Filed pursuant to Rule 424(b)(3)
Under the Securities Act of 1933, as amended
Registration No. 333-267185
PROSPECTUS
1,000,000,000 Shares of Common Stock
This prospectus relates to the sale by the selling stockholder
named in this prospectus of AiAdvertising, Inc. (the
“Company”) of up to 1,000,000,000 shares of common stock, par value
$0.001 per share. We will not receive proceeds from the sale of the
shares by the selling stockholder. However, we may receive
aggregate gross proceeds of up to $10.0 million from the sale of
our common stock to the selling stockholder, pursuant to a purchase
agreement entered into with GHS Investments, LLC (“GHS”) on
March 28, 2022 as amended on July 28, 2022 (as amended, the “GHS
Purchase Agreement”), including $940,159 in gross proceeds we have
received to date and up to $9,059,841 we may receive once the
registration statement, of which this prospectus is a part, is
declared effective.
Our common stock is quoted on the OTC Pink under the symbol “AIAD.”
On August 30, 2022, the last reported sales price of our common
stock on the OTC Pink was $0.0077 per share.
The GHS Purchase Agreement provides that, upon the terms and
subject to the conditions and limitations set forth therein, the
Company may sell to GHS, in the Company’s discretion, up to
$10,000,000 of shares (“Purchase Shares”) of the Company’s common
stock. See “Purchase Agreement with GHS Investments, LLC” on page 1
of this prospectus for a description of the GHS Purchase
Agreement.
The selling stockholder will sell its Purchase Shares at prevailing
market prices or in privately negotiated transactions. We provide
more information about how the selling stockholder may sell its
Purchase Shares in the section titled “Plan of Distribution” on
page 18.
GHS is an underwriter within the meaning of the Securities Act of
1933, as amended, or the Securities Act, and any broker-dealers or
agents that are involved in selling the shares may be deemed to be
“underwriters” within the meaning of the Securities Act in
connection with such sales. In such event, any commissions received
by such broker-dealers or agents and any profit on the resale of
the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. We will bear all
costs, expenses and fees in connection with the registration of the
common stock. The selling stockholder will bear all commissions and
discounts, if any, attributable to its sales of our common
stock.
Investing in our securities is highly speculative and involves a
high degree of risk. You should carefully consider the risks and
uncertainties described under the heading “Risk Factors” beginning
on page 2 of this prospectus before making a decision to purchase
our securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We may amend or supplement this prospectus from time to time by
filing amendments or supplements as required. You should read the
entire prospectus and any amendments or supplements carefully
before you make your investment decision.
The date of this prospectus is September 9, 2022.
TABLE OF CONTENTS
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in this
prospectus and does not contain all of the information that you
should consider in making your investment decision. Before
investing in our common stock, you should carefully read this
entire prospectus, including our financial statements and the
related notes and the information set forth under the headings
“Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in each case
included elsewhere in this prospectus.
Unless the context otherwise requires, references to “we,”
“our,” “us,” “AiAdvertising,” or the “Company” in this prospectus
mean AiAdvertising, Inc., and its wholly-owned
subsidiaries.
Company Overview
AiAdvertising’s primary focus is to disrupt the digital advertising
world by offering a solution that harnesses the power of artificial
intelligence (AI) to enable marketers to increase productivity,
efficiency and performance.
Our mission is to partner with marketers who are looking to
challenge the “status quo” and empower them with a unified solution
to eliminate wasted spend, replace human guesswork with AI-enabled
predictions to provide accountability and provide transparency to
their marketing budget.
Our Campaign Performance Platform, harnesses the power of
Artificial Intelligence (AI) and Machine Learning (ML) to provide
an end -to end campaign management solution for digital
advertising.
About this Offering
Purchase Agreement with GHS Investments, LLC
On March 28, 2022, we entered into the GHS Purchase Agreement with
GHS, and on July 28, 2022, we entered into an amendment to the GHS
Purchase Agreement.
Pursuant to the GHS Purchase Agreement, the Company has the right,
in its sole discretion, subject to the conditions and limitations
in the GHS Purchase Agreement, to direct GHS, 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 GHS 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 GHS 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 GHS Purchase Agreement.
The number of Purchase Shares the Company will 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 GHS Purchase Agreement). The Purchase Price is defined as
the lower of (a) 90% of the lowest traded 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 Valuation Period is the ten consecutive business days
immediately preceding, but not including, the date a Purchase
Notice is delivered.
The GHS Purchase Agreement prohibits the Company from directing GHS
to purchase any shares of common stock if those shares, when
aggregated with all other shares of the Company’s common stock then
beneficially owned by GHS and its affiliates, would result in GHS
and its affiliates having beneficial ownership, at any single point
in time, of more than 4.99% of the then total outstanding shares of
the Company’s common stock.
There are no trading volume requirements or restrictions under the
GHS Purchase Agreement and the Company will control the timing and
amount of any sales of its common stock to GHS.
So long as an event of default, as defined in the GHS Purchase
Agreement, (all of which are outside the control of GHS) has
occurred and is continuing, the Company may not deliver a Purchase
Notice to GHS.
The GHS Purchase Agreement is for a term of twelve months but may
terminate earlier on the date that all of the Purchase Shares are
sold to GHS. The Company and GHS each have the right to terminate
the GHS Purchase Agreement at any time upon thirty days notice. In
the event of bankruptcy proceedings by or against the Company, the
GHS Purchase Agreement will automatically terminate without action
of any party.
Subject to the foregoing, actual sales of Purchase Shares to GHS
under the GHS Purchase Agreement will depend on a variety of
factors to be determined by us from time to time, including, among
others, market conditions, the trading price of the Common Stock
and determinations by us as to the appropriate sources of funding
for our company and its operations.
This prospectus covers the resale of up to 1,000,000,000 Purchase
Shares by GHS.
RISK
FACTORS
Any investment in our securities involves a high degree of risk.
Investors should carefully consider the risks described below, and
all of the information contained in this prospectus supplement,
before deciding whether to purchase the securities offered hereby.
Our business, financial condition, results of operations and
prospects could be materially and adversely affected by these
risks.
RISKS RELATED TO OUR BUSINESS
Issues in the use of AI in our offerings may result in
reputational harm or liability.
As with many disruptive innovations, AI presents risks and
challenges that could affect its adoption, and therefore our
business. AI algorithms may be flawed. Datasets may be insufficient
or contain biased information. Inappropriate or controversial data
practices by us or others could impair the acceptance of AI
solutions. These deficiencies could undermine the decisions,
predictions, or analysis AI applications produce, subjecting us to
competitive harm, legal liability, and brand or reputational harm.
Some AI scenarios present ethical issues. If we enable or offer AI
solutions that are controversial because of their impact on human
rights, privacy, employment, or other social issues, we may
experience brand or reputational harm.
We are subject to payment-related risks if customers dispute
or do not pay their invoices, and any decreases or significant
delays in payments could have a material adverse effect on our
business, results of operations and financial condition. These
risks may be heightened as a result of the COVID-19 pandemic
and resulting economic downturn.
We may become involved in disputes with our customers over the
operation of our platform, the terms of our agreements or our
billings for purchases made by them through our platform. In the
past, certain customers have sought to slow their payments to us or
been forced into filing for bankruptcy protection, resulting in
delay or cancelation of their pending payments to us. These
challenges have been exacerbated by the COVID-19 pandemic
and resulting economic impact, and a number of our customers are
experiencing financial difficulties and liquidity constraints. In
certain cases, customers have been unable to timely make payments,
and we have suffered losses. Certain of our contracts with
marketing agencies state that if their customer does not pay the
agency, the agency is not liable to us, and we must seek payment
solely from their customer, a type of arrangement called sequential
liability. Contracting with these agencies, which in some cases
have or may develop higher-risk credit profiles, may subject us to
greater credit risk than if we were to contract directly with the
customer.
If we are unable to collect customers’ fees on a timely basis or at
all, we could incur write-offs for bad debt, which could have a
material adverse effect on our results of operations for the
periods in which the write-offs occur. In the future, bad debt may
exceed reserves for such contingencies, and our bad debt exposure
may increase over time. Any increase in write-offs for bad debt
could have a materially negative effect on our business, financial
condition and operating results. Even if we are not paid by our
customers on time or at all, we may still be obligated to pay for
the inventory we have purchased for our customers’ marketing
campaigns, and consequently, our results of operations and
financial condition would be adversely impacted.
The reliability of some of our product solutions is dependent
on data and software from third-parties and the integrity and
quality of that data and software.
Some of the data and software that we use is licensed from
third-party data suppliers, and we are dependent upon our ability
to obtain necessary data licenses on commercially reasonable terms.
We could suffer material adverse consequences if our data suppliers
were to withhold their data from us. For example, data suppliers
could withhold their data from us if there is a competitive reason
to do so; if we breach our contract with a supplier; if they are
acquired by one of our competitors; if legislation is passed
restricting the use or dissemination of the data they provide; or
if judicial interpretations are issued restricting use of such
data. Additionally, we could terminate relationships with our data
suppliers if they fail to adhere to our data quality standards. If
a substantial number of data suppliers were to withdraw or withhold
their data from us, or if we sever ties with our data suppliers
based on their inability to meet our data standards, our ability to
provide products and services to our clients could be materially
adversely impacted, which could result in decreased revenues.
The reliability of our solutions depends upon the integrity and
quality of the data provided us by our clients and that which we
can license from third party providers. A failure in the integrity
or a reduction in the quality of our data could cause a loss of
customer confidence in our solutions, resulting in harm to our
brand, loss of revenue and exposure to legal claims. We may
experience an increase in risks to the integrity of our database
and quality of our data as we move toward real-time,
non-identifiable, consumer- powered data through our products. We
must continue to invest in our database to improve and maintain the
quality, timeliness and coverage of the data if we are to maintain
our competitive position. Failure to do so could result in a
material adverse effect on our business, growth and revenue
prospects.
Our business practices with respect to data and consumer
protection could give rise to liabilities or reputational harm as a
result of governmental regulation, legal requirements or industry
standards relating to consumer privacy, data protection and
consumer protection.
Federal, state and international laws and regulations govern the
collection, use, retention, sharing and security of data that we
collect. We strive to comply with all applicable laws, regulations,
self-regulatory requirements and legal obligations relating to
privacy, data protection and consumer protection, including those
relating to the use of data for marketing purposes. It is possible,
however, that these requirements may be interpreted and applied in
a manner that is inconsistent from one jurisdiction to another and
may conflict with other rules or our practices. We cannot assure
you that our practices have complied, comply, or will comply fully
with all such laws, regulations, requirements and obligations. Any
failure, or perceived failure, by us to comply with federal, state
or international laws or regulations, including laws and
regulations regulating privacy, data security, marketing
communications or consumer protection, or other policies,
self-regulatory requirements or legal obligations could result in
harm to our reputation, a loss in business, and proceedings or
actions against us by governmental entities, consumers, retailers
or others. We may also be contractually liable to indemnify and
hold harmless performance marketing networks or other third parties
from the costs or consequences of noncompliance with any laws,
regulations, self-regulatory requirements or other legal
obligations relating to privacy, data protection and consumer
protection or any inadvertent or unauthorized use or disclosure of
data that we store or handle as part of operating our business. Any
such proceeding or action, and any related indemnification
obligation, could hurt our reputation, force us to incur
significant expenses in defense of these proceedings, distract our
management, increase our costs of doing business and cause
consumers and retailers to decrease their use of our marketplace,
and may result in the imposition of monetary liability.
Furthermore, the costs of compliance with, and other burdens
imposed by, the data and privacy laws, regulations, standards and
policies that are applicable to the businesses of our clients may
limit the use and adoption of, and reduce the overall demand for,
our products.
A significant breach of the confidentiality of the information we
hold or of the security of our or our customers’, suppliers’, or
other partners’ computer systems could be detrimental to our
business, reputation and results of operations. Our business
requires the storage, transmission and utilization of data.
Although we have security and associated procedures, our databases
may be subject to unauthorized access by third parties. Such third
parties could attempt to gain entry to our systems for the purpose
of stealing data or disrupting the systems. We believe we have
taken appropriate measures to protect our systems from intrusion,
but we cannot be certain that advances in criminal capabilities,
discovery of new vulnerabilities in our systems and attempts to
exploit those vulnerabilities, physical system or facility
break-ins and data thefts or other developments will not compromise
or breach the technology protecting our systems and the information
we possess. Furthermore, we face increasing cyber security risks as
we receive and collect data from new sources, and as we and our
customers continue to develop and operate in cloud-based
information technology environments. In the event that our
protection efforts are unsuccessful, and we experience an
unauthorized disclosure of confidential information or the security
of such information or our systems are compromised, we could suffer
substantial harm. Any breach could result in one or more third
parties obtaining unauthorized access to our customers’ data or our
data, including personally identifiable information, intellectual
property and other confidential business information. Such a
security breach could result in operational disruptions that impair
our ability to meet our clients’ requirements, which could result
in decreased revenues. Also, whether there is an actual or a
perceived breach of our security, our reputation could suffer
irreparable harm, causing our current and prospective clients to
reject our products and services in the future and deterring data
suppliers from supplying us data. Further, we could be forced to
expend significant resources in response to a security breach,
including repairing system damage, increasing cyber security
protection costs by deploying additional personnel and protection
technologies, and litigating and resolving legal claims, all of
which could divert the attention of our management and key
personnel away from our business operations. In any event, a
significant security breach could materially harm our business,
financial condition and operating results.
Significant system disruptions, loss of data center capacity
or interruption of telecommunication links could adversely affect
our business and results of operations.
Our product platform is hosted and managed on Microsoft Azure Cloud
servers and takes full advantage of open standards for processing,
storage, security and big data technology. Significant system
disruptions, loss of data center capacity or interruption of
telecommunication links could adversely affect our business,
results of operations and financial condition. Our business is
heavily dependent upon highly complex data processing capability.
The ability of our platform hosts and managers to protect these
data centers against damage or interruption from fire, flood,
tornadoes, power loss, telecommunications or equipment failure or
other disasters is beyond our control and is critical to our
ability to succeed.
We need to protect our intellectual property or our operating
results may suffer.
Third parties may infringe our intellectual property and we may
suffer competitive injury or expend significant resources enforcing
our rights. As our business is focused on data-driven results and
analytics, we rely heavily on proprietary information technology.
Our proprietary portfolio consists of various intellectual property
including source code, trade secrets, and know-how. The extent to
which such rights can be protected is substantially based on
federal, state and common law rights as well as contractual
restrictions. The steps we have taken to protect our intellectual
property may not prevent the misappropriation of our proprietary
information or deter independent development of similar
technologies by others. If we do not enforce our intellectual
property rights vigorously and successfully, our competitive
position may suffer which could harm our operating results.
We could incur substantial costs and disruption to our
business as a result of any claim of infringement of another
party’s intellectual property rights, which could harm our business
and operating results.
From time to time, third parties may claim that one or more of our
products or services infringe their intellectual property rights.
We analyze and take action in response to such claims on a
case-by-case basis. Any dispute or litigation regarding patents or
other intellectual property could be costly and time-consuming due
to the complexity of our technology and the uncertainty of
intellectual property litigation, which could divert the attention
of our management and key personnel away from our business
operations. A claim of intellectual property infringement could
force us to enter into a costly or restrictive license agreement,
which might not be available under acceptable terms or at all, or
could subject us to significant damages or to an injunction against
development and sale of certain of our products or services.
We may be unable to maintain a competitive technology
advantage in the future.
Our ability to generate revenues is substantially based upon our
proprietary intellectual property that we own and protect through
trade secrets and agreements with our employees to maintain
ownership of any improvements to our intellectual property. Our
ability to generate revenues now and in the future is based upon
maintaining a competitive technology advantage over our
competition. We can provide no assurances that we will be able to
maintain a competitive technology advantage in the future over our
competitors, many of whom have significantly more experience, more
extensive infrastructure and are better capitalized than us.
We may not be able to integrate, maintain and enhance our
advertising solutions to keep pace with technological and market
developments.
The market for digital advertising solutions is characterized by
rapid technological change, evolving industry standards and
frequent introductions of new products and services. To keep pace
with technological developments, satisfy increasing publisher and
advertiser requirements, maintain the attractiveness and
competitiveness of our advertising solutions and ensure
compatibility with evolving industry standards and protocols, we
will need to anticipate and respond to varying product lifecycles,
regularly enhance our current advertising solutions and develop and
introduce new solutions and functionality on a timely basis. This
requires significant investment of financial and other resources.
For example, we will need to invest significant resources into
expanding and developing our platforms in order to maintain a
comprehensive solution. Ad technology platforms and other
technological developments may displace us or introduce an
additional intermediate layer between us and our customers and
digital media properties that could impair our relationships with
those customers.
If we default on our credit obligations, our operations may
be interrupted and our business and financial results could be
adversely affected.
Vendors extend us credit terms for the purchase of advertising
inventory. We currently have outstanding payables to existing
vendors. If we are unable to pay our publishers in a timely
fashion, they may elect to no longer sell us inventory to provide
for sale to advertisers. Also, it may be necessary for us to incur
additional indebtedness to maintain operations of the Company. If
we default on our credit obligations, our lenders and debt
financing holders may, among other things:
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require
repayment of any outstanding obligations or amounts drawn on our
credit facilities; |
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stop
delivery of ordered equipment; |
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discontinue
our ability to acquire inventory that is sold to
advertisers; |
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require
us to accrue interest at higher rates; or |
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require
us to pay significant damages. |
If some or all of these events were to occur, our operations may be
interrupted and our ability to fund our operations or obligations,
as well as our business, financial results, and financial
condition, could be adversely affected.
War, terrorism, other acts of violence or natural or manmade
disasters such as a global pandemic may affect the markets in which
the Company operates, the Company’s customers, the Company’s
delivery of products and customer service, and could have a
material adverse impact on our business, results of operations, or
financial condition.
The Company’s business may be adversely affected by instability,
disruption or destruction in the geographic regions in which it
operates, regardless of cause, including war, terrorism, riot,
civil insurrection or social unrest, and natural or manmade
disasters, including famine, food, fire, earthquake, storm or
pandemic events and spread of disease (including the recent
outbreak of the coronavirus commonly referred to as “COVID- 19”).
Such events may cause customers to suspend their decisions on using
the Company’s services and otherwise affect their ability to meet
their obligations to us by making payments on our existing
equipment leases, make it impossible to contact our customers and
potential customers as well as potential sources of future
financing, for our customers to visit our physical locations, and
give rise to sudden significant changes in regional and global
economic conditions and cycles that could interfere with our
existing business as well as our planned expansion into the
mobility business. These events also pose significant risks to the
Company’s personnel and to physical facilities and operations,
which could materially adversely affect the Company’s financial
results.
We have a history of losses and expect to continue to incur
losses.
We have experienced net losses and negative cash flows from
operating activities, and we expect such losses and negative cash
flows to continue in the foreseeable future. For the six
months ended June 30, 2022, we incurred a net loss of
$4,616,135. For the years ended December 31, 2021 and 2020, we
incurred net losses of $8,482,771 and $1,270,650,
respectively. We may never achieve
profitability.
We have a limited operating history, which may make it
difficult to evaluate our future prospects and may increase the
risk that we will not be successful.
We have a relatively short operating history and have been
delivering AIAD PLATFORM solutions, our proprietary audience-driven
business intelligence solution, since January 2018, and are now in
the process of building AIAD PLATFORM into a SaaS
(software-as-a-service) solution. As a result, it may be difficult
to evaluate in an investment in our stock. Furthermore, we operate
in an industry that is characterized by rapid technological
innovation, intense competition, changing customer needs and
frequent introduction of new products, technologies and services.
We have encountered, and we will continue to encounter, risks and
uncertainties frequently experienced by companies in evolving
industries. If our assumptions regarding these risks and
uncertainties, which we use to plan our business, are incorrect or
change in reaction to changes in the market, or we do not address
these risks successfully, our operating and financial results could
differ materially from our expectations, and our business could
suffer.
Our future success will depend in large part on our ability to,
among other things:
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market acceptance of our current and future
products and services; |
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improve the performance and capabilities of our
products; |
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manage the full automation of our AIAD PLATFORM
solution; |
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compete with other companies, custom development
efforts and open source initiatives that are currently in, or may
in the future enter, the market for our products; |
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technology and data center infrastructure,
enhancements to cloud architecture, improved disaster recovery
protection, increasing data security, compliance and operations
expenses; |
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data
center costs as customers increase the amount of data that is
available to our platform and the number of users on our
platform; |
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the
amount and timing of operating expenses, particularly sales and
marketing expenses, related to the maintenance and expansion of our
business, operations and infrastructure; |
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write-downs, impairment charges or unforeseen
liabilities in connection with intangible assets or
acquisitions; |
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our
ability to successfully manage any acquisitions; and |
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general economic and political conditions in our
domestic and international markets |
If we fail to address or manage these risks successfully, including
those associated with the challenges listed above as well as those
described elsewhere in this section, our business will be adversely
affected and our results of operations will suffer.
Our success depends on increasing the number and value of
enterprise sales transactions, which typically involve a longer
sales cycle, greater deployment challenges and additional support
and services than sales to individual purchasers of our
products.
Growth in our revenues and profitability depends in part on our
ability to complete more and larger enterprise sales transactions.
These larger transactions may involve significant customer
negotiation. Enterprise customers may undertake a significant
evaluation process, which can last from several months to a year or
longer. For example, in recent periods, excluding renewals, our
transactions over $100,000 have generally taken over three months
to close. Any individual transaction may take substantially longer
than three months to close. If our sales cycle were to lengthen in
this manner, events may occur during this period that affect the
size or timing of a purchase or even cause cancellations, which may
lead to greater unpredictability in our business and results of
operations. We will spend substantial time, effort and money on
enterprise sales efforts without any assurance that our efforts
will produce any sales.
The actual market for our products and services could be
significantly smaller than our estimates of our total potential
market opportunity, and if customer demand for our products and
services does not meet expectations, our ability to generate
revenue and meet our financial targets could be adversely
affected.
