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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

or

 

TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 000-54817

 

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

 

Nevada   20-5451302

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1117 State Street, Santa Barbara, California 93101

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (805) 456-7000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

 

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

 

  Large accelerated filer Accelerated filer
  Non-accelerated filer Smaller reporting company
      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

The number of shares of registrant’s common stock outstanding, as of August 11, 2023 was 733,766,705.

 

 

 

 
 

 

DIGITAL LOCATIONS, INC.

INDEX

 

PART I: FINANCIAL INFORMATION 3
ITEM 1     FINANCIAL STATEMENTS (Unaudited) 3
      Condensed Consolidated Balance Sheets 3
      Condensed Consolidated Statements of Operations 4
      Condensed Consolidated Statements of Stockholders’ Deficit 5
      Condensed Consolidated Statements of Cash Flows 7
      Notes to Condensed Consolidated Financial Statements 8
ITEM 2     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
ITEM 3     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
ITEM 4     CONTROLS AND PROCEDURES 26
PART II: OTHER INFORMATION 27
ITEM 1     LEGAL PROCEEDINGS 27
ITEM 1A     RISK FACTORS 27
ITEM 2     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 27
ITEM 3     DEFAULTS UPON SENIOR SECURITIES 27
ITEM 4     MINE SAFETY DISCLOSURES 27
ITEM 5     OTHER INFORMATION 27
ITEM 6     EXHIBITS                       28
SIGNATURES 29

 

2

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

 

           
   June 30, 2023   December 31, 2022 
   (Unaudited)   
ASSETS        
Current assets:          
Cash  $10,258   $31,113 
Total current assets   10,258    31,113 
           
Other assets:          
Deposits   500    500 
Intangible assets, net   5,000    6,000 
Total assets  $15,758   $37,613 
           
LIABILITIES, MEZZANINE AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $122,200   $113,187 
Accounts payable – related party   -    10,000 
Accrued expenses and other current liabilities   2,188    3,729 
Accrued interest, notes payable   56,056    53,212 
Derivative liabilities   147,307    1,233,679 
Convertible note payable, in default   29,500    29,500 
Notes Payable   135,000    - 
Convertible notes payable – related parties ($25,980 in default)   58,600    58,600 
Convertible notes payable, net of discount of $0 and $22,834, at June 30, 2023 and December 31, 2022, respectively   -    15,916 
Total current liabilities   550,851    1,517,823 
           
Long-term liabilities – convertible notes payable, net of discount of $501,643 and $600,767, at June 30, 2023 and December 31, 2022, respectively   498,357    399,233 
Total liabilities   1,049,208    1,917,056 
           
Mezzanine:          
Preferred stock, $0.001 par value; stated value $100; 20,000,000 shares authorized:          
Series B, 14,241 shares issued and outstanding at June 30, 2023 and December 31, 2022   1,424,100    1,424,100 
Series E, 44,220 and 40,600 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively   4,422,000    4,060,000 
           
Stockholders’ deficit:          
Common stock, $0.001 par value; 2,000,000,000 shares authorized, 733,766,705 and 604,150,321 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively   733,767    604,150 
Additional paid-in capital   43,625,573    42,196,857 
Accumulated deficit   (51,238,890)   (50,164,550)
Total stockholders’ deficit   (6,879,550)   (7,363,543)
Total liabilities, mezzanine and stockholders’ deficit  $15,758   $37,613 

 

See accompanying notes to condensed consolidated financial statements

 

3

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY 

Condensed Consolidated Statements of Operations

(Unaudited)

 

                     
   Three Months Ended June 30,   Six Months Ended June 30, 
   2023   2022   2023   2022 
                 
Revenues  $8,008   $5,672   $12,980   $11,526 
                     
Operating expenses:                    
General and administrative   1,075,067    936,002    2,012,927    1,872,093 
Depreciation and amortization   500    500    1,000    1,000 
                     
Total operating expenses   1,075,567    936,502    2,013,927    1,873,093 
                     
Loss from operations   (1,067,559)   (930,830)   (2,000,947)   (1,861,567)
                     
Other income (expense):                    
Interest expense   (53,126)   (158,642)   (129,007)   (309,436)
Gain on forgiveness of debt   -    6,034         6,034 
Gain on change in derivative liabilities   (147,307)    2,736,905    1,055,614    4,190,438 
                     
Total other income (expense)   (200,433)   2,584,297    926,607    3,887,036 
                     
Income (loss) before income taxes   (1,267,992)   1,653,467    (1,074,340)   2,025,469 
Provision for income taxes   -    -    -     - 
                     
Net income (loss)  $(1,267,992)  $1,653,467   $(1,074,340)  $2,025,469 
                     
Weighted average number of common shares outstanding:                    
Basic   733,766,705    371,466,210    683,131,202    337,081,707 
Diluted   733,766,705    4,021,145,995    683,131,202    3,986,761,492 
                     
Net income per common share:                    
Basic  $(0.0017)  $0.00   $(0.0016)  $0.01 
Diluted  $(0.0017)  $0.00   $(0.0016)  $0.00 

 

See accompanying notes to condensed consolidated financial statements

 

4

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statement of Stockholders’ Deficit

Six Months Ended June 30, 2023 (Unaudited)

 

                                              
  

Series B

Preferred Stock

  

Series E

Preferred Stock

   Common Stock  

Additional

Paid-in

   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
                                     
Balance, December 31, 2022   14,421   $1,424,100 -  40,600   $4,060,000-    604,150,321   $604,150   $42,196,857   $(50,164,550)  $(7,363,543)
                                              
Issuance of common stock for conversion of notes payable and accrued interest payable   -    -    -    -    129,616,384    129,617    (88,646)   -    40,971 
Issuance of Series E preferred stock for cash   -    -    3,620    362,000    -    -    -    -    - 
Vesting of consultant stock options   -    -    -    -    -    -    1,486,604    -    1,486,604 
Settlement of derivative liabilities   -    -    -    -    -    -    30,758    -    30,758 
Net loss   -    -  -  -    - -   -    -    -    (1,074,340)   (1,074,340)
                                              
Balance, June 30, 2023   14,241   $1,424,100  -  44,220   $4,422,000 -   733,766,705   $733,767   $43,625,573   $(51,238,890)  $(6,879,550)

 

See accompanying notes to condensed consolidated financial statement

 

