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iso4217:USD xbrli:shares
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ANNUAL REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended:
December 31, 2021
☐ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 000-13215
AIADVERTISING, INC.
(Exact name of registrant as specified in its charter)
|
Nevada
|
30-0050402
|
|
(State of Incorporation)
|
(I.R.S. Employer Identification No.)
|
|
321 Sixth Street, San Antonio, TX 78215
|
|
(Address of principal executive offices) (Zip Code)
|
|
|
|
(805) 964-3313
|
|
Registrant’s telephone number, including area code
|
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the
Act: Common Stock $0.001 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed 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 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 has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
The aggregate market value of voting stock held by non-affiliates
of the registrant was approximately $20,860,568 as of June 30,
2021, the last business day of the registrant’s most recently
completed second fiscal quarter (computed by reference to the last
sale price of a share of the registrant’s common stock on that date
as reported by OTC Pink).
There
were 1,110,856,518 shares outstanding of the registrant’s common
stock as of April 14, 2022.
1
TABLE OF CONTENTS
|
PART
1
|
|
|
|
|
ITEM
1
|
|
Business
|
3
|
|
ITEM
1A
|
|
Risk
Factors
|
7
|
|
ITEM
1B
|
|
Unresolved Staff Comments
|
20
|
|
ITEM
2
|
|
Properties
|
20
|
|
ITEM
3
|
|
Legal
Proceedings
|
20
|
|
ITEM
4
|
|
Mine
Safety Disclosures
|
20
|
|
PART
II
|
|
|
|
|
ITEM
5
|
|
Market
for Registrant’s Common Equity, Related Stockholder Matters, and
Issuer Purchases of Equity Securities
|
20
|
|
ITEM
6
|
|
Reserved
|
21
|
|
ITEM
7
|
|
Management’s Discussion and Analysis of Results of Operations and
Financial Condition
|
21
|
|
ITEM
8
|
|
Financial Statements and Supplementary Data
|
29
|
|
ITEM
9
|
|
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
56
|
|
ITEM
9A
|
|
Controls and Procedures
|
56
|
|
ITEM
9B
|
|
Other
Information
|
59
|
|
ITEM
9C
|
|
Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections
|
59
|
|
PART
III
|
|
|
|
|
ITEM
10
|
|
Directors, Executive Officers, and Corporate Governance
|
59
|
|
ITEM
11
|
|
Executive Compensation
|
62
|
|
ITEM
12
|
|
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
66
|
|
ITEM
13
|
|
Certain Relationships and Related Transactions, and Director
Independence
|
68
|
|
ITEM
14
|
|
Principal Accountant Fees and Services
|
68
|
|
ITEM
15
|
|
Exhibits, Financial Statement Schedules
|
68
|
|
ITEM
16
|
|
Form
10-K Summary
|
69
|
|
SIGNATURES
|
|
|
70
|
2
PART I
ITEM 1. BUSINESS
General
ABOUT
US-
AiAdvertising’s primary focus is to disrupt the digital advertising
world by offering a solution that harnesses the power of artificial
intelligence (AI) to enable marketers to increase productivity,
efficiency and performance.
OUR
MISSION-
Is to partner with marketers who are looking to challenge the
“status quo” and empower them with a unified solution to eliminate
wasted spend, replace human guesswork with AI-enabled predictions
to provide accountability and provide transparency to their
marketing budget.
OURSOLUTION-
Our proprietary software empowers marketers by intelligently
automating data- driven, repetitive tasks, and improving their
ability to make predictions at scale.
What is AI (Artificial Intelligence)?
AI is computer science field that enables computer software to
perform human-like intelligence tasks, like speech recognition,
image recognition, reasoning, decision making, and learning. AI
learns through observation and interaction with the world. It
learns, for example, by observing humans interact with objects and
people, by observing the objects themselves, and by interacting
with humans.
AI isn't magic; it's math. Very advanced math that can help
machines perform well-defined intelligence
tasks better than humans. AI powers everything from
self-driving cars to Amazon recommendations to image recognition
that tags your friends on Facebook.
AI is an umbrella term. It encompasses many different subfields and
technologies, including neural networks, natural language
processing (NLP), natural language generation (NLG), and deep
learning.
Machine learning is one of these subfields.
What is machine learning?
Machine learning is AI where the computer software is tasked with
learning without being explicitly programmed. An AI system that
uses machine learning is not always explicitly programmed with the
rules of how to learn. Instead, it is allowed to learn through a
combination of instruction from humans and experimentation on its
own.
Over time, an AI system using machine learning can get better at
the task it was built to do. It can even find its own approaches to
completing a task that humans never taught it or intended it to
learn. This is why there is so much excitement around AI that uses
machine learning:
Unlike traditional software, which has to be manually updated by
programmers, AI with machine learning can become smarter on its
own. It can improve its performance on tasks over time, which
can create powerful results for individuals and companies.
What is the difference between AI and machine learning?
Machine learning is always a type of AI, but AI is not always
machine learning. The difference lies in the ability of an AI
system to become smarter on its own. If AI can teach itself without
explicit human training and get better over time, then it's true
machine learning. If it can't, then some may still call it
artificial intelligence, but it's more like intelligent automation
with a narrow application. It can still solve problems that require
human intelligence.
3
The AIAD Platform Features
Our software platform harnesses the power of machine learning and
artificial intelligence to eliminate guesswork, predict what works,
and prove advertising's impact on financial results. Key features
of our platform include:
Alignment - We start with the end in mind and use a
comprehensive discovery process to outline goals and key
performance indicators (KPIs) to connect them to revenue targets.
By aligning on the desired outcomes, our platform renders marketing
and content calendars built upon the defined goals and
objectives.
Insights - AI Data Services inventories and aggregates data
from all of a client’s tools, such as customer relationship
management (CRM), sales, marketing, accounting, and customer
service tools into a unified data warehouse where it is cleaned,
organized, and tagged. This allows the artificial intelligence in
our platform to segment customers and prospective customers by
revealing patterns, signals, and insights to draw commonalities
between points and grouping them into personas (fictional
characters used to represent larger groups that share
similarities). Once these audiences are segmented, we use
unique engagement predictors leveraging psychographic models to
identify motivations, behaviors, influences, and interests. These
insights inform the type of creative assets these audience segments
will most likely respond to. The models are leveraged to find new
incremental audiences.
Activate – Our AI platform scores our clients’ existing
creative assets and intelligently recommends enhancements to
optimize performance. Our AI leverages the audience personas of who
will see the ads to accurately personalize and predict more
successful creative assets. This predictive engine allows clients
to know the likelihood that their ad will resonate with their
audiences before placing the ad. Our AI can then dynamically create
hundreds or thousands of variations of highly targeted ads based on
what our AI knows about the specific audience personas. Combined
with our software, our teams then help our clients place these ads
through the channels that will produce the highest results.
Decisions – The AiAd dashboard aggregates data from all
marketing channels to connect marketing strategies to financial
results. Our platform continuously monitors and validates each
campaign's impact and provides recommendations to maximize their
effectiveness. Leveraging machine learning, it provides ongoing
analysis and optimization of behavioral profiles, creative,
audience segments, and media activation. Our platform empowers
marketers to know what works, what doesn't, what's next, and why so
they can make the most informed decisions.
The Market
Opportunity
According to Marketing AI Institute:
·McKinsey
Global Institute estimates up to a $5.9 trillion annual
impact of AI and other analytics on marketing and sales.
·PwC
sees a truly global effect from AI, with an estimated 14 percent
lift in global GDP possible by 2030, a total contribution of $15.7
trillion to the world economy, thanks to both increased
productivity and increased consumption.
·In
2021 alone, Gartner projects AI
augmentation will create $2.9 trillion of business value, and 6.2
billion hours of worker productivity globally.
·IDC
states that efficiencies driven by AI in CRM could increase global
revenues by $1.1 trillion this year, and ultimately lead to more
than 800,000 net-new jobs, surpassing those lost to automation.
·The
COVID-19 pandemic has accelerated AI-powered digital transformation
across businesses. Additional research from McKinsey
cites that 25 percent of almost 2,400 business leaders surveyed
said they increased AI adoption due to the pandemic.
4
We believe Google’s recent announcement that it will restrict the
use of third-party cookies is very close to a declaration of war
against many ad-tech companies and major advertisers. "Today, we're
making explicit that once third-party cookies are phased out, we
will not build alternate identifiers to track individuals as they
browse across the web, nor will we use them in our products," said
David Temkin, Google's director of product management, ads privacy,
and trust.
Ad-targeting companies such as Criteo, The Trade Desk and Magnite
rely on so-called third-party browser cookies for their data
gathering and organization efforts, particularly when ad campaigns
are shaped around the specific browsing behavior of specific web
users. Thus, we believe Google’s announcement that third-party
cookies are going away someday soon was very bad news for the
ad-targeting industry. Further, Google took the next step of
promising to make it harder to replace cookies with alternative
user-tracking technologies.
This is cause for enormous concern within the advertising industry.
The Cookie Apocalypse coming in 2022 could wipe out 85% of the
digital market according to Data Science Analyst, Roger Kamena. Any
data or ad-tech company that captures any information on
unidentified users through a data management platform (DMP) will be
affected.
We believe that our AIAD platform will deliver a solution that will
overcome this problem caused by Google while still ensuring the
privacy of users, because our AIAD platform does not rely on the
use of browser cookies.
Instead, our platform uses AI to manage “personas” which we believe
will now become more important than ever for targeting purposes.
Cookies are dead. Also, our use of personas will overcome another
challenge for the ad targeting industry created by Apple as soon as
it releases its next operating system that will ask users to opt in
to share their location on every mobile app. As a result, location
data will decrease significantly to the point where it won't
be scalable.
A persona is a proxy for a brand’s target audience. A proxy
represents someone who has the same interests, priorities and
concerns as the brand’s buyers. Within the brand’s target market,
there are several ideal customer profiles, and each ideal customer
profile could have a multiple number of personas. Developing these
personas is based on extensive research and requires the use of
artificial intelligence and machine learning tools.
We believe the AiAdvertising approach is unique, and that it will
be disruptive in the ad targeting and ad buying process. Not only
will our AI-driven platform overcome the new challenges posed by
the actions of big players, such as Google and Apple, but it will
ensure user privacy and lead to lower advertising costs.
Past Revenue Model
Historically, we charged a fixed or variable implementation fee to
design, build and execute on digital marketing campaigns. These
campaigns or custom solutions consisted of professional services
fees as well as mark up on media spend. Our professional services
were billed at hourly or monthly rates, depending on the customer’s
needs.
Future Revenue
Beginning in Q4 of 2021, we pivoted the focus of our business to a
software licensing and delivery model, whereby our software is
centrally hosted and licensed on a monthly subscription basis. We
charge a flat percentage of clients’ monthly ad spend budget for
software license fees, and a flat percentage of their monthly ad
spend budget for media activation and placement. We believe this
provides greater transparency to the client as well as makes the
Company’s revenue more consistent and predictable. We believe this
shift towards SaaS recurring revenue can potentially be highly
valuable to the Company and its shareholders.
Sales and Marketing
To achieve the objective of disrupting the digital advertising
world by offering a solution that harnesses the power of artificial
intelligence , we have assembled a team of experts working
collectively for the best interest of our customers.
5
During the client sales process, our team delivers demonstrations,
presentations, proposals and contracts. Many new customers
have been retained through email marketing, direct sales, and
word-of-mouth referrals. Our direct sales efforts are aimed at
Chief Marketing Officers, senior marketing and information
technology (IT) executives within Consumer, B2B and political
organizations who are looking to create or expand their digital
operations. Word-of-mouth referrals have been very valuable
to us and we intend to continue nurturing our customer and industry
relationships to maximize these referrals.
In addition to our direct sales efforts and referrals, we have
established and continue to explore channel partnerships to expand
our customer base. Prospective channel partners include
existing technology companies, hosting providers, enterprise
resource planning (or ERP) vendors, and e-commerce marketing
professionals.
Competition
We operate in a rapidly growing and rapidly changing market. As a
result, we expect competition to continue to increase as other
established and emerging companies enter the business analytics
market, as customer requirements evolve and as new products and
technologies are introduced. We expect this to be particularly true
with respect to our SaaS-based offering. This is a relatively new
and evolving area of business analytics solutions, and we
anticipate competition to increase based on customer demand for
these types of products. In addition, we may compete with open
source initiatives and custom development efforts.
Many of our competitors, particularly the large software companies
named above, have longer operating histories, significantly greater
financial, technical, marketing, distribution, professional
services or other resources and greater name recognition than we
do. In addition, many of our competitors have strong relationships
with current and potential customers and extensive knowledge of the
business analytics industry. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in
customer requirements, for example by offering a SaaS-based product
that competes with our on-premises products or our SaaS product,
AiAd Platform, or devote greater resources to the development,
promotion and sale of their products than us. Moreover, many of
these competitors are bundling their analytics products into larger
deals or maintenance renewals, often at significant discounts.
Increased competition may lead to price cuts, alternative pricing
structures or the introduction of products available for free or a
nominal price, fewer customer orders, reduced gross margins, longer
sales cycles and loss of market share. We may not be able to
compete successfully against current and future competitors, and
our business, results of operations and financial condition will be
harmed if we fail to meet these competitive pressures.
Our ability to compete successfully in our market depends on a
number of factors, both within and outside of our control. Some of
these factors include ease and speed of product deployment and use,
discovery and visualization capabilities, analytical and
statistical capabilities, performance and scalability, the quality
and reliability of our customer service and support, total cost of
ownership, return on investment and brand recognition. Any failure
by us to compete successfully in any one of these or other areas
may reduce the demand for our products, as well as adversely affect
our business, results of operations and financial condition.
Government Regulation
We are subject to various federal, state, and local laws affecting
e-commerce and communication businesses. The Federal Trade
Commission and equivalent state agencies regulate advertising and
representations made by businesses in the sale of their products,
which apply to us. We are also subject to government laws and
regulations governing health, safety, working conditions, employee
relations, wrongful termination, wages, taxes and other matters
applicable to businesses in general. Currently, when serving
customers in the European Union, we must take precautions to
maintain the General Data Protection Regulation requirements. As
the United States continues to adopt similar regulations. Our
software and services will comply with those requirements.
Employees
As of March 14, 2022 we had 50 full time employees, 7 of whom are
employed in administrative positions, 16 in sales and marketing
positions, and 27 in technical positions. 19 employees were
in Texas, 2 in Utah, 2 in New Jersey, 2 in New York, 14 in Arizona,
1 in Ohio, 2 in Virginia, 2 in California, 1 in Pennsylvania, 1
North Carolina, 1 Colorado, and 3 in Georgia.
All of our employees have executed agreements that impose
nondisclosure obligations on the employee and assign to us (to the
extent permitted by state and federal laws) all copyrights and
other inventions created by the employee during his employment with
us. Additionally, we have a trade secret protection policy in place
that management believes to be adequate to protect our intellectual
property and trade secrets.
6
Seasonality
We do not anticipate that our business will be substantially
affected by seasonality.
Trademarks
We have registered trademarks for AiAdvertising®.
Company History
The Company, based in San Antonio, Texas, was incorporated in
Nevada on January 22, 2002. The Company was formerly known as
CloudCommerce, Inc., Warp 9, Inc., Roaming Messenger, Inc., and
Latinocare Management Corporation. On July 9, 2015, we changed the
name of the Company from Warp 9, Inc. to CloudCommerce, Inc. to
reflect a new plan of strategically acquiring profitable data
driven marketing solutions providers with strong management
teams. Effective August 5, 2021, the Company changed its name
to AiAdvertising, Inc.
The Company has six subsidiaries, CLWD Operations, Inc. (formerly
Indaba Group, Inc.), Parscale Digital, Inc., which merged with
Parscale Creative, Inc., as a result of an acquisition dated August
1, 2017, WebTegrity, LLC (“WebTegrity”), which was acquired
November 15, 2017, Data Propria, Inc., which the Company launched
February 1, 2018, Giles Design Bureau, Inc., which spun out from
Parscale Digital in May, 2018, and aiAdvertising, Inc., which was
formed January 14, 2021. References in this report to the
“Company,” “AiAdvertising,” “we,” “us”, or “our” include
AiAdvertising, Inc. and its subsidiaries, unless otherwise
indicated.
ITEM 1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. An
investor should carefully consider the risks described below,
together with all of the other information included in this annual
report, before making an investment decision. Our business,
financial condition or results of operations could suffer as a
result of these risks. In that case, the market value of our
securities could decline, and an investor may lose all or part of
his or her investment.
RISKS RELATED TO OUR BUSINESS
Issues in the use of AI in our offerings may result in
reputational harm or liability.
As with many disruptive innovations, AI presents risks and
challenges that could affect its adoption, and therefore our
business. AI algorithms may be flawed. Datasets may be insufficient
or contain biased information. Inappropriate or controversial data
practices by us or others could impair the acceptance of AI
solutions. These deficiencies could undermine the decisions,
predictions, or analysis AI applications produce, subjecting us to
competitive harm, legal liability, and brand or reputational harm.
Some AI scenarios present ethical issues. If we enable or offer AI
solutions that are controversial because of their impact on human
rights, privacy, employment, or other social issues, we may
experience brand or reputational harm.
We are subject to payment-related risks if customers dispute
or do not pay their invoices, and any decreases or significant
delays in payments could have a material adverse effect on our
business, results of operations and financial condition. These
risks may be heightened as a result of the COVID-19 pandemic
and resulting economic downturn.
We may become involved in disputes with our customers over the
operation of our platform, the terms of our agreements or our
billings for purchases made by them through our platform. In the
past, certain customers have sought to slow their payments to us or
been forced into filing for bankruptcy protection, resulting in
delay or cancelation of their pending payments to us. These
challenges have been exacerbated by the COVID-19 pandemic
and resulting economic impact, and a number of our customers are
experiencing financial difficulties and liquidity constraints. In
certain cases, customers have been unable to timely make payments,
and we have suffered losses. Certain of our contracts with
marketing agencies state that if their customer does not pay the
agency, the agency is not liable to us, and we must seek payment
solely from their customer, a type of arrangement called sequential
liability. Contracting with these agencies, which in some cases
have or may develop higher-risk credit profiles, may subject us to
greater credit risk than if we were to contract directly with the
customer.
7
If we are unable to collect customers’ fees on a timely basis or at
all, we could incur write-offs for bad debt, which could have a
material adverse effect on our results of operations for the
periods in which the write-offs occur. In the future, bad debt may
exceed reserves for such contingencies, and our bad debt exposure
may increase over time. Any increase in write-offs for bad debt
could have a materially negative effect on our business, financial
condition and operating results. Even if we are not paid by our
customers on time or at all, we may still be obligated to pay for
the inventory we have purchased for our customers’ marketing
campaigns, and consequently, our results of operations and
financial condition would be adversely impacted.
The reliability of some of our product solutions is dependent
on data and software from third-parties and the integrity and
quality of that data and software.
Some of the data and software that we use is licensed from
third-party data suppliers, and we are dependent upon our ability
to obtain necessary data licenses on commercially reasonable terms.
We could suffer material adverse consequences if our data suppliers
were to withhold their data from us. For example, data suppliers
could withhold their data from us if there is a competitive reason
to do so; if we breach our contract with a supplier; if they are
acquired by one of our competitors; if legislation is passed
restricting the use or dissemination of the data they provide; or
if judicial interpretations are issued restricting use of such
data. Additionally, we could terminate relationships with our data
suppliers if they fail to adhere to our data quality standards. If
a substantial number of data suppliers were to withdraw or withhold
their data from us, or if we sever ties with our data suppliers
based on their inability to meet our data standards, our ability to
provide products and services to our clients could be materially
adversely impacted, which could result in decreased revenues.
The reliability of our solutions depends upon the integrity and
quality of the data provided us by our clients and that which we
can license from third party providers. A failure in the integrity
or a reduction in the quality of our data could cause a loss of
customer confidence in our solutions, resulting in harm to our
brand, loss of revenue and exposure to legal claims. We may
experience an increase in risks to the integrity of our database
and quality of our data as we move toward real-time,
non-identifiable, consumer- powered data through our products. We
must continue to invest in our database to improve and maintain the
quality, timeliness and coverage of the data if we are to maintain
our competitive position. Failure to do so could result in a
material adverse effect on our business, growth and revenue
prospects.
Our business practices with respect to data and consumer
protection could give rise to liabilities or reputational harm as a
result of governmental regulation, legal requirements or industry
standards relating to consumer privacy, data protection and
consumer protection.
Federal, state and international laws and regulations govern the
collection, use, retention, sharing and security of data that we
collect. We strive to comply with all applicable laws, regulations,
self-regulatory requirements and legal obligations relating to
privacy, data protection and consumer protection, including those
relating to the use of data for marketing purposes. It is possible,
however, that these requirements may be interpreted and applied in
a manner that is inconsistent from one jurisdiction to another and
may conflict with other rules or our practices. We cannot assure
you that our practices have complied, comply, or will comply fully
with all such laws, regulations, requirements and obligations. Any
failure, or perceived failure, by us to comply with federal, state
or international laws or regulations, including laws and
regulations regulating privacy, data security, marketing
communications or consumer protection, or other policies,
self-regulatory requirements or legal obligations could result in
harm to our reputation, a loss in business, and proceedings or
actions against us by governmental entities, consumers, retailers
or others. We may also be contractually liable to indemnify and
hold harmless performance marketing networks or other third parties
from the costs or consequences of noncompliance with any laws,
regulations, self-regulatory requirements or other legal
obligations relating to privacy, data protection and consumer
protection or any inadvertent or unauthorized use or disclosure of
data that we store or handle as part of operating our business. Any
such proceeding or action, and any related indemnification
obligation, could hurt our reputation, force us to incur
significant expenses in defense of these proceedings, distract our
management, increase our costs of doing business and cause
consumers and retailers to decrease their use of our marketplace,
and may result in the imposition of monetary liability.
Furthermore, the costs of compliance with, and other burdens
imposed by, the data and privacy laws, regulations, standards and
policies that are applicable to the businesses of our clients may
limit the use and adoption of, and reduce the overall demand for,
our products.
8
A significant breach of the confidentiality of the information we
hold or of the security of our or our customers’, suppliers’, or
other partners’ computer systems could be detrimental to our
business, reputation and results of operations. Our business
requires the storage, transmission and utilization of data.
Although we have security and associated procedures, our databases
may be subject to unauthorized access by third parties. Such third
parties could attempt to gain entry to our systems for the purpose
of stealing data or disrupting the systems. We believe we have
taken appropriate measures to protect our systems from intrusion,
but we cannot be certain that advances in criminal capabilities,
discovery of new vulnerabilities in our systems and attempts to
exploit those vulnerabilities, physical system or facility
break-ins and data thefts or other developments will not compromise
or breach the technology protecting our systems and the information
we possess. Furthermore, we face increasing cyber security risks as
we receive and collect data from new sources, and as we and our
customers continue to develop and operate in cloud-based
information technology environments. In the event that our
protection efforts are unsuccessful, and we experience an
unauthorized disclosure of confidential information or the security
of such information or our systems are compromised, we could suffer
substantial harm. Any breach could result in one or more third
parties obtaining unauthorized access to our customers’ data or our
data, including personally identifiable information, intellectual
property and other confidential business information. Such a
security breach could result in operational disruptions that impair
our ability to meet our clients’ requirements, which could result
in decreased revenues. Also, whether there is an actual or a
perceived breach of our security, our reputation could suffer
irreparable harm, causing our current and prospective clients to
reject our products and services in the future and deterring data
suppliers from supplying us data. Further, we could be forced to
expend significant resources in response to a security breach,
including repairing system damage, increasing cyber security
protection costs by deploying additional personnel and protection
technologies, and litigating and resolving legal claims, all of
which could divert the attention of our management and key
personnel away from our business operations. In any event, a
significant security breach could materially harm our business,
financial condition and operating results.
Significant system disruptions, loss of data center capacity
or interruption of telecommunication links could adversely affect
our business and results of operations.
Our product platform is hosted and managed on Microsoft Azure Cloud
servers and takes full advantage of open standards for processing,
storage, security and big data technology. Significant system
disruptions, loss of data center capacity or interruption of
telecommunication links could adversely affect our business,
results of operations and financial condition. Our business is
heavily dependent upon highly complex data processing capability.
The ability of our platform hosts and managers to protect these
data centers against damage or interruption from fire, flood,
tornadoes, power loss, telecommunications or equipment failure or
other disasters is beyond our control and is critical to our
ability to succeed.
We need to protect our intellectual property or our operating
results may suffer.
Third parties may infringe our intellectual property and we may
suffer competitive injury or expend significant resources enforcing
our rights. As our business is focused on data-driven results and
analytics, we rely heavily on proprietary information technology.
Our proprietary portfolio consists of various intellectual property
including source code, trade secrets, and know-how. The extent to
which such rights can be protected is substantially based on
federal, state and common law rights as well as contractual
restrictions. The steps we have taken to protect our intellectual
property may not prevent the misappropriation of our proprietary
information or deter independent development of similar
technologies by others. If we do not enforce our intellectual
property rights vigorously and successfully, our competitive
position may suffer which could harm our operating results.
We could incur substantial costs and disruption to our
business as a result of any claim of infringement of another
party’s intellectual property rights, which could harm our business
and operating results.
From time to time, third parties may claim that one or more of our
products or services infringe their intellectual property rights.
We analyze and take action in response to such claims on a
case-by-case basis. Any dispute or litigation regarding patents or
other intellectual property could be costly and time-consuming due
to the complexity of our technology and the uncertainty of
intellectual property litigation, which could divert the attention
of our management and key personnel away from our business
operations. A claim of intellectual property infringement could
force us to enter into a costly or restrictive license agreement,
which might not be available under acceptable terms or at all, or
could subject us to significant damages or to an injunction against
development and sale of certain of our products or services.
9
We may be unable to maintain a competitive technology
advantage in the future.
Our ability to generate revenues is substantially based upon our
proprietary intellectual property that we own and protect through
trade secrets and agreements with our employees to maintain
ownership of any improvements to our intellectual property. Our
ability to generate revenues now and in the future is based upon
maintaining a competitive technology advantage over our
competition. We can provide no assurances that we will be able to
maintain a competitive technology advantage in the future over our
competitors, many of whom have significantly more experience, more
extensive infrastructure and are better capitalized than us.
We may not be able to integrate, maintain and enhance our
advertising solutions to keep pace with technological and market
developments.
The market for digital advertising solutions is characterized by
rapid technological change, evolving industry standards and
frequent introductions of new products and services. To keep pace
with technological developments, satisfy increasing publisher and
advertiser requirements, maintain the attractiveness and
competitiveness of our advertising solutions and ensure
compatibility with evolving industry standards and protocols, we
will need to anticipate and respond to varying product lifecycles,
regularly enhance our current advertising solutions and develop and
introduce new solutions and functionality on a timely basis. This
requires significant investment of financial and other resources.
For example, we will need to invest significant resources into
expanding and developing our platforms in order to maintain a
comprehensive solution. Ad technology platforms and other
technological developments may displace us or introduce an
additional intermediate layer between us and our customers and
digital media properties that could impair our relationships with
those customers.
If we default on our credit obligations, our operations may
be interrupted and our business and financial results could be
adversely affected.
Vendors extend us credit terms for the purchase of advertising
inventory. We currently have outstanding payables to existing
vendors. If we are unable to pay our publishers in a timely
fashion, they may elect to no longer sell us inventory to provide
for sale to advertisers. Also, it may be necessary for us to incur
additional indebtedness to maintain operations of the Company. If
we default on our credit obligations, our lenders and debt
financing holders may, among other things:
·require
repayment of any outstanding obligations or amounts drawn on our
credit facilities;
·terminate
our credit;
·stop
delivery of ordered equipment;
·discontinue
our ability to acquire inventory that is sold to
advertisers;
·require
us to accrue interest at higher rates; or
·require
us to pay significant damages.
If some or all of these events were to occur, our operations may be
interrupted and our ability to fund our operations or obligations,
as well as our business, financial results, and financial
condition, could be adversely affected.
War, terrorism, other acts of violence or natural or manmade
disasters such as a global pandemic may affect the markets in which
the Company operates, the Company's customers, the Company's
delivery of products and customer service, and could have a
material adverse impact on our business, results of operations, or
financial condition.
The Company's business may be adversely affected by instability,
disruption or destruction in the geographic regions in which it
operates, regardless of cause, including war, terrorism, riot,
civil insurrection or social unrest, and natural or manmade
disasters, including famine, food, fire, earthquake, storm or
pandemic events and spread of disease (including the recent
outbreak of the coronavirus commonly referred to as "COVID- 19").
Such events may cause customers to suspend their decisions on using
the Company's services and otherwise affect their ability to meet
their obligations to us by making payments on our existing
equipment leases, make it impossible to contact our customers and
potential customers as well as potential sources of future
financing, for our customers to visit our physical locations, and
give rise to sudden significant changes in regional and global
economic conditions and cycles that could interfere with our
existing business as well as our planned expansion into the
mobility business. These events also pose significant risks to the
Company's personnel and to physical facilities and operations,
which could materially adversely affect the Company's financial
results.
10
We have a history of losses and expect to continue to incur
losses.
We have experienced net losses and negative cash flows from
operating activities, and we expect such losses and negative cash
flows to continue in the foreseeable future. For the
years ended December 31, 2021 and 2020, we incurred net losses of
$8,482,771 and $1,270,650, respectively. We may never achieve
profitability.
We have a limited operating history, which may make it
difficult to evaluate our future prospects and may increase the
risk that we will not be successful.
We have a relatively short operating history and have been
delivering AIAD PLATFORM solutions, our proprietary audience-driven
business intelligence solution, since January 2018, and are now in
the process of building AIAD PLATFORM into a SaaS
(software-as-a-service) solution. As a result, it may be difficult
to evaluate in an investment in our stock. Furthermore, we operate
in an industry that is characterized by rapid technological
innovation, intense competition, changing customer needs and
frequent introduction of new products, technologies and services.
