UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

(Mark One)

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

 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022

 

 

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

 

FOR THE TRANSITION PERIOD FROM __________ TO __________

 

COMMISSION FILE NUMBER: 000-54817

 

DIGITAL LOCATIONS, INC.

(Name of registrant in its charter)

 

Nevada

 

20-5451302

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1117 State Street, Santa Barbara, California 93101

 (Address of principal executive offices) (Zip Code)

 

Issuer’s telephone Number: (805) 456-7000

 

Securities registered under Section 12(b) of the Exchange Act: None.

Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value per share

 

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐   No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

 

 

Emerging growth company

☐ 

 

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

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the price at which the Company’s common stock was sold as reported on the OTC Markets, LLC, as of the last business day of the registrant’s most recently completed second fiscal quarter on June 30, 2022 was $773,038.

 

The number of shares of registrant’s common stock outstanding, as of March 20, 2023 was 665,688,783.

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

Page

 

PART I

 

 

Item 1.

Business

 

3

 

Item 1A.

Risk Factors

 

6

 

Item 1B.

Unresolved Staff Comments

 

11

 

Item 2.

Properties

 

11

 

Item 3.

Legal Proceedings

 

11

 

Item 4.

Mine Safety Disclosures

 

11

 

 

 

 

 

 

PART II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

12

 

Item 6.

Reserved

 

12

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

13

 

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

 

20

 

Item 8.

Financial Statements and Supplementary Data

 

20

 

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

20

 

Item 9A.

Controls and Procedures

 

20

 

Item 9B.

Other Information

 

21

 

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 

21

 

 

 

 

 

 

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

22

 

Item 11.

Executive Compensation

 

26

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

33

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

34

 

Item 14.

Principal Accountant Fees and Services

 

35

 

Item 15.

Exhibits and Financial Statement Schedules

 

37

 

Item 16.

Form 10-K Summary

 

39

 

SIGNATURES

 

40

 

 

 
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PART I

 

ITEM 1. BUSINESS.

 

Unless otherwise stated or the context requires otherwise, references in this annual report on Form 10-K to “Digital Locations,” the “Company,” “we,” “us,” or “our” refer to Digital Locations, Inc.

 

Overview

 

We are an early-stage aggregator, developer and acquirer of small cell sites and cell towers for 5G services. We intend to develop a portfolio of sites to help meet the expected demand of rapidly growing 5G networks.

 

To rapidly enter the market, Digital Locations plans to acquire or partner with companies that have a portfolio of real estate that could be activated to meet the demands of 5G networks. Our goal is to become a “landlord” of tomorrow’s wireless communications assets. In furtherance of our objective, on or about January 7, 2021, we closed on the acquisition of substantially all of the assets of SmallCellSite.com, LLC, a source of more than 80,000 cell sites offered by property owners for use by wireless network operators. See “BUSINESS-Asset Purchase Agreement.”

 

With our purchase of SmallCellSite.com, LLC’s assets, we acquired proprietary web-based software which allows wireless carriers to access www.smallcellsite.com and search regionally for available properties that can be activated with wireless technology, producing revenue for both the site owner and Digital Locations.This aggregation of available property data reduces site acquisition timeframes for the large wireless carriers and makes it easier for them to source, validate, and activate properties.

 

By actively driving current property owners to list their property on smallcellsite.com, Digital Locations or its subsidiaries will receive a portion of the revenue if and when the property is activated by the carrier. Management believes that this business model greatly reduces the capital expenditure of traditional models of acquiring real estate and building wireless towers, and gives the Company a modern alternative to the development of traditional wireless small cells and towers.

 

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

 

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

 

Market Opportunity

 

5G wireless networks are expected to be 100 times faster than current 4G LTE networks. This will enable global scale killer applications such as self-driving cars, the Internet of things (“IOT”), mobile streaming of 4K videos, real-time hologram-based collaboration, and lag-free high-definition gaming.

 

To realize this vision, many new 5G broadcast locations are needed because high frequency 5G signals cannot travel farther than 100 meters. It is estimated that more than one million new 5G cell towers or small cells must be added in the United States alone. International Data Corporation (“IDC”) expects over two million—by 2021. By comparison, the existing 2G/3G/4G network, built over many years, has just over 300,000 cell towers. Recent frequency auction activity and new innovation means that we have more potential clients for our locations.

 

 
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As 5G initially rolls out in major metropolitan and suburban areas, we believe that in addition to conventional “macro” cell towers, wireless carriers will also need networks of small cell antennas dotting the country to relay signals to and from these signal-emitting macro towers. Only when these networks of small cells are deployed will customers experience the true 5G that has been marketed with blazing speed and ultra-low latency. The current method for identifying available real estate assets, negotiating leases, completing necessary zoning and permits, and installing equipment is outdated, time-consuming and costly. In order to truly fulfill the marketed performance of ultra-wide band 5G, a better system and process must be deployed.

 

We believe that we can disrupt the legacy process carriers use to identify and activate properties through our acquisition of www.smallcellsite.com. By using www.smallcellsite.com, we believe that Digital Locations can capitalize on providing “activation-ready” real estate assets through software it has acquired that speeds up implementation, enables a repeatable process and reduces the overall costs of small cell roll out.

 

FCC Eases 5G Tower Deployment

 

The United States government sees 5G as national agenda for economic and technological leadership in the next decade. Accordingly, in late 2018 the Federal Communications Commission (“FCC”) approved rules aimed at speeding up the deployment of small cells and other 5G network equipment by regulating in part the fees and timelines cities and states can impose on wireless network operators and other wireless players. The agency passed the rules with all commissioners voting in support. In addition, recent changes to the FCC Over-the Air Reception Devices (‘OTARD”) rules ensure that antennas used to distribute broadband fixed wireless services to multiple customer locations can be sited to support next-generation network deployment, including 5G. This opens the door to fixing 5G small cells to both commercial and residential locations. Previously, these types of 5G antennas were not allowed on residential structures, but we believe that these recent changes to the OTARD rules can swiftly enhance Digital Location’s plans.

 

Local Challenge of Cell Towers and Opportunity

 

While everyone wants lightning speed wireless networks, not everyone likes the appearance of cell towers on the sides of freeways or outskirts of town. While new FCC rules will make it easier to deploy new small cell antennas with less red tape, local city councils will still have a say regarding antenna aesthetics. We see this challenge as an opportunity for us to partner with regional cell tower contractors with good local government relationships to help us with our cell tower projects. Once installed, each cell tower functions as a multi-tenant tower, hosting antennas for different wireless carriers or businesses.

 

Competition

 

Many small cell antenna and tower operators conduct business in the United States, nevertheless, the market is dominated by four large cell tower companies which account for roughly $175 billion in market value: American Tower (“AMT”), Crown Castle (“CCI”), SBA Communications (“SBAC”), and Vertical Bridge. While cell towers only constitute a tiny portion of total real estate asset value in the United States, cell towers constitute disproportionately high importance in the market capitalization-weighted investible real estate indexes with AMT and CCI as the two single largest companies.

 

Cell tower companies primarily own "macro" communications towers that host cellular network broadcast equipment from AT&T, Verizon, T-Mobile, and Sprint, but CCI and UNIT also have significant investments in fiber and small-cell networks. AMC and SBAC focus on macro tower sites, but each also has significant international operations. Typically viewed as growth-oriented companies that pay relatively low dividend yields but command superior growth profiles, cell tower companies are among the newest Real Estate Investment Trust (“REIT”) sector, emerging after AMC converted to a REIT in 2012 followed by CCI in 2013 and SBAC in 2017.

 

Cell tower companies have been among the best-performing sectors over the past four years, powered by the network densification required by the early stages of the 5G rollout. More than any other real estate sector, cell tower ownership is highly concentrated. Cell tower companies own roughly 50-80% of the 100-150k investment-grade macro cell towers in the United States and due to this market power and significant barriers to entry, are perhaps the only real estate sector that could be classified as true price makers rather than price takers.

 

 
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Cell tower companies continue to command strong competitive positioning in the telecommunications sector. Cell carriers sold off their tower assets beginning in the mid-2000s to de-lever their balance sheets and free-up capital to expand their networks. Supply growth is almost non-existent in the United States as there are significant barriers to entry through the local permitting process and due to the economics of colocation versus building single-tenant towers. The relative scarcity of cell towers, combined with the absolute necessity of these towers for cell networks, has given these companies substantial pricing power even as the number of potential tenants has dwindled down to just four national carriers over the last two decades. These companies have benefited from the increase in network spending from the four national carriers during the early stages of the 5G rollout.

 

Intellectual Property

 

As a result of the APA, we acquired proprietary web-based software which provides a system and method for identifying wireless communication assets. A provisional patent application for this technology was filed on May 31, 2017 and we were notified on or about January 11, 2021, by the United States Patent and Trademark Office that the patent will be granted.

 

Government Regulation

 

Digital Locations generally is subject to all of the governmental regulations that regulate businesses generally such as compliance with regulatory requirements of federal, state, and local agencies and authorities, including regulations concerning the environment, permits for certain activities, workplace safety, labor relations, employee rights, and government taxes. The adoption of any additional laws or regulations may decrease the growth of our business, decrease the demand for services and increase our cost of doing business. Changes in tax laws also could have a significant adverse effect on our operating results and financial condition. As we acquire small cell sites and towers, we will be subject to additional regulations imposed by the FCC regarding the wireless network industry.

 

Corporate History

 

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

 

Recent Transactions

 

On January 7, 2021, Digital Locations, SmallCellSite.com LLC, a Virginia limited liability company (“SCS”), and SmallCellSite, Inc., a newly formed Nevada corporation and wholly owned subsidiary of the Company (the “Subsidiary”) entered into an Asset Purchase Agreement (“APA”) to acquire substantially all of the assets of SCS’s wireless communications marketing and database services business in consideration for a total purchase price of $10,000 in cash and a five-year convertible promissory note in the amount of $1,000,000 made in favor of SCS or its assignees (the “Note”).

 

SCS is a source of more than 80,000 cell sites offered by property owners for use by wireless network operators. Current customers include Verizon and T-Mobile Sprint.

 

Pursuant to the APA, SCS instructed us to assign the Note to its members as follows: $500,000 principal amount of the Note to Shervin Gerami, a holder of 50% of the membership interest of SCS, and $500,000 principal amount of the Note to Baryalai Azmi, a holder of 50% of the membership interest of SCS (the “Assigned Notes”).

 

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

 

 
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The asset purchase and sale of assets closed on January 7, 2021.

 

Human Capital Resources

 

As of the date of this report, we have two part-time employees. We have arrangements with various independent contractors and consultants to meet the current needs of the Company, including management, accounting, investor relations, and other administrative functions.

 

Available Information

 

Our common stock is quoted on the “Pink Sheets” published by OTC Markets Group, Inc. under the symbol “DLOC.” We file annual, quarterly, and current reports, proxy statements and other information with the U.S. Securities Exchange Commission (the “SEC”). These filings are available to the public on the Internet at the SEC’s website at http://www.sec.gov.

 

Our principal business address is 1117 State Street, Santa Barbara, California 93101. We maintain our corporate website at https://digitallocations.com/ (this website address is not intended to function as a hyperlink and the information contained on our website is not intended to be a part of this Report). We make available free of charge on https://digitallocations.com/investors/ our annual, quarterly, and current reports, and amendments to those reports if any, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC. We may from time to time provide important disclosures to investors by posting them in the Investor Relations section of our website.

 

ITEM 1A. RISK FACTORS

 

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

 

We are in the early stages of development and have limited operating history on which you can base an investment decision.

 

We were formed in August 2006, but recently changed our business focus. We have generated no revenues, have no real operating history upon which you can evaluate our business strategy or future prospects, and have negative working capital. As a result, our auditor issued an opinion in connection with our December 31, 2022 financial statements, which expressed substantial doubt about our ability to continue as a going concern unless we obtain additional financing. Our ability to obtain additional financing and generate revenue will depend on whether we can successfully develop and acquire a large portfolio of cell tower sites to make the transition from a development stage company to an operating company. We expect to continue to incur losses. In making your evaluation of our business, you should consider that we are a start-up business focused on developing and acquiring a portfolio of cell tower sites and operate in a rapidly evolving industry. As a result, we may encounter many expenses, delays, problems, and difficulties that we have not anticipated and for which we have not planned. There can be no assurance that at this time we will successfully develop or acquire a significant portfolio of cell tower sites, operate profitably, or that we will have adequate working capital to fund our operations or meet our obligations as they become due.

 

Our proposed operations are subject to all of the risks inherent in the initial expenses, challenges, complications, and delays frequently encountered in connection with the formation of any new business. Investors should evaluate an investment in our company in light of the problems and uncertainties frequently encountered by companies attempting to develop markets for new products, services, and technologies. Despite best efforts, we may never overcome these obstacles to achieve financial success. Our business is speculative and dependent upon the implementation of our business plan, as well as our ability to successfully acquire cell tower sites for 5G services with third parties on terms that will be commercially viable for us. There can be no assurance that our efforts will be successful or result in revenue or profit. There is no assurance that we will earn significant revenues or that our investors will not lose their entire investment.

 

 
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There is no assurance that our new development and growth-by-acquisition strategy will be successful.

 

Our strategy is to grow by developing new small cell sites and through the acquisition of existing small cell sites and towers.  While we will endeavor to develop or acquire small cell sites and towers that are profitable and accretive, there is no assurance that any of our business development or acquisitions will be economically successful or perform as expected.  We may develop and acquire small cell sites and towers that incur unexpected losses or may not integrate well with the Company.  We may not realize profits on our business development or acquisitions for a number of reasons, including but not limited to paying higher than fair value, unexpected operating deficits, change in the market, loss of customers, reduced demand, loss of management, and other causes.

 

Factors which may affect our ability to grow successfully through acquisitions include:

 

 

·

inability to obtain financing;

 

·

difficulties and expenses in connection with integrating small cell sites and towers that we develop and acquire and achieving the expected benefits;

 

·

diversion of management’s attention from current operations;

 

·

the possibility that we may be adversely affected by risk factors facing the small cell sites and towers that we develop and acquire;

 

·

development and acquisition of small cell sites and towers could be dilutive to earnings, or in the event of acquisitions made through the issuance of our common stock to the stockholders of the acquired small cell sites and towers, dilutive to the percentage of ownership of our existing stockholders; and

 

·

potential losses resulting from undiscovered liabilities of the small cell sites and towers we develop and acquire not covered by indemnification.

 

If we are unable to effectively manage the transition from a development stage company to an operating company, our financial results will be negatively affected.

 

For the period from our inception, August 25, 2006, through December 31, 2022, we incurred an aggregate net loss, and had an accumulated deficit, of $50,164,550. For the years ended December 31, 2022 and 2021, we incurred operating losses of $3,635,616 and $4,699,941, respectively. We reported net income of $969,014 for the year ended December 31, 2022, resulting primarily from a gain on change in derivative liability, and a net loss of $13,120,527 for the year ended December 31, 2021. Our operating losses are expected to continue to increase for at least the next 48 months as we commence full-scale development of our new business plan, if feasible.  We believe we will require significant funding to make this transition, if full-scale development is commercially justified. If we do make such transition, we expect our business to grow significantly in size and complexity.  This growth is expected to place significant additional demands on our management, systems, internal controls, and financial and operational resources. As a result, we will need to expend additional funds to hire additional qualified personnel, retain professionals to assist in developing appropriate control systems, and expand our operating infrastructures. Our inability to secure additional resources, as and when needed, or manage our growth effectively, if and when it occurs, would significantly hinder our transition to an operating company, as well as diminish our prospects of generating revenues and, ultimately, achieving profitability.

 

Currently, we have generated minimal revenue from this new and unproven segment of our business. There is a risk that we will be unable to compete with large, medium, and small competitors that are in (or may enter) the industry with substantially larger resources and management experience than us.