While we expect strong growth in the markets for our products, it
is possible that the growth in some or all of these markets may not
meet our expectations, or materialize at all. The methodology on
which our estimate of our total potential market opportunity
includes several key assumptions based on our industry knowledge,
market research, and customer experience. If any of these
assumptions proves to be inaccurate, then the actual market for our
products could be significantly smaller than our estimates of our
total potential market opportunity. If the customer demand for our
products or the adoption rate in our target markets does not meet
our expectations, our ability to generate revenue from customers
and meet our financial targets could be adversely affected.
If our new products and product enhancements do not achieve
sufficient market acceptance, our results of operations and
competitive position will suffer.
We spend substantial amounts of time and money to research and
develop new software and enhanced versions of our existing software
to incorporate additional features, improve functionality, function
in concert with new technologies or changes to existing
technologies and allow our customers to analyze a wide range of
data sources. When we develop a new product or an enhanced version
of an existing product, we typically incur expenses and expend
resources upfront to market, promote and sell the new offering.
Therefore, when we develop and introduce new or enhanced products,
they must achieve high levels of market acceptance in order to
justify the amount of our investment in developing and bringing
them to market.
Further, we may make changes to our software that our customers do
not find useful. We may also discontinue certain features, begin to
charge for certain features that are currently free or increase
fees for any of our features or usage of our software. We may also
face unexpected problems or challenges in connection with new
product or feature introductions.
Our new products or product enhancements, such as our AiAd
Platform, and changes to our existing software could fail to attain
sufficient market acceptance for many reasons, including:
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failure to predict market demand accurately in
terms of software functionality and capability or to supply
software that meets this demand in a timely fashion; |
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inability to operate effectively with the
technologies, systems or applications of our existing or potential
customers; |
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defects, errors or failures; |
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negative publicity about their performance or
effectiveness; |
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delays in releasing our new software or
enhancements to our existing software to the market; |
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the introduction or anticipated introduction of
competing products by our competitors; |
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an ineffective sales force; |
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poor business conditions for our end-customers,
causing them to delay purchases; and |
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the reluctance of customers to purchase software
incorporating open source software. |
In addition, because our products are designed to operate on and
with a variety of systems, we will need to continuously modify and
enhance our products to keep pace with changes in technology. We
may not be successful in either developing these modifications and
enhancements or in bringing them to market in a timely fashion.
If our new software or enhancements and changes do not achieve
adequate acceptance in the market, our competitive position will be
impaired, and our revenues could decline. The adverse effect on our
results of operations may be particularly acute because of the
significant research, development, marketing, sales and other
expenses we will have incurred in connection with the new software
or enhancements.
Real or perceived errors, failures or bugs in our software
could adversely affect our results of operations and growth
prospects.
Because our software is complex, undetected errors, failures or
bugs may occur, especially when new versions or updates are
released. Our software is often installed and used in large-scale
computing environments with different operating systems, system
management software, and equipment and networking configurations,
which may cause errors or failures of our software or other aspects
of the computing environment into which it is deployed. In
addition, deployment of our software into computing environments
may expose undetected errors, compatibility issues, failures or
bugs in our software. Despite testing by us, errors, failures or
bugs may not be found in our software until it is released to our
customers. Moreover, our customers could incorrectly implement or
inadvertently misuse our software, which could result in customer
dissatisfaction and adversely impact the perceived utility of our
products as well as our brand. Any of these real or perceived
errors, compatibility issues, failures or bugs in our software
could result in negative publicity, reputational harm, loss of or
delay in market acceptance of our software, loss of competitive
position or claims by customers for losses sustained by them. In
such an event, we may be required, or may choose, for customer
relations or other reasons, to expend additional resources in order
to help correct the problem. Alleviating any of these problems
could require significant expenditures of our capital and other
resources and could cause interruptions, delays or cessation of our
licensing, which could cause us to lose existing or potential
customers and could adversely affect our results of operations and
growth prospects.
Interruptions or performance problems associated with our
technology and infrastructure may adversely affect our business and
results of operations.
We may in the future experience performance issues due to a variety
of factors, including infrastructure changes, human or software
errors, website or third-party hosting disruptions or capacity
constraints due to a number of potential causes including technical
failures, cyber-attacks, security vulnerabilities, natural
disasters or fraud. If our security is compromised, our website is
unavailable or our users are unable to access our software within a
reasonable amount of time or at all, our business could be
negatively affected. Moreover, if our security measures, products
or services are subject to cyber-attacks that degrade or deny the
ability of users to access our website, products or services, our
products or services may be perceived as unsecure and we may incur
significant legal and financial exposure. In some instances, we may
not be able to identify the cause or causes of these performance
problems within an acceptable period of time. These cloud-based
products are hosted at third-party data centers that are not under
our direct control. If these data centers were to be damaged or
suffer disruption, our ability to provide these products to our
customers could be impaired and our reputation could be harmed.
In addition, it may become increasingly difficult to maintain and
improve our website performance, especially during peak usage times
and as our software becomes more complex and our user traffic
increases. Adverse consequences could include unanticipated system
disruptions, slower response times, degradation in level of
customer support and impaired quality of users’ experiences, and
could result in customer dissatisfaction and the loss of existing
customers. We expect to continue to make significant investments to
maintain and improve website performance and security and to enable
rapid and secure releases of new features and applications for our
software. To the extent that we do not effectively address capacity
constraints, upgrade our systems as needed and continually develop
our technology and network architecture to accommodate actual and
anticipated changes in technology, our business and results of
operations may be adversely affected.
Our use of open source software could negatively affect our
ability to sell our software and subject us to possible
litigation.
We use open source software in our software and expect to continue
to use open source software in the future. We may face claims from
others claiming ownership of, or seeking to enforce the license
terms applicable to such open source software, including by
demanding release of the open source software, derivative works or
our proprietary source code that was developed using such software.
These claims could also result in litigation, require us to
purchase a costly license or require us to devote additional
research and development resources to change our software, any of
which would have a negative effect on our business and results of
operations. In addition, if the license terms for the open source
code change, we may be forced to re-engineer our software or incur
additional costs. Finally, we cannot assure you that we have not
incorporated open source software into our software in a manner
that may subject our proprietary software to an open source license
that requires disclosure, to customers or the public, of the source
code to such proprietary software. Any such disclosure would have a
negative effect on our business and the value of our software.
We may require additional capital to fund our business and
support our growth..
We intend to continue to make substantial investments to fund our
business and support our growth. In addition, we may require
additional funds to respond to business challenges, including the
need to develop new features or enhance our software, improve our
operating infrastructure or acquire or develop complementary
businesses and technologies. As a result, we may need to engage in
equity or debt financings to provide the funds required for these
and other business endeavors. If we raise additional funds through
future issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences and
privileges superior to those of holders of our common stock. Any
debt financing that we may secure in the future could involve
restrictive covenants relating to our capital raising activities
and other financial and operational matters, which may make it more
difficult for us to obtain additional capital and to pursue
business opportunities, including potential acquisitions. We may
not be able to obtain such additional financing on terms favorable
to us, if at all. If we are unable to obtain adequate financing or
financing on terms satisfactory to us when we require it, our
ability to continue to support our business growth and to respond
to business challenges could be significantly impaired, and our
business may be adversely affected. In addition, our inability to
generate or obtain the financial resources needed may require us to
delay, scale back, or eliminate some or all of our operations,
which may have a material adverse effect on our business, operating
results, financial condition and prospects.
We are dependent on key personnel for our operations.
If those key personnel were to leave the Company, operations
may suffer.
Our performance is highly dependent on the continued services of
our executive officers and other key personnel, the loss of any of
whom could materially adversely affect our business. In
addition, we need to attract and retain other highly-skilled,
technical and managerial personnel for whom there is intense
competition. For example, if we are unable to hire or
continually train our employees to keep pace with the rapid and
continuing changes in technology and the markets we serve or
changes in the types of services our clients are demanding, we may
not be able to develop and deliver new services and solutions to
fulfill client demand. Our inability to attract and retain
qualified technical and managerial personnel could materially
adversely affect our ability to maintain and grow our business
significantly.
If labor costs for key personnel increase, the increase may
strain cash flows further.
Competition for labor could substantially increase our labor costs.
Although we seek to preserve the contractual ability to pass
through increases in labor costs to our clients, not all of our
current contracts provide us with this protection, and we may enter
into contracts in the future which limit or prohibit our ability to
pass through increases in labor costs to our clients. If we are
unable to pass costs through to our clients, our financial
condition may be materially affected.
Though the Company incurs significant costs while attempting
to acquire other businesses, there is no guarantee that such
transactions will be consummated
The Company incurs significant costs associated with both searching
for companies to acquire and in closing a transaction. These
costs include, but are not limited to, airfare, legal, audit and
consulting fees. Because the merger/acquisition is not only
dependent on both parties being dedicated to the completion of the
transaction, but also the operational fit must be right, we may not
close on all transactions we pursue. Incomplete transactions
may result in significant capital out flows with no benefit to the
Company.
We may become a party to litigation involving intellectual
property rights, employment violations, breach of contract, or
other lawsuit, which may place a burden on management and cash
flows.
Third parties may, in the future, assert that our business, the
technologies we use, or the business practices we use, infringe on
their intellectual property rights or employment rights or that we
are in violation of other rights or laws. Defending the
Company against such actions may require significant time of
management and substantial amounts of money. We cannot
predict whether third parties will assert claims in the future or
whether any future claims will prevent us from offering our
products or services. If we are found to be in the wrong, we
may be required to pay a significant amount of money which could
include damages and attorneys’ fees.
A portion of our services are provided by third parties which
we do not control. Such third parties may provide poor
service which may harm the relationships we have with our
clients.
We currently, and may in the future, rely on third party providers
to provide various portions of our service offering. If
our business relationship with a third-party provider is negatively
affected, or is terminated, we might not be able to deliver the
corresponding service offering to our clients, which could cause us
to lose clients and future business, reducing our revenues.
Any such failure on the part of the third party, may damage
our reputation and otherwise result in a material adverse effect
upon our business and financial condition.
We target a global marketplace and compete in a rapidly
evolving and highly competitive industry which makes our future
operating results difficult to predict. If we are unable to enhance
products or acquire new products that respond to rapidly changing
customer requirements, technological developments or evolving
industry standards, our long-term revenue growth will be
harmed.
We target the global business intelligence, or BI, marketplace,
which is an industry characterized by rapid technological
innovation, changing customer needs, substantial competition,
evolving industry standards and frequent introductions of new
products, enhancements and services. Any of these factors can
render our existing software products and services obsolete or
unmarketable. We believe that our future success will depend in
large part on our ability to successfully:
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support current and future releases of popular
hardware, operating systems, computer programming languages,
databases and software applications |
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develop new products and product enhancements
that achieve market acceptance in a timely manner |
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maintain technological competiveness and meet an
expanding range of customer requirements. |
As we encounter increasing competitive pressures, we will likely be
required to modify, enhance, reposition or introduce new products
and service offerings. We may not be successful in doing so in a
timely, cost-effective and appropriately responsive manner, or at
all, which may have an adverse effect on our business, quarterly
operating results and financial condition. All of these factors
make it difficult to predict our future operating results which may
impair our ability to manage our business.
Our success is highly dependent on our ability to penetrate
the existing market for business analytics software as well as the
growth and expansion of that market.
Although the overall market for business analytics software is
well-established, the market for business analytics software like
ours is relatively new, rapidly evolving and unproven. Our future
success will depend in large part on our ability to penetrate the
existing market for business analytics software, as well as the
continued growth and expansion of what we believe to be an emerging
market for analytics solutions that are faster, easier to adopt,
easier to use and more focused on self-service capabilities. It is
difficult to predict customer adoption and renewal rates, customer
demand for our products, the size, growth rate and expansion of
these markets, the entry of competitive products or the success of
existing competitive products. Our ability to penetrate the
existing market and any expansion of the emerging market depends on
a number of factors, including the cost, performance and perceived
value associated with our products, as well as customers’
willingness to adopt a different approach to data analysis.
Furthermore, many potential customers have made significant
investments in legacy business analytics software systems and may
be unwilling to invest in new software. If we are unable to
penetrate the existing market for business analytics software, the
emerging market for self-service analytics solutions fails to grow
or expand, or either of these markets decreases in size, our
business, results of operations and financial condition would be
adversely affected.
Our financial results would suffer if the market for BI
software does not continue to grow or if we are unable to further
penetrate this market.
Resistance from consumer and privacy groups to increased commercial
collection and use of data on spending patterns and other personal
behavior and governmental restrictions on the collection and use of
personal data may impair the further growth of this market, as may
other developments. We cannot be sure that this market will
continue to grow or, even if it does grow, that customers will
purchase our software products or services. We have spent, and
intend to keep spending, considerable resources to educate
potential customers about BI software in general and our software
products and services in particular. However, we cannot be sure
that these expenditures will help our software products achieve any
additional market acceptance or enable us to attract new customers
or new users at existing customers. A reduction in the demand for
our software products and services could be caused by, among other
things, lack of customer acceptance, weakening economic conditions,
competing technologies and services or decreases in software
spending. If the market and our market share fail to grow or grow
more slowly than we currently expect, our business, operating
results and financial condition would be harmed.
A large portion of our revenue is concentrated with a small
number of clients.
For the six months ended June 30, 2022, four clients represented
45% of our service fee revenue. For the year ended December 31,
2021, three clients represented approximately 47% of our service
fee revenue. Termination, reduction, or delay of our services under
a contract could result from factors unrelated to our work product
or the progress of the project such as factors related to business
or financial conditions of the client, changes in client strategies
or the domestic or global economy generally. Termination,
reduction or substantial delay of services any significant client,
or nonrenewal of any significant client contract, or the nonpayment
of a material amount of our service fees by a significant client,
could have a material adverse effect upon our business, results of
operation and financial condition.
If we do not accurately price our fixed fee projects, the
Company may suffer from decreased cash flows.
When making a proposal for, or managing, a fixed-price engagement,
we rely on our estimates of costs and timing for delivering our
services, which may be based on limited data and could be
inaccurate. If we do not accurately estimate our costs and
the timing for completion of a fixed-price project, the contract
for such a project could prove unprofitable or yield a profit
margin that is lower than expected. Losses, if any, on
fixed-price contracts are recognized when the loss is determined.
Any increased or unexpected costs or unanticipated delays in
connection with the performance of fixed-price contracts, including
delays caused by factors outside of our control, could make these
contracts less profitable or unprofitable and may affect the amount
of revenue, profit, and profit margin reported in any period.
Our industry is dependent on quickly evolving technologies
and knowledge. If we do not maintain proper technology or
knowledge, then our operations may be adversely
affected.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our services and the
underlying network infrastructure. If we are unable to adapt
to changing market conditions, client requirements or emerging
industry standards, our business could be adversely affected. The
internet and e-commerce environments are characterized by rapid
technological change, changes in user requirements and preferences,
frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and
practices that could render our technology and systems obsolete.
We must continue to address the increasingly sophisticated
and varied needs of our clients and respond to technological
advances and emerging industry standards and practices on a
cost-effective and timely basis.
In addition, many competitors expend a considerably greater amount
of funds on their research and development programs, and those that
do not may be acquired by larger companies that would allocate
greater resources to competitors’ research and development
programs. If we fail to maintain adequate research and development
resources or compete effectively with the research and development
programs of competitors, our business could be harmed. Our ability
to grow is also subject to the risk of future disruptive
technologies. If new technologies emerge that are able to deliver
business intelligence solutions at lower prices, more efficiently,
more conveniently or more securely, such technologies could
adversely affect our ability to compete.
We may not realize the anticipated benefits of past or future
acquisitions, and integration of these acquisitions may disrupt our
business and management.
Our growth strategy is dependent on the success of our completed
acquisitions and in the future we may acquire additional companies,
products or technologies or enter into joint ventures or other
strategic initiatives. We may not realize the anticipated benefits
of these acquisitions or any other future acquisition, and any
acquisition has numerous risks. These risks include the
following:
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difficulty in assimilating the
operations and personnel of the acquired company; |
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difficulty in effectively
integrating the acquired technologies or products with our current
technologies; |
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difficulty in maintaining controls,
procedures and policies during the transition and
integration; |
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disruption of our ongoing business
and distraction of our management and employees from other
opportunities and challenges due to integration issues; |
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inability to retain key technical
and managerial personnel of the acquired business; |
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inability to retain key customers,
vendors and other business partners of the acquired
business; |
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inability to achieve the financial
and strategic goals for the acquired and combined
businesses; |
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incurring acquisition-related costs
or amortization costs for acquired intangible assets that could
impact our operating results; |
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potential failure of the due
diligence processes to identify significant issues with product
quality, intellectual property infringement and other legal and
financial liabilities, among other things; and |
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potential inability to assert that
internal controls over financial reporting are
effective. |
Mergers and acquisitions of companies are inherently risky and, if
we do not complete the integration of acquired businesses
successfully and in a timely manner, we may not realize the
anticipated benefits of the acquisitions to the extent anticipated,
which could adversely affect our business, financial condition or
results of operations.
We are subject to governmental laws, regulation and other
legal obligations, particularly those related to privacy, data
protection and information security, and any actual or perceived
failure to comply with such obligations could impair our efforts to
maintain and expand our customer base, causing our growth to be
limited and harming our business.
We receive, store and process personal information and other data
from and about customers in addition to our employees and services
providers. Also, in connection with future feature offerings, we
may receive, store and process additional types of data, including
personally identifiable information, related to end consumers. Our
handling of data is subject to a variety of laws and regulations,
including regulation by various government agencies, such as the
U.S. Federal Trade Commission, or FTC, and various state, local and
foreign agencies. Our data handling also is subject to contractual
obligations and may be deemed to be subject to industry standards,
including certain industry standards that we undertake to comply
with.
The U.S. federal and various state and foreign governments have
adopted or proposed limitations on the collection, distribution,
use and storage of data relating to individuals, including the use
of contact information and other data for marketing, advertising
and other communications with individuals and businesses. In the
United States, various laws and regulations apply to the
collection, processing, disclosure, and security of certain types
of data. Additionally, the FTC and many state attorneys general are
interpreting federal and state consumer protection laws as imposing
standards for the online collection, use, dissemination and
security of data. The laws and regulations relating to privacy and
data security are evolving, can be subject to significant change
and may result in ever-increasing regulatory and public scrutiny
and escalating levels of enforcement and sanctions.
Any failure or perceived failure by us to comply with laws,
regulations, policies, legal or contractual obligations, industry
standards, or regulatory guidance relating to privacy, data
protection, information security, marketing or consumer
communications may result in governmental investigations and
enforcement actions, litigation, fines and penalties or adverse
publicity, and could cause our customers and partners to lose trust
in us, which could have an adverse effect on our reputation and
business. We expect that there will continue to be new proposed
laws, regulations and industry standards relating to privacy, data
protection, marketing, consumer communications and information
security in the United States, the European Union and other
jurisdictions, and we cannot determine the impact such future laws,
regulations and standards may have on our business. Future laws,
regulations, standards and other obligations or any changed
interpretation of existing laws or regulations could impair our
ability to develop and market new features and maintain and grow
our customer base and increase revenue. Future restrictions on the
collection, use, sharing or disclosure of data or additional
requirements for express or implied consent of our customers,
partners or end consumers for the use and disclosure of such
information could require us to incur additional costs or modify
our platform, possibly in a material manner, which we may be unable
to achieve in a commercially reasonable manner or at all, and which
could limit our ability to develop new features. If our policies,
procedures, or measures relating to privacy, data protection,
information security, marketing, or customer communications fail,
or are perceived as failing, to comply with laws, regulations,
policies, legal obligations or industry standards, we may be
subject to governmental enforcement actions, litigation, regulatory
investigations, fines, penalties and negative publicity and could
cause our application providers, customers and partners to lose
trust in us, which could materially affect our business, operating
results and financial condition.
Future acquisitions may include an equity component that may
dilute the positions of current stockholders.
We have traditionally used our equity to finance our acquisitions.
As we search for additional companies to acquire, the
components of the purchase price may include a combination of cash,
debt and equity. The issuance of a substantial amount of
equity may have a dilutive effect on our current shareholders upon
such equity being deemed free-trading. This dilution may
result in lower market prices, which may limit an investor’s
ability to obtain a return on their investment.
In addition, the incurrence of debt could have a variety of
negative effects, including:
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default and foreclosure on our
assets if our operating revenues are insufficient to repay our debt
obligations; |
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acceleration of our obligations to
repay the indebtedness even if we make all principal and interest
payments when due if we breach certain covenants that require the
maintenance of certain financial ratios or reserves without a
waiver or renegotiation of that covenant; |
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our immediate payment of all
principal and accrued interest, if any, if the debt security is
payable on demand; |
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our inability to obtain necessary
additional financing if the debt security contains covenants
restricting our ability to obtain such financing while the debt
security is outstanding; |
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increased vulnerability to adverse
changes in general economic, industry and competitive conditions
and adverse changes in government regulation; and |
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limitations on our ability to
borrow additional amounts for expenses, capital expenditures,
acquisitions, debt service requirements, execution of our strategy
and other purposes and other disadvantages compared to our
competitors who have less debt. |
RISKS RELATED TO OUR COMMON STOCK
Due to the low price and volume of our stock, a shareholder
may be unable to sell shares, or may lose money on their
investment.
The trading price of our common stock may be subject to wide
fluctuations in response to quarter-to-quarter fluctuations in
operating results, announcements of material adverse events,
general conditions in our industry or the public marketplace and
other events or factors, including the thin trading of our common
stock. In addition, stock markets have experienced extreme price
and trading volume volatility in recent years. This volatility has
had a substantial effect on the market prices of securities of many
technology-related companies for reasons frequently unrelated to
the operating performance of the specific companies. These broad
market fluctuations may adversely affect the market price of our
common stock. In addition, if our operating results differ from our
announced guidance or the expectations of equity research analysts
or investors, the price of our common stock could decrease
significantly.