We have encountered, and we will continue to encounter, risks and
uncertainties frequently experienced by companies in evolving
industries. If our assumptions regarding these risks and
uncertainties, which we use to plan our business, are incorrect or
change in reaction to changes in the market, or we do not address
these risks successfully, our operating and financial results could
differ materially from our expectations, and our business could
suffer.
Our future success will depend in large part on our ability to,
among other things:
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market acceptance of our current and future products and
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improve the performance and capabilities of our products;
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manage the full automation of our AIAD PLATFORM solution;
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compete with other companies, custom development efforts and open
source initiatives that are currently in, or may in the future
enter, the market for our products;
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technology and data center infrastructure, enhancements to cloud
architecture, improved disaster recovery protection, increasing
data security, compliance and operations expenses;
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data center costs as customers increase the amount of data that is
available to our platform and the number of users on our
platform;
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the amount and timing of operating expenses, particularly sales and
marketing expenses, related to the maintenance and expansion of our
business, operations and infrastructure;
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write-downs, impairment charges or unforeseen liabilities in
connection with intangible assets or acquisitions;
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our ability to successfully manage any acquisitions; and
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general economic and political conditions in our domestic and
international markets
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11
If we fail to address or manage these risks successfully, including
those associated with the challenges listed above as well as those
described elsewhere in this section, our business will be adversely
affected and our results of operations will suffer.
Our success depends on increasing the number and value of
enterprise sales transactions, which typically involve a longer
sales cycle, greater deployment challenges and additional support
and services than sales to individual purchasers of our
products.
Growth in our revenues and profitability depends in part on our
ability to complete more and larger enterprise sales transactions.
These larger transactions may involve significant customer
negotiation. Enterprise customers may undertake a significant
evaluation process, which can last from several months to a year or
longer. For example, in recent periods, excluding renewals, our
transactions over $100,000 have generally taken over three months
to close. Any individual transaction may take substantially longer
than three months to close. If our sales cycle were to lengthen in
this manner, events may occur during this period that affect the
size or timing of a purchase or even cause cancellations, which may
lead to greater unpredictability in our business and results of
operations. We will spend substantial time, effort and money on
enterprise sales efforts without any assurance that our efforts
will produce any sales.
The actual market for our products and services could be
significantly smaller than our estimates of our total potential
market opportunity, and if customer demand for our products and
services does not meet expectations, our ability to generate
revenue and meet our financial targets could be adversely
affected.
While we expect strong growth in the markets for our products, it
is possible that the growth in some or all of these markets may not
meet our expectations, or materialize at all. The methodology on
which our estimate of our total potential market opportunity
includes several key assumptions based on our industry knowledge,
market research, and customer experience. If any of these
assumptions proves to be inaccurate, then the actual market for our
products could be significantly smaller than our estimates of our
total potential market opportunity. If the customer demand for our
products or the adoption rate in our target markets does not meet
our expectations, our ability to generate revenue from customers
and meet our financial targets could be adversely affected.
If our new products and product enhancements do not achieve
sufficient market acceptance, our results of operations and
competitive position will suffer.
We spend substantial amounts of time and money to research and
develop new software and enhanced versions of our existing software
to incorporate additional features, improve functionality, function
in concert with new technologies or changes to existing
technologies and allow our customers to analyze a wide range of
data sources. When we develop a new product or an enhanced version
of an existing product, we typically incur expenses and expend
resources upfront to market, promote and sell the new offering.
Therefore, when we develop and introduce new or enhanced products,
they must achieve high levels of market acceptance in order to
justify the amount of our investment in developing and bringing
them to market.
Further, we may make changes to our software that our customers do
not find useful. We may also discontinue certain features, begin to
charge for certain features that are currently free or increase
fees for any of our features or usage of our software. We may also
face unexpected problems or challenges in connection with new
product or feature introductions.
Our new products or product enhancements, such as our AiAd
Platform, and changes to our existing software could fail to attain
sufficient market acceptance for many reasons, including:
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failure to predict market demand accurately in terms of software
functionality and capability or to supply software that meets this
demand in a timely fashion;
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inability to operate effectively with the technologies, systems or
applications of our existing or potential customers;
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defects, errors or failures;
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negative publicity about their performance or effectiveness;
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delays in releasing our new software or enhancements to our
existing software to the market;
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the introduction or anticipated introduction of competing products
by our competitors;
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an ineffective sales force;
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poor business conditions for our end-customers, causing them to
delay purchases; and
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the reluctance of customers to purchase software incorporating open
source software.
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12
In addition, because our products are designed to operate on and
with a variety of systems, we will need to continuously modify and
enhance our products to keep pace with changes in technology. We
may not be successful in either developing these modifications and
enhancements or in bringing them to market in a timely fashion.
If our new software or enhancements and changes do not achieve
adequate acceptance in the market, our competitive position will be
impaired, and our revenues could decline. The adverse effect on our
results of operations may be particularly acute because of the
significant research, development, marketing, sales and other
expenses we will have incurred in connection with the new software
or enhancements.
Real or perceived errors, failures or bugs in our software
could adversely affect our results of operations and growth
prospects.
Because our software is complex, undetected errors, failures or
bugs may occur, especially when new versions or updates are
released. Our software is often installed and used in large-scale
computing environments with different operating systems, system
management software, and equipment and networking configurations,
which may cause errors or failures of our software or other aspects
of the computing environment into which it is deployed. In
addition, deployment of our software into computing environments
may expose undetected errors, compatibility issues, failures or
bugs in our software. Despite testing by us, errors, failures or
bugs may not be found in our software until it is released to our
customers. Moreover, our customers could incorrectly implement or
inadvertently misuse our software, which could result in customer
dissatisfaction and adversely impact the perceived utility of our
products as well as our brand. Any of these real or perceived
errors, compatibility issues, failures or bugs in our software
could result in negative publicity, reputational harm, loss of or
delay in market acceptance of our software, loss of competitive
position or claims by customers for losses sustained by them. In
such an event, we may be required, or may choose, for customer
relations or other reasons, to expend additional resources in order
to help correct the problem. Alleviating any of these problems
could require significant expenditures of our capital and other
resources and could cause interruptions, delays or cessation of our
licensing, which could cause us to lose existing or potential
customers and could adversely affect our results of operations and
growth prospects.
Interruptions or performance problems associated with our
technology and infrastructure may adversely affect our business and
results of operations.
We may in the future experience performance issues due to a variety
of factors, including infrastructure changes, human or software
errors, website or third-party hosting disruptions or capacity
constraints due to a number of potential causes including technical
failures, cyber-attacks, security vulnerabilities, natural
disasters or fraud. If our security is compromised, our website is
unavailable or our users are unable to access our software within a
reasonable amount of time or at all, our business could be
negatively affected. Moreover, if our security measures, products
or services are subject to cyber-attacks that degrade or deny the
ability of users to access our website, products or services, our
products or services may be perceived as unsecure and we may incur
significant legal and financial exposure. In some instances, we may
not be able to identify the cause or causes of these performance
problems within an acceptable period of time. These cloud-based
products are hosted at third-party data centers that are not under
our direct control. If these data centers were to be damaged or
suffer disruption, our ability to provide these products to our
customers could be impaired and our reputation could be harmed.
In addition, it may become increasingly difficult to maintain and
improve our website performance, especially during peak usage times
and as our software becomes more complex and our user traffic
increases. Adverse consequences could include unanticipated system
disruptions, slower response times, degradation in level of
customer support and impaired quality of users’ experiences, and
could result in customer dissatisfaction and the loss of existing
customers. We expect to continue to make significant investments to
maintain and improve website performance and security and to enable
rapid and secure releases of new features and applications for our
software. To the extent that we do not effectively address capacity
constraints, upgrade our systems as needed and continually develop
our technology and network architecture to accommodate actual and
anticipated changes in technology, our business and results of
operations may be adversely affected.
Our use of open source software could negatively affect our
ability to sell our software and subject us to possible
litigation.
We use open source software in our software and expect to continue
to use open source software in the future. We may face claims from
others claiming ownership of, or seeking to enforce the license
terms applicable to such open source software, including by
demanding release of the open source software, derivative works or
our proprietary source code that was developed using such software.
These claims could also result in litigation, require us to
purchase a costly license or require us to devote additional
research and development resources to change our software, any of
which would have a negative effect on our business and results of
operations. In addition, if the license terms for the open source
code change, we may be forced to re-engineer our software or incur
additional costs. Finally, we cannot assure you that we have not
incorporated open source software into our software in a manner
that may subject our proprietary software to an open source license
that requires disclosure, to customers or the public, of the source
code to such proprietary software. Any such disclosure would have a
negative effect on our business and the value of our software.
13
We may require additional capital to fund our business and
support our growth..
We intend to continue to make substantial investments to fund our
business and support our growth. In addition, we may require
additional funds to respond to business challenges, including the
need to develop new features or enhance our software, improve our
operating infrastructure or acquire or develop complementary
businesses and technologies. As a result, we may need to engage in
equity or debt financings to provide the funds required for these
and other business endeavors. If we raise additional funds through
future issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences and
privileges superior to those of holders of our common stock. Any
debt financing that we may secure in the future could involve
restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it more
difficult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions. We may
not be able to obtain such additional financing on terms favorable
to us, if at all. If we are unable to obtain adequate financing or
financing on terms satisfactory to us when we require it, our
ability to continue to support our business growth and to respond
to business challenges could be significantly impaired, and our
business may be adversely affected. In addition, our inability to
generate or obtain the financial resources needed may require us to
delay, scale back, or eliminate some or all of our operations,
which may have a material adverse effect on our business, operating
results, financial condition and prospects.
We are dependent on key personnel for our operations.
If those key personnel were to leave the Company, operations
may suffer.
Our performance is highly dependent on the continued services of
our executive officers and other key personnel, the loss of any of
whom could materially adversely affect our business. In
addition, we need to attract and retain other highly-skilled,
technical and managerial personnel for whom there is intense
competition. For example, if we are unable to hire or
continually train our employees to keep pace with the rapid and
continuing changes in technology and the markets we serve or
changes in the types of services our clients are demanding, we may
not be able to develop and deliver new services and solutions to
fulfill client demand. Our inability to attract and retain
qualified technical and managerial personnel could materially
adversely affect our ability to maintain and grow our business
significantly.
If labor costs for key personnel increase, the increase may
strain cash flows further.
Competition for labor could substantially increase our labor costs.
Although we seek to preserve the contractual ability to pass
through increases in labor costs to our clients, not all of our
current contracts provide us with this protection, and we may enter
into contracts in the future which limit or prohibit our ability to
pass through increases in labor costs to our clients. If we are
unable to pass costs through to our clients, our financial
condition may be materially affected.
Though the Company incurs significant costs while attempting
to acquire other businesses, there is no guarantee that such
transactions will be consummated
The Company incurs significant costs associated with both searching
for companies to acquire and in closing a transaction. These
costs include, but are not limited to, airfare, legal, audit and
consulting fees. Because the merger/acquisition is not only
dependent on both parties being dedicated to the completion of the
transaction, but also the operational fit must be right, we may not
close on all transactions we pursue. Incomplete transactions
may result in significant capital out flows with no benefit to the
Company.
We may become a party to litigation involving intellectual
property rights, employment violations, breach of contract, or
other lawsuit, which may place a burden on management and cash
flows.
Third parties may, in the future, assert that our business, the
technologies we use, or the business practices we use, infringe on
their intellectual property rights or employment rights or that we
are in violation of other rights or laws. Defending the
Company against such actions may require significant time of
management and substantial amounts of money. We cannot
predict whether third parties will assert claims in the future or
whether any future claims will prevent us from offering our
products or services. If we are found to be in the wrong, we
may be required to pay a significant amount of money which could
include damages and attorneys’ fees.
14
A portion of our services are provided by third parties which
we do not control. Such third parties may provide poor
service which may harm the relationships we have with our
clients.
We currently, and may in the future, rely on third party providers
to provide various portions of our service offering. If
our business relationship with a third-party provider is negatively
affected, or is terminated, we might not be able to deliver the
corresponding service offering to our clients, which could cause us
to lose clients and future business, reducing our revenues.
Any such failure on the part of the third party, may damage
our reputation and otherwise result in a material adverse effect
upon our business and financial condition.
We target a global marketplace and compete in a rapidly
evolving and highly competitive industry which makes our future
operating results difficult to predict. If we are unable to enhance
products or acquire new products that respond to rapidly changing
customer requirements, technological developments or evolving
industry standards, our long-term revenue growth will be
harmed.
We target the global business intelligence, or BI, marketplace,
which is an industry characterized by rapid technological
innovation, changing customer needs, substantial competition,
evolving industry standards and frequent introductions of new
products, enhancements and services. Any of these factors can
render our existing software products and services obsolete or
unmarketable. We believe that our future success will depend in
large part on our ability to successfully:
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support current and future releases of popular hardware, operating
systems, computer programming languages, databases and software
applications
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develop new products and product enhancements that achieve market
acceptance in a timely manner
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maintain technological competiveness and meet an expanding range of
customer requirements.
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As we encounter increasing competitive pressures, we will likely be
required to modify, enhance, reposition or introduce new products
and service offerings. We may not be successful in doing so in a
timely, cost-effective and appropriately responsive manner, or at
all, which may have an adverse effect on our business, quarterly
operating results and financial condition. All of these factors
make it difficult to predict our future operating results which may
impair our ability to manage our business.
Our success is highly dependent on our ability to penetrate
the existing market for business analytics software as well as the
growth and expansion of that market.
Although the overall market for business analytics software is
well-established, the market for business analytics software like
ours is relatively new, rapidly evolving and unproven. Our future
success will depend in large part on our ability to penetrate the
existing market for business analytics software, as well as the
continued growth and expansion of what we believe to be an emerging
market for analytics solutions that are faster, easier to adopt,
easier to use and more focused on self-service capabilities. It is
difficult to predict customer adoption and renewal rates, customer
demand for our products, the size, growth rate and expansion of
these markets, the entry of competitive products or the success of
existing competitive products. Our ability to penetrate the
existing market and any expansion of the emerging market depends on
a number of factors, including the cost, performance and perceived
value associated with our products, as well as customers’
willingness to adopt a different approach to data analysis.
Furthermore, many potential customers have made significant
investments in legacy business analytics software systems and may
be unwilling to invest in new software. If we are unable to
penetrate the existing market for business analytics software, the
emerging market for self-service analytics solutions fails to grow
or expand, or either of these markets decreases in size, our
business, results of operations and financial condition would be
adversely affected.
15
Our financial results would suffer if the market for BI
software does not continue to grow or if we are unable to further
penetrate this market.
Resistance from consumer and privacy groups to increased commercial
collection and use of data on spending patterns and other personal
behavior and governmental restrictions on the collection and use of
personal data may impair the further growth of this market, as may
other developments. We cannot be sure that this market will
continue to grow or, even if it does grow, that customers will
purchase our software products or services. We have spent, and
intend to keep spending, considerable resources to educate
potential customers about BI software in general and our software
products and services in particular. However, we cannot be sure
that these expenditures will help our software products achieve any
additional market acceptance or enable us to attract new customers
or new users at existing customers. A reduction in the demand for
our software products and services could be caused by, among other
things, lack of customer acceptance, weakening economic conditions,
competing technologies and services or decreases in software
spending. If the market and our market share fail to grow or grow
more slowly than we currently expect, our business, operating
results and financial condition would be harmed.
A large portion of our revenue is concentrated with a small
number of clients.
For the year ended December 31, 2021, three clients represented
approximately 47% of our service fee revenue. Termination,
reduction, or delay of our services under a contract could result
from factors unrelated to our work product or the progress of the
project such as factors related to business or financial conditions
of the client, changes in client strategies or the domestic or
global economy generally. Termination, reduction or
substantial delay of services any significant client, or nonrenewal
of any significant client contract, or the nonpayment of a material
amount of our service fees by a significant client, could have a
material adverse effect upon our business, results of operation and
financial condition.
If we do not accurately price our fixed fee projects, the
Company may suffer from decreased cash flows.
When making a proposal for, or managing, a fixed-price engagement,
we rely on our estimates of costs and timing for delivering our
services, which may be based on limited data and could be
inaccurate. If we do not accurately estimate our costs and
the timing for completion of a fixed-price project, the contract
for such a project could prove unprofitable or yield a profit
margin that is lower than expected. Losses, if any, on
fixed-price contracts are recognized when the loss is determined.
Any increased or unexpected costs or unanticipated delays in
connection with the performance of fixed-price contracts, including
delays caused by factors outside of our control, could make these
contracts less profitable or unprofitable and may affect the amount
of revenue, profit, and profit margin reported in any period.
Our industry is dependent on quickly evolving technologies
and knowledge. If we do not maintain proper technology or
knowledge, then our operations may be adversely
affected.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our services and the
underlying network infrastructure. If we are unable to adapt
to changing market conditions, client requirements or emerging
industry standards, our business could be adversely affected. The
internet and e-commerce environments are characterized by rapid
technological change, changes in user requirements and preferences,
frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and
practices that could render our technology and systems obsolete.
We must continue to address the increasingly sophisticated
and varied needs of our clients and respond to technological
advances and emerging industry standards and practices on a
cost-effective and timely basis.
In addition, many competitors expend a considerably greater amount
of funds on their research and development programs, and those that
do not may be acquired by larger companies that would allocate
greater resources to competitors’ research and development
programs. If we fail to maintain adequate research and development
resources or compete effectively with the research and development
programs of competitors, our business could be harmed. Our ability
to grow is also subject to the risk of future disruptive
technologies. If new technologies emerge that are able to deliver
business intelligence solutions at lower prices, more efficiently,
more conveniently or more securely, such technologies could
adversely affect our ability to compete.
16
We may not realize the anticipated benefits of past or future
acquisitions, and integration of these acquisitions may disrupt our
business and management.
Our growth strategy is dependent on the success of our completed
acquisitions and in the future we may acquire additional companies,
products or technologies or enter into joint ventures or other
strategic initiatives. We may not realize the anticipated benefits
of these acquisitions or any other future acquisition, and any
acquisition has numerous risks. These risks include the
following:
·difficulty
in assimilating the operations and personnel of the acquired
company;
·difficulty
in effectively integrating the acquired technologies or products
with our current technologies;
·difficulty
in maintaining controls, procedures and policies during the
transition and integration;
·disruption
of our ongoing business and distraction of our management and
employees from other opportunities and challenges due to
integration issues;
·inability
to retain key technical and managerial personnel of the acquired
business;
·inability
to retain key customers, vendors and other business partners of the
acquired business;
·inability
to achieve the financial and strategic goals for the acquired and
combined businesses;
·incurring
acquisition-related costs or amortization costs for acquired
intangible assets that could impact our operating
results;
·potential
failure of the due diligence processes to identify significant
issues with product quality, intellectual property infringement and
other legal and financial liabilities, among other things;
and
·potential
inability to assert that internal controls over financial reporting
are effective.
Mergers and acquisitions of companies are inherently risky and, if
we do not complete the integration of acquired businesses
successfully and in a timely manner, we may not realize the
anticipated benefits of the acquisitions to the extent anticipated,
which could adversely affect our business, financial condition or
results of operations.
We are subject to governmental laws, regulation and other
legal obligations, particularly those related to privacy, data
protection and information security, and any actual or perceived
failure to comply with such obligations could impair our efforts to
maintain and expand our customer base, causing our growth to be
limited and harming our business.
We receive, store and process personal information and other data
from and about customers in addition to our employees and services
providers. Also, in connection with future feature offerings, we
may receive, store and process additional types of data, including
personally identifiable information, related to end consumers. Our
handling of data is subject to a variety of laws and regulations,
including regulation by various government agencies, such as the
U.S. Federal Trade Commission, or FTC, and various state, local and
foreign agencies. Our data handling also is subject to contractual
obligations and may be deemed to be subject to industry standards,
including certain industry standards that we undertake to comply
with.
The U.S. federal and various state and foreign governments have
adopted or proposed limitations on the collection, distribution,
use and storage of data relating to individuals, including the use
of contact information and other data for marketing, advertising
and other communications with individuals and businesses. In the
United States, various laws and regulations apply to the
collection, processing, disclosure, and security of certain types
of data. Additionally, the FTC and many state attorneys general are
interpreting federal and state consumer protection laws as imposing
standards for the online collection, use, dissemination and
security of data. The laws and regulations relating to privacy and
data security are evolving, can be subject to significant change
and may result in ever-increasing regulatory and public scrutiny
and escalating levels of enforcement and sanctions.
17
Any failure or perceived failure by us to comply with laws,
regulations, policies, legal or contractual obligations, industry
standards, or regulatory guidance relating to privacy, data
protection, information security, marketing or consumer
communications may result in governmental investigations and
enforcement actions, litigation, fines and penalties or adverse
publicity, and could cause our customers and partners to lose trust
in us, which could have an adverse effect on our reputation and
business. We expect that there will continue to be new proposed
laws, regulations and industry standards relating to privacy, data
protection, marketing, consumer communications and information
security in the United States, the European Union and other
jurisdictions, and we cannot determine the impact such future laws,
regulations and standards may have on our business. Future laws,
regulations, standards and other obligations or any changed
interpretation of existing laws or regulations could impair our
ability to develop and market new features and maintain and grow
our customer base and increase revenue. Future restrictions on the
collection, use, sharing or disclosure of data or additional
requirements for express or implied consent of our customers,
partners or end consumers for the use and disclosure of such
information could require us to incur additional costs or modify
our platform, possibly in a material manner, which we may be unable
to achieve in a commercially reasonable manner or at all, and which
could limit our ability to develop new features. If our policies,
procedures, or measures relating to privacy, data protection,
information security, marketing, or customer communications fail,
or are perceived as failing, to comply with laws, regulations,
policies, legal obligations or industry standards, we may be
subject to governmental enforcement actions, litigation, regulatory
investigations, fines, penalties and negative publicity and could
cause our application providers, customers and partners to lose
trust in us, which could materially affect our business, operating
results and financial condition.
Future acquisitions may include an equity component that may
dilute the positions of current stockholders.
We have traditionally used our equity to finance our acquisitions.
As we search for additional companies to acquire, the
components of the purchase price may include a combination of cash,
debt and equity. The issuance of a substantial amount of
equity may have a dilutive effect on our current shareholders upon
such equity being deemed free-trading. This dilution may
result in lower market prices, which may limit an investor’s
ability to obtain a return on their investment.
In
addition, the incurrence of debt could have a variety of negative
effects, including:
·default
and foreclosure on our assets if our operating revenues are
insufficient to repay our debt obligations;
·acceleration
of our obligations to repay the indebtedness even if we make all
principal and interest payments when due if we breach certain
covenants that require the maintenance of certain financial ratios
or reserves without a waiver or renegotiation of that
covenant;
·our
immediate payment of all principal and accrued interest, if any, if
the debt security is payable on demand;
·our
inability to obtain necessary additional financing if the debt
security contains covenants restricting our ability to obtain such
financing while the debt security is outstanding;
·increased
vulnerability to adverse changes in general economic, industry and
competitive conditions and adverse changes in government
regulation; and
·limitations
on our ability to borrow additional amounts for expenses, capital
expenditures, acquisitions, debt service requirements, execution of
our strategy and other purposes and other disadvantages compared to
our competitors who have less debt.
RISKS RELATED TO OUR COMMON STOCK
Due to the low price and volume of our stock, a shareholder
may be unable to sell shares, or may lose money on their
investment.
The trading price of our common stock may be subject to wide
fluctuations in response to quarter-to-quarter fluctuations in
operating results, announcements of material adverse events,
general conditions in our industry or the public marketplace and
other events or factors, including the thin trading of our common
stock. In addition, stock markets have experienced extreme
price and trading volume volatility in recent years. This
volatility has had a substantial effect on the market prices of
securities of many technology-related companies for reasons
frequently unrelated to the operating performance of the specific
companies. These broad market fluctuations may adversely
affect the market price of our common stock. In addition, if our
operating results differ from our announced guidance or the
expectations of equity research analysts or investors, the price of
our common stock could decrease significantly.
18
Our principal stockholders, officers and directors own a
controlling interest in its voting stock and investors have a
limited voice in our management.
Our principal stockholders, shareholders of our convertible
preferred stock, officers and directors, in the aggregate,
beneficially own approximately 60% of our outstanding common stock.
As a result, these stockholders acting together, have the ability
to control substantially all matters submitted to the Company's
stockholders for approval, including the election of directors and
approval of significant corporate transactions. In addition, sales
of significant amounts of shares held by our principal
stockholders, directors and executive officers, or the prospect of
these sales, could adversely affect the market price of our common
stock. Their stock ownership may discourage a potential acquirer
from making a tender offer or otherwise attempting to obtain
control of the Company, which could deprive our stockholders of an
opportunity to receive a premium for their capital stock as part of
a sale of our company and might ultimately affect the market price
of our common stock.
Our common stock is subject to the “penny stock” rules of the
sec and the trading market in our securities is limited, which
makes transactions in our stock cumbersome and may reduce the value
of an investment in our stock.
The Securities and Exchange Commission (the “SEC”) has adopted Rule
15g-9 which establishes the definition of a "penny stock," for the
purposes relevant to us, as any equity security that has a market
price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. For any
transaction involving a penny stock, unless exempt, the rules
require:
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that a broker or dealer approve a person's account for transactions
in penny stocks; and
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|
●
|
the broker or dealer receives from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
|
In order to approve a person's account for transactions in penny
stocks, the broker or dealer must:
|
|
●
|
obtain financial information and investment experience objectives
of the person; and
|
|
|
●
|
make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
|
The broker or dealer must also deliver, prior to any
transaction in a penny stock, a disclosure schedule prescribed by
the SEC relating to the penny stock market, which:
|
|
●
|
sets forth the basis on which the broker or dealer made the
suitability determination; and
|
|
|
●
|
that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
|
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it
more difficult for investors to dispose of our common stock and
cause a decline in the market value of our stock
We have never paid dividends and have no plans to pay
dividends in the future. As a result, our common stock may be less
valuable because a return on an investor’s investment will only
occur if our stock price appreciates.
Holders of shares of our common stock are entitled to receive such
dividends as may be declared by our Board of Directors. To date, we
have paid no cash dividends and we do not expect to pay cash
dividends in the foreseeable future. We intend to retain future
earnings, if any, to provide funds for operations of our business.
Therefore, any return investors in will be in the form of
appreciation, if any, in the market value of our shares of common
stock. There can be no assurance that shares of our common stock
will appreciate in value or even maintain the price at which our
stockholders have purchased their shares.
There is a limited trading market for our common stock, and
investors may find it difficult to buy and sell our
shares.
Our common stock is not listed on any national securities exchange.
Accordingly, investors may find it more difficult to buy and sell
our shares than if our common stock was traded on an exchange.
Although our common stock is quoted on the OTC Pink, it is an
unorganized, inter-dealer, over-the-counter market which provides
significantly less liquidity than the Nasdaq Capital Market or
other national securities exchange. Further, there is limited
trading volume in our common stock, and any significant trading
volume in our common stock may not be sustained. These factors may
have an adverse impact on the trading and price of our common
stock.
19
We have a substantial number of convertible securities
outstanding. The exercise of our outstanding warrants/options and
conversion of our outstanding convertible notes can have a dilutive
effect on our common stock.
We have a substantial number of convertible securities outstanding.
The exercise of our outstanding options and convertible preferred
stock can have a dilutive effect on our common stock. As of
December 31, 2021, we had (i) outstanding options to purchase
approximately 768 million shares of our common stock at a weighted
average exercise price of $0.006 per share, (ii) outstanding shares
of our Series, A, B, C, D, E, and G Preferred Stock that, upon
conversion without regard to any beneficial ownership limitations
or advance conversion notice, would provide the holders with an
aggregate of 966 million shares of our common stock. The
issuance of shares of common stock upon exercise of outstanding
options or conversion of preferred stock could result in
substantial dilution to our stockholders, which may have a negative
effect on the price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES
On August 1, 2017, the Company signed a lease for approximately
8,290 square feet at 321 Sixth Street, San Antonio, TX 78215, for
$9,800 per month, expiring July 31, 2022. This office space
is used by all employees in San Antonio, TX.
ITEM 3. LEGAL PROCEEDINGS
The Company may be involved in legal actions and claims arising in
the ordinary course of business from time to time in the future.
However, at this time there are no current legal proceedings to
which the Company or any of its subsidiaries is a party or of which
any of their property is the subject that is material.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
SECURITIES
Common Stock
The Company’s common stock trades on the OTC Pink under the symbol
“AIAD”.
As of December 31, 2021, there were approximately 2,000 holders of
the Company’s common stock, not including shares held in “street
name” in brokerage accounts, which are unknown.
Dividends
The Company has not declared or paid any cash dividends on its
common stock and does not anticipate paying dividends for the
foreseeable future.
Equity Compensation Plan Information
On November 26, 2021 the Company adopted the AiAdvertising, Inc.
2021 Equity Incentive Plan (the “Stock Plan”). The Stock Plan will
be used as incentive for directors, executive officers, and
employees of and key consultants to the Company. Pursuant to
the Stock Plan, the Company may issue 200,000,000 shares of common
stock. The plan is administered by the Company’s Board of
Directors. The Company has from time to time issued
non-qualified stock options to its officers and directors as set
forth below.
20
The following table provides equity compensation plan information
as of December 31, 2021:
|
Plan category
|
|
Number of securities to be
issued upon exercise of
outstanding options
(a)
|
|
|
Weighted-average
exercise price of
outstanding options
(b)
|
|
|
Securities remaining available
for future issuance under equity
compensation plans (excluding
securities reflected in column (a))
(c)
|
|
|
Equity compensation plan’s approved by security holders
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Equity compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000,000
|
|
|
Total
|
|
|
—
|
|
|
$
|
|
|
|
|
200,000,000
|
|
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the fiscal
year ended December 31, 2021 other than those transactions
previously reported to the SEC on our quarterly reports on Form
10-Q and current reports on Form 8-K.