5

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statement of Stockholders’ Deficit

Six Months Ended June 30, 2022 (Unaudited)

 

  

Series B

Preferred Stock

  

Series E

Preferred Stock

   Common Stock  

Additional

Paid-in

   Accumulated     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
                                     
Balance, December 31, 2021   14,462   $1,446,200    35,400   $3,540,000    276,383,093   $276,383   $39,412,236   $(51,133,564)  $(11,444,945)
                                              
Issuance of common stock for conversion of Series B preferred stock   (221)   (22,100)   -    -    14,733,333    14,734    7,366    -    22,100 
Issuance of common stock for conversion of notes payable and accrued interest payable   -    -    -    -    144,127,236    144,127    87,748    -    231,875 
Issuance of common stock for services   -    -    -    -    4,000,000    4,000    16,000    -    20,000 
Issuance of Series E preferred stock for cash   -    -    2,150    215,000    -    -    -    -    - 
Issuance of consultant stock options   -    -    -    -    -    -    (545,462)   -    (545,462)
Vesting of consultant stock options   -    -    -    -    -    -    1,489,012    -    1,489,012 
Settlement of derivative liabilities   -    -    -    -    -    -    166,841    -    166,841 
Net income   -    -    -    -    -    -    -    2,025,469    2,025,469 
                                              
Balance, June 30, 2022   14,241   $1,424,100    37,550   $3,755,000    439,243,662   $439,244   $40,633,741   $(49,108,095)  $(8,035,110)

 

See accompanying notes to condensed consolidated financial statements

 

6

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

           
   Six Months Ended June 30, 
   2023   2022 
         
Cash flows from operating activities:          
Net income (loss)  $(1,074,340)  $2,025,469 
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation and amortization   1,000    1,000 
Amortization of debt discount to interest expense   121,958    291,627 
Gain on change in derivative liabilities   (1,055,614)   (4,190,438)
Common stock issued for services   -    20,000 
Stock option compensation   1,486,604    1,489,012 
Loss on extinguishment of debt   -    (6,034)
Changes in assets and liabilities:          
Increase (decrease) in:          
Accounts payable   9,013    29,556 
Accounts payable – related party   (10,000)   (10,000)
Accrued expenses   (1,541)   1,274 
Accrued interest, notes payable   5,065    7,353 
Net cash used in operating activities   (517,855)   (341,171)
           
Cash flows from investing activities:          
Increase in deposits   -    (500)
Net cash used in investing activities   -    (500)
           
Cash flows from financing activities:          
Proceeds from convertible notes payable   -    115,000 
Proceeds from the issuance of Series E preferred stock   362,000    215,000 
Proceeds from notes payable   135,000    - 
Repayment of convertible notes payable   -    (40,395)
Net cash provided by financing activities   497,000    289,605 
           
Net increase (decrease) in cash   (20,855)   (52,066)
Cash, beginning of period   31,113    68,366 
           
Cash, end of period  $10,258   $16,300 
           
Supplemental Disclosure:          
Cash paid for income taxes  $-   $- 
Cash paid for interest   -    4,423 
Non-cash financing and investing activities:          
Common shares issued in conversion of debt  $40,971    231,875 
Settlement of derivative liabilities   30,758    166,841 
Debt discount for derivative liabilities   -    648,908 
Common shares issued in conversion of Series B preferred stock   -    22,100 
Derivative liability for consultant stock options   -    545,462 

 

See accompanying notes to condensed consolidated financial statements

 

7

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2023

(Unaudited)

 

1. ORGANIZATION AND BASIS OF PRESENTATION

 

Organization

 

Digital Locations, Inc. (the “Company”) was incorporated in the State of Nevada on August 25, 2006 as Zingerang, Inc. On April 2, 2007, the Company changed its name to Carbon Sciences, Inc. and on November 14, 2017, the Company changed its name to Digital Locations, Inc.

 

On January 7, 2021, the Company, SmallCellSite.com LLC, a Virginia limited liability company (“SCS LLC”) and SmallCellSite, Inc., a newly formed Nevada corporation and wholly owned subsidiary of the Company (“SCS”) entered into an asset purchase agreement (“APA”) to acquire SCS LLC’s wireless communications marketing and database services business. SCS LLC is a source of more than 80,000 cell sites offered by property owners for use by wireless network operators.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information refer to the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2022.

 

Going Concern

 

The accompanying financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. As of June 30, 2023, our current liabilities exceeded our current assets by $540,593 and we had an accumulated deficit of $51,238,890. The Company currently does not have the cash resources to meet its operating commitments for the next twelve months and expects to have ongoing requirements for capital investment or debt to implement its business plan. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern for a reasonable period of time.

 

The ability of the Company to continue as a going concern is dependent upon, among other things, raising additional capital. The Company has obtained operating funds primarily from the issuance of convertible debt. Management believes this funding will continue and will provide the additional cash needed to meet the Company’s obligations as they become due. There can be no assurance, however, that the Company will be successful in accomplishing its objectives. Without such additional capital we may be required to cease operations. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 

8

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies of the Company are disclosed in Note 2 to the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2023. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company’s interim financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment and intangible assets, operating lease obligations, impairment of assets, the deferred tax valuation allowance, the fair value of stock options and derivative liabilities. Actual results could differ from those estimates.

 

Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and of SCS, its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Intangible Assets

 

The identifiable intangible assets acquired in the SCS acquisition are amortized using the straight-line method over an estimated life of 5 years.

 

Derivative Liabilities

 

We have identified the conversion features of some of our convertible notes payable as derivatives due to their variable conversion price. Where the number of common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional convertible debt is included in the value of the derivatives. We estimate the fair value of the derivatives using a Black-Scholes pricing model and/or a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

 

During the six months ended June 30, 2023, the Company had the following activity in its derivative liabilities account:

 

  

Convertible

Notes

Payable

  

Stock

Options

   Total 
             
Derivative liabilities as of December 31, 2022  $740,157   $493,522   $1,233,679 
                
Addition to liabilities for new debt/shares issued   -    -    - 
Elimination of liabilities in debt conversions   (30,758)   -    (30,758)
Change in fair value   (562,092)   (493,522)   (1,055,614)
                
Derivative liabilities as of June 30, 2023  $147,307   $-   $147,307 

  

The significant assumptions used in the valuation of the derivative liabilities as of June 30, 2023 are as follows:

Expected life   0.502.51 years 
Risk free interest rates   4.49% - 5.47%
Expected volatility   192% - 253%

 

9

 

Fair Value of Financial Instruments

 

Disclosures about fair value of financial instruments, require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of June 30, 2023 and December 31, 2022, we believe the amounts reported for cash, accounts payable, accounts payable – related party, accrued expenses and other current liabilities, accrued interest, notes payable and certain notes payable approximate fair value because of their short maturities.