Our principal stockholders, officers and directors own a
substantial portion of our outstanding common
stock.
Our principal stockholders, officers and directors, in the
aggregate, beneficially own approximately 35% of our outstanding
common stock. As a result, these stockholders acting together, have
the ability to have a substantial level of influence over matters
submitted to the Company’s stockholders for approval, including the
election of directors and approval of significant corporate
transactions. In addition, sales of significant amounts of shares
held by our principal stockholders, directors and executive
officers, or the prospect of these sales, could adversely affect
the market price of our common stock. Their stock ownership may
discourage a potential acquirer from making a tender offer or
otherwise attempting to obtain control of the Company, which could
deprive our stockholders of an opportunity to receive a premium for
their capital stock as part of a sale of our company and might
ultimately affect the market price of our common stock.
Our common stock is subject to the “penny stock” rules of the
sec and the trading market in our securities is limited, which
makes transactions in our stock cumbersome and may reduce the value
of an investment in our stock.
The Securities and Exchange Commission (the “SEC”) has adopted Rule
15g-9 which establishes the definition of a “penny stock,” for the
purposes relevant to us, as any equity security that has a market
price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. For any
transaction involving a penny stock, unless exempt, the rules
require:
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that a broker or dealer approve a person’s
account for transactions in penny stocks; and |
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the broker or dealer receives from the investor a
written agreement to the transaction, setting forth the identity
and quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny
stocks, the broker or dealer must:
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obtain financial information and investment
experience objectives of the person; and |
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make a reasonable determination that the
transactions in penny stocks are suitable for that person and the
person has sufficient knowledge and experience in financial matters
to be capable of evaluating the risks of transactions in penny
stocks. |
The broker or dealer must also deliver, prior to any transaction in
a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which:
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sets forth the basis on which the broker or
dealer made the suitability determination; and |
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that the broker or dealer received a signed,
written agreement from the investor prior to the
transaction. |
Generally, brokers may be less willing to execute transactions in
securities subject to the “penny stock” rules. This may make it
more difficult for investors to dispose of our common stock and
cause a decline in the market value of our stock
We have never paid dividends and have no plans to pay
dividends in the future. As a result, our common stock may be less
valuable because a return on an investor’s investment will only
occur if our stock price appreciates.
Holders of shares of our common stock are entitled to receive such
dividends as may be declared by our Board of Directors. To date, we
have paid no cash dividends and we do not expect to pay cash
dividends in the foreseeable future. We intend to retain future
earnings, if any, to provide funds for operations of our business.
Therefore, any return investors in will be in the form of
appreciation, if any, in the market value of our shares of common
stock. There can be no assurance that shares of our common stock
will appreciate in value or even maintain the price at which our
stockholders have purchased their shares.
There is a limited trading market for our common stock, and
investors may find it difficult to buy and sell our
shares.
Our common stock is not listed on any national securities exchange.
Accordingly, investors may find it more difficult to buy and sell
our shares than if our common stock was traded on an exchange.
Although our common stock is quoted on the OTC Pink, it is an
unorganized, inter-dealer, over-the-counter market which provides
significantly less liquidity than the Nasdaq Capital Market or
other national securities exchange. Further, there is limited
trading volume in our common stock, and any significant trading
volume in our common stock may not be sustained. These factors may
have an adverse impact on the trading and price of our common
stock
We have a substantial number of convertible securities
outstanding. The exercise of our outstanding warrants/options and
conversion of our outstanding convertible notes can have a dilutive
effect on our common stock.
We have a substantial number of convertible securities outstanding.
The exercise of our outstanding options and convertible preferred
stock can have a dilutive effect on our common stock. As of June
30, 2022, we had (i) outstanding options to purchase approximately
890 million shares of our common stock at a weighted average
exercise price of $0.0093 per share, (ii) outstanding warrants to
purchase approximately 163 million shares of our common stock at a
weighted average exercise price of $0.0048 per share (ii)
outstanding shares of our Series, A, B, C, D, E, and G Preferred
Stock that, upon conversion without regard to any beneficial
ownership limitations or advance conversion notice, would provide
the holders with an aggregate of approximately 967 million shares
of our common stock. The issuance of shares of common stock upon
exercise of outstanding options or conversion of preferred stock
could result in substantial dilution to our stockholders, which may
have a negative effect on the price of our common stock.
You may experience future dilution as a result of this
offering or future equity offerings.
We are registering for resale 1,000,000,000 shares that we may sell
to GHS under the GHS Purchase Agreement. Sales of shares
of our common stock under the GHS Purchase Agreement may cause the
trading price of our common stock to decline.
Management will have broad discretion as to the use of any
proceeds received under the GHS Purchase Agreement and we may not
use the proceeds effectively.
Our management will have broad discretion as to the application of
any proceeds received from GHS under the GHS Purchase
Agreement and could spend the proceeds in ways that do not
necessarily improve our operating results or enhance the value of
our common stock.
CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Such
forward-looking statements include those that express plans,
anticipation, intent, contingency, goals, targets or future
development and/or otherwise are not statements of historical fact.
These forward-looking statements are based on our current
expectations and projections about future events and they are
subject to risks and uncertainties known and unknown that could
cause actual results and developments to differ materially from
those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by
terminology, such as “expects”, “anticipates”, “intends”,
“estimates”, “plans”, “potential”, “possible”, “probable”,
“believes”, “seeks”, “may”, “will”, “should”, “could” or the
negative of such terms or other similar
expressions. Accordingly, these statements involve estimates,
assumptions and uncertainties that could cause actual results to
differ materially from those expressed in them. Any
forward-looking statements are qualified in their entirety by
reference to the factors discussed throughout this prospectus.
You should read this prospectus and the documents that we reference
herein and have filed as exhibits to the registration statement, of
which this prospectus is part, completely and with the
understanding that our actual future results may be materially
different from what we expect. You should assume that the
information appearing in this prospectus is accurate as of the date
on the front cover of this prospectus only. Because the risk
factors referred to above could cause actual results or outcomes to
differ materially from those expressed in any forward-looking
statements made by us or on our behalf, you should not place undue
reliance on any forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is
made, and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on
which the statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it
is not possible for us to predict which factors will arise. In
addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. We qualify all of the
information presented in this prospectus, and particularly our
forward-looking statements, by these cautionary statements.
USE OF
PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by GHS. We will not receive
any proceeds upon the sale of shares by GHS. However, we may
receive gross proceeds of up to $10 million (and net proceeds of
approximately $9,765,000) under the GHS Purchase Agreement
(including $940,159 in gross proceeds that we have received to
date). We expect to use the net proceeds from the sale of the
shares under the GHS Purchase Agreement for general corporate
purposes, including working capital. However, we cannot guarantee
that we will receive any additional proceeds in connection with the
GHS Purchase Agreement because we may be unable or choose not to
issue and sell any additional securities pursuant to the GHS
Purchase Agreement. Because of this, we have not determined the
amount of proceeds to be used specifically for any particular
purpose or the timing of any expenditures. Accordingly, management
will retain broad discretion and flexibility in applying the
proceeds. Pending the use of proceeds as described above, we plan
to invest the net proceeds that we receive in short-term and
intermediate-term interest-bearing obligations, investment-grade
investments, certificates of deposit or direct or guaranteed
obligations of the U.S. government.
SELLING
STOCKHOLDER
This prospectus relates to the resale from time to time by the
selling stockholder identified herein of up to an aggregate of
1,000,000,000 shares of our common stock.
The Purchase Shares are being registered to permit public sales of
such securities, and the selling stockholder may offer the Purchase
Shares for resale from time to time pursuant to this prospectus.
The selling stockholder may also sell, transfer or otherwise
dispose of all or a portion of their Purchase Shares in
transactions exempt from the registration requirements of the
Securities Act or pursuant to another effective registration
statement covering the sale of such securities.
The following table sets forth, based on information provided to us
by the selling stockholder or known to us, the name of the selling
stockholder, and the number of shares of our common stock
beneficially owned by the selling stockholder before and after this
offering. The number of shares owned are those beneficially owned,
as determined under the rules of the SEC, and the information is
not necessarily indicative of beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes any
shares of common stock as to which a person has sole or shared
voting power or investment power and any shares of common stock
that the person has the right to acquire within 60 days through the
exercise of any option, warrant or right, through conversion of any
security or pursuant to the automatic termination of a power of
attorney or revocation of a trust, discretionary account or similar
arrangement. The selling stockholder is not a broker-dealer or an
affiliate of a broker-dealer. The selling stockholder has not had
any material relationship with us or any of our predecessors or
affiliates within the past three years.
We have assumed all of the Purchase Shares reflected offered
hereunder will be sold from time to time in the offering covered by
this prospectus. Because the selling stockholder may offer all or
any portions of the Purchase Shares listed in the table below, no
estimate can be given as to the amount of those Purchase Shares
covered by this prospectus that will be held by the selling
stockholder upon the termination of the offering.
GHS will be deemed to be an underwriter within the meaning of the
Securities Act. Any profits realized by the selling stockholder may
be deemed to be underwriting commissions.
Selling Stockholder |
|
Number of
Shares
Beneficially
Owned Prior
to Offering |
|
|
Maximum Number of
Shares
Offered |
|
|
Number of
Shares
Beneficially
Owned After
Offering (1) |
|
|
Percentage of
Shares
Owned After
Offering |
|
GHS Investments,
LLC |
|
|
0 |
|
|
|
1,000,000,000 |
|
|
|
0 |
|
|
|
-- |
|
(1) |
Assumes that all of the Purchase
Shares held by the selling stockholder covered by this prospectus
are sold and that the selling stockholder acquires no additional
shares of common stock before the completion of this offering.
However, as the selling stockholder can offer all, some, or none of
their Purchase Shares, no definitive estimate can be given as to
the number of Purchase Shares that the selling stockholders will
ultimately offer or sell under this prospectus. Mark Grober is a
member of GHS who may be deemed to be a beneficial owner of common
stock held by GHS. Mr. Grober disclaims beneficial ownership of the
common stock held by GHS. The address of GHS is 420 Jericho
Turnpike, Suite 102, Jericho, NY 11753. |
PLAN OF
DISTRIBUTION
The selling stockholder may, from time to time, sell any or all of
its shares of Company common stock on OTC Pink or any other stock
exchange, market officers existing as of the time of such repeal or
modification trading facility on which the shares of our common
stock are traded, or in private transactions. These sales may be at
fixed prices, prevailing market prices at the time of sale, at
varying prices, or at negotiated prices. The selling stockholder
may use any one or more of the following methods when selling
shares:
|
● |
ordinary brokerage transactions and transactions
in which the broker-dealer solicits purchasers; |
|
● |
block
trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction; |
|
● |
purchases by a broker-dealer as principal and
resale by the broker-dealer for its account; |
|
● |
privately negotiated transactions; |
|
● |
broker-dealers may agree with the selling
stockholders to sell a specified number of such shares at a
stipulated price per share; or |
|
● |
a
combination of any such methods of sale. |
Additionally, broker-dealers engaged by the selling stockholder may
arrange for other brokers-dealers to participate in sales.
Broker-dealers may receive commissions or discounts from the
selling stockholder (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this
prospectus, in the case of an agency transaction not in excess of a
customary brokerage commissions.
GHS is an underwriter within the meaning of the Securities Act, and
any broker-dealers or agents that are involved in selling the
shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. Any commissions
received by such broker-dealers or agents, and any profit on the
resale of the shares purchased by them, may be deemed to be
underwriting commissions or discounts under the Securities Act. GHS
has informed us that it does not have any written or oral agreement
or understanding, directly or indirectly, with any person to
distribute the Company’s common stock.
Discounts, concessions, commissions and similar selling expenses,
if any, attributable to the sale of shares will be borne by the
selling stockholder. The selling stockholder may agree to indemnify
any agent, dealer, or broker-dealer that participates in
transactions involving sales of the shares if liabilities are
imposed on that person under the Securities Act.
We are required to pay certain fees and expenses incurred by us
incident to the registration of the shares covered by this
prospectus. We will not receive any proceeds from the resale of any
of the shares of our common stock by the selling stockholder. We
will receive proceeds from the sale of our common stock to GHS
under the GHS Purchase Agreement. Neither the GHS Purchase
Agreement with GHS nor any rights of the parties under the GHS
Purchase Agreement may be assigned or delegated to any other
person.
The Purchase Shares will be sold only through registered or
licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the Purchase
Shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is
complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Purchase Shares may not
simultaneously engage in market making activities with respect to
the common stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the distribution. In
addition, the selling stockholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of
purchases and sales of shares of the common stock by the selling
stockholder or any other person. We will make copies of this
prospectus available to the selling stockholder.
DESCRIPTION OF
SECURITIES
The authorized capital stock of the Company consists of
10,000,000,000 shares of common stock, par value $0.001 per share,
and 5,000,000 shares of preferred stock, par value $0.001 per
share, 10,000 of which are designated Series A Preferred Stock,
25,000 of which are designated as Series B Preferred Stock, 25,000
of which are designated as Series C Preferred Stock, 90,000 of
which are designated as Series D Preferred Stock, 10,000 of which
are designated as Series E Preferred Stock, 800,000 of which are
designated as Series F Preferred Stock, 2,600 of which are
designated as Series G Preferred Stock, and 1,000 shares of which
are designated Series H Preferred Stock. The authorized and
unissued shares of common stock and the authorized and undesignated
shares of preferred stock are available for issuance without
further action by our stockholders, unless such action is required
by applicable law or the rules of any stock exchange on which our
securities may be listed. The board of directors is authorized,
subject to any limitations prescribed by law, without further vote
or action by our stockholders, to issue from time to time shares of
preferred stock in one or more series. Each such series of
preferred stock shall have such number of shares, designations,
preferences, voting powers, qualifications and special or relative
rights or privileges as determined by our board of directors, which
may include, among others, dividend rights, voting rights,
liquidation preferences, conversion rights and preemptive rights.
Issuance of preferred stock by our board of directors may result in
such shares having dividend and/or liquidation preferences senior
to the rights of the holders of our common stock and could dilute
the voting rights of the holders of our common stock.
Holders of the Company’s common stock are entitled to one vote for
each share on all matters submitted to a stockholder
vote. Holders of common stock do not have cumulative voting
rights. Therefore (subject to the rights of the holders of any
outstanding preferred stock), holders of a majority of the shares
of common stock voting for the election of directors can elect all
of the directors to our Board of Directors. Holders of the
Company’s common stock representing a majority of the voting power
of the Company’s capital stock issued, outstanding and entitled to
vote, represented in person or by proxy, are necessary to
constitute a quorum at any meeting of stockholders. A vote by
the holders of a majority of the Company’s outstanding shares is
required to effectuate certain fundamental corporate changes such
as a merger or an amendment to the Company’s articles of
incorporation.
Holders of the Company’s common stock are entitled to share in all
dividends that the Board of Directors, in its discretion, declares
from legally available funds. In the event of a liquidation,
dissolution or winding up, each outstanding share entitles its
holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock,
if any, having preference over the common stock. The Company’s
common stock has no pre-emptive rights, no conversion rights, and
there are no redemption provisions applicable to the Company’s
common stock.
DESCRIPTION OF
BUSINESS
General
ABOUT US-
AiAdvertising’s primary focus is to disrupt the digital advertising
world by offering a solution that harnesses the power of artificial
intelligence (AI) to enable marketers to increase productivity,
efficiency and performance.
OUR MISSION-
Is to partner with marketers who are looking to challenge the
“status quo” and empower them with a unified solution to eliminate
wasted spend, replace human guesswork with AI-enabled predictions
to provide accountability and provide transparency to their
marketing budget.
OURSOLUTION-
Our proprietary software empowers marketers by intelligently
automating data- driven, repetitive tasks, and improving their
ability to make predictions at scale.
What is AI (Artificial Intelligence)?
AI is computer science field that enables computer software to
perform human-like intelligence tasks, like speech recognition,
image recognition, reasoning, decision making, and learning. AI
learns through observation and interaction with the world. It
learns, for example, by observing humans interact with objects and
people, by observing the objects themselves, and by interacting
with humans.
AI isn’t magic; it’s math. Very advanced math that can help
machines perform well-defined intelligence
tasks better than humans. AI powers everything from
self-driving cars to Amazon recommendations to image recognition
that tags your friends on Facebook.
AI is an umbrella term. It encompasses many different subfields and
technologies, including neural networks, natural language
processing (NLP), natural language generation (NLG), and deep
learning.
Machine learning is one of these subfields.
What is machine learning?
Machine learning is AI where the computer software is tasked with
learning without being explicitly programmed. An AI system that
uses machine learning is not always explicitly programmed with the
rules of how to learn. Instead, it is allowed to learn through a
combination of instruction from humans and experimentation on its
own.
Over time, an AI system using machine learning can get better at
the task it was built to do. It can even find its own approaches to
completing a task that humans never taught it or intended it to
learn. This is why there is so much excitement around AI that uses
machine learning:
Unlike traditional software, which has to be manually updated by
programmers, AI with machine learning can become smarter on its
own. It can improve its performance on tasks over time, which
can create powerful results for individuals and companies.
What is the difference between AI and machine learning?
Machine learning is always a type of AI, but AI is not always
machine learning. The difference lies in the ability of an AI
system to become smarter on its own. If AI can teach itself without
explicit human training and get better over time, then it’s true
machine learning. If it can’t, then some may still call it
artificial intelligence, but it’s more like intelligent automation
with a narrow application. It can still solve problems that require
human intelligence.
The AIAD Platform Features
Our software platform harnesses the power of machine learning and
artificial intelligence to eliminate guesswork, predict what works,
and prove advertising’s impact on financial results. Key features
of our platform include:
Alignment - We start with the end in mind and use a
comprehensive discovery process to outline goals and key
performance indicators (KPIs) to connect them to revenue targets.
By aligning on the desired outcomes, our platform renders marketing
and content calendars built upon the defined goals and
objectives.
Insights - AI Data Services inventories and aggregates data
from all of a client’s tools, such as customer relationship
management (CRM), sales, marketing, accounting, and customer
service tools into a unified data warehouse where it is cleaned,
organized, and tagged. This allows the artificial intelligence in
our platform to segment customers and prospective customers by
revealing patterns, signals, and insights to draw commonalities
between points and grouping them into personas (fictional
characters used to represent larger groups that share
similarities). Once these audiences are segmented, we use
unique engagement predictors leveraging psychographic models to
identify motivations, behaviors, influences, and interests. These
insights inform the type of creative assets these audience segments
will most likely respond to. The models are leveraged to find new
incremental audiences.
Activate – Our AI platform scores our clients’ existing
creative assets and intelligently recommends enhancements to
optimize performance. Our AI leverages the audience personas of who
will see the ads to accurately personalize and predict more
successful creative assets. This predictive engine allows clients
to know the likelihood that their ad will resonate with their
audiences before placing the ad. Our AI can then dynamically create
hundreds or thousands of variations of highly targeted ads based on
what our AI knows about the specific audience personas. Combined
with our software, our teams then help our clients place these ads
through the channels that will produce the highest results.
Decisions – The AiAd dashboard aggregates data from all
marketing channels to connect marketing strategies to financial
results. Our platform continuously monitors and validates each
campaign’s impact and provides recommendations to maximize their
effectiveness. Leveraging machine learning, it provides ongoing
analysis and optimization of behavioral profiles, creative,
audience segments, and media activation. Our platform empowers
marketers to know what works, what doesn’t, what’s next, and why so
they can make the most informed decisions.
The Market Opportunity
According to Marketing AI Institute:
|
● |
McKinsey Global Institute estimates
up to a $5.9 trillion annual impact of AI and other analytics on
marketing and sales. |
|
● |
PwC sees a truly global effect from
AI, with an estimated 14 percent lift in global GDP possible by
2030, a total contribution of $15.7 trillion to the world economy,
thanks to both increased productivity and increased consumption.
|
|
● |
In 2021 alone, Gartner projects AI
augmentation will create $2.9 trillion of business value, and 6.2
billion hours of worker productivity globally. |
|
● |
IDC states that efficiencies driven
by AI in CRM could increase global revenues by $1.1 trillion this
year, and ultimately lead to more than 800,000 net-new jobs,
surpassing those lost to automation. |
|
● |
The COVID-19 pandemic has
accelerated AI-powered digital transformation across businesses.
Additional research from McKinsey cites that 25 percent of almost
2,400 business leaders surveyed said they increased AI adoption due
to the pandemic. |
We believe Google’s recent announcement that it will restrict the
use of third-party cookies is very close to a declaration of war
against many ad-tech companies and major advertisers. “Today, we’re
making explicit that once third-party cookies are phased out, we
will not build alternate identifiers to track individuals as they
browse across the web, nor will we use them in our products,” said
David Temkin, Google’s director of product management, ads privacy,
and trust.
Ad-targeting companies such as Criteo, The Trade Desk and Magnite
rely on so-called third-party browser cookies for their data
gathering and organization efforts, particularly when ad campaigns
are shaped around the specific browsing behavior of specific web
users. Thus, we believe Google’s announcement that third-party
cookies are going away someday soon was very bad news for the
ad-targeting industry. Further, Google took the next step of
promising to make it harder to replace cookies with alternative
user-tracking technologies.
This is cause for enormous concern within the advertising industry.
The Cookie Apocalypse coming in 2022 could wipe out 85% of the
digital market according to Data Science Analyst, Roger Kamena. Any
data or ad-tech company that captures any information on
unidentified users through a data management platform (DMP) will be
affected.
We believe that our AIAD platform will deliver a solution that will
overcome this problem caused by Google while still ensuring the
privacy of users, because our AIAD platform does not rely on the
use of browser cookies.
Instead, our platform uses AI to manage “personas” which we believe
will now become more important than ever for targeting purposes.
Cookies are dead. Also, our use of personas will overcome another
challenge for the ad targeting industry created by Apple as soon as
it releases its next operating system that will ask users to opt in
to share their location on every mobile app. As a result, location
data will decrease significantly to the point where it won’t
be scalable.