ITEM 6. RESERVED.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following Management’s Discussion and Analysis should be
read in conjunction with our consolidated financial statements and
the related notes thereto included elsewhere herein. The
Management’s Discussion and Analysis contains forward-looking
statements that involve risks and uncertainties, such as statements
of our plans, objectives, expectations and intentions. Any
statements that are not statements of historical fact are
forward-looking statements. When used, the words “believe,” “plan,”
“intend,” “anticipate,” “target,” “estimate,” “expect,” and the
like, and/or future-tense or conditional constructions (“will,”
“may,” “could,” “should,” etc.), or similar expressions, identify
certain of these forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that could cause
actual results or events to differ materially from those expressed
or implied by the forward-looking statements in this annual report.
Our actual results and the timing of events could differ materially
from those anticipated in these forward-looking statements as a
result of several factors including, but not limited to, those
noted under “Risk Factors” of the reports filed with the Securities
and Exchange Commission. We do not undertake any obligation to
update forward-looking statements to reflect events or
circumstances occurring after the date of this annual report on
Form 10-K, except as may be required under applicable law.
Overview-
AiAdvertising’s primary focus is to disrupt the digital advertising
world by offering a solution that harnesses the power of artificial
intelligence (AI) to enable marketers to increase productivity,
efficiency and performance.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results
of operations, including the discussion on liquidity and capital
resources, are based upon our financial statements, which have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, management re-evaluates its
estimates and judgments, particularly those related to the
determination of the estimated recoverable amounts of trade
accounts receivable, impairment of long-lived assets, revenue
recognition, and deferred tax assets. We believe the following
critical accounting policies require more significant judgment and
estimates used in the preparation of the financial statements.
21
Among the significant judgments made by management in the
preparation of our financial statements are the following:
Revenue
Recognition
On January 1, 2018, the Company adopted ASU 2014-09 Revenue from
Contracts with Customers and all subsequent amendments to the
ASU (collectively, “ASC 606”), using the modified retrospective
method applied to those contracts which were not completed as
of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under
Topic 606, while prior period amounts are not adjusted and continue
to be reported in accordance with our historic accounting under
Topic 605. Revenues are 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. The adoption of ASC 606
did not have a material impact on the Company’s Consolidated
Financial Statements. See footnote 3 for a disclosure of our
use of estimates and judgement, as it relates to revenue
recognition.
Included in revenue are costs that are reimbursed by our clients,
including third party services, such as photographers and stylists,
furniture, supplies, and the largest component, digital
advertising. We have determined, based on our review of ASC
606-10-55-39, that the amounts classified as reimbursable costs
should be recorded as gross, due to the following factors:
|
|
●
|
The Company is primarily in control of the inputs of the project
and responsible for the completion of the client contract;
|
|
|
●
|
We have discretion in establishing price; and
|
|
|
●
|
We have discretion in supplier selection.
|
Accounts
Receivable
The Company extends credit to its customers, who are located
nationwide. Accounts receivable are customer obligations due
under normal trade terms. The Company performs continuing
credit evaluations of its customers’ financial condition.
Management reviews accounts receivable on a regular basis,
based on contracted terms and how recently payments have been
received to determine if any such amounts will potentially be
uncollected. The Company includes any balances that are
determined to be uncollectible in its allowance for doubtful
accounts. After all attempts to collect a receivable have
failed, the receivable is written off. The balances of the
allowance account at December 31, 2021 and December 31, 2020 were
$4,469 and $742 respectively.
Impairment of
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable. To determine
recoverability of a long-lived asset, management evaluates whether
the estimated future undiscounted net cash flows from the asset are
less than its carrying amount. If impairment is indicated, the
long-lived asset would be written down to fair value. Fair value is
determined by an evaluation of available price information at which
assets could be bought or sold, including quoted market prices, if
available, or the present value of the estimated future cash flows
based on reasonable and supportable assumptions.
Indefinite Lived
Intangibles and Goodwill Assets
The Company accounts for business combinations under the
acquisition method of accounting in accordance with ASC 805,
“Business Combinations,” where the total purchase price is
allocated to the tangible and identified intangible assets acquired
and liabilities assumed based on their estimated fair values. The
purchase price is allocated using the information currently
available, and may be adjusted, up to one year from acquisition
date, after obtaining more information regarding, among other
things, asset valuations, liabilities assumed and revisions to
preliminary estimates. The purchase price in excess of the fair
value of the tangible and identified intangible assets acquired
less liabilities assumed is recognized as goodwill.
The Company tests for indefinite lived intangibles and goodwill
impairment in the fourth quarter of each year and whenever events
or circumstances indicate that the carrying amount of the asset
exceeds its fair value and may not be recoverable. In accordance
with its policies, at December 31, 2020 the Company performed a
qualitative assessment of indefinite lived intangibles and goodwill
related to WebTegrity and determined the fair value of each
intangible asset and goodwill. Therefore, an impairment of
indefinite lived intangibles and goodwill was recognized.
22
The impairment test conducted by the Company includes an assessment
of whether events occurred that may have resulted in impairment of
goodwill and intangible assets. Because it was determined
that events had occurred which effected the fair value of goodwill
and intangible assets, the Company conducted the two-step approach
to determine the fair value and required adjustment. The
steps are as follows:
|
|
1.
|
Based on the totality of qualitative factors, determine whether the
carrying amount of the intangible asset may not be recoverable.
Qualitative factors and key assumptions reviewed include the
following:
|
|
|
●
|
Increases in costs, such as labor, materials or other costs that
could negatively affect future cash flows. The Company assumed that
costs associated with labor, materials, and other costs should be
consistent with fair market levels. If the costs were materially
higher than fair market levels, then such costs may adversely
affect the future cash flows of the Company or reporting units.
|
|
|
●
|
Financial performance, such as negative or declining cash flows, or
reductions in revenue may adversely affect recoverability of the
recorded value of the intangible assets. During our analysis, the
Company assumes that revenues should remain relatively consistent
or show gradual growth month-to-month and quarter-to-quarter. If we
report revenue declines, instead of increases or flat levels, then
such condition may adversely affect the future cash flows of the
Company or reporting units.
|
|
|
●
|
Legal, regulatory, contractual, political, business or other
factors that could affect future cash flows. During our analysis,
the Company assumes that the legal, regulatory, political or
business conditions should remain consistent, without placing
material pressure on the Company or any of its reporting units. If
such conditions were to become materially different than what has
been experienced historically, then such conditions may adversely
affect the future cash flows of the Company or reporting units.
|
|
|
●
|
Entity-specific events such as losses of management, key personnel,
or customers, may adversely affect future cash flows. During our
analysis, the Company assumes that members of management, key
personnel, and customers will remain consistent period-over-period.
If not effectively replaced, the loss of members of management and
key employees could adversely affect operations, culture, morale
and overall success of the company. In addition, if material
revenue from key customers is lost and not replaced, then future
cash flows will be adversely affected.
|
|
|
●
|
Industry or market considerations, such as competition, changes in
the market, changes in customer dependence on our service offering,
or obsolescence could adversely affect the Company or its reporting
units. We understand that the market we serve are constantly
changing, requiring us to change with it. During our analysis, we
assume that we will address new opportunities in service offering
and industries served. If we do not make such changes, then we may
experience declines in revenue and cash flow, making it difficult
to re-capture market share.
|
|
|
●
|
Macroeconomic conditions such as deterioration in general economic
conditions or limitations on accessing capital could adversely
affect the Company. During our analysis, we acknowledge that
macroeconomic factors, such as the economy, may affect our business
plan because our customers may reduce budgets for our services. If
there are material declines in the economy, which lead to
reductions in revenue then such conditions may adversely affect the
Company.
|
|
|
2.
|
Compare the carrying amount of the intangible asset to the fair
value.
|
|
|
3.
|
If the carrying amount is greater than the fair value, then the
carrying amount is reduced to reflect fair value.
|
In accordance with its policies, the Company performed a
qualitative assessment of indefinite lived intangibles and goodwill
at December 31, 2020 and determined there was impairment of
indefinite lived intangibles and goodwill from our WebTegrity
acquisition. Accordingly, all intangible assets and goodwill
related to the WebTegrity acquisition have been written off,
amounting to $560,000. This amount was included in Operating
Expenses on the Income Statement, for the year ended December 31,
2020.
23
Goodwill and Intangible assets are comprised of the following,
presented as net of amortization:
|
|
|
|
AiAdvertising
|
|
|
Total
|
|
Domain name
|
|
|
20,202
|
|
|
20,202
|
|
Total
|
|
$
|
20,202
|
|
$
|
20,202
|
|
|
|
|
AiAdvertising
|
|
|
Total
|
|
Domain name
|
|
|
26,582
|
|
|
26,842
|
|
Total
|
|
$
|
26,582
|
|
$
|
26,582
|
Business
Combinations
The Company allocates the fair value of purchase consideration to
the tangible assets acquired, liabilities assumed and intangible
assets acquired based on their estimated fair values. The excess of
the fair value of purchase consideration over the fair values of
these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant estimates
and assumptions, especially with respect to intangible assets.
Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired
customer lists, acquired technology, and trade names from a market
participant perspective, useful lives and discount rates.
Management’s estimates of fair value are based upon assumptions we
believe to be reasonable, but which are inherently uncertain and
unpredictable and, as a result, actual results may differ from
estimates. During the measurement period, which is one year from
the acquisition date, we may record adjustments to the assets
acquired and liabilities assumed, with the corresponding offset to
goodwill. Upon the conclusion of the measurement period, any
subsequent adjustments are recorded to earnings.
Fair value of
financial instruments
The Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, and accrued
liabilities are carried at cost, which approximates their fair
value, due to the relatively short maturity of these instruments.
During year ended 2020, the Company’s notes payable had
stated borrowing rates that were consistent with those currently
available to the Company and, accordingly, the Company believes the
carrying value of these debt instruments approximated their fair
value. As of December 31, 2021 the Company has zero note
payables.
Fair value is defined as the price to sell an asset or transfer a
liability, between market participants at the measurement date.
Fair value measurements assume that the asset or liability is
(1) exchanged in an orderly manner, (2) the exchange is
in the principal market for that asset or liability, and
(3) the market participants are independent, knowledgeable,
able and willing to transact an exchange. Fair value accounting and
reporting establishes a framework for measuring fair value by
creating a hierarchy for observable independent market inputs and
unobservable market assumptions and expands disclosures about fair
value measurements. Considerable judgment is required to interpret
the market data used to develop fair value estimates. As such, the
estimates presented herein are not necessarily indicative of the
amounts that could be realized in a current exchange. The use of
different market assumptions and/or estimation methods could have a
material effect on the estimated fair value.
Off-Balance Sheet
Arrangements
None
Recent Accounting
Pronouncements
The Company does not elect to delay complying with any new or
revised accounting standards, but to apply all standards required
of public companies, according to those required application
dates.
Management reviewed accounting pronouncements issued during the
year ended December 31, 2021, and no pronouncements were adopted
during the period.
24
Management reviewed accounting pronouncements issued during the
year ended December 31, 2020, and the following pronouncement was
adopted during the period.
In January 2017, the FASB issued 2017-04, Intangibles -
Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. The amendments in this ASU simplify the
subsequent measurement of goodwill by eliminating Step 2 from the
goodwill impairment test and eliminating the requirement for a
reporting unit with a zero or negative carrying amount to perform a
qualitative assessment. Instead, under this pronouncement, an
entity would perform its annual, or interim, goodwill impairment
test by comparing the fair value of a reporting unit with its
carrying amount and would recognize an impairment change for the
amount by which the carrying amount exceeds the reporting unit’s
fair value; however, the loss recognized is not to exceed the total
amount of goodwill allocated to that reporting unit. In addition,
income tax effects will be considered, if applicable. This ASU is
effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019. Early adoption is
permitted. Due to the limited amount of goodwill and intangible
assets recorded at December 31, 2021, the impact of this ASU on its
consolidated financial statements and related disclosures was
immaterial.
Recently Issued
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update No.
2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments" which
requires the measurement and recognition of expected credit losses
for financial assets held at amortized cost. ASU 2016-13 replaces
the existing incurred loss impairment model with an expected loss
methodology, which will result in more timely recognition of credit
losses. ASU 2016-13 is effective for annual reporting periods, and
interim periods within those years, beginning after December 15,
2022. We are currently in the process of evaluating the impact of
the adoption of ASU 2016-13 on our consolidated financial
statements.
In August 2020, the FASB issued Accounting Standards Update (ASU)
2020-06, Debt – Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging – Contracts in
Entity’s Own Equity (Subtopic 815-40). The intention of ASU
2020-06 update is to address the complexity of accounting for
certain financial instruments with characteristics of liabilities
and equity, including convertible instruments and contracts in an
entity’s own equity. Under ASU 2020-06, the number of
accounting models for convertible notes will be reduced and
entities that issue convertible debt will be required to use the
if-converted method for computing diluted Earnings Per Share.
ASU 2020-06 is effective for fiscal years and interim periods
beginning after December 15, 2021 and may be adopted through either
a modified or fully retrospective transition. Early adoption is
permitted. The Company is currently evaluating the impact of this
ASU on its consolidated financial statements and related
disclosures.
Results of Operations for the Year Ended December 31, 2021,
compared to the Year Ended December 31, 2020.
REVENUE
Total revenue for the year ended December 31, 2021 decreased by
$2,534,943 to $6,868,261, compared to $9,406,204 for the year ended
December 31, 2020. The decrease was primarily due to a
pivot of focus from professional services to SaaS revenue generated
by our AiAd Platform. During this pivot, we strategically chose to
discontinue parts of our business, such as our hosting business,
that was not part of our core focus going forward. The hosting
business is recorded separately as discontinued operations in the
statement of operations for years ended 2021 and 2020.
COST OF REVENUE
Cost of revenue for the year ended December 31, 2021 decreased by
$1,555,923 to $4,696,317, compared to $6,252,240 for the year ended
December 31, 2020. The decrease was primarily due to the
decrease in digital marketing advertising costs.
SALARIES AND OUTSIDE SERVICES
Salaries and outside services for the year ended December 31, 2021
increased by $1,574,792 to $4,048,508, compared to $2,473,716 for
the year ended December 31, 2020. The increase was
primarily due to increases of salary expense of non-cost of revenue
employees, payments to contractors and professional services.
25
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
SG&A expenses for the year ended December 31, 2021 increased by
$3,117,909 to $4,767,334 compared to $1,649,425 for the year ended
December 31, 2020. The increase was primarily due to an
increase in warrant and stock option expense.
LOSS ON IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
Loss on impairment of goodwill and intangible assets for the year
ended December 31, 2021 decreased by $560,000 to zero, compared to
$560,000 for the year ended December 31, 2020. The decrease
was due to the impairment and write-off of the goodwill and
intangible assets from WebTegrity acquisition during 2020.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for the year ended December
31, 2021 decreased by $66,752 to $46,535, compared to $113,287 for
the year ended December 31, 2020. The decrease was primarily
due to the impairment of goodwill and intangible assets, as of
December 31, 2020, which eliminated additional amortization of
intangible assets in the current period.
OTHER INCOME AND EXPENSE
Total other income and expense for the year ended December 31, 2021
increased by $2,032,053 to net other expense of $1,865,952 compared
to net other income of $166,101 for the year ended December 31,
2020. The increase in net other expense was primarily due to
an increase in finance charges and compensation expense related to
the issuance of shares of common stock to a related party,
partially offset by the sale of the hosting revenue stream.
NET LOSS
The net loss for the year ended December 31, 2021 was $8,482,771,
compared to the net loss of $1,270,650 for the year ended December
31, 2020. The increase in net loss for the period was
primarily due to an increase in warrant and stock option expenses,
increase in finance charges and SG&A expenses and decrease in
third party revenue.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net working capital (i.e. the difference between
current assets and current liabilities) of $2,706,377 at December
31, 2021 compared to a net working capital deficit of ($4,784,105)
at December 31, 2020.
Cash flow used in operating activities was $4,958,822 for the year
ended December 31, 2021, compared to cash flow used in operating
activities of $1,812,623 for the year ended December 31, 2020.
The increase in cash flow used in operating activities of
$3,146,199 was primarily due to an increase in net loss, partially
offset by finance charges and warrant and stock option
expenses.
Cash flow provided by investing activities was $128,046 for the
year ended December 31, 2021, compared to cash flow used in
investing activities of $5,253 for the year ended December 31,
2020. The increase in cash flow provided by investing
activities of $133,299 was primarily due to the sales of hosting
revenue stream, partially offset by purchase of computers, printer,
and videography equipment.
Cash flow provided by financing activities was $8,251,693 for the
year ended December 31, 2021, compared to cash flow provided by
financing activities of $1,009,086 for the year ended December 31,
2020. The increase in cash flow provided by financing
activities of $7,242,607 was due to the issuance of our common
stock, partially offset by debt repayments.
Liquidity is the ability of a company to generate funds to support
its current and future operations, satisfy its obligations, and
otherwise operate on an ongoing basis. Significant factors in the
management of liquidity are funds generated by operations, levels
of accounts receivable and accounts payable and capital
expenditures.
As of December 31, 2021, the Company had short-term borrowing
relationships with two lenders. During the current period, one
lender provides short-term financing under a stock purchase
arrangement disclosed in footnote 10. The Company does not have any
long-term sources of liquidity. As of December 31, 2021, there were
no unused sources of liquidity, nor were there any commitments of
material capital expenditures.
26
The Company has negative monthly cash flows from operations of
approximately $300,000. The Company’s current cash is sufficient to
sustain the Company’s operations for approximately 18 months
without additional borrowings. To satisfy cash needs, the Company
relies on various borrowing mechanisms to fund operations and
service debt, as discussed above.
The Consolidated Financial Statements have been prepared on a going
concern basis of accounting, which contemplates continuity of
operations, realization of assets and liabilities and commitments
in the normal course of business. Management believes that our
current cash flow will sustain our operations and obligations as
they become due, additionally will allow the development of our
core business operations. Furthermore, the Company anticipates that
it will raise additional capital through investments from our
existing shareholders, prospective new investors and future revenue
generated by our operations.
Any additional capital we may raise through the sale of equity or
equity-backed securities may dilute current stockholders’ ownership
percentages and could also result in a decrease in the fair market
value of our equity securities. The terms of the securities issued
by us in future capital transactions may be more favorable to new
investors and may include preferences, superior voting rights and
the issuance of warrants or other derivative securities which may
have a further dilutive effect.
Furthermore, any additional debt or equity or other financing that
we may need may not be available on terms favorable to us, or at
all. If we are unable to obtain required additional capital, we may
have to curtail our growth plans or cut back on existing business.
Further, we may not be able to continue operations if we do not
generate sufficient revenues from operations.
We may incur substantial costs in pursuing future capital
financing, including investment banking fees, legal fees,
accounting fees, securities law compliance fees, printing and
distribution expenses and other costs. We may also be required to
recognize non-cash expenses in connection with certain securities
we issue, such as convertible notes and warrants, which may
adversely impact our reported financial results.
27
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not required for smaller reporting companies.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF
AIADVERTISING, INC.
AIADVERTISING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND DECEMBER 31,
2020
CONTENTS
|
|
|
PAGE
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm (PCAOB ID:
2738)
|
|
30
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
31
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
32
|
|
|
|
|
|
Consolidated Statements of Shareholders’ Equity (Deficit)
|
|
33
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
34
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
35-57
|
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders of AiAdvertising, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying balance sheets of AiAdvertising,
Inc. and subsidiaries (the Company) as of December 31, 2021 and
2020, and the related statements of operations, stockholders’
equity (deficit), and cash flows for each of the years in the
two-year period ended December 31, 2021, and the related notes
(collectively referred to as the financial statements). In our
opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31,
2021 and 2020, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31,
2021, in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising
from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
a critical audit matter does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing separate
opinions on the critical audit matter or on the accounts or
disclosures to which they relate.
Revenue Recognition
As discussed in Note 2, the Company recognizes revenue upon
transfer of control of promised services to customers in an amount
that reflects the consideration the Company expects to receive in
exchange for those products or services. The Company offers
customers the ability to acquire multiple services. Significant
judgment is exercised by the Company in determining revenue
recognition for these customer agreements. Given these factors and
due to the volume of transactions, the related audit effort in
evaluating management's judgments in determining revenue
recognition for these customer agreements was extensive and
required a high degree of auditor judgment.
We tested the Company’s allocation of the transaction price and
other variables that impact revenue recognition.
|
/s/ M&K CPAS,
PLLC
|
|
|
|
We have served as the
Company’s auditor since 2018.
|
|
|
|
Houston, Texas
|
|
|
|
April 14, 2022
|
|
30
AIADVERTISING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
December 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
Cash
|
$
|
3,431,455
|
$
|
10,538
|
|
Accounts receivable, net
|
|
497,422
|
|
343,359
|
|
Costs
in excess of billings
|
|
27,779
|
|
-
|
|
Prepaid and other current Assets
|
|
182,427
|
|
30,430
|
|
TOTAL CURRENT
ASSETS
|
|
4,139,083
|
|
384,327
|
|
|
|
|
|
|
|
PROPERTY &
EQUIPMENT, net
|
|
114,249
|
|
55,682
|
|
RIGHT-OF-USE
ASSETS
|
|
66,369
|
|
171,549
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
Lease
deposit
|
|
9,800
|
|
9,800
|
|
Goodwill and other intangible assets, net
|
|
20,202
|
|
26,582
|
|
TOTAL OTHER
ASSETS
|
|
30,002
|
|
36,382
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
4,349,703
|
$
|
647,940
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts payable
|
$
|
791,727
|
$
|
1,575,880
|
|
Accounts payable, related party
|
|
10,817
|
|
10,517
|
|
Accrued expenses
|
|
72,158
|
|
648,273
|
|
Operating lease liability
|
|
66,369
|
|
171,548
|
|
Lines
of credit
|
$
|
-
|
$
|
379,797
|
|
Deferred revenue and customer deposit
|
|
491,635
|
|
841,290
|
|
Convertible notes and interest payable, current, net
|
|
-
|
|
183,884
|
|
Notes
payable
|
|
-
|
|
565,008
|
|
Notes
payable, related parties
|
|
-
|
|
792,235
|
|
TOTAL CURRENT
LIABILITIES
|
|
1,432,706
|
|
5,168,432
|
|
|
|
|
|
|
|
LONG TERM
LIABILITIES
|
|
|
|
|
|
Accrued expenses, long term
|
|
-
|
|
195,553
|
|
TOTAL LONG TERM
LIABILITIES
|
|
-
|
|
195,553
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
1,432,706
|
|
5,363,985
|
|
COMMITMENTS AND
CONTINGENCIES (see Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY
(DEFICIT)
|
|
|
|
|
|
Preferred stock, $0.001 par value; 5,000,000 Authorized shares:
|
|
|
|
|
|
Series A Preferred stock; 10,000 authorized, zero and 10,000 shares
issued and outstanding;
|
|
-
|
|
10
|
|
Series B Preferred stock; 25,000 authorized, 18,025 shares issued
and outstanding;
|
|
18
|
|
18
|
|
Series C Preferred Stock; 25,000 authorized, 14,425 shares issued
and outstanding;
|
|
14
|
|
14
|
|
Series D Preferred Stock; 90,000 authorized, 86,021 and 90,000
shares issued and outstanding;
|
|
86
|
|
90
|
|
Series E Preferred stock; 10,000 authorized, 10,000 shares issued
and outstanding;
|
|
10
|
|
10
|
|
Series F Preferred stock; 800,000 authorized, zero and 2,413 shares
issued and outstanding;
|
|
-
|
|
2
|
|
Series G Preferred stock; 2,600 authorized, 2,597 shares issued and
outstanding;
|
|
3
|
|
3
|
|
Series H Preferred stock; 1,000 authorized, zero and zero shares
issued and outstanding;
|
|
-
|
|
-
|
|
Common stock, $0.001 par value; 10,000,000,000 and 2,000,000,000
authorized shares; 1,055,556,518 and 683,940,104 shares issued and
outstanding, respectively
|
|
1,055,566
|
|
683,949
|
|
Additional paid in capital
|
|
46,667,049
|
|
31,486,837
|
|
Common stock payable, consisting of 5,000,000 shares valued at
$0.1128
|
|
564,000
|
|
-
|
|
Accumulated deficit
|
|
(45,369,749)
|
|
(36,886,978)
|
|
TOTAL SHAREHOLDERS'
EQUITY (DEFICIT)
|
|
2,916,997
|
|
(4,716,045)
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
|
$
|
4,349,703
|
$
|
647,940
|
The accompanying notes are an integral part of these consolidated
financial statements.
31
AIADVERTISING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Year Ended December 31, 2021
|
|
Year Ended December 31, 2020
|
|
|
|
|
|
|
|
REVENUE
|
$
|
6,868,261
|
$
|
9,402,564
|
|
REVENUE - related
party
|
|
-
|
|
3,640
|
|
TOTAL REVENUE
|
|
6,868,261
|
|
9,406,204
|
|
|
|
|
|
|
|
COST OF REVENUE
|
|
4,696,317
|
|
6,252,240
|
|
Gross Profit
|
|
2,171,944
|
|
3,153,964
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
Salaries and outside services
|
|
4,048,508
|
|
2,473,716
|
|
Selling, general and administrative expenses
|
|
4,767,334
|
|
1,649,425
|
|
Loss
on impairment of Goodwill and Intangible Assets
|
|
-
|
|
560,000
|
|
Depreciation and amortization
|
|
46,535
|
|
113,287
|
|
TOTAL OPERATING
(INCOME) EXPENSES
|
|
8,862,377
|
|
4,796,428
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM
OPERATIONS BEFORE OTHER INCOME AND TAXES
|
$
|
(6,690,433)
|
$
|
(1,642,464)
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE)
|
|
|
|
|
|
Gain
(loss) on extinguishment of debt
|
|
282,418
|
|
28,971
|
|
Gain
(loss) forgiveness of PPP Loan
|
|
780,680
|
|
780,680
|
|
Gain
(loss) on Sales of Discontinued Operations
|
|
226,769
|
|
-
|
|
Gain
(loss) on changes in derivative liability
|
|
-
|
|
131,018
|
|
Interest expense
|
|
(3,155,819)
|
|
(774,568)
|
|
TOTAL OTHER INCOME
(EXPENSE)
|
$
|
(1,865,952)
|
$
|
166,101
|
|
|
|
|
|
|
|
INCOME/(LOSS) FROM
OPERATIONS BEFORE PROVISION FOR TAXES
|
$
|
(8,556,385)
|
$
|
(1,476,363)
|
|
INCOME (LOSS) FROM
DISCONTINUED OPERATIONS BEFORE PROVISION FOR TAXES
|
$
|
73,614
|
$
|
205,713
|
|
|
|
|
|
|
|
PROVISION (BENEFIT)
FOR INCOME TAXES
|
|
-
|
|
-
|
|
|
|
|
|
|
|
NET INCOME/(LOSS)
|
$
|
(8,482,771)
|
$
|
(1,270,650)
|
|
|
|
|
|
|
|
PREFERRED
DIVIDENDS
|
|
12,525
|
|
111,172
|
|
|
|
|
|
|
|
NET INCOME/(LOSS)
ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
$
|
(8,495,296)
|
$
|
(1,381,822)
|
|
|
|
|
|
|
|
NET LOSS PER
SHARE
|
|
|
|
|
|
BASIC
|
$
|
(0.01)
|
$
|
(0.00)
|
|
DILUTED
|
$
|
(0.01)
|
$
|
(0.00)
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE
COMMON SHARES OUTSTANDING
|
|
|
|
|
|
BASIC
|
|
956,912,269
|
|
579,856,451
|
|
DILUTED
|
|
956,912,269
|
|
579,856,451
|
The accompanying notes are an integral part of these consolidated
financial statements.
32
AIADVERTISING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Common Stock Payable
|
|
Accumulated Deficit
|
|
Total
|
|
For
the years ended December 31, 2021 and 2020
|
|
Balance, December 31,
2019
|
|
142,450
|
$
|
142
|
|
419,638,507
|
$
|
419,648
|
$
|
30,088,492
|
$
|
-
|
|
(35,616,328)
|
$
|
(5,108,046)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
convertible note
|
|
-
|
|
-
|
|
226,300,034
|
|
226,299
|
|
65,641
|
|
|
|
-
|
|
291,940
|
|
Stock issuances to
lenders
|
|
-
|
|
-
|
|
38,001,563
|
|
38,002
|
|
296,375
|
|
|
|
-
|
|
334,377
|
|
Exchange
debt-for-equity
|
|
2,597
|
|
3
|
|
-
|
|
-
|
|
259,695
|
|
|
|
-
|
|
259,698
|
|
Series A preferred
stock dividend declared ($2.00 per share)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(80,000)
|
|
|
|
-
|
|
(80,000)
|
|
Series D preferred
stock dividend declared ($0.30 per share)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(26,792)
|
|
|
|
-
|
|
(26,792)
|
|
Series F preferred
stock dividend declared ($1.82 per share)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4,380)
|
|
|
|
-
|
|
(4,380)
|
|
Stock based
compensation
|
|
-
|
|
-
|
|
-
|
|
-
|
|
390,035
|
|
|
|
-
|
|
390,035
|
|
Derivative
settlement
|
|
-
|
|
-
|
|
-
|
|
-
|
|
339,105
|
|
|
|
-
|
|
339,105
|
|
Warrant Issuance
|
|
-
|
|
-
|
|
-
|
|
-
|
|
98,343
|
|
|
|
|
|
98,343
|
|
Other - RegA Investor
Funds
|
|
2,413
|
|
2
|
|
-
|
|
-
|
|
60,323
|
|
|
|
-
|
|
60,325
|
|
Net loss
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
(1,270,650)
|
|
(1,270,650)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2020
|
|
147,460
|
$
|
147
|
|
683,940,104
|
$
|
683,949
|
$
|
31,486,837
|
$
|
-
|
|
(36,886,978)
|
$
|
(4,716,045)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of
convertible note, related party
|
|
|
|
|
|
44,629,338
|
|
44,629
|
|
533,245
|
|
|
|
|
|
577,874
|
|
Stock issuances to
lenders
|
|
|
|
|
|
85,000,000
|
|
85,000
|
|
8,415,493
|
|
|
|
|
|
8,500,493
|
|
Stock issuances to
related party
|
|
|
|
|
|
25,000,000
|
|
25,000
|
|
2,795,000
|
|
|
|
|
|
2,820,000
|
|
Series A preferred
stock dividend declared ( $0.86 per share)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(8,705)
|
|
|
|
-
|
|
(8,705)
|
|
Series F preferred
stock dividend declared ( $0.67 per share)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(3,820)
|
|
|
|
-
|
|
(3,820)
|
|
Stock based
compensation
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,247,048
|
|
|
|
-
|
|
1,247,048
|
|
Stock option
exercised - cashless basis
|
|
-
|
|
-
|
|
11,107,502
|
|
11,108
|
|
(11,108)
|
|
|
|
-
|
|
-
|
|
Stock option
exercised - cash basis
|
|
|
|
|
|
333,334
|
|
333
|
|
(333)
|
|
|
|
|
|
-
|
|
Preferred stock
conversion
|
|
(13,979)
|
|
(14)
|
|
109,947,500
|
|
109,948
|
|
(109,934)
|
|
|
|
-
|
|
-
|
|
Warrant Issuance
|
|
|
|
|
|
|
|
|
|
983,571
|
|
|
|
|
|
983,571
|
|
Warrant exercise -
cashless basis
|
|
-
|
|
-
|
|
17,313,025
|
|
17,314
|
|
(17,314)
|
|
|
|
-
|
|
-
|
|
Warrant exercise -
cash basis
|
|
|
|
|
|
78,285,715
|
|
78,285
|
|
907,029
|
|
|
|
|
|
985,314
|
|
Other - RegA Investor
Funds
|
|
(100)
|
|
|
|
|
|
|
|
(2,500)
|
|
|
|
|
|
(2,500)
|
|
Redemption of Series
F Preferred Stock
|
|
(2,353)
|
|
(2)
|
|
|
|
|
|
(58,823)
|
|
|
|
|
|
(58,825)
|
|
Redempion of Series H
Preferred stock
|
|
(1,000)
|
|
(2)
|
|
|
|
|
|
2
|
|
|
|
|
|
-
|
|
Issuance of Series H
Preferred stock
|
|
2,000
|
|
2
|
|
|
|
|
|
511,361
|
|
|
|
|
|
511,363
|
|
Common stock
payable
|
|
|
|
|
|
|
|
|
|
|
|
564,000
|
|
|
|
564,000
|
|
Net Loss
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
(8,482,771)
|
|
(8,482,771)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2021
|
|
132,028
|
$
|
131
|
|
1,055,556,518
|
$
|
1,055,566
|
$
|
46,667,049
|
$
|
564,000
|
|
(45,369,749)
|
$
|
2,916,997
|
The accompanying notes are an integral part of these consolidated
financial statements.
33
AIADVERTISING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31, 2021
|
|
Year Ended December 31, 2020
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income (loss) from continued operations
|
$
|
(8,556,385)
|
$
|
(1,476,363)
|
|
|
|
|
|
|
|
Adjustment to
reconcile net loss to net cash (used in) operating activities
|
|
|
|
|
|
Bad
debt expense
|
|
(2,274)
|
|
16,868
|
|
Depreciation and amortization
|
|
46,535
|
|
113,287
|
|
Finance charge, related party
|
|
2,820,000
|
|
-
|
|
Loss
on impairment of goodwill & intangibles
|
|
-
|
|
560,000
|
|
Amortization of Debt Discount
|
|
274,992
|
|
270,607
|
|
Gain
on settlemet of debt
|
|
(282,418)
|
|
-
|
|
Gain
on forgiveness of PPP loan
|
|
(780,680)
|
|
(780,680)
|
|
Gain
on Sale of Discontinued Operations
|
|
(226,769)
|
|
-
|
|
Non-cash compensation expense
|
|
1,247,048
|
|
390,035
|
|
Non-cash service expense
|
|
564,000
|
|
98,343
|
|
Fair
valuation of warrants as compensation
|
|
983,571
|
|
-
|
|
Issuance of Series H Pref to employee
|
|
511,363
|
|
-
|
|
(Gain)/loss on derivative liability valuation
|
|
-
|
|
(131,018)
|
|
Derivative expense
|
|
-
|
|
-
|
|
Change in assets and
liabilities:
|
|
|
|
|
|
(Increase) Decrease
in:
|
|
|
|
|
|
Accounts receivable
|
|
(151,789)
|
|
497,299
|
|
Prepaid expenses and other assets
|
|
(151,997)
|
|
(3,581)
|
|
Costs
in excess of billings
|
|
(27,779)
|
|
21,606
|
|
Accounts payable
|
|
(693,347)
|
|
(323,670)
|
|
Accrued expenses
|
|
(256,852)
|
|
(31,597)
|
|
Customer Deposits
|
|
(349,655)
|
|
(1,239,472)
|
|
NET CASH (USED IN)
OPERATING ACTIVITIES - continued operations
|
|
(5,032,436)
|
|
(2,018,336)
|
|
NET CASH PROVIDED BY
OPERATING ACTIVITIES - discontinued operations
|
|
73,614
|
|
205,713
|
|
NET CASH (USED IN)
OPERATING ACTIVITIES
|
|
(4,958,822)
|
|
(1,812,623)
|
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
|
Cash
paid for purchase of fixed assets
|
|
(98,723)
|
|
(5,253)
|
|
Proceeds from the sale of discontinued operations
|
|
226,769
|
|
-
|
|
NET CASH (PROVIDED
BY) INVESTING ACTIVITIES
|
|
128,046
|
|
(5,253)
|
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
|
Payments on capital lease obligation
|
|
-
|
|
(20,654)
|
|
Payment of dividend
|
|
(408,805)
|
|
(23,452)
|
|
Proceeds of issuance of common stock, net
|
|
9,485,807
|
|
-
|
|
Proceeds (payments) on line of credit, net
|
|
(366,012)
|
|
60,106
|
|
Proceeds from issuance of notes, related party, net
|
|
(428,652)
|
|
-
|
|
Proceeds (payments) of preferred stock
|
|
(61,325)
|
|
60,325
|
|
Principal payments on debt, third party
|
|
(750,000)
|
|
(91,000)
|
|
Proceeds from PPP loan
|
|
780,680
|
|
-
|
|
Proceeds from issuance of notes payable
|
|
-
|
|
1,530,680
|
|
Principal payments on term loan
|
|
-
|
|
(506,919)
|
|
NET CASH (PROVIDED
BY) FINANCING ACTIVITIES
|
|
8,251,693
|
|
1,009,086
|
|
|
|
|
|
|
|
NET INCREASE /
(DECREASE) IN CASH
|
|
3,420,917
|
|
(808,790)
|
|
|
|
|
|
|
|
CASH, BEGINNING OF
PERIOD
|
|
10,538
|
|
819,328
|
|
|
|
|
|
|
|
CASH, END OF
PERIOD
|
$
|
3,431,455
|
$
|
10,538
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
Interest paid
|
$
|
60,038
|
$
|
285,293
|
|
Taxes
paid
|
$
|
-
|
$
|
-
|
|
|
|
|
|
|
|
Non-cash financing
activities:
|
|
|
|
|
|
Conversion of notes payable to common stock, related party
|
$
|
577,874
|
$
|
291,940
|
|
Exchange of Debt-to-Equity (Preferred)
|
$
|
-
|
$
|
259,698
|
|
Derivative settlement
|
$
|
-
|
$
|
339,105
|
|
Right
of use assets
|
$
|
105,180
|
$
|
95,209
|
|
Derivative discount
|
$
|
-
|
$
|
127,273
|
|
Conversion of preferred to common stock
|
$
|
109,948
|
$
|
-
|
|
Exercise of stock options
|
$
|
11,108
|
$
|
-
|
|
Exercise of warrants
|
$
|
17,314
|
$
|
-
|
|
Issuance of common stock to lenders
|
$
|
-
|
$
|
334,377
|
The accompanying notes are an integral part of these consolidated
financial statements.
34
AiADVERSTISING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
1.ORGANIZATION
AND LINE OF BUSINESS
Organization
AiAdvertising, Inc. (“we”, “us”, “our” or the “Company”) is based
in San Antonio, Texas, was incorporated in Nevada on January 22,
2002. The Company was formerly known as CloudCommerce, Inc., Warp
9, Inc., Roaming Messenger, Inc., and Latinocare Management
Corporation (“LMC”). On July 9, 2015, we changed the name of the
Company from Warp 9, Inc. to CloudCommerce, Inc.. On August
5, 2021 CloudCommerce changed its name to AiAdvertising, Inc. We
develop solutions that help our clients acquire, engage, and retain
their customers by leveraging cutting-edge digital strategies and
AI. We focus on using data analytics to drive the creation of
great user experiences and effective digital marketing campaigns.
The Company has six subsidiaries, CLWD Operations, Inc. (formerly
Indaba Group, Inc.), Parscale Digital, Inc., which merged with
Parscale Creative, Inc., as a result of an acquisition dated August
1, 2017, WebTegrity, LLC (“WebTegrity”), which was acquired
November 15, 2017, Data Propria, Inc., which the Company launched
February 1, 2018, Giles Design Bureau, Inc., which spun out from
Parscale Digital in May, 2018, and aiAdvertising, Inc., which was
formed January 14, 2021. The Company focuses on four main
areas, artificial intelligence, digital marketing, creative design,
and web development.
Going
Concern
The accompanying Consolidated Financial Statements have been
prepared on a going concern basis of accounting, which contemplates
continuity of operations, realization of assets and liabilities and
commitments in the normal course of business. The
accompanying Consolidated Financial Statements do not reflect any
adjustments that might result if the Company is unable to continue
as a going concern. As of December 31, 2021, Management reassessed
going concern and found the Company will have sufficient liquidity
for the next 12 months such that there is no substantial doubt
about its ability to continue as a going concern. During the
year ended 2021 the Company raised capital from investors through
sales of securities and normal course of business operations, which
allowed the company to improve cash flow and pay down obligations.
As of December 31, 2021, the Company had positive
working capital of $2,706,379 . We have historically reported net
losses, and negative cash flows from operations, which raised
substantial doubt about the Company’s ability to continue as a
going concern in previous years. The appropriateness of
using the going concern basis is dependent upon, among other
things, raising additional capital. Historically, the Company has
obtained funds from investors since its inception through sales of
our securities. The Company will also seek to generate additional
working capital from increasing sales from its Ai Platform,
creative, website development and digital advertising service
offerings, and continue to pursue its business plan and
purposes.
2.SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of AiAdvertising is
presented to assist in understanding the Company’s Consolidated
Financial Statements. The Consolidated 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 Consolidated Financial Statements.
The Consolidated Financial Statements include the Company and its
wholly owned subsidiaries CLWD Operations, Inc a Delaware
corporation (“CLWD Operations”), Parscale Digital, Inc., a Nevada
corporation (“Parscale Digital”), WebTegrity, Inc., a Nevada
corporation (“WebTegrity”), Data Propria, Inc., a Nevada
corporation (“Data Propria”), and Giles Design Bureau, Inc., a
Nevada corporation (“Giles Design Bureau). All significant
inter-company transactions are eliminated in consolidation of the
financial statements.
Reclassifications
During the year ended December 31, 2021 we recognized cost of
revenue in the statement of operations. Certain prior periods have
been reclassified to reflect current period presentation.
Accounts
Receivable
The Company extends credit to its customers, who are located
nationwide. Accounts receivable are customer obligations due
under normal trade terms. The Company performs continuing
credit evaluations of its customers’ financial condition.
Management reviews accounts receivable on a regular basis,
based on contracted terms and how recently payments have been
received to determine if any such amounts will potentially be
uncollected. The Company includes any balances that are
determined to be uncollectible in its allowance for doubtful
accounts. After all attempts to collect a receivable have
failed, the receivable is written off. The balance of the
allowance account at December 31, 2021 and 2020 are $4,469 and
$742, respectively. During the years ended December 31, 2021 and
2020, we included $2,274 and $16,868, respectively, in expense
related to balances that were written off as bad debt.
On November 30, 2016, CLWD Operations entered into a 12-month
agreement wherein amounts due from our customers were pledged to a
third party, in exchange for a borrowing facility of up to
$400,000. The agreement was amended on March 23, 2017, which
increased the allowable borrowing amount by $100,000, to $500,000.
On November 30, 2017, the agreement renewed automatically for
another twelve months. The proceeds from the facility were
determined by the amounts we invoiced our customers. We
recorded the amounts due from customers in accounts receivable and
the amount due to the third party as a liability, presented under
“Lines of credit” on the Balance Sheet. During the term of
this facility, the third-party lender had a first priority security
interest in CLWD Operations’ assets, and therefore, we would have
needed to obtain such third-party lender’s written consent to
obligate CLWD Operations’ further or pledge its assets against
additional borrowing facilities. The cost of this secured
borrowing facility was 0.05% of the daily balance. This borrowing
facility had an expiration date of January 14, 2021 and was not
renewed. As of December 31, 2021, the balance due from this
arrangement was zero.
On October 19, 2017, Parscale Digital entered into a 12-month
agreement wherein amounts due from our customers were pledged to a
third party, in exchange for a borrowing facility of up to
$500,000. The proceeds from the facility were determined by the
amounts we invoiced our customers. The Company evaluated this
facility in accordance with ASC 860, classifying it as a secured
borrowing arrangement. We recorded the amounts due from
customers in accounts receivable and the amount due to the third
party as a liability, presented as a “Lines of credit” on the
Balance Sheet. During the term of this facility, the
third-party lender had a first priority security interest in
Parscale Digital, and therefore, we would have needed to obtain
such third-party lender’s written consent to obligate Parscale
Digital further or pledge its assets against additional borrowing
facilities. The cost of this secured borrowing facility was
0.05% of the daily balance. On April 12, 2018, the Company amended
the secured borrowing arrangement, which increased the maximum
allowable balance by $250,000, to $750,000 . This borrowing
facility had an expiration date of November 11, 2020 and was not
renewed. As of December 31, 2021, the balance due from this
arrangement was zero.
On August 2, 2018, Giles Design Bureau, WebTegrity, and Data
Propria entered into 12-month agreements wherein amounts due from
our customers were pledged to a third-party, in exchange for
borrowing facilities of up to $150,000, $150,000 and $600,000,
respectively. The proceeds from the facility were determined
by the amounts we invoiced our customers. We evaluated these
facilities in accordance with ASC 860, classifying as secured
borrowing arrangements. We recorded the amounts due from customers
in accounts receivable and the amount due to the third party as a
liability, presented under “Lines of credit” on the Balance Sheet.
During the term of these facilities, the third-party lender had a
first priority security interest in the respective entities, and,
therefore, we would have needed to obtain such third-party lender’s
written consent to obligate the entities further or pledge our
assets against additional borrowing facilities. The cost of
this secured borrowing facilities was 0.056%, 0.056% and 0.049%,
respectively, of the daily balance. These three borrowing
facilities had an expiration date of August 22, 2020 and were not
renewed. As of December 31, 2021, the combined balance due
from these arrangement was zero.
Use of
Estimates
The preparation of financial statements in conformity with GAAP
requires the use of estimates and assumptions by management in
determining the reported amounts of assets and liabilities,
disclosures of contingent liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Estimates are primarily used in our revenue recognition,
the allowance for doubtful account receivable, fair value
assumptions in accounting for business combinations and analyzing
goodwill, intangible assets and long-lived asset impairments and
adjustments, the deferred tax valuation allowance, and the fair
value of stock options and warrants.
35
Cash and Cash
Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
As of December 31, 2021, the Company held cash and cash equivalents
in the amount of $3,431,455 which was held in the Company’s
operating bank accounts. This amount is held in a bank
account exceeding the FDIC insured limit of $250,000.
Revenue
Recognition
The Company recognizes income when the service is provided or when
product is delivered. We present revenue, net of customer
incentives. Most of the income is generated from professional
services and site development fees. We provide online
marketing services that we purchase from third parties. The
gross revenue presented in our statement of operations includes
digital advertising revenue. We also offer professional
services such as development services. The fees for
development services with multiple deliverables constitute a
separate unit of accounting in accordance with ASC 606, which are
recognized as the work is performed. Upfront fees for
development services or other customer services are deferred until
certain implementation or contractual milestones have been
achieved. If we have performed work for our clients, but have
not invoiced clients for that work, then we record the value of the
work in an asset in costs in excess of billings. The terms of
services contracts generally are for periods of less than one year.
The deferred revenue and customer deposits as of December 31,
2021 and 2020 was $491,635 and $841,290, respectively. The
costs in excess of billings as of December 31, 2021 and 2020 was
$27,779 and zero, respectively. See footnote 3 for a disclosure of
our use of estimates and judgement, as it relates to revenue
recognition.
We always strive to satisfy our customers by providing superior
quality and service. Since we typically bill based on a Time
and Materials basis, there are no returns for work delivered. When
discrepancies or disagreements arise, we do our best to reconcile
those by assessing the situation on a case-by-case basis and
determining if any discounts can be given. Historically, no
significant discounts have been granted.
Included in revenue are costs that are reimbursed by our clients,
including third party services, such as photographers and stylists,
furniture, supplies, and the largest component, digital
advertising. We have determined, based on our review, that
the amounts classified as reimbursable costs should be recorded as
gross, due to the following factors:
·The
Company is primarily in control of the inputs of the project and
responsible for the completion of the client contract;
·We have
discretion in establishing price; and
·We have
discretion in supplier selection.
During the years ended December 31, 2021 and 2020, we included
$3,448,153 and $5,155,079, respectively, in revenue, related to
reimbursable costs.
The Company records revenue into the following five categories:
·Data
Sciences – Includes polling, research, modeling, data fees,
consulting and reporting.
·Design
– Includes branding, photography, copyrighting, printing,
signs and interior design.
·Development
– Includes website coding.
·Digital
Advertising – Includes ad spend, SEO management and digital ad
support.
·The
Platform - Includes our existing clients creative assets and
intelligently recommends enhancements to optimize performance by
using artificial intelligence.
36
For the years ended December 31, 2021 and December 31, 2020,
revenue was disaggregated into the five categories as follows:
|
|
Year ended December 31, 2021
|
Year ended December 31, 2020
|
|
|
Third Parties
|
|
Related Parties
|
|
Total
|
|
Third Parties
|
|
Related Parties
|
|
Total
|
|
Data Sciences
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
596,446
|
$
|
-
|
$
|
596,446
|
|
Design
|
|
2,027,152
|
|
-
|
|
2,027,152
|
|
2,390,676
|
|
-
|
|
2,390,676
|
|
Development
|
|
225,049
|
|
-
|
|
225,049
|
|
330,404
|
|
-
|
|
330,404
|
|
Digital
Advertising
|
|
4,525,688
|
|
-
|
|
4,525,688
|
|
6,085,038
|
|
3,640
|
|
6,088,678
|
|
The Platform
|
|
90,372
|
|
-
|
|
90,372
|
|
-
|
|
-
|
|
-
|
|
Total
|
$
|
6,868,261
|
$
|
-
|
$
|
6,868,261
|
$
|
9,402,564
|
$
|
3,640
|
$
|
9,406,204
|
Research and
Development
Research and development costs are expensed as incurred.
Total research and development costs were $ 549,628 and zero
for the years ended December 31, 2021 and December 31, 2020,
respectively.
Advertising
Costs
The Company expenses the cost of advertising and promotional
materials when incurred. Total advertising costs were
$145,375 and $119,332, for the years ended December 31, 2021 and
December 31, 2020, respectively.
Fair Value of
Financial Instruments
The Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, and accrued
liabilities are carried at cost, which approximates their fair
value, due to the relatively short maturity of these instruments.
As of December 31, 2021 and December 31, 2020, the Company’s
notes payable have stated borrowing rates that are consistent with
those currently available to the Company and, accordingly, the
Company believes the carrying value of these debt instruments
approximates their fair value.
Fair value is defined as the price to sell an asset or transfer a
liability, between market participants at the measurement date.
Fair value measurements assume that the asset or liability is
(1) exchanged in an orderly manner, (2) the exchange is
in the principal market for that asset or liability, and
(3) the market participants are independent, knowledgeable,
able and willing to transact an exchange. Fair value accounting and
reporting establishes a framework for measuring fair value by
creating a hierarchy for observable independent market inputs and
unobservable market assumptions and expands disclosures about fair
value measurements. Considerable judgment is required to interpret
the market data used to develop fair value estimates. As such, the
estimates presented herein are not necessarily indicative of the
amounts that could be realized in a current exchange. The use of
different market assumptions and/or estimation methods could have a
material effect on the estimated fair value.
37
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 1measurements)
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.
|
Property and
Equipment
Property and equipment are stated at cost, and are depreciated or
amortized using the straight-line method over the following
estimated useful lives:
|
|
|
|
As
of December 31,
|
|
Years
|
|
2021
|
|
2020
|
|
Equipment
|
5-7
|
$
|
239,641
|
$
|
169,003
|
|
Office furniture
|
7
|
|
51,653
|
|
23,569
|
|
Leasehold
improvements
|
Length of lease
|
|
-
|
|
-
|
|
Less accumulated
depreciation
|
|
|
(177,045)
|
|
(136,890)
|
|
Net property and
equipment
|
|
$
|
114,249
|
$
|
55,682
|
The following table discloses fixed asset transactions and
recordings during the years ended December 31, 2021 and December
31, 2020:
|
|
Year ended December 31, 2021
|
|
Year ended December
31, 2020
|
|
Depreciation
expense
|
$
|
40,155
|
$
|
40,993
|
|
Gain/(loss) on
disposals
|
|
-
|
|
-
|
|
Cash paid for fixed
asset additions
|
|
98,722
|
|
5,253
|
Impairment of
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable. To determine
recoverability of a long-lived asset, management evaluates whether
the estimated future undiscounted net cash flows from the asset are
less than its carrying amount. If impairment is indicated, the
long-lived asset would be written down to fair value. Fair value is
determined by an evaluation of available price information at which
assets could be bought or sold, including quoted market prices, if
available, or the present value of the estimated future cash flows
based on reasonable and supportable assumptions. During the
year ended December 31, 2020, management reviewed the intangible
assets and goodwill of WebTegrity, and determined that there were
indications of impairment.
38
Indefinite Lived
Intangibles and Goodwill Assets
The Company accounts for business combinations under the
acquisition method of accounting in accordance with ASC 805,
“Business Combinations,” where the total purchase price is
allocated to the tangible and identified intangible assets acquired
and liabilities assumed based on their estimated fair values.
Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired
customer lists, acquired technology, and trade names from a market
participant perspective, useful lives and discount rates.
Management’s estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and
unpredictable and, as a result, actual results may differ from
estimates. The purchase price is allocated using the information
currently available, and may be adjusted, up to one year from
acquisition date, after obtaining more information regarding, among
other things, asset valuations, liabilities assumed and revisions
to preliminary estimates. The purchase price in excess of the fair
value of the tangible and identified intangible assets acquired
less liabilities assumed is recognized as goodwill.
The Company tests for indefinite lived intangibles and goodwill
impairment in the fourth quarter of each year and whenever events
or circumstances indicate that the carrying amount of the asset
exceeds its fair value and may not be recoverable. In accordance
with its policies, at December 31, 2020 the Company performed a
qualitative assessment of indefinite lived intangibles and goodwill
related to WebTegrity and determined there was impairment of
indefinite lived intangibles and goodwill. Therefore, an impairment
of indefinite lived intangibles and goodwill was recognized.
The impairment test conducted by the Company includes an assessment
of whether events occurred that may have resulted in impairment of
goodwill and intangible assets. Because it was determined
that events had occurred which effected the fair value of goodwill
and intangible assets, the Company conducted the two-step approach
to determine the fair value and required adjustment. The
steps are as follows:
|
|
1.
|
Based on the totality of qualitative factors, determine whether the
carrying amount of the intangible asset may not be recoverable.
Qualitative factors and key assumptions reviewed include the
following:
|
|
|
●
|
Increases in costs, such as labor, materials or other costs that
could negatively affect future cash flows. The Company assumed that
costs associated with labor, materials, and other costs should be
consistent with fair market levels. If the costs were materially
higher than fair market levels, then such costs may adversely
affect the future cash flows of the Company or reporting units.
|
|
|
●
|
Financial performance, such as negative or declining cash flows, or
reductions in revenue may adversely affect recoverability of the
recorded value of the intangible assets. During our analysis, the
Company assumes that revenues should remain relatively consistent
or show gradual growth month-to-month and quarter-to-quarter. If we
report revenue declines, instead of increases or flat levels, then
such condition may adversely affect the future cash flows of the
Company or reporting units.
|
|
|
●
|
Legal, regulatory, contractual, political, business or other
factors that could affect future cash flows. During our analysis,
the Company assumes that the legal, regulatory, political or
business conditions should remain consistent, without placing
material pressure on the Company or any of its reporting units. If
such conditions were to become materially different than what has
been experienced historically, then such conditions may adversely
affect the future cash flows of the Company or reporting units.
|
|
|
●
|
Entity-specific events such as losses of management, key personnel,
or customers, may adversely affect future cash flows. During our
analysis, the Company assumes that members of management, key
personnel, and customers will remain consistent period-over-period.
If not effectively replaced, the loss of members of management and
key employees could adversely affect operations, culture, morale
and overall success of the company. In addition, if material
revenue from key customers is lost and not replaced, then future
cash flows will be adversely affected.
|
|
|
●
|
Industry or market considerations, such as competition, changes in
the market, changes in customer dependence on our service offering,
or obsolescence could adversely affect the Company or its reporting
units. We understand that the markets we serve are constantly
changing, requiring us to change with it. During our analysis, we
assume that we will address new opportunities in service offering
and industries served. If we do not make such changes, then we may
experience declines in revenue and cash flow, making it difficult
to re-capture market share.
|
|
|
●
|
Macroeconomic conditions such as deterioration in general economic
conditions or limitations on accessing capital could adversely
affect the Company. During our analysis, we acknowledge that
macroeconomic factors, such as the economy, may affect our business
plan because our customers may reduce budgets for our services. If
there are material declines in the economy, which lead to
reductions in revenue then such conditions may adversely affect the
Company.
|
|
|
2.
|
Compare the carrying amount of the intangible asset to the fair
value.
|
|
|
3.
|
If the carrying amount is greater than the fair value, then the
carrying amount is reduced to reflect fair value.
|
In accordance with its policies, the Company conducted an
impairment assessment during the year ended December 31, 2020
related to the WebTegrity acquisition and determined that
impairment of indefinite lived intangibles and goodwill was
necessary. Accordingly, all intangible assets and goodwill related
to the WebTegrity acquisition have been written off, amounting to
$560,000. This amount reduced the consolidated balances of
WebTegrity, as outlined below. This amount is included in
Operating Expenses on the Income Statement, for the year ended
December 31, 2020. At the time of the impairment analysis,
the remaining prior year balance of the Customer List ($71,606) had
already been expensed throughout the year ended December 31,
2020.
Goodwill and Intangible assets are comprised of the following,
presented as net of amortization:
|
|
AiAdvertising
|
|
Total
|
|
Domain name
|
|
20,202
|
|
20,202
|
|
Total
|
$
|
20,202
|
$
|
20,202
|
|
|
AiAdvertising
|
|
Total
|
|
Domain name
|
|
26,582
|
|
26,582
|
|
Total
|
$
|
26,582
|
$
|
26,582
|
Business
Combinations
The acquisition of subsidiaries is accounted for using the purchase
method. The cost of the acquisition is measured at the
aggregate of the fair value, at the acquisition date, of assets
received, liabilities incurred or assumed, and equity instruments
issued by the Company in exchange for control of the acquiree.
Any costs directly attributable to the business combination
are expensed in the period incurred. The acquiree’s
identifiable assets and liabilities are recognized at their fair
values at the acquisition date.
Goodwill arising on acquisition is recognized as an asset and
initially measured at cost, being the excess of the cost of the
business combination over the Company’s interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognized.
Concentrations of
Business and Credit Risk
The Company operates in a single industry segment. The
Company markets its services to companies and individuals in many
industries and geographic locations. The Company’s operations
are subject to rapid technological advancement and intense
competition. Accounts receivable represent financial instruments
with potential credit risk. The Company typically offers its
customers credit terms. The Company makes periodic
evaluations of the credit worthiness of its enterprise customers
and other than obtaining deposits pursuant to its policies, it
generally does not require collateral. In the event of
nonpayment, the Company has the ability to terminate services. As
of December 31, 2021, the Company held cash and cash equivalents in
the amount of $3,431,455, which was held in the operating bank
accounts. Of this amount, none was held in any one account,
in amounts exceeding the FDIC insured limit of $250,000. For
further discussion on concentrations see footnote 14.
Stock-Based
Compensation
The Company addressed the accounting for share-based payment
transactions in which an enterprise receives employee services in
exchange for either equity instruments of the enterprise or
liabilities that are based on the fair value of the enterprise’s
equity instruments or that may be settled by the issuance of such
equity instruments. The transactions are accounted for using a
fair-value-based method and recognized as expenses in our statement
of operations.