 

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. Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASC”) Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

 

  Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

 

  Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

 

  Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

We measure certain financial instruments at fair value on a recurring basis. As of June 30, 2023, we had no liabilities measured at fair value. Liabilities measured at fair value on a recurring basis as of December 31, 2022:

  

                     
   Total   Level 1   Level 2   Level 3 
December 31, 2022:                
Derivative liabilities  $1,233,679   $   -   $-   $1,233,679 
                     
Total liabilities measured at fair value  $1,233,679   $-   $    -   $1,233,679 
                     
June 30, 2023:                    
Derivative liabilities  $147,307   $-   $-   $147,307 
                     
Total liabilities measured at fair value  $147,307   $-   $-   $147,307 

 

10

 

Revenue Recognition

 

We have adopted Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) pursuant to which revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

 

We determine revenue recognition through the following steps:

 

  identification of the contract, or contracts, with a customer;
  identification of the performance obligations in the contract;
  determination of the transaction price;
  allocation of the transaction price to the performance obligations in the contract; and
  recognition of revenue when, or as, we satisfy a performance obligation.

 

Through its wholly owned subsidiary, the Company acts as an intermediary or agent to facilitate a platform through which property owners market billboards to wireless telephone carriers for placement of wireless communications network equipment. Contracts have been signed among the Company, the property owner, and the wireless telephone operator. Monthly payments are received by the Company from the wireless carriers, with the Company paying the property owner a percentage of revenues ranging from 70% to 85%. The net amount is retained by the Company as consideration for its intermediary services and recorded as revenues in the accompanying statements of operations.

 

Lease Accounting

 

Pursuant to the underlying contracts, the Company does not own the property and equipment which is leased by the cell phone carriers but acts as an intermediary or agent between the property owner and the cell phone carriers. Therefore, in accordance with ASC 840 and 841, “Leases,” the Company records revenues net of amounts received from cell phone carriers and payments made to property owners.

 

Concentrations of Credit Risk, Major Customers, and Major Vendors

 

During the three and six months ended June 30, 2023 and 2022, the Company received payments from two cell phone carriers, with one carrier representing substantially all payments.

 

During the three and six months ended June 30, 2023 and 2022, the Company had one landlord receiving all Company payments for lease of billboard site locations.

 

Income (Loss) per Share

 

Basic net income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options to acquire common stock, using the treasury stock method and the average market price per share during the period, and shares issuable upon exercise of convertible notes payable.

 

11

 

Basic weighted average number of common shares outstanding is reconciled to diluted weighted average number of common shares outstanding as follows:

  

           
   Three Months Ended
June 30, 2022
   Six Months Ended
June 30, 2022
 
         
Basic weighted average number of shares   371,466,210    337,081,707 
Dilutive effect of:          
Series B preferred stock   949,400,000    949,400,000 
Series E preferred stock   2,503,333,333    2,503,333,333 
Convertible notes payable   196,946,452    196,946,452 
           
Diluted weighted average number of shares   4,021,145,995    3,986,761,492 

 

For the three and six months ended June 30, 2023, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share; therefore, basic net loss per share is the same as diluted net loss per share. Potential dilutive securities were as follows:

           
   Three Months Ended
June 30, 2023
   Six Months Ended
June 30, 2023
 
         
Series B preferred stock   949,400,000    949,400,000 
Series E preferred stock   2,948,000,000    2,948,000,000 
Convertible notes payable   199,546,350    196,546,350 
           
Total   4,093,946,350    4,093,946,350 

 

Stock-Based Compensation

 

Stock-based compensation is measured at the grant date based on the value of the award granted using either the Black-Scholes option pricing model or a multinomial lattice model based on projections of various potential future outcomes and recognized over the period in which the award vests or straight-line. For stock awards no longer expected to vest, any previously recognized stock compensation expense is reversed in the period of termination. The stock-based compensation expense is included in general and administrative expenses.

 

Recently Issued Accounting Pronouncements

 

There were no new accounting pronouncements issued by the FASB during the six months ended June 30, 2023 and through the date of filing of this report that the Company believes will have a material impact on its financial statements.

 

Reclassifications

 

Certain amounts in the condensed consolidated financial statements for the prior year periods have been reclassified to conform to the presentation for the current year periods.

 

3. CONVERTIBLE NOTES PAYABLE

 

Convertible Promissory Note – $29,500 in Default

 

On March 14, 2013, we entered into an agreement to issue a 5% convertible promissory note in the principal amount of $29,500, which is convertible into shares of our common stock at a conversion price equal to the lesser of $1.50 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note, with a principal balance of $29,500 as of June 30, 2023 and December 31, 2022, matured on March 14, 2015, and is currently in default.

 

Convertible Promissory Notes – Related Parties of $58,600

 

On December 31, 2012, we issued 5% convertible promissory notes to two employees in exchange for services rendered in the aggregate amount of $58,600. The notes are convertible into shares of our common stock at a conversion price equal to the lesser of $2.00 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We recorded a total debt discount of $57,050 related to the conversion feature of the notes, which has been fully amortized to interest expense, along with a derivative liability at inception. One of the notes with a principal balance of $25,980 as of June 30, 2023 and December 31, 2022 matured on December 31, 2014 and is currently in default. The maturity date of a second note with a principal balance of $32,620 as of June 30, 2023 and December 31, 2022 has been extended to December 31, 2023.

 

12

 

August 24, 2022 Convertible Promissory Note - $38,750

 

Effective August 24, 2022, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $38,750 with a maturity date of August 24, 2023. The Company received net proceeds of $35,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $35,316 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2023, we issued the lender shares of our common stock in consideration for the conversion of principal of $38,750 and accrued interest of $2,221, extinguishing the debt in full. No gain or loss on extinguishment of debt was recorded since the conversion was completed within the terms of the convertible note.

