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 CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2022
(UNAUDITED)
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS
Mobiquity Technologies,
Inc. (“Mobiquity,” “we,” “our” or “the Company”), and its operating subsidiaries, is a
next generation location data intelligence company. The Company provides precise unique, at-scale location data and insights on consumer’s
real-world behavior and trends for use in marketing and research. We provide one of the most accurate and scaled solutions for mobile
data collection and analysis, utilizing multiple geo-location technologies. The Company is seeking to implement several new revenue streams
from its data collection and analysis, including, but not limited to, Advertising, Data Licensing, Footfall Reporting, Attribution Reporting,
Real Estate Planning, Financial Forecasting and Custom Research. We also are a developer of advertising and marketing technology focused
on the creation, automation, and maintenance of an advertising technology operating system (or ATOS). The ATOS platform blends artificial
intelligence (or AI) and machine learning (ML) based optimization technology for automatic ad serving that manages and runs digital advertising
campaigns.
The parent (Mobiquity Technologies, Inc.) and
subsidiaries are organized as follows:
Schedule Of Subsidiaries |
|
|
Company Name |
|
State of Incorporation |
Mobiquity Technologies, Inc. |
|
New York |
Mobiquity Networks, Inc. |
|
New York |
Advangelists, LLC |
|
Delaware |
Liquidity, Going Concern and Management’s
Plans
These 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 consolidated
financial statements, for the six months ended June 30, 2022, the Company had:
· |
Net loss of $4,011,521;
and |
· |
Net cash used in operations was $3,054,760 |
Additionally, at June 30, 2022, the Company had:
· |
Accumulated deficit of $209,546,224 |
· |
Stockholders’ equity of $3,204,201, and |
· |
Working capital of $1,031,208 |
We manage liquidity risk by reviewing, on an ongoing
basis, our sources of liquidity and capital requirements. The Company has cash on hand of $2,165,977 at June 30, 2022.
The Company has incurred significant losses since
its inception in 1998 and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services
to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be
sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including:
our financial position, our cash flows and cash usage forecasts for the six months ended June 30, 2022, and our current capital structure
including equity-based instruments and our obligations and debts.
Without sufficient revenues from operations, if
the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities
or cease operations. The Company may explore obtaining additional capital financing and the Company is closely monitoring its cash balances,
cash needs, and expense levels.
These factors create substantial doubt about the
Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial
statements are issued. The 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 consolidated financial statements have been prepared on a basis that assumes the
Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments
in the ordinary course of business.
Management’s strategic plans include
the following:
· |
Execution of business plan focused on technology growth and improvement, |
· |
Seek out equity and/or debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders and investors will continue to advance capital to the Company or that the new business operations will be profitable. |
· |
Continuing to explore and execute prospective partnering or distribution opportunities, |
· |
Identifying unique market opportunities that represent potential positive short-term cash flow. |
Coronavirus (“COVID-19”) Pandemic
During the three months and six months ended June
30, 2022, the Company’s financial results and operations were not materially adversely impacted by the COVID-19 pandemic. However,
in the prior two (2) years, the Company suffered from the Pandemic and drastically curtailed its operations. The extent to which the Company’s
future financial results could be impacted by the COVID-19 pandemic depends on future developments that are highly uncertain and cannot
be predicted at this time. The Company is not aware of any specific event or circumstance that would require an update to its estimates
or judgments or a revision of the carrying value of its assets or liabilities.
These estimates may change, as new events occur,
and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited 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 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 June 30, 2022, and the results of operations and cash flows for the periods
presented. The results of operations for the three months and six months ended June 30, 2022, are not necessarily indicative of the operating
results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction
with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K/A (Amendment No. 1)
for the year ended December 31, 2021, filed with the SEC on May 23, 2022.
Management acknowledges its responsibility for
the preparation of the accompanying unaudited 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 consolidated financial statements have been
prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions
and balances have been eliminated.
Business Segments
and Concentrations
The Company uses the “management approach”
to identify its reportable segments. The management approach requires companies to report segment financial information consistent with
information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s
reportable segments. The Company manages its business as a single reporting segment.
Customers in the United States accounted for
100% of our revenues. We do not have any property or equipment outside of the United States.
Use of Estimates
Preparing financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual
results could differ from those estimates, and those estimates may be material.
Risks and Uncertainties
The Company operates in an industry that is subject
to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties
including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future
expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include,
among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company
competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s
distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent
basis.
Fair Value of Financial Instruments
The Company accounts for financial instruments
under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework
for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date,
based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy
to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured
at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use
observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
|
· |
Level 1 — Observable
inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
|
· |
Level 2 — Observable
inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical
or similar assets and liabilities; and |
|
· |
Level 3 —
Unobservable inputs that are supported by little or no market data, which require the Company to develop its own
assumptions. |
The determination of fair value and the assessment
of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment
and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable
management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation
method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the
weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
Although the Company believes that the recorded
fair value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective
of future fair values.
The Company’s financial instruments, including
cash, accounts receivable, accounts payable and accrued expenses, convertible notes payable and notes payable are carried at historical
cost. At June 30, 2022 and December 31, 2021, respectively, the carrying amounts of these instruments approximated their fair values because
of the short-term nature of these instruments.
Cash and Cash Equivalents and Concentration
of Credit Risk
For purposes of 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.
At June 30, 2022 and December 31, 2021, respectively,
the Company did not have any cash equivalents.
