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.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(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.
Mobiquity Technologies, Inc. was incorporated
in the State of New York and has the following subsidiaries:
Mobiquity Networks, Inc.
Mobiquity Networks, Inc. is a wholly owned subsidiary
of Mobiquity Technologies, Inc., commencing operations in January 2011 and incorporated in the State of New York. Mobiquity Networks started
and developed as a mobile advertising technology company focused on driving foot-traffic throughout its indoor network and has evolved
and grown into a next generation data intelligence company. Mobiquity Networks, Inc. operates our data intelligence platform business.
Advangelists, LLC
Advangelists LLC is a wholly owned subsidiary
of Mobiquity Technologies, Inc., acquired through a merger transaction in December 2018, incorporated in the State of Delaware, and operates
our ATOS platform business.
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 three months ended March 31. 2023, the Company is reporting the following:
· |
Net loss of $1,716,804; and |
· |
Net cash used in operations of $1,606,449 |
Additionally, at March 31, 2023, the Company is
reporting the following:
· |
Accumulated deficit of $212,224,026 |
· |
Stockholders’ equity of $2,200,634, and |
· |
Working capital deficit of $162,816 |
We manage liquidity risk by reviewing, on an ongoing
basis, our sources of liquidity and capital requirements. The Company has cash on hand of $2,182,330 on March 31, 2023.
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 three months ended March 31, 2023, 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 year ended December 31, 2022, the Company’s
financial results and operations were adversely impacted by the COVID-19 pandemic. The Company is a data location company with a specialty
to drive traffic to retail stores. In the prior two (2) years, the Company suffered from the effects of the pandemic due to lack of traffic
to retail stores related to mandated stay-at-home restrictions and the Company 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 pandemic also had an effect on the Company’s ability to attain new customers
or retain existing customers, and to collect on its outstanding accounts receivable, resulting in an increase of its allowance for doubtful
accounts in fiscal 2022, and the quarter ended March 31, 2023, of approximately $324,000 and $20,000, respectively. 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.
During the three months ended March 31, 2023,
the Company’s financial results and operations were not materially adversely impacted by the COVID-19 pandemic.
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 March 31, 2023, and the results of operations and cash flows for the periods presented.
The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the operating results for the full
fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial
statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022,
filed with the SEC on March 31, 2023.
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 accounting principles generally accepted in the United States of America (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, including
stock-based compensation and deferred tax asset valuation allowance, 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.
Risks and Uncertainties
The Company operates in an industry that is subject
to intense competition and changes in consumer demand. The Company’s operations are subject to significant risk and uncertainties
including financial and operational risks and the potential of overall business failure.
The Company has experienced, and in the future
expects to continue to experience, variability in sales and net 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
service offerings. 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
at fair value, which as is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (exit
price) in an orderly transaction between market participants at the measurement date. The valuation techniques are based on observable
and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect
certain market assumptions. There are three levels of inputs that may be used to measure fair value:
|
· |
Level 1—Valuation based on unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access; |
|
|
|
|
· |
Level 2—Valuation based on observable quoted prices for similar assets and liabilities in active markets; and |
|
|
|
|
· |
Level 3—Valuation based on unobservable inputs that are supported by little or no market activity, which require management’s best estimate of what market participants would use as fair value. |
Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to management.
The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair value. These financial instruments include accounts receivable, accounts payable and accrued
expenses, and contract liabilities. On March 31, 2023, and December 31, 2022, the carrying amounts of these financial instruments approximated
their fair values due to the short-term nature of these instruments. The fair value of the Company’s debt approximates its carrying
value based on current financing rates available to the Company and its short-term nature.
The Company does not have any other financial
or non-financial assets or liabilities that would be characterized as Level 1, Level 2, or Level 3 instruments.
Cash and Cash Equivalents and Concentrations
of Risk
For purposes of presentation in the 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.
On March 31, 2023, and December 31, 2022, the
Company did not have any cash equivalents.
The Company is exposed to credit risk on its
cash in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal
Deposit Insurance Company (FDIC), which is $250,000. As of March 31, 2023, and December 31, 2022, the Company had not experienced
any losses on cash balances in excess of the FDIC insured limits. Any loss incurred or a lack of access to funds could have a
significant impact on the Company’s consolidated financial condition, results of operations, and cash flows. At March 31,
2023, the Company exceeded FDIC insured limits by approximately $1,925,000,
and did not
exceed the limits at December 31, 2022.
For the three months ended March 31, 2023,
and year ended December 31, 2022, sales of our products to two and four customers generated approximately 55%
and 52%
of our revenues, respectively. Our contracts with our customers generally do not obligate them to a specified term and they can
generally terminate their relationship with us at any time with a minimal amount of notice. The loss of one of these customers could
have a material adverse effect on our consolidated results of operations and financial condition.