 

Total accrued interest payable on these short-term convertible notes payable was $45,963 and $45,422 as of June 30, 2023 and December 31, 2022, respectively.

 

4. NOTES PAYABLE

 

On June 20, 2023, the Company entered into a 10% note in the principal amount of $135,000 with a maturity date of June 20, 2024 to fund their operations. During the six months ending June 30, 2023, no payment has been made on the note and as of June 30, 2023 accrued interest on the note was $370.

 

5. LONG-TERM CONVERTIBLE NOTES PAYABLE

 

On January 7, 2021, the Company issued two long-term convertible notes payable, each in the principal amount of $500,000, in conjunction with the business acquisition of SCS. The notes bear interest at an annual rate of 0.39% and mature January 7, 2026. The notes were discounted to a principal balance of $0 and a debt discount of $1,000,000 was recorded at inception. Amortization of the discount to interest expense was $49,836 during the six months ended June 30, 2023, resulting in a debt discount of $501,643 as of June 30, 2023. As of June 30, 2023 accrued interest on the notes was $9,723.

 

At any time after December 31, 2021, each month, each holder of the Assigned Notes may convert the principal amount of the Assigned Note into a number of shares of the Company’s common stock not exceeding 5% of the total trade volume of the Company’s common stock publicly reported for the previous calendar month at a conversion price of $0.013 per share. Each Assigned Note also imposes an overall limitation on the number of conversions to common stock that the holder may affect such that it prohibits the holder from beneficially owning more than 4.99% of the total issued and outstanding common stock of the Company at any time that the Assigned Note is outstanding.

 

6. MEZZANINE

 

Series B Preferred Stock

 

On March 2, 2016, the Company filed a Certificate of Designation for its Series B Preferred Stock (the “Series B Certificate”) with the Secretary of State of Nevada designating 30,000 shares of its authorized preferred stock as Series B Preferred Stock. The shares of Series B Preferred Stock have a par value of $0.001 per share.

 

The total face value of this entire series is three million dollars ($3,000,000). Each share of Series B Preferred Stock has a stated face value of $100, and effective April 2, 2021, is convertible into shares of fully paid and non-assessable shares of common stock of the Company at $0.0015 per share. The terms of the Series B Preferred Stock were amended effective March 31, 2021 to change the conversion price from a defined variable price to a fixed conversion price of $0.0015 per share.

 

13

 

During the six months ended June 30, 2023, the holder did not convert any shares of Series B Preferred Stock into shares of the Company’s common stock. During the six months ended June 30, 2022, the holder converted a total of 221 shares of Series B Preferred Stock valued at $22,100 into 14,733,333 shares of the Company’s common stock. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the Series B Preferred Stock.

 

As of June 30, 2023 and December 31, 2022, the Company had 14,241 shares of Series B Preferred Stock outstanding, and recorded as mezzanine at face value of $1,424,100 due to certain default provisions requiring mandatory cash redemption that are outside the control of the Company. These shares were originally issued in March 2016 for the redemption and cancellation of $1,615,362 of convertible promissory notes and $264,530 of accrued interest payable.

 

The holders of outstanding shares of the Series B Preferred Stock (the “Series B Holders”) are entitled to receive dividends pari passu with the holders of Common Stock, except upon a liquidation, dissolution and winding up of the Company, in which case the Series B Preferred Stock has a preference. Such dividends will be paid equally to all outstanding shares of Series B Preferred Stock and Common Stock, on an as-if-converted basis with respect to the Series B Preferred Stock. The Series B Holders may elect to use the most favorable conversion price for the purpose of determining the as-if-converted number of shares.

 

In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Series B Holder shall be entitled to receive, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, an amount equal to $100 for each such share of the Series B Preferred Stock (as adjusted for any combinations, consolidations, stock distributions, stock splits or stock dividends with respect to such shares), plus all dividends, if any, declared and unpaid thereon as of the date of such distribution, before any payment is made or any assets distributed to the holders of the Common Stock. After such payment, the remaining assets of the Company will be distributed to the holders of Common Stock.

 

Series E Preferred Stock

 

Effective April 2, 2021, the Company filed a Certificate of Designation with the State of Nevada designating 45,000 shares of its authorized preferred stock as Series E Preferred Stock. The shares of Series E Preferred Stock have a par value of $0.001 per share and a stated face value of $100 per share. Holders of the Series E Preferred Stock have the right, at any time, to convert shares of Series E Preferred Stock into shares of Common Stock at a conversion price of $0.0015 per share.

 

On April 2, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor (the “Investor”), pursuant to which the Investor agreed to purchase up to 45,000 shares of the Company’s Series E Preferred Stock (the “Series E Preferred Stock”) at a purchase price of $100 per share. In accordance with the SPA, the Investor paid for 34,900 Series E Preferred Stock by surrendering to the Company for cancellation, $2,617,690 of principal, $826,566 of accrued interest, and $45,740 in fees through April 2, 2021 under various 10% convertible notes held by Investor.

 

As an inducement for the Investor entering into the SPA, the Company agreed that Investor will have the right, exercisable in its sole discretion, to purchase the remaining 10,100 of authorized shares of Series E Preferred Stock at a purchase price of $100 per share at any time until April 2, 2031. During the six months ended June, 2023, the Investor purchased a total of 3,620 shares of Series E Preferred Stock for cash of $362,000 the stated value of the shares. During the six months ended June 30, 2022, the Investor purchased a total of 2,150 additional shares of Series E Preferred Stock for cash of $215,000, the stated valued of the shares. As of June 30, 2023 and December 31, 2022, the Company had 44,220 and 40,600 shares of Series E Preferred Stock outstanding, respectively, recorded as mezzanine at face value $4,422,000 and $4,060,000, respectively, due to certain default provisions requiring mandatory cash redemption that are outside the control of the Company.

 

14

 

The holders of outstanding Series E Preferred Stock are entitled to receive dividends pari passu with the holders of common stock, except upon a liquidation, dissolution and winding up of the Company, in which case the Shares have a preference. Such dividends will be paid equally to all outstanding Series E Preferred Stock and common stock, on an as-if-converted basis with respect to the Series E Preferred Stock.