A persona is a proxy for a brand’s target audience. A proxy
represents someone who has the same interests, priorities and
concerns as the brand’s buyers. Within the brand’s target market,
there are several ideal customer profiles, and each ideal customer
profile could have a multiple number of personas. Developing these
personas is based on extensive research and requires the use of
artificial intelligence and machine learning tools.
We believe the AiAdvertising approach is unique, and that it will
be disruptive in the ad targeting and ad buying process. Not only
will our AI-driven platform overcome the new challenges posed by
the actions of big players, such as Google and Apple, but it will
ensure user privacy and lead to lower advertising costs.
Past Revenue Model
Historically, we charged a fixed or variable implementation fee to
design, build and execute on digital marketing campaigns. These
campaigns or custom solutions consisted of professional services
fees as well as mark up on media spend. Our professional services
were billed at hourly or monthly rates, depending on the customer’s
needs.
Future Revenue
Beginning in Q4 of 2021, we pivoted the focus of our business to a
software licensing and delivery model, whereby our software is
centrally hosted and licensed on a monthly subscription basis. We
charge a flat percentage of clients’ monthly ad spend budget for
software license fees, and a flat percentage of their monthly ad
spend budget for media activation and placement. We believe this
provides greater transparency to the client as well as makes the
Company’s revenue more consistent and predictable. We believe this
shift towards SaaS recurring revenue can potentially be highly
valuable to the Company and its shareholders.
Sales and Marketing
To achieve the objective of disrupting the digital advertising
world by offering a solution that harnesses the power of artificial
intelligence, we have assembled a team of experts working
collectively for the best interest of our customers.
During the client sales process, our team delivers demonstrations,
presentations, proposals and contracts. Many new customers
have been retained through email marketing, direct sales, and
word-of-mouth referrals. Our direct sales efforts are aimed at
Chief Marketing Officers, senior marketing and information
technology (IT) executives within Consumer, B2B and political
organizations who are looking to create or expand their digital
operations. Word-of-mouth referrals have been very valuable
to us and we intend to continue nurturing our customer and industry
relationships to maximize these referrals.
In addition to our direct sales efforts and referrals, we have
established and continue to explore channel partnerships to expand
our customer base. Prospective channel partners include
existing technology companies, hosting providers, enterprise
resource planning (or ERP) vendors, and e-commerce marketing
professionals.
Competition
We operate in a rapidly growing and rapidly changing market. As a
result, we expect competition to continue to increase as other
established and emerging companies enter the business analytics
market, as customer requirements evolve and as new products and
technologies are introduced. We expect this to be particularly true
with respect to our SaaS-based offering. This is a relatively new
and evolving area of business analytics solutions, and we
anticipate competition to increase based on customer demand for
these types of products. In addition, we may compete with open
source initiatives and custom development efforts.
Many of our competitors, particularly the large software companies
named above, have longer operating histories, significantly greater
financial, technical, marketing, distribution, professional
services or other resources and greater name recognition than we
do. In addition, many of our competitors have strong relationships
with current and potential customers and extensive knowledge of the
business analytics industry. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in
customer requirements, for example by offering a SaaS-based product
that competes with our on-premises products or our SaaS product,
AiAd Platform, or devote greater resources to the development,
promotion and sale of their products than us. Moreover, many of
these competitors are bundling their analytics products into larger
deals or maintenance renewals, often at significant discounts.
Increased competition may lead to price cuts, alternative pricing
structures or the introduction of products available for free or a
nominal price, fewer customer orders, reduced gross margins, longer
sales cycles and loss of market share. We may not be able to
compete successfully against current and future competitors, and
our business, results of operations and financial condition will be
harmed if we fail to meet these competitive pressures.
Our ability to compete successfully in our market depends on a
number of factors, both within and outside of our control. Some of
these factors include ease and speed of product deployment and use,
discovery and visualization capabilities, analytical and
statistical capabilities, performance and scalability, the quality
and reliability of our customer service and support, total cost of
ownership, return on investment and brand recognition. Any failure
by us to compete successfully in any one of these or other areas
may reduce the demand for our products, as well as adversely affect
our business, results of operations and financial condition.
Government Regulation
We are subject to various federal, state, and local laws affecting
e-commerce and communication businesses. The Federal Trade
Commission and equivalent state agencies regulate advertising and
representations made by businesses in the sale of their products,
which apply to us. We are also subject to government laws and
regulations governing health, safety, working conditions, employee
relations, wrongful termination, wages, taxes and other matters
applicable to businesses in general. Currently, when serving
customers in the European Union, we must take precautions to
maintain the General Data Protection Regulation requirements. As
the United States continues to adopt similar regulations. Our
software and services will comply with those requirements.
Employees
As of August 15, 2022 we had 36 full time employees, 6 of whom are
employed in administrative positions, 2 in marketing positions, and
28 in technical positions. 20 employees were in Texas, 1 in Utah, 2
in New Jersey, 10 in Arizona, 1 in Virginia, 2 North Carolina, 1 in
Missouri, and 1 in Georgia.
All of our employees have executed agreements that impose
nondisclosure obligations on the employee and assign to us (to the
extent permitted by state and federal laws) all copyrights and
other inventions created by the employee during his employment with
us. Additionally, we have a trade secret protection policy in place
that management believes to be adequate to protect our intellectual
property and trade secrets.
Seasonality
We do not anticipate that our business will be substantially
affected by seasonality.
Trademarks
We have registered trademarks for AiAdvertising®.
Company History
The Company, based in San Antonio, Texas, was incorporated in
Nevada on January 22, 2002. The Company was formerly known as
CloudCommerce, Inc., Warp 9, Inc., Roaming Messenger, Inc., and
Latinocare Management Corporation. On July 9, 2015, we changed the
name of the Company from Warp 9, Inc. to CloudCommerce, Inc. to
reflect a new plan of strategically acquiring profitable data
driven marketing solutions providers with strong management
teams. Effective August 5, 2021, the Company changed its name
to AiAdvertising, Inc.
The Company has six subsidiaries, CLWD Operations, Inc. (formerly
Indaba Group, Inc.), Parscale Digital, Inc., which merged with
Parscale Creative, Inc., as a result of an acquisition dated August
1, 2017, WebTegrity, LLC (“WebTegrity”), which was acquired
November 15, 2017, Data Propria, Inc., which the Company launched
February 1, 2018, Giles Design Bureau, Inc., which spun out from
Parscale Digital in May, 2018, and aiAdvertising, Inc., which was
formed January 14, 2021. References in this report to the
“Company,” “AiAdvertising,” “we,” “us”, or “our” include
AiAdvertising, Inc. and its subsidiaries, unless otherwise
indicated.
Properties
On August 1, 2017, the Company signed a lease for approximately
8,290 square feet at 321 Sixth Street, San Antonio, TX 78215, for
$9,800 per month, expiring July 31, 2022. This office space
is used by all employees in San Antonio, TX.
Legal Proceedings
We are not party to, and our property is not subject to, any
material legal proceedings.
MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Common Stock
The Company’s common stock trades on the OTC Pink under the symbol
“AIAD”.
Holders
As of August 15, 2022, there were approximately 340 holders of the
Company’s common stock, not including shares held in “street name”
in brokerage accounts, which are unknown.
Dividends
The Company has not declared or paid any cash dividends on its
common stock and does not anticipate paying dividends for the
foreseeable future.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management’s Discussion and Analysis should be
read in conjunction with our consolidated financial statements and
the related notes thereto included elsewhere herein. The
Management’s Discussion and Analysis contains forward-looking
statements that involve risks and uncertainties, such as statements
of our plans, objectives, expectations and intentions. Any
statements that are not statements of historical fact are
forward-looking statements. When used, the words “believe,” “plan,”
“intend,” “anticipate,” “target,” “estimate,” “expect,” and the
like, and/or future-tense or conditional constructions (“will,”
“may,” “could,” “should,” etc.), or similar expressions, identify
certain of these forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that could cause
actual results or events to differ materially from those expressed
or implied by the forward-looking statements in this prospectus.
Our actual results and the timing of events could differ materially
from those anticipated in these forward-looking statements as a
result of several factors including, but not limited to, those
noted under “Risk Factors.”. We do not undertake any obligation to
update forward-looking statements to reflect events or
circumstances occurring after the date of this prospectus, except
as may be required under applicable law.
Overview-
AiAdvertising’s primary focus is to disrupt the digital advertising
world by offering a solution that harnesses the power of artificial
intelligence (AI) to enable marketers to increase productivity,
efficiency and performance.
Critical Accounting Policies
Our discussion and analysis of our financial condition and
results of operations, including the discussion on liquidity and
capital resources, are based upon our Consolidated Financial
Statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The
preparation of our Consolidated Financial Statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. On an ongoing basis,
management re-evaluates its estimates and judgments, particularly
those related to the determination of the estimated recoverable
amounts of trade accounts receivable, impairment of long-lived
assets, revenue recognition, and deferred tax assets. We believe
the following critical accounting policies require more significant
judgment and estimates used in the preparation of the Consolidated
Financial Statements.
Among the significant judgments made by management in the
preparation of our Consolidated Financial Statements are the
following:
Revenue recognition
On January 1, 2018, the Company adopted ASU 2014-09 Revenue from
Contracts with Customers and all subsequent amendments to the
ASU (collectively, “ASC 606”), using the modified retrospective
method applied to those contracts which were not completed as
of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under
Topic 606, while prior period amounts are not adjusted and continue
to be reported in accordance with our historic accounting under
Topic 605. Revenues are recognized when control of the promised
goods or services is transferred to our customers, in an amount
that reflects the consideration we expect to be entitled to in
exchange for those goods or services. The adoption of ASC 606 did
not have a material impact on the Company’s Consolidated Financial
Statements.
Included in revenue are costs that are reimbursed by our clients,
including third party services, such as photographers and stylists,
furniture, supplies, and the largest component, digital
advertising. We have determined, based on our review of ASC
606-10-55-39, that the amounts classified as reimbursable costs
should be recorded as gross, due to the following factors:
|
● |
The
Company is primarily in control of the inputs of the project and
responsible for the completion of the client contract; |
|
● |
We
have discretion in establishing price; and |
|
● |
We
have discretion in supplier selection. |
Accounts receivable
The Company extends credit to its customers who are located
nationwide. Accounts receivable are customer obligations due
under normal trade terms. The Company performs continuing
credit evaluations of its customers’ financial condition.
Management reviews accounts receivable on a regular basis,
based on contracted terms and how recently payments have been
received to determine if any such amounts will potentially be
uncollected. The Company includes any balances that are
determined to be uncollectible in its allowance for doubtful
accounts.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable. To determine
recoverability of a long-lived asset, management evaluates whether
the estimated future undiscounted net cash flows from the asset are
less than its carrying amount. If impairment is indicated, the
long-lived asset would be written down to fair value. Fair value is
determined by an evaluation of available price information at which
assets could be bought or sold, including quoted market prices, if
available, or the present value of the estimated future cash flows
based on reasonable and supportable assumptions.
Indefinite Lived Intangibles and Goodwill Assets
The Company accounts for business combinations under the
acquisition method of accounting in accordance with ASC 805,
“Business Combinations,” where the total purchase price is
allocated to the tangible and identified intangible assets acquired
and liabilities assumed based on their estimated fair values. The
purchase price is allocated using the information currently
available, and may be adjusted, up to one year from acquisition
date, after obtaining more information regarding, among other
things, asset valuations, liabilities assumed and revisions to
preliminary estimates. The purchase price in excess of the fair
value of the tangible and identified intangible assets acquired
less liabilities assumed is recognized as goodwill.
The Company tests for indefinite lived intangibles and goodwill
impairment in the fourth quarter of each year and whenever events
or circumstances indicate that the carrying amount of the asset
exceeds its fair value and may not be recoverable. In accordance
with its policies, the Company performed a qualitative assessment
of indefinite lived intangibles and goodwill at December 31, 2021
and determined the fair value of each intangible asset and goodwill
did not exceed the respective carrying values. 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 them.
During our analysis, we assume that we will address new
opportunities in service offerings and industries served. If we do
not make such changes, then we may experience declines in revenue
and cash flow, making it difficult to re-capture market
share. |
|
● |
Macroeconomic conditions such as deterioration in
general economic conditions or limitations on accessing capital
could adversely affect the Company. During our analysis, we
acknowledge that macroeconomic factors, such as the economy, may
affect our business plan because our customers may reduce budgets
for our services. If there are material declines in the economy,
which lead to reductions in revenue then such conditions may
adversely affect the Company. |
|
2. |
Compare the carrying amount of the intangible
asset to the fair value. |
|
3. |
If
the carrying amount is greater than the fair value, then the
carrying amount is reduced to reflect fair value. |
In accordance with its policies, the Company performed a
qualitative assessment of indefinite lived intangibles and goodwill
at December 31, 2020 and determined there was impairment of
indefinite lived intangibles and goodwill from our WebTegrity
acquisition. Accordingly, all intangible assets and goodwill
related to the WebTegrity acquisition have been written off,
amounting to $560,000. This amount was included in Operating
Expenses on the Income Statement, for the year ended December 31,
2020
Goodwill and Intangible assets are comprised of the following,
presented as net of amortization:
|
|
AiAdvertising |
|
|
Total |
|
Domain name |
|
|
20,202 |
|
|
|
20,202 |
|
Total |
|
$ |
20,202 |
|
|
$ |
20,202 |
|
|
|
AiAdvertising |
|
|
Total |
|
Domain name |
|
|
26,582 |
|
|
|
26,842 |
|
Total |
|
$ |
26,582 |
|
|
$ |
26,582 |
|
Business Combinations
The Company allocates the fair value of purchase consideration to
the tangible assets acquired, liabilities assumed and intangible
assets acquired based on their estimated fair values. The excess of
the fair value of purchase consideration over the fair values of
these identifiable assets and liabilities is recorded as goodwill.
Such valuations require management to make significant estimates
and assumptions, especially with respect to intangible assets.
Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired
customer lists, acquired technology, and trade names from a market
participant perspective, useful lives and discount rates.
Management’s estimates of fair value are based upon assumptions we
believe to be reasonable, but which are inherently uncertain and
unpredictable and, as a result, actual results may differ from
estimates. During the measurement period, which is one year from
the acquisition date, we may record adjustments to the assets
acquired and liabilities assumed, with the corresponding offset to
goodwill. Upon the conclusion of the measurement period, any
subsequent adjustments are recorded to earnings.
Fair value of financial instruments
The Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, and accrued
liabilities are carried at cost, which approximates their fair
value, due to the relatively short maturity of these instruments.
Fair value is defined as the price to sell an asset or transfer a
liability, between market participants at the measurement date.
Fair value measurements assume that the asset or liability is
(1) exchanged in an orderly manner, (2) the exchange is
in the principal market for that asset or liability, and
(3) the market participants are independent, knowledgeable,
able and willing to transact an exchange. Fair value accounting and
reporting establishes a framework for measuring fair value by
creating a hierarchy for observable independent market inputs and
unobservable market assumptions and expands disclosures about fair
value measurements. Considerable judgment is required to interpret
the market data used to develop fair value estimates. As such, the
estimates presented herein are not necessarily indicative of the
amounts that could be realized in a current exchange. The use of
different market assumptions and/or estimation methods could have a
material effect on the estimated fair value.
Off-Balance Sheet
Arrangements
None
Recent
Accounting Pronouncements
The
Company does not elect to delay complying with any new or revised
accounting standards, but to apply all standards required of public
companies, according to those required application
dates.
Management
reviewed accounting pronouncements issued during the quarter ended
June 30, 2022, and no pronouncements were adopted during the
period.
Management
reviewed accounting pronouncements issued during the year ended
December 31, 2021, and the following pronouncements were 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, 2020, the impact of this ASU on its
consolidated financial statements and related disclosures was
immaterial.
Recently
Issued Accounting Pronouncements Not Yet Adopted
In June
2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU
2016-13) “Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments” which
requires the measurement and recognition of expected credit losses
for financial assets held at amortized cost. ASU 2016-13 replaces
the existing incurred loss impairment model with an expected loss
methodology, which will result in more timely recognition of credit
losses. ASU 2016-13 is effective for annual reporting periods, and
interim periods within those years, beginning after December 15,
2022. We are currently in the process of evaluating the impact of
the adoption of ASU 2016-13 on our consolidated financial
statements.
In August
2020, the FASB issued Accounting Standards Update (ASU) 2020-06,
Debt – Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging – Contracts in Entity’s
Own Equity (Subtopic 815-40). The intention of ASU 2020-06
update is to address the complexity of accounting for certain
financial instruments with characteristics of liabilities and
equity, including convertible instruments and contracts in an
entity’s own equity. Under ASU 2020-06, the number of
accounting models for convertible notes will be reduced and
entities that issue convertible debt will be required to use the
if-converted method for computing diluted Earnings Per Share.
ASU 2020-06 is effective for fiscal years and interim periods
beginning after December 15, 2021 and may be adopted through either
a modified or fully retrospective transition. Early adoption is
permitted. The Company is currently evaluating the impact of this
ASU on its consolidated financial statements and related
disclosures.
Results
of Operations for the Three months Ended June 30, 2022, compared to
the Three months Ended June 30, 2021.
REVENUE
Total
revenue for the three months ended June 30, 2022 decreased by
$377,976 to $1,618,626, compared to $1,996,602 for the three months
ended June 30, 2021. The decrease was primarily due to a
pivot of focus from professional services to PaaS revenue generated
by our AiAd Platform. During this pivot, we strategically chose to
discontinue parts of our business, such as our hosting business,
that are not part of our core focus going forward. The hosting
business is recorded separately as discontinued operations in the
statement of operations for year ended December 31,
2021.
COST OF
REVENUE
Cost of
revenue for the three months ended June 30, 2022 increased by
$289,503 to $1,627,788, compared to $1,338,285 for the three months
ended June 30, 2021. The increase was primarily due to the
increase in digital marketing ad costs, platform fees, and
salaries, partially offset by decrease of discontinued operations.
SALARIES
AND OUTSIDE SERVICES
Salaries
and outside services for the three months ended June 30, 2022
increased by $167,233 to $858,804, compared to $691,571 for the
three months ended June 30, 2021. The decrease was
primarily due to a reduction in legal fees partially offset by
increases in salary expense, and professional services.
SELLING,
GENERAL, AND ADMINISTRATIVE EXPENSES
Selling,
general, and administrative (“SG&A”) expenses for the three
months ended June 30, 2022 increased by $5,242,962 to $1,139,493
compared to ($4,103,469) for the three months ended June 30,
2021. The increase was primarily due to advertising,
cloud-based tools, recruiting fees, research and development, and
insurance expenses and partially offset by a valuation credit
adjustment applied to warrant and stock option expense during the
year end December 31, 2021.
DEPRECIATION AND
AMORTIZATION
Depreciation and
amortization expenses for the three months ended June 30, 2022
decreased by $2,299 to $9,321 compared to $11,620 for the three
months ended June 30, 2021. The decrease was primarily due to
the impairment of goodwill and intangible assets, as of December
31, 2021, which eliminated additional amortization of intangible
assets in the current period.
OTHER
INCOME AND EXPENSE
Total
other income and expense for the three months ended June 30, 2022
decreased by $497,473 to net other income of zero compared to net
other expense of $497,473 for the three months ended June 30, 2021.
The decrease in net other expense was primarily due to the
decrease in finance charges and compensation expense related to the
issuance of shares of common stock to a related party during the
year end December 31, 2021 partially offset by the gain on sales of
discontinued operations.
NET
INCOME/(LOSS)
The net
loss for the three months ended June 30, 2022 was $2,016,780, which
includes net income from discontinued operations of zero compared
to net income of $3,588,880 for the three months ended June 30,
2021, which includes net income from discontinued operations of
$27,758. The increase in net loss for the period is
primarily due to stock option evaluation credit adjustment in
interest expense related to common stock offering, decrease in
revenue, partially offset by increase in salaries and SG&A
expenses, and amortization.
Results
of Operations for the Six months ended June 30, 2022, compared to
the Six months ended June 30, 2021.
REVENUE
Total
revenue for the six months ended June 30, 2022 decreased by
$729,512 to $2,818,288, compared to $3,547,800 for the six months
ended June 30, 2021. The decrease was primarily due to a
pivot of focus from professional services to PaaS revenue generated
by our AiAd Platform. During this pivot, we strategically chose to
discontinue parts of our business, such as our hosting business,
that are not part of our core focus going forward. The hosting
business is recorded separately as discontinued operations in the
statement of operations for year ended December 31,
2021.
COST OF
REVENUE
Cost of
revenue for the six months ended June 30, 2022 increased by
$884,337 to $3,163,620, compared to $2,279,283 for the six months
ended June 30, 2021. The increase was primarily due to the
increase in digital marketing ad costs, platform fees, and salaries
partially offset by a decrease in discontinued operations.
SALARIES
AND OUTSIDE SERVICES
Salaries
and outside services for the six months ended June 30, 2022
decreased by $2,732 to $2,123,509, compared to $2,126,241 for the
six months ended June 30, 2021. The decrease was
primarily due to a reduction in legal fees partially offset by
increases in salary expense and professional services.
SELLING,
GENERAL, AND ADMINISTRATIVE EXPENSES
Selling,
general, and administrative (“SG&A”) expenses for the six
months ended June 30, 2022 decreased by $190,873 to $2,154,057
compared to $2,344,930 for the six months ended June 30,
2021. The decrease was primarily due to warrant and
stock option valuation credit adjustment applied during year end
December 31, 2021 and partially offset by an increase in
advertising, cloud-based tools, recruiting fees, research and
development, and insurance expenses.
DEPRECIATION AND
AMORTIZATION
Depreciation and
amortization expenses for the six months ended June 30, 2022
decreased by $3,935 to $18,434 compared to $22,369 for the six
months ended June 30, 2021. The decrease was primarily due to
the impairment of goodwill and intangible assets, as of December
31, 2021, which eliminated additional amortization of intangible
assets in the current period.