The Company is exposed to credit risk on its cash
and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by
the FDIC, which is $250,000. At June 30, 2022 and December 31, 2021, the Company did not experience any losses on cash balances in excess
of FDIC insured limits. At June 30, 2022, and December 31, 2021, the Company exceeded FDIC insured limits by $1,915,977 and $5,103,273,
respectively.
Accounts Receivable
Accounts receivable are stated at the amount management
expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition
and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral. Two of our customers
accounted for approximately 39% of accounts receivable.
Management periodically assesses the Company’s
accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance
for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic
conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.
Allowance for doubtful accounts was $820,990 at
June 30, 2022 and December 31, 2021. This allowance relates to receivables generated in previous years for
which collection is uncertain as the customers have been adversely impacted by COVID-19.
Bad debt expense (recovery) is recorded as a component
of general and administrative expenses in the accompanying consolidated statements of operations.
Impairment of Long-lived Assets
Management evaluates the recoverability of
the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential
impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived
Assets.” Events and circumstances considered by the Company in determining whether the carrying value of identifiable
intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in
performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or
economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates
the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.
If impairment is indicated based on a comparison
of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
Property and Equipment
Property and equipment is stated at cost less
accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.
Expenditures for repair and maintenance which
do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise
disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected
in operations.
Management reviews the carrying value of its property
and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Goodwill
The Company’s goodwill of $1,352,865 represents
the excess of the consideration transferred for acquired businesses over the fair value of the underlying identifiable net assets. Goodwill
is not amortized but instead, it is tested for impairment at least annually. In the event that management determines that the value of
goodwill has become impaired, the Company will record a charge in an amount equal to the excess of the reporting unit’s carrying
amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit during the fiscal quarter in which
the determination is made.
The Company performs its annual impairment tests
of goodwill as of December 31st of each year, or more frequently, if certain indicators are present. Goodwill is required to be tested
for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment level,
which is referred to as a component. Management identifies its reporting units by assessing whether components (i) have discrete financial
information available, (ii) engage in business activities, and (iii) whether a segment manager regularly reviews the component’s
operating results. Net assets and goodwill of acquired businesses are allocated to the reporting unit associated with the acquired business
based on the anticipated organizational structure of the combined entities. If two or more components are deemed economically similar,
those components are aggregated into one reporting unit when performing the annual goodwill impairment review. The Company had one reporting
unit as of December 31, 2021.
Intangible Assets
The Company acquired the majority of its intangible
assets through its acquisition of Advangelists LLC. The Company amortizes its identifiable definite-lived intangible assets over a period
of 5 years. See Note 3 for further details.
In 2020 and 2021, the Company identified triggering
events due to the reduction in its projected revenue from adverse economic conditions caused by the COVID-19 pandemic and uncertainty
for recovery given the volatility of the capital markets. The Company performed impairment assessments of its ATOS Platform intangible
asset in December 2020 and determined that the carrying value of the asset exceeded its fair value by an estimate of $4,000,000. A similar
assessment was performed in December 2021 resulting in additional impairment of $3,600,000. Both charges were recognized in the fourth
quarter of each fiscal year for a total loss on impairment of $7,600,000, which resulted in the
asset being written down to a net book value of zero.
Derivative Liabilities
The Company analyzes all financial instruments
with features of both liabilities and equity under FASB ASC Topic No. 480, (“ASC 480”), “Distinguishing Liabilities
from Equity” and FASB ASC Topic No. 815, (“ASC 815”) “Derivatives and Hedging”. Derivative liabilities
are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations
as adjustments to fair value of derivatives. The Company uses a binomial model to determine fair value.
Upon conversion of a note where the embedded conversion option has
been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related notes,
derivatives, and debt discounts, and recognizes a net gain or loss on debt extinguishment. Equity instruments that are initially classified
as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument
on the reclassification date. As of June 30, 2022, and December 31, 2021, the Company had no derivative liabilities.
Debt Issue Cost
Debt issuance cost paid to lenders, or third parties
are amortized to interest expense in the consolidated statements of operations, over the life of the underlying debt instrument, with
the unamortized portion reported net with related principal outstanding on the consolidated balance sheet.
Revenue Recognition
The Company’s revenues are generated from internet advertising,
the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606). In accordance with
ASC 606, revenue is recognized when promised services are transferred to a customer. The amount of revenue recognized reflects the consideration
to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies
the following five steps:
Identify the contract with a customer
A contract with a customer exists when (i) the
Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred
and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines
that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent
and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention
to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer,
published credit and financial information pertaining to the customer.
Identify the performance obligations in the
contract
Performance obligations promised in a contract
are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer
can benefit from the service either on its own or together with other resources that are readily available from third parties or from
the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other
promises in the contract. To the extent a contract includes multiple promised services (performance obligations), the Company must apply
judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria
are not met the promised services are accounted for as a combined performance obligation. Currently, the Company does not have any contracts
that contain multiple performance obligations.
Determine the transaction price
The transaction price is determined based on the
consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction
price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction
price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration.
Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future
reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of June 30, 2022, and 2021,
respectively, contained a significant financing component.
Allocate the transaction price to performance
obligations in the contract
If the contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services
that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must
determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain
multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone
selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation
or to a distinct service that forms part of a single performance obligation. Currently, the Company does not have any contracts that contain
multiple performance obligations.
Recognize revenue when or as the Company satisfies
a performance obligation.
The Company satisfies performance obligations
at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service
to a customer.
Payment terms and conditions vary by contract,
although terms generally include a requirement of payment within 30 to 90 days.
Contract Liabilities
Contract liabilities represent deposits made by
customers before the satisfaction of performance obligation and recognition of revenue. Upon completion of the performance obligation(s)
that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue
is recognized.
Revenues
All revenues recognized was from internet advertising
for all periods ended June 30, 2022, and June 30, 2021.
Advertising
Advertising costs are expensed as incurred. Advertising costs are included
as a component of general and administrative expense in the condensed consolidated statements of operations.
The Company recognized $0 and $159 in marketing
and advertising costs during the six months ended June 30, 2022, and 2021, respectively.
Stock-Based Compensation
The Company accounts for our stock-based compensation
under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method,
compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually
the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments
for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the fair value method for equity
instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options.
The fair value of stock-based compensation is
determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized
over the vesting periods.
When determining fair value of stock-based compensation,
the Company considers the following assumptions in the Black-Scholes model:
· |
Exercise price, |
· |
Expected dividends, |
· |
Expected volatility, |
· |
Risk-free interest rate; and |
· |
Expected life of option |
Stock Warrants
In connection with certain financing, consulting and collaboration
arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments
that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value
of the awards using the Black-Scholes option pricing model as of the measurement date and records fair value as expense over the requisite
service period or at the date of issuance if there is not a service period.
Income Taxes
The Company accounts for income tax using
the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using
enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a
valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some
portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is
recognized as income or loss in the period that includes the enactment date.
The Company follows the accounting guidance for
uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need
to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax
authorities. As of June 30, 2022, and December 31, 2021, respectively, the Company had no uncertain tax positions that qualify for either
recognition or disclosure in the financial statements.
The Company recognizes interest and
penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax
positions were recorded for the six months ended June 30, 2022, and 2021, respectively.
Basic and Diluted Earnings (Loss) per Share
Pursuant to ASC 260-10-45, basic earnings (loss)
per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the
periods presented.
Diluted earnings per share is computed by dividing
net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding
during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury
stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. In the event
of a net loss, diluted loss per share is the same as basic loss per share since the effect of the potential common stock equivalents upon
conversion would be anti-dilutive.
The following potentially dilutive equity securities
outstanding as of June 30, 2022, and 2021 were as follows:
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share | |
| | |
| |
| |
June 30, 2022 | | |
June 30, 2021 | |
Convertible notes payable and accrued interest | |
| 88,897 | | |
| 801,250 | |
Stock Options | |
| 1,159,908 | | |
| 301,845 | |
Warrants | |
| 4,676,300 | | |
| 472,886 | |
Total common stock equivalents | |
| 5,925,105 | | |
| 1,575,981 | |
Related Parties
Parties are considered to be related to the Company
if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with
the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully
pursuing its own separate interests.
Recent Accounting Pronouncements
Changes to accounting principles are established
by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability and impact of all ASU’s on
our consolidated financial position, results of operations, stockholders’ equity, cash flows, or presentation thereof.
Credit
Losses: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the incurred
loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires a consideration
of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires the use of a
forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. In May 2019, the FASB
issued ASU 2019-05, which provides transition relief for entities adopting ASU 2016-13. For entities that have adopted
ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim
periods therein. An entity may early adopt ASU No. 2019-05 in any interim period after its issuance if the entity has adopted
ASU 2016-13. For all other entities, the effective date will be the same as the effective date of ASU 2016-13.
ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. The Company is currently evaluating the expected impact of adopting ASU 2016-13 on its consolidated financial
statements and disclosures.
Accounting
for Contract Assets and Contract Liabilities from Contracts with Customers: In October 2021, the FASB issued ASU No.
2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers (“ASU 2021-08”). Under ASU 2021-08, an acquirer in a business combination must apply ASC 606 principles
when recognizing and measuring acquired contract assets and contract liabilities. The provisions of ASU 2021-08 are applicable for
the Company for fiscal years and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact
of ASU 2021-08 on its consolidated financial statements and related disclosures.
Fair Value Measurement of Equity Securities
Subject to Contractual Sale Restrictions: On June 30, 2022, the FASB issued ASU 2022-03 (“ASU 2022-03”), which clarifies
the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit
the sale of an equity security. The ASU also requires specific disclosures related to such an equity security, including (1) the fair
value of such equity securities reflected in the balance sheet, (2) the nature and remaining duration of the corresponding restrictions,
and (3) any circumstances that could cause a lapse in the restrictions. ASU 2022-03 clarifies that a “contractual restriction prohibiting
the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the
equity security’s unit of account. Accordingly, an entity should not consider the contractual sale restriction when measuring the
equity security’s fair value (i.e., the entity should not apply a discount related to the contractual sale restriction, as stated
in ASC 820-10-35-36B as amended by the ASU). The ASU also prohibits an entity from recognizing a contractual sale restriction as a separate
unit of account. For public business entities, ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim
periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of ASU 2022-03 on its
consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncement
In August 2020, FASB issued ASU 2020-06, Accounting
for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification
initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information
provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt
that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated
and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will
no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt.
The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on
earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance
is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal
years, with early adoption permitted, but only at the beginning of the fiscal year.
We adopted this pronouncement on January 1, 2022;
however, the adoption of this standard did not have a material effect on the Company’s consolidated financial statements.
Reclassifications
Correction of Prior Period Information
During the review of the Company’s financial statements for the
three and six month periods ended June 30, 2022, the Company identified errors in the accounting and presentation of expenses and losses
recorded for certain debt conversions, recording of stock option compensation expense, and expense related to shares issued for services,
relating to the three months ended March 31, 2022. These errors resulted in the recording of $39,271 in less general and administrative
expenses, $233,526 in additional other expenses, and a reclassification of $450,865 from general and administrative expenses to other
expense, resulting in an understatement of net loss of $194,255. If reported correctly, the Company would have recorded $2,038,453 in
general and administrative expenses, ($2,486,802) in loss from operations, $831,888 in other expenses, net, and a net loss of ($2,634,299)
for the three months ended March 31, 2022. To correct these errors, the Company recorded the corrections in the three month period ended
June 30, 2022. If reported correctly for the three months ended June 30, 2022, then the Company would have reported $2,216,694 in general
and administrative expenses, ($1,048,051) in loss from operations, $329,171 in other income (expenses), net, and a net loss of ($1,377,222).
In accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99” and ”SAB 108”), the Company
evaluated this error and concluded that although the adjustment to certain areas of the statement of operations was quantitatively material,
the cumulative effects were quantitatively and qualitatively immaterial and would not have materially impacted a reasonable investor’s
opinion of the Company. This is further supported by the fact that the impact would not have been significant in comparison to prior periods
and all errors are of a non-cash nature. Therefore, as permitted by SAB 108 and treated under the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, the Company
corrected previously recorded results for the three and six months ended June 30, 2022, to account for the error in this current filing.
As a result, the statement of operations for the six months ended June 30, 2022 reflects the corrected expenses, operating loss and net
loss.
See also Note 3 for restatement of the three
and six months ended June 30, 2021.
NOTE 3 – RESTATEMENT
On May 23, 2022, the Company filed an amended annual report on Form
10-K/A for the year ended December 31, 2021, as a result of the identification of certain errors by management primarily relating to
the accounting for share-based payments in connection with raising equity, the sale of warrants, certain gains (losses) on debt extinguishment,
as well as an adjustments to its deferred tax assets and related valuation allowance. Below is a reconciliation of the effects of such
restatement on the Company's consolidated statement of operations for the three and six months ended June 30, 2021, and consolidated
statement of cash flows for the six months ended June 30, 2021, including previously reported values to restated values. The values as
previously reported were derived from the Company's 10-Q which presented the financial statements for the period ended June 30, 2021,
filed with the SEC on August 4, 2021.
As a result of the above restatement, additional paid in capital at
June 30, 2021 was decreased by $219,600 from $187,117,663 (previously reported) to $186,898,063 (as restated), and accumulated deficit
at June 30, 2021 decreased from ($190,992,325) to ($190,774,685).
Consolidated Statements of Operations
(As Restated)
| |
Three Months Ended June 30, 2021 | | |
Six Months Ended June 30, 2021 | |
|
| |
As Previously Reported | | |
Adjustment | | |
As Restated | | |
As Previously Reported | | |
Adjustment | | |
As Restated | |
|
| |
| | |
| | |
| | |
| | |
| | |
| |
|
Revenues | |
$ | 702,434 | | |
$ | – | | |
$ | 702,434 | | |
$ | 1,224,307 | | |
$ | – | | |
$ | 1,224,307 | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Cost of revenue | |
| 811,519 | | |
| – | | |
| 811,519 | | |
| 1,748,799 | | |
| – | | |
| 1,748,799 | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Gross profit | |
| (109,085 | ) | |
| – | | |
| (109,085 | ) | |
| (524,492 | ) | |
| – | | |
| (524,492 | ) |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Selling, general and administrative | |
| 917,561 | | |
| – | | |
| 917,561 | | |
| 1,929,051 | | |
| – | | |
| 1,929,051 | |
|
Salaries | |
| 573,975 | | |
| – | | |
| 573,975 | | |
| 1,130,040 | | |
| – | | |
| 1,130,040 | |
|
Stock-based compensation | |
| 555,892 | | |
| – | | |
| 555,892 | | |
| 572,731 | | |
| – | | |
| 572,731 | |
|
Total operating expenses | |
| 2,047,428 | | |
| – | | |
| 2,047,428 | | |
| 3,631,822 | | |
| – | | |
| 3,631,822 | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Loss from operations | |
| (2,156,513 | ) | |
| – | | |
| (2,156,513 | ) | |
| (4,156,314 | ) | |
| – | | |
| (4,156,314 | ) |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Other income (expense) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Interest expense | |
| (215,162 | ) | |
| (200,150 | ) | |
| (415,312 | ) | |
| (403,177 | ) | |
| (200,150 | ) | |
| (603,327 | ) |
1 |
Interest expense - amortization of debt discount | |
| (110,000 | ) | |
| – | | |
| (110,000 | ) | |
| (110,000 | ) | |
| – | | |
| (110,000 | ) |
2 |
Loss on sale of company stock | |
| (419,750 | ) | |
| 419,750 | | |
| – | | |
| (419,750 | ) | |
| 419,750 | | |
| – | |
3 |
Forgiveness of SBA - PPP loan | |
| 265,842 | | |
| – | | |
| 265,842 | | |
| 265,842 | | |
| – | | |
| 265,842 | |
4 |
Total other income (expense) - net | |
| (479,070 | ) | |
| 219,600 | | |
| (259,470 | ) | |
| (667,085 | ) | |
| 219,600 | | |
| (447,485 | ) |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Net loss | |
$ | (2,635,583 | ) | |
$ | 219,600 | | |