 

In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, holders of Shares shall be entitled to receive, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, an amount equal to $100 for each such share (as adjusted for any combinations, consolidations, stock distributions, stock splits or stock dividends with respect to such shares), plus all dividends, if any, declared and unpaid thereon as of the date of such distribution, after the payment of any distributions that may be required with respect to the Company’s Series B Preferred Stock, but before any payment is made or any assets distributed to the holders of common stock. After such payment, the remaining assets of the Company will be distributed to the holders of common stock.

 

If the assets to be distributed to holders of the Series E Preferred Stock are insufficient to permit the receipt by such holders of the full preferential amounts, then all of such assets will be distributed among such holders ratably in accordance with the number of such shares then held by each such holder.

 

Each share of Series E Preferred Stock is convertible into shares of fully paid and non-assessable shares of common stock of the Company at a fixed conversion price of $0.0015 per share.

 

In no event will holders of Series E Preferred Stock be entitled to convert any such shares, such that upon conversion the sum of (1) the number of shares of common stock beneficially owned by the holder and its affiliates (other than shares of common stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Series E Preferred Stock or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to these limitations), and (2) the number of shares of common stock issuable upon the conversion of Shares, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of common stock. The limitations on conversion may be waived by the Holder upon, at the election of the holder of Shares, not less than 61 days prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the holder of Shares, as may be specified in such notice of waiver).

 

Except as required by law, holder of Series E Preferred Stock are not entitled to vote, as a separate class or otherwise, on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company, provided, however, each holder of outstanding Share will be entitled, on the same basis as holders of common stock, to receive notice of such action or meeting and so long as any Shares remain outstanding, the Company will not, without first obtaining the approval of the holders of at least a majority of the then outstanding Shares voting together as one class alter or change the rights, preferences or privileges of the Shares so as to affect materially and adversely such Shares.

 

7. CAPITAL STOCK

 

As of June 30, 2023, the Company’s authorized stock consisted of 2,000,000,000 shares of common stock, with a par value of $0.001 per share. The Company is also authorized to issue 20,000,000 shares of preferred stock, with a par value of $0.001 per share. The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares. See Note 5.

 

15

 

Common Stock

 

As of June 30, 2023 and December 31, 2022, the Company had 733,766,705 and 604,150,321 shares of common stock issued and outstanding, respectively.

 

During the six months ended June 30, 2023, the Company issued a total of 129,616,384 shares of common stock for the conversion of $38,750 of principal of convertible notes payable and accrued interest payable of $2,221. In connection with the convertible debt conversions, the Company reduced derivative liabilities by $30,750. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the convertible notes.

 

During the six months ended June 30, 2022, the Company issued a total of 162,860,569 shares of common stock: 144,127,236 shares in consideration for the conversion of $218,750 of principal of convertible notes payable and accrued interest payable of $13,125; 14,733,333 shares in the conversion of 221 shares of Series B preferred shares valued at $22,100 and 4,000,000 shares for services valued at $20,000. In connection with the convertible debt conversions, the Company reduced derivative liabilities by $166,841. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the convertible notes.

 

8. STOCK OPTIONS

 

As of June 30, 2023, the Board of Directors of the Company granted non-qualified stock options exercisable for a total of 904,177,778 shares of common stock to its officers, directors, and consultants.

 

The Company issued 684,000,000 stock options during the three and six months ended June 30, 2023.

 

We recognized stock option compensation expense of $741,156 and $752,097 for the three months ended June 30, 2023 and 2022, respectively and $1,486,604 and $1,489,012 for the six months ended June 30, 2023 and 2022, respectively. As of June 30, 2023, we had unrecognized stock option compensation expense totaling $2,756,231.

 

A summary of the Company’s stock options and warrants as of June 30, 2023, and changes during the three months then ended is as follows:

 

   Shares   Weighted Average Exercise Price   Weighted Average Remaining Contract Term (Years)   Aggregate Intrinsic Value 
                 
Outstanding at December 31, 2022   854,177,778   $0.011    7.35      
Granted   684,000,000   $0.001           
Exercised   -   $-           
Forfeited or expired   (634,000,000)  $0.009           
                     
Outstanding as of June 30, 2023   904,177,778   $0.004    7.01   $342,000 
                     
Exercisable as of June 30, 2023   851,538,893   $0.004    7.04   $339,708 

 

16

 

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.0011 as of June 30, 2023, which would have been received by the holders of in-the-money options and warrants had the holders exercised their options and warrants as of that date.

 

9. RELATED PARTY TRANSACTIONS

 

Effective December 1, 2021, the Company’s Board of Directors appointed Rich Berliner as the Chief Executive Officer of the Company and a member of the Board of Directors. On that date, the Company entered into an Independent Contractor Agreement, pursuant to which Mr. Berliner will serve as the Chief Executive Officer of the Company for an initial term of six months subject to automatic renewal for six months unless terminated by the Company or Mr. Berliner. Mr. Berliner will receive base compensation of $20,000 per month, paid in equal installments twice each month. Mr. Berliner is eligible to receive severance equal to three months of base compensation. The Company accrued compensation expense to Mr. Berliner of $60,000 for each of the three months ended June 30, 2023 and 2022 and $120,000 for each of the six months ended June 30, 2023 and 2022.

 

Further, pursuant to the Independent Contractor Agreement, the Company granted to Mr. Berliner ten-year non-qualified stock options to acquire up to 504,000,000 shares of the Company’s common stock as compensation under the Independent Contractor Agreement. The options vest over a 36-month period with 84,000,000 options vesting at the end of month 6 and 14,000,000 options vesting in months 7 through the end of month 36. The options vest 100% upon a sale of the company, as defined in the option agreement. If Mr. Berliner’s service is terminated for cause (as defined in the option agreement), the options (whether vested or unvested) shall immediately terminate and cease to be exercisable.

 

Pursuant to a written consulting agreement dated May 31, 2013 and amended effective November 1, 2016, William E. Beifuss, Jr., our President, Chief Executive Officer and Acting Chief Financial Officer is to receive fees of $10,000 per month. The Company accrued compensation expense to Mr. Beifuss of $30,000 for each of the six months ended June 30 2023 and 2022.

 

On December 22, 2020, the Company issued non-qualified stock options to purchase up to a total of 205,000,000 shares of our common stock to four officers, directors, and consultants of the Company. The options vest 1/36th per month and are exercisable on a cash or cashless basis for a period of five years from the date of grant at an exercise price of $0.017 per share. Of these non-qualified stock options, Mr. Beifuss received 25,000,000 and Byron Elton, a member of the Board of Directors, received 5,000,000.