OTHER
INCOME AND EXPENSE
Total
other income and expense for the six months ended June 30, 2022
decreased by $3,789,310 to net other income of $25,197 compared to
net other expense of $3,764,113 for the six months ended June 30,
2021. The decrease in net other expense was primarily due to
the decrease in finance charges and compensation expense related to
the issuance of shares of common stock to a related party during
the year end December 31, 2021 partially offset by the gain on
sales of discontinued operations.
NET
INCOME/(LOSS)
The net
loss for the six months ended June 30, 2022 was $4,616,135, which
includes net income from discontinued operations of zero compared
to the net loss of $6,917,441 for the six months ended June 30,
2021, which includes net income from discontinued operations of
$71,695. The decrease in net loss for the period is
primarily due to decrease in interest expense related to common
stock offering, decrease in revenue, partially offset by increase
in salaries and SG&A expenses, and
amortization.
Results of Operations for the Year Ended December 31, 2021,
compared to the Year Ended December 31, 2020.
REVENUE
Total revenue for the year ended December 31, 2021 decreased by
$2,534,943 to $6,868,261, compared to $9,406,204 for the year ended
December 31, 2020. The decrease was primarily due to a
pivot of focus from professional services to SaaS revenue generated
by our AiAd Platform. During this pivot, we strategically chose to
discontinue parts of our business, such as our hosting business,
that was not part of our core focus going forward. The hosting
business is recorded separately as discontinued operations in the
statement of operations for years ended 2021 and 2020.
COST OF REVENUE
Cost of revenue for the year ended December 31, 2021 decreased by
$1,555,923 to $4,696,317, compared to $6,252,240 for the year ended
December 31, 2020. The decrease was primarily due to the
decrease in digital marketing advertising costs.
SALARIES AND OUTSIDE SERVICES
Salaries and outside services for the year ended December 31, 2021
increased by $1,574,792 to $4,048,508, compared to $2,473,716 for
the year ended December 31, 2020. The increase was
primarily due to increases of salary expense of non-cost of revenue
employees, payments to contractors and professional services.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
SG&A expenses for the year ended December 31, 2021 increased by
$3,117,909 to $4,767,334 compared to $1,649,425 for the year ended
December 31, 2020. The increase was primarily due to an
increase in warrant and stock option expense.
LOSS ON IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
Loss on impairment of goodwill and intangible assets for the year
ended December 31, 2021 decreased by $560,000 to zero, compared to
$560,000 for the year ended December 31, 2020. The decrease
was due to the impairment and write-off of the goodwill and
intangible assets from WebTegrity acquisition during 2020.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for the year ended December
31, 2021 decreased by $66,752 to $46,535, compared to $113,287 for
the year ended December 31, 2020. The decrease was primarily
due to the impairment of goodwill and intangible assets, as of
December 31, 2020, which eliminated additional amortization of
intangible assets in the current period.
OTHER INCOME AND EXPENSE
Total other income and expense for the year ended December 31, 2021
increased by $2,032,053 to net other expense of $1,865,952 compared
to net other income of $166,101 for the year ended December 31,
2020. The increase in net other expense was primarily due to
an increase in finance charges and compensation expense related to
the issuance of shares of common stock to a related party,
partially offset by the sale of the hosting revenue stream.
NET LOSS
The net loss for the year ended December 31, 2021 was $8,482,771,
compared to the net loss of $1,270,650 for the year ended December
31, 2020. The increase in net loss for the period was primarily due
to an increase in warrant and stock option expenses, increase in
finance charges and SG&A expenses and decrease in third party
revenue.
LIQUIDITY AND
CAPITAL RESOURCES
The
Company had net working capital (i.e. the difference between
current assets and current liabilities) of $15,872 at June 30, 2022
compared to a net working capital deficit of ($2,706,377) at fiscal
year ended December 31, 2021.
Cash flow
used in operating activities was $2,923,954 for the six months
ended June 30, 2022, compared to cash flow used in operating
activities of $4,047,679 for the six months ended June 30, 2021.
The decrease in cash flow used in operating activities of
$1,123,725 was primarily due to a decrease in net loss, partially
offset by finance charges and warrant and stock option
expenses.
Cash flow
provided by investing activities was $1,988 for the six months
ended June 30, 2022, compared to cash flow used in investing
activities of $184,226 for the six months ended June 30,
2021. The decrease in cash flow provided by investing
activities of $182,238 was primarily due to the sales of hosting
revenue stream, partially offset by the purchase of computers,
printer, and videography equipment.
Cash flow
provided by financing activities was $940,159 for the six months
ended June 30, 2022, compared to cash flow provided by financing
activities of $9,194,537 for the six months ended June 30,
2021. The decrease in cash flow provided by financing
activities of $8,254,378 was due to sale of our common stock,
partially offset by debt repayments.
The Company had a net working capital (i.e. the difference between
current assets and current liabilities) of $2,706,377 at December
31, 2021 compared to a net working capital deficit of ($4,784,105)
at December 31, 2020.
Cash flow used in operating activities was $4,958,822 for the year
ended December 31, 2021, compared to cash flow used in operating
activities of $1,812,623 for the year ended December 31, 2020.
The increase in cash flow used in operating activities of
$3,146,199 was primarily due to an increase in net loss, partially
offset by finance charges and warrant and stock option
expenses.
Cash flow provided by investing activities was $128,046 for the
year ended December 31, 2021, compared to cash flow used in
investing activities of $5,253 for the year ended December 31,
2020. The increase in cash flow provided by investing
activities of $133,299 was primarily due to the sales of hosting
revenue stream, partially offset by purchase of computers, printer,
and videography equipment.
Cash flow provided by financing activities was $8,251,693 for the
year ended December 31, 2021, compared to cash flow provided by
financing activities of $1,009,086 for the year ended December 31,
2020. The increase in cash flow provided by financing
activities of $7,242,607 was due to the issuance of our common
stock, partially offset by debt repayments.
The
Company has negative monthly cash flows from operations of
approximately $300,000. The Company’s current cash is sufficient to
sustain the Company’s operations for approximately 180 days without
additional borrowings. The Company relies on sales from operations
and equity financing arrangements to fund operations and service
debt, as discussed above.
The
Consolidated Financial Statements have been prepared on a going
concern basis of accounting, which contemplates continuity of
operations, realization of assets and liabilities and commitments
in the normal course of business. Management believes that our
current cash flow will sustain our operations and obligations as
they become due, and will allow the development of our core
business operations. Furthermore, the Company anticipates that it
will raise additional capital through investments from our existing
shareholders, prospective new investors and future revenue
generated by our operations.
Any
additional capital we may raise through the sale of equity or
equity-backed securities may dilute current stockholders’ ownership
percentages and could also result in a decrease in the fair market
value of our equity securities. The terms of the securities issued
by us in future capital transactions may be more favorable to new
investors and may include preferences, superior voting rights and
the issuance of warrants or other derivative securities which may
have a further dilutive effect.
Furthermore, any
additional debt or equity or other financing that we may need may
not be available on terms favorable to us, or at all. If we are
unable to obtain required additional capital, we may have to
curtail our growth plans or cut back on existing business. Further,
we may not be able to continue operations if we do not generate
sufficient revenues from operations.
We may
incur substantial costs in pursuing future capital financing,
including investment banking fees, legal fees, accounting fees,
securities law compliance fees, printing and distribution expenses
and other costs. We may also be required to recognize non-cash
expenses in connection with certain securities we issue, such as
convertible notes and warrants, which may adversely impact our
reported financial results.
MANAGEMENT
The
following table lists the executive officers and directors of the
Company:
Name |
|
Age |
|
Position |
Gerard Hug |
|
55 |
|
Chief Executive Officer
and Director |
|
|
|
|
|
Isabel Gongora |
|
48 |
|
Chief Financial Officer |
|
|
|
|
|
Kevin Myers |
|
59 |
|
Director, Chief Marketing Officer |
|
|
|
|
|
Andrew Van Noy |
|
39 |
|
Chairman |
|
|
|
|
|
Richard Berliner |
|
68 |
|
Independent Director, Chairperson of
the Audit Committee, Financial Expert |
|
|
|
|
|
Virginia Rose O’Meara |
|
37 |
|
Independent Director, Chairperson of
the Nominating Corporate Governance Committee |
|
|
|
|
|
Mark Fruehan |
|
60 |
|
Independent Director, Chairperson of
the Compensation Committee |
Gerard
Hug, age 55, has served as director and Chief Executive Officer of
the Company since July 2022. Prior to being appointed as CEO
and director of the Company, Mr. Hug was Director of Operations
from July 2018, where he was instrumental in architecting and
executing the Company’s pivot from a traditional agency to an
Enterprise Software Technology company, focused on commercializing
Artificial Intelligence and Machine Learning in the Digital
Marketing and Advertising space. Mr. Hug was previously
Chief Executive Officer and Director of SITO Mobile from November
10, 2014 through February 2017, where he architected and executed
the successful transformation of the company from a SMS aggregator
to an industry leader in Location-Based Mobile
Advertising. Mr. Hug also served as Director of Corporate
Development, Executive Vice President of SITO Mobile Interim CEO,
before his promotion to CEO in November 2014. Between 2007 and
2010, Mr. Hug was the co-founder and President of Waveyard
Development LLC, a water-sports resort destination development
company. From 2003 to June 2006, Mr. Hug served as Executive Vice
President and Chief Strategy Officer of Wireless Retail Inc., a
$400 million wireless services company that was among the first
U.S. businesses to use the store-in-store business model to sell
mobile phones for wireless carriers through large nationwide
retailers. Mr. Hug was interim CFO for Wireless Retail Inc. leading
up to its sale to Radio Shack Corporation. From 2002 to 2004, Mr.
Hug was Managing Partner of Redwood Partners, an early-stage
merchant bank and advisory firm that focused on providing
early-stage capital and executive management to technology, media
and telecommunications businesses. Mr. Hug attended The
Pennsylvania State University where he studied finance on a full
athletic scholarship, and was a member of the 1986 National
Championship football team under legendary coach Joe
Paterno. The Board has concluded that Mr. Hug is qualified to
serve as a director because of the depth of his industry experience
and his extensive experience as an executive in the digital
marketing space.
Isabel
Gongora was appointed on October 7, 2021 to serve as the Company’s
Chief Financial Officer. Prior to her appointment as Chief
Financial Officer, Ms. Gongora served as the Company’s Controller
beginning in March 2018. From March 2015 to March 2018, Ms.
Gongora was the Accounting Manager and Treasurer of Peveto
Companies, LTD dba Brake Check, a multi-million-dollar family-owned
and operated company since 1968. Ms. Gongora began her
corporate accounting career working for Argo Group, Inc., a public
multi-billion-dollar Property and Casualty Insurance Company. Ms.
Gongora graduated from The University of Texas at San Antonio with
a Bachelor of Science in Accounting and the University of Incarnate
Word with a Masters of Science in Accounting. The Board of
Directors believes that Ms. Gongora is qualified to serve as an
officer because of her management and industry experience, in
addition to her understanding of generally accepted accounting
principles and financial reporting.
Kevin
Myers has been a director of the Company since December 2019 and
has been chief marketing officer of the Company since August 26,
2021. Mr. Myers served as the chief marketing and information
officer of Donatos Pizza, from February 2018 until March 2020.
Prior to Donatos Pizza, Mr. Myers served as the General Manager of
the brand division of Majority Strategies, a full-service data,
digital and print agency, from November 2015 until February 2018.
In this role, Mr. Myers was responsible for revenue growth
and product development in the company’s corporate advertising
division. Prior to Majority Strategies, Mr. Myers held
various marketing and advertising roles for over 12 years. He
holds a bachelor’s degrees from the Ohio State University in
industrial and computer science engineering. The Board of
Directors believes that Mr. Myers is qualified to serve as a
director because of his industry experience and his understanding
of industry trends.
Andrew Van
Noy has been a director of the Company since November 2012. Mr. Van
Noy also served as been the President of the Company from April
2012 to July 2022 and as Chief Executive Officer of the Company
from August 2012 to July 2022. He was Executive Vice President of
the Company from November 2011 to April 2012 and Vice President of
Sales and Marketing of the Company from May 2011 to November 2011.
From January 2009 to April 2011, Mr. Van Noy served as the Vice
President of Sales and Marketing for PageTransformer, a company
which provided web and software development for iPad, iPhone, and
Android devices. Mr. Van Noy came to the Company with
experience in digital marketing, private equity and investment
banking. During his years at the Company, Mr. Van Noy led the
efforts to rebrand and restructure the business and presided over
the acquisition of a number of companies. Mr. Van Noy graduated
from BYU with a Bachelor of Science degree. The Board of
Directors believes that Mr. Van Noy is qualified to serve as a
director because of his experience in executive roles and his
experience with re-branding and re-structuring of the Company,
including the launch of our Magento platform.
On October
7, 2021, Richard Berliner has served as a director of the Company
since October 7, 2021. Mr. Berliner has been Chairman and
Chief Executive Officer of Fifth Gen Media, Inc., a marketing and
publishing company, owned by Mr. Berliner since 2016. Mr.
Berliner’s prior experience was as Chief Executive Officer of a
wireless construction company, Redwing Electric from 2012-2015,
which was later sold to an investor group. Mr. Berliner did a one
year consulting project for the Swedish equipment manufacturer
Ericsson, reporting to the Chief Operating Officer in 2011. Mr.
Berliner was the Founder, Chairman and CEO of Berliner
Communications or BCI (BCI) which he started in 1995, which
subsequently merged with another firm in 2010. Mr. Berliner handled
the firm’s quarterly earnings calls and the annual meetings in his
role as Chairman. Mr. Berliner graduated from Rutgers with a BA in
Business in 1975. He is a Fellow in the Radio Club of America and
was elected in 2004. The Company’s Board of Directors has
determined that Mr. Berliner is “independent” within the meaning of
rules of The Nasdaq Stock Market and is qualified to serve on the
Board of Directors because of his extensive senior management
experience.
On October
26, 2021, Virginia “Rose” O’Meara has served as a director of the
Company since October 26, 2021. Mrs. O’Meara has been Chief Revenue
Officer at GroundTruth, a location-based marketing and advertising
technology company, since October 2020. Mrs. O’Meara was Senior
Vice President of GroundTruth’s Platform Self-Serve business from
October 2019 to September 2020. Mrs. O’Meara was Vice President of
Customer Success at a4Media, the media division of Altice USA, from
September 2018 to September 2019. Mrs. O’Meara was Chief Executive
Officer of Zapp360 beginning in January of 2018 and led its
acquisition by Altice USA in September of the same year. Prior to
serving as Chief Executive Officer at Zapp360, Mrs. O’Meara also
served as Chief Operating Officer from August 2017 to January 2018,
Vice President of Customer Success from April 2016 to July 2017,
and Director of Business Development from August 2013 to March
2016. Mrs. O’Meara held sales roles as a Director of Mobile Ad
Sales at Verve Mobile from July 2012 to August 2013 and as a
Digital Account Executive at ITN Digital from January 2010 to July
2012, selling digital and mobile advertising solutions to holding
company agencies and brand direct clients on the East Coast in both
roles. The Company’s Board of Directors has determined that Mrs.
O’Meara is “independent” within the meaning of the rules of The
Nasdaq Stock Market and is qualified to serve on the Board of
Directors because of her extensive industry experience within the
ad-tech industry, her deep connections with advertisers and
publishers, and her senior management experience.
Mark
Fruehan has served as a director of the Company since November 4,
2021. Since September 30, 2021, Mr.
Fruehan has served as Chief Executive Officer of First Screen
of the Americas, which offers digital first brands and content
creators alternative distribution and billing mechanisms to
monetize content. From July 2020 to June 2021, Mr.
Fruehan was Chief Revenue Officer of Tradeswell, the
leading AI-driven eCommerce solution, which helps brokers and
resellers sell on Amazon, Walmart, and Target. Prior to
serving as Chief Revenue Officer at Tradeswell from April 2018
to July 2020, Mr. Fruehan served as President and Chief
Revenue Officer at Verve Group, a Media and Games Invest
SE portfolio company
(Berlin) and a privacy-first omnichannel ad platform
offering programmatic solutions that connects advertisers and
publishers to people in real time. In October
2016, Mark co-founded Amplify.ai, a global enterprise chatbot
platform funded by Costanoa Ventures, which was recently
acquired by Triller.net; leading
the sales and partner development
through their start-up phase until March of
2018. Mr. Fruehan’s roots in the mobile and wireless
industry run deep, with leadership roles at Opera Mediaworks &
AdMarvel as President, and Head of Business development and
innovation at VeriSign and CellStar. Mr. Fruehan has
over 30 years of experience in the digital and mobile industry
across cost per engagement, mobile content data service, media,
monetization, including payments, and messaging. Mr.
Fruehan has worked closely
with brands, mobile operators, and media companies;
in addition to holding several advisory seats and board memberships
at early-stage ventures and established tech companies
alike. Mr. Fruehan attended Penn State, earning a
Bachelor of Science in Economics, and is a proud member of the 1982
NCAA Championship Football Team. The Company’s Board of
Directors has determined that Mr. Fruehan is “independent” within
the meaning of the rules of The Nasdaq Stock Market and is
qualified to serve on the Board of Directors because of his
extensive industry experience within the ad-tech industry, his deep
connections with advertisers and publishers, and his senior
management experience.
Family
Relationships
There are
no family relationships among our executive officers and
directors.
Involvement in
Certain Legal Proceedings
During the
past ten years, none of our directors, executive officers,
promoters, control persons, or nominees has been:
|
● |
the
subject of any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to
that time; |
|
● |
convicted
in a criminal proceeding or is subject to a pending criminal
proceeding (excluding traffic violations and other minor
offenses); |
|
● |
subject to
any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction or any
Federal or State authority, permanently or
temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or
banking activities; |
|
● |
found
by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities
law; |
|
|
|
|
● |
the
subject of, or a party to, any Federal or State judicial or
administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of (a) any Federal or State securities or commodities law
or regulation; (b) any law or regulation respecting financial
institutions or insurance companies including, but not limited to,
a temporary or permanent injunction, order of disgorgement or
restitution, civil money penalty or temporary or permanent
cease-and-desist order, or removal or prohibition order; or (c) any
law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or |
|
|
|
|
● |
the
subject of, or a party to, any sanction or order, not subsequently
reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C.
78c(a)(26))), any registered entity (as defined in Section 1(a)(29)
of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any
equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with
a member. |
Board
Committees
On
November 4, 2021 the Board formed and appointed Richard Berliner,
Virginia Rose O’Meara, and Mark Fruehan as members of the
Audit Committee , with Mr. Berliner serving as the Chairperson. The
Board has determined that each of the members of the Audit
Committee designated is independent pursuant to the required
standards set forth in Rule 10A-3(b) of the Security Exchange Act
of 1934, as amended, based on an evaluation of the relationships
between the Company and each of the members.
Mr.
Berliner is designated as the “audit committee financial expert” as
defined by Item 407(d)(5) of Regulation S-K under the Securities
Act of 1933, as amended, based on the Board’s evaluation of his
knowledge of accounting, qualifications and experience and has an
appropriate background which results in his financial
sophistication in accordance with the additional audit committee
requirements of Rule 5605(c)(2)(A).
On
November 4, 2021 the Board formed and appointed Richard Berliner,
Virginia Rose O’Meara, and Mark Fruehan as members of the
Compensation Committee , with Mr. Fruehan serving as the
Chairperson.
On
November 4, 2021 the Board formed and appointed Richard Berliner,
Virginia Rose O’Meara, and Mark Fruehan as members of the
Nominating and Corporate Governance Committee , with Mr. O’Meara
serving as the Chairperson.
The Board
has determined that each of the members of the Audit Committee,
Compensation Committee, and Nominating and Corporate Governance
Committee is independent, pursuant to the definition of
independence under Rule 5605(a)(2) of the Nasdag Listing
Rules.
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
following table sets forth the names of our executive officers and
directors and all persons known by us to beneficially own 5% or
more of the issued and outstanding common stock of the Company at
August 15, 2022. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and
the percentage of ownership of that person, shares of common stock
subject to options held by that person that are currently
exercisable or become exercisable within 60 days of August 15, 2022
are deemed outstanding even if they have not actually been
exercised. Those shares, however, are not deemed outstanding
for the purpose of computing the percentage ownership of any other
person. The percentage ownership of each beneficial owner is based
on 1,134,084,046 outstanding shares of common stock. Except
as otherwise listed below, the address of each person is c/o
AiAdvertising, Inc., 321 Sixth Street, San Antonio, TX 78215.
Except as indicated, each person listed below has sole voting
and investment power with respect to the shares set forth opposite
such person’s name.