 

The evolving small cell site and tower market in which we expect to enter is intensely competitive requiring sophisticated technology and constant innovation, both in the development and execution of our business financial model and the quality of our intellectual property. There is no assurance that we will successfully compete to gain and retain customers and meet their requirements. Our current management has little prior experience in conducting this business.

 

 
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Our business is subject to government regulation. 

 

Aspects of our small cell site and tower business are subject to and will be designed to comply with the regulations of the FCC. A change in those regulations may have a material adverse effect on our operating results, financial condition, and business prospects and performance. We are also subject to regulations applicable to businesses generally, including without limitation those governing employment, construction, permit requirements, the environment, and health and safety, those governing the telecommunications industry, and the FCC. The adoption of any additional laws or regulations may decrease the growth of our business, decrease the demand for services and increase our cost of doing business. Changes in tax laws also could have a significant adverse effect on our operating results and financial condition.

 

As we develop and acquire small cell sites and towers, we may be subject to additional and unexpected regulations, which could increase our costs or otherwise harm our business.

 

As we develop and acquire small cell sites and towers, we may become subject to additional laws and regulations, which could create unexpected liabilities for us, cause us to incur additional costs or restrict our operations. From time to time, we may be notified of or otherwise become aware of additional laws and regulations that governmental organizations or others may claim should be applicable to our business. Our failure to anticipate the application of these laws and regulations accurately, or other failure to comply, could create liability for us, result in adverse publicity, or cause us to alter our business practices, which could cause our net revenues to decrease, our costs to increase, or our business otherwise to be harmed.

 

Our ability to protect our intellectual property is uncertain.  

 

As a result of the APA, we acquired proprietary web-based software which provides a system and method for identifying wireless communication assets. A provisional patent application for this technology was filed on May 31, 2017 and we were notified on or about January 11, 2021 by the United States Patent and Trademark Office that the patent will be granted.  We cannot assure that this patent or any other patent that may be granted to us, if any, in the future will be enforceable. We will have limited resources to fight any infringements on our proprietary rights and if we are unable to protect our proprietary rights or if such rights infringe on the rights of others, our business would be materially adversely affected.

 

The current credit and financial market conditions may exacerbate certain risks affecting our business.

 

Due to the continued disruption in the financial markets arising from the global recession and the slow pace of economic recovery, many of our potential customers may be unable to access capital necessary to lease our cell towners once developed or acquired. Many are operating under austerity budgets that make it significantly more difficult to take risks. As a result, we may experience increased difficulties in convincing customers to lease our cell towers once developed or acquired.

 

The future impact of the Covid-19 pandemic on companies is evolving and we are currently unable to assess with certainty the broad effects of Covid-19 on our business.

 

The future impact of the Covid-19 pandemic on companies continues to evolve and we are currently unable to assess with certainty the broad effects of Covid-19 on our business. As of December 31, 2022, the Company had no material assets that would be subject to impairment or change in valuation due to Covid-19.  However, as of December 31, 2022, the reported values of the Company’s material convertible debt and derivative liabilities are based on multiple factors, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. We believe these inputs will be subject to even more significant changes due to the impact on capital markets of Covid-19, and the future estimated fair value of these liabilities may fluctuate materially from period to period.

 

 
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Without reliable sources of revenue, we are currently dependent on debt or equity financing to fund our operations and execute our business plan.  We believe that the impact on capital markets of Covid-19 may make it more costly and more difficult for us to access these sources of funding.

 

We do not maintain theft or casualty insurance, and only maintain modest liability and property insurance coverage and therefore we could incur losses as a result of an uninsured loss.

 

We cannot assure that we will not incur uninsured liabilities and losses as a result of the conduct of our business.  Any such uninsured or insured loss or liability could have a material adverse effect on our results of operations.

 

If we lose key employees and consultants or are unable to attract or retain qualified personnel, our business could suffer.

 

Our success is highly dependent on our ability to attract and retain qualified management personnel. Competition for these qualified personnel is intense. We are highly dependent on our management and key consultants who have been critical to the development of our business. The loss of the services of key employees and key consultants could have a material adverse effect on our operations. We do have employment or consulting agreements with key individuals. However, there can be no assurance that any employees or consultants will remain associated with us. The efforts of key employees and consultants will be critical to us as we continue to develop our technology and as we attempt to transition from a development stage company to a company with commercialized products and services.  If we were to lose key employees or consultants, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies.

 

RISKS RELATED TO OUR COMMON STOCK

 

Our common stock is subject to volatility.

 

We cannot assure that the market price for our common stock will remain at its current level and a decrease in the market price could result in substantial losses for investors. The market price of our common stock may be significantly affected by one or more of the following factors:

 

 

·

announcements or press releases relating to the industry or to our own business or prospects;

 

·

regulatory, legislative, or other developments affecting us or the industry generally;

 

·

sales by holders of restricted securities pursuant to effective registration statements or exemptions from registration; and

 

·

market conditions specific to companies in our industry and the stock market generally.

 

If our common stock remains subject to the Securities and Exchange Commission’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.

 

Our common stock is not listed on a national securities exchange, we have stockholders’ equity of less than $5,000,000, and our common stock has a market price per share of less than $4.00.  Accordingly, transactions in our common stock are subject to the Securities and Exchange Commission’s “penny stock” rules. If our common stock remains subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.

 

In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document that describes the risks associated with such stocks, the broker-dealer's duties in selling the stock, the customer's rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer's financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions will probably decrease the willingness of broker-dealers to make a market in our common stock, decrease liquidity of our common stock and increase transaction costs for sales and purchases of our common stock as compared to other securities.  Our management is aware of the abuses that have occurred historically in the penny stock market.

 

 
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As a result, if our common stock becomes subject to the penny stock rules, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.

 

If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations.

 

Rules adopted by the Securities and Exchange Commission (“SEC”) pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

 

We are authorized to issue shares of preferred stock without stockholder approval, which could adversely impact the rights of holders of our common stock.

 

Our Articles of Incorporation authorize our Company to issue up to 20,000,000 shares of preferred stock, of which 1,000 shares have been designated as Series A Preferred Stock, 30,000 shares have been designated as Series B Preferred Stock, 36,000 shares have been designated as Series C Preferred Stock, 1,000 shares have been designated as Series D Preferred Stock, and 45,000 shares have been designated as Series E Preferred Stock. As of the date of this report, there are no shares of Series A Preferred Stock, Series C Preferred Stock, or Series D Preferred Stock issued and outstanding.  As of March 20, 2023, 14,241 shares of Series B Preferred Stock were issued and outstanding and 40,600 shares of Series E Preferred Stock were issued and outstanding.  We can issue additional shares of our preferred stock in one or more series and can set the terms of the preferred stock without seeking any further approval from our common stockholders. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common stock. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the value of common stock to current stockholders and could adversely affect the market price, if any, of our common stock. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.  Although we have no present intention to issue any additional shares of authorized preferred stock, there can be no assurance that we will not do so in the future.

 

Shares eligible for future sale may adversely affect the market.

 

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement.  Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information and notice requirements. Of the 665,688,783 shares of our common stock outstanding as of March 20, 2023, approximately 655,910,924 shares are freely tradable without restriction. Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.

 

 
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We do not expect to pay dividends in the future and any return on investment may be limited to the value of our common stock.

 

We do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the Board of Directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts. There can be no assurance that we will ever have sufficient earnings to declare and pay dividends to the holders of our common stock, and in any event, a decision to declare and pay dividends is at the sole discretion of our Board of Directors. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if its stock price appreciates.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 2. PROPERTIES.

 

We rent our principal office space in an executive office suite facility on a month-to-basis at a rate of $79 per month.

 

Effective February 1, 2022, the Company entered into a lease agreement for a sub-office in Watchung, New Jersey with a term of 12 months and monthly lease payments of $500.

 

ITEM 3. LEGAL PROCEEDINGS.

 

We are not currently a party to, nor is any of our property currently the subject of, any pending legal proceeding that will have a material adverse effect on our business.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
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PART II

 

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Our common stock is quoted on the “Pink Sheets” published by OTC Markets Group, Inc. under the symbol “DLOC.”

 

As of March 20, 2023, there were 100 holders of record of our common stock. This number does not include stockholders for whom shares were held in “nominee” or “street” name.

 

Dividend Policy

 

We have not declared or paid any cash dividends on our common stock and do not anticipate declaring or paying any cash dividends in the foreseeable future. We currently expect to retain future earnings, if any, for the development of our business.

 

Common Stock

 

Our Articles of Incorporation, as amended, authorize the issuance of up to two billion (2,000,000,000) shares of common stock, $0.001 par value per share. Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock have cumulative voting rights. Holders of shares of common stock are entitled to share ratably in dividends, if any, as may be declared, from time to time by the Board of Directors in its discretion, from funds legally available therefor. In the event of a liquidation, dissolution, or winding up of our company, the holders of shares of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. Holders of common stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares.

 

As of March 20, 2023, our common stock was held by 100 stockholders of record, and we had 604,150,321 shares of common stock issued and outstanding. We believe that the number of beneficial owners is substantially greater than the number of record holders because a significant portion of our outstanding common stock is held of record in broker street names for the benefit of individual investors. The transfer agent of our common stock is Worldwide Stock Transfer, LLC, One University Plaza, Suite 505, Hackensack, New Jersey 07601.

 

Recent Sales of Unregistered Securities

 

During the three months ended December 31, 2022, the Company issued a total of 78,461,251 shares of common stock upon the conversion of $43,750 of principal of convertible notes payable and accrued interest payable of $2,625. In connection with the convertible debt conversions, the Company reduced derivative liabilities by $33,594.

 

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

 

Issuer Purchases of Equity Securities

 

None.

 

ITEM 6. [RESERVED]

 

 
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this filing. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this annual report.

 

Cautionary Statements

 

This Form 10-K contains financial projections and other “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations, and business. These statements include, among others:

 

 

·

statements concerning the potential for benefits that we may experience from our business activities and certain transactions we contemplate or have completed; and

 

 

 

 

·

statements of our expectations, future plans and strategies, anticipated developments, and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions used in this Form 10-K. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties that may cause the Company’s actual results to be materially different from any future results expressed or implied by the Company in those statements. The most important facts that could prevent the Company from achieving its stated goals include, but are not limited to, the following:

 

 

(a)

volatility or decline of the Company’s stock price;

 

 

 

 

(b)

potential fluctuation in quarterly results;

 

 

 

 

(c)

failure of the Company to earn revenues or profits;

 

 

 

 

(d)

inadequate capital to continue or expand its business, and inability to raise additional capital or financing to implement its business plans;

 

 

 

 

(e)

failure to develop or acquire a sufficient number of cell towers;

 

 

 

 

(f)

rapid and significant changes in markets;

 

 

 

 

(g)

litigation with or legal claims and allegations by outside parties;

 

 

 

 

(h)

insufficient revenues to cover operating costs;

 

 

 

 

(i)

aspects of the Company’s business are not proprietary and in general the Company is subject to inherent competition;

 

 

 

 

(j)

further dilution of existing shareholders’ ownership in Company;

 

 

 

 

(k)

uncollectible accounts and the need to incur expenses to collect amounts owed to the Company;

 

 

 

 

(l)

inability to make business and asset acquisitions in the industries we seek due to a lack of capital or financing, purchase prices that are too high, terms that are too onerous, a lack of attractive candidates for acquisition, and strong competition for business and asset acquisitions from bigger, better capitalized competitors; and

 

 

 

 

(m)

failure of newly acquired business or assets to operate profitability or perform as expected.

 

 
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There is no assurance that the Company will be profitable.  The Company may not be able to successfully develop, manage, or market its products and services.  The Company may not be able to attract or retain qualified executives and technology personnel.  The Company may not be able to obtain customers for its products or services.  The Company’s products and services may become obsolete.  Government regulation may hinder the Company’s business.  Additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants, and stock options, the exercise of outstanding warrants and stock options, or the issuance and conversion of convertible debt.

 

Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements.  The Company cautions you not to place undue reliance on the statements, which speak only as of the date of this Form 10-K. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on its behalf may issue.  The Company does not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.

 

The following discussion should be read in conjunction with our financial statements and notes to those statements.  In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties.

 

Current Overview

 

On January 7, 2021, the Company, SmallCellSite.com LLC, a Virginia limited liability company (“SCS LLC”), and SmallCellSite, Inc., a newly formed Nevada corporation and wholly owned subsidiary of the Company (“SCS”) entered into an Asset Purchase Agreement (“APA”) to acquire substantially all of the assets of SCS LLC’s wireless communications marketing and database services business in consideration for a total purchase price of $10,000 in cash and a five-year convertible promissory note in the amount of $1,000,000 made in favor of SCS or its assignees (the “Note”). Pursuant to the APA, SCS LLC instructed the Company to assign $500,000 principal amount of the Note to each of SCS’s two members. SCS LLC is a source of more than 80,000 cell sites offered by property owners for use by wireless network operators. 

 

The SCS LLC business acquisition has been accounted for as a purchase and, effective January 7, 2021, the accounts of SCS are consolidated with those of the Company. Consequently, the results of operations for the year ended December 31, 2021 are not comparable to the results of operations for the year ended December 31, 2020.

 

Subsequent to the SCS LLC business acquisition, we intend to aggressively market and add more potential wireless sites to our database through non-exclusive marketing agreements with property owners. Management believes that the addition of more sites in the database will give our customers more options to select sites that meet their internal criteria. Once sites are selected and activated, additional revenue per site will be recognized by the Company.

 

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

 

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

 

Results of Operations

 

Year ended December 31, 2022 compared to the year ended December 31, 2021

 

Revenues

 

As discussed above, the purchase of the operating assets of SCS LLC was effective January 7, 2021, with SCS revenues included in our consolidated statement of operations from that date forward. Revenues were $23,068 and $24,029 for the years ended December 31, 2022 and 2021, respectively. Monthly payments are received by the Company from wireless carriers, with the Company paying the property owner a percentage of revenues ranging from 70% to 85%. The net amount is retained by the Company as consideration for its intermediary services and recorded as revenues.

 

General and Administrative Expenses

 

General and administrative expenses increased to $3,656,684 in the year ended December 31, 2022 from $2,625,881 in the year ended December 31, 2021. The increase in general and administrative expenses in the current year is due primarily to increased consulting and professional fees paid related to management of the Company and the identification of new business opportunities for the Company. In addition, we reported non-cash compensation expense from the issuance of non-qualified stock options of $2,986,546 in the year ended December 31, 2022 compared to $1,699,964 in the year ended December 31, 2021. The increased stock option compensation was partially offset by a decrease in the current year in non-cash stock-based compensation for common stock issued to consultants for services valued at $20,000 in the year ended December 31, 2022 compared to $416,200 in the year ended December 31, 2021.

 

Depreciation and Amortization Expense

 

Our property and equipment were fully depreciated as of December 31, 2020. Depreciation and amortization expense of $2,000 in each of the years ended December 31, 2022 and 2021 consisted of the amortization of intangible assets acquired in the SCS LLC business acquisition.

 

Impairment of Assets

 

The excess of the total purchase price paid over the value assigned to the identifiable tangible assets acquired in the APA of $2,096,089 was recorded as goodwill. The goodwill was not amortized but evaluated periodically for impairment. As of December 31, 2021, management determined that it was more likely than not that the recorded value of goodwill would not be recovered. Consequently, a non-cash impairment of assets expense of $2,096,089 was recorded for the year ended December 31, 2021.  There was no impairment of assets expense for the year ended December 31, 2022.

 

Other Income (Expense)

 

Total other income was $4,604,630 for the year ended December 31, 2022.  Total other expense was $8,420,586 for the year ended December 31, 2021.