Accounts Receivable
Accounts receivable represent customer obligations
under normal trade terms and 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. Four and six of our customers combined accounted for approximately 53% and 42% of outstanding
accounts receivable at March 31, 2023 and December 31, 2022, respectively.
The Company had net accounts receivable of $158,485
and $340,935 at March 31, 2023 and December 31, 2022, respectively.
Management periodically assesses the Company’s
accounts receivable and, if necessary, establishes an allowance for doubtful accounts. The Company provides its 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.
The allowance for doubtful accounts was approximately
$1,111,000 and $1,091,000 at March 31, 2023 and December 31, 2022, respectively. This allowance relates to receivables generated in previous
years for which collection is uncertain, based in part, as a result of many customers being 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 Accounting Standards Codification (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 and compares this to the carrying amounts of the 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. No impairments were recognized by the Company for the quarter
ended March 31, 2023 and the year ended December 31, 2022.
Property and Equipment
Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.
Expenditures for repairs 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 current results of operations.
Goodwill
The Company’s goodwill represents the excess
of the consideration transferred for the acquisition of Advangelists, LLC in December 2018 over the fair value of the underlying identifiable
net assets acquired. 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
March 31, 2023 and December 31, 2022. No impairment of goodwill was recognized by the Company for the quarter ended March 31, 2023 or
fiscal year 2022.
Intangible Assets
The majority of the Company’s intangible
assets consist of customer relationship and the ATOS platform technology obtained through its acquisition of Advangelists LLC. The Company
amortizes its identifiable definite-lived intangible assets over an estimated useful life of 5 years. See Note 3 for further details.
Software Development Costs
In accordance with ASC 985-20, Costs of Software to Be Sold, Leased,
or Marketed, the Company records the cost of planning, designing, and establishing the technological feasibility of computer software
intended for resale as research and development costs and charges those costs to operations when incurred and are included in general
and administrative expenses on the condensed consolidated statements of operations. After technological feasibility has been established,
the costs of producing a marketable product and product masters are capitalized and amortized on a straight-line basis over the estimated
useful life of the software, which is expected to be five years, beginning at the date of general release to customers. The Company began
capitalizing costs associated with the development of its Ad Tech Operating System for Publishers platform in January 2023 when technological feasibility was deemed to have been established. Total software development costs capitalized for the quarter
ended March 31, 2023 were $501,075. The platform is expected to be released to customers in the second quarter of 2023. No amortization
has been recognized on the software development costs as of March 31, 2023.
Derivative Financial Instruments
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.
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 U.S. 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
was adopted by the Company as of January 1, 2022.
Terms of financial instruments are reviewed to
determine whether or not they contain embedded derivative instruments that are required to be accounted for separately from the host contract
under ASC 815 and ASU 2020-06 and recorded on the balance sheet at fair value. Derivative liabilities are remeasured to reflect fair value
at each period end, with any increase or decrease in the fair value being recorded in results of operations. The Company generally incorporates
a binomial model to determine fair value. Upon conversion of a debt instrument where an embedded conversion option has been bifurcated
and accounted for separately as a derivative liability, the Company records the resulting shares issued at fair value, derecognizes all
related debt principal, derivative liability, and debt discount, 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 815 are reclassified to liabilities at the fair
value of the instrument on the reclassification date. The Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risk. As of March 31, 2023 and December 31, 2022, the Company had no derivatives classified as liabilities.
Debt Issuance Costs and Debt Discounts
Debt discounts, debt issuance costs paid to lenders
or third parties, and other original issue discounts on debt, are recorded as debt discount or debt issuance costs and amortized to interest
expense in the condensed consolidated statements of operations, over the term of the underlying debt instrument, using the effective interest
method, with the unamortized portion reported net with related principal outstanding on the condensed consolidated balance sheet. For
the quarter ended March 31, 2023, the Company recorded $360,993 in interest expense associated with debt discounts and debt issuance costs
incurred on debt issued during the quarter. The unamortized debt discounts remaining at March 31, 2023 was $773,471. See Note 4 regarding
the accounting for debt discounts and debt issuance costs during the quarter ended March 31, 2023. There was no amortization of debt discounts
for the year ended December 31, 2022 or unamortized debt discounts outstanding at December 31, 2022.
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 March 31, 2023 and December
31, 2022 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.
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 the promised service
to a customer. Under both managed services arrangements or self-service arrangements, the Company’s promised services under the
contracts include identification, bidding and purchasing of advertisement opportunities. The Company also generally has discretion in
establishing the pricing of the ads. Since the Company is controlling the promise to deliver the contracted services, the Company is considered
the principal in all arrangements for revenue recognition purposes.