Name,
Title and Address |
|
Number of
Shares
Beneficially Owned(1) |
|
|
Percentage
Ownership |
|
|
|
|
|
|
|
|
Gerard
Hug
Chief Executive Officer and Director (8) |
|
|
180,305,936 |
|
|
|
13.7 |
% |
Andrew
VanNoy
Chairman (2) |
|
|
154,431,135 |
|
|
|
12.0 |
% |
Isabel
Gongora
Chief Financial Officer (3) |
|
|
7,079,452 |
|
|
|
* |
|
Kevin
Myers
Director (4) |
|
|
80,559,817 |
|
|
|
6.6 |
% |
Mark
Fruehan
Director (5) |
|
|
1,335,616 |
|
|
|
* |
|
Virginia
Rose O’Meara
Director (6) |
|
|
1,335,616 |
|
|
|
* |
|
Richard
Berliner
Director (7) |
|
|
1,335,616 |
|
|
|
* |
|
All
current Executive Officers and Directors as a Group (7
persons) |
|
|
426,383,190 |
|
|
|
32.3 |
% |
Zachary
Bartlett
Vice President of Communications (9) |
|
|
67,533,303 |
|
|
|
5.6 |
% |
Greg Boden
(10) |
|
|
115,000,000 |
|
|
|
9.2 |
% |
(1) |
Except as pursuant to
applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of
common stock beneficially owned. |
(2) |
Includes 154,431,135
shares which may be purchased by Mr. Van Noy pursuant to stock
options that are exercisable within 60 days of August 15,
2022. |
(3) |
Includes 7,079,452
shares which may be purchased by Ms. Gongora pursuant to stock
options that are exercisable within 60 days of August 15,
2022. |
(4) |
Includes 80,559,817
shares which may be purchased by Mr. Myers pursuant to stock
options that are exercisable within 60 days of August 15,
2022. |
(5) |
Includes 1,335,616
shares which may be purchased by Mr. Fruehan pursuant to stock
options that are exercisable within 60 days of August 15,
2022. |
(6) |
Includes 1,335,616
shares which may be purchased by Ms. O’Meara pursuant to stock
options that are exercisable within 60 days of August 15,
2022. |
(7) |
Includes 1,335,616
shares which may be purchased by Mr. Berliner pursuant to stock
options that are exercisable within 60 days of August 15,
2022. |
(8) |
Includes 180,305,936
shares which may be purchased by Mr. Hug pursuant to stock options
that are exercisable within 60 days of August 15, 2022. |
(9) |
Includes 67,533,303
shares which may be purchased by Mr. Bartlett pursuant to stock
options that are exercisable within 60 days of August 15,
2022. |
(10) |
Includes 115,000,000
shares which may be purchased by Mr. Boden pursuant to stock
options that are exercisable within 60 days of August 15, 2022.
Does not include Series C Preferred stock held by Bountiful Capital
LLC, of which Mr. Boden serves as President. Such securities
are subject to a 4.99% ownership blockers. |
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The
following Compensation Discussion and Analysis describes the
material elements of compensation for our executive officers
identified in the Summary Compensation Table (“Named Executive
Officers”), and executive officers that we may hire in the future.
As more fully described below, our Compensation Committee
makes all decisions for the total direct compensation of our
executive officers, including the Named Executive Officers.
Compensation
Program Objectives and Rewards
Our
compensation philosophy is based on the premise of attracting,
retaining, and motivating exceptional leaders, setting high goals,
working toward the common objectives of meeting the expectations of
customers and stockholders, and rewarding outstanding performance.
Following this philosophy, in determining executive
compensation, we consider all relevant factors, such as the
competition for talent, our desire to link pay with performance in
the future, the use of equity to align executive interests with
those of our stockholders, individual contributions, teamwork and
performance, and each executive’s total compensation package.
We strive to accomplish these objectives by compensating all
executives with total compensation packages consisting of a
combination of competitive base salary and incentive
compensation.
On
November 4, 2021 the Board formed and appointed Richard Berliner,
Virginia Rose O’Meara, and Mark Fruehan as members of the
Compensation Committee, with Mr. Fruehan serving as the
Chairperson. The compensation committee applies the
philosophy and policies described below.
The
primary purpose of the compensation and benefits described below is
to attract, retain, and motivate highly talented individuals when
we do hire, who will engage in the behaviors necessary to enable us
to succeed in our mission while upholding our values in a highly
competitive marketplace. Different elements are designed to
engender different behaviors, and the actual incentive amounts
which may be awarded to each Named Executive Officer are subject to
the annual review of the Board of Directors. The following is
a brief description of the key elements of our planned executive
compensation structure.
|
● |
Base salary and
benefits are designed to attract and retain employees over
time. |
|
● |
Incentive compensation
awards are designed to focus employees on the business objectives
for a particular year. |
|
● |
Equity incentive
awards, such as stock options and non-vested stock, focus
executives’ efforts on the behaviors within the recipients’ control
that they believe are designed to ensure our long-term success as
reflected in increases to our stock prices over a period of several
years, growth in our profitability and other
elements. |
|
● |
Severance and change
in control plans are designed to facilitate the Company’s ability
to attract and retain executives as we compete for talented
employees in a marketplace where such protections are commonly
offered. We currently have not given separation benefits to
any of our Name Executive Officers. |
Benchmarking
We have
not yet adopted benchmarking but may do so in the future.
When making compensation decisions, our Board of Directors
may compare each element of compensation paid to our Named
Executive Officers against a report showing comparable compensation
metrics from a group that includes both publicly-traded and
privately-held companies. Our Board believes that while such
peer group benchmarks are a point of reference for measurement,
they are not necessarily a determining factor in setting executive
compensation as each executive officer’s compensation relative to
the benchmark varies based on scope of responsibility and time in
the position. We have not yet formally established our peer
group for this purpose.
The
Elements of AiAdvertising’s Compensation Program
Base
Salary
Executive
officer base salaries are based on job responsibilities and
individual contribution. The Board reviews the base salaries
of our executive officers, including our Named Executive Officers,
considering factors such as corporate progress toward achieving
objectives (without reference to any specific performance-related
targets) and individual performance experience and expertise.
None of our Named Executive Officers have employment
agreements with us. Additional factors reviewed by the Board
of Directors in determining appropriate base salary levels and
raises include subjective factors related to corporate and
individual performance. For the year ended December 31, 2021,
all executive officer base salary decisions were approved by the
Board of Directors.
Our Board
of Directors determines base salaries for the Named Executive
Officers at the beginning of each fiscal year, or during the year
if needed, and the Board proposes new base salary amounts, if
appropriate, based on its evaluation of individual performance and
expected future contributions.
Equity
Incentive Awards
Our 2003
Stock Option Plan for directors, officers, employees and key
consultants (the “2003 Plan”) which authorized the issuance of up
to 5,000,000 shares of our common stock pursuant to the 2003 Plan
terminated upon the expiration of the remaining options granted
under the 2003 Plan on May 24, 2014. In December 2020 the
Company adopted the AiAdvertising, Inc. 2020 Equity Incentive Plan.
The Board considers several factors in determining whether
awards are granted to an executive officer, including those
previously described, as well as the executive’s position, his or
her performance and responsibilities, and the amount of options, if
any, currently held by the officer and their vesting schedule.
Our policy prohibits backdating options or granting them
retroactively. As of June 30, 2022, 889,733,332 stock options
granted are outstanding.
Benefits and
Prerequisites
At this
stage of our business we have limited benefits and no prerequisites
for our employees other than paid time off that are generally
comparable to those offered by other small private and public
companies or as may be required by applicable state employment
laws. We may adopt retirement plans and confer other fringe
benefits for our executive officers in the future if our business
grows sufficiently to enable us to afford them.
Separation and
Change in Control Arrangements
We do not
have any employment agreements with our Named Executive Officers.
No employee is eligible for specific benefits or payments if their
employment or engagement terminates in a separation or if there is
a change of control.
Executive Officer
Compensation
The
following summary compensation table sets forth certain information
concerning compensation paid to the Company’s Chief Executive
Officer and its most highly paid executive officers whose total
annual salary and bonus for services rendered in all capacities for
the fiscal year ended December 31, 2021 was $100,000 or
more.
Summary
Compensation Table
Name
and Principal Position
|
|
Fiscal Year |
|
|
Salary |
|
|
Option Awards |
|
|
All Other Compensation |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Van Noy
Former Chief Executive Officer,
|
|
|
2021 |
|
|
$ |
225,000 |
|
|
|
-0- |
|
|
$ |
125,000 |
(1) |
|
$ |
350,000 |
|
Former President, and Director |
|
|
2020 |
|
|
$ |
225,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
225,000 |
|
Isabel Gongora
|
|
|
2021 |
|
|
$ |
140,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
140,000 |
|
Chief Financial Officer |
|
|
2020 |
|
|
$ |
100,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
100,000 |
|
Kevin Myers
Chief Marketing Officer |
|
|
2021 |
|
|
$ |
250,000 |
|
|
|
-0- |
|
|
|
-0- |
|
|
$ |
250,000 |
|
|
(1) |
In consideration of
Andrew Van Noy’s service and performance to the Corporation as the
Chief Executive Office, Mr. Van Noy was awarded a bonus. Mr. Van
Noy resigned as Chief Executive Officer and President in July
2022. |
Outstanding Equity
Awards at Fiscal Year-End
The
following table sets forth information with respect to unexercised
stock options, stock that has not vested, and equity incentive plan
awards held by the Company’s executive officers at December 31,
2021.
Name
|
|
Number of Securities Underlying Unexercised Options
Exercisable |
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable |
|
|
Option
Exercise
Price |
|
|
Option
Expiration
Date |
|
|
|
|
|
|
|
|
|
|
|
|
Andrew Van Noy (1)
Former Chief Executive Officer and President |
|
|
5,000,000 |
|
|
|
-0- |
|
|
$ |
0.01 |
|
|
August 13, 2022 |
|
|
|
30,000,000 |
|
|
|
-0- |
|
|
$ |
0.01 |
|
|
February 3, 2022 |
|
|
|
15,000,000 |
|
|
|
-0- |
|
|
$ |
0.01 |
|
|
March 20, 2022 |
|
|
|
20,000,000 |
|
|
|
-0- |
|
|
$ |
0.02 |
|
|
August 25, 2022 |
|
|
|
50,000,000 |
|
|
|
-0- |
|
|
$ |
0.00 |
|
|
January 17, 2025 |
|
|
|
50,000,000 |
|
|
|
-0- |
|
|
$ |
0.01 |
|
|
January 5, 2026 |
Kevin Myers (2)
Chief Marketing Officer |
|
|
10,000,000 |
|
|
|
-0- |
|
|
$ |
0.00 |
|
|
January 17, 2025 |
|
|
|
17,000,000 |
|
|
|
-0- |
|
|
$ |
0.00 |
|
|
June 2, 2025 |
|
|
|
100,000,000 |
|
|
|
-0- |
|
|
$ |
0.01 |
|
|
January 5, 2026 |
Isabel Gongora (3)
Chief Financial Officer |
|
|
10,000,000 |
|
|
|
-0- |
|
|
$ |
0.00 |
|
|
January 17, 2025 |
|
|
|
20,000,000 |
|
|
|
-0- |
|
|
$ |
0.01 |
|
|
January 5, 2026 |
|
(1) |
On August 13, 2012,
Mr. Van Noy received stock options to purchase 5,000,000 shares of
common stock, at an exercise price of $0.0053 per share exercisable
for a period of seven years from the date of grant. These
stock options vest at a rate of 1/36 per month commencing on the
date of grant until all of the options are vested. On
February 3, 2015, Mr. Van Noy received stock options to purchase
30,000,000 shares of common stock, at an exercise price of $0.0131
per share exercisable for a period of seven years from the date of
grant. These stock options vest at a rate of 1/36 per month
commencing on the date of grant until all of the options are
vested. On March 20, 2015, Mr. Van Noy received stock options to
purchase 15,000,000 shares of common stock, at an exercise price of
$0.013 per share exercisable for a period of seven years from the
date of grant. These stock options vest at a rate of 1/36 per
month commencing on the date of grant until all of the options are
vested. On August 25, 2015, Mr. Van Noy received stock
options to purchase 20,000,000 shares of common stock, at an
exercise price of $0.015 per share exercisable for a period of
seven years from the date of grant. On January 17, 2020, Mr.
Van Noy received stock options to purchase 50,000,000 shares of
common stock, at an exercise price of $0.0019 per share exercisable
for a period of seven years from the date of grant. These
stock options vest at a rate of 1/36 per month commencing on the
date of grant until all of the options are vested. On January
5, 2021, Mr. Van Noy received stock options to purchase 50,000,000
shares of common stock, at an exercise price of $0.0170 per share
exercisable for a period of five years from the date of grant.
These stock options vest at a rate of 1/36 per month
commencing on the date of grant until all of the options are
vested. |
|
(2) |
On January 17, 2020,
Mr. Myers received stock options to purchase 10,000,000 shares of
common stock, at an exercise price of $0.0019 per share exercisable
for a period of five years from the date of grant. These
stock options vest at a rate of 1/36 per month commencing on the
date of grant until all of the options are vested. On June 2,
2020, Mr. Myers received stock options to purchase 17,000,000
shares of common stock, at an exercise price of $0.0018 per share
exercisable for a period of five years from the date of grant.
These stock options vest at a rate of 1/36 per month
commencing on the date of grant until all of the options are
vested. On January 5, 2021, Mr. Myers received stock options to
purchase 100,000,000 shares of common stock, at an exercise price
of $0.0068 per share exercisable for a period of five years from
the date of grant. |
|
(3) |
On January 17, 2020,
Ms. Gongora received stock options to purchase 2,000,000 shares of
common stock, at an exercise price of $0.0019 per share exercisable
for a period of five years from the date of grant. These
stock options vest at a rate of 1/36 per month commencing on the
date of grant until all of the options are vested. On January
5, 2021, Ms. Gongora received stock options to purchase 10,000,000
shares of common stock, at an exercise price of $0.0068 per share
exercisable for a period of five years from the date of grant.
These stock options vest at a rate of 1/36 per month
commencing on the date of grant until all of the options are
vested. |
Director
Compensation
The
Company’s directors receive compensation for their services
rendered to the Company as directors. During the fiscal years ended
December 31, 2021 and 2020, this compensation totaled $30,000 and
$30,000, respectively, to each director. Compensation to
officers excluding compensation for serving on the board as set
forth in table below is included in the summary compensation table
above.
The
following table sets forth compensation we paid to our directors
during the year ended December 31, 2021 (excluding compensation
under the Summary Compensation table above).
Name |
|
Fees Earned or
Paid in Cash |
|
|
Stock
Awards -2 |
|
|
Option
Awards |
|
|
All Other
Compensation |
|
|
Total |
|
Andrew Van Noy |
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,000 |
|
Kevin Myers |
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,000 |
|
Richard Berliner |
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,000 |
|
Virginia Rose O’Meara |
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,000 |
|
Mark Fruehan |
|
|
30,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,000 |
|
Employment
Agreements
The
Company has not entered into any employment agreements with its
executive officers to date. The Company may enter into employment
agreements with its executive officers in the future.
In connection with Gerard Hug’s appointment as Chief Executive
Officer on July 21, 2022, the Company entered into an employment
offer letter (“Employment Offer Letter”) with Mr. Hug. Pursuant to
the Employment Offer Letter, Mr. Hug received a signing bonus of
$100,000 and will receive an annual base salary of $375,000. After
12 months of employment, Mr. Hug will receive a performance and
compensation review by the Company’s compensation committee of the
board of directors of the Company. He will also be eligible for an
annual bonus of up to $375,000, upon meeting objectives set by the
board of directors.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Certain
Relationships and Related Transactions
None.
Director
Independence
Our
independent directors, as defined under Nasdaq Marketplace Rules,
consist of Richard Berliner, Virginia Rose O’Meara, and Mark
Fruhan,
LEGAL
MATTERS
The
validity of the securities being offered by this prospectus has
been passed upon for us by Sichenzia Ross Ference LLP, New York,
New York.
EXPERTS
The
financial statements of AiAdvertising, Inc. as of and for the years
ended December 31, 2021 and 2020 appearing in this prospectus, have
been audited by M&K CPAS, PLLC., as set forth in its report
thereon, included herein. Such financial statements are included
herein in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
WHERE YOU CAN FIND
MORE INFORMATION
Federal
securities laws require us to file information with the SEC
concerning our business and operations. Accordingly, we file
annual, quarterly, and special reports, and other information with
the Commission. The SEC maintains a web site (http://www.sec.gov)
at which you can read or download our reports and other
information.
We have
filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the securities being offered hereby.
As permitted by the rules and regulations of the SEC, this
prospectus does not contain all the information set forth in the
registration statement and the exhibits and schedules thereto. For
further information with respect to the Company and the securities
offered hereby, reference is made to the registration statement,
and such exhibits and schedules. The registration statement may be
accessed at the SEC’s web site.