$ | (2,415,983 | ) | |
$ | (4,823,399 | ) | |
$ | 219,600 | | |
$ | (4,603,799 | ) |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Loss per share - basic and diluted | |
$ | (0.88 | ) | |
$ | 0.07 | | |
$ | (0.81 | ) | |
$ | (1.65 | ) | |
$ | 0.08 | | |
$ | (1.58 | ) |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Weighted average number of shares - basic and diluted | |
| 2,984,332 | | |
| 2,984,332 | | |
| 2,984,332 | | |
| 2,922,280 | | |
| 2,922,280 | | |
| 2,922,280 | |
|
_____________________
1 |
Previously reported the fair value associated with the issuance of shares of common stock in conjunction with the issuance of short-term convertible debt notes as “Loss on sale of company stock.” The value was reclassified to "Interest expense." No impact on net loss or loss per share. |
2 |
Financial statement line description was changed from “Original issue discount” to “Interest expense - amortization of debt discount” for financial statement presentation purposes. No impact on net loss or loss per share. |
3 |
The Company previously reported $219,600 in the consolidated financial
statement line item “Loss on sale of company stock” for the excess of the fair value of shares of common stock issued
upon the conversions over the face value of the convertible debt. Since the convertible debt notes were converted at original
conversion terms no gain or loss should have been reflected. The $219,600 was reclassified as a reduction to “Additional
paid-in capital” on the Company's consolidated balance sheet, which reduced the consolidated net loss. |
4 |
Previously reported “Forgiveness of SBA - PPP loan” as other comprehensive income. The value was reclassified to “Other income (expense)” within continuing operations. No impact on net loss or loss per share. |
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2021
| |
As Previously Reported | | |
Adjustment | | |
As Restated | |
|
| |
| | |
| | |
| |
|
Cash flows from operating activities | |
| | | |
| | | |
| | |
|
Net loss | |
$ | (4,823,399 | ) | |
$ | 219,600 | | |
$ | (4,603,799 | ) |
4 |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | | |
| | |
|
Depreciation | |
| 3,703 | | |
| – | | |
| 3,703 | |
|
Amortization of intangibles | |
| 900,367 | | |
| – | | |
| 900,367 | |
|
Common stock issued for services | |
| 119,800 | | |
| – | | |
| 119,800 | |
|
Stock-based compensation | |
| 572,731 | | |
| – | | |
| 572,731 | |
|
Stock issued with short-term convertible notes | |
| – | | |
| 310,150 | | |
| 310,150 | |
5 |
Gain on forgiveness of debt | |
| – | | |
| (265,842 | ) | |
| (265,842 | ) |
1 |
Changes in operating assets and liabilities | |
| | | |
| | | |
| | |
|
Accounts receivable | |
| 840,740 | | |
| – | | |
| 840,740 | |
|
Prepaid expenses and other assets | |
| 16,500 | | |
| – | | |
| 16,500 | |
|
Accounts payable and accrued expenses | |
| (519,474 | ) | |
| 176,340 | | |
| (343,134 | ) |
3 |
Accrued expenses and other current liabilities | |
| (19,473 | ) | |
| 19,473 | | |
| – | |
3 |
Accrued interest | |
| 195,810 | | |
| (195,810 | ) | |
| – | |
3 |
Net cash used in operating activities | |
| (2,712,695 | ) | |
| 263,911 | | |
| (2,448,784 | ) |
|
| |
| | | |
| | | |
| | |
|
Cash flows from investing activities | |
| | | |
| | | |
| | |
|
Common stock issued for cash, net | |
| 898,990 | | |
| (898,990 | ) | |
| – | |
2 |
Original issue discount shares | |
| 268,150 | | |
| (268,150 | ) | |
| – | |
5 |
Note conversion to common stock | |
| 671,602 | | |
| (671,602 | ) | |
| – | |
6 |
Net cash provided by investing activities | |
| 1,838,742 | | |
| (1,838,742 | ) | |
| – | |
|
| |
| | | |
| | | |
| | |
|
Cash flows from financing activities | |
| | | |
| | | |
| | |
|
Common stock issued for cash, net | |
| – | | |
| 898,990 | | |
| 898,990 | |
2 |
Proceeds from issuance of notes payable, net | |
| 1,310,000 | | |
| 510,000 | | |
| 1,820,000 | |
7 |
SBA loan forgiveness | |
| (265,842 | ) | |
| 265,842 | | |
| – | |
1 |
Repayments of notes payable | |
| (598,816 | ) | |
| (100,000 | ) | |
| (698,816 | ) |
7 |
Net cash provided by financing activities | |
| 445,342 | | |
| 1,574,832 | | |
| 2,020,174 | |
|
| |
| | | |
| | | |
| | |
|
Net decrease in cash | |
| (428,610 | ) | |
| – | | |
| (428,610 | ) |
|
| |
| | | |
| | | |
| | |
|
Cash and cash equivalents – beginning of period | |
| 602,182 | | |
| – | | |
| 602,182 | |
|
| |
| | | |
| | | |
| | |
|
Cash and cash equivalents – end of period | |
$ | 173,571 | | |
$ | – | | |
$ | 173,571 | |
|
| |
| | | |
| | | |
| | |
|
Supplemental disclosure of cash flow information | |
| | | |
| | | |
| | |
|
Cash paid for interest | |
$ | 207,366 | | |
$ | – | | |
$ | 207,366 | |
|
Cash paid for taxes | |
$ | 25 | | |
$ | – | | |
$ | 25 | |
|
| |
| | | |
| | | |
| | |
|
Supplemental disclosure of non-cash investing and financing activities | |
| | | |
| | | |
| | |
|
Common stock issued for conversion of convertible notes | |
$ | 419,750 | | |
$ | (419,750 | ) | |
$ | 419,750 | |
6 |
Recording of debt discount upon issuance of convertible debt | |
$ | 110,000 | | |
$ | (110,000 | ) | |
$ | – | |
5 |
__________________________
| 1 | Previously reported “Forgiveness
of SBA – PPP loan” as cash outflow from financing activities. The non-cash value was reclassified as a net loss reconciling
item in cash flows from operating activities . |
| 2 | Previously reported item as investing
activity. The cash inflow was reclassified as a financing activity. No impact on overall cash flows. |
| 3 | Previously reported as accounts
payable, accrued expenses and other current liabilities and accrued interest. Reflected as one line item “accounts payable and
accrued expenses” to be consistent with the consolidated balance sheet financial statement line items. No impact on overall
cash flows. |
| 4 | The Company previously reported $219,600 on the consolidated statement