 

 
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Our interest expense decreased to $509,633 in the year ended December 31, 2022 from $919,095 in the year ended December 31, 2021. The decrease in interest expense in the current fiscal year resulted primarily from lower amortization of debt discount as we have had multiple convertible notes payable fully converted to common stock. In addition, on April 2, 2021, an accredited investor converted $2,618,690 of principal and $872,306 of accrued interest under various 10% convertible notes payable held by the investor to a total of 34,800 shares of our Series E Preferred Stock, reducing our overall convertible debt interest. The increase or decrease in our interest expense results primarily from the timing of amortization of debt discount recorded on our convertible promissory notes. We also have increased our funding from the proceeds of Series E preferred stock in the current year, which financial instrument is non-interest bearing.

 

We reported a gain on change in derivative liabilities of $5,108,229 and $8,979,516 in the years ended December 31, 2022 and 2021, respectively.  We estimate the fair value of the derivatives associated with our convertible notes payable and stock options using a multinomial lattice model based on projections of various potential future outcomes. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements, and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

 

We recognized a gain on forgiveness of debt of $6,304 in the year ended December 31, 2022. Pursuant to an agreement with a lender, the Company agreed to extinguish a convertible promissory note in the principal amount of $40,000 with four payments of $10,000, which were made in the months of February, March, April and May 2022. Accrued interest payable of $6,034 was forgiven by the lender in May 2022, which amount is reported as other income. 

 

We reported a loss on extinguishment of debt of $16,490,508 in year ended December 31, 2021 resulting from the issuance of Series E Preferred Stock in consideration for the conversion of convertible notes payable, accrued interest payable and fees.  The Series E Preferred Stock was recorded at fair value of $23,393,601 as estimated by an independent valuation firm, resulting in a loss of $16,490,508 after recording the reduction of debt, accrued interest payable and derivative liabilities.

 

Net Income (Loss)

 

As a result of the activity discussed above, we reported net income of $969,014 in the year ended December 31, 2022 and a net loss of $13,120,527 in the year ended December 31, 2021.

 

Liquidity and Capital Resources

 

As of December 31, 2022, we had total current assets of $31,113, comprised of cash, and total current liabilities of $1,517,823, resulting in a working capital deficit of $1,486,720. Included in our current liabilities as of December 31, 2022 are derivative liabilities totaling $1,233,679, which we do not anticipate will require cash payments to settle.

 

Our liquidity was substantially improved with the issuance of shares of Series E Preferred Stock on April 2, 2021, where $2,617,690 of principal of convertible notes payable, $826,566 of accrued interest payable, and $45,740 of fees were converted to shares of Series E Preferred Stock. The Series E Preferred Stock is recorded as Mezzanine in our consolidated balance sheets.

 

We have funded our operations primarily from the proceeds from the issuance of our Series E Preferred Stock and, to a lesser extent, the proceeds of convertible notes payable. During the year ended December 31, 2022, we received net proceeds from Series E Preferred Stock of $520,000 and proceeds from convertible notes payable of $150,000. We also repaid convertible notes payable principal of $40,395.

 

Recent Financings

 

On January 5, 2023, an investor purchased 550 additional shares of Series E Preferred Stock for cash of $55,000, the stated valued of the shares. 

 

On February 6, 2023, an investor purchased 620 additional shares of Series E Preferred Stock for cash of $62,000, the stated valued of the shares.

 

 
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On March 8, 2023, an investor purchased 550 additional shares of Series E Preferred Stock for cash of $55,000, the stated valued of the shares. 

 

Sources and Uses of Cash

 

During the year ended December 31, 2022, we used net cash of $666,358 in operating activities as a result of our net income of $969,014, non-cash expenses totaling $3,491,605 and an increase in accrued interest, notes payable of $21,712, offset by non-cash gains totaling $5,114,263 and decreases in accounts payable of $13,880, accounts payable – related party of $20,000, and accrued expenses and other current liabilities of $546.

 

During the year ended December 31, 2021, we used net cash of $577,239 in operating activities as a result of our net loss of $13,120,527, non-cash gains totaling $8,989,017 and decreases in accounts payable of $41,879 and accounts payable – related party of $50,000, partially offset by non-cash expenses totaling $21,479,671, and increases in accrued expenses and other current liabilities of $328 and accrued interest - notes payable of $144,185.

 

During the year ended December 31, 2022, we used net cash of $500 in investing activities, comprised of the payment of deposit.

 

During the year ended December 31, 2021, we used net cash of $10,000 in investing activities, comprised of the payment made in the SCS business acquisition. 

 

Net cash provided by financing activities was $629,605 during the year ended December 31, 2022, comprised of proceeds from convertible notes payable of $150,000 and proceeds from the issuance of Series E Preferred Stock of $520, partially offset by repayment of convertible notes payable of $40,395.

 

Net cash provided by financing activities was $637,000 in the year ended December 31, 2021, comprised of proceeds from convertible notes payable of $587,000 and proceeds from the issuance of Series E Preferred Stock of $50,000. 

 

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

 

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

 

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

 

 
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Future Impact of Covid-19

 

The negative impact of the Covid-19 pandemic on companies continues and we are currently unable to assess with certainty the broad effects of Covid-19 on our future business. As of December 31, 2022, the Company had no material assets that would be subject to impairment or change in valuation due to Covid-19.  However as of December 31, 2022, the reported values of the Company’s material convertible debt and derivative liabilities are based on multiple factors, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. We believe these inputs will be subject to even more significant changes due to the impact on capital markets of Covid-19, and the future estimated fair value of these liabilities may fluctuate materially from period to period. 

 

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

 

Critical Accounting Policies

 

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

 

Use of Estimates

 

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

 

Intangible Assets

 

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

 

Derivative Liabilities

 

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

 

Fair Value of Financial Instruments

 

Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value.  As of December 31, 2022 and 2021, we believe the amounts reported for cash, accounts payable, accounts payable – related party, accrued expenses and other current liabilities, accrued interest, notes payable and convertible notes payable approximate fair value because of their short maturities.

 

 
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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

 

 

·

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

 

·

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

 

·

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

 

We measure certain financial instruments at fair value on a recurring basis.  Liabilities measured at fair value on a recurring basis are as follows at December 31, 2022 and 2021:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

December 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$1,233,679

 

 

$-

 

 

$-

 

 

$1,233,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$1,233,679

 

 

$-

 

 

$-

 

 

$1,233,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$5,925,214

 

 

$-

 

 

$-

 

 

$5,925,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$5,925,214

 

 

$-

 

 

$-

 

 

$5,925,214

 

 

Revenue Recognition

 

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

 

We determine revenue recognition through the following steps:

 

 

·

identification of the contract, or contracts, with a customer;

 

·

identification of the performance obligations in the contract;

 

·

determination of the transaction price;

 

·

allocation of the transaction price to the performance obligations in the contract; and

 

·

recognition of revenue when, or as, we satisfy a performance obligation.

 

Through its wholly owned subsidiary and effective January 7, 2021, the Company acts as an intermediary or agent to facilitate a platform through which property owners market real estate, physical assets and billboards to wireless telephone carriers for placement of wireless communications network equipment. Contracts have been signed among the Company, the property owner, and the wireless telephone operator.  Monthly payments are received by the Company from the wireless carriers, with the Company paying the property owner a percentage of revenues ranging from 70% to 85%. The net amount is retained by the Company as consideration for its intermediary services and recorded as revenues in the accompanying statements of operations.

 

 
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Income Taxes

 

We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Stock-Based Compensation

 

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

 

Recently Issued Accounting Pronouncements

 

Although there are several new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.

 

During the year ended December 31, 2022, the Company adopted ASC 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entities Own Equity (Subtopic 815-40).” ASC 2020-6 reduces the number of acceptable methods of accounting models for convertible debt instruments and convertible preferred stocks. The implementation of ASC 2020-6 had no material impact on the Company’s consolidated financial statements.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated by reference.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

Not applicable.

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of December 31, 2022, our Chief Executive Officer and Acting Chief Financial Officer has concluded that our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Our Chief Executive Officer and Acting Chief Financial Officer also concluded that, as of December 31, 2022, our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

 
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Management’s Report on Internal Control over Financial Reporting

 

We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule 13a-15. With the participation of our Chief Executive Officer and Acting Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2022, based on those criteria. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses:

 

1.

As of December 31, 2022, we did not maintain effective controls over the control environment. Specifically, the Board of Directors does not currently have any independent members. Since this entity level control has a pervasive effect across the organization, management has determined that this circumstance constitutes a material weakness.

 

 

 

 

2.

As of December 31, 2022, due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls and engaged an outside financial consultant to lessen the issue of segregation of duties over accounting, financial close procedures and controls over financial statement disclosure. Accordingly, management has determined that this control deficiency constitutes a material weakness.

 

 

 

 

3.

As of December 31, 2022, we did not establish a formal written policy for the approval, identification, and authorization of related party transactions.

 

Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2022, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.

 

Changes in Internal Controls

 

During the three months ended December 31, 2022, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

No Attestation Report by Independent Registered Accountant

 

The annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.

 

ITEM 9B. OTHER INFORMATION.

 

None.

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

 

Not Applicable.

 

 
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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

 

The following table sets forth the names and ages of all of our directors and executive officers. Our Board of Directors is currently comprised of three members, who are elected annually to serve for one year or until their successor is duly elected and qualified, or until their earlier resignation or removal. Executive officers serve at the discretion of the Board of Directors and are appointed by the Board of Directors.

 

Name

 

Age

 

 

Position

 

Rich Berliner

 

 

69

 

 

Chief Executive Officer, Director

 

William E. Beifuss, Jr.

 

 

77

 

 

President, Acting Chief Financial Officer, Secretary, Chairman of the Board of Directors

 

Byron Elton

 

 

69

 

 

Director

 

 

The principal occupations and business experience for the past five years (and, in some instances, for prior years) of each of our executive officers and directors are as follows:

 

Rich Berliner —Chief Executive Officer and Director.  Mr. Berliner was appointed Chief Executive Officer and a member of the Company’s Board of Directors on December 1, 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 previously served as Chief Executive Officer of a wireless construction company, Redwing Electric from 2012 through 2015, which was later sold to an investor group. Mr. Berliner did a one-year consulting project for the Swedish equipment manufacturer Ericsson in 2011. Mr. Berliner was the Founder, Chairman and CEO of Berliner Communications or BCI (BCI) which he founded 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 currently serves on the Board of Directors of AIADvertising, Inc. (OTC: AIAD). 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. Mr. Berliner’s extensive history of management of companies in the communications, marketing and publishing businesses and his senior level experience with public reporting companies qualify him to serve on the Board of Directors.

 

William E. Beifuss, Jr. — Chairman of the Board of Directors, President, Acting Chief Financial Officer, and Secretary. Effective December 1, 2021, the Board of Directors elected Mr. Beifuss as Chairman of the Board of Directors.  Mr. Beifuss served as Chief Executive Officer of the Company from September 30, 2019 to December 1 2021. Mr. Beifuss previously served as the interim Chief Executive Officer of the Company from May 1, 2017 to July 1, 2017 and as the Chief Executive Officer of the Company from May 10, 2013 to March 7, 2016. Mr. Beifuss has been the President, acting Chief Financial Officer, Secretary, and a director of the Company since May 10, 2013. Mr. Beifuss is a business executive and has served since February 2006 as the Chief Executive Officer of Cumorah Capital, Inc., a private investment company. Mr. Beifuss served as Chairman of the Board of Warp 9, Inc. from December 2008 to January 2013.  From June 2010 to April 2012, Mr. Beifuss was the President of Warp 9, Inc.  He served as the interim Chief Financial Officer of Warp 9, Inc. from June 2011 to April 2012.  From April 1992 to January 2006, Mr. Beifuss was Chief Executive Officer of Coeur D'Alene French Baking Company. He served as a unit committee chairman of Boy Scouts of America. Mr. Beifuss’ extensive history of management of the Company and his varied senior level management experience with other companies qualify him to serve on the Board of Directors.

 

 
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Byron Elton —Director.  Mr. Elton has been a director of the Company since March 16, 2009 and the Chairman of the Board of Directors from March 16, 2009 to December 1, 2021. He served as the President, Chief Operating Officer, acting Chief Financial Officer, and Secretary of the Company from January 5, 2009 to May 10, 2013. Mr. Elton is an experienced media and marketing professional with experience in crafting new business development strategies and building top-flight marketing organizations.  From January 2014 to the present, he has served on the Board of Directors of OriginClear, Inc.  From January 2014 to the present, he has served as Executive Vice President of 451 Marketing, a fully integrated marketing and communications agency with offices in Boston, New York and Los Angeles.  From June 2013 to the present, he has served as a principal at PointClear Search, an executive search firm.  He previously served as Senior Vice President of Sales for Univision Online from 2007 to 2008.  Mr. Elton also served for eight years as an executive at AOL Media Networks from 2000 to 2007, where his assignments included Regional Vice President of Sales for AOL and Senior Vice President of E-Commerce for AOL Canada. His broadcast media experience includes leading the ABC affiliate in Santa Barbara, California from 1995 to 2000 and the CBS affiliate in Monterrey, California, from 1998 to 1999, in addition to serving as President of the Alaskan Television Network from 1995 to 1999. Mr. Elton’s extensive senior level management experience, specifically in new business development and partnership strategies, qualify him to serve on the Board of Directors.

 

Family Relationships

 

There are no family relationships among our executive officers and directors.

 

Election of Directors and Officers

 

Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the board of directors following the next annual meeting of stockholders and until their successors have been elected and qualified.

 

Board Leadership Structure and Role in Risk Oversight

 

Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have determined that it is in the best interests of the Company and its shareholders to separate these roles.  

 

Our Board of Directors focuses on the most significant risks facing our Company and our Company’s general risk management strategy, and also ensure that risks undertaken by our Company are consistent with the Board’s appetite for risk. While the Board oversees our Company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our Company and that our Board leadership structure supports this approach.

 

Limitation of Liability and Indemnification of Officers and Directors

 

Under the Nevada Revised Statutes and our Articles of Incorporation, our directors will have no personal liability to us or our stockholders for monetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care.” This provision does not apply to the directors’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or our shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or our shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or our shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or our shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.

 

The effect of this provision in our Articles of Incorporation is to eliminate the rights of Digital Locations and our stockholders (through stockholder’s derivative suits on behalf of Digital Locations) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (vi) above.  This provision does not limit nor eliminate the rights of Digital Locations or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director’s duty of care. In addition, our Articles of Incorporation provide that if Nevada law is amended to authorize the future elimination or limitation of the liability of a director, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the law, as amended. The Nevada Revised Statutes grants corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law. Our bylaws provide for indemnification of such persons to the full extent allowable under applicable law. These provisions will not alter the liability of the directors under federal securities laws.

 

 
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We intend to enter into agreements to indemnify our directors and officers, in addition to the indemnification provided for in our bylaws. These agreements, among other things, indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines, and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of Digital Locations, arising out of such person’s services as a director or officer of Digital Locations, any subsidiary of Digital Locations or any other company or enterprise to which the person provides services at the request of Digital Locations. We believe that these provisions and agreements are necessary to attract and retain qualified directors and officers.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Digital Locations pursuant to the foregoing provisions, Digital Locations has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

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

 

Director Independence. The board of directors has analyzed the independence of each director and has concluded that Byron Elton is considered an independent director in accordance with the director independence standards of the Financial Industry Regulatory Authority (“FINRA”) the NYSE Amex Equities and The Nasdaq Capital Market.

 

 
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Audit Committee.  Our Board of Directors has appointed an audit committee. During our fiscal year ended December 31, 2022, our audit committee was comprised of Byron Elton, who also serves as our audit committee financial expert. Mr. Elton qualifies as independent as defined in Rule 4200 of the listing standards of The Nasdaq Capital Market. Our audit committee is authorized to:

 

 

·

appoint, compensate, and oversee the work of any registered public accounting firm employed by us;

 

 

 

 

·

resolve any disagreements between management and the auditor regarding financial reporting;

 

 

 

 

·

pre-approve all auditing and non-audit services;

 

 

 

 

·

retain independent counsel, accountants, or others to advise the audit committee or assist in the conduct of an investigation;

 

 

 

 

·

meet with our officers, external auditors, or outside counsel, as necessary; and

 

 

 

 

·

oversee that management has established and maintained processes to assure our compliance with all applicable laws, regulations and corporate policy.

 

The audit committee held four meetings during fiscal year ended December 31, 2022.

 

Compensation Committee.  We currently do not have a compensation committee, so all decisions with respect to management compensation are made by the whole Board.  Our Board:

 

 

·

determines compensation of our directors, executive officers and key employees;

 

 

 

 

·

establishes appropriate incentive compensation and equity-based plans and to administer such plans;

 

 

 

 

·

evaluates the performance of our management; and

 

 

 

 

·

performs such other duties and responsibilities pertaining to compensation.

 

Nominating Committee.  Our nominating committee is comprised of Byron Elton. Our nominating committee is authorized to:

 

 

·

assist the Board of Directors by identifying qualified candidates for director nominees, and to recommend to the Board of Directors the director nominees for the next annual meeting of shareholders;

 

 

 

 

·

lead the Board of Directors in its annual review of its performance;

 

 

 

 

·

recommend to the Board director nominees for each committee of the Board of Directors; and

 

 

 

 

·

develop and recommend to the Board of Directors corporate governance guidelines applicable to us.

 

Indebtedness of Executive Officers

 

No executive officer, director or any member of these individuals' immediate families or any corporation or organization with whom any of these individuals is an affiliate is or has been indebted to us since the beginning of our last fiscal year.

 

 
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Code of Ethics

 

We have adopted a Code of Ethics that applies to all of our directors, officers and employees. The text of the Code of Ethics can be accessed on Digital Location’s Internet website at www.digitallocations.com. A copy of the Code of Ethics has also been filed as an exhibit to our annual report for the year ending December 31, 2007, filed with the SEC on March 26, 2008, and incorporated herein by reference. Any waiver of the provisions of the Code of Ethics for executive officers and directors may be made only by the Audit Committee and, in the case of a waiver for members of the Audit Committee, by the Board of Directors. Any such waivers will be promptly disclosed to our shareholders.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

Compensation Discussion and Analysis

 

The following Compensation Discussion and Analysis describes the material elements of compensation for our executive officers identified in the Summary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described below, our Board of Directors makes all decisions for the total direct compensation of our executive officers, including the Named Executive Officers. We do not have a compensation committee, so all decisions with respect to management compensation are made by the whole Board.

 

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.

 

While we have only hired three executives since inception because our business has not grown sufficiently to justify additional hires, we expect to grow and hire in the future. To date, we have not applied a formal compensation program to determine the compensation of the Named Executives Officers.  In the future, as we and our management team expand, our Board of Directors expects to add independent members, form a compensation committee comprised of independent directors, and apply the compensation philosophy and policies described in this section of the Form 10-K.

 

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 a 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.

 

 
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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 Digital Location’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. 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, 2022, 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, and the Board proposes new base salary amounts, if appropriate, based on its evaluation of individual performance and expected future contributions. We do not have a 401(k) Plan, but if we adopt one in the future, base salary would be the only element of compensation that would be used in determining the amount of contributions permitted under the 401(k) Plan.

 

Incentive Compensation Awards

 

The Named Executive Officers have not been paid bonuses and our Board of Directors has not yet established a formal compensation policy for the determination of bonuses. If our revenue grows and bonuses become affordable and justifiable, we expect to use the following parameters in justifying and quantifying bonuses for our Named Executive Officers and other officers of Digital Locations: (1) the growth in our revenue, (2) the growth in our earnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price. The Board has not adopted specific performance goals and target bonus amounts for any of our fiscal years, but may do so in the future.

 

Equity Incentive Awards

 

In November 2011, our Board adopted a stock option plan (the “2011 Plan”) under which 2,000,000 shares of common stock have been reserved for issuance. No stock option awards have yet been made to any of our Named Executives or other officers or employees of Digital Locations under the 2011 Plan. Our Board granted a total of 6,223 stock options, on a post Stock-Split basis, to officers and directors outside of our 2011 Plan. The 6,223 stock options expired unexercised in September 2020.

 

On October 19, 2020, our Board granted non-qualified stock options outside of the 2011 Plan to purchase 5,000,000 shares of our common stock to our current Chief Executive Officer. These non-qualified stock options vest 1/24th per month over 24 months and are exercisable on a cash or cashless basis at $0.0108 per share for a period of five years from the date of issuance.

 

On December 22, 2020, our Board granted non-qualified stock options outside of the 2011 Plan to purchase 25,000,000 shares of our common stock to our current President, 5,000,000 shares of our common stock to a member of our Board of Directors, and a total of 175,000,000 shares of our common stock to two consultants. These non-qualified stock options vest 1/36th per month over 36 months and are exercisable on a cash or cashless basis at $0.017 per share for a period of five years from the date of issuance.

 

 
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On January 28, 2021, our Board granted non-qualified stock options outside of the 2011 Plan to purchase a total of 20,000,000 shares of our common stock to two employees. These non-qualified stock options vest 1/36th per month over 36 months and are exercisable on a cash or cashless basis at $0.05 per share for a period of five years from the date of issuance.

 

On December 1, 2021, our Board granted non-qualified stock options outside of the 2011 Plan to purchase a total of 504,000,000 shares of our common stock to our Chief Executive Officer. These options vest 84,000,000 shares in month 6 and 14,000,000 shares per month in each of the 30 months thereafter, and are exercisable on a cash or cashless basis at $0.0074 per share for a period of ten years from the date of issuance.

 

On February 8, 2022, our Board granted non-qualified stock options outside of the 2011 Plan to purchase a total of 45,000,000 shares of our common stock to a consultant. These non-qualified stock options vest 1/36th per month over 36 months and are exercisable on a cash or cashless basis at $0.0081 per share for a period of ten years from the date of issuance.

 

On February 8, 2022, our Board granted non-qualified stock options outside of the 2011 Plan to purchase a total of 75,000,000 shares of our common stock to our President and Chairman of our Board of Directors. These non-qualified stock options vest 1/36th per month over 36 months and are exercisable on a cash or cashless basis at $0.0081 per share for a period of ten years from the date of issuance.

 

These equity incentive awards, we believe, motivate our officers, consultants and employees to work to improve our business and stock price performance, thereby further linking the interests of our senior management and our stockholders. 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 number of options or other awards, if any, currently held by the officer and their vesting schedule. Our policy prohibits backdating options or granting them retroactively.

 

Benefits and Prerequisites

 

At this stage of our business, we have limited benefits and no prerequisites for our employees other than health insurance and vacation benefits 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 do not have a 401(k) Plan or any other retirement plan for our Named Executive Officers. We may adopt these 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 have employment agreements with our Named Executive Officers as more fully described below. None of our Named Executive Officers are eligible for specific benefits or payments if their employment or engagement terminates in a separation or if there is a change of control.

 

 
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Table of Contents

 

Executive Officer Compensation

 

The following table sets forth the annual compensation paid or accrued by us for the years ended December 31, 2022 and 2021 for services rendered in all capacities by our Chief Executive Officer, our President, and our two most highly compensated consultants whose total compensation exceeded $100,000, which we refer to as our “Named Executive Officers.”

 

Name and

Principal Position

 

 

 

 

 

 

Year

 

 

 

 

 

Salary ($)

 

 

 

 

 

Bonus

 ($)

 

 

 

 

Stock Awards

 ($)

 

 

 

 

Option Awards

 ($) (6)

 

 

 

Non-Equity

Incentive Plan Compensation

($)

Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)

 

 

 

 

All Other Compensation

($) (1)

 

 

 

 

 

Total

 ($)

 

 

 

 

 

 

 

 

 

 

Rich Berliner, Chief Executive Officer (2)

2022

2021

-

-

-

-

-

-

-

3,727,046

-

-

-

-

240,000

20,000

240,000

3,747,046

 

 

 

 

 

 

 

 

 

 

William E. Beifuss, Jr. - President, Acting Chief Financial Officer and Secretary (3)

2022

2021

-

-

-

-

-

-

340,914

-

-

-

-

-

120,000

120,000

460,914

120,000

 

 

 

 

 

 

 

 

 

 

Andrew Van Noy – Consultant (4)

2022

2021

-

-

-

-

-

-

-

-

-

-

-

-

-

343,000

-

343,000

 

 

 

 

 

 

 

 

 

 

Gerard Hug – Consultant (5)

2022

2021

-

-

-

-

-

-

204,548

-

-

-

-

-

20,000

60,000

224,548

60,000

  

(1)

Other compensation consists of consulting fees paid pursuant to Independent Contractor Agreements.  As of December 31, 2022, unpaid consulting fees payable were $10,000 to Mr. Beifuss. 

(2)

Effective December 1, 2021, Mr. Berliner was appointed to serve as Chief Executive Officer of the Company.  Previously, Mr. Berliner served as a consultant to the Company.

(3)

On December 1, 2021, William E. Beifuss resigned from his position as Chief Executive Officer of the Company, a position he held since September 30, 2019.  Mr. Beifuss serves as the Company’s President, Acting Chief Financial Officer and Secretary, positions he has held since May 10, 2013.

(4)

Consulting fees to Andrew Van Noy, dba Real Transition Capital, were comprised of $110,000 paid in cash and $233,000 paid in shares of the Company’s common stock in the year ended December 31, 2021.  Payments were made pursuant to an Independent Contractor/Advisory Agreement effective July 6, 2020, which was terminated in the year ended December 31, 2021.

(5)

Consulting fees to Gerard Hug were comprised of $20,000 and $60,000 paid in shares of the Company’s common stock in the years ended December 31, 2022 and 2021, respectively.  Payments were made pursuant to an Independent Contractor/Advisory Agreement effective July 6, 2020, which was terminated in the year ended December 31, 2022.

(6)

Option rewards are comprised of the fair value of non-qualified stock options as of the grant date in accordance with FASB ASC Topic 718. 

 

Independent Contractor Agreements

 

We have an Independent Contractor Agreement dated December 1, 2021 with Rich Berliner, our Chief Executive Officer, for the payment of monthly compensation of $20,000 starting in December 2021. The agreement also included the grant of 504,000,000 shares of the Company’s common stock as described in an Option Agreement dated December 1, 2021. The agreement has an initial term of 6 months beginning in December 2021 and automatically renewed for a further 6-month period, which will roll over every 6 months thereafter unless terminated by either party in accordance with the terms of the agreement.

 

We have a consulting agreement dated May 31, 2013 with William E. Beifuss, Jr., our President and Acting Chief Financial Officer, for the payment of monthly compensation of $5,000 beginning in June 2013. The agreement was amended, effective November 1, 2016, to increase the monthly compensation to $10,000. The agreement may be cancelled by either party with 30 days’ notice.  

 

 
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Grants of Equity Awards – Fiscal Year 2022

 

The following table sets forth information with respect to grants of equity to our Named Executive Officers during the year ended December 31, 2022.

 

Grants of Equity Awards

 

Name

Grant

Date

Number of

Securities

Underlying Options

Option Exercise

Price

Option Expiration

Date

 

 

 

 

 

William E. Beifuss, Jr.,  President and Acting Chief Financial Officer (1)

02/08/2022

75,000,000

$0.0081

02/08/2032

 

(1)

On February 8, 2022, Mr. Beifuss was granted non-qualified stock options to purchase 75,000,000 shares of our common stock at an exercise price of $0.0081 per share exercisable on a cash or cashless basis until February 8, 2032 in consideration for his services to us. These options vest ratably over 36 months for as long as Mr. Berliner is an employee or consultant of the Company.

 

Outstanding Equity Awards

 

The following table sets forth information with respect to outstanding equity awards held by our Named Executive Officers as of December 31, 2022.

 

Outstanding Equity Awards at Fiscal Year-End

 

Option Awards

 

Name

 

Number of Securities Underlying Unexercised Options (#) Exercisable

 

 

Number of Securities Underlying Unexercised Options (#) Unexercisable

 

 

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)

 

 

Exercise Price ($)

 

 

 

Expiration Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rich Berliner, Chief Executive Officer (1)

 

 

5,000,000

 

 

 

-

 

 

 

-

 

 

$.0108

 

 

10/19/2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rich Berliner, Chief Executive Officer (2)

 

 

182,000,000

 

 

 

322,000,000

 

 

 

-

 

 

$.0074

 

 

12/01/2031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

William E. Beifuss, Jr., President, Acting Chief Financial Officer, Secretary (3)

 

 

17,361,111

 

 

 

7,638,889

 

 

 

-

 

 

$0.017

 

 

12/22/2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

William E. Beifuss, Jr., President, Acting Chief Financial Officer, Secretary (4)

 

 

22,916,663

 

 

 

52,083,337

 

 

 

-

 

 

$0.0081

 

 

02/08/2032

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Andrew Van Noy – Consultant (5)

 

 

104,166,667

 

 

 

45,833,333

 

 

 

-

 

 

$0.017

 

 

12/22/2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gerard Hug– Consultant (6)

 

 

17,361,111

 

 

 

7,638,889

 

 

 

-

 

 

$0.017

 

 

12/22/2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gerard Hug– Consultant (7)

 

 

13,750,000

 

 

 

31,250,000

 

 

 

-

 

 

$0.0081

 

 

02/08/2032

 

 

 
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 ____________________________

 

(1)

On October 19, 2020, Mr. Berliner was granted non-qualified stock options to purchase 5,000,000 shares of our common stock at an exercise price of $0.0108 per share exercisable on a cash or cashless basis until October 19, 2025 in consideration for his services to us. These options vest 1/24th per month, commencing on October 19, 2020, on a monthly basis for as long as Mr. Berliner is an employee or consultant of the Company.

(2)

On December 1, 2021, Mr. Berliner was granted non-qualified stock options to purchase 504,000,000 shares of our common stock at an exercise price of $0.0074 per share exercisable on a cash or cashless basis until December 1, 2031 in consideration for his services to us. These options vest 84,000,000 shares in month 6 and 14,000,000 shares per month in each of the 30 months thereafter for as long as Mr. Berliner is an employee or consultant of the Company.

(3)

On December 22, 2020, Mr. Beifuss was granted non-qualified stock options to purchase 25,000,000 shares of our common stock at an exercise price of $0.017 per share exercisable on a cash or cashless basis until December 31, 2025 in consideration for his services to us. These options vest 1/36th per month, commencing on December 22, 2020, on a monthly basis for as long as Mr. Beifuss is an employee or consultant of the Company.

(4)

On February 8, 2022, Mr. Beifuss was granted non-qualified stock options to purchase 75,000,000 shares of our common stock at an exercise price of $0.0081 per share exercisable on a cash or cashless basis until February 8, 2032 in consideration for his services to us. These options vest 1/36th per month, commencing on February 8, 2022, on a monthly basis for as long as Mr. Beifuss is an employee or consultant of the Company.

(5)

On December 22, 2020, Andrew Van Noy was granted non-qualified stock options to purchase 150,000,000 shares of our common stock at an exercise price of $0.017 per share exercisable on a cash or cashless basis until December 31, 2025 in consideration for his services to us. These options vest 1/36th per month, commencing on December 22, 2020, on a monthly basis for as long as Mr. Van Noy is an employee or consultant of the Company.

(6)

On December 22, 2020, Mr. Hug was granted non-qualified stock options to purchase 25,000,000 shares of our common stock at an exercise price of $0.017 per share exercisable on a cash or cashless basis until December 31, 2025 in consideration for his services to us. These options vest 1/36th per month, commencing on December 22, 2020, on a monthly basis for as long as Mr. Hug is an employee or consultant of the Company.

(7)

On February 8, 2022, Mr. Hug was granted non-qualified stock options to purchase 45,000,000 shares of our common stock at an exercise price of $0.0081 per share exercisable on a cash or cashless basis until February 8, 2032 in consideration for his services to us. These options vest 1/36th per month, commencing on February 8, 2022, on a monthly basis for as long as Mr. Hug is an employee or consultant of the Company.

 

Option Exercises and Stock Vested

 

None of our executive officers exercised any stock options or acquired stock through vesting of an equity award during the fiscal year ended December 31, 2022. 

 

Director Compensation

 

Non-employee directors may receive compensation for their services, including the grant of stock options, and reimbursement for their expenses as shall be determined from time to time by resolution of the Board. 

 

During the fiscal year ended December 31, 2022, we paid no compensation to our non-employee director, Byron Elton.

 

Stock Option and Other Long-Term Incentive Plan

 

On November 2, 2011, our Board of Directors adopted the 2011 Equity Incentive Plan, or the 2011 Plan. Under the 2011 Plan, options may be granted which are intended to qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code of 1986, as amended, or the Code, or which are not intended to qualify as Incentive Stock Options thereunder. In addition, direct grants of stock or restricted stock may be awarded. There are 2,000,000 shares of common stock reserved for issuance under the 2011 Plan. A summary of the terms and provisions of the 2011 Plan are described below.

 

The primary purpose of the 2011 Plan is to attract and retain the best available personnel in order to promote the success of our business and to facilitate the ownership of our stock by employees and others who provide services to us. Under the 2011 Plan, options may be granted to employees, officers, directors or consultants of ours. The term of each option granted under the 2011 Plan will be contained in a stock option agreement between the optionee and us and such terms shall be determined by a committee of the Board of Directors consistent with the provisions of the 2011 Plan, including the following:

 

 
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·

The purchase price of the common stock subject to each incentive stock option will not be less than the fair market value (as set forth in the 2011 Plan), or in the case of the grant of an incentive stock option to a principal stockholder, not less than 110% of fair market value of such common stock at the time such option is granted.

 

 

 

 

·

The dates on which each option (or portion thereof) will be exercisable and the conditions precedent to such exercise, if any, shall be fixed by the committee delegated by the Board of Directors, in its discretion, at the time such option is granted. Unless otherwise provided in the grant agreement, in the event of a change of control (as set forth in the Incentive Stock Plan), the committee delegated by the Board may accelerate the vesting and exercisability of outstanding options all unvested shares shall immediately become vested;

 

 

 

 

·

Any option granted to an employee of ours will become exercisable over a period of no longer than five years. No option will in any event be exercisable after ten years from, and no Incentive Stock Option granted to a ten percent stockholder will become exercisable after the expiration of five years from, the date of the option;

 

 

 

 

·

No option will be transferable, except by will or the laws of descent and distribution, and any option may be exercised during the lifetime of the optionee only by such optionee. No option granted under the 2011 Plan will be subject to execution, attachment or other process;

 

 

 

 

·

In the event of any change in our outstanding common stock by reason of a stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, or similar event, the Board of Directors or the committee delegated by the Board may adjust proportionally (a) the number of shares of common stock (i) reserved under the 2011 Plan, (ii) available for Incentive Stock Options and Non-statutory Options and (iii) covered by outstanding stock awards or restricted stock purchase offers; (b) the exercise prices related to outstanding grants so that each optionee’s proportionate interest is maintained as immediately before such event; and (c) the appropriate fair market value and other price determinations for such grants. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board of Directors or the committee delegated by the Board of Directors will be authorized to issue or assume stock options, whether or not in a transaction to which Section 424(a) of the Code, applies, and other grants by means of substitution of new grant agreements for previously issued grants or an assumption of previously issued grants.

 

The Board of Directors may, insofar as permitted by law, from time to time, suspend or terminate the 2011 Plan or revise or amend it in any respect whatsoever, except that without the approval of our stockholders, no such revision or amendment will (i) increase the number of shares subject to the 2011 Plan, (ii) reduce the exercise price of outstanding options or effect repricing through cancellations and re-grants of new options, (iii) materially increase the benefits to participants, (iv) materially change the class of persons eligible to receive grants under the 2011 Plan; (v) decrease the exercise price of any grant  to below 100% of the fair market value on the date of grant; or (vi) extend the term of any options beyond that provided in the 2011 Plan; provided, however, no such action will alter or impair the rights and obligations under any option, or stock award, or restricted stock purchase offer outstanding as of the date thereof without the written consent of the participant thereunder.  As of the date of this report, no stock options are currently outstanding under our 2011 Plan.

 

 
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth, as of March 20, 2023, the number of and percent of our common stock beneficially owned by:

 

 

·

each of our directors;

 

 

 

 

·

each of our named executive officers;

 

 

 

 

·

each holder of 5% or more of our common stock;

 

Unless otherwise specified, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. The address for our executive officers and directors is the same as our address.

 

A person is deemed to be the beneficial owner of securities that can be acquired by him within 60 days of March 20, 2023 upon the exercise of options, warrants, or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants, or convertible securities that are held by him, but not those held by any other person, and which are exercisable within 60 days of March 20, 2023 have been exercised and converted. The address for each of the below is c/o Digital Locations, Inc., 3700 State Street, Suite 350, Santa Barbara, California 93105.

 

 

 

Common Stock

 

Name of Beneficial Owner

 

Number of

Shares Owned

 

 

Percent

Owned (1)

 

 

 

 

 

 

 

 

Rich Berliner, Chief Executive Officer, Director (2)

 

 

257,000,000

 

 

 

27.85%

 

 

 

 

 

 

 

 

 

William E. Beifuss, Jr., President, Acting Chief Financial Officer, Secretary, Chairman of the Board of Directors (3)

 

 

63,944,495

 

 

 

8.88%

 

 

 

 

 

 

 

 

 

Byron Elton, Director (4)

 

 

4,166,695

 

 

*

 

 

 

 

 

 

 

 

 

 

Andrew Van Noy (5)

 

 

129,607,817

 

 

 

16.39%

 

 

 

 

 

 

 

 

 

Gerard Hug (6)

 

 

49,253,355

 

 

 

6.97%

 

 

 

 

 

 

 

 

 

All Executive Officers and Directors as a Group (3 persons)

 

 

325,111,190

 

 

 

37.36%

 

*

Indicates beneficial ownership of less than 1%.

 

(1)

Based upon 665,688,783 common shares issued and outstanding as of March 20, 2023.

 

(2)

 Includes 257,000,000 shares subject to non-qualified stock options that are currently exercisable or exercisable within 60 days of March 20, 2023.

 

(3)

 Includes 54,166,661 shares subject to non-qualified stock options that are currently exercisable or exercisable within 60 days of March 20, 2023.

 

(4)

 Includes 4,166,667 shares subject to non-qualified stock options that are currently exercisable or exercisable within 60 days of March 20, 2023.

 

(5)

 Includes 125,000,000 shares subject to non-qualified stock options that are currently exercisable or exercisable within 60 days of March 20, 2023.  Mr. Van Noy is a consultant to the Company.

 

(6)

 Includes 40,833,333 shares subject to non-qualified stock options that are currently exercisable or exercisable within 60 days of March 20, 2023.  Mr. Hug is a consultant to the Company.

 

 
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Equity Compensation Plan Information

 

The following table shows information with respect to each equity compensation plan under which our common stock is authorized for issuance from inception (April 24, 2006) through December 31, 2022:

 

EQUITY COMPENSATION PLAN INFORMATION

 

Plan category

 

Number of securities

to be issued upon

exercise of

outstanding options

 

 

Weighted average

exercise price of

outstanding options

 

 

Number of securities

remaining available for future issuance under equity compensation plans excluding securities reflected in column (a)

 

 

 

(a)

 

 

(b)

 

 

(c)

 

Equity compensation plans approved by security holders

 

-0-

 

 

-0-

 

 

 

2,000,000

 

 

 

 

 

 

 

 

 

 

 

 

Equity compensation plans not approved by security holders (1)

 

 

854,177,778

 

 

$0.011

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

854,177,778

 

 

$0.011

 

 

 

0

 

 

(1) Consists of options to purchase a total of 834,177,778 shares of common stock.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Other than as set forth below and compensation arrangements, including employment, and indemnification arrangements, discussed, there have been no transactions since January 1, 2021, in which the amount involved in the transaction exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets as at the year-end for the last two completed fiscal years, and to which any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.

 

Certain Relationships and Related Transactions

 

Effective December 1, 2021, the Company’s Board of Directors appointed Rich Berliner as the Chief Executive Officer of the Company and a member of the Board of Directors.  On that date, the Company entered into an Independent Contractor Agreement, pursuant to which Mr. Berliner will serve as the Chief Executive Officer of the Company for an initial term of six months, subject to automatic renewal for six months unless terminated by the Company or Mr. Berliner. Mr. Berliner will receive base compensation of $20,000 per month, paid in equal installments twice each month. After one year of service, Mr. Berliner will be eligible to receive severance equal to three months of base compensation. The Company accrued compensation expense to Mr. Berliner of $240,000 and $20,000 for the years ended December 31, 2022 and 2021, respectively. Fees payable to Mr. Berliner of $20,000 were included in accounts payable – related party as of December 31, 2021.

 

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

 

 
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On December 1, 2021, William E. Beifuss, Jr. resigned from his position as Chief Executive Officer of the Company. Mr. Beifuss will continue to serve as the Company’s President, Acting Chief Financial Officer and Secretary. Pursuant to a written consulting agreement, dated May 31, 2013 and amended effective November 1, 2016, Mr. Beifuss is to receive fees of $10,000 per month.The Company accrued compensation expense to Mr. Beifuss of $120,000 for each of the years ended December 31, 2022 and 2021. Fees payable to Mr. Beifuss of $10,000 and $20,000 are included in accounts payable – related party as of December 31, 2022 and 2021, respectively.

 

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

 

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

 

Director Independence

 

We currently have one independent director, Byron Elton, as that term is defined by the listing standards of The Nasdaq Capital Market.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Audit Fees

 

The aggregate fees billable to us by M&K CPAS, PLLC in the years ended December 31, 2022 and 2021 for the audit and reviews of our financial statements totaled approximately $36,850 and $36,175, respectively.

 

 
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Audit-Related Fees

 

We incurred no audit-related fees during the years ended December 31, 2022 and 2021 to M&K CPAS, PLLC.

 

Tax Fees

 

We incurred fees to M&K CPAS, PLLC. for tax compliance services of $1,800 and $1,825 for the years ended December 31, 2022 and 2021, respectively.

 

All Other Fees

 

There were no fees billed to us by to M&K CPAS, PLLC for services other than the services described above under “Audit Fees,” “Audit-Related Fees” during the years ended December 31, 2022 and 2021.

 

Pre-Approval Policies and Procedures of Audit and Non-Audit Services of Independent Registered Public Accounting Firm

 

The audit committee’s policy is to pre-approve, typically at the beginning of our fiscal year, all audit and non-audit services, other than de minimis non-audit services, to be provided by an independent registered public accounting firm. These services may include, among others, audit services, audit-related services, tax services and other services and such services are generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the full Board of Directors regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. As part of the Board’s review, the Board will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management. At audit committee meetings throughout the year, the auditor and management may present subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year.

 

The audit committee has considered the provision of non-audit services provided by our independent registered public accounting firm to be compatible with maintaining their independence. The audit committee will continue to approve all audit and permissible non-audit services provided by our independent registered public accounting firm.

 

As of the date of this filing, our current policy is to not engage M&K CPAS, PLLC to provide, among other things, bookkeeping services, appraisal or valuation services, or international audit services. The policy provides that we engage M&K CPAS, PLLC to provide audit and other assurance services, such as review of SEC reports or filings.

 

 
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES.

 

EXHIBIT INDEX

  

3.1

 

Articles of Incorporation of Carbon Sciences, Inc. filed with the Nevada Secretary of State on August 25, 2007 (Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007).

 

 

 

3.2

 

Articles of Amendment of Articles of Incorporation of Carbon Sciences, Inc. filed with the Nevada Secretary of State on April 9, 2007 (Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007).

 

 

 

3.3

 

Certificate of Amendment to Articles of Incorporation, filed with the Nevada Secretary of State on May 9, 2011 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 16, 2011).

 

 

 

3.4

 

Certificate of Amendment to Articles of Incorporation, filed with the Nevada Secretary of State on August 1, 2011 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 4, 2011).

 

 

 

3.5

 

Certificate of Amendment to Articles of Incorporation, filed with the Nevada Secretary of State on August 26, 2013 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2017).

 

 

 

3.6

 

Series A Preferred Stock Certificate of Designation of Carbon Sciences, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 17, 2016).

 

 

 

3.7

 

Series B Preferred Stock Certificate of Designation of Carbon Sciences, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 4, 2016).

 

 

 

3.8

 

Certificate of Correction, filed with the Nevada Secretary of State on April 1, 2016 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 16, 2016)

 

 

 

3.9

 

Certificate of Change, filed with the Nevada Secretary of State on April 14, 2016 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 16, 2016).

 

 

 

3.10

 

Certificate of Amendment to Articles of Incorporation, filed with the Nevada Secretary of State on June 15, 2016 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 21, 2017)

 

 

 

3.11

 

Withdrawal of Series A Certificate of Designation of Carbon Sciences, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 7, 2017).

 

 

 

3.12

 

Series A Certificate of Designation of Carbon Sciences, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 7, 2017).

 

 

 

3.13

 

Certificate of Amendment to Articles of Incorporation, filed with the Nevada Secretary of State on November 16, 2017 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 24, 2017)

 

 

 

3.14

 

Bylaws of Carbon Sciences, Inc. (Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007).

 

 

 

3.15

 

Certificate of Designation of Series C Convertible Preferred Stock of Digital Locations, Inc. filed with the Nevada Secretary of State on November 30, 2 018 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 3, 2018)

 

 
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3.16

 

Certificate of Designation of Series D Convertible Preferred Stock of Digital Locations, Inc. filed with the Nevada Secretary of State on November 27, 2019 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 3, 2019)

 

 

 

3.17

 

Certificate of Change, filed with the Nevada Secretary of State on February 13, 2020 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 20, 2020).