 

17

 

On February 8, 2022, the Company issued non-qualified stock options to purchase up to a total of 75,000,000 shares of our common stock to Mr. Beifuss and 45,000,000 shares to a consultant. The options vest 1/36th per month and are exercisable on a cash or cashless basis for a period of ten years from the date of grant at an exercise price of $0.0081 per share.

 

10. COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of filing of this report, there were no pending or threatened lawsuits.

 

Operating Lease

 

As of June 30, 2023, we had no material operating leases requiring us to recognize an operating lease liability and corresponding right-of-use asset.

 

Effective February 1, 2022, the Company entered into an operating lease agreement with a term of 12 months. The lease agreement required a $500 security deposit and monthly lease payments of $500.

 

For the three months ended June 30, 2023 and 2022, the Company recognized total rental expense of $1,860 and $2,500, respectively. For the six months ended June 30, 2023 and 2022, the Company recognized operating lease cost of $3,720 and $6,500, respectively.

 

Consulting Agreements

 

As further discussed in Note 9, we entered into an Independent Contractor Agreement with Rich Berliner, our Chief Executive Officer, for payment of monthly compensation of $20,000. The agreement has an initial term of six months, subject to automatic renewal for six months unless terminated by the Company or Mr. Berliner.

 

We have a written consulting agreement, dated May 31, 2013 and amended effective November 1, 2016, with William E. Beifuss, Jr., our President and Acting Chief Financial Officer, for the payment of monthly compensation of $10,000 per month. The agreement may be cancelled by either party with 30 days’ notice.

 

11. SUBSEQUENT EVENTS

 

Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:

 

On July 1, 2023, the Company joined the Satellite Industry Association (SIA), a United States based trade association representing the leading domestic satellite operators, service providers, manufacturers, launch services providers and ground equipment suppliers.

 

On July 5, 2023, the Company filed a Certificate of Designation to its Articles of Incorporation designating a new class of Series F Preferred Stock, however, on August 9, 2023 the filing was withdrawn and no shares of Series F Preferred Stock were ever issued.

 

Effective July 31, 2023 the Company entered into a convertible promissory note with a principal sum up to $500,000. The Company exchanged their note payable originally entered into on June 20, 2023 for $135,000, to be the initial consideration under this new convertible promissory note. In addition, on July 31, 2023 the lender provided additional consideration to the Company under the convertible promissory note of $60,000.

 

18

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The objective of this Management’s Discussion and Analysis of Financial Condition is to allow investors to view the Company from management’s perspective, considering items that would have a material impact on future operations. Certain statements below, and elsewhere in this report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements frequently are accompanied by such words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements contained herein after the date of this report. Subsequent written and oral forward-looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 20, 2023, and in other reports filed by us with the SEC.

 

You should read the following description of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and accompanying notes included in this report.

 

Overview

 

Digital Locations, Inc. (“Digital Locations”) or (“the Company”) is developing a new technology that will enable high-speed Internet service to be delivered from satellites directly to smartphones. We aim to redesign the link technology between satellites and smartphones, which includes novel antenna designs and innovative frequency management to support indoor and outdoor data connection.

 

On June 6, 2023, the company engaged Florida International University (FIU) to perform the research necessary to develop this technology. Successful development and implementation of this technology will allow next generation smartphones, anywhere in the world, to access high-speed Internet service and benefit from remote learning, health care, government services, telework, participation in public affairs and various sources of entertainment.

 

In a digitally divided world of “haves and have nots”, High Speed Internet is usually available only in densely populated areas of the world. Much of the world is still underserved with terrestrial wireless phone and data connections. Connecting satellites directly with smartphones to receive high speed internet service is technically very challenging but represents an extraordinary business opportunity.

 

FIU has assembled a team of people with the background, experience and talent to perform such research. Located in Miami, the University is one of the most respected in the communications field and has an impressive facility capable of designing the tools necessary to make this research viable.

 

While this research is being done, there are no guarantees that it will achieve anything of commercial value or patentable concepts. Every effort is being made to develop technology, circuits, antenna designs and frequency compatibility and the Company is realistic about the time, money and effort necessary for a breakthrough.

 

Additionally, the Company is continuing to maintain its current portfolio of acquired smallcellsites to help meet the expected demand of rapidly growing 5G networks.

 

To meet that objective, on January 7, 2021, through our wholly owned subsidiary SmallCellSite Inc. (“SCS”), we closed on the acquisition of substantially all of the assets of SmallCellSite.com, LLC (“SCS LLC”), a source of more than 80,000 cell sites offered by property owners for use by wireless network operators. The business acquisition has been accounted for as a purchase and the accounts of SCS are consolidated with those of the Company.

 

19

 

On July 20, 2021, the Company became a member of the Digital Place-based Advertising Association (DPAA), the leading global trade marketing association connecting out-of-home (OOH) media with the advertising community while moving OOH to digital. We expect our membership in the DPAA to provide many business acceleration benefits, including a wide array of products and an extensive database of research, best practices and case studies; tools for planning, training and forecasting; social media amplification of news; insights on software and hardware solutions; further integration into the advertising ecosystem as part of the video everywhere conversation and marketing campaign.

 

On June 29, 2021, the Company entered into an agreement with Smartify Media (“Smartify”) to add Smartify’s locations to the Company’s small cell database. Smartify turns any storefront or physical location into a (MXP) Media Experience Platform for property owners which creates recurring revenue and media value from programmatic and local media channels. This strategic agreement between the Company and Smartify will allow Smartify to now offer incremental revenue increases to property owners by facilitating the activation of 5G on their properties.

 

Going Concern

 

The accompanying financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. As of June 30, 2023, our current liabilities exceeded our current and total assets by $393,286 and we had an accumulated deficit of $51,091,583. The Company currently does not have the cash resources to meet its operating commitments for the next twelve months and expects to have ongoing requirements for capital investment or debt to implement its business plan. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern for a reasonable period of time.