of operations financial statement line item “Loss on sale of company stock” for the excess of the fair value of shares of
common stock issued upon the conversion of convertible notes payable over the face value of the convertible debt. Since the convertible
debt notes were converted at original conversion terms no gain or loss should have been reflected. The $219,600 was reclassified as a
reduction to “Additional paid-in capital” on the Company’s consolidated balance sheet which reduced the consolidated
net loss of the Company. |
| 5. | Shares of common stock issued with notes payable and reflected
as either interest expense or interest expense-amortization of debt discount on the consolidated statement of operations, previously
reported as an investing activity and non-cash investing and financing activity and overstated by $68,000. The total non-cash value of
$310,150 was reclassified as a net loss reconciling item in cash flows from operating activities |
| 6. | Previously reported as an investing activity and reflects the fair value of shares of common stock
issued upon the conversion of convertible notes payable. The value has been reclassified as a non-cash financing activity and
adjusted for the $219,600 adjustment to Additional paid-in capital that was made to the previously reported results for the three
and six months ended June 30, 2021 (see note 4 above). Restated non-cash financing activity represents the carrying value of debt
converted to equity. |
| 7. | Previously reported amounts did not include $510,000 of proceeds from the issuance of notes payable
and $100,000 of payments made on convertible notes payable during the six months ended June 30, 2021. |
NOTE 4 – INTANGIBLE ASSETS
The Company’s identifiable intangible assets,
other than goodwill, consists of customer relationships and the ATOS Platform.
The ATOS platform:
· |
creates an automated marketplace of advertisers and publishers on digital media outlets to host online auctions to facilitate the sale of ad time slots (known as digital real estate) targeted at users while engaged on their connected TV, computer, or mobile device, and |
|
|
· |
gives advertisers the capability to understand and interact with their audiences and engage them in a meaningful way by the using ads in both image and video formats (known as rich media) to increase their customer base and foot traffic to their physical locations. |
The Company’s intangible asset balances,
including accumulated amortization, are as follows:
Schedule of intangible assets | |
| |
| | |
| |
| |
Useful Lives | |
June 30, 2022 | | |
December 31, 2021 | |
| |
| |
| | |
| |
Customer relationships | |
5 years | |
$ | 3,003,676 | | |
$ | 3,003,676 | |
ATOS Platform | |
5 years | |
| 2,400,000 | | |
| 2,400,000 | |
| |
| |
| 5,403,676 | | |
| 5,403,676 | |
Less accumulated amortization | |
| |
| (4,457,024 | ) | |
| (4,156,657 | ) |
Net carrying value | |
| |
$ | 946,652 | | |
$ | 1,247,019 | |
During the six months ended June 30, 2022, the
Company recognized $300,368 of amortization expense related to the intangible assets which is included in general and administrative expenses
on the consolidated statements of operations.
Future amortization, for the years ending December
31, is as follows:
Schedule of future accumulated amortization schedule | |
| |
2022 (balance of 2022) | |
$ | 303,609 | |
2023 | |
| 572,584 | |
2024 | |
| 70,459 | |
Total | |
$ | 946,652 | |
NOTE
5 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
Summary of notes payable and convertible notes
payable:
Summary of notes payable and convertible notes payable: | |
| | |
| |
| |
June 30, 2022 | | |
December 31, 2021 | |
Dr. Salkind - related party (d) | |
$ | – | | |
$ | 2,562,500 | |
Small Business Administration (a) | |
| 150,000 | | |
| 150,000 | |
Subscription Agreements (c) | |
| 100,000 | | |
| 250,000 | |
Business Capital Providers (b) | |
| – | | |
| 156,504 | |
Total Debt | |
| 250,000 | | |
| 3,119,004 | |
Current portion of debt | |
| 100,000 | | |
| 656,504 | |
Long-term portion of debt | |
$ | 150,000 | | |
$ | 2,462,500 | |
__________________
|
(a) |
The Company received
an Economic Injury Disaster Loan from the SBA which carries a thirty-year term, and a three-point seven five percent interest rate, maturity date is July of 2050. Total accrued and unpaid interest on the debt was $8,414 at June 30, 2022 and is included in accounts
payable and accrued expenses on the accompanying balance sheet. |
|
|
|
|
(b) |
Business Capital
Providers, Inc. purchased certain future receivables from the Company at a discount under agreements dated July of 2021. All loans
have been repaid in full as of June 30, 2022. |
|
(c) |
Several private investors, who were unaffiliated shareholders of the Company
and accredited investors as provided under Regulation D Rule 501 promulgated under the Securities Act of 1933, provided financing under
convertible debt agreements during the period June 2021 through September 2021 pursuant to subscription agreements. During the six months
ended June 30, 2022, one investor agreed to convert $150,000 of debt principal at a reduced conversion rate of $2.00 per share under an
induced conversion arrangement that included an explicit time limit of two dates at the reduced rate. The conversion resulted in the issuance
of 75,000 shares of common stock and recognition of $101,000 in inducement expense. |
The remaining $100,000 in principal relates to
three individual convertible notes bearing interest at 10% per annum and having a maturity date of June 30, 2022. The promissory notes
contain an automatic conversion feature, effectively converting all outstanding and unpaid principal on the maturity date at a conversion
rate of $4.00 per share. Total accrued and unpaid interest on the convertible notes was $8,425 at June 30, 2022 and is included in accounts
payable and accrued interest on the accompanying balance sheet (see Note 9).
| (d) | Gene
Salkind, who is a director of the Company, and an affiliate of Dr. Salkind executed 15% Senior Secured Convertible Promissory Notes in
September 2019. The convertible promissory notes have the following terms, as amended: |
|
· |
The Salkind lenders may
convert the notes at any time at a conversion rate of $4.00. |
|
· |
The Company may convert the notes at any time that the trailing thirty
(30) day volume weighted average price per share (as more particularly described in the Notes) of the Company’s common stock is
above $4.00 per share. |
Upon conversion of the debt principal, the Company is to issue warrants
to the debt holders for the purchase of common shares of the Company. The number of shares granted under the warrants is equivalent to
50% of the total shares issued under the debt principal converted. The warrants are immediately exercisable at a price of $4.00 per share
through September 2029.
The notes contained customary events of default, which, if uncured,
entitle the holders to accelerate payment of the principal and all accrued and unpaid interest under their notes.
During the six months ended June 30,
2022, the debt holders converted all the remaining $2,052,500
of outstanding debt in two separate conversion transactions at a mutually and board approved reduced conversion price of $1.50
and $1.25 per share which also resulted in additional warrants being issued due to 50% warrant coverage based on the total shares issued.
A total of 1,776,333
restricted common shares and warrants to purchase 888,166
restricted common shares at an exercise price of $4.00 per share through September 2029 were issued in connection with these
conversions. The Company determined that these transactions resulted in debt extinguishment accounting under Accounting Standards Codification
470-50, Debt Modifications and Extinguishments. As a result, the Company recorded a total loss on debt extinguishment for the
six months ended June 30, 2022 of $855,296, which represented the excess of the debt reacquisition price over its carrying value at the
time of the conversions. Accrued and unpaid interest on the Salkind convertible notes of $238,750 remains outstanding at June 30, 2022
and is included in accounts payable and accrued expenses on the accompanying balance sheet which can be converted at the original conversion
rate of $4.
NOTE 6 – STOCKHOLDERS’ EQUITY
Shares Issued for Services
During the six months ended June 30, 2022, the
Company issued 50,000 shares of common stock, at $1.69 to per share for $84,500 in exchange for services rendered. During the quarter
ended June 30, 2021, the Company issued 10,000 shares of common stock, at $7.50 to $9.73 per share for $119,80081,825 in exchange for services
rendered.
Shares issued upon conversion of debt:
During the six months ended June 30, 2022, Dr.
Gene Salkind, his wife, and a trust converted an aggregate of $2,562,500
of secured debt in exchange for 1,776,333
shares of common stock as well as warrants to purchase 888,166
shares of common stock at an exercise price of $4.00 per share through September 2029, see Note 5.
During the six months ended June 30, 2022, a
lender also converted $150,000
of debt into 75,000
shares of common stock at an excise price of $2.00 per share. The Company recorded an inducement expense of $101,000,
see Note 5.
NOTE 7 – STOCK OPTION PLANS
During Fiscal 2005, the Company established, and
the stockholders approved, an Employee Benefit and Consulting Services Compensation Plan (the “2005 Plan”) for the granting
of up to 5,000 non-statutory and incentive stock options and stock awards to directors, officers, consultants and key employees of the
Company. On June 9, 2005, the Board of Directors amended the Plan to increase the number of stock options and awards to be granted under
the Plan to 10,000 shares. During Fiscal 2009, the Company established a plan of long-term stock-based compensation incentives for
selected Eligible Participants of the Company covering 10,000 shares. This plan was adopted by the Board of Directors and approved by
stockholders in October 2009 and shall be known as the 2009 Employee Benefit and Consulting Services Compensation Plan (the “2009
Plan”). In September 2013, the Company’s stockholders approved an increase in the number of shares covered by the 2009 Plan
to 25,000 shares. In February 2015, the Board approved, subject to stockholder approval within one year, an increase in the number of
shares under the 2009 Plan to 50,000 shares; however, stockholder approval was not obtained within the requisite one year and the anticipated
increase in the 2009 Plan was canceled. In the first quarter of 2016, the Board approved, and stockholders ratified a 2016 Employee Benefit
and Consulting Services Compensation Plan covering 25,000 shares (the “2016 Plan”) and approving moving all options which
exceeded the 2009 Plan limits to the 2016 Plan. In December 2018, the Board of Directors adopted and in February 2019. the stockholders
ratified the 2018 Employee Benefit and Consulting Services Compensation Plan covering 75,000 shares (the “2018 Plan”). On
April 2, 2019, the Board approved the “2019 Plan” identical to the 2018 Plan, except that the 2019 Plan covers 150,000 shares.
The 2019 Plan required stockholder approval by April 2, 2020, to be able to grant incentive stock options under the 2019 Plan. On October
13, 2021, the Board approved the “2021 Plan” identical to the 2018 Plan, except that the 2019 Plan covers 1,100,000 post-split
shares. The 2005, 2009, 2016, 2018, 2019 and 2021 plans are collectively referred to as the “Plans.”
In March of 2022 Anne S. Provost was elected to
the board of directors and was issued 25,000 options from the Company’s 2021 stock option plan with immediate vesting, with an exercise
price of $4.57, and expiration of December 2031.
All stock options under the Plans are granted
at or above the fair market value of the common stock at the grant date. Employee and non-employee stock options vest over varying periods
and generally expire either 5 or 10 years from the grant date. The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model. For option grants, the Company will take into consideration payments subject to the provisions
of ASC 718 “Stock Compensation”. Previously, such assumptions were determined based on historical data. The weighted average
assumptions made in calculating the fair values of options granted during the three months and six months ended June 30, 2022, and June
30, 20201 are as follows:
Schedule of assumptions used | |
| | |
| |
| |
Six Months Ended June 30 | |
| |
2022 | | |
2021 | |
Expected volatility | |
| 79.95% | | |
| – | |
Expected dividend yield | |
| – | | |
| – | |
Risk-free interest rate | |
| 2.14% | | |
| – | |
Expected life (in years) | |
| 10.00 | | |
| – | |
Schedule of options outstanding | |
| | |
| | |
| | |
| |
| |
Option Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding, January 1, 2022 | |
| 1,135,909 | | |
$ | 16.69 | | |
| 8.39 | | |
$ | – | |
Granted | |
| 25,000 | | |
$ | 4.57 | | |
| 9.45 | | |
$ | – | |
Cancelled and expired | |
| (1,001 | ) | |
$ | 145.00 | | |
| – | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Outstanding, June 30, 2022 | |
| 1,159,908 | | |
$ | 16.46 | | |
| 7.94 | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Options exercisable, June 30, 2022 | |
| 1,158,806 | | |
$ | 16.32 | | |
| 7.93 | | |
$ | – | |
The weighted-average grant-date fair value of
options granted during the six months ended June 30, 2022 was $0.98.
The aggregate intrinsic value of options outstanding
and options exercisable at June 30, 2022 is calculated as the difference between the exercise price of the underlying options and the
market price of the Company's common stock for the shares that had exercise prices, that were lower than the $1.43 closing price of the
Company's common stock on June 30, 2022.
The Company’s results for the quarters ended
June 30, 2022, and June 30, 2021, include employee share-based compensation expense totaling $509,338 and $555,892, respectively. Such
amounts have been included in the Consolidated Statements of Operations within general and administrative expenses. The Company’s
results for the six months ended June 30, 2022, and June 30, 2021, include employee share-based compensation expense totaling $543,754
and $572,731 respectively. Such amounts have been included in the Consolidated Statements of Operations within general and administrative
expenses
As of June 30, 2022, the unamortized compensation
cost related to unvested stock option awards is $29,250.
During the six months ended June 30, 2022,
the Company issued 7,500 warrants to a consulting company and 888,166 were issued for the conversion of secured convertible notes to
a related party (see Note 5) for a total issuance of 895,666.
The weighted average assumptions made in calculating
the fair value of warrants granted during the three and six months ended June 30, 2022, and 2021 are as follows:
Schedule of warrant assumptions | |
| | |
| |
| |
Six Months Ended June 30 | |
| |
2022 | | |
2021 | |
Expected volatility | |
| 167.32 – 191.56% | | |
| 144.81% | |
Expected dividend yield | |
| – | | |
| – | |
Risk-free interest rate | |
| 1.62 – 3.27% | | |
| 0.81% | |
Expected life (in years) | |
| 4-5 | | |
| 5 | |
Schedule of warrants outstanding | |
| | | |
| | | |
| | | |
| | |
| |
Warrant Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding, January 1, 2022 | |
| 3,800,202 | | |
$ | 15.19 | | |
| 4.68 | | |
$ | – | |
Granted | |
| 895,666 | | |
$ | 3.99 | | |
| 9.12 | | |
$ | – | |
Expired | |
| (19,568 | ) | |
$ | 22.73 | | |
| – | | |
$ | – | |
Outstanding, June 30, 2022 | |
| 4,676,300 | | |
$ | 13.02 | | |
| 5.14 | | |
$ | – | |
Warrants exercisable, June 30, 2022 | |
| 4,676,300 | | |
$ | 13.02 | | |
| 5.14 | | |
$ | – | |
The weighted-average grant-date fair value of
warrants granted during the six months ended June 30, 2022, and 2021 was $1.31 and $6.33, respectively.
NOTE
8 – LITIGATION
In a Current Report on Form 8-K filed by the Company on March 23, 2022,
the Company reported the termination of the Employment Agreement of Donald (Trey) Barrett III as Chief Operations and Strategy Officer. On April 12, 2022, Mr. Barrett commenced an arbitration against the Company before the American Arbitration Association alleging among
other things that the Company terminated Mr. Barrett without cause in breach of the Employment Agreement. On August 12, 2022 the
Company and Mr. Barrett reached a settlement in which, among other things, the Company and Mr. Barrett mutually deemed that the termination
was not for-cause, the Company agreed to pay Mr. Barrett a sum which is not material to the business or financial condition of the Company,
and Mr. Barrett’s non-competition restrictive covenant was canceled. The Company has recorded the liability in full settlement of
the claim which is included in the accounts payable and accrued expenses.
NOTE 9 – SUBSEQUENT EVENTS
On July 20, 2022, the Company received $150,000
from the sale of the Company’s common stock by issuing 120,000 shares at $1.25 per share.
On August 10, 2022, the Company received $275,000
from the sale of the Company’s common stock by issuing 220,000 shares at $1.25 per share.
On July 1, 2022, the Company issued 27,107 shares
of common stock for three convertible promissory notes totaling $100,000 plus accrued interest of $8,425 at a conversion rate of $4.00
per share (see Note 5).