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 obligations 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. As of March 31, 2023 and December 31, 2022, there were $187,916 and $193,598, respectively in contract liabilities outstanding
that we expect to recognize as revenue in our next fiscal year.
Revenues
All revenues recognized were derived from internet
advertising for the quarter ended March 31, 2023, and the year ended December 31, 2022.
Advertising
Advertising costs are expensed as incurred. Advertising
costs are included as a component of general and administrative expenses in the consolidated statements of operations.
The Company incurred $259 in such costs during
the quarter ended March 31, 2023 and did not incur any advertising costs during the year ended December 31, 2022.
Stock-Based Compensation
The Company accounts for our stock-based compensation,
including stock options and common stock warrants, 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
requisite service period for employee awards, which is usually the vesting period, and when the goods are obtained or services are received,
for nonemployee awards. This guidance establishes standards for the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. It also applies to 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.
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 fair value of stock-based compensation is
generally determined using the Black-Scholes valuation model as of the date of the grant or the date at which the performance of the services
is completed (measurement date).
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 |
Income Taxes
The Company accounts for income tax using the
asset and liability method prescribed by ASC 740, Income Taxes (ASC 740). Under this method, deferred tax assets and liabilities
are determined based on temporary differences 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 all or some portion of the deferred
tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as gain 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. Using that guidance, tax positions initially need to be recognized in the
condensed consolidated financial statements when it is more likely than not the position will be sustained upon examination by the tax
authorities. As of March 31, 2023 and December 31, 2022, the Company did not identify any uncertain tax positions that qualify for either
recognition or disclosure in the condensed consolidated financial statements.
The Company recognizes interest and penalties,
if any, related to recognized uncertain income tax positions, in other expense. No interest and penalties related to uncertain income
tax positions were recorded for the three months ended March 31, 2023 and 2022. Open tax years subject to examination by the Internal
Revenue Service generally remain open for three years from the filing date. Tax years subject to examination by the state jurisdictions
generally remain open for up to four years from the filing date.
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.
Reclassifications
Certain reclassifications were made to the 2022
condensed consolidated financial statements to conform to 2023 presentation.
Recent Issued Accounting Pronouncements
We consider the applicability and impact of all
new accounting pronouncements on our consolidated financial position, results of operations, stockholders’ deficit, cash flows,
or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the Financial Accounting Standards
Board (FASB) through the date these condensed consolidated financial statements were available to be issued and found no recent accounting
pronouncements issued, but not yet effective, that when adopted, will have a material impact on the condensed consolidated financial statements
of the Company.
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 Pronouncements
Financial Instrument – 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 adopted ASU 2016-13 on January 1, 2023 and the adoption of the
guidance did not have a significant impact on its condensed 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 adopted ASU 2021-08 on January 1, 2023 and the adoption of the guidance did not have a significant impact on its condensed consolidated
financial statements and disclosures.
NOTE 3 – INTANGIBLE ASSETS
Definite-Lived Intangible Asset
The definite-lived intangible asset is a customer
relationship asset also acquired through the Advangelists, LLC acquisition. The customer relationship intangible asset is being amortized
over its estimated useful life of five years. The Company periodically evaluates the reasonableness of the useful lives of these assets.
These assets are also reviewed for impairment or obsolescence when events or circumstances indicate that the carrying amount may not be
recoverable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount
by which the carrying amount of the asset exceeds the fair value of the asset.
Schedule of intangible assets | |
| |
| | |
| |
| |
| |
| | |
| |
| |
Useful Lives | |
March 31, 2023 | | |
December 31, 2022 | |
| |
| |
| | |
| |
Customer relationship | |
5 years | |
$ | 3,003,676 | | |
$ | 3,003,676 | |
Less accumulated amortization | |
| |
| (2,507,576 | ) | |
| (2,357,392 | ) |
Net carrying value | |
| |
$ | 496,100 | | |
$ | 646,284 | |
During each of the three months ended March 31,
2023 and 2022, the Company recognized $150,184 in amortization expense related to the customer relationship intangible asset, which is
included in general and administrative expenses on the accompanying condensed consolidated statements of operations.