 

The ability of the Company to continue as a going concern is dependent upon, among other things, raising additional capital. The Company has obtained operating funds primarily from the issuance of convertible debt. Management believes this funding will continue and will provide the additional cash needed to meet the Company’s obligations as they become due. There can be no assurance, however, that the Company will be successful in accomplishing its objectives. Without such additional capital we may be required to cease operations. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 

Results of Operations

 

Three Months and Six Months Ended June 30, 2023 Compared to the Three Months and Six Months Ended June 30, 2022

 

Revenues

 

Revenues, all from SCS, were $8,008 and $5,672 for the three months ended June 30, 2023 and 2022, respectively and $12,980 and $11,526 for the six months ended June 30, 2023 and 2022, respectively. Monthly payments are received by the Company from wireless carriers, with the Company paying the property owner a percentage of revenues ranging from 70% to 85%. The net amount is retained by the Company as consideration for its intermediary services and recorded as revenues.

 

General and Administrative Expenses

 

General and administrative expenses remained consistent from year to year, and were $1,075,067 and $936,002 in the three months ended June 30, 2023 and 2022, respectively. Included in these expenses is non-cash stock option compensation expense of $741,156 and $752,097 for the three months ended June 30, 2023 and 2022, respectively. In the six months ended June 30, 2023 and 2022, general and administrative expenses were $2,012,927 and $1,248,079, respectively. Included in these expenses is non-cash stock option compensation expense of $1,486,604 and $1,489,012 for the six months ended June 30, 2023 and 2022, respectively.

 

20

 

Depreciation and Amortization Expense

 

Depreciation and amortization expense of $500 in each of the three months ended June 30, 2023 and 2022 and $1,000 in each of the six months ended June 30, 2023 and 2022 consisted of the amortization of intangible assets acquired in the SCS LLC business acquisition.

 

Other Income (Expense)

 

Our interest expense decreased to $53,126 in the three months ended June 30, 2023 from $158,642 in the three months ended June 30, 2022 and decreased to $129,007 in the six months ended June 30, 2023 from $309,436 in the six months ended June 30, 2022. The decrease in interest expense in the current fiscal year resulted primarily from lower amortization of debt discount and accrued interest as we have had multiple convertible notes payable fully converted to common stock. During the six months ended June 30, 2023, the last convertible note payable from an investor was converted to shares of our common stock.

 

We reported non-cash gains/(losses) on change in derivative liabilities of $(147,307) and $2,736,905 in the three months ended June 30, 2023 and 2022 respectively and $1,055,614 and $4,190,438 in the six months ended June 30, 2023 and 2022, respectively. We estimate the fair value of the derivatives associated with our convertible notes payable and stock options using a Black-Scholes pricing model and/or a multinomial lattice model based on projections of various potential future outcomes. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements, and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

 

We recognized a gain on forgiveness of debt of $6,304 in the three months and six months ended June 30, 2022. Pursuant to an agreement with a lender, the Company agreed to extinguish a convertible promissory note in the principal amount of $40,000 with four payments of $10,000, which were made in the months of February, March, April and May 2022. Accrued interest payable of $6,034 was forgiven by the lender in May 2022, which amount is reported as other income.

 

Net Income

 

Net losses in the three and six months ended June 30, 2023 were $1,267,992 and $1,074,340 respectively, compared to net income of $1,653,467 and $2,025,469 in the three and six months ended June 30, 2022. The decrease in net income in the current year resulted primarily from a lower gain on change in derivative liabilities.

 

Liquidity and Capital Resources

 

As of June 30, 2023, we had total current assets of $10,258, comprised of cash, and total current liabilities of $550,851, resulting in a working capital deficit of $540,593.

 

21

 

We funded our operations during the three months ended June 30, 2023 from the proceeds from the issuance of our Series E Preferred Stock of $362,000 and proceeds from the issuance of notes payable of $135,000. We anticipate we will continue to fund our operations from this source in the short term.

 

Sources and Uses of Cash

 

During the six months ended June 30, 2023, we used net cash of $517,855 in operating activities as a result of our net loss of $1,074,340, non-cash expenses totaling $1,609,562 and increases in accounts payable of $9,013 and accrued interest, notes payable of $5,065, offset by non-cash gain of $1,055,614 and a decrease in accrued expenses of $1,541 and a decrease of $10,000 in accounts payable – related party.

 

During the six months ended June 30, 2022, we used net cash of $341,171 in operating activities as a result of our net income of $2,025,469, non-cash expenses totaling $1,801,639, and increases in accounts payable of $29,566, accrued expenses of $1,274, and accrued interest, notes payable of $7,353, offset by non-cash gains totaling $4,196,472 and a decrease in accounts payable – related party of $10,000.

 

We had no cash provided by or used in investing activities during the six months ended June 30, 2023. During the six months ended June 30, 2022, we used net cash of $500 in investing activities, comprised of the payment of deposits.

 

Net cash provided by financing activities was $497,000 during the six months ended June 30, 2023, comprised of $362,000 of proceeds from the issuance of Series E Preferred Stock and $135,000 in proceeds from notes payable.

 

Net cash provided by financing activities was $289,605 during the six months ended June 30, 2022, comprised of proceeds from convertible notes payable of $115,000 and proceeds from the issuance of Series E Preferred Stock of $215,000, partially offset by repayment of convertible notes payable of $40,395.

 

Historically, proceeds received from the issuance of debt and preferred stock have been sufficient to fund our current operating expenses. We estimate that we will need to raise substantial capital or financing over the next twelve months in order to explore business expansion opportunities and provide the necessary capital to meet our other general and administrative expenses. We anticipate that we will incur operating losses in the next twelve months. Our revenue is not expected to exceed our investment and operating costs in the next twelve months. Therefore, our future operations are dependent on our ability to secure additional financing. Our recent funding opportunities have been limited due to downturns in the U.S. equity and debt markets resulting from the world-wide Covid-19 pandemic. Future financing transactions, if available, may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and continued downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities.

 

Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences, or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.

 

22

 

Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.

 

Future Impact of Covid-19

 

The negative impact of the Covid-19 pandemic on companies continues and we are currently unable to assess with certainty the broad effects of Covid-19 on our future business. As of June 30, 2023, the Company had no material assets or liabilities that would be subject to impairment or change in valuation due to Covid-19.

 

With a limited source of revenue, we are currently dependent on debt or equity financing to fund our operations and execute our business plan. We believe that the impact on capital markets of Covid-19 may make it more costly and more difficult for us to access these sources of funding.