 

 

 

3.18

 

Certificate of Designation of Series E Preferred Stock of Digital Locations, Inc. filed with Nevada Secretary of State on April 2, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 8, 2021)

 

 

 

3.19

 

Certificate of Amendment to Designation of Series B Preferred Stock of Digital Locations, Inc. filed with Nevada Secretary of State on April 2, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 8, 2021)

 

 

 

4.1

 

Form of Warrant issued in connection with Stock Purchase Agreement entered into between the Company and the Purchasers, signatory thereto. (Incorporated by reference to the Company’s Registration Statement on S-1 filed on November 7, 2011)

 

 

 

4.2+

 

Form of Non-Qualified Stock Option Agreement (Incorporated by reference to the Company’s Report on Form 8-Kfiled on December 29, 2020)

 

 

 

4.3+

 

Non-Qualified Stock Option Agreement issued by Digital Locations, Inc, to William E. Beifuss, Jr. (Incorporated by reference to the Company’s Current Report on Form 8-Kfiled on December 29, 2020)

 

 

 

4.4+

 

Non-Qualified Stock Option Award Agreement between Digital Locations, Inc. and Rich Berliner, dated December 1, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 7, 2021)

 

 

 

4.5+*

 

Non-Qualified Stock Option Award Agreement between Digital Locations, Inc. and William E. Beifuss, Jr., dated February 8, 2022

 

 

 

4.6

 

Description of Securities (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 28, 2022)

 

 

 

10.1+

 

Carbon Sciences, Inc. 2011 Equity Incentive Plan. (Incorporated by reference to the Company’s Registration Statement on S-1 filed on November 7, 2011)

 

 

 

10.2+

 

Consulting Agreement between Carbon Sciences, Inc. and William E. Beifuss, Jr., dated May 31, 2013. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 31, 2014)

 

 

 

10.3

 

Form of Promissory Note. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 19, 2017)

 

 

 

10.4

 

Convertible Promissory Note, dated August 29, 2019 (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on April 14, 2020)

 

 

 

10.5

 

Convertible Promissory Note, dated July 8, 2020 (Incorporated by reference to the Company’s Report on Form 8-Kfiled on August 25, 2020)

 

 

 

10.6

 

Asset Purchase Agreement, dated January 7, 2021 (Incorporated by reference to the Company’s Report on Form 8-Kfiled on January 13, 2021)

 

 

 

10.7

 

Convertible Promissory Note with Baryalai Azmi, dated January 7, 2021 (Incorporated by reference to the Company’s Report on Form 8-Kfiled on January 13, 2021)

 

 
38

Table of Contents

 

10.8

 

Convertible Promissory Note with Shervin Gerami, dated January 7, 2021 (Incorporated by reference to the Company’s Report on Form 8-Kfiled on January 13, 2021)

 

 

 

10.9

 

Convertible Promissory Note, dated July 12, 2021 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 15, 2021)

 

 

 

10.10

 

Convertible Promissory Note, dated August 31, 2021(Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 15, 2021)

 

 

 

10.11

 

Convertible Promissory Note, dated October 7, 2021 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 15, 2021)

 

 

 

10.12+

 

Independent Contractor Agreement, by and between Rich Berliner and Digital Locations, Inc., dated December 1, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 7, 2021)

 

 

 

10.13

 

Convertible Promissory Note, dated November 8, 2021 (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 28, 2022)

 

 

 

10.14

 

Convertible Promissory Note, dated December 14, 2021 (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 28, 2022)

 

 

 

10.15

 

Convertible Promissory Note, dated January 6, 2022 (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 28, 2022)

 

 

 

10.16

 

Convertible Promissory Note, dated March 1, 2022 (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 28, 2022)

 

 

 

10.17*

 

Convertible Promissory Note, dated May 3, 2022

 

 

 

10.18*

 

Convertible Promissory Note, dated August 24, 2022

 

 

 

21.1

 

Subsidiaries (Incorporated by reference to the Company’s Annual Report on Form 10-K for year ended December 31, 2020 filed on March 29, 2021)

 

 

 

31.1*

 

Certification by Chief Executive Officer pursuant to Sarbanes-Oxley Section 302

 

 

 

31.2*

 

Certification by Acting Chief Financial Officer pursuant to Sarbanes-Oxley Section 302

 

 

 

32.1*

 

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350

 

 

 

32.2*

 

Certification by Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350

 

 

 

 EX-101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

 

 

 

EX-101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

EX-101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

EX-101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

EX-101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document.

 

 

 

EX-101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

EX-104

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

 

*Filed herewith

+Management contract or incentive plan

 

ITEM 16. FORM 10-K SUMMARY

 

None.

 

 
39

Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Digital Locations, Inc.

    
Date: March 20, 2023By:/s/ Rich Berliner

 

 

Rich Berliner 
  CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) 

  

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

SIGNATURE

 

TITLE

 

DATE

 

 

 

 

 

/s/ William E. Beifuss, Jr.

 

CHAIRMAN OF THE BOARD OF DIRECTORS, PRESIDENT,

 

March 20, 2023

William E. Beifuss, Jr.

 

ACTING CHIEF FINANCIAL OFFICER, SECRETARY, (PRINCIPAL FINANCIAL OFFICER)

 

 

 

 

 

 

 

/s/ Byron Elton

 

DIRECTOR

 

March 20, 2023

Byron Elton

 

 

 

 

 

 
40

Table of Contents

 

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Index to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm (PCAOB NO 2738)

 

F-2

 

 

 

 

 

Consolidated Balance Sheets

 

F-3

 

 

 

 

 

Consolidated Statements of Operations

 

F-4

 

 

 

 

 

Consolidated Statements of Stockholders’ Deficit

 

F-5

 

 

 

 

 

Consolidated Statements of Cash Flows

 

F-8

 

 

 

 

 

Notes to Consolidated Financial Statements

 

F-9

 

 

 
F-1

Table of Contents

 

dloc_10kimg2.jpg

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Digital Locations, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Digital Locations, Inc. (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the two-year period then ended, 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, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered net losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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 audits 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 the significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

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 critical audit matters 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 matters below, providing separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

 

Company uses management estimates on various inputs to the calculation. Auditing a specialist’s calculation of the value of derivatives can be a significant judgment given the fact that the Company uses the specialists estimates on various inputs to the calculation. As discussed in Note 9 to the financial statements, the company has a derivative liability due to a tainted equity environment.

 

To evaluate the appropriateness of the fair value determined by management, we examined and evaluated the inputs management used in calculating the fair value of the derivative liability. To evaluate the appropriateness of the estimates used by the derivative specialist, we examined and evaluated the inputs the specialist used in calculating the value of the derivatives.

 

/s/ M&K CPAS, PLLC

 

M&K CPAS, PLLC

 

We have served as the Company’s auditor since 2018

 

Houston, TX

 

March 16, 2023 

 

 
F-2

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Consolidated Balance Sheets

 

 

December 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$31,113

 

 

$68,366

 

Total current assets

 

 

31,113

 

 

 

68,366

 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

Deposits

 

 

500

 

 

 

-

 

Intangible assets, net

 

 

6,000

 

 

 

8,000

 

 

 

 

 

 

 

 

 

 

Total assets

 

$37,613

 

 

$76,366

 

 

 

 

 

 

 

 

 

 

LIABILITIES, MEZZANINE AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$113,187

 

 

$127,067

 

Accounts payable – related party

 

 

10,000

 

 

 

30,000

 

Accrued expenses and other current liabilities

 

 

3,729

 

 

 

4,275

 

Accrued interest, notes payable

 

 

53,212

 

 

 

57,958

 

Derivative liabilities

 

 

1,233,679

 

 

 

5,925,214

 

Convertible notes payable, in default

 

 

29,500

 

 

 

69,895

 

Convertible notes payable – related parties ($25,980 in default)

 

 

58,600

 

 

 

58,600

 

Convertible notes payable, net of discount of $22,834 and $155,991, at December 31, 2022 and 2021, respectively

 

 

15,916

 

 

 

62,759

 

Total current liabilities

 

 

1,517,823

 

 

 

6,335,768

 

 

 

 

 

 

 

 

 

 

Long-term liabilities – convertible notes payable, net of discount of $600,767 and $800,657, at December 31, 2022 and 2021, respectively

 

 

399,233

 

 

 

199,343

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

1,917,056

 

 

 

6,535,111

 

 

 

 

 

 

 

 

 

 

Mezzanine:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; stated value $100; 20,000,000 shares authorized:

 

 

 

 

 

 

 

 

Series B, 14,241 and 14,462 shares issued and outstanding at December 31, 2022 and 2021, respectively

 

 

1,424,100

 

 

 

1,446,200

 

Series E, 40,600 and 35,400 shares issued and outstanding at December 31, 2022 and 2021, respectively

 

 

4,060,000

 

 

 

3,540,000

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 2,000,000,000 shares authorized, 604,150,321 and 276,383,093 shares issued and outstanding at December 31, 2022 and 2021, respectively

 

 

604,150

 

 

 

276,383

 

Additional paid-in capital

 

 

42,196,857

 

 

 

39,412,236

 

Accumulated deficit

 

 

(50,164,550)

 

 

(51,133,564)

 

 

 

 

 

 

 

 

 

Total stockholders’ deficit

 

 

(7,363,543)

 

 

(11,444,945)

 

 

 

 

 

 

 

 

 

Total liabilities, mezzanine and stockholders’ deficit

 

$37,613

 

 

$76,366

 

 

See notes to consolidated financial statements

 

 
F-3

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Consolidated Statements of Operations

 

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Revenues

 

$23,068

 

 

$24,029

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

3,656,684

 

 

 

2,625,881

 

Depreciation and amortization

 

 

2,000

 

 

 

2,000

 

Impairment of assets

 

 

-

 

 

 

2,096,089

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

3,658,684

 

 

 

4,723,970

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(3,635,616)

 

 

(4,699,941)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(509,633)

 

 

(919,095)

Gain on change in derivative liabilities

 

 

5,108,229

 

 

 

8,979,516

 

Gain (loss) on extinguishment of debt

 

 

6,034

 

 

 

(16,490,508)

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

4,604,630

 

 

 

(8,420,586)

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

969,014

 

 

 

(13,120,527)

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$969,014

 

 

$(13,120,527)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

Basic

 

 

433,143,911

 

 

 

195,725,543

 

Diluted

 

 

4,337,208,296

 

 

 

195,725,543

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

Basic

 

$0.00

 

 

$(0.07)

Diluted

 

$0.00

 

 

$(0.07)

 

See notes to consolidated financial statements

 

 
F-4

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Consolidated Statement of Stockholders’ Deficit

Year Ended December 31, 2022

 

 

 

Series B

Preferred Stock

 

 

Series E

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

 

14,462

 

 

$1,446,200

 

 

 

35,400

 

 

$3,540,000

 

 

 

276,383,093

 

 

$276,383

 

 

$39,412,236

 

 

$(51,133,564)

 

$(11,444,945)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for conversion of notes payable and accrued interest payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

312,879,106

 

 

 

312,878

 

 

 

52,546

 

 

 

-

 

 

 

365,424

 

Issuance of common stock for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,000,000

 

 

 

4,000

 

 

 

16,000

 

 

 

-

 

 

 

20,000

 

Common shares cancelled

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,845,211)

 

 

(3,845)

 

 

3,845

 

 

 

-

 

 

 

-

 

Issuance of common stock for conversion of Series B preferred stock

 

 

(221)

 

 

(22,100)

 

 

-

 

 

 

-

 

 

 

14,733,333

 

 

 

14,734

 

 

 

7,366

 

 

 

-

 

 

 

22,100

 

Issuance of Series E preferred stock for cash

 

 

-

 

 

 

-

 

 

 

5,200

 

 

 

520,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of consultant stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(545,462)

 

 

-

 

 

 

(545,462)

Vesting of consultant stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,986,546

 

 

 

-

 

 

 

2,986,546

 

Settlement of derivative liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

263,780

 

 

 

-

 

 

 

263,780

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

969,014

 

 

 

969,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

 

14,241

 

 

$1,424,100

 

 

 

40,600

 

 

$4,060,000

 

 

 

604,150,321

 

 

$604,150

 

 

$42,196,857

 

 

$(50,164,550)

 

$(7,363,543)

 

See notes to consolidated financial statements

 

 
F-5

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Consolidated Statement of Stockholders’ Deficit

Year Ended December 31, 2021

 

 

 

Series B

Preferred Stock

 

 

Series E

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

15,055

 

 

$1,505,500

 

 

 

-

 

 

$-

 

 

 

133,337,561

 

 

$133,338

 

 

$21,437,708

 

 

$(38,013,037)

 

$(16,441,991)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for conversion of notes payable and accrued interest payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

76,063,187

 

 

 

76,063

 

 

 

326,453

 

 

 

-

 

 

 

402,516

 

Issuance of common stock for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

27,449,011

 

 

 

27,449

 

 

 

388,751

 

 

 

-

 

 

 

416,200

 

Issuance of common stock for conversion of Series B preferred stock

 

 

(593)

 

 

(59,300)

 

 

-

 

 

 

-

 

 

 

39,533,334

 

 

 

39,533

 

 

 

19,767

 

 

 

-

 

 

 

59,300

 

Issuance of Series E preferred stock for conversion of notes payable and accrued interest payable

 

 

-

 

 

 

-

 

 

 

34,900

 

 

3,490,000

 

 

 

-

 

 

 

-

 

 

 

16,490,504

 

 

 

-

 

 

 

16,490,504

 

Issuance of Series E preferred stock for cash

 

 

-

 

 

 

-

 

 

 

500

 

 

 

50,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of consultant stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,725,180)

 

 

-

 

 

 

(4,725,180)

Vesting of consultant stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,699,964

 

 

 

-

 

 

 

1,699,964

 

Settlement of derivative liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,774,269

 

 

 

-

 

 

 

3,774,269

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,120,527)

 

 

(13,120,527)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

 

14,462

 

 

$1,446,200

 

 

 

35,400

 

 

$3,540,000

 

 

 

276,383,093

 

 

$276,383

 

 

$39,412,236

 

 

$(51,133,564)

 

$(11,444,945)

 

See notes to consolidated financial statements

 

 
F-6

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$969,014

 

 

$(13,120,527)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,000

 

 

 

2,000

 

Amortization of debt discount

 

 

483,059

 

 

 

774,910

 

Common stock issued for services

 

 

20,000

 

 

 

416,200

 

Stock option compensation

 

 

2,986,546

 

 

 

1,699,964

 

(Gain) on change in derivative liabilities

 

 

(5,108,229)

 

 

(8,979,516)

(Gain) loss on extinguishment of debt

 

 

(6,034)

 

 

16,490,508

 

Impairment of assets

 

 

-

 

 

 

2,096,089

 

Gain on forgiveness of PPP loan

 

 

-

 

 

 

(9,501)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

 

(13,880)

 

 

(41,879)

Accounts payable – related party

 

 

(20,000)

 

 

(50,000)

Accrued expenses and other current liabilities

 

 

(546)

 

 

328

 

Accrued interest – notes payable

 

 

21,712

 

 

 

144,185

 

Net cash used in operating activities

 

 

(666,358)

 

 

(577,239)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Payment of deposit

 

 

(500)

 

 

-

 

Cash paid in business acquisition

 

 

-

 

 

 

(10,000)

Net cash used in investing activities

 

 

(500)

 

 

(10,000)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from convertible notes payable

 

 

150,000

 

 

 

587,000

 

Proceeds from the issuance of Series E preferred stock

 

 

520,000

 

 

 

50,000

 

Repayment of convertible notes payable

 

 

(40,395)

 

 

-

 

Net cash provided by financing activities

 

 

629,605

 

 

 

637,000

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

(37,253)

 

 

49,761

 

Cash, beginning of the year

 

 

68,366

 

 

 

18,605

 

 

 

 

 

 

 

 

 

 

Cash, end of the year

 

$31,113

 

 

$68,366

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$-

 

 

$-

 

Cash paid for interest

 

 

4,862

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Non-cash financing and investing activities:

 

 

 

 

 

 

 

 

Debt discount for derivative liabilities

 

$680,474

 

 

$575,639

 

Common shares issued in conversion of debt

 

 

365,424

 

 

 

402,516

 

Common shares issued in conversion of Series B preferred stock

 

 

22,100

 

 

 

59,300

 

Derivative liability for consultant stock options

 

 

545,462

 

 

 

4,725,180

 

Settlement of derivative liabilities

 

 

263,780

 

 

 

3,774,269

 

Common shares cancelled

 

 

3,845

 

 

 

-

 

Series E preferred shares issued in conversion of debt

 

 

-

 

 

 

3,490,000

 

Convertible notes payable reclassified as in default

 

 

-

 

 

 

40,395

 

 

See notes to consolidated financial statements

 

 
F-8

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

Years Ended December 31, 2022 and 2021

 

1. ORGANIZATION AND BASIS OF PRESENTATION

 

Organization

 

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

 

As further discussed in Note 3, on January 7, 2021, the Company, SmallCellSite.com LLC, a Virginia limited liability company (“SCS LLC”) and SmallCellSite, Inc., a newly formed Nevada corporation and wholly owned subsidiary of the Company (“SCS”) entered into an asset purchase agreement (“APA”) to acquire SCS LLC’s wireless communications marketing and database services business. SCS LLC is a source of more than 80,000 cell sites offered by property owners for use by wireless network operators.

 

Going Concern

 

The accompanying financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. As of December 31, 2022, our current liabilities exceeded our current and total assets by $1,497,443 and we had an accumulated deficit of $50,164,550. The Company currently does not have the cash resources to meet its operating commitments for the next twelve months and expects to have ongoing requirements for capital investment or debt to implement its business plan. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern for a reasonable period of time.

 

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

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

This summary of significant accounting policies is presented to assist in understanding the Company’s financial statements.  The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity.  These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

 

Use of Estimates

 

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

 

Reclassifications

 

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

 

 
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Table of Contents

 

Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and, effective January 7, 2021, the accounts of SCS, its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Cash and Cash Equivalents

 

For purposes of the Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents.  The Company places its cash and cash equivalents with large commercial banks.  The Federal Deposit Insurance Corporation (“FDIC”) insures these balances, up to $250,000.  All of the Company’s cash balances at December 31, 2022 and 2021 were insured.  As of December 31, 2022 and 2021, there were no cash equivalents.

 

Intangible Assets

 

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

 

Goodwill

 

The excess of the total purchase price paid over the value assigned to the identifiable intangible assets acquired in the APA has been recorded as goodwill.  The goodwill is not amortized but evaluated periodically for impairment.  Management of the Company determined that, as of December 31, 2021, it was more likely than not that the recorded amount of goodwill of $2,096,089 would not be recovered; therefore, an impairment of assets expense for this amount was recorded in the statement of operations for the year ended December 31, 2021.

 

Derivative Liabilities

 

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

 

Fair Value of Financial Instruments

 

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

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements).  These tiers include:

 

 
F-10

Table of Contents

 

 

·

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

 

·

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

 

·

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

 

We measure certain financial instruments at fair value on a recurring basis.  Liabilities measured at fair value on a recurring basis are as follows as of December 31, 2022 and 2021:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

December 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$1,233,679

 

 

$-

 

 

$-

 

 

$1,233,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$1,233,679

 

 

$-

 

 

$-

 

 

$1,233,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$5,925,214

 

 

$-

 

 

$-

 

 

$5,925,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$5,925,214

 

 

$-

 

 

$-

 

 

$5,925,214

 

 

During the years ended December 31, 2022 and 2021, the Company had the following activity in its derivative liabilities account:

 

 

 

Convertible

Notes Payable

 

 

Series B

Preferred Stock

 

 

Stock Options

 

 

Total

 

 

 

 

 

 

Derivative liabilities as of December 31, 2020

 

$3,368,619

 

 

$4,137,413

 

 

$3,776,059

 

 

$11,282,091

 

Addition to liability for new issuances

 

 

2,671,728

 

 

 

-

 

 

 

4,725,180

 

 

 

7,396,908

 

Elimination of liability on conversion to common shares

 

 

(3,774,269)

 

 

-

 

 

 

-

 

 

 

(3,774,269)

Change in fair value

 

 

(753,742)

 

 

(4,137,413)

 

 

(4,088,361)

 

 

(8,979,516)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities as of December 31, 2021

 

 

1,512,336

 

 

 

-

 

 

 

4,412,878

 

 

 

5,925,214

 

Addition to liabilities for new issuances

 

 

135,012

 

 

 

-

 

 

 

545,462

 

 

 

680,474

 

Elimination of liabilities in debt conversions

 

 

(263,780)

 

 

-

 

 

 

-

 

 

 

(263,780)

Change in fair value

 

 

(643,411)

 

 

-

 

 

 

(4,464,818)

 

 

(5,108,229)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities as of December 31, 2022

 

$740,157

 

 

$-

 

 

$493,522

 

 

$1,233,679

 

 

Revenue Recognition

 

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

 

We determine revenue recognition through the following steps:

 

 

·

identification of the contract, or contracts, with a customer;

 

·

identification of the performance obligations in the contract;

 

·

determination of the transaction price;

 

·

allocation of the transaction price to the performance obligations in the contract; and

 

·

recognition of revenue when, or as, we satisfy a performance obligation.

 

 
F-11

Table of Contents

 

Through its wholly owned subsidiary and effective January 7, 2021 (see Note 3), the Company acts as an intermediary or agent to facilitate a platform through which property owners market real estate, physical assets and billboards to wireless telephone carriers for placement of wireless communications network equipment. Contracts have been signed among the Company, the property owner, and the wireless telephone operator.  Monthly payments are received by the Company from the wireless carriers, with the Company paying the property owner a percentage of revenues ranging from 70% to 85%.  The net amount is retained by the Company as consideration for its intermediary services and recorded as revenues in the accompanying statements of operations.

 

Lease Accounting

 

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

 

Concentrations of Credit Risk, Major Customers, and Major Vendors

 

During the years ended December 31, 2022 and 2021, the Company received payments from two cell phone carriers, with one carrier representing substantially all payments.

 

During the years ended December 31, 2022 and 2021, the Company had one landlord receiving all Company payments for lease of billboard site locations.

 

Income (Loss) per Share

 

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

 

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

 

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Basic weighted average number of shares

 

 

433,143,911

 

 

 

195,725,543

 

Dilutive effect of:

 

 

 

 

 

 

 

 

Series B preferred stock

 

 

949,400,000

 

 

 

-

 

Series E preferred stock

 

 

2,706,666,667

 

 

 

-

 

Convertible notes payable

 

 

247,997,718

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Diluted weighted average number of shares

 

 

4,337,208,296

 

 

 

195,725,543

 

 

For the year ended December 31, 2021, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share; therefore, basic net loss per share is the same as diluted net loss per share.

 

 
F-12

Table of Contents

 

Income Taxes

 

We account for income taxes using the asset and liability method.  Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Research and Development Costs

 

Research and development costs are expensed as incurred.  We incurred no research and development costs for the years ended December 31, 2022 and 2021.

 

Advertising Costs

 

We expense the cost of advertising and promotional materials when incurred.  We incurred no material advertising costs for the years ended December 31, 2022 and 2021.

 

Stock-Based Compensation

 

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

 

Recently Issued Accounting Pronouncements

 

There were no new accounting pronouncements issued by the FASB during the year ended December 31, 2022 and through the date of filing of this report that the Company believes will have a material impact on its financial statements.

 

During the year ended December 31, 2022,  the Company adopted ASC 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entities Own Equity (Subtopic 815-40).”  ASC 2020-6 reduces the number of acceptable methods of accounting models for convertible debt instruments and convertible preferred stocks.  The implementation of ASC 2020-6 had no material impact on the Company’s consolidated financial statements.

 

3.   BUSINESS ACQUISITION

 

On January 7, 2021, the Company, SCS LLC, and SCS entered into the APA to acquire substantially all of the assets of SCS LLC’s wireless communications marketing and database services business in consideration for a total purchase price of $10,000 in cash and a 5-year convertible promissory note in the amount of $1,000,000 made in favor of SCS or its assignees (the “Note”).  SCS LLC is a source of more than 80,000 cell sites offered by property owners for use by wireless network operators.  The business acquisition has been recorded as a purchase.

 

Pursuant to the APA, SCS LLC instructed the Company to assign $500,000 of principal amount of the Note to each of SCS LLC’s two members (the “Assigned Notes”).

 

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

 

 
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Table of Contents

 

The business acquisition closed on January 7, 2021.

 

Based on the report of an independent valuation firm, the notes payable were discounted to $0 and a derivative liability of $2,096,089 was calculated for the conversion feature of the notes.  The total value of the consideration paid of $2,106,089, including cash paid of $10,000, has been allocated to the following assets based on the report:

 

Identifiable intangible assets:

 

 

 

IP technology

 

$4,000

 

Customer base

 

 

6,000

 

Total identifiable intangible assets

 

 

10,000

 

 

 

 

 

 

Goodwill

 

 

2,096,089

 

 

 

 

 

 

Total

 

$2,106,089

 

 

During the years ended December 31, 2022 and 2021, consolidated revenues were comprised of revenues from SCS.

 

4. CONVERTIBLE NOTES PAYABLE

 

Outstanding as of December 31, 2022

 

Convertible Promissory Note – $29,500 in Default

 

On March 14, 2013, we entered into an agreement to issue a 5% convertible promissory note in the principal amount of $29,500, which is convertible into shares of our common stock at a conversion price equal to the lesser of $1.50 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note, with a principal balance of $29,500 as of December 31, 2022 and 2021, matured on March 14, 2015, and is currently in default.

 

Convertible Promissory Notes – Related Parties of $58,600

 

On December 31, 2012, we issued 5% convertible promissory notes to two employees in exchange for services rendered in the aggregate amount of $58,600. The notes are convertible into shares of our common stock at a conversion price equal to the lesser of $2.00 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We recorded a total debt discount of $57,050 related to the conversion feature of the notes, which has been fully amortized to interest expense, along with a derivative liability at inception. One of the notes with a principal balance of $25,980 as of December 31, 2022 and 2021 matured on December 31, 2014 and is currently in default. The maturity date of a second note with a principal balance of $32,620 as of December 31, 2022 and 2021 has been extended to December 31, 2023.

 

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

 

Effective August 24, 2022, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $38,750 with a maturity date of August 24, 2023. The Company received net proceeds of $35,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $35,316 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2022, amortization of debt discount was recorded to interest expense in the amount of $12,482, resulting in a remaining debt discount of $22,834 as of December 31, 2022. The note had a principal balance of $38,750 as of December 31, 2022.

 

 

 
F-14

Table of Contents

 

Extinguished During the Year Ended December 31, 2022

 

August 29, 2019 Convertible Promissory Note – $25,000 in Default

 

Effective August 29, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $25,000. The note matured on August 29, 2020. The Company received proceeds of $22,000 after an original issue discount of $1,500 and payment of $1,500 in legal fees. The lender, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 50% discount from the lowest trading price during the 25 days prior to conversion. The Company had no right of prepayment. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense. As of December 31, 2021, the note had a principal balance of $395 included in convertible notes payable, in default. In April 2022, the Company and the lender entered into a settlement to extinguish the principal of $395 and related accrued interest payable of $2,320 with a cash payment totaling $2,715. 

 

July 8, 2020 Convertible Promissory Note – $40,000 in Default

 

Effective July 8, 2020, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $40,000. The note matured on July 8, 2021. The Company received proceeds of $35,000 after an original issue discount of $2,200 and payment of $2,800 in legal fees. The lender, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 50% discount from the lowest trading price during the 25 days prior to conversion. The Company had no right of prepayment. We recorded a debt discount of $40,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense and the note had a principal balance of $40,000 as of December 31, 2021 included in convertible notes payable, in default.  Pursuant to an agreement with the lender, the Company agreed to extinguish the debt with four principal payments of $10,000, which were made in the months of February, March, April and May 2022. Accrued interest payable of $6,034 was forgiven by the lender, which amount is reported in other income in the year ended December 31, 2022.

 

July 12, 2021 Convertible Promissory Note – $43,750

 

Effective July 12, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of July 12, 2022. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment.  We recorded a debt discount of $41,798 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2022, amortization of debt discount was recorded to interest expense in the amount of $22,101 and the debt discount has been fully amortized.  The note had a principal balance of $43,750 as of December 31, 2021.  During the year ended December 31, 2022, we issued the lender shares of our common stock in consideration for the conversion of principal of $43,750 and accrued interest of $2,625, extinguishing the debt in full. No gain or loss on extinguishment of debt was recorded since the conversion was completed within the terms of the convertible note.

 

August 31, 2021 Convertible Promissory Note – $43,750

 

Effective August 31, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of August 31, 2022. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment.  We recorded a debt discount of $41,559 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2022, amortization of debt discount was recorded to interest expense in the amount of $27,668 and the debt discount has been fully amortized. The note had a principal balance of $43,750 as of December 31, 2021. During the year ended December 31, 2022, we issued the lender shares of our common stock in consideration for the conversion of principal of $43,750 and accrued interest of $2,625, extinguishing the debt in full. No gain or loss on extinguishment of debt was recorded since the conversion was completed within the terms of the convertible note.

 

 
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October 7, 2021 Convertible Promissory Note – $43,750

 

Effective October 7, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of October 7, 2022. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $42,293 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2022, amortization of debt discount was recorded to interest expense in the amount of $32,444 and the debt discount has been fully amortized. The note had a principal balance of $43,750 as of December 31, 2021. During the year ended December 31, 2022, we issued the lender shares of our common stock in consideration for the conversion of principal of $43,750 and accrued interest of $2,625, extinguishing the debt in full. No gain or loss on extinguishment of debt was recorded since the conversion was completed within the terms of the convertible note.

 

November 8, 2021 Convertible Promissory Note – $43,750

 

Effective November 8, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of November 8, 2022. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment.  We recorded a debt discount of $42,123 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2022, amortization of debt discount was recorded to interest expense in the amount of $36,007 and the debt discount has been fully amortized. The note had a principal balance of $43,750 as of December 31, 2021.  During the year ended December 31, 2022, we issued the lender shares of our common stock in consideration for the conversion of principal of $43,750 and accrued interest of $2,625, extinguishing the debt in full. No gain or loss on extinguishment of debt was recorded since the conversion was completed within the terms of the convertible note.

 

December 14, 2021 Convertible Promissory Note – $43,750

 

Effective December 14, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of December 14, 2022. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment.  We recorded a debt discount of $39,616 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2022, amortization of debt discount was recorded to interest expense in the amount of $37,771 and the debt discount has been fully amortized. The note had a principal balance of $43,750 as of December 31, 2021. During the year ended December 31, 2022, we issued the lender shares of our common stock in consideration for the conversion of principal of $43,750 and accrued interest of $2,625, extinguishing the debt in full. No gain or loss on extinguishment of debt was recorded since the conversion was completed within the terms of the convertible note.

 

 
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January 6, 2022 Convertible Promissory Note – $38,750

 

Effective January 6, 2022, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $38,750 with a maturity date of January 6, 2023. The Company received net proceeds of $35,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $35,771 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2022, amortization of debt discount was recorded to interest expense in the amount of $35,771 and the debt discount has been fully amortized.  During the year ended December 31, 2022, we issued the lender shares of our common stock in consideration for the conversion of principal of $38,750 and accrued interest of $2,050, extinguishing the debt in full. No gain or loss on extinguishment of debt was recorded since the conversion was completed within the terms of the convertible note.

 

March 1, 2022 Convertible Promissory Note – $43,750

 

Effective March 1, 2022, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of March 1, 2023. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment.  We recorded a debt discount of $39,514 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2022, amortization of debt discount was recorded to interest expense in the amount of $39,514 and the debt discount has been fully amortized.  During the year ended December 31, 2022, we issued the lender shares of our common stock in consideration for the conversion of principal of $43,750 and accrued interest of $2,625, extinguishing the debt in full. No gain or loss on extinguishment of debt was recorded since the conversion was completed within the terms of the convertible note.

 

May 3, 2022 Convertible Promissory Note - $43,750

 

Effective May 3, 2022, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of May 3, 2023. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment.  We recorded a debt discount of $39,411 related to the conversion feature of the note, along with a derivative liability at inception. During the year ended December 31, 2022, amortization of debt discount was recorded to interest expense in the amount of $39,411 and the debt discount has been fully amortized.  During the year ended December 31, 2022, we issued the lender shares of our common stock in consideration for the conversion of principal of $43,750 and accrued interest of $2,625, extinguishing the debt in full. No gain or loss on extinguishment of debt was recorded since the conversion was completed within the terms of the convertible note.

 

Total accrued interest payable on notes payable was $53,212 and $57,958 as of December 31, 2022 and 2021, respectively.

 

5.  LONG-TERM CONVERTIBLE NOTES PAYABLE

 

As discussed in Note 3, on January 7, 2021, the Company issued two long-term convertible notes payable each in the principal amount of $500,000 in conjunction with the business acquisition of SCS LLC.  The Assigned Notes bear interest at an annual rate of 0.39% and mature on January 7, 2026.  The Assigned Notes were discounted to a principal balance of $0 and a debt discount of $1,000,000 was recorded at inception.  Amortization of the discount to interest expense was $199,890 during the year ended December 31, 2022, resulting in a debt discount of $600,767 as of December 31, 2022.

 

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

 

6.  MEZZANINE

 

Series B Preferred Stock

 

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

 

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

 

During the year ended December 31, 2022, the holder converted a total of 221 shares of Series B Preferred Stock valued at $22,100 into 14,733,333 shares of the Company’s common stock.  During the year ended December 31, 2021, the holder converted a total of 593 shares of Series B Preferred Stock valued at $59,300 into 39,533,334 shares of the Company’s common stock.  There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the Series B Preferred Stock.

 

As of December 31, 2022 and 2021, the Company had 14,241 and 14,462 shares of Series B Preferred Stock outstanding, respectively, and recorded as mezzanine at face value of $1,424,100 and $1,446,200, respectively, due to certain default provisions requiring mandatory cash redemption that are outside the control of the Company.  These shares were originally issued in March 2016 for the redemption and cancellation of $1,615,362 of convertible promissory notes and $264,530 of accrued interest payable. 

 

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

 

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

 

 
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Series E Preferred Stock

 

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

 

On April 2, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor (the “Investor”), pursuant to which the Investor agreed to purchase up to 45,000 shares of the Company’s Series E Preferred Stock (the “Shares”) at a purchase price of $100 per share. In accordance with the SPA, Investor paid for 34,900 Shares by surrendering to the Company for cancellation, $2,617,690 of principal, $826,566 of accrued interest, and $45,740 in fees through April 2, 2021 under various 10% convertible notes held by Investor.  The Series E Preferred Stock was valued by an independent valuation firm at $23,393,601 and the Company recognized a loss on debt extinguishment of $16,490,508 included in other expense in the year ended December 31, 2022 and settled derivative liabilities totaling $3,413,097. 

 

As an inducement for the Investor entering into the SPA, the Company agreed that Investor will have the right, exercisable in its sole discretion, to purchase the remaining 10,100 of authorized shares of Series E Preferred Stock at a purchase price of $100 per Share at any time until April 2, 2031.  In September 2021, the Investor purchased 500 additional shares of Series E Preferred Stock for cash of $50,000, the stated value of the shares. 

 

During the year ended December 31, 2022, the Investor purchased a total of 5,200 additional shares of Series E Preferred Stock for cash of $520,000, the stated valued of the shares. 

 

As of December 31, 2022 and 2021, the Company had 40,600 and 35,400 shares of Series E Preferred Stock outstanding, respectively, recorded as mezzanine at face value of $4,060,000 and $3,540,000 due to certain default provisions requiring mandatory cash redemption that are outside the control of the Company. 

 

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

 

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

 

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

 

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

 

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

 

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

 

7.  STOCKHOLDERS’ DEFICIT

 

As of December 31, 2022, the Company’s authorized stock consisted of 2,000,000,000 shares of common stock, with a par value of $0.001 per share.  The Company is also authorized to issue 20,000,000 shares of preferred stock, with a par value of $0.001 per share.  The rights, preferences, and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares.

 

Common Stock

 

As of December 31, 2022 and December 31, 2021, the Company had 604,150,321 and 276,383,093 shares of common stock issued and outstanding, respectively.

 

During the year ended December 31, 2022, the Company issued a total of 331,612,439 shares of common stock: 312,879,106 shares in consideration for the conversion of $345,000 of principal of convertible notes payable and accrued interest payable of $20,424; 14,733,333 shares in the conversion of 221 shares of Series B preferred shares valued at $22,100 and 4,000,000 shares for services valued at $20,000.  In connection with the convertible debt conversions, the Company reduced derivative liabilities by $263,780.  There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the convertible notes.

 

During the year ended December 31, 2022, a lender returned 3,845,211 shares of the Company’s common stock, which shares were cancelled.  The transaction was recorded at the $3,845 par value of the common shares.

 

During the year ended December 31, 2021, the Company issued a total of 143,045,532 shares of common stock: 76,063,187 shares in consideration for the conversion of $368,011 of principal of convertible notes payable and accrued interest payable of $34,505; 27,449,011 shares for services valued at $416,200; and 39,533,334 shares in the conversion of 593 shares of Series B Preferred Stock recorded at face value of $59,300.  In connection with the convertible debt conversions, the Company settled derivative liabilities of $361,172.  There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the convertible notes.

 

8.  STOCK OPTIONS

 

As of December 31, 2022, the Board of Directors of the Company had granted non-qualified stock options exercisable for a total of 854,177,778 shares of common stock to its officers, directors, and consultants.

 

On October 19, 2020 and December 22, 2020, the Company issued a total of 210,000,000 non-qualified stock options to five officers, directors, and consultants exercisable for a period of five years from the date of issuance at exercise prices ranging from $0.0108 to $0.017 per share.  Of these non-qualified options, 5,000,000 vest 1/24th per month over twenty- four months and 205,000,000 vest 1/36th per month over thirty-six months. These non-qualified stock options were valued by an independent valuation firm at $3,726,549 using a modified Black Scholes early exercise model and stock option compensation expense is recorded over the vesting period.  A derivative liability and a decrease to additional paid-in capital were recorded for this amount. 

 

 
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On January 28, 2021, the Company issued a total of 20,000,000 non-qualified stock options to an employee and a consultant exercisable for a period of five years from the date of issuance at an exercise price of $0.05 per share.  These options vest 1/36th per month over thirty-six months.  These non-qualified stock options were valued by an independent valuation firm at $998,134 using a modified Black Scholes early exercise model and stock option compensation expense is recorded over the vesting period.  A derivative liability and a decrease to additional paid-in capital were recorded for this amount.  

 

On December 1, 2021, the Company issued a total of 504,000,000 non-qualified stock options to an officer exercisable for a period of ten years from the date of issuance at an exercise price of $0.0074 per share.  These options vest 84,000,000 shares in month 6 and 14,000,000 shares per month in each of the 30 months thereafter. These non-qualified stock options were valued by an independent valuation firm at $3,727,046 using a modified Black Scholes early exercise model and stock option compensation expense is recorded over the vesting period.  A derivative liability and a decrease to additional paid-in capital were recorded for this amount. 

 

On February 8, 2022, the Company issued a total of 120,000,000 non-qualified stock options to an officer and a consultant exercisable for a period of ten years from the date of issuance at an exercise price of $0.0081 per share.  These options vest 1/36th per month over thirty-six months.  These non-qualified stock options were valued by an independent valuation firm at $545,462 using a modified Black Scholes early exercise model and stock option compensation expense is recorded over the vesting period.  A derivative liability and a decrease to additional paid-in capital were recorded for this amount. 

 

We recognized stock option compensation expense of $2,986,546 and $1,699,964,435 for the years ended December 31, 2022 and 2021, respectively.  As of December 31, 2022, we had unrecognized stock option compensation expense totaling $4,202,166.

 

A summary of the Company’s stock options as of December 31, 2022, and changes during the two years then ended is as follows:

 

 

 

Shares

 

 

Weighted

Average

Exercise Price

 

 

Weighted Average

Remaining

Contract Term

(Years)

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2020

 

 

210,177,778

 

 

$0.018

 

 

 

 

 

 

 

Granted

 

 

524,000,000

 

 

$0.009

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

$-

 

 

 

 

 

 

 

Forfeited or expired

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2021

 

 

734,177,778

 

 

$0.0012

 

 

 

 

 

 

 

Granted

 

 

120,000,000

 

 

$0.0081

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

$-

 

 

 

 

 

 

 

Forfeited or expired

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2022

 

 

854,177,778

 

 

$0.011

 

 

 

7.35

 

 

$302,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable as of December 31, 2022

 

 

379,538,904

 

 

$0.013

 

 

 

6.42

 

 

$109,200

 

 

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.008 as of December 31, 2022, which would have been received by the holders of in-the-money options and warrants had the holders exercised their options and warrants as of that date.

 

 
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The significant assumptions used in the valuation of the derivative liabilities recorded upon issuance of the February 2022 non-qualified stock options are as follows:

 

Expected life

 

 4.31 to 5.77 years

 

Risk free interest rates

 

2.41% - 2.42%

 

Expected volatility

 

287.2% – 313.6%

 

 

 
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9.  DERIVATIVE LIABILITIES

 

The fair value of the Company’s derivative liabilities is estimated at the issuance date and is revalued at each subsequent reporting date. We estimate the fair value of derivative liabilities associated with our convertible notes payable and stock options using a multinomial lattice model based on projections of various potential future outcomes. Where the number of stock options or common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional stock options, convertible debt and equity are included in the value of the derivatives.

 

The significant assumptions used in the valuation of the derivative liabilities as of December 31, 2022 are as follows:

 

Conversion to stock

 

 Monthly

 

Stock price on the valuation date

 

$0.008

 

Risk free interest rates

 

3.02% - 6.81%

 

Years to maturity

 

0.90 - 5.00

 

Expected volatility

 

182.3%–318.8%

 

 

The value of our derivative liabilities was estimated as follows as of:

 

 

 

December 31,

 2022

 

 

December 31,

 2021

 

 

 

 

 

 

 

 

Convertible notes payable

 

$740,157

 

 

$1,512,336

 

Stock options

 

 

493,522

 

 

 

4,412,878

 

 

 

 

 

 

 

 

 

 

Total

 

$1,233,679

 

 

$5,925,214

 

 

The calculation input assumptions are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liability will fluctuate from period to period, and the fluctuation may be material.

 

10. RELATED PARTY TRANSACTIONS

 

Effective December 1, 2021, the Company’s Board of Directors appointed Rich Berliner as the Chief Executive Officer of the Company and a member of the Board of Directors.  On that date, the Company entered into an Independent Contractor Agreement, pursuant to which Mr. Berliner will serve as the Chief Executive Officer of the Company for an initial term of six months subject to automatic renewal for six months unless terminated by the Company or Mr. Berliner. Mr. Berliner will receive base compensation of $20,000 per month, paid in equal installments twice each month. After one year of service, Mr. Berliner will be eligible to receive severance equal to three months of base compensation.  The Company accrued compensation expense to Mr. Berliner of $240,000 and $20,000 for the year ended December 31, 2022 and 2021, respectively.  Fees payable to Mr. Berliner of $10,000 are included in accounts payable – related party as of December 31, 2021.

 

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

 

 
F-23

Table of Contents

 

On December 1, 2021, William E. Beifuss, Jr. resigned from his position as Chief Executive Officer of the Company. Mr. Beifuss will continue to serve as the Company’s President, Acting Chief Financial Officer and Secretary.  Pursuant to a written consulting agreement, dated May 31, 2013 and amended effective November 1, 2016, William E. Beifuss, Jr., our President, Chief Executive Officer and Acting Chief Financial Officer is to receive fees of $10,000 per month.  The Company accrued compensation expense to Mr. Beifuss of $120,000 for each of the years ended December 31, 2022 and 2021.  Fees payable to Mr. Beifuss of $10,000 and $20,000 are included in accounts payable – related party as of December 31, 2022 and 2021, respectively.

 

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

 

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

 

11.  INCOME TAXES

 

A reconciliation of the income tax provision (benefit) that would result from applying a combined U.S. federal and state rate of 29% to loss before income taxes with the provision (benefit) for income taxes presented in the financial statements is as follows:

 

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Income tax provision (benefit) at statutory rate

 

$281,000

 

 

$(3,739,900)

State income taxes, net of federal benefit

 

 

(200)

 

 

(200)

Non-deductible expenses

 

 

1,007,400

 

 

 

5,467,600

 

Non-taxable gains

 

 

(1,483,900)

 

 

(2,636,900)

Other

 

 

600

 

 

 

1,100

 

Valuation allowance

 

 

195,100

 

 

 

908,300

 

 

 

 

 

 

 

 

 

 

 

 

$-

 

 

$-

 

 

Deferred tax assets (liabilities) are comprised of the following:

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforward

 

$4,901,900

 

 

$4,709,300

 

Research and development credit carryforward

 

 

125,300

 

 

 

125,300

 

Related party accrued expenses

 

 

11,600

 

 

 

8,700

 

Accrued compensated absences

 

 

600

 

 

 

1,100

 

 

 

 

 

 

 

 

 

 

Valuation allowance

 

 

(5,039,400)

 

 

(4,844,400)

 

 

 

 

 

 

 

 

 

 

 

$-

 

 

$-

 

 

The ultimate realization of our deferred tax assets is dependent, in part, upon the tax laws in effect, our future earnings, and other events.  As of December 31, 2022, we recorded a valuation allowance of $5,039,400 against our net deferred tax asset.  In recording the valuation allowance, we were unable to conclude that it is more likely than not that our deferred tax assets will be realized.

 

 
F-24

Table of Contents

 

As of December 31, 2022, we had a net operating loss carryforward available to offset future taxable income of approximately $16,903,000, which begins to expire at dates that have not been determined.  If substantial changes in the Company’s ownership should occur, there would be an annual limitation of the amount of the net operating loss carryforward that could be utilized.

 

We perform a review of our material tax positions in accordance with recognition and measurement standards established by authoritative accounting literature, which requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.  If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.  Based upon our review and evaluation, during the years ended December 31, 2022 and 2021, we concluded the Company had no unrecognized tax benefit that would affect its effective tax rate if recognized.

 

We file income tax returns in the U.S. federal jurisdiction and in the state of California.  With few exceptions, we are no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years before 2011.

 

We classify any interest and penalties arising from the underpayment of income taxes in our statements of operations and comprehensive loss in other income (expense).  As of December 31, 2022 and 2021, we had no accrued interest or penalties related to uncertain tax positions.

 

12. COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

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

 

Operating Lease

 

As of December 31, 2022, we had no material operating leases requiring us to recognize an operating lease liability and corresponding right-of-use asset.

 

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

 

For the years ended December 31, 2022 and 2021, the Company recognized total rental expense of $9,413 and $12,000, respectively.

 

Consulting Agreements

 

As further discussed in Note 11, we entered into a consulting agreement with Rich Berliner, our Chief Executive Officer, for payment of monthly compensation of $20,000. The consulting agreement has an initial term of six months, subject to automatic renewal for six months unless terminated by the Company or Mr. Berliner.

 

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

 

13.  SUBSEQUENT EVENTS

 

Issuances of Series B Preferred Stock

 

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

 

On January 5, 2023, an investor purchased 550 additional shares of Series E Preferred Stock for cash of $55,000, the stated valued of the shares.  

  

On February 6, 2023, an investor purchased 620 additional shares of Series E Preferred Stock for cash of $62,000, the stated valued of the shares.

 

On March 8, 2023, an investor purchased 550 additional shares of Series E Preferred Stock for cash of $55,000, the stated valued of the shares. 

 

Convertible Note Conversions

 

On March 1, 2023, a lender converted $11,700 principal into 30,000,000 shares of the Company’s common stock.  On March 6, 2023, the lender converted $12,300 principal into 31,538,462 shares of the Company’s common stock.

 

 
F-25

 

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