Future amortization of the customer relationship
asset, for years ending December 31, is as follows:
Schedule of future accumulated amortization | |
| |
| |
| |
2023 | |
$ | 450,552 | |
2024 | |
| 45,548 | |
Total | |
$ | 496,100 | |
NOTE 4 – DEBT
Following is a summary of debt outstanding at
March 31, 2023 and December 31, 2022:
Summary of long term debt | |
| | |
| |
| |
March 31, 2023 | | |
December 31, 2022 | |
Small Business Administration Loan (a) | |
$ | – | | |
$ | 150,000 | |
Note payable (b) | |
| 1,437,500 | | |
| – | |
Total debt | |
| 1,437,500 | | |
| 150,000 | |
Less: unamortized debt discounts | |
| (773,471 | ) | |
| – | |
Current portion of debt, net of debt discounts | |
| 664,029 | | |
| – | |
Long-term portion of debt | |
$ | – | | |
$ | 150,000 | |
(a) |
In June 2020, the Company received an Economic Injury Disaster Loan of $150,000 from the Small Business Administration (SBA) which carries a thirty-year term, and interest at 3.7% per annum, with a maturity date in July of 2050. The loan is to be repaid in monthly installments, including principal and interest, of $731, beginning twelve months from the date of the loan. Total accrued and unpaid interest on the debt was $13,594 at December 31, 2022 and is included in accounts payable and accrued expenses on the accompanying consolidated balance sheet. The total principal outstanding has been presented as long-term liabilities as payments required to be made in 2023 will be applied to accrued interest. On January 5, 2023, the Company paid $163,885 to the Small Business Administration to pay off all outstanding principal and accrued interest on the Company’s SBA loan. |
|
|
(b) |
On December 30, 2022, the Company and Walleye
Opportunities Master Fund Ltd, a Cayman Islands company (the “Investor”), entered into a Securities Purchase Agreement (the
“Agreement”) for the Investor to purchase from the Company (i) a senior secured 20% original issue discount (OID) nine-month
promissory note in an aggregate gross principal amount of $1,437,500, less the 20% OID of $287,500, for a net subscription amount of $1,150,000
(the “Investor Note”), and (ii) a five year warrant to purchase 2,613,636 shares of the Company’s common stock at an
exercise price of $0.44 per share, exercisable commencing July 1, 2023 and expiring December 30, 2027 (the “Investor Warrant”).
The transaction closed, and proceeds from the Agreement were received by the Company in January 2023. If at any time commencing July 1, 2023, the Company issues,
sells, or announces for sale, any shares of its common stock (Subsequent Equity Sale) for a per share price less than the exercise price
of the Investor Warrant in effect immediately prior to such Subsequent Equity Sale, the exercise price of the Investor Warrant shall be
reduced to an amount equal to the issuance price of the Subsequent Equity Sale.
In conjunction with the Agreement, the Company
issued 522,727 shares of common stock, or approximately 5.3% of the Company’s outstanding shares, to the Investor as an incentive
on the transaction (Incentive Shares). Excluding the above referenced Investor Warrant, the shares of Common Stock exercisable pursuant
to such Investor Warrant are not being considered beneficially owned by the Investor until the Investor Warrant is exercisable within
60 days. Total issuance fees of $138,500 associated with the closing of the Agreement were paid by the Company to Spartan Capital Securities
LLC and the Investor’s counsel, resulting in net proceeds of $1,011,500. Approximately $164,000 of the loan proceeds were utilized
to repay the outstanding principal and accrued interest under the SBA loan (see above).
The Investor Note will only become convertible
into common stock upon the occurrence of an Event of Default under and as defined in the Investor Note on terms set forth in the Investor
Note. This Investor Note matures and is payable on or before September 30, 2023, and it provides that the Investor may demand prepayment
after March 31, 2023 and before the maturity date, provided that the purchasers of securities in a future public offering by the Company,
as defined in the Agreement, who hold the purchased Company securities at the time the prepayment demand, unanimously consent to the
prepayment. The Company granted a security interest in all of its assets to the Investor as collateral for its obligations under the
Investor Note pursuant to a Security Agreement. In addition, the Company’s subsidiaries guaranteed the obligations of the Company
under the Investor Note pursuant to a Subsidiary Guarantee and granted a first lien security interest in all of their assets to the Investor
as additional collateral pursuant to the Security Agreement. All securities sold in the above-described transaction contain certain piggy-back
registration rights after the completion of our February 2023 offering (see Note 5). |
The aforementioned Investor Warrant was deemed
to be an equity-classified derivative instrument with a fair value of $1,526,363 at the date of closing on the Agreement, incorporating
the use of the Black-Scholes valuation model, and the Incentive Shares were deemed to have a fair value of $318,863 based on the closing
market price of the Company’s common stock on the day preceding the closing of the Agreement. Per accounting guidance under ASC
815, the Company recorded the fair values of the Investor Warrant and Incentive Shares based on the relative fair value allocation method,
which allocates fair values as a percentage of total fair value of the debt, Investor Warrant, and Incentive Shares, in proportion to
the net proceeds received (after deducting fees paid to lender) under the Investor Note of $1,150,000. As a result of applying the relative
fair value allocation method, the Investor Warrant was assigned a relative fair value of $586,040 and the Incentive Shares were assigned
a relative fair value of $122,426, at the date of closing on the Agreement. The fair values of the Investor Warrant, the Incentive Shares,
the OID of $287,500, and the $138,500 in debt issuance costs paid, were recorded as debt discounts and debt issuance costs totaling $1,134,466,
and are presented net against the debt principal outstanding on the accompanying condensed consolidated balance sheet at March 31, 2023.
Amortization associated with the total debt discounts is being recognized using the effective interest method over the term of the Investor
Note, which matures on September 30, 2023. For the quarter ended March 31, 2023, $360,993 in amortization on the debt discounts was recognized
as interest expense on the accompanying condensed consolidated statement of operations, and remaining unamortized debt discounts at March
31, 2023 were $773,471.
NOTE 5 – STOCKHOLDERS’ EQUITY
The Company’s authorized capital stock consists
of 105,000,000 shares, comprised of 100,000,000 shares of common stock, par value $0.0001, and 5,000,000 shares of preferred stock, $0.0001
par value.
Of the 5,000,000 shares of preferred stock authorized,
the Board of Directors has designated the following:
|
· |
1,500,000 shares as Series AA Preferred Stock, none outstanding |
|
· |
1,250,000 shares as Series AAA Preferred Stock, 31,413 shares outstanding |
|
· |
1,250 shares as Series AAAA Preferred Stock, all previously outstanding shares of which have been redeemed or converted |
|
· |
1,500 shares as Series C Preferred Stock, none outstanding |
|
· |
2 shares as Series B Preferred Stock, all previously outstanding shares of which have been redeemed or converted |
|
· |
70,000 shares as Series E Preferred Stock, 61,688 shares outstanding |
Rights Under Preferred Stock
The Company’s classes of preferred stock
include the following provisions:
Optional Conversion Rights
|
· |
Series AA preferred stock – one share convertible into 50 shares of common stock |
|
· |
Series AAA preferred stock – one share convertible into 100 shares of common stock |
|
· |
Series C preferred stock – one share convertible into 100,000 shares of commons stock |
|
· |
Series E preferred stock – one share at a rate of Stated Value, as defined, divided by $0.08, convertible commencing January 31, 2020 |
Redemption Rights
Series E preferred stock is redeemable at any
time upon 30 days written notice by the Company and the holders, at a rate of 100% of the Stated Value, as defined.
Warrant Coverage
Series C preferred stock carries 100% warrant
coverage upon preferred stock conversion, warrants exercisable through September 20, 2023 at an exercise price of $0.12.
No further voting, dividend or liquidation preference
rights exist as of March 31, 2023 on any class of preferred stock.
February 2023 Public Offering
On February 13, 2023, the Company entered into
an underwriting agreement (the Underwriting Agreement) with Spartan Capital Securities, LLC (the Underwriter) relating to a public offering
of 3,777,634 shares of common stock and pre-funded warrants to purchase 4,286,883 shares of common stock (the Shares), for net proceeds
of $3,207,500 (the February 2023 Offering). In conjunction with the February 2023 Offering, which closed on February 16, 2023, the investors
also received other Warrants to purchase 12,096,776 shares of common stock (Series 2023 Warrants). The offered Shares were priced at $0.465
per combination of one share of common stock or one pre-funded warrant, accompanied by one Series 2023 Warrant.
Each pre-funded warrant is exercisable at any
time, until fully exercised, to purchase one share of common stock at an exercise price of $0.0001 per share. Each Series 2023 Warrant
is exercisable for five years to purchase 1.5 shares of common stock at a cash exercise price of $0.465 per warrant share. The Series
2023 Warrants contain an alternative cashless exercise provision permitting the holder to acquire 0.75 shares of common stock for every
1.5 warrant shares any time after the earlier of (i) 30 days following the initial exercise date of February 14, 2023 and (ii) the date
on which the aggregate trading volume of the Company’s common stock, beginning on the initial exercise date of the Series 2023 Warrants,
exceeds 36,290,322 shares. Additionally, the exercise price of both the pre-funded warrants and the Series 2023 Warrants are subject to
customary adjustments for stock splits, stock dividends, reclassifications and the like.
Pursuant to the terms of the Underwriter agreement,
and as partial consideration to the Underwriter, the Company issued a warrant for the purchase of 403,226 shares of common stock, exercisable
from February 14, 2023 through February 14, 2028, at an initial exercise price of $0.5115 per share. The Company also granted the Underwriter
a 45-day option to purchase up to an additional 1,209,678 shares and/or pre-funded warrants in lieu of shares, and accompanying Series
2023 Warrants to purchase 1,814,517 shares at the public offering price less the underwriting discounts and commissions, to cover over-allotments,
if any. No additional shares or pre-funded warrants were purchased by the Underwriter. The Company paid a cash fee to the Underwriter
equal to 8% of the gross proceeds raised in the February 2023 Offering, plus a reimbursement of Underwriter fees totaling $242,500.