 

Critical Accounting Policies

 

Our significant accounting policies are disclosed in Note 2 to our consolidated financial statements. The following is a summary of those accounting policies that involve significant estimates and judgment of management.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment and intangible assets, operating lease obligations, impairment of assets, the deferred tax valuation allowance, the fair value of stock options and derivative liabilities. Actual results could differ from those estimates.

 

Intangible Assets

 

The identifiable intangible assets acquired in the SCS acquisition are amortized using the straight-line method over an estimated life of 5 years.

 

Derivative Liabilities

 

We have identified the conversion features of some of our convertible notes payable as derivatives due to their variable conversion price. Where the number of common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional convertible debt is included in the value of the derivatives. We estimate the fair value of the derivatives using a Black-Scholes pricing model and/or a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

 

During the six months ended June 30, 2023, the Company had the following activity in its derivative liabilities account:

 

  

Convertible

Notes

Payable

  

Stock

Options

   Total 
             
Derivative liabilities as of December 31, 2022  $740,157   $493,522   $1,233,679 
Addition to liabilities for new debt/shares issued   -    -    - 
Elimination of liabilities in debt conversions   (30,758)   -    (30,758)
Change in fair value   (562,092)   (493,522)   (1,055,614)
                
Derivative liabilities as of June 30, 2023  $147,307   $-   $147,307 

 

The significant assumptions used in the valuation of the derivative liabilities as of June 30, 2023 are as follows:

 

Expected life   0.50 – 2.51 years 
Risk free interest rates   4.49% - 5.47%
Expected volatility   192% - 253%

 

23

 

Fair Value of Financial Instruments

 

Disclosures about fair value of financial instruments, require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of June 30, 2023 and December 31, 2022, we believe the amounts reported for cash, accounts payable, accounts payable – related party, accrued expenses and other current liabilities, accrued interest, notes payable and certain notes payable approximate fair value because of their short maturities.

 

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. Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASC”) Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

 

  Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

 

  Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

 

  Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

We measure certain financial instruments at fair value on a recurring basis. As of June 30, 2023, we had no liabilities measured at fair value. Liabilities measured at fair value on a recurring basis as of December 31, 2022:

 

   Total   Level 1   Level 2   Level 3 
December 31, 2022:                
Derivative liabilities  $1,233,679   $-   $-   $1,233,679 
                     
Total liabilities measured at fair value  $1,233,679   $-   $-   $1,233,679 
                     
June 30, 2023:                    
Derivative liabilities  $147,307   $-   $-   $147,307 
                     
Total liabilities measured at fair value  $147,307   $-   $-   $147,307 

 

24

 

Revenue Recognition

 

We have adopted Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) pursuant to which revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

 

We determine revenue recognition through the following steps:

 

  identification of the contract, or contracts, with a customer;
  identification of the performance obligations in the contract;
  determination of the transaction price;
  allocation of the transaction price to the performance obligations in the contract; and
  recognition of revenue when, or as, we satisfy a performance obligation.

 

Through its wholly owned subsidiary, the Company acts as an intermediary or agent to facilitate a platform through which property owners market billboards to wireless telephone carriers for placement of wireless communications network equipment. Contracts have been signed among the Company, the property owner, and the wireless telephone operator. Monthly payments are received by the Company from the wireless carriers, with the Company paying the property owner a percentage of revenues ranging from 70% to 85%. The net amount is retained by the Company as consideration for its intermediary services and recorded as revenues in the accompanying statements of operations.

 

Recently Issued Accounting Pronouncements

 

There were no new accounting pronouncements issued by the FASB during the six months ended June 30, 2023 and through the date of filing of this report that the Company believes will have a material impact on its financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

25

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of June 30, 2023, our Chief Executive Officer and Acting Chief Financial Officer have concluded that our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Our Chief Executive Officer and Acting Chief Financial Officer also concluded that, as of June 30, 2023, our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls

 

During the six months ended June 30, 2023, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

26

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 

ITEM 1A. RISK FACTORS

 

There are no material changes from the risk factors previously disclosed in the Registrant’s annual report on Form 10-K filed on March 20, 2023.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the six months ended June 30 2023, the Company issued a total of 129,616,384 shares of common stock for the conversion of $38,750 of principal of convertible notes payable and accrued interest payable of $2,221. In connection with the convertible debt conversions, the Company reduced derivative liabilities by $30,750.

 

The foregoing transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering. We believe that the offers, sales, and issuances of the above securities were exempt from registration under the Securities Act by virtue of Section 4(a)(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

27

 

ITEM 6. EXHIBITS

 

Exhibit

Number

  Description
10.19   Agreement between Digital Locations Inc. and The Florida International University Board of Trustees dated June 6, 2023(Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 6, 2023)
31.1*   Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
31.2*   Certification of Acting Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
32.1*   Certification of Chief Executive Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Securities Exchange Act, as amended, and 18 U.S.C. Section 1350.
32.2*   Certification of Acting Chief Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Securities Exchange Act, as amended, and 18 U.S.C. Section 1350.
101.INS   Inline XBRL Instance Document
101.SCH   Inline XBRL Taxonomy Extension Schema Document.
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

* Filed herewith.

 

28

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Barbara, State of California, on August 14, 2023.

 

  DIGITAL LOCATIONS, INC.
     
  By: /s/ Rich Berliner
   

Chief Executive Officer

(Principal Executive Officer)

     
  By: /s/ William E. Beifuss, Jr.
   

Acting Chief Financial Officer

(Principal Financial/Accounting Officer)

 

29

 

EXHIBIT 31.1

 

CERTIFICATION

 

I, Rich Berliner, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Digital Locations, Inc. for the quarter ended June 30, 2023;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: August 14, 2023

 

/s/ Rich Berliner  
Rich Berliner  

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

EXHIBIT 31.2

 

CERTIFICATION

 

I, William E. Beifuss, Jr., certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Digital Locations, Inc. for the quarter ended June 30, 2023;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: August 14, 2023

 

/s/ William E. Beifuss, Jr.  
William E. Beifuss, Jr.  
Acting Chief Financial Officer  
(Principal Financial/Accounting Officer)  

 

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Digital Locations, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Rich Berliner, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
     
  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

Dated: August 14, 2023 /s/ Rich Berliner
  Rich Berliner
 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Digital Locations, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William E. Beifuss, Jr., Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that: