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.
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.
AIADVERTISING,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIT)
| |
Preferred Stock | | |
Common Stock | | |
Additional Paid-in | | |
Common Stock | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Payable | | |
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.
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.
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.
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. |
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.
ASC Topic
820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the
lowest priority to unobservable inputs (level 3 measurements). These tiers include:
|
● |
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
|
● |
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
|
● |
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
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.
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:
December 31, 2021 |
|
|
|
AiAdvertising |
|
|
Total |
|
Domain name |
|
|
20,202 |
|
|
|
20,202 |
|
Total |
|
$ |
20,202 |
|
|
$ |
20,202 |
|
December 31, 2020 |
|
|
|
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.
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.
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.
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.
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.
None
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:
|
o | Expected 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. |
|
o | Expected 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. |
|
o | Limits to useful life – There was no legal, regulatory,
or contractual limitation to this intangible asset’s life. |
|
o | Historical experience – This asset does not require
an extension or renewal, in order for it to remain on our balance sheet. |
|
o | Effects 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. |
|
o | Maintenance 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.
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.
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.
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.
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.
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”.
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.
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.
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.
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.
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.
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.
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.
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 | | |
| | |
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.
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.
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.
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. |
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.
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.
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.