Stock-based compensation expense recognized during the period is
based on the value of the portion of stock-based payment awards
that is ultimately expected to vest. Stock-based compensation
expense recognized in the consolidated statement of operations
during the year ended December 31, 2021, included compensation
expense for the stock-based payment awards granted prior to, but
not yet vested, as of December 31, 2021 based on the grant date
fair value estimated. Stock-based compensation expense
recognized in the consolidated statement of operations for the year
ended December 31, 2021 is based on awards ultimately expected to
vest or has been reduced for estimated forfeitures.
Forfeitures are estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ
from those estimates. The stock-based compensation expense
recognized in the consolidated statements of operations during the
year ended December 31, 2021 and 2020 were $987,433 and $390,035,
respectively.
Basic and Diluted Net
Income (Loss) per Share Calculations
Income (Loss) per Share dictates the calculation of basic earnings
per share and diluted earnings per share. Basic earnings per share
are computed by dividing income available to common shareholders by
the weighted-average number of common shares available. Diluted
earnings per share is computed similar to basic earnings per share
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional
common shares were dilutive. The shares for employee options,
warrants and convertible notes were used in the calculation of the
income per share.
For the year ended December 31, 2021, the Company has excluded
246,618,441 shares of common stock underlying options, 162,703,869
shares of common stock underlying warrants, 18,025 Series B
Preferred shares convertible into 450,625,000 shares of common
stock, 14,425 Series C Preferred shares convertible into
144,250,000 shares of common stock, 86,021 Series D Preferred
shares convertible into 215,052,500 shares of common stock, 10,000
Series E Preferred shares convertible into 20,000,000 shares of
common stock, and 2,597 Series G Preferred shares convertible into
136,684,211 shares of common stock, because their impact on the
loss per share is anti-dilutive.
39
For the year ended December 31, 2020, the Company has excluded
106,489,498 shares of common stock underlying options, 20,912,852
shares of common stock underlying warrants, 10,000 Series A
Preferred shares convertible into 100,000,000 shares of common
stock, 18,025 Series B Preferred shares convertible into
450,625,000 shares of common stock, 14,425 Series C Preferred
shares convertible into 144,250,000 shares of common stock, 90,000
Series D Preferred shares convertible into 225,000,000 shares of
common stock, 10,000 Series E Preferred shares convertible into
20,000,000 shares of common stock, 2,597 Series G Preferred shares
convertible into 136,684,211 shares of common stock and 18,388,400
shares of common stock underlying $183,884 in convertible notes,
because their impact on the loss per share is anti-dilutive.
Dilutive per share amounts are computed using the weighted-average
number of common shares outstanding and potentially dilutive
securities, using the treasury stock method if their effect would
be dilutive.
Accounting for
Derivatives
The Company evaluates all of its financial instruments to determine
if such instruments are derivatives or contain features that
qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value
reported in the statements of operations. For stock-based
derivative financial instruments, the Company uses a probability
weighted average series Binomial lattice formula pricing models to
value the derivative instruments at inception and on subsequent
valuation dates.
The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as
current or non-current based on whether or not net-cash settlement
of the derivative instrument could be required within 12 months of
the balance sheet date. As of December 31, 2021, the Company
had no derivative liability.
Recently Adopted
Accounting Pronouncements
The Company does not elect to delay complying with any new or
revised accounting standards, but to apply all standards required
of public companies, according to those required application
dates.
Management reviewed accounting pronouncements issued during the
year ended December 31, 2021, and no pronouncements were adopted
during the period.
Management reviewed accounting pronouncements issued during the
year ended December 31, 2020, and the following pronouncement was
adopted during the period.
In January 2017, the FASB issued 2017-04, Intangibles -
Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment. The amendments in this ASU simplify the
subsequent measurement of goodwill by eliminating Step 2 from the
goodwill impairment test and eliminating the requirement for a
reporting unit with a zero or negative carrying amount to perform a
qualitative assessment. Instead, under this pronouncement, an
entity would perform its annual, or interim, goodwill impairment
test by comparing the fair value of a reporting unit with its
carrying amount and would recognize an impairment change for the
amount by which the carrying amount exceeds the reporting unit’s
fair value; however, the loss recognized is not to exceed the total
amount of goodwill allocated to that reporting unit. In addition,
income tax effects will be considered, if applicable. This ASU is
effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019. Early adoption is
permitted. Due to the limited amount of goodwill and intangible
assets recorded at December 31, 2021, the impact of this ASU on its
consolidated financial statements and related disclosures was
immaterial.
Recently Issued
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update No.
2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments" which
requires the measurement and recognition of expected credit losses
for financial assets held at amortized cost. ASU 2016-13 replaces
the existing incurred loss impairment model with an expected loss
methodology, which will result in more timely recognition of credit
losses. ASU 2016-13 is effective for annual reporting periods, and
interim periods within those years, beginning after December 15,
2022. We are currently in the process of evaluating the impact of
the adoption of ASU 2016-13 on our consolidated financial
statements.
In August 2020, the FASB issued Accounting Standards Update (ASU)
2020-06, Debt – Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging – Contracts in
Entity’s Own Equity (Subtopic 815-40). The intention of ASU
2020-06 update is to address the complexity of accounting for
certain financial instruments with characteristics of liabilities
and equity, including convertible instruments and contracts in an
entity’s own equity. Under ASU 2020-06, the number of
accounting models for convertible notes will be reduced and
entities that issue convertible debt will be required to use the
if-converted method for computing diluted Earnings Per Share.
ASU 2020-06 is effective for fiscal years and interim periods
beginning after December 15, 2023 and may be adopted through either
a modified or fully retrospective transition. Early adoption is
permitted. The Company is currently evaluating the impact of this
ASU on its consolidated financial statements and related
disclosures.
Discontinued
Operations
On June 11, 2021, the Company entered into and closed an asset
purchase agreement (the “Asset Purchase Agreement”) with Liquid
Web, LLC (“Buyer”) under which it sold the web hosting and
maintenance revenue stream (the “Asset Sale”) to the Buyer for a
Purchase Price of, $251,966 which included the “Indemnity Holdback”
amount of $25,197. The Buyer agreed to pay the Company the
“Indemnity Holdback” amount within 45 days following the six-month
anniversary of the closing date (June 11, 2021) in accordance with
the Asset Purchase Agreement. As of December 31, 2021 the
“Indemnity Holdback” amount has not been paid by the Buyer.
The Company did not classify any assets or liabilities specific to
the Purchased Assets. Therefore, the purchase price from the
Purchased Assets are recorded as a Gain on Sale of Discontinued
Operations in our statement of operations for the year ended
December 31, 2021. As a result of the Company entering into
the Asset Purchase Agreement, the Company’s web hosting revenue
stream has been characterized as discontinued operations in its
financial statements as disclosed within the disaggregated revenue
schedule in footnote 3.
Pursuant to the Asset Purchase Agreement, the Company will continue
to maintain, support, and deliver on all customer services during
the transition period of 90 days following the Closing Date.
The Company will continue to invoice the hosting customers in
the ordinary course of business. Any payments received from
the customers, on or after the Closing Date are the property of
Liquid Web. The Company will remit the payment for collected
revenue less taxes collected and net of hosting expenses to the
Buyer no later than the 15th day of the following month.
The gain on the sale of assets is shown under other income in
the Statement of Operations.
The following table summarizes the results of operations for the
year ended December 31, 2021 and 2020.
|
|
December 31, 2021
|
December 31, 2020
|
|
|
Third Parties
|
|
Related Parties
|
|
Total
|
|
Third Parties
|
|
Related Parties
|
|
Total
|
|
Hosting Revenue
|
$
|
129,934
|
$
|
-
|
$
|
129,934
|
$
|
336,074
|
$
|
-
|
$
|
336,074
|
|
Cost of Sales
|
|
(56,320)
|
|
-
|
|
(56,320)
|
|
130,361
|
|
-
|
|
130,361
|
|
Net Income from
Discontinued
Operations
|
$
|
73,614
|
$
|
-
|
$
|
73,614
|
$
|
205,713
|
$
|
-
|
$
|
205,713
|
Income
Taxes
The Company uses the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
financial statements carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carry-forwards. The measurement of deferred tax
assets and liabilities is based on provisions of applicable tax
law. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance based on the amount of tax
benefits that, based on available evidence, is not expected to be
realized. For the year ended December 31, 2021, we used the
federal tax rate of 21% in our determination of the deferred tax
assets and liabilities balances.
40
3.REVENUE
RECOGNITION
On January 1, 2018, the Company adopted ASU 2014-09 Revenue from
Contracts with Customers and all subsequent amendments to the
ASU (collectively, “ASC 606”), using the modified retrospective
method applied to those contracts which were not completed as
of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under
Topic 606, while prior period amounts are not adjusted and continue
to be reported in accordance with our historic accounting under
Topic 605. Revenues are 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. The adoption of ASC 606
did not have a material impact on the Company’s Consolidated
Financial Statements.
The core principles of revenue recognition under ASC 606 includes
the following five criteria:
1.Identify
the contract with the customer
Contract with our customers may be oral, written, or implied.
A written and signed contract stating the terms and
conditions is the preferred method and is consistent with most
customers. The terms of a written contract may be contained
within the body of an email, during which proposals are made and
campaign plans are outlined, or it may be a stand-alone document
signed by both parties. Contracts that are oral in nature are
consummated in status and pitch meetings and may be later followed
up with email detail of the terms of the arrangement, along with a
proposal document. No work is commenced without an
understanding between the Company and our customers, that a valid
contract exists.
2.Identify
the performance obligations in the contract
Our sales and account management teams define the scope of services
to be offered, to ensure all parties are in agreement and
obligations are being delivered to the customer as promised.
The performance obligation may not be fully identified in a
mutually signed contract, but may be outlined in email
correspondence, face-to-face meetings, additional proposals or
scopes of work, or phone conversations.
3.Determine
the transaction price
Pricing is discussed and identified by the operations team prior to
submitting a proposal to the customer. Based on the
obligation presented, third-party service pricing is established,
and time and labor is estimated, to determine the most accurate
transaction pricing for our customer. Price is subject to
change upon agreed parties, and could be fixed or variable,
milestone focused or T&M.
4.Allocate
the transaction price to the performance obligations in the
contract
If a contract involves multiple obligations, the transaction
pricing is allocated accordingly, during the performance obligation
phase (criteria 2 above).
5.Recognize
revenue when (or as) we satisfy a performance obligation
The Company uses several means to satisfy the performance
obligations:
a.Billable
Hours – The company employs a time tracking system
where employees record their time by project. This method of
satisfaction is used for time and material projects, change orders,
website edits, revisions to designs, and any other project that is
hours-based. The hours satisfy the performance obligation as
the hours are incurred.
b.Media
activation/Ad Spend – To satisfy ad spend, the company
generates analytical reports monthly or as required to show how the
ad dollars were spent and how the targeting resulted in
click-throughs. The ad spend satisfies the performance
obligation, regardless of the outcome or effectiveness of the
campaign. In addition, the Company utilizes third party
invoices after the ad dollars are spent, in order to satisfy the
obligation.
c.Milestones
– If the contract requires milestones to be hit, then the
Company satisfies the performance obligation when that milestone is
completed and presented to the customer for review. As each phase
of a project is complete, we consider it as a performance
obligation being satisfied and transferred to the customer.
At this point, the customer is invoiced the amount due based
on the transaction pricing for that specific phase and/or we apply
the customer deposit to recognize revenue.
d.Monthly
Retainer – If the contract is a retainer for work
performed, then the customer is paying the Company for its
expertise and accessibility, not for a pre-defines amount of
output. In this case, the obligation is satisfied at the end
of the period, regardless of the amount of work effort required.
e.Hosting
– Monthly recurring fees for hosting are recognized on a
monthly basis, at a fixed rate. Hosting contracts are
typically one-year and reviewed annually for renewal. Prices
are subject to change at management discretion. During the
year ended December 31, 2021 web hosting services was discontinued
from our operating revenue streams.
Historically, the Company generates income from four main revenue
streams: data science, creative design, web development, and
digital marketing. Each revenue stream is unique, and
includes the following features:
Data
Science
We analyze big data (large volume of information) to reveal
patterns and trends associated with human behavior and interactions
that can lead to better decisions and strategic business moves.
As a result of our data science work, our clients are able to
make informed and valuable decisions to positively impact their
bottom lines. We classify revenue as data science that includes
polling, research, modeling, data fees, consulting and reporting.
Contracts are generated to assure both the Company and the client
are committed to partnership and both agree to the defined terms
and conditions and are typically less than one year. Transaction
pricing is usually a lump sum, which is estimated by specific
project requirements. The Company recognizes revenue when
performance obligations are met, including, when the data sciences
service is performed, polling is conducted, or support hours are
expended. If the data sciences service is a fixed fee
retainer, then the obligation is earned at the end of the period,
regardless of how much service is performed.
Creative
Design
We provide branding and creative design services, which we believe,
set apart our clients from their competitors and establish them in
their specific markets. We believe in showcasing our clients’
brands uniquely and creatively to infuse the public with curiosity
to learn more. We classify revenue as creative design that
includes branding, photography, copyrighting, printing, signs and
interior design. Contracts are generated to assure both the Company
and the client are committed to partnership and both agree to the
defined terms and conditions and are typically less than one year.
The Company recognizes revenue when performance obligations
are met, usually when creative design services obligations are
complete, when the hours are recorded, designs are presented,
website themes are complete, or any other criteria as mutually
agreed.
41
Web
Development
We develop websites that attract high levels of traffic for our
clients. We offer our clients the expertise to manage and
protect their website, and the agility to adjust their online
marketing strategy as their business expands. We classify
revenue as web development that includes website coding, website
patch installs, ongoing development support and fixing inoperable
sites. Contracts are generated to assure both the Company and the
client are committed to the partnership and both agree to the
defined terms and conditions. Although most projects are long-term
(6-8 months) in scope, we do welcome short-term projects which are
invoiced as the work is completed at a specified hourly rate.
In addition, we offer monthly hosting support packages, which
ensures websites are functioning properly. The Company
records web development revenue as earned, when the developer hours
are recorded (if time and materials arrangements) or when the
milestones are achieved (if a milestone arrangement).
Digital
Marketing
We have a reputation for providing digital marketing services that
get results. We classify revenue as digital marketing that
includes ad spend, SEO management and digital ad support. Billable
hours and advertising spending are estimated based on client
specific needs and subject to change with client concurrence.
Revenue is recognized when ads are run on one of the
third-party platforms or when the hours are recorded by the digital
marketing specialist, if the obligation relates to support or
services.
Included in creative design and digital marketing revenues are
costs that are reimbursed by our clients, including third party
services, such as photographers and stylists, furniture, supplies,
and the largest component, digital advertising. We have
determined, based on our review, that the amounts classified as
reimbursable costs should be recorded as gross (principal), due to
the following factors:
-The
Company is the primary obligor in the arrangement;
-We
have latitude in establishing price;
-We
have discretion in supplier selection; and
The Company has credit risk included in creative design and digital
marketing revenues are costs that are reimbursed by our clients,
including third party services, such as photographers and stylists,
furniture, supplies, and the largest component, digital
advertising. We have determined, based on our review, that
the amounts classified as reimbursable costs should be recorded as
gross (principal), due to the following factors:
-The
Company is the primary obligor in the arrangement;
-We
have latitude in establishing price;
-We
have discretion in supplier selection; and
-The
Company has credit risk
During the year ended December 31, 2021 and 2020, we included
$3,448,153 and $5,155,079 respectively, in revenue related to
reimbursable costs. The deferred revenue and customer
deposits as of December 31, 2021 and December 31, 2020 were
$491,635 and $841,290, respectively.
For the year ended December 31, 2021 and 2020, revenue was
disaggregated into the five categories as follows:
|
|
Year ended December 31, 2021
|
Year ended December 31, 2020
|
|
|
Third Parties
|
|
Related Parties
|
|
Total
|
|
Third Parties
|
|
Related Parties
|
|
Total
|
|
Data Sciences
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
596,446
|
$
|
-
|
$
|
596,446
|
|
Design
|
|
2,027,152
|
|
-
|
|
2,027,152
|
|
2,390,676
|
|
-
|
|
2,390,676
|
|
Development
|
|
225,049
|
|
-
|
|
225,049
|
|
330,404
|
|
-
|
|
330,404
|
|
Digital
Advertising
|
|
4,525,688
|
|
-
|
|
4,525,688
|
|
6,085,038
|
|
3,640
|
|
6,088,678
|
|
The Platform
|
|
90,372
|
|
-
|
|
90,372
|
|
-
|
|
-
|
|
-
|
|
Total
|
$
|
6,868,261
|
$
|
-
|
$
|
6,868,261
|
$
|
9,402,564
|
$
|
3,640
|
$
|
9,406,204
|
4. LIQUIDITY AND OPERATIONS
The Company had a net loss of $8,482,771 for the year ended
December 31, 2021, which includes net income from discontinued
operations of $73,614, and $1,270,650 for the year ended December
31, 2020, which includes net income from discontinued operations of
$205,713 and net cash used in operating activities of $(4,958,822)
and used in operating activities of $(1,812,623), in the same
periods, respectively.
As of December 31, 2021, the Company had a short-term borrowing
relationship with two lenders. The lenders provided short-term and
long-term financing under a secured borrowing arrangement, using
our accounts receivable as collateral or uncollateralized term
loans, disclosed in footnote 7, as well as convertible notes
disclosed in footnote 8. As of December 31, 2021, there were no
unused sources of liquidity, nor were there any commitments of
material capital expenditures.
42
While the Company expects that its capital needs in the foreseeable
future may be met by cash-on-hand and projected positive cash-flow,
there is no assurance that the Company will be able to generate
enough positive cash flow or have sufficient capital to finance its
growth and business operations, or that such capital will be
available on terms that are favorable to the Company or at all.
It could become difficult for the Company to obtain working
capital and other business financing. There is no assurance
that the Company would be able to obtain additional working capital
through the sale of its securities or from any other source.
5.
BUSINESS ACQUISITIONS
None
6.INTANGIBLE
ASSETS
Domain
Name
On June 26, 2015, the Company purchased the rights to the domain
“CLOUDCOMMERCE.COM”, from a private party at a purchase price of
$20,000, plus transaction costs of $202 which will be kept to
protect the immediate history of the Company. The total
recorded cost of this domain of $20,202 has been included in other
assets on the balance sheet. As of December 31, 2021, we have
determined that this domain has an indefinite useful life, and as
such, is not included in depreciation and amortization expense.
The Company will assess this intangible asset annually for
impairment, in addition to it being classified with indefinite
useful life.
Trademark
On September 22, 2015, the Company purchased the trademark rights
to “CLOUDCOMMERCE”, from a private party at a purchase price of
$10,000. The total recorded cost of this trademark of $10,000
has been included in other assets on the balance sheet. The
trademark expired in 2021 and could be renewed for an additional 10
years. As of September 30, 2015, we determined that this
intangible asset has a definite useful life of 174 months, and as
such, will be included in depreciation and amortization expense.
For the year ended December 31, 2021 and 2020, the Company
included $6,380 and $690, respectively, in depreciation and
amortization expense related to this trademark. During the year
ended December 31, 2021, the Company did not renew the trademark
and recorded the remaining intangible asset balance to depreciation
and amortization. As of December 31, 2021, the balance on this
intangible asset was $zero.
Customer
List
On November 15, 2017, the Company acquired WebTegrity, and we have
calculated the value of the customer list acquired at $280,000,
with a useful life of 3 years. During the year ended December 31,
2020, the Company performed our annual impairment analysis and we
determined that the intangible assets of WebTegrity were impaired.
Therefore, as of December 31, 2020, the remaining balance of this
intangible asset of $7,161 was written off and included in loss on
impairment of goodwill and intangible assets on the income
statement. As of December 31, 2021 and December 31, 2020, the
balance on this intangible asset was zero.
Brand Name
On November 15, 2017, the Company acquired WebTegrity, and we have
calculated the value of the brand name at $130,000, which is
included in other assets on the balance sheet. As of
September 30, 2018, we have determined that this brand name has an
indefinite useful life, and as such, is not included in
depreciation and amortization expense. The Company will
assess this intangible asset annually for impairment, in addition
to it being classified with an indefinite useful life. In
evaluating whether this brand had an indefinite useful life, the
Company considered the following criteria:
oExpected
use – We expected to retain the name and brand, leveraging the
good reputation and client following. Within the WordPress
industry, the WebTegrity name was well known, and the founder of
the company has been asked to speak at various
conferences.
oExpected
useful life of related group – The WebTegrity name does not
relate to another intangible asset or group of intangible assets.
Therefore, this criterion was not considered.
43
oLimits
to useful life – There was no legal, regulatory, or
contractual limitation to this intangible asset’s life.
oHistorical
experience – This asset does not require an extension or
renewal, in order for it to remain on our balance sheet.
oEffects
of other factors – We considered this criterion in determining
useful life, especially since WebTegrity was in a highly
competitive industry, mostly relying on the WordPress platform.
We considered whether there was a chance of obsolescence or
decline due to competition. We concluded that there was not a
chance of obsolescence or decline due to competition. Even though
there is much competition, WebTegrity produced a quality product
with a great team, resulting in long term clients.
oMaintenance
required – There is no maintenance expenditure to obtain
future cash flows. Therefore, this criterion was not taken into
consideration.
During the year ended December 31, 2020, the Company performed our
annual impairment analysis and we determined that the intangible
assets of WebTegrity were impaired. Therefore, as of December
31, 2020, the remaining balance of this intangible asset of
$130,000 was written off and included in loss on impairment of
goodwill and intangible assets on the income statement. As of
December 31, 2021 and December 31, 2020, the balance on this
intangible asset was zero.
Goodwill
On November 15, 2017, the Company acquired WebTegrity, and we have
calculated the value of the goodwill at $430,000, which is included
in other assets on the balance sheet. During the year ended
December 31, 2020, the Company performed our annual impairment
analysis and we determined that the goodwill and intangible assets
of WebTegrity were impaired. Therefore, as of December 31,
2020, the balance of this goodwill of $430,000 was written off and
included in loss on impairment of goodwill and intangible assets on
the income statement. As of December 31, 2021 and December
31, 2020, the balance on this intangible asset was zero.
The Company’s intangible assets consist of the following:
|
|
|
December 31, 2021
|
|
December 31, 2020
|
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Domain name and Trade
Mark
|
|
20,202
|
|
-
|
|
20,202
|
|
30,201
|
|
(3,619)
|
|
26,582
|
|
Total
|
$
|
20,202
|
$
|
-
|
$
|
20,202
|
$
|
30,201
|
$
|
(3,619)
|
$
|
26,582
|
Total amortization expense charged to operations for the year ended
December 31, 2021, and 2020 were $6,380 and
$72,294, respectively. As of December 31, 2021, the balance of
intangible assets is zero.
7. CREDIT
FACILITIES
Lines of
Credit
On November 30, 2016, CLWD Operations entered into a 12-month
agreement wherein amounts due from our customers were pledged to a
third party, in exchange for a borrowing facility in amounts up to
a total of $400,000. The agreement was amended on March 23,
2017, which increased the allowable borrowing amount by $100,000,
to a maximum of $500,000. On November 30, 2017, the agreement auto
renewed for another twelve months. The proceeds from the
facility are determined by the amounts we invoice our customers.
We record the amounts due from customers in accounts
receivable and the amount due to the third party as a liability,
presented under “Lines of credit” on the Balance Sheet. The cost of
this secured borrowing facility is 0.05% of the daily balance.
During the year ended December 31, 2021 and 2020, the Company
included $13,785 and $34,921, respectively, in interest expense,
related to this secured borrowing facility, and as of December 31,
2021 and December 31, 2020, the outstanding balances were zero and
$379,797, respectively. This borrowing facility had an expiration
date of January 14, 2021 and was not renewed.
On October 19, 2017, Parscale Digital entered into a 12 month
agreement with a third party to pledge the rights to amounts due
from our customers, in exchange for a borrowing facility in amounts
up to a total of $500,000. The agreement was amended on April 12,
2018, which increased the allowable borrowing amount by $250,000,
to a maximum of $750,000. The proceeds from the facility are
determined by the amounts we invoice our customers. We evaluated
this facility in accordance with ASC 860, classifying it as a
secured borrowing arrangement. As such, we record the amounts
due from customers in accounts receivable and the amount due to the
third party as a liability, presented under “Lines of credit” on
the Balance Sheet. The cost of this secured borrowing
facility is 0.05% of the daily balance. During the year ended
December 31, 2021 and 2020, the Company included $45,605 and
$45,605, respectively, in interest expense, related to this secured
borrowing facility, and as of year ended December 31, 2021 and
2020, the combined outstanding balances were zero and zero,
respectively. This borrowing facility had an expiration date of
November 11, 2019 and was not renewed. This borrowing facility had
an expiration date of November 11, 2020 and were not renewed.
On August 2, 2018, Giles Design Bureau, WebTegrity, and Data
Propria entered into 12 month agreements with a third party to
pledge the rights to amounts due from our customers, in exchange
for borrowing facilities in amounts up to a total of $150,000,
$150,000 and $600,000, respectively. The proceeds from the
facility are determined by the amounts we invoice our customers.
We evaluated these facilities in accordance with ASC 860,
classifying as secured borrowing arrangements. As such, we
record the amounts due from customers in accounts receivable and
the amount due to the third party as a liability, presented under
“Lines of credit” on the Balance Sheet. The cost of these secured
borrowing facilities are 0.056%, 0.056% and 0.049%, respectively,
of the daily balance. During the year ended December 31, 2021
and 2020, the Company included zero and $73,054,
respectively, in interest expense, related to these secured
borrowing facilities, and as of year ended December 31, 2021 and
December 31, 2020, the combined outstanding balances were zero and
zero, respectively. These three borrowing facilities had an
expiration date of August 22, 2020 and were not renewed. These
three borrowing facilities had an expiration date of August 22,
2020 and were not renewed.
8. CONVERTIBLE NOTES PAYABLE
During fiscal year 2019, the Company issued convertible promissory
notes with variable conversion prices, as outlined below. The
conversion prices for each of the notes was tied to the trading
price of the Company’s common stock. Because of the fluctuation in
stock price, the Company is required to report derivative gains and
losses each quarter, which was included in earnings, and an overall
derivative liability balance on the balance sheet. The Company also
records a discount related to the convertible notes, which reduces
the outstanding balance of the total amount due and presented as a
net outstanding balance on the balance sheet. During the year ended
December 31, 2020, all convertible notes that contained embedded
derivative instruments were converted, leaving a derivative
liability balance of zero.
44
On March 25, 2013, the Company issued a convertible promissory note
(the “March 2013 Note”) in the amount of up to $100,000, at which
time we received an initial advance of $50,000 to cover operational
expenses. The lender, a related party, advanced an additional
$20,000 on April 16, 2013, $15,000 on May 1, 2013 and $15,000 on
May 16, 2013, for a total draw of $100,000. The terms of the March
2013 Note, as amended, allowed the lender to convert all or part of
the outstanding balance plus accrued interest, at any time after
the effective date, at a conversion price of $0.004 per share. The
March 2013 Note bore interest at a rate of 10% per year and matured
on March 25, 2018. On May 23, 2014, the lender converted $17,000 of
the outstanding balance and accrued interest of $1,975 into
4,743,699 shares of common stock. On October 14, 2014, the lender
converted $17,000of the outstanding balance and accrued interest of
$2,645 into 4,911,370 shares of common stock. On April 17, 2018,
the lender converted $16,000 of the outstanding balance and accrued
interest of $8,106 into 6,026,301 shares of common stock. On
June 23, 2020, the lender converted $50,000 of the outstanding
balance and accrued interest of $36,260 into 21,565,068 shares of
common stock. The balance of the March 2013 Note, as
of December 31, 2021 was zero. This note was
converted within the terms of the agreement.
On April 20, 2018, the Company issued a convertible promissory note
(the “April 2018 Note”) in the amount of up to $200,000, at which
time we received an initial advance of $200,000 to cover
operational expenses. The terms of the April 2018 Note, as amended,
allow the lender, a related party, to convert all or part of the
outstanding balance plus accrued interest, at any time after the
effective date, at a conversion price of $0.01 per share. The April
2018 Note bore interest at a rate of 5% per year and had a maturity
date of April 20, 2021. During the year ended December 31, 2018, it
was determined that the April 2018 Note offered a conversion price
which was lower than the market price, and therefore included a
beneficial conversion feature. The Company included the
amortization of this beneficial conversion feature in interest
expense in the amount of $139,726 during the year ended December
31, 2018, and $60,274 during the year ended December 31, 2020.
During the year ended December 31, 2020, it was determined that the
conversion feature of the April 2018 Note was considered a
derivative in accordance with current accounting guidelines because
of the reset conversion features of the April 2018 Note. The fair
value of the April 2018 Notes has been determined by using the
Binomial lattice formula from the effective date of the note. On
June 23, 2020, the lender converted $38,894 of the outstanding
balance and accrued interest of $4,236 into 4,313,014 shares of
common stock. On January 13, 2021, the lender converted $161,106 of
the outstanding balance and accrued interest of $22,025 into
18,313,074 shares of common stock. The balance of the April 2018
Note, as of December 31, 2021, was zero. This note
was converted within the terms of the agreement.
On January 31, 2019 the Company issued a promissory note (the
“January 31, 2019 Note”) in the amount of $53,500 at which time the
Company received $50,000, and the remaining $3,500 was retained by
the lender to cover legal and administrative cost. The proceeds
were used to cover operational expenses. The January 31, 2019 Note
bore interest at a rate of 10% per year, had a maturity date of
January 31, 2020, and was convertible into common stock 180 days
after issuance. The conversion price was calculated as a 39%
discount to the lowest trading prices during the 15 trading days
prior to conversion. During the year ended December 31, 2020, the
lender converted the entire balance of $53,500, plus $3,165
interest and fee into 56,483,670 shares. During the year ended
December 31, 2021, the lender converted $3,935 accrued interest and
fees into 4,300,327 shares, leaving a balance of zero. Because the
Company records the value of convertible notes at fair value, no
gain or loss is recorded upon conversion. This note was converted
within the terms of the agreement. As of December 31,
2021, the balance of the January 31, 2019 Note was zero.
On February 21, 2019 the Company issued a promissory note (the
“February 21, 2019 Note”) in the amount of $53,000 at which time
the Company received $50,000, and the remaining $3,000 was retained
by the lender to cover legal and administrative cost. The proceeds
were used to cover operational expenses. The February 21, 2019 Note
bore interest at a rate of 10% per year, had a maturity date of
February 21, 2020, and was convertible into common stock 180 days
after issuance. The conversion price was calculated as a 39%
discount to the average of the two lowest trading prices during the
20 trading days prior to conversion. During the year ended December
31, 2020, the lender converted the entire balance of $53,000, plus
$2,650 interest into 62,281,512 shares, leaving a balance of zero.
Because the Company records the value of convertible notes at fair
value, no gain or loss is recorded upon conversion. This note was
converted within the terms of the agreement. As of December 31,
2021, the balance of the February 21, 2019 Note was zero.
45
On May 2, 2019 the Company issued a convertible promissory note
(the “May 2, 2019 Note”) in the amount of $48,500 at which time the
Company received $45,000, and the remaining $3,500 was retained by
the lender to cover legal and administrative cost. The proceeds
were used to cover operational expenses. The May 2, 2019 Note bore
interest at a rate of 10% per year, had a maturity date of May 2,
2020, and was convertible into common stock 180 days after
issuance. The conversion price was calculated as a 39% discount to
the lowest trading price during the 15 trading days prior to
conversion. The conversion feature of the May 2, 2019 Note was
considered a derivative in accordance with current accounting
guidelines because of the reset conversion features of the May 2,
2019 Note. The fair value of the May 2, 2019 Notes has been
determined by using the Binomial lattice formula from the effective
date of the note. During the year ended December 31, 2020, the
lender converted $40,772 principal and fees into 39,200,000 shares,
and $13,578 principal, interest and fees into 22,258,360 shares,
leaving a balance of zero. This note was converted within the terms
of the agreement.
On July 16, 2019 the Company issued a convertible promissory note
(the “July 16, 2019 Note”) in the amount of $43,000 at which time
the Company received $40,000, and the remaining $3,000 was retained
by the lender to cover legal and administrative cost. The proceeds
were used to cover operational expenses. The July 16, 2019 Note
bore interest at a rate of 10% per year, had a maturity date of
July 10, 2020, and was convertible into common stock 180 days after
issuance. The conversion price was calculated as a 39% discount to
the lowest trading price during the 15 trading days prior to
conversion. Because the conversion feature of the July 16, 2019
Note was not available to the lender, as of September 30, 2020, the
July 16, 2019 Note was not considered a derivative. The Company
included the July 16, 2019 Note in the valuation and accounting for
derivatives once the 180 days conversion restriction period
expired. During the year ended December 31, 2020, the lender
converted $52,300 principal, interest, and fees into 91,500,000
shares, leaving a balance of zero. This note was converted
within the terms of the agreement.
On September 4, 2019 the Company issued a convertible promissory
note (the “September 4, 2019 Note”) in the amount of $53,000 at
which time the Company received $50,000, and the remaining $3,000
was retained by the lender to cover legal and administrative cost.
The proceeds were used to cover operational expenses. The September
4, 2019 Note bore interest at a rate of 10% per year, had a
maturity date of September 4, 2020, and was convertible into common
stock 180 days after issuance. The conversion price was calculated
as a 39% discount to the average of the two lowest trading prices
during the 20 trading days prior to conversion. Because the
conversion feature of the September 4, 2019 Note was not available
to the lender, as of December 31, 2020, the September 4, 2019 Note
was not considered a derivative. The Company included the September
4, 2019 Note in the valuation and accounting for derivatives once
the 180 days conversion restriction period expired. During the year
ended December 31, 2020, the lender converted $48,000 principal
into 35,357,143 shares and $7,650 principal and interest into
7,806,122 shares, leaving a balance of zero. This note was
converted within the terms of the agreement.
On December 2, 2019 the Company issued a convertible promissory
note (the “December 2, 2019 Note”) in the amount of $38,000 at
which time the Company received of $35,000, and the remaining
$3,000 was retained by the lender to cover legal and administrative
cost. The proceeds were used to cover operational expenses. The
December 2, 2019 Note bore interest at a rate of 10% per year, had
a maturity date of December 2, 2020, and was convertible into
common stock 180 days after issuance. The conversion price was
calculated as a 39% discount to the average of the two lowest
trading prices during the 20 trading days prior to conversion.
Because the conversion feature of the December 2, 2019 Note was not
available to the lender, as of December 31, 2020, the December 2,
2019 Note was not considered a derivative. On June 1, 2020, the
Company repaid the remaining balance of the December 2, 2019 note,
of $55,824, which includes principal, interest and prepayment
penalty, leaving a balance of zero. The prepayment penalty of
$16,528 was included in interest expense for the year ended June
30, 2020.
46
On December 5, 2019 the Company issued a convertible promissory
note (the “December 5, 2019 Note”) in the amount of $53,000 at
which time the Company received of $50,000, and the remaining
$3,000 was retained by the lender to cover legal and administrative
cost. The proceeds were used to cover operational expenses. The
December 5, 2019 Note bore interest at a rate of 10% per year, had
a maturity date of December 5, 2020, and was convertible into
common stock 180 days after issuance. The conversion price was
calculated as a 39% discount to the average of the two lowest
trading prices during the 20 trading days prior to conversion.
Because the conversion feature of the December 5, 2019 Note was not
available to the lender, as of December 31, 2020, the December 5,
2019 Note was not considered a derivative. On June 3, 2020, the
Company repaid the remaining balance of the December 2, 2019 note,
of $77,859, which includes principal, interest and prepayment
penalty, leaving a balance of zero. The prepayment
penalty of $22,988 was included in interest expense for the year
ended June 30, 2020.
9. NOTES PAYABLE
Related Party Notes
Payable
On August 3, 2017, the Company issued a promissory note (the
“August 3, 2017 Note”) in the amount of $25,000, at which time the
entire balance of $25,000 was received to cover operational
expenses. The August 3, 2017 Note bore interest at a rate of
5% per year and was payable upon demand, but in no event later than
36 months from the effective date. The balance of the August 3,
2017 Note, as of December 31, 2021 is zero. On February 17,
2021, the related party note payable was refinanced and
consolidated into one note payable. See the “February 17, 2021
Note”.
On August 15, 2017, the Company issued a promissory note (the
“August 15, 2017 Note”) in the amount of $34,000, at which time the
entire balance of $34,000 was received to cover operational
expenses. The August 15, 2017 Note bore interest at a rate of
5% per year and was payable upon demand, but in no event later than
36 months from the effective date. The balance of the August 15,
2017 Note, as of December 31, 2021 is zero. On February 17,
2021, the related party note payable was refinanced and
consolidated into one note payable. See the “February 17, 2021
Note”.
On August 28, 2017, the Company issued a promissory note (the
“August 28, 2017 Note”) in the amount of $92,000, at which time the
entire balance of $92,000 was received to cover operational
expenses. The August 28, 2017 Note bore interest at a rate of
5% per year and was payable upon demand, but in no event later than
36 months from the effective date. The balance of the August 28,
2017 Note, as of December 31, 2021 is zero. On February 17,
2021, the related party note payable was refinanced and
consolidated into one note payable. See the “February 17, 2021
Note”.
On September 28, 2017, the Company issued a promissory note (the
“September 28, 2017 Note”) in the amount of $63,600, at which time
the entire balance of $63,600 was received to cover operational
expenses. The September 28, 2017 Note bore interest at a rate
of 5% per year and was payable upon demand, but in no event later
than 36 months from the effective date. The balance of the
September 28, 2017 Note, as of December 31, 2021 is zero. On
February 17, 2021, the related party note payable was refinanced
and consolidated into one note payable. See the “February 17, 2021
Note”.
On October 11, 2017, the Company issued a promissory note (the
“October 11, 2017 Note”) in the amount of $103,500, at which time
the entire balance of $103,500 was received to cover operational
expenses. The October 11, 2017 Note bore interest at a rate
of 5% per year and was payable upon demand, but in no event later
than 36 months from the effective date. The balance of the October
11, 2017 Note, as of December 31, 2021 is zero. On February
17, 2021, the related party note payable was refinanced and
consolidated into one note payable. See the “February 17, 2021
Note”.
On October 27, 2017, the Company issued a promissory note (the
“October 27, 2017 Note”) in the amount of $106,000, at which time
the entire balance of $106,000 was received to cover operational
expenses. The October 27, 2017 Note bore interest at a rate
of 5% per year and was payable upon demand, but in no event later
than 36 months from the effective date. The balance of the October
27, 2017 Note, as of December 31, 2021 is zero. On February
17, 2021, the related party note payable was refinanced and
consolidated into one note payable. See the “February 17, 2021
Note”.
47
On November 15, 2017, the Company issued a promissory note (the
“November 15, 2017 Note”) in the amount of $62,000, at which time
the entire balance of $62,000 was received to cover operational
expenses. The November 15, 2017 Note bore interest at a rate
of 5% per year and was payable upon demand, but in no event later
than 36 months from the effective date. The balance of the November
15, 2017 Note, as of December 31, 2021 is zero. On February
17, 2021, the related party note payable was refinanced and
consolidated into one note payable. See the “February 17, 2021
Note”.
On November 27, 2017, the Company issued a promissory note (the
“November 27, 2017 Note”) in the amount of $106,000, at which time
the entire balance of $106,000 was received to cover operational
expenses. The November 27, 2017 Note bore interest at a rate
of 5% per year and was payable upon demand, but in no event later
than 36 months from the effective date The balance of the
November 27, 2017 Note, as of December 31, 2021 is zero. On
February 17, 2021, the related party note payable was refinanced
and consolidated into one note payable. See the “February 17, 2021
Note”.
On December 19, 2017, the Company issued a promissory note (the
“December 19, 2017 Note”) in the amount of $42,000, at which time
the entire balance of $42,000 was received to cover operational
expenses. The December 19, 2017 Note bore interest at a rate
of 5% per year and was payable upon demand, but in no event later
than 36 months from the effective date. The balance of the December
19, 2017 Note, as of December 31, 2021 was zero. On February
17, 2021, the related party note payable was refinanced and
consolidated into one note payable. See the “February 17, 2021
Note”.
On January 3, 2018, the Company issued a promissory note (the
“January 3, 2018 Note”) in the amount of $49,000, at which time the
entire balance of $49,000 was received to cover operational
expenses. The January 3, 2018 Note bore interest at a rate of
5% per year and was payable upon demand, but in no event later than
36 months from the effective date. The balance of the January 3,
2018 Note, as of December 31, 2021 is zero. On February 17,
2021, the related party note payable was refinanced and
consolidated into one note payable. See the “February 17, 2021
Note”.
On January 17, 2020, the Company exchanged the below related party
notes payable for 2,597 shares of Series G preferred stock.
The table includes the balances of each note, on the date of
the exchange. During the year ended December 31, 2020, the
Company included $560 in interest expense, related to the exchanged
notes.
As of December 31, 2020, the balances of the exchanged notes were
zero.
|
Note Date
|
|
Principal
|
|
Accrued Interest
|
|
Total Due
|
|
Gain on Exchange
|
|
Series G Preferred Shares
|
|
November 30, 2017
|
$
|
30,000
|
$
|
3,197
|
$
|
33,197
|
$
|
70
|
|
331
|
|
January 30, 2018
|
|
72,000
|
|
7,072
|
|
79,072
|
|
168
|
|
789
|
|
February 1, 2018
|
|
85,000
|
|
8,314
|
|
93,314
|
|
198
|
|
931
|
|
July 23, 2019
|
|
25,000
|
|
610
|
|
25,610
|
|
58
|
|
256
|
|
August 20, 2019
|
|
10,000
|
|
205
|
|
10,205
|
|
23
|
|
102
|
|
August 28, 2019
|
|
18,500
|
|
360
|
|
18,860
|
|
43
|
|
188
|
|
Total
|
$
|
240,500
|
$
|
19,758
|
$
|
260,258
|
$
|
560
|
|
2,597
|
On January 28, 2021, the Company entered into an Unsecured
Promissory Note (the “January 28, 2021 Note”), in the aggregate
principal amount of $840,000, with Bountiful Capital, LLC for gross
proceeds of $840,000. The investor is a related party. The
then-Chief Financial Officer of the Company, Greg Boden, is also
the president of Bountiful Capital, LLC. The note bears interest at
a rate of 5% per year and is not convertible into shares of common
stock of the Company. The note had a maturity date of January 28,
2022, and a prepayment of the note was permitted. On March 4, 2021,
the Company paid off the note in full in the amount of
$840,000.
48
On February 17, 2021, the Company issued a promissory note (the
“February 17, 2021 Note”) in the amount of $683,100, at which time
the entire balance of $683,100 was received to refinance all
outstanding promissory notes. The February 17, 2021 Note
bears interest at a rate of 5% per year and is payable upon demand,
but in no event later than August 31, 2021. The balance of the
February 17, 2017 Note, at year end December 31, 2021 was $817,781,
which includes $134,680 of accrued interest. Upon executing the
February 17, 2021 Note, the Company issued 25,000,000 shares of
restricted common stock to Bountiful Capital at a price equal to
$0.1128 cents per share which the Company valued at $2,820,000 at
the time of issuance and recorded as interest expense. On
November 29, 2021, the Company issued 26,316,264 shares of common
stock and $428,652 in cash in exchange for the cancellation of
“February 17, 2021” Note.
As of December 31, 2021, and December 31, 2020, the notes payable
due to related parties totaled zero and $792,235, respectively.
Third Party Notes
Payable
On June 29, 2018, the Company issued a promissory note (the “June
2018 Note”), in the amount of $750,000, at which time the Company
received $735,000. The remaining $15,000 was retained by the lender
as an origination fee. On February 28, 2019 the promissory note was
refinanced, and the balance increased to $1,000,000(the “February
28, 2019 Note”). As of the date of closing the lender withheld
$25,443 from the $375,000balance increase as an origination fee,
netting $349,557 to the Company, and on April 3, 2019 the Company
received the remaining $250,000. The February 28, 2019 Note bore
interest at a rate of 18% per year and is amortized over 12 months.
During the year ended December 31, 2020, the Company made payments
totaling $506,919 and included $64,326 in interest expense related
to this note. As of December 31, 2021 and December 31, 2020,
the outstanding balance on the February 28, 2019 Note was zero.
On May 5, 2020, the Company issued a promissory note (the “May 2020
Note”) in the amount of $780,680, at which time the entire balance
of $780,680 was received to cover payroll and other operating
expenses. This May 2020 Note was issued through the Small Business
Administration Paycheck Protection Program (the “PPP Program”), and
bears interest at a rate of 1% per year. The PPP Program loans
allow a deferment period of 6 months, which would require payments
to be made starting November 5, 2020. On November 13, 2020, the May
2020 Note was forgiven in full. As of December 31, 2021 and
December 31, 2020, the balance on the May 2020 Note was zero, and
the Company recorded a gain in the amount of $780,680.
On October 21, 2020, the Company issued a promissory note (the
“October 2020 Note”) in the amount of $600,000, at which time
$548,250 was received after subtracting lender costs. The
October 2020 Note bore interest at a rate of 12% per year, with 12
months of interest guaranteed. The Company issued 32,232,333
shares of our common stock in connection with this borrowing, which
required the recording of a discount in the amount of $299,761
against the balance, amortized over the term of the note. On
September 30, 2021, the Company paid off the balance owed on the
October 2020 Note of $672,000 and amortized the debt discount of
$242,274. As of December 31, 2021, the balance owed on the
October 2020 Note was zero.
On December 10, 2020, the Company issued a promissory note (the
“December 2020 Note”) in the amount of $150,000, at which time
$130,875 was received after subtracting lender costs. The
December 2020 Note bore interest at a rate of 12% per year, with 12
months of interest guaranteed. The Company issued 5,769,230
shares of our common stock in connection with this borrowing, which
required the recording of a discount in the amount of $34,615
against the balance, amortized over the term of the note. On
September 30, 2021, the Company paid off the balance owed on the
December 2020 Note of $152,614 and amortized the debt discount of
$32,718. As of December 31, 2021, the balance owed on the
December 2020 Note was zero.
49
On February 4, 2021, the Company received loan proceeds of $780,680
under the Second Draw of the Paycheck Protection Program (“PPP2”).
The PPP2 is evidenced by a promissory note between the Company and
the Cache Valley Bank. The note had a five-year term, bore interest
at the rate of 1.0% per year, and could have been prepaid at any
time without payment of any premium. No payments of principal or
interest were due during the six-month period beginning on the date
of the Note (the “Deferral Period”). The principal and
accrued interest under the note was forgivable after eight weeks if
the Company used the PPP2 Loan proceeds for eligible purposes,
including payroll, benefits, rent and utilities, and otherwise
complies with PPP2 requirements. In order to obtain forgiveness of
the PPP2 Loan, the Company submitted a request and provided
satisfactory documentation regarding its compliance with applicable
requirements. On March 23, 2021, the company was notified by a
representative of Cache Valley Bank that the PPP2 loan was forgiven
in full, in the amount of $780,680. On August 3, 2021 we were
notified by the bank that the PPP2 Loan is still due and that the
March 23, 2021 notification of forgiveness was sent in error. On
December 17, 2021 we were notified by the bank that the PPP2 loan
was forgiven in full, in the amount of $787,554, which includes
$6,874 of interest. As of December 31, 2021, the balance of the
PPP2 loan was zero.
10. DERIVATIVE LIABILITIES
During the prior year, the Company determined that the convertible
notes outstanding as of December 31, 2021 contained embedded
derivative instruments as the conversion price was based on a
variable that was not an input to the fair value of a
“fixed-for-fixed” option as defined under FASB ASC Topic No. 815
– 40. During the quarter ended September 30, 2020, all
convertible notes that contained embedded derivative instruments
were converted, leaving a derivative liability balance of zero.
As of December 31, 2021 and 2020 the derivative balance is
zero.
During the year ended December 31, 2021 and 2020, the Company
incurred losses of $0 and $0, respectively, on the conversion of
convertible notes. In connection with the convertible notes, for
the year ended December 31, 2021 and 2020, the Company recorded
$329 and $37,787, respectively, of interest expense and zero and
$270,607 respectively, of debt discount amortization expense. As of
December 31, 2021, and 2020, the Company had approximately zero and
zero, respectively, of accrued interest related to the convertible
notes that contained embedded derivative.
11.CAPITAL
STOCK
At December 31, 2021 and 2020, the Company’s authorized common
stock consists of 10,000,000,000 and 2,000,000,000 shares of common
stock, par value $0.001 per share. The Company is also authorized
to issue 5,000,000 shares of preferred stock, 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. The conversion of
certain outstanding preferred stock could have a significant impact
on our common stockholders. As of the date of this report, the
Board has designated Series A, Series B, Series C, Series D, Series
E, Series F Series G and Series H Preferred Stock.
Series A
Preferred
The Company has designated 10,000 shares of its preferred stock as
Series A Preferred Stock. Each share of Series A Preferred
Stock is convertible into 10,000 shares of the Company’s common
stock. The holders of outstanding shares of Series A Preferred
Stock are entitled to receive dividends, payable quarterly, out of
any assets of the Company legally available therefor, at the rate
of $8 per share annually, payable in preference and priority to any
payment of any dividend on the common stock. During the year
ended December 31, 2021 and 2020, we paid dividends of
$148,705 and $20,000, respectively, to the holders of Series A
Preferred stock. During the year ended December 31, 2021, the
holders of the 10,000 shares of Series A Preferred Stock converted
all outstanding shares of Series A Preferred into 100,000,000
shares of common stock, which ceased any further accruals of
dividends on the shares of Series A Preferred. As of December
31, 2021, the balance owed on the Series A Preferred stock dividend
was zero.
50
Series B
Preferred
The Company has designated 25,000 shares of its preferred stock as
Series B Preferred Stock. Each share of Series B Preferred
Stock has a stated value of $100. The Series B Preferred Stock is
convertible into shares of the Company's common stock in an amount
determined by dividing the stated value by a conversion price of
$0.004 per share. The Series B Preferred Stock does not have
voting rights except as required by law and with respect to certain
protective provisions set forth in the Certificate of Designation
of Series B Preferred Stock. As of December 31, 2021, the
Company has 18,025 shares of Series B Preferred Stock
outstanding.
Series C
Preferred
The Company has designated 25,000 shares of its preferred stock as
Series C Preferred Stock. Each share of Series C Preferred
Stock has a stated value of $100. The Series C Preferred Stock is
convertible into shares of the Company's common stock in an amount
determined by dividing the stated value by a conversion price of
$0.01 per share. The Series C Preferred Stock does not have
voting rights except as required by law and with respect to certain
protective provisions set forth in the Certificate of Designation
of Series C Preferred Stock. As of December 31, 2021, the
Company has 14,425 shares of Series C Preferred Stock
outstanding.
Series D
Preferred
The Company has designated 90,000 shares of its preferred stock as
Series D Preferred Stock. Each share of Series D Preferred
Stock has a stated value of $100. The Series D Preferred Stock is
convertible into common stock at a ratio of 2,500 shares of common
stock per share of preferred stock, and pays a quarterly dividend,
calculated as (1/90,000) x (5% of the Adjusted Gross Revenue) of
the Company’s subsidiary Parscale Digital. Adjusted Gross Revenue
means the top line gross revenue of Parscale Digital, as calculated
under GAAP (generally accepted accounting principles) less any
reselling revenue attributed to third party advertising products or
service, such as, but not limited to, search engine keyword
campaign fees, social media campaign fees, radio or television
advertising fees, and the like. The Series D Preferred Stock does
not have voting rights, except as required by law and with respect
to certain protective provisions set forth in the Certificate of
Designation of Series D Preferred Stock. During the year ended
December 31, 2021, the holder of the 90,000 shares of Series D
Preferred Stock converted 3,979 shares of Series D Preferred into
9,947,500 shares of common stock. As of December 31, 2021, the
Company had 86,021 shares of Series D Preferred Stock outstanding.
During the year ended December 31, 2021, and 2020, we paid
dividends of $257,609, and zero respectively, to the holders of
Series D Preferred stock. As of December 31, 2021, the
balance owed on the Series D Preferred stock dividend was zero.
Series E
Preferred
The Company has designated 10,000 shares of its preferred stock as
Series E Preferred Stock. Each share of Series E Preferred
Stock has a stated value of $100. The Series E Preferred Stock is
convertible into shares of the Company's common stock in an amount
determined by dividing the stated value by a conversion price of
$0.05 per share. Series E Preferred Stock shall not be
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.
As of December 31, 2021, the Company had 10,000 shares of
Series E Preferred Stock outstanding.
51
Series F
Preferred
The Company has designated 800,000 shares of its preferred stock as
Series F Preferred Stock. Each share of Series F Preferred
Stock has a stated value of $25. The Series F Preferred Stock
is not convertible into common stock. The holders of
outstanding shares of Series F Preferred Stock are entitled to
receive dividends, at the annual rate of 10%, payable monthly,
payable in preference and priority to any payment of any dividend
on the Company’s common stock. The Series F Preferred Stock
does not have voting rights, except as required by law and with
respect to certain protective provisions set forth in the
Certificate of Designation. To the extent it may lawfully do so,
the Company may, in its sole discretion, after the first
anniversary of the original issuance date of the Series F Preferred
Stock, redeem any or all of the then outstanding shares of Series F
Preferred Stock at a redemption price of $25 per share plus any
accrued but unpaid dividends. During the year ended December 31,
2021 the Company redeemed all outstanding shares of Series F
Preferred Stock. The Company returned the original investment
amount to each Series F holder plus accrued dividends due through
June 30, 2021, totaling $62,246, comprised of $61,325 stated value
and $921 of accrued dividends. For the year ended December
31, 2021, the Company paid dividends on shares of the Series F
Preferred stock of $2,491. As of December 31, 2021, the
Company had zero shares of Series F Preferred Stock outstanding,
and an accrued dividend balance of zero.
Series G
Preferred
The Company designated 2,600 shares of its preferred stock as
Series G Preferred Stock. Each share of Series G Preferred
Stock has a stated value of $100. The Series G Preferred Stock is
convertible into shares of the Company's common stock in an amount
determined by dividing the stated value by a conversion price of
$0.0019 per share. The Series G Preferred Stock does not have
voting rights except as required by law and with respect to certain
protective provisions set forth in the Certificate of Designation
of Series G Preferred Stock. As of December 31,
2021, the Company had 2,597 shares of Series G Preferred Stock
outstanding.
Series H
Preferred
On March 18, 2021, the Company designated 1,000 shares of its
preferred stock as Series H Preferred Stock. The Series H
Preferred Stock is not convertible into shares of the Company's
common stock and entitles the holder to 51% of the voting power of
the Company’s shareholders, as set forth in the Certificate of
Designation. As of March 31, 2021, the Company had 1,000
shares of Series H Preferred Stock outstanding and held by Andrew
Van Noy, the Chief Executive Officer of the Company. The
1,000 shares of Series H Preferred stock provided for automatic
redemption by the Company at the par value of $0.001 per share on
the sooner of: 1) sixty days (60) from the effective date of the
Certificate of Designation, 2) on the date Andrew Van Noy ceases to
serve as an officer, director or consultant of the Company, or 3)
on the date that the Company’s shares of common stock first trade
on any national securities exchange. For the quarter ended
March 31, 2021, the Company estimated the value of the Series H
Preferred shares to be $5,000,000, which was included in SG&A
expenses on the Income Statement and in cash flows from operating
activities on the statement of cash flows. During the six
months ended June 30, 2021 the Series H Preferred stock was
revalued at $369,596, and the Company recorded a reduction to the
value by $4,630,404. On May 18, 2021, sixty days after the
issuance of the shares of Series H Preferred stock, the Company
redeemed all outstanding shares of Series H Preferred stock in
accordance with the terms thereof. On September 29, 2021, the
Company filed a certificate of withdrawal with the Secretary of
State of Nevada, to withdraw the Company’s existing certificate of
designation of Series H Preferred Stock, filed a certificate of
designation for a new series of Series H Preferred Stock with the
Secretary of State of Nevada, and issued 1,000 shares of Series H
Preferred Stock to Andrew Van Noy, the Company’s chief executive
officer, for services rendered. The Series H Preferred Stock is not
convertible into shares of the Company's common stock and entitles
the holder to 51% of the voting power of the Company’s
shareholders, as set forth in the Certificate of Designation.
As of September 30, 2021 the Company had 1,000 shares of
Series H Preferred Stock outstanding and held by Andrew Van Noy,
the Chief Executive Officer of the Company. The 1,000 shares
of Series H Preferred stock provide for automatic redemption by the
Company at the par value of $0.001 per share on the sooner of: 1)
sixty days (60) from the effective date of the Certificate of
Designation, 2) on the date Andrew Van Noy ceases to serve as an
officer, director or consultant of the Company, or 3) on the date
that the Company’s shares of common stock first trade on any
national securities exchange. During the year ended December
31, 2021 the Series H preferred was valued at $511,363, which was
included in SG&A expenses on the Income Statement and in cash
flows from operating activities on the statement of cash flows. On
November 29, 2021, sixty days after the issuance of the shares of
Series H Preferred stock, the Company redeemed all outstanding
shares of Series H Preferred stock in accordance with the terms
thereof. At December 31, 2021, there were zero shares of
Series H Preferred stock outstanding.
Registered Direct
Offering
On February 23, 2021, the Company closed a registered direct
offering pursuant to which the Company issued and sold 85,000,000
shares of common stock, 57,857,143 prefunded warrants to purchase
common stock (at an exercise price of $0.001), and 142,857,143
warrants to purchase common stock for gross proceeds of $10,000,000
($8,500,493 net proceeds of which was received February 23, 2021
and $57,857 was received upon exercise of the prefunded warrants),
On March 5, 2021, we entered into an amendment agreement with the
purchaser for the registered direct offering to reduce the exercise
price of the warrants from $0.07 to $0.0454 per share of common
stock. On the date of the amendment the closing price of the common
stock was $0.0454, so no discount was offered nor was recorded. We
also issued an additional 28,571,429 warrants to the purchaser. The
Company also issued 10,714,286 warrants (at an exercise price of
$0.0875) to the designees of the placement agent in connection with
this transaction. After transaction costs, the Company
received net proceeds of $8,558,350, which is being used for
operations.
12.STOCK
OPTIONS AND WARRANTS
Stock
Options
On August 1, 2017, we granted non-qualified stock options to
purchase up to 10,000,000 shares of our common stock to a key
employee, at a price of $0.01 per share. The stock options
vest equally over a period of 36 months and expire August 1, 2022.
These options allow the optionee to exercise on a cashless
basis, resulting in no cash payment to the company upon exercise.
If the optionee exercises on a cashless basis, then the above water
value (difference between the option price and the fair market
price at the time of exercise) is used to purchase shares of common
stock. Under this method, the number of shares of common stock
issued will be less than the number of options used to obtain those
shares of common stock. On September 30, 2018, the employee
exercised, on a cashless basis, 3,324,201 options, resulting in the
issuance of 1,233,509 shares of common stock. During the quarter
ended March 30, 2021, the employee exercised, on a cashless basis,
6,675,799 options, resulting in the issuance of 5,439,540 shares of
common stock. As of December 31, 2021, all stock options
issued on August 1, 2017 were fully exercised.