Between the closing of the February 2023 Offering
and March 31, 2023, one or more investors holding pre-funded warrants converted their pre-funded warrants into 3,036,667 shares of common
stock and elected the alternative cashless exercise provision for the Series 2023 Warrant exercise of 806,451 shares of the Series 2023
Warrants, resulting in the issuance of 403,226 shares of common stock. Pre-funded warrants and Series 2023 Warrants remaining outstanding
and exercisable at March 31, 2023 were 1,250,216 and 11,290,325, respectively.
Subsequent to March 31, 2023, the remaining 1,250,216
shares of pre-funded warrants were exercised, resulting in the issuance of 1,250,216 shares of common stock in April 2023. Also, subsequent
to March 31, 2023, an additional 8,870,969 shares of the Series 2023 Warrants were exercised under the alternative cashless exercise provision,
resulting in the issuance of 4,435,485 shares of common stock in April 2023.
Shares Issued for Services
During the quarter ended March 31, 2022, the Company
issued 50,000 shares of common stock, at $1.69 per share for $84,500 in exchange for services rendered. No shares were issued during the
March 31, 2023, quarter ended.
Shares issued upon conversion of debt:
During the quarter ended March 31, 2022, Dr. Gene
Salkind, his wife, and a trust converted an aggregate of $2,052,500 of secured debt in exchange for 1,368,333 shares of common stock as
well as warrants to purchase 684,166 shares of common stock at an exercise price of $4.00 per share through September 2029. The Company
recorded a loss on debt extinguishment of $491,915 related to the conversion.
The Company also converted $150,000 of debt into
75,000 shares of common stock, having a fair value of $135,750, resulting in a gain on debt extinguishment of $14,250. No shares were
issued during the quarter ended March 31, 2023.
NOTE 6 – 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 (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 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 approved 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 2021 Plan required stockholder approval by October 13, 2022, to be able to grant incentive stock options
under the 2021 Plan. The 2005 Plan, 2009 Plan, 2016 Plan, 2018 Plan, 2019 Plan and 2021 Plan 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 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 Plan with immediate vesting, at an exercise price of $1.55, and expiration of April 2031.
In March of 2023, Nate Knight was granted 25,000
options from the Company’s 2021 Plan with immediate vesting, at an exercise price of $0.22, and expiration of March 2028.
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. The weighted average assumptions made in calculating the fair values of options granted during
the quarters ended March 31, 2023, and 2022 are as follows:
Schedule of assumptions used | |
| |
|
| |
Quarter Ended March 31 |
| |
2023 | |
2022 |
Expected volatility | |
165.43% | |
79.95% |
Expected dividend yield | |
– | |
– |
Risk-free interest rate | |
3.73% | |
2.14% |
Expected term (in years) | |
5 | |
10 |
Schedule of options outstanding | |
| | |
| | |
| | |
| |
| |
Share | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding, January 1, 2023 | |
| 1,162,722 | | |
$ | 16.22 | | |
| 7.44 | | |
$ | – | |
Granted | |
| 25,000 | | |
$ | 0.22 | | |
| 4.98 | | |
| – | |
Exercised | |
| – | | |
| – | | |
| – | | |
| – | |
Cancelled & expired | |
| (48,375 | ) | |
| – | | |
| – | | |
| – | |
Outstanding, March 31, 2023 | |
| 1,139,347 | | |
$ | 15.69 | | |
| 7.46 | | |
$ | – | |
Options exercisable, March 31, 2023 | |
| 1,131,124 | | |
$ | 15.63 | | |
| 7.45 | | |
$ | – | |
The weighted-average grant-date fair value of
options granted during the three months ended March 31, 2023 was $0.22.
The aggregate intrinsic value of options outstanding
and options exercisable on March 31, 2023, 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 lower than the $0.18 closing price of the Company's
common stock on March 31, 2023. Stock-based compensation expense was $12,304 and $34,416 for the quarters ended March 31, 2023 and 2022,
respectively, and is included in general and administrative expenses on the accompanying condensed consolidated statements of operations.
As of March 31, 2023, the unamortized compensation
cost related to unvested stock option awards is $5,688 and is expected to be recognized during the remainder of fiscal 2023.
Warrants
During the three months ended March 31, 2023,
the Company issued a total of 19,400,521 common stock warrants, of which 2,613,636 were issued in connection with the 20% OID
Promissory note (see Note 4). The warrants issued in connection with the 20% OID Promissory note are exercisable commencing July 1, 2023
through December 30, 2027. An additional 16,786,885 were issued in connection with the public offering of February 2023, including 4,286,883
of pre-funded warrants (see Note 5) with a five-year contractual term, expiring February 14, 2028.
