The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying
notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(UNAUDITED)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Mobiquity Technologies,
Inc. (“Mobiquity,” “we,” “our” or “the Company”), and its operating subsidiaries, is a
next generation location data intelligence company. The Company provides precise unique, at-scale location data and insights on consumer’s
real-world behavior and trends for use in marketing and research. We provide one of the most accurate and scaled solutions for mobile
data collection and analysis, utilizing multiple geo-location technologies. The Company is seeking to implement several new revenue streams
from its data collection and analysis, including, but not limited to, Advertising, Data Licensing, Footfall Reporting, Attribution Reporting,
Real Estate Planning, Financial Forecasting and Custom Research. We also are a developer of advertising and marketing technology focused
on the creation, automation, and maintenance of an advertising technology operating system (or ATOS). The ATOS platform blends artificial
intelligence (or AI) and machine learning (ML) based optimization technology for automatic ad serving that manages and runs digital advertising
campaigns.
The parent (Mobiquity Technologies, Inc.) and
subsidiaries are organized as follows:
| Schedule Of Subsidiaries |
|
|
| Company Name |
|
State of Incorporation |
| Mobiquity Technologies, Inc. |
|
New York |
| Mobiquity Networks, Inc. |
|
New York |
| Advangelists, LLC |
|
Delaware |
Liquidity, Going Concern and Management’s
Plans
These condensed consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business.
As reflected in the accompanying condensed
consolidated financial statements, for the nine months ended September 30, 2022, the Company had:
| · |
Net loss of $5,791,201; and |
| · |
Net cash used in operations
was $5,502,991 |
Additionally, at September 30, 2022, the Company
had:
| · |
Accumulated deficit of $208,236,095 |
| · |
Stockholders’ equity of $2,199,103, and |
| · |
Working capital of $182,150 |
We manage liquidity risk by reviewing, on an ongoing
basis, our sources of liquidity and capital requirements. The Company has cash on hand of $855,246 at September 30, 2022.
The Company has incurred significant losses since
its inception in 1998 and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services
to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be
sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including:
our financial position, our cash flows and cash usage forecasts for the nine months ended September 30, 2022, and our current capital
structure including equity-based instruments and our obligations and debts.
Without sufficient revenues from operations, if
the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities
or cease operations. The Company may explore obtaining additional capital financing and the Company is closely monitoring its cash balances,
cash needs, and expense levels.
These factors create substantial doubt about the
Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these condensed consolidated
financial statements are issued. These condensed consolidated financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. Accordingly, the condensed consolidated financial statements have been prepared
on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction
of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include
the following:
| · |
Execution of business plan focused on technology growth and improvement, |
| · |
Seek out equity and/or debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders and investors will continue to advance capital to the Company or that the new business operations will be profitable. |
| · |
Continuing to explore and execute prospective partnering or distribution opportunities, |
| · |
Identifying unique market opportunities that represent potential positive short-term cash flow. |
Coronavirus (“COVID-19”) Pandemic
During the three months and nine months ended
September 30, 2022, the Company’s financial results and operations were not materially adversely impacted by the COVID-19 pandemic.
However, in the prior two (2) years, the Company suffered from the Pandemic and drastically curtailed its operations. The extent to which
the Company’s future financial results could be impacted by the COVID-19 pandemic depends on future developments that are highly
uncertain and cannot be predicted at this time. The Company is not aware of any specific event or circumstance that would require an update
to its estimates or judgments or a revision of the carrying value of its assets or liabilities.
These estimates may change, as new events occur,
and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for
interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United
States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required
by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s
management, the accompanying unaudited condensed consolidated financial statements contain all of the adjustments necessary (consisting
only of normal recurring accruals) to present the financial position of the Company as of September 30, 2022, and the results of operations
and cash flows for the periods presented. The results of operations for the three months and nine months ended September 30, 2022, are
not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated
financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s
Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2021, filed with the SEC on December 1, 2022.
Management acknowledges its responsibility for
the preparation of the accompanying unaudited condensed consolidated financial statements which reflect all adjustments, consisting of
normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the
consolidated results of its operations for the periods presented.
Principles of Consolidation
These condensed consolidated financial
statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned
subsidiaries. All intercompany transactions and balances have been eliminated.
Business Segments
and Concentrations
The Company uses the “management approach”
to identify its reportable segments. The management approach requires companies to report segment financial information consistent with
information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s
reportable segments. The Company manages its business as a single reporting segment.
Customers in the United States accounted for 100%
of our revenues. We do not have any property or equipment outside of the United States.
Use of Estimates
Preparing financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual
results could differ from those estimates, and those estimates may be material. Significant estimates include the fair value of equity instruments
issued for services, valuation allowance of deferred tax assets, and useful life of intangible assets.
Risks and Uncertainties
The Company operates in an industry that is subject
to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties
including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future
expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include,
among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company
competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s
distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent
basis.
Fair Value of Financial Instruments
The Company accounts for financial instruments
under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework
for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy
to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured
at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use
observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
| |
· |
Level 1 — Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
| |
· |
Level 2 — Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
| |
· |
Level 3 — Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The determination of fair value and the assessment
of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment
and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable
management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation
method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the
weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
As of September 30, 2022 and December 31, 2021,
the Company does not have any financial instruments measured on a recurring or nonrecurring basis at fair value.
The Company’s financial instruments, including
cash, accounts receivable, and accounts payable and accrued expenses are carried at historical cost. At September 30, 2022 and December
31, 2021, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
The fair value of the Company’s convertible notes payable and notes payable is estimated based on current rates that would be available
for debt of similar terms which is not significantly different from its stated value.
Cash and Cash Equivalents and Concentration
of Credit Risk
For purposes of the condensed consolidated
statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the
purchase date and money market accounts to be cash equivalents.
At September 30, 2022 and December 31, 2021, respectively,
the Company did not have any cash equivalents.
The Company is exposed to credit risk on its cash
and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by
the FDIC, which is $250,000. At September 30, 2022 and December 31, 2021, the Company did not experience any losses on cash balances in
excess of FDIC insured limits. At September 30, 2022, and December 31, 2021, the Company exceeded FDIC insured limits by $582,321 and
$5,103,273, respectively.
Accounts Receivable
Accounts receivable are stated at the amount management
expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition
and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral. Two of our customers
combined accounted for approximately 45% of accounts receivable. In addition, two customers combined accounted for approximately 48%
of the Company’s revenue for the nine months ended September 30, 2022.
Management periodically assesses the Company’s
accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance
for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic
conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.
Allowance for doubtful accounts was $820,990 at
September 30, 2022 and December 31, 2021. This allowance relates to receivables generated in previous years for which collection is uncertain
as the customers have been adversely impacted by COVID-19.
Bad debt expense (recovery) is recorded as a component
of general and administrative expenses in the accompanying condensed consolidated statements of operations.
Impairment of Long-lived Assets
Management evaluates the recoverability of the
Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment
exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events
and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived
assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results;
significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business
strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate
disposition of these assets.
If impairment is indicated based on a comparison
of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
Property and Equipment
Property and equipment is stated at cost less
accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.
Expenditures for repair and maintenance which
do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise
disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected
in operations.
Management reviews the carrying value of its property
and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Goodwill
The Company’s goodwill of $1,352,865 represents
the excess of the consideration transferred for acquired businesses over the fair value of the underlying identifiable net assets. Goodwill
is not amortized but instead, it is tested for impairment at least annually. In the event that management determines that the value of
goodwill has become impaired, the Company will record a charge in an amount equal to the excess of the reporting unit’s carrying
amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit during the fiscal quarter in which
the determination is made.
The Company performs its annual impairment tests
of goodwill as of December 31st of each year, or more frequently, if certain indicators are present. Goodwill is required to be tested
for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment level, which
is referred to as a component. Management identifies its reporting units by assessing whether components (i) have discrete financial information
available, (ii) engage in business activities, and (iii) whether a segment manager regularly reviews the component’s operating results.
Net assets and goodwill of acquired businesses are allocated to the reporting unit associated with the acquired business based on the
anticipated organizational structure of the combined entities. If two or more components are deemed economically similar, those components
are aggregated into one reporting unit when performing the annual goodwill impairment review. The Company has one reporting
unit as of December 31, 2021.
Intangible Assets
In December 2018, the Company acquired the majority of its intangible
assets through its acquisition of Advangelists LLC. The Company amortizes its identifiable definite-lived intangible assets over a period
of 5 years. See Note 3 for further details.
In 2020 and 2021, the Company identified triggering
events due to the reduction in its projected revenue from adverse economic conditions caused by the COVID-19 pandemic and uncertainty
for recovery given the volatility of the capital markets. The Company performed impairment assessments of its ATOS Platform intangible
asset in December 2020 and determined that the carrying value of the asset exceeded its fair value by an estimate of $4,000,000. A similar
assessment was performed in December 2021 resulting in additional impairment of $3,600,000. Both charges were recognized in the fourth
quarter of each fiscal year for a total loss on impairment of $7,600,000, which resulted in the asset being written down to a net book
value of zero.
Derivative Liabilities
The Company analyzes all financial instruments
with features of both liabilities and equity under FASB ASC Topic No. 480, (“ASC 480”), “Distinguishing Liabilities
from Equity” and FASB ASC Topic No. 815, (“ASC 815”) “Derivatives and Hedging”. Derivative liabilities
are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations
as adjustments to fair value of derivatives. The Company uses a binomial model to determine fair value.
Upon conversion of a note where the embedded conversion
option has been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related
notes, derivatives, and debt discounts, and recognizes a net gain or loss on debt extinguishment. Equity instruments that are initially
classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of
the instrument on the reclassification date. As of September 30, 2022, and December 31, 2021, the Company had no derivative liabilities.
Debt Issue Cost
Debt issuance cost paid to lenders, or third parties
are amortized to interest expense in the condensed consolidated statements of operations, over the life of the underlying debt instrument,
with the unamortized portion reported net with related principal outstanding on the condensed consolidated balance sheet.
Revenue Recognition
The Company’s revenues are generated from
internet advertising, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606).
In accordance with ASC 606, revenue is recognized when promised services are transferred to a customer. The amount of revenue recognized
reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core
principle, the Company applies the following five steps:
Identify the contract with a customer
A contract with a customer exists when (i) the
Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred
and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines
that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent
and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention
to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer,
published credit and financial information pertaining to the customer.
Identify the performance obligations in the
contract
Performance obligations promised in a contract
are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer
can benefit from the service either on its own or together with other resources that are readily available from third parties or from
the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other
promises in the contract. To the extent a contract includes multiple promised services (performance obligations), the Company must apply
judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria
are not met the promised services are accounted for as a combined performance obligation. Currently, the Company does not have any contracts
that contain multiple performance obligations.
Determine the transaction price
The transaction price is determined based on the
consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction
price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction
price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration.
Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future
reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of September 30, 2022, and
2021, respectively, contained a significant financing component.
Allocate the transaction price to performance
obligations in the contract
If the contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services
that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must
determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain
multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone
selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation
or to a distinct service that forms part of a single performance obligation. Currently, the Company does not have any contracts that contain
multiple performance obligations.
Recognize revenue when or as the Company satisfies
a performance obligation.
The Company satisfies performance obligations
at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service
to a customer.
Payment terms and conditions vary by contract,
although terms generally include a requirement of payment within 30 to 90 days.
Contract Liabilities
Contract liabilities represent deposits made by
customers before the satisfaction of performance obligation and recognition of revenue. Upon completion of the performance obligation(s)
that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue
is recognized.
Revenues
All revenues recognized was from internet advertising
for all periods ended September 30, 2022, and September 30, 2021.
Advertising
Advertising costs are expensed as incurred. Advertising
costs are included as a component of general and administrative expense in the condensed consolidated statements of operations.
The Company recognized $0 and $159 in marketing
and advertising costs during the nine months ended September 30, 2022, and 2021, respectively.
Stock-Based Compensation
The Company accounts for our stock-based
compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method.
Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in
which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may
be settled by the issuance of those equity instruments.
The Company uses the fair value method for equity
instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options.
The fair value of stock-based compensation is
determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized
over the vesting periods.
When determining fair value of stock-based compensation,
the Company considers the following assumptions in the Black-Scholes model:
| · |
Exercise price, |
| · |
Expected dividends, |
| · |
Expected volatility, |
| · |
Risk-free interest rate; and |
| · |
Expected life of option |
Stock Warrants
In connection with certain financing, consulting
and collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone
instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the
fair value of the awards using the Black-Scholes option pricing model as of the measurement date and records fair value as expense over
the requisite service period or at the date of issuance if there is not a service period.
Income Taxes
The Company accounts for income tax using the
asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates
that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset
deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred
tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that
includes the enactment date.
The Company follows the accounting guidance for
uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need
to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax
authorities. As of September 30, 2022, and December 31, 2021, respectively, the Company had no uncertain tax positions that qualify for
either recognition or disclosure in the financial statements.
The Company recognizes interest and penalties
related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded
for the nine months ended September 30, 2022, and 2021, respectively.
Basic and Diluted Earnings (Loss) per Share
Pursuant to ASC 260-10-45, basic earnings (loss)
per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the
periods presented.
Diluted earnings per share is computed by dividing
net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding
during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury
stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. In the event
of a net loss, diluted loss per share is the same as basic loss per share since the effect of the potential common stock equivalents upon
conversion would be anti-dilutive.
The following potentially dilutive equity securities
outstanding as of September 30, 2022, and 2021 were as follows:
| Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | |
| | |
| |
| | |
September 30, 2022 | | |
September 30, 2021 | |
| Convertible notes payable and accrued interest | |
| – | | |
| 801,250 | |
| Stock Options | |
| 1,162,721 | | |
| 301,845 | |
| Warrants | |
| 4,680,050 | | |
| 472,886 | |
| Total common stock equivalents | |
| 5,842,771 | | |
| 1,575,981 | |
Related Parties
Parties are considered to be related to the Company
if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with
the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully
pursuing its own separate interests.
Recent Accounting Pronouncements
Changes to accounting principles are established
by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability and impact of all ASU’s on
our consolidated financial position, results of operations, stockholders’ equity, cash flows, or presentation thereof.
Credit
Losses: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the incurred loss impairment methodology
under current GAAP with a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable
and supportable information to inform credit loss estimates. ASU 2016-13 requires the use of a forward-looking expected credit loss model
for accounts receivables, loans, and other financial instruments. In May 2019, the FASB issued ASU 2019-05, which provides transition
relief for entities adopting ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-05 are effective
for fiscal years beginning after December 15, 2019, including interim periods therein. An entity may early adopt ASU No. 2019-05 in any
interim period after its issuance if the entity has adopted ASU 2016-13. For all other entities, the effective date will be the same
as the effective date of ASU 2016-13. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years. The Company is currently evaluating the expected impact of adopting ASU 2016-13 on its consolidated
financial statements and disclosures.
Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers: In October 2021, the FASB issued ASU No. 2021-08,
Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU
2021-08”). Under ASU 2021-08, an acquirer in a business combination must apply ASC 606 principles when recognizing and measuring
acquired contract assets and contract liabilities. The provisions of ASU 2021-08 are applicable for the Company for fiscal years and interim
periods beginning after December 15, 2022. The Company is currently evaluating the impact of ASU 2021-08 on its consolidated financial
statements and related disclosures.
Fair Value Measurement of Equity Securities
Subject to Contractual Sale Restrictions: On September 30, 2022, the FASB issued ASU 2022-03 (“ASU 2022-03”), which
clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that
prohibit the sale of an equity security. The ASU also requires specific disclosures related to such an equity security, including (1)
the fair value of such equity securities reflected in the balance sheet, (2) the nature and remaining duration of the corresponding restrictions,
and (3) any circumstances that could cause a lapse in the restrictions. ASU 2022-03 clarifies that a “contractual restriction prohibiting
the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the
equity security’s unit of account. Accordingly, an entity should not consider the contractual sale restriction when measuring the
equity security’s fair value (i.e., the entity should not apply a discount related to the contractual sale restriction, as stated
in ASC 820-10-35-36B as amended by the ASU). The ASU also prohibits an entity from recognizing a contractual sale restriction as a separate
unit of account. For public business entities, ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim
periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of ASU 2022-03 on its
consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncement
In August 2020, FASB issued ASU 2020-06, Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), as part of its overall simplification
initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information
provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt
that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated
and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will
no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt.
The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on
earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance
is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal
years, with early adoption permitted, but only at the beginning of the fiscal year.
We adopted this pronouncement on January 1, 2022;
however, the adoption of this standard did not have a material effect on the Company’s consolidated financial statements.
Reclassification
Certain prior period amounts have
been reclassified for consistency with current period presentation. These reclassifications had no effect on the reported results of
operations and primarily consisted of classifying stock-based compensation within general and administrative expense rather
than presenting separately.
NOTE
3: RESTATEMENT
On December 1, 2022, the Company filed its
Annual Report on Form 10-K/A (Amendment No. 2), effectively restating its previously issued financial statements for the annual
periods ended December 31, 2021 and 2020, and the quarterly periods within such years.
As a result of the restatements disclosed in Amendment No. 2 of the
2021 Form 10-K/A, the quarterly financial statements for the periods ended March 31, 2022 and June 30, 2022 are being effectively restated
in this current Form 10-Q for the quarter ended September 30, 2022, as follows:
| Schedule of balance sheet data | |
| | |
| | |
| |
| | |
As of March 31, 2022 | |
| Balance Sheet Data (Unaudited) | |
As Previously Reported | | |
Adjustment | | |
As Restated | |
| Additional paid in capital | |
$ | 207,172,747 | | |
$ | (3,089,809 | ) | |
$ | 204,082,938 | |
| Accumulated deficit | |
$ | (207,974,747 | ) | |
$ | 3,089,809 | | |
$ | (204,884,938 | ) |
| Total Stockholders' Equity | |
$ | 3,277,709 | | |
$ | – | | |
$ | 3,277,709 | |
| | |
| | | |
| | | |
| | |
| | |
As of June 30, 2022 | |
| Balance Sheet Data (Unaudited) | |
As Previously Reported | | |
Adjustment | | |
As Restated | |
| Additional paid in capital | |
$ | 208,670,675 | | |
$ | (3,590,309 | ) | |
$ | 205,080,366 | |
| Accumulated deficit | |
$ | (209,546,224 | ) | |
$ | 3,590,309 | | |
$ | (205,955,915 | ) |
| Total Stockholders' Equity | |
$ | 3,204,201 | | |
$ | – | | |
$ | 3,204,201 | |
| Schedule of operations data | |
| | | |
| | | |
| | |
| | |
Three Months Ended June 30, 2022 | |
| Statement of Operations Data (Unaudited) | |
As Previously Reported | | |
Adjustment | | |
As Restated | |
| General and administrative expenses | |
$ | 2,255,965 | | |
$ | (500,500 | ) | |
$ | 1,755,465 | |
| Loss from operations | |
$ | (1,008,780 | ) | |
$ | 500,500 | | |
$ | (508,280 | ) |
| Net loss | |
$ | (1,571,477 | ) | |
$ | 500,500 | | |
$ | (1,070,977 | ) |
| Net loss per share – basic and diluted | |
$ | (0.20 | ) | |
| | | |
$ | (0.13 | ) |
| | |
| | | |
| | | |
| | |
| | |
Six Months Ended June 30, 2022 | |
| Statement of Operations Data (Unaudited) | |
As Previously Reported | | |
Adjustment | | |
As Restated | |
| General and administrative expenses | |
$ | 4,784,554 | | |
$ | (500,500 | ) | |
$ | 4,284,054 | |
| Loss from operations | |
$ | (3,301,327 | ) | |
$ | 500,500 | | |
$ | (2,800,827 | ) |
| Net loss | |
$ | (4,011,521 | ) | |
$ | 500,500 | | |
$ | (3,511,021 | ) |
| Net loss per share – basic and diluted | |
$ | (0.50 | ) | |
| | | |
$ | (0.44 | ) |
| Schedule of cash flow data | |
| | | |
| | | |
| | |
| | |
Six Months Ended June 30, 2022 | |
| Cash Flow Data (Unaudited) | |
As Previously Reported | | |
Adjustment | | |
As Restated | |
| Net loss | |
$ | (4,011,521 | ) | |
$ | 500,500 | | |
$ | (3,511,021 | ) |
| Stock-based compensation | |
$ | 543,754 | | |
$ | (500,500 | ) | |
$ | 43,254 | |
| Net cash used in operating activities | |
$ | (3,054,760 | ) | |
$ | – | | |
$ | (3,054,760 | ) |
The Company erroneously recorded a total of $500,500
in stock-based compensation expense during the quarter ended June 30, 2022 pursuant to three stock option awards granted in April 2019.
The expense associated with these awards should have been fully recognized during the year ended December 31, 2021 based on the requisite
service periods underlying the option awards. This adjustment is reflected in the restated accounts for the year ended December 31, 2021,
and all affected and restated quarterly periods within fiscal years 2020 and 2021, as disclosed in the Annual Report on Form 10-K/A (Amendment
No. 2) for the years ended December 31, 2021 and 2020 filed with the SEC on December 1, 2022. All other adjustments to additional paid-in
capital and accumulated deficit, totaling $3,089,809, relate to adjustments recorded prior to January 1, 2022 as discussed in the Form
10-K/A (Amendment No. 2).
NOTE 4 – INTANGIBLE ASSETS
The Company’s identifiable intangible assets,
other than goodwill, consists of customer relationships and the ATOS Platform.
The ATOS platform:
| · |
creates an automated marketplace of advertisers and publishers on digital media outlets to host online auctions to facilitate the sale of ad time slots (known as digital real estate) targeted at users while engaged on their connected TV, computer, or mobile device, and |
| |
|
| · |
gives advertisers the capability to understand and interact with their audiences and engage them in a meaningful way by the using ads in both image and video formats (known as rich media) to increase their customer base and foot traffic to their physical locations. |
The Company’s intangible asset balances,
including accumulated amortization, are as follows:
| Schedule of intangible assets | |
| |
| | |
| |
| | |
Useful Lives | |
September 30, 2022 | | |
December 31, 2021 | |
| | |
| |
| | |
| |
| Customer relationships | |
5 years | |
$ | 3,003,676 | | |
$ | 3,003,676 | |
| Less accumulated amortization | |
| |
| (2,207,208 | ) | |
| (1,756,657 | ) |
| Net carrying value | |
| |
$ | 796,468 | | |
$ | 1,247,019 | |
The ATOS platform was determined to be fully
impaired as of December 31, 2021. During the nine months ended September 30, 2022, the Company recognized $450,551
of amortization expense related to the intangible assets which is included in general and administrative expenses on the condensed
consolidated statements of operations.
Future amortization, for the years ending December
31, is as follows:
| Schedule of future accumulated amortization | |
| | |
| 2022 (balance of 2022) | |
$ | 150,184 | |
| 2023 | |
| 600,735 | |
| 2024 | |
| 45,549 | |
| Total | |
$ | 796,468 | |
NOTE 5 – NOTES PAYABLE AND CONVERTIBLE
NOTES PAYABLE
Summary of notes payable and convertible notes
payable:
| Summary of notes payable and convertible notes payable | |
| | |
| |
| | |
September 30,
2022 | | |
December 31,
2021 | |
| Convertible Note Payable - Related Party (d) | |
$ | – | | |
$ | 2,562,500 | |
| Small Business Administration (a) | |
| 150,000 | | |
| 150,000 | |
| Convertible Notes (c) | |
| – | | |
| 250,000 | |
| Notes Payable – Accounts Receivable Factoring (b) | |
| – | | |
| 156,504 | |
| Total Debt | |
| 150,000 | | |
| 3,119,004 | |
| Current portion of debt | |
| – | | |
| 656,504 | |
| Long-term portion of debt | |
$ | 150,000 | | |
$ | 2,462,500 | |
__________________
| |
(a) |
The Company received an Economic Injury Disaster Loan from the SBA which carries a thirty-year term, and a three-point seven five percent interest rate, maturity date is July of 2050. Total accrued and unpaid interest on the debt was $9,832 at September 30, 2022 and is included in accounts payable and accrued expenses on the accompanying balance sheet. |
| |
|
|
| |
(b) |
Business Capital Providers, Inc. purchased certain future receivables from the Company at a discount under agreements dated July of 2021. All loans have been repaid in full as of September 30, 2022. |
| |
(c) |
Several private investors, who were unaffiliated
shareholders of the Company and accredited investors as provided under Regulation D Rule 501 promulgated under the Securities Act of 1933,
provided financing under convertible debt agreements during the period June 2021 through September 2021 pursuant to subscription agreements.
During the nine months ended September 30, 2022, one investor agreed to convert $150,000 of debt principal at a reduced conversion rate
of $2.00 per share under an induced conversion arrangement that included an explicit time limit of two dates at the reduced rate. The
conversion resulted in the issuance of 75,000 shares of common stock and recognition of $101,000 in inducement expense.
The remaining $100,000 in principal relates to three individual convertible
notes bearing interest at 10% per annum and having a maturity date of July 1, 2022. The promissory notes contain an automatic conversion
feature, effectively converting all outstanding and unpaid principal on the maturity date at a conversion rate of $4.00 per share. On
July 1, 2022, the convertible notes and accrued interest of $8,425 were converted into 27,107 common shares at the $4.00 conversion rate.
The outstanding principal and accrued interest were classified to additional paid-in capital upon conversion. |
| |
(d) |
Gene Salkind, who is a director of the Company, and an affiliate of Dr. Salkind executed 15% Senior Secured Convertible Promissory Notes in September 2019. The convertible promissory notes have the following terms, as amended: |
| |
· |
The Salkind lenders may convert the notes at any time at a conversion rate of $4.00. |
| |
· |
The Company may convert the notes at any time that the trailing thirty (30) day volume weighted average price per share (as more particularly described in the Notes) of the Company’s common stock is above $4.00 per share. |
Upon conversion of the debt principal,
the Company is to issue warrants to the debt holders for the purchase of common shares of the Company. The number of shares granted under
the warrants is equivalent to 50% of the total shares issued under the debt principal converted. The warrants are immediately exercisable
at a price of $4.00 per share through September 2029.
The notes contained customary events
of default, which, if uncured, entitle the holders to accelerate payment of the principal and all accrued and unpaid interest under their
notes.
During the nine months ended September
30, 2022, the debt holders converted all the remaining $2,052,500 of outstanding debt in two separate conversion transactions at mutually
and board approved reduced conversion prices of $1.50 and $1.25 per share which also resulted in additional warrants being issued due
to 50% warrant coverage based on the total shares issued. A total of 1,776,333 restricted common shares and warrants to purchase 888,166
restricted common shares at an exercise price of $4.00 per share through September 2029 were issued in connection with these conversions.
The Company determined that these transactions resulted in debt extinguishment accounting under Accounting Standards Codification 470-50,
Debt Modifications and Extinguishments. As a result, the Company recorded a total loss on debt extinguishment for the nine months
ended September 30, 2022, of $855,296, which represented the excess of the debt reacquisition price over its carrying value at the time
of the conversions. Accrued and unpaid interest on the Salkind convertible notes of $235,563 remains outstanding at September 30, 2022
and is included in accounts payable and accrued expenses on the accompanying balance sheet which can be converted at the original conversion
rate of $4.
NOTE 6 – STOCKHOLDERS’ EQUITY
Shares Issued for Cash
During the nine months ended September 30, 2022,
the Company issued 882,448 shares of common stock for $1,137,500 of cash proceeds. During the nine months ended September 30, 2021, the
Company issued 149,836 shares of common stock for $898,990 of cash proceeds.
Shares Issued for Services
During the nine months ended September 30, 2022,
the Company issued 50,000 shares of common stock, at $1.69 per share for $84,500 in exchange for services rendered. During the quarter
ended September 30, 2021, the Company issued 10,000 shares of common stock, at $7.50 to $9.73 per share for $173,30081,825 in exchange for services
rendered.
Shares issued upon conversion of debt:
During the nine months ended September 30, 2022,
Dr. Gene Salkind, his wife, and a trust converted an aggregate of $2,562,500 of secured debt in exchange for 1,776,333 shares of common
stock as well as warrants to purchase 888,166 shares of common stock at an exercise price of $4.00 per share through September 2029, see
Note 5.
During the nine months ended September 30,
2022, a lender also converted $150,000
of debt into 75,000
shares of common stock at a reduced exercise price of $2.00 per share. The Company recorded an inducement expense of $101,000,
see Note 5.
During the nine months ended September 30, 2022, the three remaining
convertible notes automatically converted $100,000 of outstanding debt and accrued interest of $8,425 into 27,107 shares of common stock
at a conversion price of $4.00 per share, see Note 5.
NOTE
7 – STOCK OPTION PLANS AND WARRANTS
Stock Options
During Fiscal 2005, the Company established, and
the stockholders approved, an Employee Benefit and Consulting Services Compensation Plan (the “2005 Plan”) for the granting
of up to 5,000 non-statutory and incentive stock options and stock awards to directors, officers, consultants and key employees of the
Company. On June 9, 2005, the Board of Directors amended the Plan to increase the number of stock options and awards to be granted under
the Plan to 10,000 shares. During Fiscal 2009, the Company established a plan of long-term stock-based compensation incentives for
selected Eligible Participants of the Company covering 10,000 shares. This plan was adopted by the Board of Directors and approved by
stockholders in October 2009 and shall be known as the 2009 Employee Benefit and Consulting Services Compensation Plan (the “2009
Plan”). In September 2013, the Company’s stockholders approved an increase in the number of shares covered by the 2009 Plan
to 25,000 shares. In February 2015, the Board approved, subject to stockholder approval within one year, an increase in the number of
shares under the 2009 Plan to 50,000 shares; however, stockholder approval was not obtained within the requisite one year and the anticipated
increase in the 2009 Plan was canceled. In the first quarter of 2016, the Board approved, and stockholders ratified a 2016 Employee Benefit
and Consulting Services Compensation Plan covering 25,000 shares (the “2016 Plan”) and approving moving all options which
exceeded the 2009 Plan limits to the 2016 Plan. In December 2018, the Board of Directors adopted and in February 2019. the stockholders
ratified the 2018 Employee Benefit and Consulting Services Compensation Plan covering 75,000 shares (the “2018 Plan”). On
April 2, 2019, the Board approved the “2019 Plan” identical to the 2018 Plan, except that the 2019 Plan covers 150,000 shares.
The 2019 Plan required stockholder approval by April 2, 2020, to be able to grant incentive stock options under the 2019 Plan. On October
13, 2021, the Board approved the “2021 Plan” identical to the 2018 Plan, except that the 2019 Plan covers 1,100,000 post-split
shares. The 2005, 2009, 2016, 2018, 2019 and 2021 plans are collectively referred to as the “Plans.”
In March of 2022, Anne S. Provost was
elected to the board of directors and was granted 25,000 options from the Company’s 2021 stock option plan with immediate
vesting, at an exercise price of $4.57, and expiration of December 2031.
In April of 2022, Dean Julia was granted 12,500
options from the Company’s 2021 stock option plan with immediate vesting, at an exercise price of $1.55, and expiration of April
2031.
All stock options under the Plans are granted
at or above the fair market value of the common stock at the grant date. Employee and non-employee stock options vest over varying periods
and generally expire either 5 or 10 years from the grant date. The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model. For option grants, the Company will take into consideration payments subject to the provisions
of ASC 718 “Stock Compensation”. Previously, such assumptions were determined based on historical data. The weighted average
assumptions made in calculating the fair values of options granted during the nine months ended September 30, 2022, and September 30,
2021 are as follows:
| Schedule of assumptions used |
|
|
|
|
|
|
| |
|
Nine Months Ended
September 30 |
|
| |
|
2022 |
|
|
2021 |
|
| Expected volatility |
|
|
79.95
- 133.53% |
|
|
|
– |
|
| Expected dividend yield |
|
|
– |
|
|
|
– |
|
| Risk-free interest rate |
|
|
2.14 - 2.50% |
|
|
|
– |
|
| Expected life (in years) |
|
|
5.00 - 7.25 |
|
|
|
– |
|
| Schedule of options outstanding | |
| | |
| | |
| | |
| |
| | |
Option Shares | | |
Weighted
Average Exercise
Price | | |
Weighted
Average
Remaining
Contractual
Term | | |
Aggregate
Intrinsic
Value | |
| Outstanding, January 1, 2022 | |
| 1,135,909 | | |
$ | 16.69 | | |
| 8.39 | | |
$ | – | |
| Granted | |
| 37,500 | | |
$ | 3.56 | | |
| 8.97 | | |
$ | – | |
| Cancelled and expired | |
| (10,688 | ) | |
$ | 21.77 | | |
| – | | |
$ | – | |
| | |
| | | |
| | | |
| | | |
| | |
| Outstanding, September 30, 2022 | |
| 1,162,721 | | |
$ | 16.22 | | |
| 7.69 | | |
$ | – | |
| | |
| | | |
| | | |
| | | |
| | |
| Options exercisable, September 30, 2022 | |
| 1,154,483 | | |
$ | 16.16 | | |
| 7.68 | | |
$ | – | |
The weighted-average grant-date fair value of
options granted during the nine months ended September 30, 2022, was $1.09.
The aggregate intrinsic value of options outstanding
and options exercisable at September 30, 2022 is calculated as the difference between the exercise price of the underlying options and
the market price of the Company's common stock for the shares that had exercise prices, that were lower than the $1.16 closing price of
the Company's common stock on September 30, 2022.
The Company’s results for the quarters
ended September 30, 2022, and September 30, 2021, include employee share-based compensation expense totaling $7,854
and $180,774,
respectively. Such amounts have been included in the condensed consolidated statements of operations within general and
administrative expenses. The Company’s results for the nine months ended September 30, 2022, and September 30, 2021, include
employee share-based compensation expense totaling $59,687
and $197,613
respectively. Such amounts have been included in the condensed consolidated statements of operations within general and
administrative expenses
As of September 30, 2022, the unamortized compensation
cost related to unvested stock option awards is $21,396, expected to be recognized in fiscal year 2023.
Warrants
During the nine months ended September 30,
2022, the Company issued 11,250
warrants to a consulting company and 888,166
were issued for the conversion of secured convertible notes to a related party (see Note 5 for the accounting for these warrants) for a total issuance of 899,416.
Effective January 2022, the Company entered into
a consulting agreement in which the consultant was paid a total of 11,250 warrants during the nine-month period ended September 30, 2022
for such services. The total fair value of the warrants issued to the consultant totaled $12,724 and was recognized as general and administrative
expense on the accompanying condensed consolidated statement of operations.
The weighted average assumptions made in calculating
the fair value of warrants granted during the three and nine months ended September 30, 2022, and 2021 are as follows:
| Schedule of warrant assumptions |
|
|
|
|
|
|
| |
|
Nine Months Ended
September 30 |
|
| |
|
2022 |
|
|
2021 |
|
| Expected volatility |
|
|
133.65 - 191.56% |
|
|
|
144.81% |
|
| Expected dividend yield |
|
|
– |
|
|
|
– |
|
| Risk-free interest rate |
|
|
1.62 - 4.06% |
|
|
|
0.81% |
|
| Expected life (in years) |
|
|
3 - 5 |
|
|
|
5 |
|
| Schedule of warrants outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Warrant
Shares |
|
|
Weighted
Average
Exercise
Price |
|
|
Weighted
Average
Remaining Contractual
Term |
|
|
Aggregate Intrinsic
Value |
|
| Outstanding, January 1, 2022 |
|
|
3,800,202 |
|
|
$ |
15.19 |
|
|
|
4.68 |
|
|
$ |
– |
|
| Granted |
|
|
899,416 |
|
|
$ |
4.01 |
|
|
|
8.87 |
|
|
$ |
– |
|
| Expired |
|
|
(19,568 |
) |
|
$ |
22.73 |
|
|
|
– |
|
|
$ |
– |
|
| Outstanding, September 30, 2022 |
|
|
4,680,050 |
|
|
$ |
13.01 |
|
|
|
4.98 |
|
|
$ |
– |
|
| Warrants exercisable, September 30, 2022 |
|
|
4,680,050 |
|
|
$ |
13.01 |
|
|
|
4.98 |
|
|
$ |
– |
|
The weighted-average grant-date fair value of
warrants granted during the nine months ended September 30, 2022 and 2021 was $1.13
and $1.30,
respectively.
NOTE 8 – LITIGATION
In
a Current Report on Form 8-K filed by the Company on March 23, 2022, the Company reported the termination of the Employment Agreement
of Donald (Trey) Barrett III as Chief Operations and Strategy Officer. On April 12, 2022, Mr. Barrett commenced an arbitration against
the Company before the American Arbitration Association alleging among other things that the Company terminated Mr. Barrett without cause
in breach of the Employment Agreement. On August 12, 2022, the Company and Mr. Barrett reached a settlement in which, among other things,
the Company and Mr. Barrett mutually deemed that the termination was not for-cause, the Company agreed to pay Mr. Barrett a sum which
is not material to the business or financial condition of the Company, and Mr. Barrett’s non-competition restrictive covenant was
canceled. The amount was paid in full settlement of the liability as of September
30, 2022 and the expense is included in general and administrative expenses on the accompanying condensed consolidated statement of operations.
NOTE 9 – SUBSEQUENT EVENTS
On November 2, 2022, we sold 40,000 restricted
common shares for $50,000 in cash proceeds.