Table of
Contents
PART I. - FINANCIAL
INFORMATION
Item
1. CONSOLIDATED FINANCIAL STATEMENTS
AIADVERTISING, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June 30,
2022 |
|
|
December 31,
2021 |
|
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
CURRENT
ASSETS |
|
|
|
|
|
|
Cash |
|
$ |
1,449,648 |
|
|
$ |
3,431,455 |
|
Accounts receivable, net |
|
|
511,000 |
|
|
|
497,422 |
|
Costs in excess of billings |
|
|
23,837 |
|
|
|
27,779 |
|
Prepaid and other current Assets |
|
|
181,364 |
|
|
|
182,427 |
|
TOTAL CURRENT ASSETS |
|
|
2,165,849 |
|
|
|
4,139,083 |
|
|
|
|
|
|
|
|
|
|
PROPERTY & EQUIPMENT, net |
|
|
119,024 |
|
|
|
114,249 |
|
RIGHT-OF-USE ASSETS |
|
|
9,719 |
|
|
|
66,369 |
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Lease deposit |
|
|
5,439 |
|
|
|
9,800 |
|
Goodwill and other intangible assets, net |
|
|
20,202 |
|
|
|
20,202 |
|
TOTAL OTHER ASSETS |
|
|
25,641 |
|
|
|
30,002 |
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
2,320,233 |
|
|
$ |
4,349,703 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
(DEFICIT) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,385,316 |
|
|
$ |
791,727 |
|
Accounts payable, related party |
|
|
10,817 |
|
|
|
10,817 |
|
Accrued expenses |
|
|
65,478 |
|
|
|
72,158 |
|
Operating lease liability |
|
|
9,719 |
|
|
|
66,369 |
|
Deferred revenue and customer deposit |
|
|
710,391 |
|
|
|
491,635 |
|
TOTAL CURRENT LIABILITIES |
|
|
2,181,721 |
|
|
|
1,432,706 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
2,181,721 |
|
|
|
1,432,706 |
|
COMMITMENTS AND CONTINGENCIES (see
Note 14) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 Authorized shares: |
|
|
|
|
|
|
|
|
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 |
|
|
|
86 |
|
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; |
|
|
- |
|
|
|
- |
|
Series G Preferred stock; 2,600 authorized, 2,597 shares issued and
outstanding; |
|
|
3 |
|
|
|
3 |
|
Common stock, $0.001 par value; 10,000,000,000 authorized shares;
1,134,084,046 and 1,055,556,518 shares issued and outstanding,
respectively |
|
|
1,134,093 |
|
|
|
1,055,566 |
|
Additional paid in capital |
|
|
48,426,172 |
|
|
|
46,667,049 |
|
Common stock payable, consisting of 5,000,000 shares valued at
$0.1128 |
|
|
564,000 |
|
|
|
564,000 |
|
Accumulated deficit |
|
|
(49,985,884 |
) |
|
|
(45,369,749 |
) |
TOTAL SHAREHOLDERS’ EQUITY |
|
|
138,512 |
|
|
|
2,916,997 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
$ |
2,320,233 |
|
|
$ |
4,349,703 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
AIADVERTISING, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three Months
Ended |
|
|
Six Months
Ended |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE |
|
$ |
1,618,626 |
|
|
$ |
1,996,602 |
|
|
$ |
2,818,288 |
|
|
$ |
3,547,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUE |
|
|
1,627,788 |
|
|
|
1,338,285 |
|
|
|
3,163,620 |
|
|
|
2,279,283 |
|
Gross Profit |
|
|
(9,162 |
) |
|
|
658,317 |
|
|
|
(345,332 |
) |
|
|
1,268,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and outside services |
|
|
858,804 |
|
|
|
691,571 |
|
|
|
2,123,509 |
|
|
|
2,126,241 |
|
Selling, general and administrative expenses |
|
|
1,139,493 |
|
|
|
(4,103,469 |
) |
|
|
2,154,057 |
|
|
|
2,344,930 |
|
Depreciation and amortization |
|
|
9,321 |
|
|
|
11,620 |
|
|
|
18,434 |
|
|
|
22,369 |
|
TOTAL OPERATING (INCOME) EXPENSES |
|
|
2,007,618 |
|
|
|
(3,400,278 |
) |
|
|
4,296,000 |
|
|
|
4,493,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM OPERATIONS BEFORE OTHER INCOME AND TAXES |
|
|
(2,016,780 |
) |
|
|
4,058,595 |
|
|
$ |
(4,641,332 |
) |
|
$ |
(3,225,023 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on extinguishment of debt |
|
|
- |
|
|
|
68,204 |
|
|
|
- |
|
|
|
95,615 |
|
Gain (loss) forgiveness of PPP Loan |
|
|
- |
|
|
|
(780,680 |
) |
|
|
- |
|
|
|
- |
|
Gain (loss) on Sales of Discontinued Operations |
|
|
- |
|
|
|
226,769 |
|
|
|
25,197 |
|
|
|
226,769 |
|
Interest expense |
|
|
- |
|
|
|
(11,766 |
) |
|
|
- |
|
|
|
(4,086,497 |
) |
TOTAL OTHER INCOME (EXPENSE) |
|
|
- |
|
|
|
(497,473 |
) |
|
$ |
25,197 |
|
|
$ |
(3,764,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME/(LOSS) FROM OPERATIONS BEFORE PROVISION FOR TAXES |
|
|
(2,016,780 |
) |
|
|
3,561,122 |
|
|
$ |
(4,616,135 |
) |
|
$ |
(6,989,136 |
) |
INCOME (LOSS) FROM DISCONTINUED OPERATIONS BEFORE PROVISION FOR
TAXES |
|
|
- |
|
|
|
27,758 |
|
|
$ |
- |
|
|
$ |
71,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION (BENEFIT) FOR INCOME TAXES |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME/(LOSS) |
|
|
(2,016,780 |
) |
|
|
3,588,880 |
|
|
$ |
(4,616,135 |
) |
|
$ |
(6,917,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED DIVIDENDS |
|
|
- |
|
|
|
2,409 |
|
|
|
- |
|
|
|
12,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME/(LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS |
|
$ |
(2,016,780 |
) |
|
$ |
3,586,471 |
|
|
$ |
(4,616,135 |
) |
|
$ |
(6,929,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
DILUTED |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
|
|
1,131,934,620 |
|
|
|
985,337,917 |
|
|
|
1,094,989,076 |
|
|
|
894,257,427 |
|
DILUTED |
|
|
1,131,934,620 |
|
|
|
2,363,283,243 |
|
|
|
1,094,989,076 |
|
|
|
894,257,427 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
AIADVERTISING, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(DEFICIT)
(UNAUDITED)
|
|
Six Months
Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Common Stock |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Payable |
|
|
Deficit |
|
|
Total |
|
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 |
|
|
- |
|
|
|
- |
|
|
|
18,313,074 |
|
|
|
18,313 |
|
|
|
164,818 |
|
|
|
|
|
|
|
- |
|
|
|
183,131 |
|
Stock issuances to lenders |
|
|
- |
|
|
|
- |
|
|
|
110,000,000 |
|
|
|
110,000 |
|
|
|
12,652,143 |
|
|
|
|
|
|
|
- |
|
|
|
12,762,143 |
|
Series A preferred stock dividend declared ($0.86 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,604 |
) |
|
|
|
|
|
|
- |
|
|
|
(8,604 |
) |
Series F preferred stock dividend declared ($0.67 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,512 |
) |
|
|
|
|
|
|
- |
|
|
|
(1,512 |
) |
Stock based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
238,634 |
|
|
|
|
|
|
|
- |
|
|
|
238,634 |
|
Stock option exercises |
|
|
- |
|
|
|
- |
|
|
|
3,528,955 |
|
|
|
3,529 |
|
|
|
(3,529 |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
Preferred stock conversion |
|
|
(10,000 |
) |
|
|
(10 |
) |
|
|
100,000,000 |
|
|
|
100,000 |
|
|
|
(99,990 |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
Warrant issuance |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
983,571 |
|
|
|
|
|
|
|
- |
|
|
|
983,571 |
|
Warrant
exercise |
|
|
- |
|
|
|
- |
|
|
|
8,556,034 |
|
|
|
8,556 |
|
|
|
(8,556 |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
Other - RegA Investor Funds |
|
|
(100 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,500 |
) |
|
|
|
|
|
|
- |
|
|
|
(2,500 |
) |
Issuance of Series H Preferred stock |
|
|
1,000 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
4,999,999 |
|
|
|
|
|
|
|
|
|
|
|
5,000,000 |
|
Net Income/(Loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
(10,506,321 |
) |
|
|
(10,506,321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021 |
|
|
138,360 |
|
|
|
138 |
|
|
|
924,338,167 |
|
|
|
924,347 |
|
|
|
50,401,311 |
|
|
|
|
|
|
|
(47,393,299 |
) |
|
|
3,932,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock dividend declared ($0.86 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(101 |
) |
|
|
|
|
|
|
- |
|
|
|
(101 |
) |
Series F preferred stock dividend declared ($0.67 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,308 |
) |
|
|
|
|
|
|
- |
|
|
|
(2,308 |
) |
Stock based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
252,839 |
|
|
|
|
|
|
|
- |
|
|
|
252,839 |
|
Stock option exercises |
|
|
- |
|
|
|
- |
|
|
|
5,302,984 |
|
|
|
5,303 |
|
|
|
(5,303 |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
Preferred stock conversion |
|
|
(3,979 |
) |
|
|
(4 |
) |
|
|
9,947,500 |
|
|
|
9,948 |
|
|
|
(9,944 |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
Warrant
exercise |
|
|
- |
|
|
|
- |
|
|
|
65,311,502 |
|
|
|
65,312 |
|
|
|
(7,455 |
) |
|
|
|
|
|
|
- |
|
|
|
57,857 |
|
Redemption of Series F Preferred Stock |
|
|
(2,353 |
) |
|
|
(2 |
) |
|
|
- |
|
|
|
- |
|
|
|
(58,823 |
) |
|
|
|
|
|
|
- |
|
|
|
(58,825 |
) |
Redemption of Series H Preferred stock |
|
|
(1,000 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
- |
|
Revaluation of Series H Preferred Stock |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(4,630,404 |
) |
|
|
|
|
|
|
|
|
|
|
(4,630,404 |
) |
Net Income/(Loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
3,588,880 |
|
|
|
3,588,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2021 |
|
|
131,028 |
|
|
|
131 |
|
|
|
1,004,900,153 |
|
|
|
1,004,910 |
|
|
|
45,939,813 |
|
|
|
|
|
|
|
(43,804,419 |
) |
|
|
3,140,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2022 |
|
|
Balance,
December 31, 2021 |
|
|
131,028 |
|
|
$ |
131 |
|
|
|
1,055,556,518 |
|
|
$ |
1,055,566 |
|
|
$ |
46,667,049 |
|
|
$ |
564,000 |
|
|
|
(45,369,749 |
) |
|
$ |
2,916,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible note, related party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
55,300,000 |
|
|
|
55,300 |
|
|
|
588,324 |
|
|
|
|
|
|
|
|
|
|
|
643,624 |
|
Stock issuances to related party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393,546 |
|
|
|
|
|
|
|
- |
|
|
|
393,546 |
|
Stock option exercised - cashless basis |
|
|
|
|
|
|
|
|
|
|
912,442 |
|
|
|
912 |
|
|
|
(912 |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
Stock option exercised - cash basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Preferred stock conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
Warrant issuance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Warrant exercise - cashless basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
Warrant exercise - cash basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Net Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(2,599,355 |
) |
|
|
(2,599,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2022 |
|
|
131,028 |
|
|
$ |
131 |
|
|
|
1,111,768,960 |
|
|
$ |
1,111,778 |
|
|
$ |
47,648,007 |
|
|
$ |
564,000 |
|
|
|
(47,969,104 |
) |
|
$ |
1,354,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible note, related party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
22,120,000 |
|
|
|
22,120 |
|
|
|
274,415 |
|
|
|
|
|
|
|
|
|
|
|
296,535 |
|
Stock Issuance in exchange for services |
|
|
|
|
|
|
|
|
|
|
195,086 |
|
|
|
195 |
|
|
|
3,179 |
|
|
|
|
|
|
|
|
|
|
|
3,374 |
|
Stock issuances to related party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,571 |
|
|
|
|
|
|
|
- |
|
|
|
500,571 |
|
Stock option exercised - cashless basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
Stock option exercised - cash basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Preferred stock conversion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
Warrant issuance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Warrant exercise - cashless basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
Warrant exercise - cash basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Net Loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(2,016,780 |
) |
|
|
(2,016,780 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2022 |
|
|
131,028 |
|
|
$ |
131 |
|
|
|
1,134,084,046 |
|
|
$ |
1,134,093 |
|
|
$ |
48,426,172 |
|
|
$ |
564,000 |
|
|
|
(49,985,884 |
) |
|
$ |
138,512 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
AIADVERTISING, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six Months
Ended
June 30,
2022 |
|
|
Six Months
Ended
June 30,
2021 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net
income (loss) from continued operations |
|
$ |
(4,616,135 |
) |
|
$ |
(6,989,136 |
) |
|
|
|
|
|
|
|
|
|
Adjustment to reconcile net loss to
net cash (used in) operating activities |
|
|
|
|
|
|
|
|
Bad debt
expense |
|
|
(1,150 |
) |
|
|
(4,645 |
) |
Depreciation
and amortization |
|
|
18,434 |
|
|
|
22,371 |
|
Finance charge,
related party |
|
|
- |
|
|
|
2,820,000 |
|
Amortization of
Debt Discount |
|
|
- |
|
|
|
274,992 |
|
Gain on
settlement of debt |
|
|
- |
|
|
|
(27,411 |
) |
Gain on
forgiveness of PPP loan |
|
|
- |
|
|
|
- |
|
Gain on Sale of
Discontinued Operations |
|
|
(25,197 |
) |
|
|
(226,769 |
) |
Non-cash
compensation expense |
|
|
894,117 |
|
|
|
491,473 |
|
Non-cash
service expense |
|
|
3,374 |
|
|
|
983,571 |
|
Issuance of
Series H Pref to employee |
|
|
- |
|
|
|
369,596 |
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) Decrease in: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(12,428 |
) |
|
|
(485,871 |
) |
Prepaid
expenses and other assets |
|
|
1,063 |
|
|
|
(47,202 |
) |
Costs in excess
of billings |
|
|
3,942 |
|
|
|
(26,201 |
) |
Lease
deposit |
|
|
4,361 |
|
|
|
- |
|
Accounts
payable |
|
|
593,589 |
|
|
|
(811,679 |
) |
Accrued
expenses |
|
|
(6,680 |
) |
|
|
(220,289 |
) |
Customer Deposits |
|
|
218,756 |
|
|
|
(242,174 |
) |
NET CASH (USED
IN) OPERATING ACTIVITIES - continued operations |
|
|
(2,923,954 |
) |
|
|
(4,119,374 |
) |
NET CASH
PROVIDED BY OPERATING ACTIVITIES - discontinued operations |
|
|
- |
|
|
|
71,695 |
|
NET CASH (USED
IN) OPERATING ACTIVITIES |
|
|
(2,923,954 |
) |
|
|
(4,047,679 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Cash paid for
purchase of fixed assets |
|
|
(23,209 |
) |
|
|
(42,543 |
) |
Proceeds from the sale of discontinued operations |
|
|
25,197 |
|
|
|
226,769 |
|
NET CASH (USED
IN)/PROVIDED BY INVESTING ACTIVITIES |
|
|
1,988 |
|
|
|
184,226 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Payment of dividend |
|
|
- |
|
|
|
(408,806 |
) |
Proceeds of
issuance of common stock, net |
|
|
940,159 |
|
|
|
10,000,000 |
|
Proceeds
(payments) on line of credit, net |
|
|
- |
|
|
|
(366,012 |
) |
Proceeds (payments) of preferred stock |
|
|
- |
|
|
|
(61,325 |
) |
Principal payments on debt, third party |
|
|
- |
|
|
|
(750,000 |
) |
Proceeds from PPP loan |
|
|
- |
|
|
|
780,680 |
|
NET CASH (USED
IN)/PROVIDED BY FINANCING ACTIVITIES |
|
|
940,159 |
|
|
|
9,194,537 |
|
|
|
|
|
|
|
|
|
|
NET INCREASE / (DECREASE) IN CASH |
|
|
(1,981,807 |
) |
|
|
5,331,084 |
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD |
|
|
3,431,455 |
|
|
|
10,538 |
|
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD |
|
$ |
1,449,648 |
|
|
$ |
5,341,622 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
- |
|
|
$ |
285,293 |
|
Taxes paid |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
Conversion of notes payable to common stock, related party |
|
$ |
- |
|
|
$ |
181,131 |
|
Right of use assets |
|
$ |
56,650 |
|
|
$ |
51,281 |
|
Conversion of preferred to common stock |
|
$ |
- |
|
|
$ |
109,948 |
|
Exercise of
stock options |
|
$ |
912 |
|
|
$ |
8,832 |
|
Exercise of
warrants |
|
$ |
- |
|
|
$ |
16,011 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
AIADVERSTISING, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
UNAUDITED
JUNE 30, 2022
1. BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements of
AiAdvertising, Inc. (“AiAdvertising,” “we,” “us,” “our,” or the
“Company”) and its wholly-owned subsidiaries, have
been prepared in accordance with the instructions to interim
financial reporting as prescribed by the Securities and Exchange
Commission (the “SEC”). The results for the interim
periods are not necessarily indicative of results for the entire
year. These interim financial statements do not include all
disclosures required by generally accepted accounting principles
(“GAAP”) and should be read in conjunction with our consolidated
financial statements and footnotes in the Company’s annual report
on Form 10-K filed with the SEC on April 14, 2022. In the opinion
of management, the unaudited Consolidated Financial Statements
contained in this report include all known accruals and adjustments
necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods reported
herein. Any such adjustments are of a normal recurring
nature.
There were various updates recently issued, most of which
represented technical corrections to the accounting literature or
application to specific industries which the Company does not
expect to have a material impact on the Company’s consolidated
financial position, results of operations or cash flows.
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 June 30, 2022, 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 December 31, 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 June 30, 2022, the Company had
negative working capital of $15,872. 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 the consolidation of
the financial statements.
As of June 30, 2022 the Company dissolved Parscale Digital, Inc.,
Data Propria, Inc., and WebTegrity, Inc.
Reclassifications
During the quarter ended June 30, 2022 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 contractual terms and how recently payments have been
received to determine if any such amounts will potentially be
uncollected. The Company includes any balances that are
determined to be uncollectible in its allowance for doubtful
accounts. After all attempts to collect a receivable have
failed, the receivable is written off. The balances of the
allowance account at June 30, 2022 and December 31, 2021 are $5,619
and $4,469 respectively.
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 June 30, 2022, the Company held cash and cash equivalents in
the amount of $1,449,648, 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.
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:
Furniture, fixtures &
equipment |
|
7
Years |
Computer equipment |
|
5 Years |
Commerce server |
|
5 Years |
Computer software |
|
3 - 5 Years |
Leasehold improvements |
|
Length of the lease |
Depreciation expenses were $18,434 and $22,025 for the six months
ended June 30, 2022 and 2021, respectively.
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 our 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 on the balance sheet as 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 June 30, 2022, and December 31, 2021 were
$710,391 and $491,635, respectively. The costs in excess of
billings as of June 30, 2022 and December 31, 2021 was $23,837 and
$27,779, respectively.
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
them by assessing the situation on a case-by-case basis and
determining if any discounts can be given. Historically, we have
not granted any significant discounts.
Included in revenue are costs that are reimbursed by our clients,
including third party services, such as photographers and stylists,
furniture, supplies, and the largest component, digital
advertising. We have determined, based on our review of ASC
606-10-55-39, that the amounts classified as reimbursable costs
should be recorded as gross revenue, 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. |
Research and Development
Research and development costs are expensed as incurred.
Total research and development costs were $461,038 and zero
for the six months ended June 30, 2022 and 2021,
respectively.
Advertising Costs
The Company expenses the cost of advertising and promotional
materials when incurred. Total advertising costs were $88,705
and $52,963 for the six months ended June 30, 2022 and 2021,
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 June 30, 2022 and December 31, 2021, 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 nine-tier fair value hierarchy which
prioritizes the inputs used in measuring fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1measurements)
and the lowest priority to unobservable inputs (level 3
measurements). These tiers include:
|
● |
Level
1, defined as observable inputs such as quoted prices for identical
instruments in active markets; |
|
● |
Level
2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable such as quoted
prices for similar instruments in active markets or quoted prices
for identical or similar instruments in markets that are not
active; and |
|
● |
Level
3, defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions, such as valuations derived from valuation techniques
in which one or more significant inputs or significant value
drivers are unobservable. |
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable. To determine
recoverability of a long-lived asset, management evaluates whether
the estimated future undiscounted net cash flows from the asset are
less than its carrying amount. If impairment is indicated, the
long-lived asset would be written down to fair value. Fair value is
determined by an evaluation of available price information at which
assets could be bought or sold, including quoted market prices, if
available, or the present value of the estimated future cash flows
based on reasonable and supportable assumptions.
Indefinite Lived Intangibles and Goodwill Assets
The Company accounts for business combinations under the
acquisition method of accounting in accordance with ASC 805,
“Business Combinations,” where the total purchase price is
allocated to the tangible and identified intangible assets acquired
and liabilities assumed based on their estimated fair values.
Significant estimates in valuing certain intangible assets include,
but are not limited to, future expected cash flows from acquired
customer lists, acquired technology, and trade names from a market
participant perspective, useful lives and discount rates.
Management’s estimates of fair value are based upon assumptions we
believe to be reasonable, but which are inherently uncertain and
unpredictable and, as a result, actual results may differ from
estimates. 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.
The impairment test conducted by the Company includes a two-step
approach to determine whether it is more likely than not that
impairment exists. If it is determined, after step one, that it is
not more likely than not, that impairment exists, then no further
analysis is conducted. 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
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 offerings, 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 them. 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 worsening in economic conditions, 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. |
Goodwill and Intangible assets are comprised of the following,
presented as net of amortization:
June 30, 2022 |
|
|
|
|
|
|
|
|
|
AiAdvertising |
|
|
Total |
|
Domain name |
|
|
20,202 |
|
|
|
20,202 |
|
Total |
|
$ |
20,202 |
|
|
$ |
20,202 |
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
AiAdvertising |
|
|
Total |
|
Domain name |
|
|
20,202 |
|
|
|
20,202 |
|
Total |
|
$ |
20,202 |
|
|
$ |
20,202 |
|
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 June 30, 2022, the Company held cash and cash equivalents in the
amount of $1,449,648, 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 13.
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 six months ended June 30, 2022, included compensation
expense for the stock-based payment awards granted prior to, but
not yet vested, as of June 30, 2022 based on the grant date fair
value estimated. Stock-based compensation expense recognized
in the consolidated statement of operations for the six months
ended June 30, 2022 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 six months
ended June 30, 2022 and 2021 were $894,117 and $491,473,
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 six months ended June 30, 2022, the Company has excluded
258,424,694 shares of common stock underlying options, 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, 2,597 Series G Preferred shares convertible into
136,684,211 shares of common stock and 162,703,869 shares of common
stock underlying warrants, because their impact on the loss per
share is anti-dilutive. During the six months ended June 30,
2022, the above mentioned shares are included in the calculation
for diluted earnings per share, resulting in 1,387,740,274 shares
being added to the weighted average common and common equivalent
shares outstanding.
For the six months ended June 30, 2021, the Company has excluded
226,701,174 shares of common stock underlying options, 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, 2,597 Series G Preferred shares convertible into
136,684,211 shares of common stock and 184,632,441 shares of common
stock underlying warrants, because their impact on the loss per
share is anti-dilutive. During the six months ended June 30,
2021, the above mentioned shares are included in the calculation
for diluted earnings per share, resulting in 1,377,945,326 shares
being added to the weighted average common and common equivalent
shares outstanding.
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.
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
quarter ended June 30, 2022, and no pronouncements were adopted
during the period.
Management reviewed accounting pronouncements issued during the
year ended December 31, 2021, and the following pronouncements were
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 the
Company’s consolidated financial statements and related disclosures
was immaterial.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update No.
2016-13 (ASU 2016-13) “Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments” which
requires the measurement and recognition of expected credit losses
for financial assets held at amortized cost. ASU 2016-13 replaces
the existing incurred loss impairment model with an expected loss
methodology, which will result in more timely recognition of credit
losses. ASU 2016-13 is effective for annual reporting periods, and
interim periods within those years, beginning after December 15,
2022. We are currently in the process of evaluating the impact of
the adoption of ASU 2016-13 on our consolidated financial
statements.
In August 2020, the FASB issued Accounting Standards Update (ASU)
2020-06, Debt – Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging – Contracts in
Entity’s Own Equity (Subtopic 815-40). The intention of ASU
2020-06 update is to address the complexity of accounting for
certain financial instruments with characteristics of liabilities
and equity, including convertible instruments and contracts in an
entity’s own equity. Under ASU 2020-06, the number of
accounting models for convertible notes will be reduced and
entities that issue convertible debt will be required to use the
if-converted method for computing diluted Earnings Per Share.
ASU 2020-06 is effective for fiscal years and interim periods
beginning after December 15, 2021 and may be adopted through either
a modified or fully retrospective transition. Early adoption is
permitted. The Company is currently evaluating the impact of this
ASU on its consolidated financial statements and related
disclosures.
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 June 30, 2022 the “Indemnity
Holdback” amount was paid by the Buyer and is recorded as a Gain on
Sale of Discontinued Operations in our statement of operations.
The Company did not classify any assets or liabilities specific to
the Purchased Assets. Therefore, the purchase price from the
Purchased Assets is 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 agreed to
continue to maintain, support, and deliver on all customer services
during the transition period of 90 days following the closing date.
The Company agreed to 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 agreed to 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
three months ended June 30, 2022 and 2021.
|
|
Three months
ended June 30, 2022
(unaudited) |
|
|
Three months
ended June 30, 2021
(unaudited) |
|
|
|
Third
Parties |
|
|
Related
Parties |
|
|
Total |
|
|
Third
Parties |
|
|
Related
Parties |
|
|
Total |
|
Hosting Revenue |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
55,014 |
|
|
|
- |
|
|
$ |
55,014 |
|
Cost of Sales |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
27,256 |
|
|
|
- |
|
|
|
27,256 |
|
Net Income from Discontinued
Operations |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
27,758 |
|
|
$ |
- |
|
|
$ |
27,758 |
|
The following table summarizes the results of operations for the
six months ended June 30, 2022 and 2021.
|
|
Six months
ended June 30, 2022
(unaudited) |
|
|
Six months
ended June 30, 2021
(unaudited) |
|
|
|
Third
Parties |
|
|
Related
Parties |
|
|
Total |
|
|
Third
Parties |
|
|
Related
Parties |
|
|
Total |
|
Hosting Revenue |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
128,336 |
|
|
|
- |
|
|
$ |
128,336 |
|
Cost of Sales |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
56,641 |
|
|
|
- |
|
|
|
56,641 |
|
Net Income from Discontinued Operations |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
71,695 |
|
|
$ |
- |
|
|
$ |
71,695 |
|
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, the Company does not
expect to realize.
For the six months ended June 30, 2022, we used the federal tax
rate of 21% in our determination of the deferred tax assets and
liabilities balances.
|
|
For the
six months ended
June 30,
2022 |
|
Current tax provision: |
|
|
|
Federal |
|
|
|
Taxable income |
|
$ |
- |
|
Total current
tax provision |
|
$ |
- |
|
|
|
|
|
|
Deferred tax
provision: |
|
|
|
|
Federal |
|
|
|
|
Loss
carryforwards |
|
$ |
4,810,516 |
|
Change in valuation allowance |
|
|
(4,810,516 |
) |
Total deferred tax provision |
|
$ |
- |
|
3. REVENUE RECOGNITION
On January 1, 2018, the Company adopted ASU 2014-09 Revenue from
Contracts with Customers and all subsequent amendments to the
ASU (collectively, “ASC 606”), using the modified retrospective
method applied to those contracts which were not completed as
of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under
Topic 606, while prior period amounts are not adjusted and continue
to be reported in accordance with our historic accounting under
Topic 605. Revenues are recognized when control of the promised
goods or services is transferred to our customers, in an amount
that reflects the consideration we expect to be entitled to in
exchange for those goods or services. The adoption of ASC 606
did not have a material impact on the Company’s Consolidated
Financial Statements.
The core principles of revenue recognition under ASC 606 includes
the following five criteria:
1. Identify the contract with the customer
Contract with our customers may be oral, written, or implied.
A written and signed contract stating the terms and
conditions is the preferred method and is consistent with most
customers. The terms of a written contract may be contained
within the body of an email, during which proposals are made and
campaign plans are outlined, or it may be a stand-alone document
signed by both parties. Contracts that are oral in nature are
consummated in status and pitch meetings and may be later followed
up with an email detailing 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 are estimated, to determine the most accurate
transaction pricing for our customer. Price is subject to
change upon agreement of the parties, and could be fixed or
variable, milestone focused or time and materials.
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. |
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-defined 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 |
During the six months ended June 30, 2022 and 2021, we included
$893,476 and $989,886 respectively, in revenue, related to
reimbursable costs.
The deferred revenue and customer deposits as of June 30, 2022 and
December 31, 2021 were $710,391 and $491,635, respectively.
For the six months ended June 30, 2022 and 2021 (unaudited),
revenue was disaggregated into the four categories as
follows:
|
|
Six months
ended June 30,
2022 (unaudited) |
|
|
Six months
ended June 30,
2021 (unaudited) |
|
|
|
Third
Parties |
|
|
Related
Parties |
|
|
Total |
|
|
Third
Parties |
|
|
Related
Parties |
|
|
Total |
|
Design |
|
|
727,670 |
|
|
|
- |
|
|
|
727,670 |
|
|
|
1,053,706 |
|
|
|
- |
|
|
|
1,053,706 |
|
Development |
|
|
20,119 |
|
|
|
- |
|
|
|
20,119 |
|
|
|
103,457 |
|
|
|
- |
|
|
|
103,457 |
|
Digital
Advertising |
|
|
1,802,124 |
|
|
|
- |
|
|
|
1,802,124 |
|
|
|
2,360,265 |
|
|
|
- |
|
|
|
2,360,265 |
|
Platform License |
|
|
268,375 |
|
|
|
- |
|
|
|
268,375 |
|
|
|
30,372 |
|
|
|
- |
|
|
|
30,372 |
|
Total |
|
$ |
2,818,288 |
|
|
$ |
- |
|
|
$ |
2,818,288 |
|
|
$ |
3,547,800 |
|
|
$ |
- |
|
|
$ |
3,547,800 |
|
4. LIQUIDITY AND OPERATIONS
The Company had a net loss of $4,616,135 for the six months ended
June 30, 2022, which includes net income from discontinued
operations of zero, a net loss of $6,917,441 for the six months
ended June 30, 2021, which includes net income from discontinued
operations of $71,695, and net cash used in operating activities of
$(2,923,954) and $(4,047,679), in the same periods,
respectively.
As of June 30, 2022, 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, disclosed in footnote 6, as
well as convertible notes disclosed in footnote 7. As of June 30,
2022, 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 to finance its growth and business
operations in which event, the Company may need to seek outside
sources of capital. There can be no assurance that such capital
will be available on terms that are favorable to the Company or at
all.
5. INTANGIBLE ASSETS
Domain Name
On June 26, 2015, the Company purchased the rights to the domain
“CLOUDCOMMERCE.COM”, from a private party at a purchase price of
$20,000, plus transaction costs of $202. This domain was used as
the main landing page for the Company. The total recorded
cost of this domain of $20,202 has been included in other assets on
the balance sheet. As of June 30, 2022, we 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 the Company submitted a renewal
application 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 six months
ended June 30, 2022 and 2021, the Company included zero and $346,
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.
The Company will assess this intangible asset for impairment, if an
event occurs that may affect the fair value, or at least
annually.
The Company’s intangible assets consist of the following:
|
|
June 30,
2022 |
|
|
December 31,
2021 |
|
|
|
Gross |
|
|
Accumulated
Amortization |
|
|
Net |
|
|
Gross |
|
|
Accumulated
Amortization |
|
|
Net |
|
Domain name |
|
|
20,202 |
|
|
|
- |
|
|
|
20,202 |
|
|
|
20,202 |
|
|
|
- |
|
|
|
20,202 |
|
Total |
|
$ |
20,202 |
|
|
$ |
- |
|
|
$ |
20,202 |
|
|
$ |
20,202 |
|
|
$ |
- |
|
|
$ |
20,202 |
|
Total amortization expense charged to operations for the six months
ended June 30, 2022, and 2021 were zero and
$346, respectively.
6. CREDIT FACILITIES
None
7. 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 quarter
ended June 30, 2020, all convertible notes that contained embedded
derivative instruments were converted, leaving a derivative
liability balance of zero.
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,
allowed 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, we
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, 2019.
During the year ended December 31, 2019, we 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 June 30, 2022 and 2021 was zero. This
note was converted within the terms of the agreement.
8. NOTES PAYABLE
Related Party Notes Payable
On August 3, 2017, the Company issued a promissory note (the
“August 3, 2017 Note”) in the amount of $25,000, at which time the
entire balance of $25,000 was received to cover operational
expenses. The August 3, 2017 Note bore interest at a rate of
5% per year and was payable upon demand, but in no event later than
36 months from the effective date. The balance of the August 3,
2017 Note, as of June 30, 2022 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 June 30, 2022 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 June 30, 2022 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 June 30, 2022 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 June 30, 2022 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 June 30, 2022 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 June 30, 2022 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 June 30, 2022 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 June 30, 2022 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 June 30, 2022 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 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 bore interest at
a rate of 5% per year and was 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 bore
interest at a rate of 5% per year and was payable upon demand, but
in no event later than August 31, 2021. The balance of the February
17, 2017 Note, as of September 30, 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
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 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 the February 27, 2021 Note 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 June 30, 2022, and December 31, 2021, the notes payable due
to related parties totaled zero and zero, respectively.
Third Party Notes Payable
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.
During the nine months ended 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 June 30, 2022,
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.
During the nine months ended 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 June 30, 2022,
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
complied 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 was 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
9. DERIVATIVE LIABILITIES
None
10. CAPITAL STOCK
At June 30, 2022 and December 31, 2021, the Company’s authorized
stock consists of 10,000,000,000 shares of common stock, par value
$0.001 per share, and 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 six
months ended June 30, 2022 and 2021, we paid dividends of $0 and
$148,705, respectively, to the holders of Series A Preferred stock.
As of June 30, 2022, the Company had zero shares of Series A
Preferred Stock outstanding. 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. As of June 30, 2022, the Company has
zero shares of Series A Preferred Stock outstanding.
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 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 June 30, 2022, 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 the 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 June 30, 2022, 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 June 30, 2022, the Company
had 86,021 shares of Series D Preferred Stock outstanding.
During the six months ended June 30, 2022, and 2021, we paid
dividends of $0, and $257,609 respectively, to the holders of
Series D Preferred stock. As of June 30, 2022, 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. The Series E 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 E Preferred Stock. As of June 30, 2022, the Company has
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. The Series F Preferred Stock was offered in
connection with the Company’s offering under Regulation A under the
Securities Act of 1933, as amended. 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 June 30, 2022, the
Company had zero shares of Series F Preferred Stock
outstanding, and the balance on stock dividend was zero.
Series G Preferred
On February 6, 2020, 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
June 30, 2022, the Company had 2,597 shares of Series G Preferred
Stock outstanding.
Series H Preferred
On March 18, 2021, the Company issued 1,000 shares of its Series H
Preferred Stock to the then-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 then-chief executive officer, for services
rendered.
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. As of December 31, 2021, there
was zero shares of Series H Preferred stock
outstanding. As of June 30, 2022 the Company has 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
shares of common stock (at an exercise price of $0.001), and
142,857,143 warrants to purchase shares of common stock for gross
proceeds of $10,000,000 ($8,500,493 net 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
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 therefore 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.
On March 28, 2022, the Company entered into a purchase
agreement with an accredited investor to purchase up to $10,000,000
of 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 was
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 was subject to a
floor of $0.01 per share, at or below which the Company could 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. As of June 30, 2022,
the Investor purchased 77,420,000 shares of common stock and the
Company received net proceeds of $940,159, which is being used for
operations.
On April 13, 2022, the Company retained the services of two
independent consultants and the Board agreed to issue each
consultant 97,543 shares for a total of 195,086 shares of common
stock at a cost basis of $0.0173 per share amounting to $3,374.
11. 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 may be exercised 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 exercised. 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 were exercisable on a cashless basis.
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 were exercisable
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. During the quarter ended June 30,
2022, 1,000,000 options were exercised on a cashless basis,
resulting in the issuance of 912,442 shares of common stock.
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 were exercisable
on a cashless basis, 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.
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 are exercisable on
a cashless basis, anytime after March 1, 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 six months ending June
30, 2022 and 2021, were determined using the Black Scholes method
with the following assumptions:
|
|
Six months
ended
June 30,
2022 |
|
|
Six months
ended
June 30,
2021 |
|
Risk free interest
rate |
|
|
1.29 |
% |
|
|
0.40 |
% |
Stock volatility factor |
|
|
229 |
% |
|
|
337 |
% |
Weighted average expected option life |
|
|
3
years |
|
|
|
5
years |
|
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
A summary of the Company’s stock option activity and related
information follows:
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
|
|
Options |
|
|
Weighted
average exercise
price |
|
|
Options |
|
|
Weighted
average exercise
price |
|
Outstanding - beginning of year |
|
|
768,233,332 |
|
|
$ |
0.0052 |
|
|
|
429,675,799 |
|
|
$ |
0.0052 |
|
Granted |
|
|
122,500,000 |
|
|
|
0.0068 |
|
|
|
368,000,000 |
|
|
|
0.0068 |
|
Exercised |
|
|
(1,000,000 |
) |
|
|
0.0019 |
|
|
|
(11,442,467 |
) |
|
|
0.0075 |
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding - end of year |
|
|
889,733,332 |
|
|
$ |
0.0092 |
|
|
|
786,233,332 |
|
|
$ |
0.0058 |
|
Exercisable at the end of year |
|
|
575,827,396 |
|
|
$ |
0.0068 |
|
|
|
321,460,729 |
|
|
$ |
0.0069 |
|
Weighted average
fair value of options granted during the year |
|
|
|
|
|
$ |
2,580,600 |
|
|
|
|
|
|
$ |
2,502,400 |
|
As of June 30, 2022, and December 31, 2021, the intrinsic value of
the stock options was approximately $3,419,267 and $5,256,720,
respectively. Stock option expense for the six months ended
June 30, 2022, and 2021 were $894,117 and $491,473,
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 June 30, 2022 was as follows:
Exercise
prices |
|
|
Number of
options outstanding |
|
|
Weighted
Average remaining
contractual life
(years) |
|
$ |
0.015 |
|
|
|
35,000,000 |
|
|
|
0.15 |
|
$ |
0.0131 |
|
|
|
60,000,000 |
|
|
|
0 |
|
$ |
0.013 |
|
|
|
15,000,000 |
|
|
|
0 |
|
$ |
0.0068 |
|
|
|
367,000,000 |
|
|
|
3.52 |
|
$ |
0.0053 |
|
|
|
10,000,000 |
|
|
|
0.12 |
|
$ |
0.0019 |
|
|
|
258,233,332 |
|
|
|
2.55 |
|
$ |
0.0018 |
|
|
|
17,000,000 |
|
|
|
2.93 |
|
$ |
0.017 |
|
|
|
5,000,000 |
|
|
|
4.14 |
|
$ |
0.0295 |
|
|
|
122,500,000 |
|
|
|
2.59 |
|
|
|
|
|
|
889,733,332 |
|
|
|
|
|
Warrants
As of June 30, 2022 and December 31, 2021, there were 162,703,869
and 162,703,869 warrants outstanding, respectively.
The fair value of warrants issued during the six months ended June
30, 2022 and 2021, were determined using the Black Scholes method
with the following assumptions:
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
Risk
free interest rate |
|
|
0 |
% |
|
|
0.40 |
% |
Stock volatility
factor |
|
|
0 |
% |
|
|
337 |
% |
Weighted average expected warrant
life |
|
|
0
years |
|
|
|
5
years |
|
Expected
dividend yield |
|
|
0 |
% |
|
|
0 |
% |
A summary of the Company’s warrant activity and related information
follows:
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30,
2022 |
|
|
June 30,
2021 |
|
|
|
Warrants |
|
|
Weighted
average
exercise
price |
|
|
Warrants |
|
|
Weighted
average
exercise
price |
|
Outstanding -
beginning of period |
|
|
162,703,869 |
|
|
$ |
0.007 |
|
|
|
20,912,852 |
|
|
$ |
0.007 |
|
Issued |
|
|
- |
|
|
|
- |
|
|
|
240,000,001 |
|
|
|
0.037 |
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
(76,280,412 |
) |
|
|
0.007 |
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding -
end of period |
|
|
162,703,869 |
|
|
$ |
0.048 |
|
|
|
184,632,441 |
|
|
$ |
0.047 |
|
Exercisable at the end of period |
|
|
162,703,869 |
|
|
$ |
0.048 |
|
|
|
184,632,441 |
|
|
$ |
0.047 |
|
Weighted average fair value of
warrants granted during the period |
|
|
|
|
|
$ |
7,792,900 |
|
|
|
|
|
|
$ |
8,720,357 |
|
Warrant expense for the six months ended June 30, 2022, and 2021
were $0 and $983,571, respectively.
12. RELATED PARTIES
Our former Chief Financial Officer is also the President of
Bountiful Capital, LLC. On January 17, 2020, notes payable owed to
Bountiful Capital amounting to $240,500 and accrued interest of
$19,758 were converted into 2,597 shares of Series G preferred
stock. On February 17, 2021, the Company entered into an Unsecured
Promissory Note (the “February 17, 2021 Term Note”), in the
aggregate principal amount of $840,000, with Bountiful Capital, LLC
for gross proceeds of $840,000. The investor is a related party.
The note bore interest at a rate of 5% per year and was not
convertible into shares of common stock of the Company. Principal
and interest under the note were due and payable upon maturity on
January 28, 2022, and a prepayment of the note was permitted. On
March 4, 2021, the Company paid off the February 17, 2021 Term Note
in full in the amount of $840,000. Also on February 17, 2021, the
Company entered into an Unsecured Promissory Note (the “February
17, 2021 Refinance Note”) with Bountiful Capital to refinance ten
Unsecured Promissory Notes dated between August 3, 2017 and January
3, 2018, with a total principal balance of $683,100 and accrued
interest of $113,626. The February 17, 2021 Refinance Note
bore interest of 5% per year and was not convertible into shares of
common stock of the Company. Principal and interest under the
note were due and payable upon maturity on August 31, 2021, and a
prepayment of the note was 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.
At June 30, 2022 and December 31, 2021, principal on the Bountiful
Notes and accrued interest totaled $0 and $0.
On August 1, 2017, the Company signed a lease with Bureau, Inc., a
related party, to provide a workplace for our employees. 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 14.
On March 18, 2021, the Company issued 1,000 shares of its Series H
Preferred Stock to the then-Chief Executive Officer of the Company,
Andrew Van Noy. The Series H Preferred Stock 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.
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. As of December 31, 2021, there
was zero shares of Series H Preferred stock
outstanding. As of June 30, 2022 the Company has
zero shares of Series H Preferred stock outstanding.
13. CONCENTRATIONS
For the six months ended June 30, 2022 and 2021, the Company had
four major customers who represented approximately 45% and 54% of
total revenue, respectively. At June 30, 2022 and December
31, 2021, accounts receivable from five and four customers,
represented approximately 64% and 58% 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.
14. 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 June 30, 2022,
the company recognized ROU assets of $9,719 and lease
liabilities of $9,719.
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, the Company 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 June 30, 2022, it is unclear whether we will attempt to
extend this lease beyond the July 31, 2022 expiration date.
However, because the lease expiration is greater than twelve
months, the lease liability is included 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. As of June 30, 2022, the ROU asset
and liability balances of this lease were $9,719 and $9,719,
respectively.
Total operating lease expense for the six months ended June 30,
2022 and 2021 was $56,650 and $51,281, 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 June
30, 2021, the Company paid off the remainder of the reduced balance
of $10,500 and recorded a gain on extinguishment of debt of
$186,802 per the agreed terms. As of June 30, 2022, and December
31, 2021, the outstanding balance was zero and zero, 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 had 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. This lease
expired on July 31, 2020 and has a remaining balance owed of
$10,817, included in Related Party Accounts Payable. It is certain
that the Company will exercise this purchase option. We have
evaluated this lease in accordance with ASC 842-20 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 |
|
June 30,
2022 |
|
|
December 31,
2021 |
|
Leased equipment under finance lease, |
|
$ |
100,097 |
|
|
$ |
100,097 |
|
less accumulated amortization |
|
|
(100,097 |
) |
|
|
(100,097 |
) |
Net |
|
$ |
- |
|
|
$ |
- |
|
Below is a reconciliation of leases to the financial
statements.
|
|
ROU
Operating Leases |
|
|
Finance
Leases |
|
Leased asset balance |
|
$ |
9,719 |
|
|
$ |
- |
|
Liability
balance |
|
|
9,719 |
|
|
|
- |
|
Cash flow
(non-cash) |
|
|
- |
|
|
|
- |
|
Interest
expense |
|
$ |
81 |
|
|
$ |
- |
|
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 |
|
2022 |
|
|
9,800 |
|
|
|
- |
|
2023 |
|
|
- |
|
|
|
- |
|
Thereafter |
|
|
- |
|
|
|
- |
|
Total |
|
$ |
9,800 |
|
|
$ |
- |
|
Less imputed interest |
|
|
(81 |
) |
|
|
- |
|
Total
liability |
|
$ |
9,719 |
|
|
$ |
- |
|
Other information related to leases is as follows:
Lease Type |
|
Weighted Average
Remaining Term |
|
Weighted
Average
Discount
Rate (1) |
|
Operating Leases |
|
1
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 this time the Company considers to be material to the Company’s
business or financial condition.
15. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
During the six months ended June 30, 2022, there were the following
non-cash activities.
|
- |
The values of the ROU
operating lease assets and liabilities each declined $56,650,
netting to zero on the statement of cash flows. |
|
- |
The holder of
1,000,000 stock options exercised their options into 912,442 shares
of common stock in the amount of $912. |
During the six months ended June 30, 2021, there were the following
non-cash activities.
|
- |
Certain lenders
converted a total of $183,131 of principal, interest, and fees,
into 18,313,074 common shares. |
|
- |
The values of the ROU
operating lease assets and liabilities each declined $51,281,
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. |
|
- |
The holders of 3,979
shares of Series D Preferred stock converted into 9,947,500 shares
of common stock. |
|
- |
The holders of
11,442,467 stock options exercised their options into 8,831,939
shares of common stock. |
|
- |
The holders of
76,280,412 warrants exercised their warrants into 73,867,536 shares
of common stock. |
16. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to ASC TOPIC
855 as of the date of the financial statements and has determined
that the following subsequent events are reportable.
|
- |
On July 21, 2022
Andrew Van Noy resigned as Chief Executive Officer of the Company
and will continue to serve as Chairman of the Board of the
Company. |
|
- |
Only July 21, 2022
Gerald Hug was appointed as Director and Chief Executive Officer of
the Company. |
On July 28, 2022, the “Company” entered into an amendment to the
Company’s purchase agreement, dated March 28, 2022 (the “Purchase
Agreement”) with GHS Investments, LLC (“GHS”). As previously
disclosed, the Purchase Agreement provides that, subject to the
conditions and limitations set forth therein, the Company may sell
to GHS, in its discretion, up to $10,000,000 of shares of the
Company’s common stock. Under the amendment, the “Purchase Price”
under the Purchase Agreement is no longer subject to a floor and is
defined as the lower of (a) 90% of the lowest traded price during
the Valuation Period (as defined under the Purchase Agreement) or
(b) the closing price for the Company’s common stock on the trading
day preceding the date of the purchase notice provided under the
Purchase Agreement.
AIADVERTISING,
INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2021 AND DECEMBER 31,
2020
CONTENTS
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders of AiAdvertising, Inc. and subsidiaries
Opinion
on the Financial Statements
We
have audited the accompanying balance sheets of AiAdvertising, Inc.
and subsidiaries (the Company) as of December 31, 2021 and 2020,
and the related statements of operations, stockholders’ equity
(deficit), and cash flows for each of the years in the two-year
period ended December 31, 2021, and the related notes (collectively
referred to as the financial statements). In our opinion, the
financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2021 and 2020,
and the results of its operations and its cash flows for each of
the years in the two-year period ended December 31, 2021, in
conformity with accounting principles generally accepted in the
United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical
Audit Matter
The
critical audit matter communicated below is a matter arising from
the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
a critical audit matter does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing separate
opinions on the critical audit matter or on the accounts or
disclosures to which they relate.
Revenue
Recognition
As
discussed in Note 2, the Company recognizes revenue upon transfer
of control of promised services to customers in an amount that
reflects the consideration the Company expects to receive in
exchange for those products or services. The Company offers
customers the ability to acquire multiple services. Significant
judgment is exercised by the Company in determining revenue
recognition for these customer agreements. Given these factors and
due to the volume of transactions, the related audit effort in
evaluating management’s judgments in determining revenue
recognition for these customer agreements was extensive and
required a high degree of auditor judgment.
We
tested the Company’s allocation of the transaction price and other
variables that impact revenue recognition.
/s/
M&K CPAS, PLLC |
|
We
have served as the Company’s auditor since 2018. |
|
Houston,
Texas |
|
April
14, 2022 |
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 |
|
|