The weighted average assumptions made in calculating
the fair value of warrants granted during the three months ended March 31, 2023, and 2022 are as follows:
Schedule of warrant assumptions | |
| |
|
| |
Quarters Ended March 31, |
| |
2023 | |
2022 |
Expected volatility | |
172.63% | |
75.87% |
Expected dividend yield | |
– | |
– |
Risk-free interest rate | |
3.85% | |
2.03% |
Expected term (in years) | |
5.00 | |
6.25 |
Schedule of warrants outstanding | |
| | |
| | |
| | |
| |
| |
Share | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding, January 1, 2023 | |
| 4,683,800 | | |
$ | 13.01 | | |
| 4.73 | | |
$ | – | |
Granted | |
| 19,400,521 | | |
$ | 0.24 | | |
| 2.83 | | |
$ | 212,537 | |
Exercised* | |
| (3,843,118 | ) | |
$ | 0.47 | | |
| – | | |
$ | – | |
Outstanding, March 31, 2023 | |
| 20,241,203 | | |
$ | 3.34 | | |
| 4.74 | | |
$ | 212,537 | |
Warrants exercisable, March 31, 2023 | |
| 17,627,567 | | |
$ | 4.09 | | |
| 4.77 | | |
$ | 212,537 | |
* |
Includes 3,036,667
of pre-funded warrants with a purchase price of $0.47,
paid upon grant of warrants issued in the February 2023 Offering. |
NOTE 7: EARNINGS (LOSS) PER SHARE
Pursuant to ASC 260, Earnings Per Share, 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 (loss) per share is computed
by dividing net income (loss) 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 March 31, 2023, and December 31, 2022, are as follows:
Schedule of anti dilutive securities | |
| | |
| |
| |
March 31, 2023 | | |
December 31, 2022 | |
Convertible notes payable and accrued interest | |
| – | | |
| 58,891 | |
Stock options | |
| 1,139,347 | | |
| 1,162,721 | |
Warrants | |
| 20,241,203 | | |
| 4,682,551 | |
Total common stock equivalents | |
| 21,380,550 | | |
| 5,904,163 | |
NOTE 8 – LITIGATION
The Company may be involved in lawsuits in the
normal course of business. Management cannot predict the outcome of the lawsuits or estimate the amount of any loss that may result. Accordingly,
no provision for any contingent liabilities that may result has been made in the financial statements. Management believes that losses
resulting from these matters, if any, would not have a material adverse effect on the financial position or results of operations of the
Company. See further discussion at Note 10.
NOTE 9 –NASDAQ LISTING REQUIREMENTS
Our common stock and 2021 Warrants are listed
on the NasdaqCM. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards,
including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share
price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable listing
standards.
On January 13, 2023, we received a letter from
The Nasdaq Stock Market stating that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price
of the Company’s common stock was below $1.00 per share for 30 consecutive business days. Pursuant to Nasdaq’s Listing Rules,
the Company has a 180-day grace period, until July 12, 2023, during which the Company may regain compliance if the bid price of its common
stock closes at $1.00 per share or more for a minimum of ten consecutive business days.
If we do not regain compliance with the bid price
requirement, we may be eligible for an additional 180-calendar day compliance period so long as we satisfy the criteria for initial listing
on the NasdaqCM and the continued listing requirement for market value of publicly held shares and we provide written notice to Nasdaq
of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. A reverse
stock split requires the approval of our shareholders, and we cannot assure that we will receive the requisite shareholder vote to allow
us to effectuate a stock split. In the event we are not eligible for the second grace period, the Nasdaq staff will provide written notice
that our Common Stock is subject to delisting; however, we may request a hearing before the Nasdaq Hearings Panel, which request, if timely
made, would stay any further suspension or delisting action by the Nasdaq pending the conclusion of the hearing process and expiration
of any extension that may be granted by the Hearings Panel.
On January 4, 2023, we received a deficiency notification
from the Listing Qualifications Department of The NasdaqCM notifying the Company of its noncompliance with the NasdaqCM Listing Rule 5620(a)
to hold an annual meeting of shareholders within no later than one year after the end of the Company’s fiscal year end. Under NasdaqCM
Rules the Company now has 45 calendar days to submit a plan to regain compliance and can grant up to 180 calendar days from the fiscal
year end, or until June 29, 2023, to regain compliance.
On December 14, 2022, we received a deficiency
letter from the Listing Qualifications Department of The NasdaqCM notifying the Company of its noncompliance with the NasdaqCM Listing
Rule 5550(b)(1) for the NasdaqCM, which requires that a listed company’s stockholders’ equity be at least $2.5 million. In
accordance with NasdaqCM rules, the Company has 45 calendar days from the date of the notification to submit a plan to regain compliance
with NasdaqCM Listing Rule 5550(b)(1). The Company intends to submit a compliance plan within 45 days of the date of the notification
and will evaluate available options to resolve the deficiency and regain compliance. If the Company’s compliance plan is accepted,
the Company may be granted up to 180 calendar days from December 14, 2022, to evidence compliance.
In order to maintain the listing of its common
stock on The NasdaqCM, the Company must demonstrate compliance with Listing Rule 5550(b)(1) which requires the Company to maintain:
(1) Stockholders’ equity of at least $2.5 million; or (2) Market Value of Listed Securities of at least $35 million.
The Company’s plan of compliance outlined a plan for compliance with the stockholders’ equity standard requirement by completing
the recently completed February 2023 Offering. (see Note 5). As the net proceeds of the recently completed offering was approximately
$3,207,500, which is lower than the amount anticipated, the Company will likely need to raise additional capital and to amend its plan
of compliance.
The Company intends to regain compliance with
each of the applicable continued listing requirements of The NasdaqCM prior to the end of the compliance periods set forth in the Hearings
Panel decision. However, until Nasdaq has reached a final determination that the Company has regained compliance with all of the applicable
continued listing requirements, there can be no assurances regarding the continued listing of the Company’s common stock and 2021
Warrants on Nasdaq. If our common stock and 2021 Warrants cease to be listed for trading on the NasdaqCM, we would expect that our Common
Stock and 2021 Warrants would be traded on one of the three tiered marketplaces of the OTC Markets Group. If Nasdaq were to delist our
common stock and 2021 Warrants, it would be more difficult for our stockholders to dispose of our common stock or 2021 Warrants and more
difficult to obtain accurate price quotations on our common stock or 2021 Warrants. The delisting of the Company’s common stock
and 2021 Warrants from Nasdaq would have a material adverse effect on the Company’s access to capital markets, and any limitation
on market liquidity or reduction in the price of its common stock as a result of that delisting would adversely affect the Company’s
ability to raise capital on terms acceptable to the Company, if at all.
NOTE 10 – SUBSEQUENT EVENTS
In April 2023, the Compensation Committee of the
Company’s Board of Directors approved the following transactions:
Equity Transactions
| · | Grant of 100,000 shares of restricted common stock to Gene Salkind, Chairman of the Board, for services
previously rendered, based on a per share value of $0.167. Such shares are restricted from transfer until February 13, 2024. |
| · | Grant of 50,000 shares of restricted common stock each to the Company’s CEO and another member of
the Board of Directors for services as directors of the Company. Such shares are restricted from transfer until February 13, 2024. |
| · | Grant of 30,000 shares of common stock to Mr. Salkind as payment for accrued and unpaid interest of approximately
$5,000 based on a per share value of $0.167. |
| · | Grant of 71,856 shares of restricted common stock to the Company’s legal counsel as payment for
accrued and unpaid services valued at $12,000 and $0.167 per share. Such shares are restricted from transfer until February 13, 2024. |
| · | Issuance of 1,562,133 shares of restricted common stock at a per share value of $0.17 as payment and full
settlement of outstanding accounts payable with a total carrying amount of $265,563. |
| · | Grant of 25,000 stock options to a member of the Board of Directors in April 2023 with a term of five years and
exercise price of $0.22 per share. |
The effects on the Company’s consolidated
financial statements included an increase in stockholders’ equity of $282,573.
Subsequent to March 31, 2023, the remaining 1,250,216
shares of pre-funded warrants were exercised, resulting in the issuance of 1,250,216 shares of common stock in April 2023. Also, subsequent
to March 31, 2023, an additional 8,870,969 shares of the Series 2023 Warrants were exercised under the alternative cashless exercise provision,
resulting in the issuance of 4,435,485 shares of common stock in April 2023.
Litigation
Michael Trepeta, a former Co-CEO and director
of the Company, filed a lawsuit against the Company and its subsidiary, Mobiquity Networks in April 2023 in the New York State Supreme
Court, Nassau County. The claims stem from a Separation Agreement and Release that Mr. Trepeta and the Company entered into six years
ago in April 2017 which terminated Mr. Trepeta’s employment agreement and discontinued his employment and directorship with the
Company, among other things, by mutual agreement. Mr. Trepeta also gave the Company a release in the Separation Agreement and Release.
Mr. Trepeta has claimed that the Company fraudulently induced him to enter into the Separation Agreement and Release; that the Company
breached Mr. Trepeta’s employment agreement; and that the Company breached its covenant of good faith and fair dealing and its fiduciary
duty. Mr. Trepeta is claiming not less than $2.5 Million in damages. Based on the Company’s initial internal review of the situation,
the Company believes the claims lack merit and it intends to vigorously defend same. Due to uncertainties inherent in litigation, the
Company cannot predict the outcome of this matter at this time.