On September 18, 2017, we granted non-qualified stock options to
purchase up to 1,800,000 shares of our common stock to three key
employees, at a price of $0.05 per share. The stock options
vest equally over a period of 36 months and expire September 18,
2022. These options allow the optionee to exercise on a cashless
basis, resulting in no cash payment to the company upon exercise.
During the year ended December 31, 2020, two of the employees
who held 1,200,000 options, collectively, left the company and the
options were forfeited, and during the period ended June 30, 2020,
a key employee who held 600,000 options left the Company and the
options were forfeited.
On January 3, 2018, we granted non-qualified stock options to
purchase up to 20,000,000 shares of our common stock to a key
employee, at a price of $0.04 per share. During the year
ended December 31, 2021, the key employee left the Company and the
options were forfeited.
On January 17, 2020, we granted non-qualified stock options to
purchase up to 283,000,000 shares of our common stock to ten key
employees and three directors, at an exercise price of $0.0019 per
share. The stock options vest equally over a period of 36
months and expire January 17, 2025. These options allow the
optionee to exercise on a cashless basis, any time after January
17, 2021. During the year ended December 31, 2021, 3,766,668
options were exercised on a cashless basis, resulting in the
issuance of 3,366,714 shares of common stock. During the year ended
December 31, 2021, a key employee who held 20,000,000 options left
the Company, and the options were forfeited.
On June 2, 2020, we granted non-qualified stock options to purchase
up to 17,000,000 shares of our common stock to a director, at an
exercise price of $0.0018 per share. The stock options vest
equally over a period of 36 months and expire June 2, 2025. These
options are exercisable on a cashless basis, any time after June 2,
2021.
52
On January 5, 2021, we granted non-qualified stock options to
purchase up to 368,000,000 shares of our common stock to six key
employees and three directors, at an exercise price of $0.0068 per
share. The stock options vest equally over a period of 36
months and expire January 5, 2026. These options are exercisable on
a cashless basis, resulting in no cash payment to the Company upon
exercise, any time after January 5, 2022. During the year
ended December 31, 2021, a key employee who held 1,000,000 options
left the Company, and the options were forfeited.
On August 18, 2021, we granted non-qualified stock options to
purchase up to 5,000,000 shares of our common stock to a key
employee, at an exercise price of $0.0017 per share. The
stock options vest equally over a period of 36 months and expire
August 18, 2026. These options are exercisable on a cashless basis,
any time after August 18, 2022.
The Company used the historical industry index to calculate
volatility, since the Company’s stock history did not represent the
expected future volatility of the Company’s common stock.
The fair value of options granted during the year ended December
31, 2021 and 2020, were determined using the Black Scholes method
with the following assumptions:
|
|
Year Ended December 31, 2021
|
Year Ended December 31, 2020
|
|
Risk free interest
rate
|
1.86%
|
1.86%
|
|
Stock volatility
factor
|
272%
|
272%
|
|
Weighted average
expected option life
|
5
years
|
5
years
|
|
Expected dividend
yield
|
0%
|
0%
|
|
|
|
|
A summary of the Company’s stock option activity and related
information follows:
|
|
Year Ended December 31, 2021
|
Year Ended December 31, 2020
|
|
|
|
Options
|
|
Weighted average exercise price
|
|
Options
|
|
Weighted average exercise price
|
|
Outstanding -
beginning of year
|
|
429,675,799
|
$
|
0.0051
|
|
150,275,799
|
$
|
0.0160
|
|
Granted
|
|
373,000,000
|
|
0.0068
|
|
300,000,000
|
|
0.0018
|
|
Exercised
|
|
(13,442,467)
|
|
0.0066
|
|
-
|
|
-
|
|
Forfeited
|
|
(21,000,000)
|
|
0.0021
|
|
(20,600,000)
|
|
0.0400
|
|
Outstanding - end of
year
|
|
768,233,332
|
$
|
0.0060
|
|
429,675,799
|
$
|
0.0051
|
|
Exercisable at the
end of year
|
|
471,914,611
|
$
|
0.0063
|
|
223,165,297
|
$
|
0.0081
|
|
Weighted average fair
value of options granted during the year
|
|
|
$
|
2,580,600
|
|
|
$
|
568,300
|
As of December 31, 2021, and December 31, 2020, the intrinsic value
of the stock options was approximately $5,256,720 and 1,366,650,
respectively. Stock option expense for the year ended
December 31, 2021, and 2020 were $1,247,048 and $390,035,
respectively.
53
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options, which do not have
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because
the Company’s employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management’s opinion, the existing
models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
The weighted average remaining contractual life of options
outstanding, as of December 31, 2021 was as follows:
|
Exercise prices
|
|
Number of options outstanding
|
|
Weighted Average remaining contractual life (years)
|
|
|
|
|
|
|
|
$ 0.0150
|
|
35,000,000
|
|
0.65
|
|
$ 0.0131
|
|
60,000,000
|
|
0.09
|
|
$ 0.0130
|
|
15,000,000
|
|
0.22
|
|
$ 0.0068
|
|
367,000,000
|
|
4.02
|
|
$ 0.0053
|
|
10,000,000
|
|
0.62
|
|
$ 0.0019
|
|
259,233,332
|
|
3.05
|
|
$ 0.0018
|
|
17,000,000
|
|
3.42
|
|
$ 0.0170
|
|
5,000,000
|
|
4.63
|
|
|
|
768,233,332
|
|
|
Warrants
During the fiscal year ended December 31, 2021 the Company issued
240,000,001 warrants through four agreements, which are exercisable
immediately on a cashless basis at prices ranging from $0.005 to
$0.0454 per share. As of December 31, 2021, and 2020, there were
162,703,869 and 20,912,852 warrants outstanding,
respectively.
The fair value of warrants granted during the year ended December
31, 2021 and 2020, were determined using the Black Scholes method
with the following assumptions:
|
Year Ended December 31, 2021
|
Year Ended December 31, 2020
|
|
Risk
free interest rate
|
0.40 – 0.42%
|
0.40 – 0.42%
|
|
Stock
volatility factor
|
335.7 - 337.1%
|
335.7 - 337.1%
|
|
Weighted average expected warrant life
|
5 years
|
5 years
|
|
Expected dividend yield
|
0%
|
0%
|
A summary of the Company’s warrant activity and related information
follows:
|
|
Year Ended December 31, 2021
|
Year Ended December 31, 2020
|
|
|
Warrants
|
|
Weighted average exercise price
|
|
Warrants
|
|
Weighted average exercise price
|
|
Outstanding -
beginning of period
|
|
20,912,852
|
$
|
0.007
|
|
10,000,000
|
$
|
0.007
|
|
Issued
|
|
240,000,001
|
|
0.037
|
|
10,912,852
|
|
0.007
|
|
Exercised
|
|
(98,208,984)
|
|
0.007
|
|
-
|
|
-
|
|
Forfeited
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Outstanding - end of
period
|
|
162,703,869
|
$
|
0.048
|
|
20,912,852
|
$
|
0.007
|
|
Exercisable at the
end of period
|
|
162,703,869
|
$
|
0.048
|
|
20,912,852
|
$
|
0.007
|
|
Weighted average fair
value of warrants granted during the period
|
|
|
$
|
7,792,900
|
|
|
$
|
98,343
|
Warrant expense for the year ended December 31, 2021, and 2020 were
$983,571 and $98,343, respectively.
The weighted average remaining contractual life of warrants
outstanding, as of December 31, 2021 was as follows:
|
Exercise prices
|
|
Number of warrants outstanding
|
|
Weighted Average remaining contractual life (years)
|
|
$ 0.0875
|
|
10,714,286
|
|
4.14
|
|
$ 0.0454
|
|
151,000,000
|
|
4.14
|
|
$ 0.0072
|
|
989,583
|
|
3.95
|
|
|
162,703,869
|
|
|
13.
RELATED PARTIES
Our former Chief Financial Officer is also the President of
Bountiful Capital, LLC. On January 17, 2020, notes payable
owed to Bountiful Capital amounting to $240,500 and accrued
interest of $19,758 were converted into 2,597 shares of Series G
preferred stock. On February 17, 2021, the Company entered into an
Unsecured Promissory Note (the “February 17, 2021 Term Note”), in
the aggregate principal amount of $840,000, with Bountiful Capital,
LLC for gross proceeds of $840,000. The investor is a related
party. The note bore interest at a rate of 5% per year and was not
convertible into shares of common stock of the Company. Principal
and interest under the note were due and payable upon maturity on
January 28, 2022, and a prepayment of the note was permitted. On
March 4, 2021, the Company paid off the February 17, 2021 Term Note
in full in the amount of $840,000. Also on February 17, 2021, the
Company entered into an Unsecured Promissory Note (the “February
17, 2021 Refinance Note”) with Bountiful Capital to refinance ten
Unsecured Promissory Notes dated between August 3, 2017 and January
3, 2018, with a total principal balance of $683,100 and accrued
interest of $113,626. The February 17, 2021 Refinance Note
bore interest of 5% per year and was not convertible into shares of
common stock of the Company. Principal and interest under the
note are due and payable upon maturity on August 31, 2021, and a
prepayment of the note is permitted. On February 17, 2021,
the Company issued Bountiful Capital 25,000,000 shares of common
stock in connection with the issuances of the February 17, 2021
Term Note and the February 17, 2021 Refinance Note, which the
Company valued at $2,820,000. We included $2,820,000 in
interest expense related to the 25,000,000 shares. On November 29,
2021, the Company entered into an exchange agreement with Bountiful
Capital. Pursuant to the exchange agreement, the Company
extinguished the principal amount of $683,100, plus accrued
interest of $140,295, on an unsecured promissory note issued to
Bountiful Capital on February 27, 2021 by repaying $428,652 in cash
and issuing 26,316,264 shares of common stock of the Company in
full satisfaction of the note.
As of December 31, 2021, and December 31, 2020, the notes payable
due to related parties totaled zero and $792,235, respectively.
Brad Parscale served on the board of directors of the Company from
the acquisition of Parscale Creative on August 1, 2017 until his
resignation on December 10, 2019. Mr. Parscale is also the owner of
Parscale Strategy, LLC. During the year ended December 31,
2021 and 2020, the Company earned zero and $3,640, respectively, in
revenue from providing services to Parscale Strategy, and as of
December 31, 2021 and December 31, 2020, Parscale Strategy had an
outstanding accounts receivable of zero and zero, respectively.
On August 1, 2017, Parscale Digital signed a lease with Bureau,
Inc., a related party, to provide a workplace for the employees of
Parscale Digital. Bureau, Inc., is wholly owned by Jill
Giles, an employee of the Company. During the year ended
December 31, 2021, Jill Giles resigned from her position with
Company. Details on this lease are included in Note 15.
On August 1, 2017, Parscale Digital signed a lease with Parscale
Strategy for computer equipment and office furniture.
Parscale Strategy is wholly owned by Brad Parscale. Details
of this lease are included in Note 15.
On March 18, 2021, the Company issued 1,000 shares of its Series H
Preferred Stock to the Chief Executive Officer of the Company,
Andrew Van Noy. The Series H Preferred Stock is not
convertible into shares of the Company's common stock and entitles
the holder to 51% of the voting power of the Company’s
shareholders, as set forth in the Certificate of Designation.
The 1,000 shares of Series H Preferred stock provided for
automatic redemption by the Company at the par value of $0.001 per
share on the sooner of: 1) sixty days (60) from the effective date
of the Certificate of Designation, 2) on the date Andrew Van Noy
ceases to serve as an officer, director or consultant of the
Company, or 3) on the date that the Company’s shares of common
stock first trade on any national securities exchange. On May
18, 2021, the Company redeemed all shares of Series H Preferred
stock. On September 29, 2021, the Company filed a certificate of
withdrawal with the Secretary of State of Nevada, to withdraw the
Company’s existing certificate of designation of Series H Preferred
Stock, filed a certificate of designation for a new series of
Series H Preferred Stock with the Secretary of State of Nevada, and
issued 1,000 shares of Series H Preferred Stock to Andrew Van Noy,
the Company’s Chief Executive Officer, for services rendered. See
Note 11.
14.CONCENTRATIONS
For the year ended December 31, 2021 and 2020, the Company had
three and two major customers that represented approximately 49%
and 34% of total revenue, respectively. At December 31, 2021
and December 31, 2020, accounts receivable from three and two
customers, represented approximately 57% and 32% of total accounts
receivable, respectively. The customers comprising the
concentrations within the accounts receivable are not the same
customers that comprise the concentrations with the revenues
discussed above.
15.COMMITMENTS
AND CONTINGENCIES
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases” Topic
842, which amends the guidance in former ASC Topic
840, Leases. The new standard increases transparency
and comparability most significantly by requiring the recognition
by lessees of right-of-use (“ROU”) assets and lease liabilities on
the balance sheet for all leases longer than 12 months. Under the
standard, disclosures are required to meet the objective of
enabling users of financial statements to assess the amount,
timing, and uncertainty of cash flows arising from leases. For
lessees, leases will be classified as finance or operating, with
classification affecting the pattern and classification of expense
recognition in the income statement, over the expected term on a
straight-line basis. Operating leases are recognized on the balance
sheet as right-of-use assets, current operating lease liabilities
and non-current operating lease liabilities. We determine if
an arrangement is a lease at inception. Operating leases are
included in operating lease right-of-use (“ROU”) assets and
operating lease liabilities on our consolidated balance sheets.
Finance leases are included in property and equipment, current
liabilities, and long-term liabilities on our consolidated balance
sheets.
54
The Company adopted the new lease guidance effective January 1,
2019 using the modified retrospective transition approach,
applying the new standard to all of its leases existing at the date
of initial application which is the effective date of
adoption. Consequently, financial information will not be
updated and the disclosures required under the new standard will
not be provided for dates and periods before January 1,
2019. The Company has elected the practical
expedient to combine lease and non-lease components as a
single component. We did not elect the hindsight practical
expedient which permits entities to use hindsight in determining
the lease term and assessing impairment. The adoption of the lease
standard did not change our previously reported consolidated
statements of operations and did not result in a cumulative
catch-up adjustment to opening equity. As of December 31,
2021, the company recognized ROU assets of $66,369 and
operating lease liabilities of $66,369.
The interest rate implicit in lease contracts is typically not
readily determinable. As such, the Company utilizes its incremental
borrowing rate of 10%, which is the rate incurred to borrow on a
collateralized basis over a similar term an amount equal to the
lease payments in a similar economic environment. In calculating
the present value of the lease payments, the Company elected to
utilize its incremental borrowing rate based on the remaining lease
terms as of the January 1, 2019 adoption date.
Operating lease ROU assets and operating lease liabilities are
recognized based on the present value of the future minimum lease
payments over the lease term at the commencement date. The
operating lease ROU asset also includes any lease payments made and
excludes lease incentives and initial direct costs incurred, if
any. Our lease terms may include options to extend or terminate the
lease when it is reasonably certain that we will exercise that
option. Our leases have remaining lease terms of 1 year to 3 years,
some of which include options to extend the lease term for up to an
undetermined number of years.
Operating
Leases
On August 1, 2017, Parscale Digital signed a lease agreement with
Bureau, Inc., a related party, which commenced on August 1, 2017,
for approximately 8,290 square feet, at 321 Sixth Street, San
Antonio, TX 78215, for $9,800 per month, plus a pro rata share of
the common building expenses. The lease expires on July 31,
2022. As of December 31, 2021, it is unclear whether we will
attempt to extend this lease beyond the July 31, 2022 expiration
date. The lease expires in less than twelve months, however, the
lease liability remains on the Balance Sheet as Right-of-use lease.
This lease does not include a residual value guarantee, nor
do we expect any material exit costs. As of January 1, 2019,
we determined that this lease meets the criterion to be classified
as a ROU Asset and is included on the balance sheet as Right-Of-Use
Assets. On November 18, 2021 the lease agreement with Bureau Inc.
was terminated and transferred to the new landlord Irish Flats
Investment. The terms of the lease agreement remained the same. As
of December 31, 2021, the ROU asset and liability balances of this
lease were $66,369 and $66,369, respectively.
Total operating lease expense for the year ended December 31, 2021
and 2020 was $178,880 and $155,119, respectively. The Company
is also required to pay its pro rata share of taxes, building
maintenance costs, and insurance in according to the lease
agreement.
On May 21, 2014, the Company entered into a settlement agreement
with the landlord of our previous location at 6500 Hollister Ave.,
Goleta, CA, to make monthly payments on past due rent totaling
$227,052. Under the terms of the agreement, the Company will
make monthly payments of $350 on a reduced balance of $40,250. Upon
payment of $40,250, the Company will record a gain on
extinguishment of debt of $186,802. During the quarter ended
September 30, 2021, the Company paid off the remainder of the
reduced balance $10,500 and recorded a gain on extinguishment of
debt of $186,802 per the agreed terms. As of December 31, 2021, and
December 31, 2020, the outstanding balance was zero and $12,600,
respectively.
Finance
Leases
On August 1, 2017, Parscale Digital signed a lease agreement with
Parscale Strategy, a related party, for the use of office equipment
and furniture. The lease provides for a term of thirty-six (36)
months, at a monthly payment of $3,000, and an option to purchase
all items at the end of the lease for one dollar. It is certain
that the Company will exercise this purchase option. We have
evaluated this lease in accordance with ASC 840-30 and determined
that it meets the definition of a finance lease.
The following is a schedule of the net book value of the finance
lease.
|
Assets
|
December 31, 2021
|
December 31, 2020
|
|
Leased equipment
under finance lease,
|
$
|
100,097
|
$
|
100,097
|
|
less accumulated
amortization
|
|
(100,097)
|
|
(84,837)
|
|
Net
|
$
|
-
|
$
|
15,260
|
Below
is a reconciliation of leases to the financial statements.
|
|
ROU
Operating Leases
|
Finance Leases
|
|
Leased asset
balance
|
$
|
66,369
|
$
|
-
|
|
Liability balance
|
|
66,369
|
|
-
|
|
Cash flow
(non-cash)
|
|
-
|
|
-
|
|
Interest expense
|
$
|
2,231
|
$
|
-
|
The following is a schedule, by years, of future minimum lease
payments required under the operating and finance leases.
|
Years Ending December
31,
|
ROU
Operating Leases
|
Finance Leases
|
|
2021
|
|
68,600
|
|
-
|
|
2022
|
|
-
|
|
-
|
|
2023
|
|
-
|
|
-
|
|
Thereafter
|
|
-
|
|
-
|
|
Total
|
$
|
68,600
|
$
|
-
|
|
Less imputed
interest
|
|
(2,231)
|
|
-
|
|
Total liability
|
$
|
66,369
|
$
|
-
|
Other information related to leases is as follows:
|
Lease Type
|
|
Weighted Average Remaining Term
|
|
Weighted Average Discount Rate (1)
|
|
Operating Leases
|
|
7 months
|
|
10%
|
|
Finance Leases
|
|
0
months
|
|
10%
|
(1)
This discount rate is consistent with our borrowing rates from
various lenders.
Legal
Matters
The Company may be involved in legal actions and claims arising in
the ordinary course of business, from time to time, none of which
at the time are considered to be material to the Company’s business
or financial condition.
55
16.
SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
During the year ended December 31, 2021, there were the following
non-cash activities.
-Certain
related party converted a total of $183,131 of principal, interest
and fees, into 18,313,074 common shares and the Company issued
25,000,000 shares in connection with the issuance of February17,
2021 Term Note and February 17, 2021 Refinance Note, which the
Company valued at $2,820,000 and included in interest
expense.
-The
values of the ROU operating leases assets and liabilities each
declined $105,180, netting to zero on the statement of cash
flows.
-The
holders of 10,000 shares of Series A Preferred stock converted all
shares into 100,000,000 shares of common stock in the amount of
$100,000.
-The
holders of 3,979 shares of Series D Preferred stock converted into
9,947,500 shares of common stock in the amount of $9,948.
-The
holders of 13,109,133 stock options exercised their options into
11,107,503 shares of common stock in the amount of
$11,108.
-The
holders of 19,923,269 warrants exercised their warrants into
17,313,024 shares of common stock in the amount of
$17,314.
-The
Company issued 26,316,264 shares of common stock to a related party
the value of the common shares recorded was $394,743.
During the year ended December 31, 2020, there were the following
non-cash activities.
-Certain
lenders converted a total of $291,940 of principal, interest and
fees, into 226,300,034 common shares. As a result of these
conversions, we recorded a reduction to the derivative liability of
$339,105.
-The
values of the ROU operating leases assets and liabilities each
declined $95,209, netting to zero on the statement of cash
flows
-Recorded
an initial derivative discount for notes that became convertible
during the period, in the amount of $127,273.
-A
related party lender exchanged $259,698 of principal and interest
for 2,597 shares of Series G Preferred Stock.
-Recorded
the value of shares issued to lenders in the amount of
$334,377.
17.INCOME
TAXES
The provision (benefit) for income taxes for the years ended
December 31, 2021 and 2020 were as follows, assuming a 21% and 21%
effective tax rate, respectively:
|
|
For
the years ended December 31,
|
|
|
2021
|
|
2020
|
|
Deferred tax
provision:
|
|
|
|
|
|
Federal
|
|
|
|
|
|
Deferred tax asset
|
$
|
4,029,359
|
$
|
3,427,761
|
|
Valuation allowance
|
|
(4,029,359)
|
|
(3,427,761)
|
|
Total deferred tax
provision
|
$
|
-
|
$
|
-
|
As of December 31, 2021, the Company had approximately $19,187,423
in tax loss carryforwards that can be utilized in future periods to
reduce taxable income through 2040. The deferred tax
liability balances as of December 31, 2021 and 2020 were zero and
zero, respectively. During the year ended December 31, 2018,
it was determined that, due to the Company never having paid
federal income taxes and having a large net operating loss (NOL),
it is unlikely we will pay federal income taxes in the foreseeable
future.
56
The Company provided a valuation allowance equal to the deferred
income tax assets for the period from June 30, 2011 to December 31,
2021 because it is not presently known whether future taxable
income will be sufficient to utilize the tax loss
carryforwards.
The Company has no uncertain tax positions.
18.
SUBSEQUENT EVENTS.
On February 1, 2022, we granted non-qualified stock options to
purchase up to 122,500,000 shares of our common stock to five board
members, three of which are independent, and one employee, at an
exercise price of $0.0295 per share. The stock options vest
equally over a period of 36 months and expire February 1, 2025.
These options allow the optionee to exercise on a cashless basis,
resulting in no cash payment to the Company upon exercise, anytime
after March 1, 2022.
On March 28, 2022, the Company entered into a purchase agreement
with an accredited investor to purchase up to $10,000,000 shares
(“Purchase Shares”) of the Company’s Common Stock. The Company has
the right, in its sole discretion, subject to the conditions and
limitations in the Purchase Agreement, to direct the Investor, by
delivery of a purchase notice from time to time (a “Purchase
Notice”) to purchase (each, a “Purchase”) over the one-year term of
the Purchase Agreement, a minimum of $10,000 and up to a maximum of
the lower of: (1) one hundred percent (100%) of the average daily
trading dollar volume of the Company’s common stock during the ten
trading days preceding the Purchase Date; or (2) one million
dollars ($1,000,000), provided that the parties may agree to waive
such limitations. The aggregate value of Purchase Shares sold to
the Investor may not exceed $10,000,000. Each Purchase Notice will
set forth the Purchase Price and number of Purchase Shares in
accordance with the terms of the Purchase Agreement. The number of
Purchase Shares the Company issue under each Purchase will be equal
to 112.5% of the Purchase Amount sold under such Purchase, divided
by the Purchase Price per share (as defined under the Purchase
Agreement). The Purchase Price is defined as the lower of (a) 90%
of the lowest volume weighted average price during the Valuation
Period; or (b) the closing price for the Company’s common stock on
the trading day preceding the date of the Purchase Notice. The
Purchase Price will be subject to a floor of $.01 per share, at or
below which the Company will not deliver a Purchase Notice. The
Valuation Period is the ten consecutive business days immediately
preceding, but not including the date a Purchase Notice is
delivered.
57
ITEM
9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, with the participation of the Company's principal
executive and principal financial officers, evaluated the
effectiveness of the Company's disclosure controls and procedures
(as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act of 1934, as amended), as of the end of the period covered by
this report to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Act
is (i) recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms and (ii)
accumulated and communicated to the Company's management, including
its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
Based on that evaluation, our management concluded that, due to
adjusting journal entries made by our independent auditor, as of
December 31, 2021, our disclosure controls and procedures were
ineffective.
Our management, including our principal executive officer and
principal financial officer, do not expect that our disclosure
controls and procedures or our internal controls will prevent all
error or fraud. A control system, no matter how
well-conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met. Further, the design of a control system must
reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their
costs. Due to the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been
detected.
Management’s Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934, as
amended. Our internal control over financial reporting
is a process designed to provide reasonable assurance to our
management and board of directors regarding the reliability of
financial reporting and the preparation of the financial statements
for external purposes in accordance with accounting principles
generally accepted in the United States of America.
Our internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the
United States of America, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial
statements
Our management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2021. In
making this assessment, our management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") in Internal Control-Integrated Framework
(2013). A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely
basis.
Management has identified control deficiencies regarding adjusting
journal entries. Management of the Company believes this weakness
will be remediated as we continue to improve our processes and
procedures to control deficiencies in the future.
Because of the above material weakness, management has concluded
that we did not maintain effective internal control over financial
reporting as of December 31, 2021, based on the criteria
established in “Internal Control-Integrated Framework” issued by
the COSO.
58
No
Attestation Report by Independent Registered Accountant
The effectiveness of our internal control over financial reporting
as of December 31, 2021 has not been audited by our independent
registered public accounting firm by virtue of our exemption from
such requirement as a smaller reporting company.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company’s internal control over
financial reporting that occurred during the Company’s last fiscal
quarter of fiscal year ended December 31, 2021 that have materially
affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The Company’s management does not expect that its disclosure
controls or its internal control over financial reporting will
prevent or detect all error and all fraud. A control system,
no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s
objectives will be met. The design of a control system must
reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs.
Further, because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the Company
have been detected. These inherent limitations include the
realities that judgments in decision making can be faulty and that
breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or management
override of the controls. The design of any system of
controls is based in part on certain assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance with
policies or procedures.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS.
Not
applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
The following table lists the executive officers and directors of
the Company:
|
Name
|
Age
|
Position
|
|
Andrew Van Noy
|
39
|
Chief Executive
Officer, President and Chairman
|
|
|
|
|
|
Isabel Gongora
|
48
|
Chief Financial
Officer
|
|
|
|
|
|
Kevin Myers
|
59
|
Director, Chief
Marketing Officer
|
|
|
|
|
|
Richard Berliner
|
68
|
Independent Director,
Chairperson of the Audit Committee, Financial Expert
|
|
|
|
|
|
Virginia Rose
O’Meara
|
37
|
Independent Director,
Chairperson of the Nominating Corporate Governance Committee
|
|
|
|
|
|
Mark Fruehan
|
60
|
Independent Director,
Chairperson of the Compensation Committee
|
59
Andrew Van Noy has been a director of the Company since November
2012. Mr. Van Noy has been the President of the Company since April
2012 and the Chief Executive Officer of the Company since August
2012. He was Executive Vice President of the Company from November
2011 to April 2012 and Vice President of Sales and Marketing of the
Company from May 2011 to November 2011. From January 2009 to April
2011, Mr. Van Noy served as the Vice President of Sales and
Marketing for PageTransformer, a company which provided web and
software development for iPad, iPhone, and Android
devices. Mr. Van Noy came to the Company with experience in
digital marketing, private equity and investment
banking. During his years at the Company, Mr. Van Noy led the
efforts to rebrand and restructure the business and presided over
the acquisition of a number of companies. Mr. Van Noy graduated
from BYU with a Bachelor of Science degree.
The Board of Directors believes that Mr. Van Noy is qualified to
serve as a director because of his experience in executive roles
and his experience with re-branding and re-structuring of the
Company, including the launch of our Magento platform.
Isabel Gongora was appointed on October 7, 2021 to serve as the
Company’s Chief Financial Officer. Prior to her appointment as
Chief Financial Officer, Ms. Gongora served as the Company’s
Controller beginning in March 2018. From March 2015 to March
2018, Ms. Gongora was the Accounting Manager and Treasurer of
Peveto Companies, LTD dba Brake Check, a multi-million-dollar
family-owned and operated company since 1968. Ms. Gongora
began her corporate accounting career working for Argo Group, Inc.,
a public multi-billion-dollar Property and Casualty Insurance
Company. Ms. Gongora graduated from The University of Texas at San
Antonio with a Bachelor of Science in Accounting and the University
of Incarnate Word with a Masters of Science in
Accounting.
The Board of Directors believes that Ms. Gongora is qualified to
serve as an officer because of her management and industry
experience, in addition to her understanding of generally accepted
accounting principles and financial reporting.
Kevin Myers, age 59, has been a director of the Company since
December 2019 and has been chief marketing officer of the Company
since August 26, 2021. Mr. Myers served as the chief marketing and
information officer of Donatos Pizza, from February 2018 until
March 2020. Prior to Donatos Pizza, Mr. Myers served as the General
Manager of the brand division of Majority Strategies, a
full-service data, digital and print agency, from November 2015
until February 2018. In this role, Mr. Myers was responsible
for revenue growth and product development in the company’s
corporate advertising division. Prior to Majority Strategies,
Mr. Myers held various marketing and advertising roles for over 12
years. He holds a bachelor’s degrees from the Ohio State
University in industrial and computer science engineering.
The Board of Directors believes that Mr. Myers is qualified to
serve as a director because of his industry experience and his
understanding of industry trends.
On October 7, 2021, the Board of Directors of AiAdvertising, Inc.
(the “Company”) appointed Richard Berliner to serve on the
Company’s Board of Directors. Mr. Berliner has been Chairman
and Chief Executive Officer of Fifth Gen Media, Inc., a marketing
and publishing company, owned by Mr. Berliner since 2016. Mr.
Berliner’s prior experience was as Chief Executive Officer of a
wireless construction company, Redwing Electric from 2012-2015,
which was later sold to an investor group. Mr. Berliner did a one
year consulting project for the Swedish equipment manufacturer
Ericsson, reporting to the Chief Operating Officer in 2011. Mr.
Berliner was the Founder, Chairman and CEO of Berliner
Communications or BCI (BCI) which he started in 1995, which
subsequently merged with another firm in 2010. Mr. Berliner handled
the firm’s quarterly earnings calls and the annual meetings in his
role as Chairman. Mr. Berliner graduated from Rutgers with a BA in
Business in 1975. He is a Fellow in the Radio Club of America and
was elected in 2004.
The Company’s Board of Directors has determined that Mr.
Berliner is “independent” within the meaning of rules of The Nasdaq
Stock Market and is qualified to serve on the Board of Directors
because of his extensive senior management experience.
On October 26, 2021, the Board of Directors of the Company
appointed Virginia “Rose” O’Meara to serve on the Company’s Board
of Directors. Mrs. O’Meara has been Chief Revenue Officer at
GroundTruth, a location-based marketing and advertising technology
company, since October 2020. Mrs. O’Meara was Senior Vice President
of GroundTruth’s Platform Self-Serve business from October 2019 to
September 2020. Mrs. O’Meara was Vice President of Customer Success
at a4Media, the media division of Altice USA, from September 2018
to September 2019. Mrs. O’Meara was Chief Executive Officer of
Zapp360 beginning in January of 2018 and led its acquisition by
Altice USA in September of the same year. Prior to serving as Chief
Executive Officer at Zapp360, Mrs. O’Meara also served as Chief
Operating Officer from August 2017 to January 2018, Vice President
of Customer Success from April 2016 to July 2017, and Director of
Business Development from August 2013 to March 2016. Mrs. O’Meara
held sales roles as a Director of Mobile Ad Sales at Verve Mobile
from July 2012 to August 2013 and as a Digital Account Executive at
ITN Digital from January 2010 to July 2012, selling digital and
mobile advertising solutions to holding company agencies and brand
direct clients on the East Coast in both roles.
60
The Company’s Board of Directors has determined that Mrs.
O’Meara is “independent” within the meaning of the rules of The
Nasdaq Stock Market and is qualified to serve on the Board of
Directors because of her extensive industry experience within the
ad-tech industry, her deep connections with advertisers and
publishers, and her senior management experience.
On November 4, 2021, the Board of Directors of the Company
appointed Mark Fruehan to serve on the Company’s Board of
Directors. Since September 30, 2021, Mr.
Fruehan has served as Chief Executive Officer of First Screen
of the Americas, which offers digital first brands and content
creators alternative distribution and billing mechanisms to
monetize content. From July 2020 to June 2021, Mr.
Fruehan was Chief Revenue Officer of Tradeswell, the
leading AI-driven eCommerce solution, which helps brokers and
resellers sell on Amazon, Walmart, and Target. Prior to
serving as Chief Revenue Officer at Tradeswell from April 2018
to July 2020, Mr. Fruehan served as President and Chief
Revenue Officer at Verve Group, a Media and Games Invest
SE portfolio company
(Berlin) and a privacy-first omnichannel ad platform
offering programmatic solutions that connects advertisers and
publishers to people in real time. In October
2016, Mark co-founded Amplify.ai, a global enterprise chatbot
platform funded by Costanoa Ventures, which was recently
acquired by Triller.net; leading
the sales and partner development
through their start-up phase until March of
2018. Mr. Fruehan’s roots in the mobile and wireless
industry run deep, with leadership roles at Opera Mediaworks &
AdMarvel as President, and Head of Business development and
innovation at VeriSign and CellStar. Mr. Fruehan has
over 30 years of experience in the digital and mobile industry
across cost per engagement, mobile content data service, media,
monetization, including payments, and messaging. Mr.
Fruehan has worked closely
with brands, mobile operators, and media companies;
in addition to holding several advisory seats and board memberships
at early-stage ventures and established tech companies
alike. Mr. Fruehan attended Penn State, earning a
Bachelor of Science in Economics, and is a proud member of the 1982
NCAA Championship Football Team.
The Company’s Board of Directors has determined that Mr.
Fruehan is “independent” within the meaning of the rules of The
Nasdaq Stock Market and is qualified to serve on the Board of
Directors because of his extensive industry experience within the
ad-tech industry, his deep connections with advertisers and
publishers, and his senior management experience.
Family Relationships
There are no family relationships among our executive officers and
directors.
Involvement in Certain Legal Proceedings
During the past ten years, none of our directors, executive
officers, promoters, control persons, or nominees has been:
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the subject of any bankruptcy petition filed by or against any
business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years
prior to that time;
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●
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convicted in a criminal proceeding or is subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
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●
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subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction or any Federal or State authority, permanently or
temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or
banking activities;
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●
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found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law;
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●
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the subject of, or a party to, any Federal or State judicial or
administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of (a) any Federal or State securities or commodities law
or regulation; (b) any law or regulation respecting financial
institutions or insurance companies including, but not limited to,
a temporary or permanent injunction, order of disgorgement or
restitution, civil money penalty or temporary or permanent
cease-and-desist order, or removal or prohibition order; or (c) any
law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or
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●
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the subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act
(15 U.S.C. 78c(a)(26))), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C.
1(a)(29))), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or
persons associated with a member.
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61
Board Committees
On November 4, 2021 the Board formed and appointed Richard
Berliner, Virginia Rose O’Meara, and Mark Fruehan as members of
the Audit Committee , with Mr. Berliner serving as the
Chairperson. The Board has determined that each of the members of
the Audit Committee designated is independent pursuant to the
required standards set forth in Rule 10A-3(b) of the Security
Exchange Act of 1934, as amended, based on an evaluation of the
relationships between the Company and each of the members.
Mr. Berliner is designated as the “audit committee financial
expert” as defined by Item 407(d)(5) of Regulation S-K under the
Securities Act of 1933, as amended, based on the Board’s evaluation
of his knowledge of accounting, qualifications and experience and
has an appropriate background which results in his financial
sophistication in accordance with the additional audit committee
requirements of Rule 5605(c)(2)(A).
On November 4, 2021 the Board formed and appointed Richard
Berliner, Virginia Rose O’Meara, and Mark Fruehan as members of
the Compensation Committee , with Mr. Fruehan serving as the
Chairperson.
On November 4, 2021 the Board formed and appointed Richard
Berliner, Virginia Rose O’Meara, and Mark Fruehan as members of the
Nominating and Corporate Governance Committee , with Mr. O’Meara
serving as the Chairperson.
The Board has determined that each of the members of the Audit
Committee, Compensation Committee, and Nominating and Corporate
Governance Committee is independent, pursuant to the definition of
independence under Rule 5605(a)(2) of the Nasdag Listing Rules.
Code of Business Conduct and Ethics
The Company has adopted a Code of Conduct that applies to all of
its directors, officers and employees. Any waiver of the
provisions of the Code of Conduct for executive officers and
directors may be made only by the Audit Committee, or the full
Board of Directors and, in the case of a waiver for members of the
Audit Committee, by the Board of Directors. Any such waivers
will be promptly disclosed to the Company’s shareholders. A copy of
our Code of Conduct is available on our website
(www.aiadvertising.com) and will be provided to any person
requesting same without charge. To request a copy of our Code of
Conduct please make written request to our Chief Executive Officer
c/o AiAdvertising, Inc. at 321 Sixth Street, San Antonio, TX
78215.
Changes in Nominating Procedures
None.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis describes the
material elements of compensation for our executive officers
identified in the Summary Compensation Table (“Named Executive
Officers”), and executive officers that we may hire in the future.
As more fully described below, our Compensation Committee
makes all decisions for the total direct compensation of our
executive officers, including the Named Executive Officers.
Compensation Program Objectives and Rewards
Our compensation philosophy is based on the premise of attracting,
retaining, and motivating exceptional leaders, setting high goals,
working toward the common objectives of meeting the expectations of
customers and stockholders, and rewarding outstanding performance.
Following this philosophy, in determining executive
compensation, we consider all relevant factors, such as the
competition for talent, our desire to link pay with performance in
the future, the use of equity to align executive interests with
those of our stockholders, individual contributions, teamwork and
performance, and each executive’s total compensation package.
We strive to accomplish these objectives by compensating all
executives with total compensation packages consisting of a
combination of competitive base salary and incentive
compensation.
On November 4, 2021 the Board formed and appointed Richard
Berliner, Virginia Rose O’Meara, and Mark Fruehan as members of the
Compensation Committee, with Mr. Fruehan serving as the
Chairperson. The compensation committee applies the
philosophy and policies described below.
62
The primary purpose of the compensation and benefits described
below is to attract, retain, and motivate highly talented
individuals when we do hire, who will engage in the behaviors
necessary to enable us to succeed in our mission while upholding
our values in a highly competitive marketplace. Different
elements are designed to engender different behaviors, and the
actual incentive amounts which may be awarded to each Named
Executive Officer are subject to the annual review of the Board of
Directors. The following is a brief description of the key
elements of our planned executive compensation structure.
·Base
salary and benefits are designed to attract and retain employees
over time.
·Incentive
compensation awards are designed to focus employees on the business
objectives for a particular year.
·Equity
incentive awards, such as stock options and non-vested stock, focus
executives’ efforts on the behaviors within the recipients’ control
that they believe are designed to ensure our long-term success as
reflected in increases to our stock prices over a period of several
years, growth in our profitability and other elements.
·Severance
and change in control plans are designed to facilitate the
Company’s ability to attract and retain executives as we compete
for talented employees in a marketplace where such protections are
commonly offered. We currently have not given separation
benefits to any of our Name Executive Officers.
Benchmarking
We have not yet adopted benchmarking but may do so in the future.
When making compensation decisions, our Board of Directors
may compare each element of compensation paid to our Named
Executive Officers against a report showing comparable compensation
metrics from a group that includes both publicly-traded and
privately-held companies. Our Board believes that while such
peer group benchmarks are a point of reference for measurement,
they are not necessarily a determining factor in setting executive
compensation as each executive officer’s compensation relative to
the benchmark varies based on scope of responsibility and time in
the position. We have not yet formally established our peer
group for this purpose.
The Elements of AiAdvertising’s Compensation Program
Base Salary
Executive officer base salaries are based on job responsibilities
and individual contribution. The Board reviews the base
salaries of our executive officers, including our Named Executive
Officers, considering factors such as corporate progress toward
achieving objectives (without reference to any specific
performance-related targets) and individual performance experience
and expertise. None of our Named Executive Officers have
employment agreements with us. Additional factors reviewed by
the Board of Directors in determining appropriate base salary
levels and raises include subjective factors related to corporate
and individual performance. For the year ended December 31,
2021, all executive officer base salary decisions were approved by
the Board of Directors.
Our Board of Directors determines base salaries for the Named
Executive Officers at the beginning of each fiscal year, or during
the year if needed, and the Board proposes new base salary amounts,
if appropriate, based on its evaluation of individual performance
and expected future contributions.
Equity Incentive Awards
Our 2003 Stock Option Plan for directors, officers, employees and
key consultants (the “2003 Plan”) which authorized the issuance of
up to 5,000,000 shares of our common stock pursuant to the 2003
Plan terminated upon the expiration of the remaining options
granted under the 2003 Plan on May 24, 2014. In December 2020
the Company adopted the AiAdvertising, Inc. 2020 Equity Incentive
Plan. The Board considers several factors in determining
whether awards are granted to an executive officer, including those
previously described, as well as the executive’s position, his or
her performance and responsibilities, and the amount of options, if
any, currently held by the officer and their vesting schedule.
Our policy prohibits backdating options or granting them
retroactively. As of December 31, 2021, 768,233,332 stock options
granted are outstanding.
63
Benefits and Prerequisites
At this stage of our business we have limited benefits and no
prerequisites for our employees other than paid time off that are
generally comparable to those offered by other small private and
public companies or as may be required by applicable state
employment laws. We may adopt retirement plans and confer
other fringe benefits for our executive officers in the future if
our business grows sufficiently to enable us to afford them.
Separation and Change in Control Arrangements
We do not have any employment agreements with our Named Executive
Officers. No employee is eligible for specific benefits or payments
if their employment or engagement terminates in a separation or if
there is a change of control.
Executive Officer Compensation
The following summary compensation table sets forth certain
information concerning compensation paid to the Company’s Chief
Executive Officer and its most highly paid executive officers whose
total annual salary and bonus for services rendered in all
capacities for the fiscal year ended December 31, 2021 was $100,000
or more.
Summary Compensation Table
|
Name and Principal Position
|
Fiscal Year
|
Salary
|
Option Awards
|
All Other Compensation
|
Total
|
|
|
|
|
|
|
|
|
Andrew Van Noy
Chief Executive
Officer, President, and Director
|
2021
|
$225,000
|
-0-
|
$125,000(1)
|
$350,000
|
|
|
2020
|
$225,000
|
-0-
|
-0-
|
$225,000
|
|
|
|
|
|
|
|
|
Isabel Gongora
Chief Financial
Officer
|
2021
|
$140,000
|
-0-
|
-0-
|
$140,000
|
|
|
2020
|
$100,000
|
-0-
|
-0-
|
$100,000
|
|
|
|
|
|
|
|
|
Kevin Myers
Chief Marketing
Officer
|
2021
|
$250,000
|
-0-
|
-0-
|
$250,000
|
(1) In
consideration of Andrew Van Noy’s service and performance to the
Corporation as the Chief Executive Office, Mr. Van Noy was awarded
a bonus.
64
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information with respect to
unexercised stock options, stock that has not vested, and equity
incentive plan awards held by the Company’s executive officers at
December 31, 2021.
|
Name
|
Number of
Securities Underlying Unexercised Options
Exercisable
|
Number of
Securities Underlying Unexercised Options
Unexercisable
|
Option Exercise
Price
|
Option Expiration
Date
|
|
|
|
|
|
|
|
Andrew Van Noy
(1)
Chief Executive
Officer and President
|
5,000,000
|
- 0
-
|
$0.01
|
August 13, 2022
|
|
|
30,000,000
|
- 0
-
|
$0.01
|
February 3, 2022
|
|
|
15,000,000
|
- 0
-
|
$0.01
|
March 20, 2022
|
|
|
20,000,000
|
- 0
-
|
$0.02
|
August 25, 2022
|
|
|
50,000,000
|
- 0
–
|
$0.00
|
January 17, 2025
|
|
|
50,000,000
|
- 0
-
|
$0.01
|
January 5, 2026
|
|
|
|
|
|
|
|
Kevin Myers (2)
Chief Marketing
Officer
|
10,000,000
|
- 0
-
|
$0.00
|
January 17, 2025
|
|
|
17,000,000
|
- 0
-
|
$0.00
|
June 2, 2025
|
|
|
100,000,000
|
- 0
-
|
$0.01
|
January 5, 2026
|
|
|
|
|
|
|
|
Isabel Gongora
(3)
Chief Financial
Officer
|
10,000,000
|
-0-
|
$0.00
|
January 17, 2025
|
|
|
20,000,000
|
-0-
|
$0.01
|
January 5, 2026
|
(1)On
August 13, 2012, Mr. Van Noy received stock options to purchase
5,000,000 shares of common stock, at an exercise price of $0.0053
per share exercisable for a period of seven years from the date of
grant. These stock options vest at a rate of 1/36 per month
commencing on the date of grant until all of the options are
vested. On February 3, 2015, Mr. Van Noy received stock
options to purchase 30,000,000 shares of common stock, at an
exercise price of $0.0131 per share exercisable for a period of
seven years from the date of grant. These stock options vest
at a rate of 1/36 per month commencing on the date of grant until
all of the options are vested. On March 20, 2015, Mr. Van Noy
received stock options to purchase 15,000,000 shares of common
stock, at an exercise price of $0.013 per share exercisable for a
period of seven years from the date of grant. These stock
options vest at a rate of 1/36 per month commencing on the date of
grant until all of the options are vested. On August 25,
2015, Mr. Van Noy received stock options to purchase 20,000,000
shares of common stock, at an exercise price of $0.015 per share
exercisable for a period of seven years from the date of grant.
On January 17, 2020, Mr. Van Noy received stock options to
purchase 50,000,000 shares of common stock, at an exercise price of
$0.0019 per share exercisable for a period of seven years from the
date of grant. These stock options vest at a rate of 1/36 per
month commencing on the date of grant until all of the options are
vested. On January 5, 2021, Mr. Van Noy received stock
options to purchase 50,000,000 shares of common stock, at an
exercise price of $0.0170 per share exercisable for a period of
five years from the date of grant. These stock options vest
at a rate of 1/36 per month commencing on the date of grant until
all of the options are vested.
(2)On
January 17, 2020, Mr. Myers received stock options to purchase
10,000,000 shares of common stock, at an exercise price of $0.0019
per share exercisable for a period of five years from the date of
grant. These stock options vest at a rate of 1/36 per month
commencing on the date of grant until all of the options are
vested. On June 2, 2020, Mr. Myers received stock options to
purchase 17,000,000 shares of common stock, at an exercise price of
$0.0018 per share exercisable for a period of five years from the
date of grant. These stock options vest at a rate of 1/36 per
month commencing on the date of grant until all of the options are
vested. On January 5, 2021, Mr. Myers received stock options to
purchase 100,000,000 shares of common stock, at an exercise price
of $0.0068 per share exercisable for a period of five years from
the date of grant.
(3)On
January 17, 2020, Ms. Gongora received stock options to purchase
2,000,000 shares of common stock, at an exercise price of $0.0019
per share exercisable for a period of five years from the date of
grant. These stock options vest at a rate of 1/36 per month
commencing on the date of grant until all of the options are
vested. On January 5, 2021, Ms. Gongora received stock
options to purchase 10,000,000 shares of common stock, at an
exercise price of $0.0068 per share exercisable for a period of
five years from the date of grant. These stock options vest
at a rate of 1/36 per month commencing on the date of grant until
all of the options are vested.
65
Director Compensation
The Company’s directors receive compensation for their services
rendered to the Company as directors. During the fiscal years ended
December 31, 2021 and 2020, this compensation totaled $30,000 and
$30,000, respectively, to each director. Compensation to
officers excluding compensation for serving on the board as set
forth in table below is included in the summary compensation table
above.
The following table sets forth compensation we paid to our
directors during the year ended December 31, 2021 (excluding
compensation under the Summary Compensation table above).
|
Name
|
|
Fees Earned or Paid in Cash
|
|
Stock Awards -2
|
|
Option Awards
|
|
All Other Compensation
|
|
Total
|
|
Andrew Van Noy
|
|
30,000
|
|
—
|
|
—
|
|
—
|
|
30,000
|
|
Kevin Myers
|
|
30,000
|
|
—
|
|
—
|
|
—
|
|
30,000
|
|
Richard Berliner
|
|
30,000
|
|
—
|
|
—
|
|
—
|
|
30,000
|
|
Virginia Rose
O’Meara
|
|
30,000
|
|
—
|
|
—
|
|
—
|
|
30,000
|
|
Mark Fruehan
|
|
30,000
|
|
—
|
|
—
|
|
—
|
|
30,000
|
Employment Agreements
The Company has not entered into any employment agreements with its
executive officers to date. The Company may enter into employment
agreements with its executive officers in the future.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth the names of our executive officers
and directors and all persons known by us to beneficially own 5% or
more of the issued and outstanding common stock of AiAdvertising at
March 31, 2022. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially
owned by a person and the percentage of ownership of that person,
shares of common stock subject to options held by that person that
are currently exercisable or become exercisable within 60 days of
March 31, 2022 are deemed outstanding even if they have not
actually been exercised. Those shares, however, are not
deemed outstanding for the purpose of computing the percentage
ownership of any other person. The percentage ownership of each
beneficial owner is based on 1,055,556,518 outstanding shares of
common stock. Except as otherwise listed below, the address
of each person is c/o AiAdvertising, Inc., 321 Sixth Street, San
Antonio, TX 78215. Except as indicated, each person listed
below has sole voting and investment power with respect to the
shares set forth opposite such person’s name.
66
|
Name, Title and Address
|
Number of Shares Beneficially Owned (1)
|
Percentage Ownership
|
|
|
|
|
|
Andrew VanNoy
Chairman, Chief
Executive Officer, and President (2)
|
137,665,838
|
11.5%
|
|
|
|
|
|
Isabel Gongora
Chief Financial
Officer (3)
|
5,578,082
|
*
|
|
|
|
|
|
Kevin Myers
Director (4)
|
60,541,553
|
5.4%
|
|
Mark Fruehan
Director (5)
|
397,260
|
*
|
|
Virginia Rose
O’Meara
Director (6)
|
397,260
|
*
|
|
|
|
|
|
Richard Berliner
Director (7)
|
397,260
|
*
|
|
|
|
|
|
All current Executive
Officers and Directors as a Group (6 persons)
|
204,977,254
|
16.2%
|
|
|
|
|
|
Jerry Hug
Director of
Operations (8)
|
144,898,630
|
12.1%
|
|
|
|
|
|
Zachary Bartlett
Vice President of
Communications (9)
|
67,533,303
|
6.0%
|
|
|
|
|
|
Greg Boden (10)
|
115,000,000
|
9.8%
|
|
|
|
|
|
Bradley Parscale
(11)
|
225,000,000
|
17.6%
|
|
|
|
|
* Less than 1%.
(1)Except
as pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with
respect to all shares of common stock beneficially owned.
(2)Includes
137,665,838 shares which may be purchased by Mr. Van Noy pursuant
to stock options that are exercisable within 60 days of March 31,
2022.
(3)Includes
5,578,082 shares which may be purchased by Ms. Gongora pursuant to
stock options that are exercisable within 60 days of March 31,
2022.
(4) Includes 60,541,553 shares which may be purchased by Mr.
Myers pursuant to stock options that are exercisable within 60 days
of March 31, 2022.
(5) Includes 397,260 shares which may be purchased by Mr.
Fruehan pursuant to stock options that are exercisable within 60
days of March 31, 2022.
(6) Includes 397,260 shares which may be purchased by Ms.
O’Meara pursuant to stock options that are exercisable within 60
days of March 31, 2022.
(7) Includes 397,260 shares which may be purchased by Mr. Berliner
pursuant to stock options that are exercisable within 60 days
of March 31, 2022.
(8)Includes
144,898,630 shares which may be purchased by Mr. Hug pursuant to
stock options that are exercisable within 60 days of March 31,
2022.
(9)Includes
35,000,000 shares which may be purchased by Mr. Bartlett pursuant
to stock options that are exercisable within 60 days of March 31,
2022.
(10)Includes
115,000,000 shares which may be purchased by Mr. Boden pursuant to
stock options that are exercisable within 60 days of March 31,
2022. Does not include Series C Preferred stock held by Bountiful
Capital LLC, of which Mr. Boden serves as President. Such
securities are subject to a 4.99% ownership blockers.
(11)Includes
shares underlying 86,021 shares of Series D Preferred Stock. Each
share of Series D Preferred Stock may be converted at any time upon
ninety (90) days’ written notice, into 2,500 shares of the
Company’s common stock.
67
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
None.
Director Independence
Our independent directors, as defined under Nasdaq Marketplace
Rules. consist of Richard Berliner, Virginia Rose O’Meara, and Mark
Fruhan,
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
M&K CPAs, PLLC (“M&K”) has served as the Company’s
independent registered accountants since August 2018. M&K
also is a provider of tax services to the Company.
Audit Fees
An aggregate of $95,000 was billed to us by our auditors for
professional services, including audit of the annual financial
statement of the Company for the fiscal year ended December 31,
2021, and review of the interim financial statements included in
quarterly reports on Form 10-Q for the periods ended September 30,
2021, June 30, 2021, and March 31, 2021.
An aggregate of $73,300 was billed to us by our auditors for
professional services, including audit of the annual financial
statement of the Company for the fiscal year ended December 31,
2020, and review of the interim financial statements included in
quarterly reports on Form 10-Q for the periods ended September 30,
2020, June 30, 2020, and March 31, 2020.
Audit Related Fees
None.
Tax Fees
Our auditors billed the Company $3,000 for tax preparation
services during the fiscal year ended December 31, 2021.
Our auditors billed the Company $1,500 for tax preparation
services during the fiscal year ended December 31, 2020.
All Other Fees
None.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1.
Financial Statements
The
AiAdvertising, Inc. financial statements are included in Item 8.
Financial Statements and Supplementary Data.
2.
Financial Schedules
None.
68
3. Exhibits.
|
Exhibit
|
Description
|
|
3.1
|
Articles of Incorporation (incorporated by reference from the
exhibits included with the Company's Report on Form 10-KSB filed
with the Securities and Exchange Commission, dated April 10,
2002).
|
|
3.2
|
Certificate of Amendment to Articles of Incorporation
(Incorporated by reference to exhibits filed with the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission, dated September 30, 2015).
|
|
3.3
|
Bylaws (incorporated by reference from the exhibits included with
the Company's Report on Form 10-KSB filed with the Securities and
Exchange Commission, dated April 10, 2002).
|
|
3.4
|
Certificate of Designation of Series A Preferred Stock
(Incorporated by reference to exhibits filed with the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission, dated October 6, 2015).
|
|
3.5
|
Certificate of Designation of Series B Preferred Stock
(Incorporated by reference to exhibits filed with the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission, dated December 18, 2015).
|
|
3.6
|
Certificate of Amendment to Certificate of Designation of Series B
Preferred Stock (Incorporated by reference to exhibits filed with
the Company’s Current Report on Form 8-K filed with the Securities
and Exchange Commission, dated June 28, 2016).
|
|
3.7
|
Certificate of Designation of Series C Preferred Stock
(Incorporated by reference to exhibits filed with the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission, dated August 2, 2017).
|
|
3.8
|
Certificate of Designation of Series D Preferred Stock
(Incorporated by reference to exhibits filed with the Company’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission, dated August 2, 2017).
|
|
3.9
|
Certificate of Designation of Series E Preferred Stock
(incorporated by reference to 8-K filed November 17, 2017)
|
|
3.10
|
Certificate of Designation of Series F Preferred Stock
(incorporated by reference to 8-K filed January 3 ,2020)
|
|
3.11
|
Certificate of Designation of Series G Preferred Stock
(incorporated by reference to 8-K filed February 12, 2020)
|
|
4.1
|
Description of the Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934*
|
|
10.1
|
Form of Stock Option Agreement (Incorporated by reference to
exhibits filed with the Company's Current Report on Form 10-Q/A
filed with the Securities and Exchange Commission, dated February
17, 2015).
|
|
10.2
|
Form of Common Warrant (incorporated by reference to 8-K filed
February 22, 2021)
|
|
10.3
|
Form of Securities Purchase Agreement (incorporated by reference to
8-K filed February 22, 2021)
|
|
10.4
|
Form of Amendment Agreement (incorporated by reference to 8-K filed
March 8, 2021)
|
|
10.5
|
2020 Incentive Stock Plan (incorporated by reference to S-8 filed
February 18, 2021)
|
|
10.6
|
AiAdvertising 2021 Equity Incentive Plan (incorporated by reference
to 14C filed December 29, 2021)
|
|
10.6
|
Engagement Letter (incorporated by reference to 8-K filed February
22, 2021)
|
|
10.7
|
Purchase Agreement, dated March 28, 2022, between the Company and
GHS Investments, LLC (incorporated by reference to 8-K filed on
March 29, 2022)
|
|
21.1*
|
List of Subsidiaries
|
|
23.1*
|
Consent of M&K CPAs, PLLC
|
|
31.1*
|
Section 302 Certification of Principal Executive Officer
|
|
31.2*
|
Section 302 Certification of Principal Financial/Accounting
Officer
|
|
32.1**
|
Section 906 Certification of Principal Executive Officer
|
|
32.2**
|
Section 906 Certification of Principal Financial/Accounting
Officer
|
|
EX-101.INS*
|
INLINE XBRL INSTANCE DOCUMENT - THE INSTANCE DOCUMENT DOES NOT
APPEAR IN THE INTERACTIVE DATA FILE BECAUSE ITS XBRL TAGS ARE
EMBEDDED WITHIN THE INLINE XBRL DOCUMENT.
|
|
EX-101.SCH*
|
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
|
|
EX-101.CAL*
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
|
|
EX-101.DEF*
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
|
|
EX-101.LAB*
|
XBRL TAXONOMY EXTENSION LABELS LINKBASE
|
|
EX-101.PRE*
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
|
|
104*
|
Cover Page Interactive Data File (formatted as Inline XBRL and
contained within Exhibit 101)
|
* Filed herewith
** Furnished herewith
Item 16.
Form 10-K Summary
Not applicable.
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
AIADVERTISING,
INC.
|
|
Date: April 14, 2022
|
By: /s/ Andrew
Van Noy
|
|
|
Andrew Van Noy
|
|
|
Chief Executive
Officer and President
(Principal Executive Officer)
|
|
|
|
|
|
By /s/ Isabel
Gongora
|
|
|
Isabel Gongora
|
|
|
Chief Financial
Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
|
Signature
|
|
Title
|
|
Date
|
|
/s/
Andrew Van Noy,
|
|
Chief Executive Officer, President and Chairman
(Principal Executive Officer)
|
|
April 14, 2022
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/
Isabel Gongora
|
|
Chief Financial Officer
|
|
April 14, 2022
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/
Kevin Myers,
|
|
Director
|
|
April 14, 2022
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/
Mark Fruehan
|
|
Director
|
|
April 14, 2022
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/
Richard Berliner,
|
|
Director
|
|
April 14, 2022
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/
Virginia Rose O’Meara
|
|
Director
|
|
April 14, 2022
|
|
|
|
|
|
|
70