national SelectTV cable and television Infomercial media buys, as we continue to initiate new revenues and updated product offerings.

Fiscal Year Ended June 30, 2019 Compared to Fiscal Year Ended June 30, 2018

Revenue

We generally have two major components of revenue: membership revenue and other revenue.

Membership revenue decreased by 74%, or $726,088 to $251,602, in the fiscal year ended June 30, 2019, as compared to the fiscal year ended June 30, 2018. The decrease in membership revenue is attributable to the one-time recognition of a large deferred revenue liability in 2018 that related to Rabbit TV USB sales that became obsolete on December 31, 2017. The decrease in membership revenue is also attributable to the fact that product sales and online renewals from legacy operations have been designed to be in decline and eventually phased out, as we entered into a ‘pre-revenue’ growth phase, in which our core product was redeveloped and it’s licensing model was strategically redesigned from a single-license model to a multi-license model.

Other revenue decreased by 67%, or $37,564, in the fiscal year ended June 30, 2019, as compared to the fiscal year ended June 30, 2018, to $18,189. As we transitioned into the development phase, registered memberships declined as the old Rabbit TV service was phased out and the new SelectTV service was being developed and optimized. As memberships during the fiscal year ended June 30, 2019 declined, traffic to our site also declined, thus generating less other revenue.

Cost of Revenue

Cost of revenue increased by less than 1%, or $879, to $177,967, in the fiscal year ended June 30, 2019, as compared to the fiscal year ended June 30, 2018. Despite a 74% decrease in membership revenue in the fiscal year ended June 30, 2019, our cost of revenue remained comparable with our cost of revenue for the prior fiscal year due to increased hosting costs in fiscal year ended June 30, 2019.

Operating Costs and Expenses

Operating expenses decreased by 20%, or $368,225, to $1,467,271 million, in the fiscal year ended June 30, 2019, as compared to the fiscal year ended June 30, 2018, largely due to the decreased personnel and decreased marketing that supports our growth.

Liquidity and Capital Resources

We have historically financed our liquidity and capital needs primarily through the use of funds generated from operations, the sale of stock and notes payable. We plan to finance our future operating liquidity and regulatory capital needs from operations and the sale of securities. Following this offering, we expect that our personnel and marketing costs will increase as we continue to implement our expansion plan.

We primarily hold and invest our cash at various financial institutions and in various instruments, including cash held at banks and money market funds which invest in short-term U.S. government securities. In general, we believe all of our investments and deposits are of high credit quality and we have more than adequate liquidity to conduct our business.

We had a working capital deficit of $1,473,236 and $3,292,391 as of December 31, 2019 and June 30, 2019, respectively. Our net cash flow for the six months ended December 31, 2019 increased by $773,935. Our net cash flow for the fiscal year ended June 30, 2019 increased by $42,071. Our cash flow for the fiscal year ended June 30, 2018 decreased by $93,127.

Net cash used in operating activities was ($1,175,794) for the six months ended December 31, 2019, as compared with ($588,880) for the six months ended December 31, 2018. The increase in operating expenses resulted from additional employee headcount, professional service fees related to PCAOB accounting and auditing, and law firms in preparation of this registration statement on Form S-1, plus higher marketing costs relating to regional and national SelectTV cable and television Infomercial media buys, as we continue to initiate new revenues and updated product offerings. Net cash used in operating activities was ($1,462,420) for the fiscal year ended June 30, 2019, as compared to net cash used in operating activities of ($740,389) for the year ended June 30, 2018. The increase in net cash used in operating activities is largely a result of the settlement of outstanding debts that were recognized in 2019 as a gain on extinguishment.

In the six months ended December 31, 2019, we sold to unrelated investors a total of 1,655,000 shares of our common stock and warrants to purchase an aggregate of 1,655,000 shares of our common stock for net proceeds of $1,655,000. In the six months ended December 31, 2018, we sold to unrelated investors a total of 785,000 shares of our common stock and warrants to purchase an aggregate of 785,000 shares of our common stock for net proceeds of $785,000

During the fiscal year ended June 30, 2019, we sold to unrelated investors a total of 1,345,000 shares of our common stock and warrants to purchase an aggregate of 1,345,000 shares of our common stock for net proceeds of $1,345,000. During the fiscal year ended June 30, 2018, we sold to unrelated investors a total of 586,000 shares of our common stock and warrants to purchase an aggregate of 586,000 shares of our common stock for net proceeds of $566,000, after deducting offering costs of $20,000.

Critical Accounting Policies and Estimates

Our financial statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. We evaluate these estimates and assumptions on an ongoing basis. We base our estimates on the information currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. As of December 31, 2019, our previous estimates had not materially deviated from our results.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made; if different estimates reasonably could have been used; or if changes in the estimate that are reasonably likely to occur periodically could materially impact the financial statements. While our significant accounting policies are described in more detail in the notes to our financial statements included in this prospectus, we believe the following accounting policies to be critical to the estimates and assumption used in the preparation of our financial statements.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) or ASU 2014-09. The objective of the ASU is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which supersedes most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the ASU Topic 606, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. The five-step analysis consists of the following: (i) identifying the contract with a customer; (ii) identifying the performance obligations in the contract; (iii) determining the transaction price; (iv) allocating the transaction price to the performance obligations in the contract; and (v) recognizing revenue when (or as) the entity satisfies a performance obligation. Topic 606 applies to all contracts with customers except those that are within the scope of other topics in the FASB’s ASC. The Company adopted Topic 606 effective July 1, 2018 using the modified retrospective approach. The Company reviewed all contracts that were not completed as of July 1, 2018 and the adoption did not have a material impact on the Company’s consolidated financial statements.

We generate membership revenue through the renewal sales of Rabbit TV, Rabbit TV Plus, new and renewal sales through Select TV, which operates as the successor product to Rabbit TV and Rabbit TV Plus, as well as the SmartGuide, an internet distributed streaming media guide that searches and aggregates media content on the web and facilitates access to its customers through Wi-Fi-enabled devices that support streaming video. The Company both retransmits and “ingests” and distributes content.

Membership revenue is derived from online sales through search engine optimization (SEO), search engine marketing (SEM), various marketing advertising services, the utilization of resellers in the form of publishers that promote upcoming retail promotions and packages, as well as, direct sales to members (Select TV, Rabbit TV Plus). Currently, a Rabbit TV Plus account only generates renewal sales, as 100% of new sales are being met by the Select TV media guide. Select TV and Rabbit TV Plus also include free access to the Rabbit TV Mobile app, for Android and iOS devices.

Membership revenue is recognized ratably on a straight-line basis over the duration of the membership period, generally ranging from one month to five years. If the member renews early, then the expiration date is extended by the renewal period, and the additional membership fee is deferred and amortized over the additional months purchased by the member. All membership fees are collected at the time of purchase.

Cost of Revenue

Cost of revenue consists primarily of hosting, product development, and infrastructure costs and the salaries and benefits related to employees in software engineering, facilities-related expenses, and information technology associated with supporting those functions. Certain website development and internal use software development costs may be capitalized when specific criteria are met. In such cases, the capitalized amounts are amortized to cost of revenue over the useful life of the related application once the application is placed in service.

Fair Value of Financial Instruments

In August 2018, FASB issued ASU 2018-13,Changes to Disclosure Requirements for Fair Value Measurements, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for the Company beginning July 1, 2020, including interim periods within those annual periods. The Company is currently evaluating the impact this standard will have on its financial statements.

In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators and past due securities. The standard is effective for the Company beginning July 1, 2020, including interim periods within those annual periods. We are currently evaluating the impact this standard will have on our financial statements.

Accounts Receivable

For accounts receivable, the Company performs ongoing credit evaluations of customers to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience with the customer, evaluation of their credit history, and review of the invoicing terms of the contract. Accounts receivables are reported net of an allowance for doubtful accounts when applicable. The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the accounts receivable balance at each reporting date. Management determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. We did not recognize bad debt expense for the six months ended December 31, 2019. The balance of allowance for doubtful accounts at December 31, 2019 and June 30, 2019 was $245,240 and $245,240, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized for the expected future consequences of events that have been reflected in the financial statements. The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of June 30, 2019 and 2018, the Company had a full valuation allowance against deferred tax assets.

Jumpstart Our Business Startups Act of 2012

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

Legal Proceedings

As of the date hereof, we know of no material, existing or pending legal proceedings against us, nor are we the plaintiff in any material proceedings or pending litigation. There are not proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest. From time to time, we may be subject to various claims, legal actions and regulatory proceedings arising in the ordinary course of business. 

DESCRIPTION OF THE BUSINESS

Overview

We are an entertainment-based content discovery, aggregation and management company that provides SmartGuide^® digital interactive technology for consumers to organize today’s numerous sources of online media similar to a traditional on-screen television, or TV, guide. Memberships to our SmartGuide technology, which beginning in October 2019 became available for purchase online and via TV Infomercials as a retail packaged “cord cutting kit/product” known as SelectTV^®, and prior from 2012 through 2016 as a third party distributed brand known as Rabbit TV. Sales that occurred after 2016 were predominantly a result of legacy Rabbit TV sales, in which we maintained and operated for our existing membership base.

We also distribute numerous licenses to retail, device manufacturers/distributors (mobile, tablets, set top boxes, “smart” TV’s, streaming equipment, gaming systems), as well as private labeling for hotel/hospitality, broadband carriers, telecommunications, and promotion companies.

We have sold nearly four million memberships since our inception in 2011. As of December 31, 2019, following the end of the product lifecycle of our legacy product, Rabbit TV, and partnership with Telebrands Corp., or Telebrands, in December 2017, we’ve completed a product rebuild over more than two years, the results of which we believe not only improved upon our proprietary technology but has also positioned us to capitalize on the fast-moving nature of the industry and capture various new revenue streams. Sales that occurred during this period were predominately a result of legacy Rabbit TV sales, which was in line with our expectations, and declined over this time. During the same period, we operated as a “pre-revenue” growth company, and with investment debt, have been able to progress from our dependence on a single license with Telebrands for revenue to a multiple license model with many more retail options. Going forward, we intend to generate revenue through multiple avenues, such as membership fees, licensing, advertising and reseller referral fees.

The basis of our service platform is our proprietary content aggregation technology that automatically crawls the Internet to locate commercial-quality entertainment content from thousands of sources, including free, paid and subscription-based content. Additionally, we subscribe to the top entertainment data services such as Gracenote (owned by Nielson) and Guidebox/Reelgood whom provide real-time updates. Our technology then sorts through and manages all available commercial-quality digital media, including both live and on-demand video from free, subscription and pay-per-view (PPV) services. All of this information is then incorporated into our interactive SmartGuide presented to consumers in a familiar easy-to-use cable-like TV guide via the Internet and as a software application, on all Wi-Fi enabled devices.

The SmartGuide uses images and related information on customized guide pages to provide members with an easy way to explore all of the available media choices from one centralized account, regardless of the device or location. Upon selecting content to consume, the member is directed to the original source of the content. If content is available for free, the member is transferred to the website providing the content. If content is available through a subscription service (such as Netflix or Hulu), we allow the member to log-in to the service through our SmartGuide and the member is then directed to the subscription service’s website. If the content is PPV, the member is directed to the page requiring payment for the PPV service. We do not manipulate or distribute the source content, and the provider of the content retains all rights to and management of content.

Because we link members directly to third-party content sources and in no way manipulate, store, retransmit or distribute this content, we are not subject to licensing fees or restrictions by third-party content suppliers. We are not responsible for the availability or content of these external websites, nor do we endorse, warrant or guarantee the products, services or information described or offered. All logos and trademarks used in the guide are the sole property of their respective owners. We believe that this is a complementary relationship in which we directly supply free traffic to content suppliers, much like the print-based model employed by TV Guide in past decades.

Our SmartGuide technology is currently available on computers, “smart” phones, tablets, streaming devices and “smart” TV’s. It is available directly to consumers, branded as SelectTV, and will also be distributed by third parties, both as SelectTV and under other licensed brand names and partnerships.

Additionally, SelectTV is being sold as a part of a cord-cutting kit via TV infomercials done in partnership with Mel Arthur and Kevin Harrington (of Home Shopping Network and Shark Tank, respectively). Sales via 800-numbers and online affiliates will be followed by distribution through big box retailers.

Our strategy is to grow our SmartGuide membership business domestically and globally via wholesale licensing agreements with: (i) manufacturers of “smart” TVs, mobile phones and streaming devices; (ii) bandwidth providers; (iii) hospitality locations; and (iv) online communities of users. We work constantly to improve the customer experience, with a focus on expanding the content catalogued by our technology, enhancing our user interface and extending our service to even more Internet-connected devices.

Historically, we launched the initial SelectTV service, and displayed an accompanying device that turned any flat-screen TV into what we had branded as “The Smartest TV Ever.” In addition to the usual app manager you get with other set-top boxes, the SelectTV hardware included a fully functional web browser complete with version 1.0 of our initial SmartGuide technology. SelectTV also featured capabilities for media storage, gaming, home automation and home security. This original hardware version of SelectTV launched in November 2017 was soon thereafter discontinued in lieu of the current software-only version which has been developed to operate on most consumer Wi-Fi enabled media devices produced globally by numerous manufacturers.

Industry Overview

The way people consume entertainment has changed dramatically in recent years. The pay TV market, which includes cable and satellite TV as well as Internet-based subscription services like Sling TV, Netflix, Hulu, Disney+, Apple and Amazon, generated revenues worldwide of approximately $265 billion in 2018, based on information released by ABI Research. Due in part to the continued decline of traditional cable and satellite TV households; between 2019 and 2023, they estimate, the number of U.S. pay TV households will decline from 86.5 million to 72.7 million according to eMarketer.

Meanwhile, it is clear that connected TVs (TVs that can be connected to the internet and access content beyond what is available via the normal offering from a cable provider, or other devices that use a TV as a display and can connect to the internet to access content) and OTT (Over-the-Top, which refers to film and television content provided via a high-speed Internet connection rather than a cable or satellite provider) are growing faster than ever. It is expected that the number of digital video viewers in the U.S. will top 235 million in 2019, which represents 71.2% of the country’s population.

Furthermore, while consumers used to be able to watch a particular television program on a particular channel at a particular time (also known as linear video), the majority of consumers now watch television in a non-linear fashion. According to Nielsen’s Total Audience Report for Q1 of 2019, adults 18-34 spend 11 hours and 27 minutes connected to media every day, 66% of that time is spent on Internet-connected devices, such as computers, tablets and “smart” phones. The share of these new devices increased across all age groups with over 5% growth among 35-49 year olds in just Q1 of 2019 alone.

Options are great for consumers when it comes to deciding what to watch, but they are also decidedly complicated for an industry that continues to fragment and search for unique ways to influence consumer behavior. According to the Nielsen MediaTech Trender, 33% of adults have a rough idea what they want to watch, but are not exactly sure, and 22% do not know what they want to watch before tuning in. These habits vary by age; adults 18-34 are most open to browsing for content, as 30% have no idea what to watch and 40% have a rough idea beforehand.

We expect the trends toward non-linear digital video consumption to continue and believe that we are uniquely positioned to take advantage of this market with our products. 

Sources of Revenue

FreeCast derives revenue from the following sources:

In Development

We continue to advance our technology stack with client/customer services, all of which are anticipated to bring value-added features and revenues to the Company, including the following:

Dynamic Ad Insertion (DAI) - The ability to serve ads to visitors on a unique personalized basis, matching their existing advertising identifiers with refined digital advertising based on their known interests.

Media Pay (MP) - Fully integrated virtual wallet system limited exclusively to digital media subscriptions (VOD, PPV, SVOD), enabling users to protect their primary personal and payment credentials. One place to manage all subscriptions and billing with easy cancellation and wallet protection.

Channel Builder (MicroChannels) – End-to-end software solution for development of digital TV channels with robust support for leading advertising formats in addition to distribution technology that allows for integration to all major providers (OTT, Over the Air, etc.). Existing robust integrations with leading DAI solutions and internal DAI solutions enable this platform to monetize at a rate higher than traditional TV.

Our Competitive Strengths

We believe that we have a number of distinct advantages over competitors and are well positioned to fill the gaps in key market segments:

Our Growth Strategies 

Through SelectTV, the brand or private labeling, we plan to accelerate our licensing platform to device makers and bandwidth providers, giving them a low-cost monetizable means to offer a competitive TV service to their customers without a large investment in new infrastructure.

We also plan to launch our SelectTV retail packaged service (in territory or language specific private label variations) beyond the United States onto global markets by late 2020.

Relationship with Nextelligence, Inc.

On June 30, 2011, we entered into a Technology License and Development Agreement (as amended, the “Technology Agreement”), with Nextelligence, which is majority owned and controlled by William A. Mobley, Jr., our founder, Chief Executive Officer and Chairman of our board of directors. The Technology Agreement provides us with an exclusive 40 year license to a web-based application that installs in the end-user’s browser and any supported email functions or chat functions with search and certain other features (the “Technology”) from Nextelligence and for Nextelligence to provide all further development, improvement, modification, maintenance, management and enhancement services related to the Technology.

Pursuant to the Technology Agreement we issued 20,004,000 shares of our common stock to Nextelligence. The Technology Agreement also requires us to issue Nextelligence a warrant to purchase 4,000,000 shares of our common stock for each 2,000,000 memberships sold over 10,000,000. The Technology Agreement has a 40 year term unless terminated early based on termination events as defined in the Technology Agreement.

Competition

While there are many players in the online video space, FreeCast’s offering is unique and thus does not currently have direct, analogous competitors. Generally, any provider of online media that may appear to compete with us often in fact enjoys a mutually beneficial relationship, where their offering is captured and catalogued by our SmartGuide, which benefits our service, and we in turn send traffic and eyeballs to them as a result.

There are, however, several entities that provide services that are similar to the individual features or components of our own SmartGuide and SelectTV. They include:

As competition in the online television space increases, we expect this to strengthen the value proposition of our product, making it more appealing to potential commercial partners and to consumers as well.

Operations

FreeCast licenses extensive entertainment data from Gracenote (a Nielsen company) and Guidebox (a ReelGood company), both at a cost of $5,000 per month.

This data is to create the most comprehensive and up-to-date catalog of content from thousands of sources directly available from the World Wide Web by using in combination with FreeCast’s own proprietary aggregation technology. The links are then compiled into our SmartGuide for use by our members. We market our service through various channels, including online advertising, broad-based media, such as television and radio, as well as various strategic partnerships. We utilize the services of third-party cloud computing providers, more specifically, Amazon Web Services.

Seasonality

Our member growth exhibits a seasonal pattern that reflects variations in when consumers buy Internet-connected devices and when they tend to increase video watching. As a consequence, member growth is generally greatest in our fourth and first quarters (October through March), slowing in our second quarter (April through June) and then accelerating in our third quarter (July through September).

Employees

As of December 31, 2019, we had 9 full-time employees, 1 furloughed employee, and 19 contract employees. Our employees are not covered by a collective bargaining agreement, and we consider our relations with our employees to be good.

Marketing

SelectTV is marketed and sold online through the SelectTV website, and through various affiliates who may sell SelectTV or a branded version of the underlying SmartGuide.

SelectTV is also now marketed via television infomercials, which direct consumers to a website and 800-number where sales occur. The product will also be sold at big box retailers in 2020, as the centerpiece of a cord-cutting kit, which will include a SelectTV annual subscription, HDTV antenna, and other cord-cutting accessories.

SelectTV is also sold by third party online resellers such as Stack Commerce, who utilizes informational and news marketing in such online publications as Cnet, Popular Science, Mashable, and others to generate interest in SelectTV whereby the consumer is linked to a purchase option.

SelectTV is sold in license packs to online loyalty program company TLC Relationship Management LTD for points redemption and awards for its clients members of these programs.

The product will also be marketed through traditional pay-per-click, social and online advertising networks such as Google Adwords, Bing, Facebook, Twitter, and others, along with organic search engine optimization, or SEO, methods. We are also establishing licensing partnerships through compatible service providers, such as bandwidth resellers, telecommunications providers, device manufacturers and media marketing partners.

Facilities

Our headquarters are located in approximately 3,360 square feet of a building located in Orlando, Florida for which we will pay between $3,539 and $3,619 per month, which includes the proportionate share of operating expenses (as defined in the lease) through February 29, 2020. UCMS, LLC leases these facilities from a third party landlord, and we sublease these facilities from UCMS.

Intellectual Property

Our intellectual property consists of:

Our Web Bot Media Crawler and Media & Link Validator are licensed to us by Nextelligence, Inc. pursuant to the Technology Agreement described above. The Content Management System is our proprietary technology (which we purchased from Nextelligence on January 2, 2015).

Although we have an exclusive 40-year license to the Technology pursuant to the Technology Agreement, including any improvements or enhancements thereto, the Technology is owned by Nextelligence and we are not permitted to alter or enhance the Technology. Therefore, any alteration or enhancement of the Technology developed by William A. Mobley, Jr. who is both our Chief Executive Officer and the controlling shareholder of Nextelligence, will be owned by Nextelligence. We could lose our right to use such Technology in the event of, among other things, a breach of the Technology Agreement, our bankruptcy or insolvency, or a change of control in us. The Technology Agreement provides that we and Nextelligence must keep the other’s proprietary information confidential.

We rely on a combination of trademark, fair trade practice, copyright and trade secret protection laws, as well as confidentiality procedures and contractual provisions, to protect our intellectual property rights. We also enter into confidentiality agreements with our employees and any third parties who may access our proprietary information, and we rigorously control access to our proprietary technology and information. We may seek to patent certain of our intellectual property in the future.

Other Information

We were incorporated on June 21, 2011 in the State of Florida. Our principal executive offices are located at 6901 TPC Drive, Suite 200, Orlando, Florida 32822. Our telephone number is (407) 374-1603.

We maintain four websites, www.FreeCast.com, www.SelectTV.com, www.RabbitTVplus.com and www.SmartGuide.tv. The information contained on our websites is not, and should not be interpreted to be, a part of this prospectus.

Emerging Growth Company Status

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable to other companies that are not emerging growth companies. Accordingly, we have included detailed compensation information for only our three most highly compensated executive officers and have not included a compensation discussion and analysis (CD&A) of our executive compensation programs in this prospectus. In addition, for so long as we are an “emerging growth company,” we will not be required to:

In addition, the JOBS Act provides that an “emerging growth company” can use the extended transition period for complying with new or revised accounting standards, which we have elected to take advantage of.

We will remain an “emerging growth company” until the earliest to occur of:

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information about our executive officers, key employees and directors as of the date of this Registration Statement.

None of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years and that is material to the evaluation of the ability or integrity of any of our directors, director nominees or executive officers.

William A. Mobley, Jr.founded our Company in 2011 and has served as our Chief Executive Officer and Chairman of our board of directors since then. Before founding FreeCast, in 1999, Mr. Mobley formed Nextelligence, Inc., a technology solution and business management expertise provider, of which he is the Chief Executive Officer, a director and majority shareholder. Additionally, between 1993 and 2008, Mr. Mobley founded and was an officer and director of a number of online business solution companies, including Web2 Corp, Personal Portal Online, and World Commerce Online, and online media companies, including MegaMedia Networks and ImageCafe.com. Based on Mr. Mobley’s role as our founder, his position as the chief executive officer, and his executive level experience in Internet-based media industry, our board of directors believes that Mr. Mobley has the appropriate set of skills to serve as a member of the board.

Christopher M. Savinehas served as our Chief Financial Officer since April 2014. Mr. Savine was the executive vice president and a segment chief financial officer at Cenveo, Inc., a diverse printing and packaging company, from 2009 to 2013. Prior to joining Cenveo, Mr. Savine served as executive vice president and chief financial officer at Case Interactive Media, Inc. from 2007 to 2009. Prior thereto, he spent five years at RR Donnelley & Sons Company (formerly Moore Wallace, Inc.) as the executive vice president and chief financial officer of an over $4 billion segment. From 2000 to 2002, Mr. Savine was chief financial officer of Netscape Communications Corporation and played an important role in integrating Netscape into AOL. He later served as a senior vice president - finance at AOL. Prior to joining Netscape, Mr. Savine was also chief financial officer at PennNET and Imark Communications and chief financial officer for two subsidiaries of Capital Cities/ABC, Inc., a Walt Disney Company, and was an audit manager at Peat, Markwick, Mitchell & Co. (which later merged with Klynveld Main Goerdeler and became KPMG LLP). Mr. Savine received a master’s degree in business administration in finance and a bachelor’s degree in accounting and economics from Saint Joseph’s University and was previously a Certified Public Accountant licensed in the state of Pennsylvania.

David Gust has served as a member of our board of directors since May 31, 2013. Since October 2006, Mr. Gust has held the position of vice president at Hilton Worldwide, Inc., working in marketing innovation and new product introduction. Prior to Hilton, Mr. Gust was the Chief Executive Officer of MegaMedia Networks/MegaChannels.com, an online streaming video portal for 2 years, Vice President at Hard Rock International, leading the brand management of 104 cafes in 34 countries for almost 4 years, and with the Walt Disney Company for over 13 years, most recently as the Vice President of Business Development, working on such projects as Disney Vacation Club, ESPN Zone, EuroDisney, Walt Disney World Master Planning, and the infrastructure development of various resorts. Mr. Gust received a bachelor’s degree in finance from Eastern Illinois University. Based on Mr. Gust’s extensive experience in and in-depth understanding for marketing, our board of directors believes that Mr. Gust has the appropriate set of skills to serve as a member of the board.

Board of Directors

We anticipate that two additional directors who are independent under Nasdaq rules will be appointed to our board of directors subject to and effective upon the listing of our common stock on Nasdaq.

After this offering, William A. Mobley, Jr., our Chief Executive Officer and Chairman of our board of directors, individually and through Nextelligence, Inc., which is majority owned and controlled by him, will own or control in excess of       % of our outstanding common stock, assuming the underwriters do not exercise their option to purchase additional shares. This gives Mr. Mobley effective control of our company through our board of directors and permits him to decide all matters required to be presented to shareholders for vote. 

Term of Office

Our amended and restated articles of incorporation provide that our board of directors will be classified into three classes of directors as nearly equal in number as possible, designated: Class I, Class II and Class III, with each director serving for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected. Mr. Mobley’s current term as a director ends on the date of our annual meeting in 2021, Mr. Gust’s current term as a director ends on the date of our annual meeting in 2022 and Mr. Savine’s current term ends on the date of our annual meeting in 2023.

Director Independence

Upon the completion of this offering, we expect that our common stock will be listed on Nasdaq. We expect to be a “controlled company” under Nasdaq corporate governance standards because more than 50% of the voting power of our common stock following the completion of this offering will be held by Nextelligence, Inc. A “controlled company” may elect not to comply with certain Nasdaq corporate governance standards, including the requirements that: (i) we have a majority of our board of directors consists of “independent directors,” as defined under Nasdaq rules; (ii) we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and (iii) we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Following this offering, in reliance upon the foregoing exemptions, a majority of our board of directors will not consist of independent directors, we will not have a nominating and corporate governance committee, and our compensation committee will not be composed entirely of independent directors, and we may use any of these exemptions for so long as we are a controlled company. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

The “controlled company” exception does not modify the independence requirements for the audit committee, and we intend to comply with the requirements of Sarbanes-Oxley Act and Nasdaq. The rules of Nasdaq permit the composition of our audit committee to be phased-in as follows: (i) one independent committee member at the time our shares are listed on Nasdaq; (ii) a majority of independent committee members within 90 days of the date of this prospectus; and (iii) all independent committee members within one year of the date of this prospectus. Thereafter, we will be required to have an audit committee comprised entirely of independent directors. We expect to appoint two independent directors to our board subject to and effective upon the listing of our common stock on Nasdaq. If at any time we cease to be a “controlled company” under Nasdaq rules, our board of directors will take all action necessary to comply with the applicable Nasdaq rules, including appointing a majority of independent directors to our board of directors and establishing certain committees composed entirely of independent directors, subject to a permitted “phase-in” period.

Our board of directors has reviewed the independence of our directors, as well as our director nominees who will join our board of directors upon the closing of the offering, based on the listing standards of Nasdaq. Based on this review, our board of directors determined that Mr. David Gust is independent within the meaning of Nasdaq rules. In making this determination, our board of directors considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence. As required under applicable Nasdaq rules, we anticipate that our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present.

Board Committees

Our board of directors has established standing committees in connection with the discharge of its responsibilities. These committees include an Audit Committee and a Compensation Committee. Our board of directors has adopted written charters for each of these committees. Upon completion of this offering, copies of the charters will be available on our website. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.

Audit Committee

The Audit Committee will be responsible for, among other matters:

Upon completion of this offering, our audit committee will consist of Mr. David Gust. The Nasdaq rules require us to have one independent Audit Committee member upon the listing of our common stock, a majority of independent directors within 90 days of the date of this prospectus and all independent Audit Committee members within one year of the date of this prospectus. Our board of directors has affirmatively determined that Mr. David Gust meets the definition of “independent director” for purposes of serving on an Audit Committee under Rule 10A-3 and Nasdaq rules. Our board of directors has determined that none of our independent directors qualify as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K.

Compensation Committee

The Compensation Committee will be responsible for, among other matters:

Upon completion of this offering, our Compensation Committee will consist of Mr. David Gust. As a controlled company, we will rely upon the exemption from the requirement that our Compensation Committee be composed entirely of independent directors.

Risk Oversight

Our board of directors will oversee a company-wide approach to risk management. Our board of directors will determine the appropriate risk level for us generally, assess the specific risks faced by us and review the steps taken by management to manage those risks. While our board of directors will have ultimate oversight responsibility for the risk management process, its committees will oversee risk in certain specified areas.

Specifically, our Compensation Committee will be responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Our Audit Committee will oversee management of enterprise risks and financial risks, as well as potential conflicts of interests. Our board of directors will be responsible for overseeing the management of risks associated with the independence of our board of directors.

Compensation Committee Interlocks and Insider Participation

All compensation and related matters after this offering will be reviewed by our compensation committee.

Code of Business Conduct and Ethics

Upon or prior to completion of this offering, our board of directors will adopt a code of business conduct and ethics that applies to our directors, officers and employees. Upon completion of this offering, a copy of this code will be available on our website. We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table provides information regarding the compensation paid during the years ended June 30, 2019 and June 30, 2018 to our principal executive officer, principal financial officer and certain of our other executive officers, who are collectively referred to as “named executive officers” elsewhere in this prospectus.

Potential Payments Upon Termination or Change in Control

The following table sets forth potential payments payable to our named executive officers upon a termination of employment without cause or resignation for good reason or termination of employment without cause or resignation for good reason following a change in control. The table below reflects amounts payable to our executive officers assuming their employment was terminated on June 30, 2019 and, if applicable, a change in control also occurred on such date.

Overview of Our fiscal 2019 Executive Compensation

Our executive compensation program consisted of the following components of compensation in 2019:

Base Salary. Each named executive officer receives a base salary for the expertise, skills, knowledge and experience they offer to our management team. Base salaries are periodically adjusted to reflect:

Each named executive officer’s base salary for the fiscal year of 2019 is listed in the 2019 Summary Compensation Table.

Equity Incentive Awards.

We issued Mr. Mobley warrants to purchase an aggregate of 5,000,000 shares of our common stock at an exercise price of $0.25 per share on October 19, 2012 and warrants to purchase 5,000,000 shares of our common stock at an exercise price of $0.25 per share on December 31, 2012. Such warrants expire on October 18, 2022 and December 30, 2022, respectively.

We sold Mr. Savine, for $50.00, warrants to purchase an aggregate of 675,000 shares of our common stock at an exercise price of $0.60 per share on May 3, 2016 and warrants to purchase 675,000 shares of our common stock at an exercise price of $0.60 per share on May 8, 2017. Such warrants expire on April 30, 2027 and April 30, 2028, respectively.

Other Benefits. We are obligated to provide to one or more of the named executive officers with an automobile allowance. In the fiscal year ended June 30, 2019, we paid Mr. Mobley an automobile allowance of $30,000.

Employment Agreements

On July 1, 2013, we entered into an employment agreement with William A. Mobley, Jr., pursuant to which Mr. Mobley agreed to act as our Chief Executive Officer, which employment agreement was initially amended on July 1, 2014 and amended for a second time on July 1, 2019 (as amended, the “Mobley Employment Agreement”). Pursuant to the terms of the Mobley Employment Agreement, Mr. Mobley is entitled to receive an annual salary of $250,000 and an automobile allowance of $2,500 per month. The term of the Mobley Employment Agreement continues until June 30, 2024. An annual cash bonus may be paid at the discretion of our board of directors. Pursuant to the terms of the Mobley Employment Agreement, Mr. Mobley may only be terminated by us upon his death, disability or for cause, as defined in the Mobley Employment Agreement.

Effective April 28, 2017, we entered into a new employment agreement with Mr. Savine which replaced a previous employment agreement (the “Savine Employment Agreement”). The initial term of the Savine Employment Agreement expired on April 27, 2018, after which the Savine Employment Agreement automatically renews on a month-to-month basis until either party terminates it. Under the Savine Employment Agreement, Mr. Savine received an annual salary of $150,000 during the initial one-year term, and he receives $250,000 per annum thereafter until a new extension is executed between the parties. In conjunction with Mr. Savine entering into the Savine Employment Agreement, we sold Mr. Savine, for $50.00, a warrant to purchase 675,000 of our shares of common stock, exercisable at $0.60 per share at any time subsequent to May 1, 2018 and expiring on April 30, 2028. An annual bonus may be paid at the discretion of our board of directors. If Mr. Savine is terminated by us as a result of death or permanent disability or if Mr. Savine terminates his employment for good reason, he shall receive payment in respect of compensation earned but not yet paid. If Mr. Savine is terminated by us other than due to his death or disability or for cause, we would be obligated to pay him at the rate of $250,000 per annum for a period of six months subsequent to the date of termination. Effective July 1, 2018, the Mr. Savine took a voluntary unpaid leave of absence from his role and responsibilities as Chief Financial Officer, and therefore the Company didn’t pay or accrue any executive compensation related to Mr. Savine during 2019.

Outstanding Equity Incentive Awards At Fiscal Year-End

The following table sets forth certain information regarding all outstanding equity awards held by our named executive officers as of June 30, 2019.

Warrant Exercises and Stock Vested

No officers or directors exercised warrants and no stock vested during the fiscal year of 2019.

Non-Executive Director Compensation

The non-executive members of our board of directors have not received any compensation prior to this offering and no arrangements have been entered into in relating to compensation after this offering. Following this offering, our board of directors will establish a compensation package for the non-executive members of our board of directors.

Compensation Committee Interlocks and Insider Participation

None of our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or the board of directors of any other entity that has one or more officers serving as a member of our board of directors.

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

On June 30, 2011, we entered into a Technology License and Development Agreement, which was amended and restated on October 19, 2012, and further amended on July 1, 2013 (as amended, the “Technology Agreement”), with Nextelligence, which is majority owned and controlled by William A. Mobley, Jr., our founder, Chief Executive Officer and Chairman of our board of directors. The Technology Agreement provides us with an exclusive 40 year license to certain technology from Nextelligence and for Nextelligence to provide all further development, improvement, modification, maintenance, management and enhancement services related to such technology. Nextelligence is our parent entity by virtue of its ownership of more than 80% of our outstanding common stock prior to this offering.

Pursuant to the Technology Agreement, we issued 20,004,000 shares of our common stock to Nextelligence. The Technology Agreement also requires us to issue Nextelligence a warrant to purchase 4,000,000 shares of our common stock for each 2,000,000 memberships sold over 10,000,000. The Technology Agreement has a 40-year term unless terminated early based on termination events as defined in the Technology Agreement.

On July 1, 2018, we signed a revolving convertible note agreement with Nextelligence, which was amended and restated as of July 2, 2018, for an amount up to $500,000; with any borrowings on this loan being at our complete discretion. Outstanding principal accrues interest at 12% per annum, and is due and payable on July 12, 2020. In lieu of repayment, at Nextelligence’s option, all or part of the outstanding principal and accrued interest is convertible into shares of our common stock at a conversion price of $0.25 per share. As of December 31, 2019, the outstanding principal and interest due under this loan is $342,701.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of December 31, 2019, certain information concerning the beneficial ownership of our common stock by: (i) each shareholder known by us to own beneficially five percent or more of our outstanding common stock or series a common stock; (ii) each director; (iii) each named executive officer; and (iv) all of our executive officers and directors as a group, and their percentage ownership and voting power.

The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option, or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. As of December 31, 2019, we had 33,146,626 shares of common stock outstanding.

Voting Stock

Holders of our common stock are entitled to elect a minority of our board of directors, and each share of our common stock entitles the holder to one vote, either in person or by proxy, at meetings of shareholders. Therefore, holders of our common stock will have little ability to influence our management and operations.

Shareholders are not permitted to vote their shares cumulatively. Accordingly, the holders of more than fifty percent (50%) of our common stock can elect all directors entitled to be elected by the common shareholders.

Voting Trust Agreement

On October 15, 2012, we entered into a Voting Trust Agreement with Telebrands and William A. Mobley, Jr. The Voting Trust Agreement appoints William A. Mobley, Jr. as the trustee of all the shares of our common stock owned by Telebrands at any time (the “Entrusted Shares”). Telebrands currently owns 4,000 shares of our common stock and warrants to purchase up to 20,000,000 shares of our common stock (of which only 4,000,000 are earned and currently exercisable until October 14, 2022). Pursuant to the Voting Trust Agreement, Mr. Mobley is entitled to exercise all rights relating to the voting and disposition of the Entrusted Shares, provided, however, Mr. Mobley is not allowed to effect a disposition or permit registration of the Entrusted Shares with the Securities and Exchange Commission or any state securities administrators unless Nextelligence, Inc., which is majority owned and controlled by Mr. Mobley, simultaneously effects a disposition or permits registration of an identical proportion of our voting securities held by Nextelligence on the same terms and conditions. In addition, Mr. Mobley may not permit a disposition or registration of any voting securities of the Company that Nextelligence holds unless he simultaneously effects a disposition or registration of an identical proportion of the Entrusted Shares on the same terms and conditions.

The term of such trust ends upon the earlier to occur, of: (i) Mr. Mobley ceases to be an affiliate of the Company, as defined in the Voting Trust Agreement; or (ii) the disposition of all of the Entrusted Shares.

We are obligated to indemnify Mr. Mobley against any liabilities, damages, claims, taxes, deficiencies, assessments, losses, penalties, interest, costs and expenses paid or incurred by him in connection with the Voting Trust Agreement, unless those paid or incurred are a result of the gross negligence, willful misconduct or bad faith of Mr. Mobley.

DESCRIPTION OF SECURITIES

General

Our charter authorizes the issuance of up to 200,000,000 shares of common stock, par value $0.0001 per share and 5,000,000 shares of preferred stock, par value $0.0001 per share.

Common Stock

As of December 31, 2019, we had 33,146,626 shares of our common stock outstanding. Holders of our common stock are entitled to elect a minority of our board of directors, and each share of our common stock entitles the holder to one vote, either in person or by proxy, at meetings of shareholders. All matters, other than the election of directors, at meetings of shareholders are decided by a majority of the votes cast at such meeting, either in person or by proxy.

Shareholders are not permitted to vote their shares cumulatively. Accordingly, the holders of more than fifty percent (50%) of our common stock can elect all directors entitled to be elected.

Preferred Stock

No shares of preferred stock are currently outstanding. Our board of directors may designate the authorized but unissued shares of the Preferred Stock with such rights and privileges as our board of directors may determine. As such, our board of directors may issue 5,000,000 preferred shares and designate the conversion, voting and other rights and preferences without notice to our shareholders and without shareholder approval.

Transfer Agent

The transfer agent for our common stock is Interwest Transfer Co., Inc., Salt Lake City, Utah.

Listing

We anticipate applying to have our common stock listed on the Nasdaq Capital Market under the symbol “            ”.

Holders

As of December 31, 2019, there were 33,146,626 shares of common stock outstanding, which were held by approximately 111 record shareholders.

Shares Eligible For Future Sale Pursuant to Rule 144

As of              , 2020, an aggregate of               shares of our common stock are eligible for immediate resale pursuant to Rule 144 promulgated under the Securities Act. As of              , 2020, we will have been a reporting company for 90 days and, accordingly, all shares of our common stock acquired on or prior to              , 2020 (including shares of common stock that are issued upon conversion of Preferred Stock acquired on or prior to such date) will become eligible for resale pursuant to Rule 144.

Registration Rights

The following table provides information about certain warrants issued to certain of our executive officers and employees that have registration rights. The registration rights contained in the warrants permit the holder of the warrant, at any time and from time to time, to require us to register the warrant and the shares underlying the warrant. Such persons have entered into lock-up agreements pursuant to which they will not be permitted to sell our securities for 180 days after the closing of this offering.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Our Articles of Incorporation and Bylaws, subject to the provisions of Florida Law, contain provisions which allow the corporation to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably believed was in the best interest of the corporation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

UNDERWRITING

Alexander Capital, L.P. is acting as the book running manager of the offering, and we have entered into an underwriting agreement on the date of this prospectus, with them as underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters and the underwriters have agreed to purchase from us, at the public offering price per share less the underwriting discounts set forth on the cover page of this prospectus.

The underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to purchase additional shares described below, if they purchase any shares. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.

We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Over-allotment Option

We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of ___ additional shares (15% of the shares sold in this offering) from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, it will purchase shares covered by the option at the public offering price per share that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total offering price to the public will be $_____ and the total net proceeds, before expenses, to us will be $____.

Discount

The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.

The underwriters propose to offer the shares offered by us to the public at the public offering price per share set forth on the cover of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of $            per share. If all of the shares offered by us are not sold at the public offering price per share, the underwriters may change the offering price per share and other selling terms by means of a supplement to this prospectus.

We will pay the out-of-pocket accountable expenses of the underwriters in connection with this offering. The underwriting agreement, however, provides that in the event the offering is terminated, any advance expense deposits paid to the underwriters will be returned to the extent that offering expenses are not actually incurred in accordance with FINRA Rule 5110(f)(2)(C).

We have agreed to pay the underwriters’ non-accountable expenses allowance equal to 1% of the public offering price of the shares (excluding shares that we may sell to the underwriters to cover over-allotments). We have also agreed to pay the underwriters’ expenses relating to the offering, including (a) all filing fees incurred in clearing this offering with FINRA; (b) fees, expenses and disbursements relating to background checks of our officers and directors; (c) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under the securities laws of foreign jurisdictions designated by the underwriters; (d) stock transfer or stamp taxes, if any, payable upon the transfer of shares of our common stock to the underwriters; (e) the costs associated with bound volumes of the public offering materials as well as Lucite cube mementos; (f) the cost associated with the underwriter’s use of book-building and compliance software for the offering, (g) the underwriters’ actual accountable road show expenses for the offering; and (h) up to $75,000 for the fees of the underwriters’ counsel; provided, the maximum amount we have agreed to pay the underwriters for items (b), (e), (f), (g) and (h) above is $150,000.

We have granted to the underwriters an irrevocable right of first refusal to act as sole investment banker, sole book-runner or sole underwriter in connection with any public underwriting or private placement of debt or equity securities until twelve (12) months after completion of this offering.

We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $___.

Discretionary Accounts

The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.

Underwriter Warrants

We have agreed to issue to the underwriters warrants to purchase up to a total of 6% of the shares of common stock sold in this offering (excluding the shares sold through the exercise of the over-allotment option). The warrants are exercisable at $___ per share (120% of the public offering price) commencing on a date which is one year from the effective date of the offering under this prospectus supplement and expiring on a date which is no more than five (5) years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G). The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriters (or their permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will it engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from effectiveness. In addition, the warrants provide for registration rights upon request, in certain cases. We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.

Electronic Offer, Sale and Distribution of Shares

A prospectus in electronic format may be made available on the websites maintained by the underwriters, if any, participating in this offering and the underwriters participating in this offering may distribute prospectuses electronically. The underwriters may agree to allocate a number of shares for sale to its online brokerage account holders. Internet distributions will be allocated by the underwriters that will make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the Registration Statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters in their capacity as underwriters, and should not be relied upon by investors.

Stabilization

In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares of common stock or preventing or retarding a decline in the market price of our shares of common stock. As a result, the price of our common stock or warrants in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected on Nasdaq, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.

Passive Market Making

In connection with this offering, the underwriters may engage in passive market making transactions in our common stock on Nasdaq in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.

Other Relationships

The underwriters and their respective affiliates may, in the future provide various investment banking, commercial banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees. However, except as disclosed in this prospectus, we have no present arrangements with the underwriters for any further services.

Offer Restrictions Outside the United States

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

Determination of Offering Price

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated between the underwriters and us. In determining the initial public offering price of our common stock, the underwriters will consider, among other things:

Neither we nor the underwriters can assure investors that an active trading market will develop for our common shares, or that the shares will trade in the public market at or above the initial public offering price.

Miscellaneous

A prospectus in electronic format may be made available on websites maintained by the underwriters. These websites and the information contained on these websites, or connected to these websites, are not incorporated into and are not a part of this prospectus. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representative of the underwriters to underwriters that may make Internet distributions on the same basis as other allocations. In connection with the offering, the underwriters or syndicate members may distribute prospectuses electronically. No forms of electronic prospectus other than prospectuses that are printable as Adobe® PDF will be used in connection with this offering.

LEGAL MATTERS

The validity of the shares of our common stock offered hereby has been passed upon for us by Bahnsen Legal Group, PLLC, Boca Raton, Florida. Cozen O’Connor P.C., Minneapolis, Minnesota, is acting as counsel to the underwriters.

EXPERTS

Sadler, Gibb & Associates, LLC, independent registered public accounting firm, has audited our financial statements at June 30, 2019 and 2018 and for each of the two years in the period ended June 30, 2019 as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Sadler, Gibb & Associates, LLC’s report which includes an explanatory paragraph about the existence of substantial doubt concerning the Company’s ability to continue as a going concern, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1, which includes amendments and exhibits, under the Securities Act and the rules and regulations under the Securities Act for the registration of common stock being offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all the information that is in the registration statement and its exhibits and schedules. Certain portions of the registration statement have been omitted as allowed by the rules and regulations of the SEC. Statements in this prospectus that summarize documents are not necessarily complete, and in each case you should refer to the copy of the document filed as an exhibit to the registration statement. You may read and copy the registration statement, including exhibits and schedules filed with it, and reports or other information we may file with the SEC from the SEC’s Internet site at www.sec.gov.

Upon completion of this offering, we will become subject to information and periodic reporting requirements of the Exchange Act and we will file annual, quarterly and current reports, proxy statements, and other information with the SEC.

FreeCast, Inc.

Index to Financial Statements

CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Freecast, Inc.:

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Freecast, Inc. (“the Company”) as of June 30, 2019 and 2018, the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended June 30, 2019 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2019, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Sadler, Gibb & Associates, LLC

We have served as the Company’s auditor since 2019.

Salt Lake City, UT

December 12, 2019

FREECAST, INC.

BALANCE SHEETS

AS OF JUNE 30, 2019 AND 2018

The accompanying notes are an integral part of these financial statements

FREECAST, INC.

STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements

FREECAST, INC.

STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED JUNE 30, 2019 AND 2018

The accompanying notes are an integral part of these financial statements

FREECAST, INC.

STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements

FREECAST, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2019 AND 2018

Note 1 – Organization and Description of Business

FreeCast, Inc. (the “Company”) developed and markets an interactive digital media guide that facilitates access to a virtual library of entertainment media. The Company is based in Orlando, Florida and was founded in 2011 as a Florida Corporation. The Company’s primary products are SmartGuide and Select TV. Both SmartGuide and Select TV utilize the Company-designed proprietary technology that searches, and aggregates internet distributed streaming media into an electronic media guide. SmartGuide is licensable to brands/manufacturers of devices with large online user bases, while Select TV is a retail package that is sold by monthly and/or annual subscriptions.

Going Concern

The Company’s operating history has incurred recurring losses from operations since inception, accumulating a deficit of approximately $12.83 million as of June 30, 2019. For the fiscal years ended June 30, 2019 and 2018, the Company incurred net losses of approximately $1.08 million and $1.56 million, respectively. The Company may incur additional losses and negative operating cash flows in the future. Failure to generate sufficient revenues, reduce spending or raise additional capital could adversely affect the Company’s ability to achieve its intended business objectives. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

Since the inception of the Company in 2011, the operations of the Company have been funded primarily through sales of common stock to private investors, debt financing and exchange of common stock for services received by the Company. Management cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business.

The accompanying financial statements for the fiscal years ended June 30, 2019 and 2018 have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. During the 2020 fiscal year, management intends to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’s needs. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

Use of Estimates

The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and disclosure in the accompanying notes. Actual results may differ from those estimates and such differences may be material to the financial statements. The more significant estimates and assumptions by management include among others: accounts receivable realization, the valuation allowance on deferred tax assets, the valuation of the Company’s common stock, operating expense accruals, and revenue recognition.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.

Accounts receivable

Accounts receivable are carried at original invoice amount less an estimate made for holdbacks and doubtful receivables based on a review of all outstanding amounts. The Company determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history, and current economic conditions and set up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. At June 30, 2019 and 2018, the accounts receivable reserve was approximately $245,240 and $245,240, respectively.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred.

Impairment of Long-lived Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed by ASC Topic 360-10-05. “Property, Plant and Equipment”. If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds it estimated undiscounted net cash flow, before interest, the Company will recognize an impairment loss equal to the difference between it carrying amount and its estimated fair value. As of June 30, 2019, the Company recognized $3,500, in impairment losses.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers (Topic 606) or ASU 2014-09. The objective of the ASU is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which supersedes most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the ASU, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. The five-step analysis consists of the following: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB’s ASC. The Company adopted ASU 2014-09 effective July 1, 2018 using the modified retrospective approach. The Company reviewed all contracts that were not completed as of July 1, 2018 and the adoption did not have a material impact on the Company’s consolidated financial statements.

Membership revenue

The Company generates membership revenue through the renewal sales of Rabbit TV, Rabbit TV Plus, new and renewal sales through Select TV, which operates as the successor product to Rabbit TV and Rabbit TV Plus, as well as the SmartGuide, an internet distributed streaming media guide that searches and aggregates media content on the web and facilitates access to its customers through Wi-Fi-enabled devices that support streaming video. The Company both retransmits and “ingests” and distributes content.

Membership revenue is derived from online sales through search engine optimization (SEO), search engine marketing (SEM), various marketing advertising services, the utilization of resellers in the form of publishers that promote upcoming retail promotions and packages, as well as, direct sales to members (Select TV, Rabbit TV Plus). Currently, a Rabbit TV Plus account only generates renewal sales, as 100% of new sales are being met by the Select TV media guide. Select TV and Rabbit TV Plus also include free access to the Rabbit TV Mobile app, for Android and iOS devices.

Membership revenue is recognized ratably on a straight-line basis over the duration of the membership period, generally ranging from one month to five years. If the member renews early, then the expiration date is extended by the renewal period, and the additional membership fee is deferred and amortized over the additional months purchased by the member. All membership fees are collected at the time of purchase.

Under the previous “Amended Distribution Technology Agreement”, the Company provided the right to Telebrands to market, promote, sell, and distribute memberships to access Rabbit TV and Rabbit TV plus via the internet. Per the agreement, the Company shall pay to Telebrands the greater of (i) (A) the number of memberships sold and funds collected, multiplied by (B) seventy-five cents ($0.75) or (ii) fifty percent (50%) of the Company’s net profits derived from the Company’s sales under the Amended Distribution Agreement and is included in sales and marketing expense in the Company’s Statements of Operations.

On January 2, 2015, the Company entered into a purchase agreement which transferred the Media Content Management System (“MCMS”) to the Company in consideration for the extinguishment of outstanding debt. Subsequently, the parties entered into a “Revision to the Second Amended and Restated Technology License and Development Agreement” which as of June 30, 2016 terminates all payments to Nextelligence pursuant to the “Second Amended and Restated Technology Agreement” signed and entered into July 31, 2014. After June 30, 2016, Nextelligence no longer has the right to sell, market, and distribute membership access to Rabbit TV and Rabbit TV Plus, either via USB “dongle” or internet.

Prior to the June 30, 2016 “Revision”, the Company evaluated the criteria outlined in ASC Topic 605-45, Principal Agent Considerations, in determining whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Rabbit TV fees paid by customers through Telebrands is reported net of any fees payable to or retained by Telebrands. This is because, although the Company is the primary obligor, the Company does not establish the sales price and does not have credit risk. Rabbit TV Plus fees paid by customers to the Company is reported gross of fees or commissions paid to Telebrands. Since the Company is the primary obligor in the transaction, has latitude in establishing the sales price, and has the credit risk, revenue is recorded on a gross basis. During the first six months of Fiscal Year ending June 30, 2019, the Company recognized the last of deferred revenue related to former relationship with Telebrands.

Advertising and other revenue

The Company generates advertising revenue pursuant to arrangements with advertising affiliates and brokers. Under these arrangements, the Company provides the agencies and brokers the ability to sell advertising inventory on the Company’s service directly to advertisers. The Company reports this revenue net of amounts due to agencies and brokers because the Company is not the primary obligor under these arrangements nor does the Company set the pricing or establish or maintain the relationship with the advertisers.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. Cash and cash equivalents of the Company are exposed to credit risk, subject to federal deposit insurance, in the event of default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the condensed balance sheet. The cash accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. At June 30, 2019 and 2018, respectively, the Company has no cash balances in excess of insured limits.

For accounts receivable, the Company performs ongoing credit evaluations of customers to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience with the customer, evaluation of their credit history, and review of the invoicing terms of the contract. Accounts receivables are reported net of an allowance for doubtful accounts when applicable. The allowance for doubtful accounts reflects management’s best estimate of probable losses inherent in the accounts receivable balance at each reporting date. Management determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. The Company recognized bad debt expense for the fiscal years ended June 30, 2019 and 2018 of $0 and $13,857, respectively. In addition, the balance of allowance for doubtful accounts at June 30, 2019 and 2018 of $245,240 and $245,240, respectively.

Cost of Revenue

Cost of revenue consists primarily of hosting, product development, infrastructure costs and the salaries and benefits related to employees in software engineering, facilities-related expenses, and information technology associated with supporting those functions. Hosting costs consist of content streaming, maintaining our internet service and creating and serving advertisements through third-party advertising servers. The Company makes payments to third-party advertising servers in the period in which the advertising impressions are delivered or click-through actions occur, and accordingly records this as a cost of revenue in the related period. The Company incurs product development expenses primarily for improvements to the Company’s website, the apps, development of new advertising products and development and enhancement of the guide and streaming system. Product development costs are generally expensed as incurred. Certain website development and internal use software development costs may be capitalized when specific criteria are met. In such cases, the capitalized amounts are amortized to cost of revenue over the useful life of the related application once the application is placed in service.

Sales and Marketing

Sales and marketing consist primarily of contracts with third-party operators as well as employee-related costs, including salaries, commissions and benefits related to employees in sales, sales support and marketing departments. In addition, sales and marketing expenses include external sales and marketing expenses such as third-party marketing, branding, advertising, public relations expenses, commissions, facilities-related expenses, and infrastructure costs. Formally, commissions include amounts paid to Telebrands, however the relationship with other third-party websites for customer acquisition when the customer clicks through to the Company and signs up for service still receive commission.

Fair Value of Financial Instruments

In accordance with the reporting requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 825, “Financial Instruments”,the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. Cash, cash equivalents and accounts payable are accounted for at costs which approximates fair value due to the relatively short maturity of these instruments. The carrying value of notes payables also approximate fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes.

Income Taxes

The Company provides for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of June 30, 2019 and 2018, the Company had a full valuation allowance against deferred tax assets.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings (loss) per share is determined in the same manner as basic earnings (loss) per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase would be anti-dilutive.

The following table provides the number of common stock equivalents not included in diluted income per share, because the effects are anti-dilutive, for the years ended June 30, 2019 and 2018, respectively.

Employee Stock Based Compensation

Stock based compensation issued to employees and members of our board of directors is measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The grant date fair value of a stock-based award is recognized as an expense over the requisite service period of the award on a straight-line basis. The Company will recognize compensation expense, measured as the fair value of the stock-based compensation on grant date, when a performance condition is considered probable of occurring. For purposes of determining the variables used in the calculation of stock-based compensation issued to employees, the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, the Company uses these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of warrants granted any fluctuations in these calculations could have a material effect on the results presented in our Statements of Operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.

Stock Based Compensation Issued to Nonemployees

Stock based awards issued to non-employees for acquiring goods or providing services are recognized at fair value when the goods are obtained or over the service period. If the award contains performance conditions, the measurement date of the award is the earlier of the date at which a commitment for performance by the non-employee is reached or the date at which performance is reached. A performance commitment is reached when performance by the non-employee is probable because of sufficiently large disincentives for nonperformance.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers (Topic 606)or ASU 2014-09. The objective of the ASU is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, which supersedes most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the ASU, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. The five-step analysis consists of the following: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB’s ASC. The Company adopted ASU 2014-09 effective July 1, 2018 using the modified retrospective approach. The Company reviewed all contracts that were not completed as of July 1, 2018 and the adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-13,Changes to Disclosure Requirements for Fair Value Measurements, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for the Company beginning July 1, 2018. Effective in 2019, the Company has evaluated an immaterial impact this standard will have on these financial statements.

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators and past due securities. The Company expects to adopt the new standard on July 1, 2019 and use the effective date as the date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before July 1, 2019.

In February 2016, the Financial Accounting Standards Board (FASB) established ASU 2016-02(Topic 842), Leases, which requires lessees to now recognize operating leases on the balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard was effective for the Company on July 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either: (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on July 1, 2019 and used the effective date as the date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before July 1, 2019.

The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company.

While the Company assessed all of the effects of adoption, it currently believes the most significant effects relate to: (1) the recognition of new ROU assets and lease liabilities on its balance sheet for its operating leases; (2) providing significant new disclosures about its leasing activities.

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for its corporate office leases and garage leases. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.

The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases.

All other issued and not yet effective accounting standards are not relevant to our financial statements.

Note 3 – Property and Equipment

Property and equipment consisted of the following:

Depreciation expense was $7,377 and $8,292 for the fiscal years ended June 30, 2019 and 2018, respectively, and is classified in general and administrative expenses in the Statements of Operations.

Note 4 – Debt

Convertible Notes Payable – Related Parties

In June 2016, the Chief Executive Officer of the Company (“CEO”), William Mobley , loaned the Company $111,000, at an interest rate of 12% per annum. The loan matured on December 31, 2017, is in default and remains as an on-demand liability of the Company. During the years ended June 30, 2019 and 2018, the Company repaid $0 and $50,018, and total accrued interest charges related to this loan were $20,515, and $14,160, respectively. During the year end June 30, 2019 and 2018, the Company did not pay any interest towards this loan. The note is convertible into shares of common stock at a conversion price of $0.25 per share. In accordance with ASC 470, the embedded beneficial conversion is recognized separately and was measured at its intrinsic value (see Note 5). For the year-end June 30, 2019 and 2018, the outstanding principal and interest due to William Mobley was $70,497, and $64,499, respectively.

Notes Payable – Related Parties

During the years ended June 30, 2019 and 2018, a related party, Public Wire (see Note 8), loaned the Company $20,100 and $46,280, respectively, at an interest rate of 12% per annum. The notes representing the loan matured on dates ranging from April 1, 2019 to January 1, 2020. The loan is in default and remains as an on-demand liability of the Company. During the year end June 30, 2019 and 2018, the Company accrued interest charges related to this loan in total of $ $7,082 and $5,554, respectively. During the year end June 30, 2019 and 2018, the Company paid interest related to this loan in total of $2,830, and $0, respectively. For the year-end June 30, 2019 and 2018, the outstanding principal and interest due to Public Wire was $76,186, and $51,834, respectively.

During 2018, a related party, Marjorie Lieberman (see Note 8), loaned the Company $25,000, at an interest rate of 10% per annum. The loan matured on April 1, 2019, is in default and remains as an on-demand liability of the Company. During the year ended June 30, 2019, the Company repaid $19,466 in principal and $534 in accrued interest associated with the loan. For the year ended June 30, 2019, and June 30, 2018, the Company accrued interest related to this loan in the amount of $924, and $534, respectively. For the year-end June 30, 2019 and 2018, the outstanding principal and interest due to Marjorie Lieberman was $6,458, and $25,534, respectively.

Revolving Convertible Notes Payable – Related Parties

On July 1, 2018, the Company signed a revolving convertible note agreement with a related party, Nextelligence (see Note 8), for an amount up to $500,000, with any withdrawals on this loan being at the complete discretion of the Company. During 2019, the Company in various installments received $451,574 in proceeds from this loan and $2,250 in non-cash additions related to expenses paid by Nextelligence on behalf of the Company. The loan accrues interest at a rate of 12% per annum and is set to mature July 1, 2020. As of year-end June 30, 2019, the Company recognized $6,308 in interest charges related to this loan, in addition, the outstanding principal and interest due is $265,791.

In the event of a “qualified financing”, or the Company issues and sells shares of Equity Securities, regardless of the maturity date, without any further action needed by Nextelligence, the outstanding principal and interest shall be converted into equity securities at a conversion price of $.25 of the per share price paid. In the event no “qualified financing” is consummated prior to the maturity date, Nextelligence can choose to elect, within five days of the maturity date, to have all outstanding principal and interest converted into equity securities at a conversion price of $.25 of the per share price paid. The Company has recognized a beneficial conversion feature related to this note of $353,575 in which $122,472 of that amount was amortized as interest expense during 2019.

Notes Payable

On September 15, 2016, the Company entered into an agreement with U.S. Premium Finance to provide financing in an aggregate amount of $1,967,450 for the insurance premium associated with both D&O and Workers Compensation policies. Both policies commenced September 15, 2016, and provided coverage for the next 36 months, expiring September 15, 2019. The loan bears interest at a floating rate per annum equal to the greater of either (i) 4.99% or (ii) 4.99% plus the Wall Street Journal Prime Rate. During the year ended June 30, 2019 and 2018, the interest rate on the loan was 4.99%. The Company was required to pay monthly principal and interest of approximately $58,957, paid over 36 months, with the final payment on October 15, 2019.

The U.S. Premium Finance agreement dated September 15, 2016 was secured against all rights, title, and interest associated with the D&O and Workers Compensation policies. As part of the legal costs associated with obtaining premium financing, on September 19, 2016 the Company agreed to pay a loan origination fee in the amount of $98,250. The loan origination fee was recorded as a debt discount and amortized over the life on the policy, maturing September 2019. As of June 30, 2019 and 2018, prepaid loan origination fees were $8,187 and $40,938, respectively, and is netted against the note on the Balance Sheet.

On April 18, 2017, the Company entered into an additional agreement with U.S. Premium Finance. The Company received $568,935 in net proceeds from them premium financing agreement. The loan bears interest at a floating rate per annum equal to the greater of either (i) 4.99% or (ii) 4.99% plus the Wall Street Journal Prime Rate. During the year ended June 30, 2019 and 2018, the interest rate on the loan was 4.99%. The Company was required to pay monthly principal and interest of approximately $29,705, paid over 20 months, with the final payment on December 15, 2018.

The U.S. Premium Finance agreement dated April 18, 2017 was secured against all rights, title, and interest associated with the general liability insurance policy. As part of the legal costs associated with obtaining premium financing, on April 18, 2017 the Company incurred and capitalized a loan origination fee in the amount of $28,348. The loan origination fee was amortized over the life of the policy, maturing December 2018. As of June 30, 2019 and 2018, prepaid loan origination fees were $0 and $8,505, respectively, and is classified as debt discount that is netted against the note on the Balance Sheet.

As of June 30, 2019 and 2018, outstanding premium liability due within one year to U.S. Premium Finance was $1,611,659 and $1,611,659. As of June 30, 2019, the Company takes the position that all the outstanding premium liability due after one year is current debt as the balance has been renegotiated by the Company due to a lack of performance obligations not met on behalf of the lender. On November 13, 2019, the Company settled the outstanding liability with U.S. Premium Finance, please see Note 9-Subsequent events for further information.

On December 31, 2017, the Company entered into a Promissory Note in the amount of $153,072. The note had a maturity date of December 31, 2018, and accrued interest at a rate of 10% per annum, compounded annually. For the year ended June 30, 2018, total outstanding principal and interest due to Broad Street Holdings was $153,072 and $12,805, respectively. On January 23, 2019, the Company entered into a promissory note conversion agreement, for consideration of loan, the Company issued 153,072 shares of common stock and 153,072 warrants to purchase common stock with an exercise price of $1.75. In addition, the Company recognized a gain on extinguishment of accrued interest as of June 30, 2019 in the amount of $21,487.

On December 31, 2017, the Company entered into a Promissory Note with for the amount of $553,286. The note had a maturity date of December 31, 2018, and accrued interest at a rate of 10% per annum, compounded annually. On January 23, 2019, the Company and Robert Schwartz agreed to a settlement of debt in the amount of 100,000. As of June 30, 2018, total outstanding principal and interest due was $590,142. During the year ended, June 30, 2019 the Company recognized a gain on extinguishment of debt and accrued interest for $490,142.

Note 5 – Stockholders’ Equity

Preferred Stock

No shares of preferred stock are currently outstanding. The Board of Directors may designate the authorized but unissued shares of the Preferred Stock with such rights and privileges as the board of directors may determine. As such, our board of directors may issue 5,000,000 preferred shares and designate the conversion, voting and other rights and preferences without notice to our shareholders and without shareholder approval.

Common Stock

Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of new or additional issue of shares of stock of any class, or of securities convertible into share of stock or any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by the way of dividend.

As of June 30, 2019 and 2018, the Company authorized to issue 200,000,000 common shares at a par value of $0.001 per share.

As of June 30, 2019, the Company had shares of common stock outstanding 31,491,626 and 29,978,554 outstanding as of June 30, 2018.

During the year ended June 30, 2018, the Company issued 586,000 shares of common stock pursuant to a private placement for $566,000 in proceeds, net of $20,000 in broker fees. In addition, the Company issued 28,000 shares of common stock for broker commission in conjunction with the private placement.

During the year ended June 30, 2019, the Company issued 1,345,000 shares of common stock pursuant to a private placement for $1,345,000 in proceeds. In addition, during 2019 the Company issued 15,000 shares of common stock in exchange for $15,000 in marketing services rendered. Also, in 2019, the Company issued 153,072 shares of common stock in exchange for $153,072 in debt to be converted to equity securities.

Stock Warrants

Following is a summary of outstanding stock warrants at June 30, 2019: