Attached files

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EX-32.2 - CERTIFICATION - Digital Locations, Inc.dloc_ex322.htm
EX-32.1 - CERTIFICATION - Digital Locations, Inc.dloc_ex321.htm
EX-31.2 - CERTIFICATION - Digital Locations, Inc.dloc_ex312.htm
EX-31.1 - CERTIFICATION - Digital Locations, Inc.dloc_ex311.htm
EX-10.23 - CONVERTIBLE PROMISSORY NOTE - Digital Locations, Inc.dloc_ex1023.htm
EX-10.22 - CONVERTIBLE PROMISSORY NOTE - Digital Locations, Inc.dloc_ex1022.htm
EX-4.3 - STOCK OPTION AGREEMENT - Digital Locations, Inc.dloc_ex43.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended March 31, 2021

 

or

 

☐     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.

(Exact name of registrant as specified in its charter)

 

Nevada

 

20-5451302

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3700 State Street, Suite 350, Santa Barbara, California 93105

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (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 (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 and post 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

The number of shares of registrant’s common stock outstanding, as of May 14, 2021 was 170,943,730.

 

 

 

  

DIGITAL LOCATIONS, INC.

INDEX

 

PART I: FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1

FINANCIAL STATEMENTS (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

Condensed Consolidated Statements of Stockholders’ Deficit

 

5

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

30

 

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

36

 

ITEM 4

CONTROLS AND PROCEDURES

 

36

 

 

 

 

PART II: OTHER INFORMATION

38

 

 

 

ITEM 1

LEGAL PROCEEDINGS

 

38

 

ITEM 1A

RISK FACTORS

 

38

 

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

38

 

ITEM 3

DEFAULTS UPON SENIOR SECURITIES

 

38

 

ITEM 4

MINE SAFETY DISCLOSURES

 

38

 

ITEM 5

OTHER INFORMATION

 

38

 

ITEM 6

EXHIBITS

 

39

 

SIGNATURES

43

 

 
2

Table of Contents

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

 

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 81,130

 

 

$ 18,605

 

Accounts receivable

 

 

1,601

 

 

 

-

 

Total current assets

 

 

82,731

 

 

 

18,605

 

 

 

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

 

 

 

Intangible assets, net

 

 

9,500

 

 

 

-

 

Goodwill

 

 

2,096,089

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 2,188,320

 

 

$ 18,605

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 254,211

 

 

$ 168,946

 

Accounts payable – related party

 

 

70,100

 

 

 

80,000

 

Accrued expenses and other current liabilities

 

 

8,560

 

 

 

3,947

 

Accrued interest, notes payable

 

 

872,026

 

 

 

820,584

 

Derivative liabilities

 

 

23,168,862

 

 

 

11,282,091

 

Convertible note payable, in default

 

 

29,500

 

 

 

29,500

 

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

 

 

58,600

 

 

 

58,600

 

Convertible notes payable, net of discount of $317,527 and $119,419, at March 31, 2021 and December 31, 2020, respectively

 

 

2,487,558

 

 

 

2,501,927

 

PPP loan payable

 

 

9,501

 

 

 

9,501

 

Total current liabilities

 

 

26,958,918

 

 

 

14,955,096

 

 

 

 

 

 

 

 

 

 

Long-term liabilities – convertible notes payable, net of discount of $341,919 and $0, at March 31, 2021 and December 31, 2020, respectively

 

 

658,081

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

27,616,999

 

 

 

14,955,096

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Series B, 15,055 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

15

 

 

 

15

 

Common stock, $0.001 par value; 2,000,000,000 shares authorized, 167,613,562 and 133,337,561 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

 

167,614

 

 

 

133,338

 

Additional paid-in capital

 

 

22,624,642

 

 

 

22,943,193

 

Accumulated deficit

 

 

(48,220,950 )

 

 

(38,013,037 )

Total stockholders’ deficit

 

 

(25,428,679 )

 

 

(14,936,491 )

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ deficit

 

$ 2,188,320

 

 

$ 18,605

 

 

See notes to condensed consolidated financial statements

 

 
3

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Revenues

 

$ 6,338

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

General and administrative

 

 

734,948

 

 

 

93,294

 

Depreciation and amortization

 

 

500

 

 

 

54

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

735,448

 

 

 

93,348

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(729,110 )

 

 

(93,348 )

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(163,460 )

 

 

(192,164 )

Loss on change in derivative liabilities

 

 

(9,315,343 )

 

 

(89,963 )

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(9,478,803 )

 

 

(282,127 )

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(10,207,913 )

 

 

(375,475 )

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net loss

 

$ (10,207,913 )

 

$ (375,475 )

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding – basic and diluted

 

 

156,174,027

 

 

 

5,115,166

 

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted

 

$ (0.07 )

 

$ (0.07 )

See notes to condensed consolidated financial statements

 

 
4

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statement of Stockholders’ Deficit

Three Months Ended March 31, 2021 (Unaudited)

 

 

 

Series B
Preferred Stock

 

 

Series D
Preferred Stock

 

 

Common Stock

 

 


Additional
Paid-in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

15,055

 

 

$ 15

 

 

 

-

 

 

$ -

 

 

 

133,337,561

 

 

$ 133,338

 

 

$ 22,943,193

 

 

$ (38,013,037 )

 

$ (14,936,491 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

34,276,001

 

 

 

34,276

 

 

 

79,125

 

 

 

-

 

 

 

113,401

 

Issuance of consultant stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(998,134 )

 

 

-

 

 

 

(998,134 )

Vesting of consultant stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

450,758

 

 

 

-

 

 

 

450,758

 

Settlement of derivative liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

149,700

 

 

 

-

 

 

 

149,700

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,207,913 )

 

 

(10,207,913 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

 

15,055

 

 

$ 15

 

 

 

-

 

 

$ -

 

 

 

167,613,562

 

 

$ 167,614

 

 

$ 22,624,642

 

 

$ (48,220,950 )

 

$ (25,428,679 )

 

See accompanying notes to condensed financial statements.

 

 
5

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statement of Stockholders’ Deficit

Three Months Ended March 31, 2020 (Unaudited)

 

 

 

Series B
Preferred Stock

 

 

Series D
Preferred Stock

 

 

Common Stock

 

 


Additional
Paid-in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

16,155

 

 

$ 16

 

 

 

1,000

 

 

$ 1

 

 

 

1,049,380

 

 

$ 1,049

 

 

$ 25,937,634

 

 

$ (35,265,842 )

 

$ (9,327,142 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,645,256

 

 

 

1,645

 

 

 

8,544

 

 

 

-

 

 

 

10,189

 

Issuance of common stock for conversion of Series B preferred stock

 

 

(1,100 )

 

 

(1 )

 

 

-

 

 

 

-

 

 

 

9,777,778

 

 

 

9,778

 

 

 

(9,777 )

 

 

-

 

 

 

-

 

Reverse split rounding of shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,605

 

 

 

3

 

 

 

(3 )

 

 

-

 

 

 

-

 

Redemption of Series D preferred stock

 

 

-

 

 

 

-

 

 

 

(1,000 )

 

 

(1 )

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

Settlement of derivative liabilities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

263,131

 

 

 

-

 

 

 

263,131

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(375,475 )

 

 

(375,475 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2020

 

 

15,055

 

 

$ 15

 

 

 

-

 

 

$ -

 

 

 

12,475,019

 

 

$ 12,475

 

 

$ 26,199,530

 

 

$ (35,641,317 )

 

$ (9,429,297 )

 

See accompanying notes to condensed consolidated financial statements.

 

 
6

Table of Contents

 

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$ (10,207,913 )

 

$ (375,475 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

500

 

 

 

54

 

Amortization of debt discount to interest expense

 

 

93,878

 

 

 

125,046

 

Loss on change in derivative liabilities

 

 

9,315,343

 

 

 

89,963

 

Stock option compensation

 

 

450,758

 

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,601 )

 

 

-

 

Prepaid expenses

 

 

-

 

 

 

2,808

 

Increase (decrease) in:

 

 

 

 

 

 

 

 

Accounts payable

 

 

85,265

 

 

 

57,173

 

Accounts payable – related party

 

 

(9,900 )

 

 

-

 

Accrued expenses

 

 

4,613

 

 

 

8,753

 

Accrued interest, notes payable

 

 

69,582

 

 

 

67,118

 

Net cash used in operating activities

 

 

(199,475 )

 

 

(24,560 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid in business acquisition

 

 

(10,000 )

 

 

-

 

Net cash used in investing activities

 

 

(10,000 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from convertible notes payable

 

 

272,000

 

 

 

35,000

 

Net cash provided by financing activities

 

 

272,000

 

 

 

35,000

 

 

 

 

 

 

 

 

 

 

Net increase in cash

 

 

62,525

 

 

 

10,440

 

Cash, beginning of period

 

 

18,605

 

 

 

8,275

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$ 81,130

 

 

$ 18,715

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$ -

 

 

$ -

 

Cash paid for interest

 

 

-

 

 

 

-

 

Non-cash financing and investing activities:

 

 

 

 

 

 

Debt discount for derivative liabilities

 

$ 272,000

 

 

$ 15,766

 

Common shares issued in conversion of debt

 

 

113,401

 

 

 

10,189

 

Derivative liability for consultant stock options

 

 

998,134

 

 

 

-

 

Settlement of derivative liabilities

 

 

149,700

 

 

 

263,131

 

Long-term convertible notes payable issued in asset purchase agreement

 

 

1,000,000

 

 

 

-

 

Derivative liabilities recorded in business acquisition

 

 

1,450,994

 

 

 

-

 

Common shares issued in conversion of Series B preferred shares

 

 

-

 

 

 

1

 

Reverse split rounding of shares

 

 

-

 

 

 

3

 

Redemption of Series D preferred stock

 

 

-

 

 

 

1

 

 

See notes to condensed consolidated financial statements

 

 
7

Table of Contents

  

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2021

(Unaudited)

 

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 November 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.

 

Effective February 14, 2020, the Company effected a reverse split of its common stock at a ratio of one for two hundred twenty-five shares (1:225) (the “Stock Split”) with the filing of a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada. The Company has given retroactive effect for the Stock Split in its financial statements and notes thereto for all periods presented.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information refer to the financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2020.

 

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 March 31, 2021, our current liabilities exceeded our current assets by $26,876,187 and we had a total stockholders’ deficit of $25,428,679. In addition, the Company has reported negative cash flows from operations since inception. 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 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.

 

 
8

Table of Contents

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies of the Company are disclosed in Note 2 to the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2021. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company’s interim 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, 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.

 

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.

 

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.

 

Derivative Liabilities

 

We have identified the conversion features of our convertible notes payable, Series B preferred stock, 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.

 

 
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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 March 31, 2021 and December 31, 2020, we believe the amounts reported for cash, accounts receivable, 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.

 

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. Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASC”) Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

 

 

·

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

 

 

·

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

 

 

·

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

 

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 March 31, 2021 and December 31, 2020:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ 23,168,862

 

 

$ -

 

 

$ -

 

 

$ 23,168,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$ 23,168,862

 

 

$ -

 

 

$ -

 

 

$ 23,168,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ 11,282,091

 

 

$ -

 

 

$ -

 

 

$ 11,282,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$ 11,282,091

 

 

$ -

 

 

$ -

 

 

$ 11,282,091

 

 

 
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During the three months ended March 31, 2021, the Company had the following activity in its derivative liabilities account:

 

 

 

Convertible

Notes

Payable

 

 

Series B

Preferred

Stock

 

 

Stock

Options

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities at December 31, 2020

 

$ 3,368,619

 

 

$ 4,137,413

 

 

$ 3,776,059

 

 

$ 11,282,091

 

Addition to liabilities for new debt/shares issued

 

 

1,722,994

 

 

 

-

 

 

 

998,134

 

 

 

2,721,128

 

Elimination of liabilities in debt conversions

 

 

(149,700 )

 

 

-

 

 

 

-

 

 

 

(149,700 )

Change in fair value

 

 

3,030,556

 

 

 

717,057

 

 

 

5,567,730

 

 

 

9,315,343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities at March 31, 2021

 

$ 7,972,469

 

 

$ 4,854,470

 

 

$ 10,341,923

 

 

$ 23,168,862

 

 

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 (see Note 3), the Company acts as an intermediary or agent to facilitate a platform through which property owners market 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 the 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 three months ended March 31, 2021, the Company received payments from two cell phone carriers, with one carrier representing substantially all payments.

 

During the three months ended March 31, 2021, the Company had one landlord receiving all Company payments for lease of billboard site locations.

 

 
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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 and convertible preferred stock. For the three months ended March 31, 2021 and 2020, 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.

 

Recently Issued Accounting Pronouncements

 

There were no new accounting pronouncements issued by the FASB during the three months ended March 31, 2021 and through the date of filing of this report that the Company believes will have a material impact on its financial statements.

 

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.

 

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

 

The business acquisition closed on January 7, 2021.

 

 
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Based on the report of an independent valuation firm, the notes payable were discounted to $645,095 using an interest rate of 9.54% and a derivative liability of $1,450,994 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 three months ended March 31, 2021, consolidated revenues were comprised of revenues from SCS.

 

Unaudited pro forma summary results of operations for the year ended December 31, 2020 as though the business acquisition had taken place on January 1, 2020 are as follows:

 

Revenues

 

$ 23,221

 

Net loss

 

 

(2,910,858 )

Net loss per common share

 

 

(0.05 )

 

4. CONVERTIBLE NOTES PAYABLE

 

Convertible Promissory Note of $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 at March 31, 2021 and December 31, 2020, 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 at March 31, 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 at March 31, 2021 has been extended to December 31, 2021.

 

 
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March 2016 Convertible Promissory Note – $1,000,000

 

On March 4, 2016, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $1,000,000 (the “March 2016 $1,000,000 CPN”). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date to February 10, 2026.

 

On March 17, 2016, we received proceeds of $33,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $33,000 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. During the three months ended March 31, 2021, we issued the lender shares of our common stock in consideration for the conversion of principal of $14,451 and accrued interest of $6,999, extinguishing the debt in full. No gain or loss was recorded since the conversions were completed within the terms of the note agreement.

 

On April 11, 2016, we received proceeds of $90,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $90,000 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. During the three months ended March 31, 2021, we issued the lender shares of our common stock in consideration for the conversion of principal of $14,810 and accrued interest of $7,181, resulting in a principal balance of $75,190 as of March 31, 2021. No gain or loss was recorded since the conversions were completed within the terms of the note agreement.

 

On May 20, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 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.

 

On June 22, 2016, we received proceeds of $50,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $50,000 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.

 

On July 6, 2016, we received proceeds of $87,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $87,000 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.

 

On August 8, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 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.

 

On September 13, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 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.

 

On October 17, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 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.

 

On November 8, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 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.

 

On December 6, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 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.

 

 
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On January 10, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 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.

 

On February 13, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 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.

 

On March 9, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 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.

 

On April 12, 2017, we received proceeds of $95,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $95,000 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.

 

On May 8, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 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.

 

June 2017 Convertible Promissory Note – $500,000

 

On June 2, 2017, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $500,000 (the “June 2017 $500,000 CPN”). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date to February 9, 2026.

 

On June 2, 2017, we received proceeds of $60,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $60,000 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.

 

On July 10, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 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.

 

On August 11, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 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.

 

On September 12, 2017, we received proceeds of $85,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $85,000 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.

 

On October 13, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 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.

 

On November 8, 2017, we received proceeds of $75,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $75,000 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.

 

 
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December 2017 Convertible Promissory Note – $500,000

 

On December 14, 2017, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $500,000 (the “December 2017 $500,000 CPN”). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date to February 9, 2026.

 

On December 14, 2017, we received proceeds of $60,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $60,000 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.

 

On January 11, 2018, we received proceeds of $70,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $70,000 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.

 

On February 7, 2018, we received proceeds of $60,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $60,000 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.

 

On March 8, 2018, we received proceeds of $55,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $55,000 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.

 

On March 14, 2018, we received proceeds of $6,500 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $6,500 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.

 

On April 9, 2018, we received proceeds of $77,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $77,000 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.

 

On May 7, 2018, we received proceeds of $60,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $60,000 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.

 

On June 7, 2018, we received proceeds of $52,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $52,000 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.

 

On July 10, 2018, we received proceeds of $35,000 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $35,000 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.

 

On August 16, 2018, we received proceeds of $24,500 pursuant to the December 2017 $500,000 CPN. We recorded a debt discount of $24,500 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.

 

 
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August 2018 Convertible Promissory Note – $500,000

 

On August 17, 2018, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $500,000 (the "August 2018 $500,000 CPN"). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.01; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date to February 9, 2026.

 

On August 17, 2018, we received proceeds of $10,500 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $10,500 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.

 

On September 13, 2018, we received proceeds of $30,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $30,000 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.

 

On October 8, 2018, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. 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.

 

On October 26, 2018, we received proceeds of $12,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $12,000 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.

 

On November 5, 2018, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. 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.

 

On November 28, 2018, we received proceeds of $30,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $30,000 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.

 

On November 30, 2018, we received proceeds of $10,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $10,000 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.

 

On December 24, 2018, we received proceeds of $50,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $50,000 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.

 

On January 17, 2019, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. 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.

 

 
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On February 25, 2019, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. 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.

 

On March 22, 2019, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. 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.

 

On March 26, 2019, we received proceeds of $15,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $15,000 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.

 

On April 11, 2019, we received proceeds of $15,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $15,000 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.

 

On April 19, 2019, we received proceeds of $65,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $65,000 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.

 

On June 28, 2019, we received proceeds of $30,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $30,000 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.

 

On July 29, 2019, we received proceeds of $40,000 pursuant to the August 2018 $500,000 CPN. 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.

 

On September 27, 2019, we received proceeds of $33,000 pursuant to the August 2018 $500,000 CPN. We recorded a debt discount of $33,000 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.

 

On October 8, 2019, we received proceeds of $25,000 pursuant to the August 2018 $500,000 CPN. 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.

 

October 2019 Convertible Promissory Note – $500,000

 

On October 31, 2019, we entered into an agreement to issue a 10% convertible promissory note in the aggregate principal amount of up to $500,000 (the “October 2019 $500,000 CPN”). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.01; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date to February 9, 2026.

 

On October 31, 2019, we received proceeds of $25,000 pursuant to the October 2019 $500,000 CPN. 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.

 

 
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On November 12, 2019, we received proceeds of $25,000 pursuant to the October 2019 $500,000 CPN. 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.

 

On December 19, 2019, we received proceeds of $25,000 pursuant to the October 2019 $500,000 CPN. 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.

 

On January 5, 2021, we received proceeds of $50,000 pursuant to the October 2019 $500,000 CPN. We recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $2,284, resulting in a debt discount balance of $47,716 as of March 31, 2021.

 

On January 28, 2021, we received proceeds of $60,000 pursuant to the October 2019 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $2,024, resulting in a debt discount balance of $57,976 as of March 31, 2021.

 

On February 26, 2021, we received proceeds of $90,000 pursuant to the October 2019 $500,000 CPN. We recorded a debt discount of $90,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $1,642, resulting in a debt discount balance of $88,358 as of March 31, 2021.

 

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

 

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 may prepay the note during the 180 days from the issuance of the note at redemption premiums ranging from 25% to 45%. After the expiration of 180 days after issuance, the Company has 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 and the note had a principal balance of $395 as of March 31, 2021, which amount is in default.

 

July 7, 2020 Convertible Promissory Note – $33,000

 

Effective July 7, 2020, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $33,000. The note matures on July 7, 2021. The Company received net proceeds of $30,000 after payment of $3,000 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 $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $19,422 and the debt discount has been fully amortized. During the three months ended March 31, 2021, we issued the lender shares of our common stock in consideration for the conversion of principal of $33,000 and accrued interest of $1,980, extinguishing the debt in full.

 

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

 

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 with a maturity date of July 8, 2021 and the Company has no right of prepayment. 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. After the expiration of 180 days after issuance, the Company has 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. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $9,863, resulting in a remaining debt discount of $14,268 as of March 31, 2021. The note had a principal balance of $40,000 as of March 31, 2021.

 

August 18, 2020 Convertible Promissory Note – $33,000

 

Effective August 18, 2020, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $33,000 with a maturity date of August 18, 2021. The Company received net proceeds of $30,000 after payment of $3,000 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 $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $20,795 and the debt discount has been fully amortized. During the three months ended March 31, 2021, we issued the lender shares of our common stock in consideration for the conversion of principal of $33,000 and accrued interest of $1,980, extinguishing the debt in full.

 

October 1, 2020 Convertible Promissory Note – $33,000

 

Effective October 1, 2020, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $33,000 with a maturity date of October 1, 2021. The Company received net proceeds of $30,000 after payment of $3,000 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 $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $8,137, resulting in a remaining debt discount of $16,636 as of March 31, 2021. The note had a principal balance of $33,000 as of March 31, 2021.

 

 
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November 9, 2020 Convertible Promissory Note – $35,000

 

Effective November 9, 2020, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $35,000 with a maturity date of October 1, 2021. The Company received net proceeds of $31,500 after payment of $3,500 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 $35,000 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $8,137, resulting in a remaining debt discount of $22,162 as of March 31, 2021. The note had a principal balance of $35,000 as of March 31, 2021.

 

January 8, 2021 Convertible Promissory Note – $33,500

 

Effective January 8, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $33,500 with a maturity date of January 8, 2022. The Company received net proceeds of $30,000 after payment of $3,500 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 $33,500 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $7,414, resulting in a remaining debt discount of $26,086 as of March 31, 2021. The note had a principal balance of $33,500 as of March 31, 2021.

 

March 18, 2021 Convertible Promissory Note – $45,500

 

Effective March 18, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $45,500 with a maturity date of March 18, 2022. The Company received net proceeds of $42,000 after payment of $3,500 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 $45,500 related to the conversion feature of the note, along with a derivative liability at inception. During the three months ended March 31, 2021, amortization of debt discount was recorded to interest expense in the amount of $1,175, resulting in a remaining debt discount of $44,325 as of March 31, 2021. The note had a principal balance of $45,500 as of March 31, 2021.

 

Total accrued interest payable on notes payable was $872,026 and $820,584 as of March 31, 2021 and December 31, 2020, 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 January 7, 2026. The Assigned Notes were discounted to a principal balance of $645,095 using an interest rate of 9.54% and a debt discount of $354,905 was recorded at inception. Amortization of the discount to interest expense was $12,986 during the three months ended March 31, 2021, resulting in a debt discount of $341,919 as of March 31, 2021,

 

 
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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. PPP LOAN PAYABLE

 

A loan to the Company in the principal amount of $9,501 was approved under the terms and conditions of the Paycheck Protection Program of the United States Small Business Administration (“SBA”) and the CARES Act (2020) (H.R. 748) (15 U.S.C. 636 et seq.) (the “Act”) and was funded in May 2020. The loan may be forgiven pursuant to the provisions of the Act.

 

7. CAPITAL STOCK

 

At March 31, 2021, 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.

 

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 One Hundred Dollars ($100) (“Share Value”) and is convertible into shares of fully paid and non-assessable shares of common stock of the Company.

 

As of March 31, 2021 and December 31, 2020, the Company had 15,055 shares of Series B Preferred Stock outstanding with a face value of $1,505,500. These shares were issued in March 2016 for the redemption and cancellation of $1,615,362 of convertible promissory notes and $264,530 of accrued interest payable. Effective February 26, 2020, William Beifuss, Jr., the Company’s President, converted 1,100 shares of Series B preferred stock into 9,777,778 shares of the Company’s common stock. Mr. Beifuss previously acquired the Series B Preferred Stock from a lender in a private transaction.

 

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 one hundred dollars ($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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If the assets to be distributed to the Series B Holders 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.

 

The sale of all or substantially all of the Company's assets, any consolidation or merger of the Company with or into any other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the Company's voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company, is deemed to be a liquidation, dissolution or winding up.

 

The Series B Preferred Stock is convertible into Common Stock.

 

The Series B Holder has the right, at any time, at its election, to convert all or part of the Share Value into shares of Common Stock. The conversion price is the lesser of (1) Fifty Percent (50%) of the lowest trade price of Common Stock recorded on any trade day after December 12, 2012 or (2) the lowest effective price per share granted to any person or entity, including the Series B Holder but excluding officers and directors of the Company, to acquire Common Stock, or adjusted, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents (the "Conversion Price").

 

The conversion formula is as follows: The number of shares receivable upon conversion equals the Share Value divided by the Conversion Price. A conversion notice (the "Conversion Notice") may be delivered to Company by any method of the Series B Holder's choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery), and all conversions will be cashless and not require further payment from the Holder. If no objection is delivered from the Company to the Series B Holder, with respect to any variable or calculation reflected in the Conversion Notice, within 24 hours of delivery of the Conversion Notice, the Company will thereafter be deemed to have irrevocably confirmed and ratified such notice of conversion and waived any objection. The Company will deliver the shares of Common Stock from any conversion to the Series B Holder (in any name directed by the Series B Holder) within three (3) business days of Conversion Notice delivery. If the Company is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, then upon request of the Holder and provided that the shares to be issued are eligible for transfer under Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"), or are effectively registered under the Securities Act, the Company will cause its transfer agent to electronically issue the Common Stock issuable upon conversion to the Holder through the DTC Direct Registration System ("DRS"). If the Company is not participating in the DTC FAST program, then the Company agrees in good faith to apply and cause the approval for participation in the DTC FAST program.

 

The Conversion Price is subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events. No fractional shares of the Common Stock shall be issuable upon the conversion of shares of the Series B Preferred Stock and the Company shall pay the cash equivalent of any fractional share upon such conversion.

 

 
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If the Company fails to deliver shares in accordance with the required time frame, then for each conversion, a penalty of $1,500 per day will be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made. Such penalty may be converted into Common Stock at the Conversion Price or payable in cash, at the sole option of the Series B Holder (under the Holder's and the Company's expectations that any penalty amounts shall tack back to the original date of the issuance of Series B Preferred Stock, consistent with applicable securities laws).

 

In no event will the Series B Holder be entitled to convert any Series B Preferred Stock, 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 this Series B 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 Series B Preferred Stock, 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 Series B Holder, 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 Series B Holder, as may be specified in such notice of waiver).

 

Except as required by law, the Series B Holders 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 (or by written consent of stockholders in lieu of meeting). Each Holder of outstanding shares of Series B Preferred Stock will be entitled, on the same basis as holders of Common Stock, to receive notice of such action or meeting.

 

So long as any shares of the Series B Preferred Stock remain outstanding, the Company will not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting together as one class: (a) alter or change the rights, preferences or privileges of the shares of the Series B Preferred Stock so as to affect materially and adversely such shares; or (b) create any new class of shares having preference over the Series B Preferred Stock.

 

The Series B Holder has the right, at its sole discretion, to elect a fixed conversion price for the Series B Preferred Stock. The Fixed Conversion Price may not be lower than the Conversion Price. The Company will not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Series B Certificate, and will at all times carry out all the provisions of the Series B Certificate.

 

Series D Preferred Stock

 

On November 27, 2019, the Company filed a Certificate of Designation for its Series D Preferred Stock (the “Series D Certificate”) with the Secretary of State of Nevada which designates 1,000 shares of the Company’s preferred stock par value $0.001 per share as Series D Preferred Stock. William E. Beifuss, Jr., the Company’s President and Chief Executive Officer, was issued 1,000 shares of Series D Preferred Stock valued at $15,000 by an independent valuation firm, which shares were outstanding as of December 31, 2019. The 1,000 shares of Series D preferred stock were automatically redeemed on January 11, 2020, 45 days after the effective date of the Series D Certificate.

 

Pursuant to the terms of the Designation, holders of Series D Preferred Stock shall not be entitled to dividends or a liquidation preference and shall have no conversion rights. For so long as any shares of the Series D Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right to vote in an amount equal to fifty-one percent (51%) of the total voting power of the Company’s shareholders. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of Series D Preferred Stock.

 

 
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The shares of the Series D Preferred Stock shall be automatically, and without any required action by the Company or the holders thereof, redeemed by the Company at their par value on the first to occur of the following triggering events: (i) a date forty-five (45) days as after the Effective Date, (ii) on the date that Mr. Beifuss. ceases, for any reason, to serve as officer, director or consultant of the Company, it being understood that if Mr. Beifuss continues without interruption to serve thereafter in one or more capacities as officer, director or consultant of the Company this shall not be considered a cessation of service, or (iii) on the date that the Company’s shares of common stock first trade on any national securities exchange and such listing is conditioned upon the elimination of the preferential voting rights of the Series D Preferred Stock set forth in the Certificate of Designation.

 

Common Stock

 

Effective February 14, 2020, the Company effected a reverse split of its common stock at a ratio of one for two hundred twenty-five shares (1:225) with the filing of a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada. The Company has given retroactive effect for the reverse stock split in its financial statements and notes thereto for all periods presented.

 

As of March 31, 2021 and December 31, 2020, the Company had 167,613,562 and 133,337,561 shares of common stock issued and outstanding, respectively.

 

During the three months ended March 31, 2021, the Company issued a total of 34,276,001 shares of common stock in consideration for the conversion of $95,261 of principal of convertible notes payable and accrued interest payable of $18,140. In connection with the convertible debt conversions, the Company reduced derivative liabilities by $149,700. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the convertible notes.

 

During the three months ended March 31, 2020, the Company issued a total of 11,425,639 shares of common stock: 1,645,256 shares for the conversion of $8,600 of principal of convertible notes payable and accrued interest payable of $1,589; 9,777,778 shares for the conversion of 1,100 shares of Series B preferred stock recorded at par value; and 2,605 shares for the rounding of shares in the February 2020 reverse stock split recorded at par value. In connection with the convertible debt and Series B preferred stock conversions, the Company reduced derivative liabilities by $263,131. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the underlying agreements.

 

8. STOCK OPTIONS

 

As of March 31, 2021, the Board of Directors of the Company had granted non-qualified stock options exercisable for a total of 230,177,778 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 prices $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.

 

We recognized stock option compensation expense of $450,758 and $0 for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had unrecognized stock option compensation expense totaling $4,165,411.

 

A summary of the Company’s stock options and warrants as of March 31, 2021, and changes during the three months then ended is as follows:

 

 

 


Shares

 

 


Weighted
Average
Exercise Price

 

 

Weighted

Average
Remaining
Contract Term
(Years)

 

 


Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2020

 

 

210,177,778

 

 

$ 0.018

 

 

 

8.65

 

 

 

 

Granted

 

 

20,000,000

 

 

$ 0.050

 

 

 

 

 

 

 

 

Exercised

 

 

-

 

 

$ -

 

 

 

 

 

 

 

 

Forfeited or expired

 

 

-

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

230,177,778

 

 

$ 0.021

 

 

 

4.74

 

 

$ 5,911,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2021

 

 

25,316,720

 

 

$ 0.026

 

 

 

4.75

 

 

$ 680,528

 

 

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.045 as of March 31, 2021, 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.

 

The significant assumptions used in the valuation of the derivative liabilities recorded upon issuance of the January 2021 non-qualified stock options are as follows:

 

Expected life

 

2.54 to 4.01 years

 

Risk free interest rates

 

0.15% - 0.30

%

Expected volatility

 

326.7% – 362.1

%

 

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, Series B Preferred Stock 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.

 

 
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The significant assumptions used in the valuation of the derivative liabilities as of March 31, 2021 are as follows:

 

Conversion to stock

 

Monthly

 

Stock price on the valuation date

 

$ 0.045

 

Risk free interest rates

 

0.00% - 2.81

%

Years to maturity

 

0.15 - 15.0

 

Expected volatility

 

86.6%–831.2

%

 

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

 

 

 

March 31
2021

 

 

December 31,

2020

 

 

 

 

 

 

 

 

Convertible notes payable

 

$ 7,972,469

 

 

$ 3,368,619

 

Series B Preferred Stock

 

 

4,854,470

 

 

 

4,137,413

 

Stock options

 

 

10,341,923

 

 

 

3,776,059

 

 

 

 

 

 

 

 

 

 

Total

 

$ 23,168,862

 

 

$ 11,282,091

 

 

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

 

Pursuant to a written consulting agreement, dated May 31, 2013 and amended effective November 1, 2016, William E. Beifuss, Jr., our current 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, 2020 and 2019. Fees payable to Mr. Beifuss of $70,000 and $80,000 are included in accounts payable – related party as of March 31, 2021 and December 31, 2020, 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.

 

As discussed in Note 7, in November 2019, the Company issued to Mr. Beifuss 1,000 shares of Series D Preferred Stock for services valued at $15,000 by an independent valuation firm. The shares were automatically redeemed in January 2020, 45 days after the effective date of the related Series D Preferred Stock Certificate.

 

As discussed in Note 7, effective February 26, 2020, Mr. Beifuss converted 1,100 shares of Series B Preferred Stock into 9,777,778 shares of the Company’s common stock. Mr. Beifuss previously acquired the shares of Series B Preferred Stock from a lender in a private transaction. The transaction was recorded at the par value of the common stock.

 

 
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11. COMMITMENTS AND CONTINGENCIES

 

Operating Lease

 

On September 5, 2017, we entered into an operating sublease for office space. The base rent for the sublease is $1,000 per month for a period of one year and month-to-month thereafter.

 

For the three months ended March 31, 2021 and 2020, the Company recognized operating lease cost of $3,000.

 

Consulting Agreement

 

We have a written consulting agreement, dated May 31, 2013 and amended effective November 1, 2016, with William E. Beifuss, Jr., our President, Chief Executive Officer, 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.

 

12. SUBSEQUENT EVENTS

 

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

 

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.

 

Securities Purchase Agreement

 

On or about April 2, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with one 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, $2,618,690 of principal and $872,306 of accrued interest through April 2, 2021 under various 10% interest, adjustable convertible notes held by Investor.

 

The Investor is also the holder of 11,515 shares of the Company’s Series B Preferred Stock, which has a face value of $100 per share and was convertible into the Company’s common stock at an adjustable conversion price (the “Series B Shares”). Pursuant to the SPA, the Company and Investor agreed to amend the Certificate of Designation for the Series B Shares to reflect a fixed conversion price equal to the effective conversion price of the Series B Shares on the date of the SPA, which was $0.0015 per share.

 

As an inducement for 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.

 

 
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Convertible Notes

 

Effective April 5, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $45,500 with a maturity date of April 5, 2021. The Company received net proceeds of $42,000 after payment of $3,000 in legal fees and $500 in due diligence 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 consecutive trading days immediately prior to conversion. The Company may prepay the note at any time beginning on the date of the issuance of the note until 180 days after the date of issuance of the note at a prepayment premium of 150%, after which the Company has no right of prepayment.

 

Effective May 10, 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 May 10, 2021. The Company received net proceeds of $40,000 after payment of $3,000 in legal fees and $500 in due diligence 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 consecutive trading days immediately prior to conversion. The Company may prepay the note at any time beginning on the date of the issuance of the note until 180 days after the date of issuance of the note at a prepayment premium of 150%, after which the Company has no right of prepayment.

 

Convertible Note Conversions

 

Subsequent to March 31, 2021, a lender converted principal of $33,000 and $1,980 accrued interest payable into 1,604,587 shares of the Company’s common stock, extinguishing in full the October 1, 2020 Convertible Note. The lender also converted principal of $35,000 and $2,100 accrued interest payable into 1,725,581 shares of the Company’s common stock, extinguishing in full the November 9, 2020 Convertible Note.

 

 
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below, and elsewhere in this report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements frequently are accompanied by such words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements contained herein after the date of this report. Subsequent written and oral forward looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 29, 2021, and in other reports filed by us with the SEC.

 

You should read the following description of our financial condition and results of operations in conjunction with the condensed financial statements and accompanying notes included in this report.

 

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 three months ended March 31, 2021 are not comparable to the results of operations for the three months ended March 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.

 

 
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Results of Operations

 

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2021

 

Revenues

 

As discussed above, the purchase of the operating assets of SCS was effective January 7, 2021, with SCS revenues included in our consolidated statement of operations from that date forward. Revenues were $6,338 for the three months ended March 31, 2021. 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. We reported no revenues for the three months ended March 31, 2021.

 

General and Administrative Expenses

 

General and administrative expenses increased to $734,948 in the three months ended March 31, 2021 from $93,294 in the three months ended March 31, 2020. The increase in general and administrative expenses in the current year is due primarily to increased consulting and professional fees related to the APA with SCS, effective January 7, 2021. In addition, we reported compensation expense of $450,758 from the issuance of non-qualified stock options in the three months ended March 31, 2021. We had no such compensation expense in the three months ended March 31, 2020.

 

Depreciation and Amortization Expense

 

Our property and equipment were fully depreciated as of December 31, 2020. Depreciation and amortization expense of $500 in the three months ended March 31, 2021 consisted of the amortization of intangible assets acquired in the SCS LLC business acquisition. Depreciation of property and equipment was $54 in the three months ended March 31, 2020.

 

Other Income (Expense)

 

Our interest expense decreased to $163,460 in the three months ended March 31, 2021 from $192,164 in the three months ended March 31, 2020. 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, the debt discount for several convertible notes payable for which maturity dates have been extended has been fully amortized. The increase or decrease in our interest expense result primarily from the timing of amortization of debt discount recorded on our convertible promissory notes.

 

We reported a loss on change in derivative liabilities of $9,315,343 in the three months ended March 31, 2021 compared to a loss in change in derivative liabilities of $89,963 in the three months ended March 31, 2020. A significant portion of the loss in the current fiscal year is due to the stock options issued in October and December 2020 and January 2021 which resulted in the recording of large derivative liabilities that have increased in value as the market price of our common stock increased. We estimate the fair value of the derivatives associated with our convertible notes, certain stock options and warrants, and our Series B Preferred Stock 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.

 

 
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Net Income (Loss)

 

Primarily as a result of the non-cash loss on change in derivative liabilities, we reported a net loss of $9,315,343 for the three months ended March 31, 2021. We reported a net loss of $375,475 for the three months ended March 31, 2020.

 

Liquidity and Capital Resources

 

As of March 31, 2021, we had total current assets of $82,731, including cash of $81,130, and total current liabilities of $26,958,918, resulting in a working capital deficit of $26,876,187. Included in our current liabilities as of March 31, 2021 are derivative liabilities totaling $23,168,862, which we do not anticipate will require cash payments to settle.

 

We have funded our operations primarily from the proceeds of convertible notes payable. During the three months ended March 31, 2021 and 2020, we received net proceeds from convertible notes payable of $272,000 and $35,000, respectively.

 

Recent Financings

 

Effective April 5, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $45,500 with a maturity date of April 5, 2021. The Company received net proceeds of $42,000 after payment of $3,000 in legal fees and $500 in due diligence 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 consecutive trading days immediately prior to conversion. The Company may prepay the note at any time beginning on the date of the issuance of the note until 180 days after the date of issuance of the note at a prepayment premium of 150%, after which the Company has no right of prepayment.

 

Effective May 10, 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 May 10, 2021. The Company received net proceeds of $40,000 after payment of $3,000 in legal fees and $500 in due diligence 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 consecutive trading days immediately prior to conversion. The Company may prepay the note at any time beginning on the date of the issuance of the note until 180 days after the date of issuance of the note at a prepayment premium of 150%, after which the Company has no right of prepayment.

 

Conversion of Convertible Debt

 

As more fully described in the notes to the condensed financial statements, on or about April 2, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with one accredited investor (the “Investor”), pursuant to which the Investor agreed to purchase up to 45,000 shares of the Company’s newly created 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, $2,618,690 of principal and $872,306 of accrued interest through April 2, 2021 under various 10% interest, adjustable convertible notes held by Investor. This transaction significantly improves the financial position of the Company.

 

Sources and Uses of Cash

 

During the three months ended March 31, 2021, we used net cash of $199,475 in operating activities as a result of our net loss of $10,207,913, increase in accounts receivable of $1,601 and decrease in accounts payable – related party of $9,900, partially offset by non-cash expenses totaling $9,860,479 and increases in accounts payable of $85,265, accrued expenses of $4,613, and accrued interest, notes payable of $69,582.

 

 
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During the three months ended March 31, 2020, we used net cash of $24,560 in operating activities as a result of our net loss of $375,475, partially offset by non-cash expenses totaling $215,063, decrease in prepaid expenses of $2,808 and increases in accounts payable of $57,173, and accrued expenses of $8,753, and accrued interest, notes payable of $67,118.

 

During the three months ended March 31, 2021, we used net cash of $10,000 in investing activities, comprised of the payment made in the SCS business acquisition. We had no net cash provided by or used in investing activities in the three months ended March 31, 2020.

 

Net cash provided by financing activities was $272,000 and $35,000 during the three months ended March 31, 2021 and 2020, respectively, comprised of proceeds from convertible notes.

 

Historically, proceeds received from the issuance of debt 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 U.S. equity and debt markets resulting from the world-wide Coved 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.

 

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 March 31, 2021, the Company had no material assets that would be subject to impairment or change in valuation due to Covid-19. However as of March 31, 2021, 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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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.

 

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.

 

Derivative Liabilities

 

We have identified the conversion features of our convertible notes payable, Series B Preferred Stock 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.

 

 
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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 March 31, 2021 and December 31, 2020, we believe the amounts reported for cash, accounts receivable, 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.

 

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. Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASC”) Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

 

 

·

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

 

 

·

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

 

 

·

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

 

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 March 31, 2021 and December 31, 2020:

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

March 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ 23,168,862

 

 

$ -

 

 

$ -

 

 

$ 23,168,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$ 23,168,862

 

 

$ -

 

 

$ -

 

 

$ 23,168,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ 11,282,091

 

 

$ -

 

 

$ -

 

 

$ 11,282,091

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities measured at fair value

 

$ 11,282,091

 

 

$ -

 

 

$ -

 

 

$ 11,282,091

 

 

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.

 

 
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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 (see Note 3), the Company acts as an intermediary or agent to facilitate a platform through which property owners market 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.

 

Recently Issued Accounting Pronouncements

 

There were no new accounting pronouncements issued by the FASB during the three months ended March 31, 2021 and through the date of filing of this report that the Company believes will have a material impact on its financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. 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 March 31, 2021, 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 March 31, 2021, 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 March 31, 2021 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 March 31, 2021, 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 March 31, 2021, 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 March 31, 2021, 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 March 31, 2021, 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 March 31, 2021, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.

 

Changes in Internal Controls

 

During the three months ended March 31, 2021, 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.

 

 
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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 

ITEM 1A. RISK FACTORS

 

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 is evolving and we are currently unable to assess with certainty the broad effects of Covid-19 on our business. As of March 31, 2021, the Company had no material assets that would be subject to impairment or change in valuation due to Covid-19. However, as of March 31, 2021, 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.

 

Without a current 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.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three months ended March 31, 2021, the Company issued a total of 34,276,001 shares of common stock in consideration for the conversion of $95,261 of principal of convertible notes payable and accrued interest payable of $18,140. In connection with the convertible debt conversions, the Company reduced derivative liabilities by $149,700.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 
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ITEM 6. EXHIBITS

 

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 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).

 

 

3.7

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)

 

 

3.8

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).

 

 

3.9

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)

 

 

3.10

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).

 

 

3.11

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)

 

 

3.12

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

 

 

3.13

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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3.14

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)

 

 

3.15

Certificate of Amendment to Articles of Incorporation, 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).

 

 

3.16

Certificate of Designation of Series E Convertible Preferred Stock of Digital Locations, Inc. filed with the 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)

 

 

3.17

Certificate of Amendment to Designation of Series B Convertible Preferred Stock of Digital Locations, Inc. filed with the 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 Non-Qualified Stock Option Agreement (Incorporated by reference to the Company’s Report on Form 8-K filed on December 29, 2020)

 

 

4.2

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

 

 

4.3*

Non-Qualified Stock Option Agreement, dated as of December 22, 2020, between Digital Locations, Inc. and Byron Elton

 

 

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

Convertible Promissory Note, dated May 24, 2019, between Digital Locations, Inc. and Power Up Lending Group Ltd. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 14, 2020)

 

 

10.4

Convertible Promissory Note, dated June 27, 2019, between Digital Locations, Inc. and Power Up Lending Group Ltd. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 14, 2020)

 

 

10.5

Convertible Promissory Note, dated August 13, 2019, between Digital Locations, Inc. and Power Up Lending Group Ltd. (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 14, 2020)

 

 
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10.6

Convertible Promissory Note, dated January 25, 2019, between Digital Locations, Inc. and Crown Bridge Partners, LLC (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 14, 2020)

 

 

10.7

Convertible Promissory Note, dated May 23, 2019, between Digital Locations, Inc. and Crown Bridge Partners, LLC (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 14, 2020)

 

 

10.8

Convertible Promissory Note, dated August 29, 2019, between Digital Locations, Inc. and Crown Bridge Partners, LLC (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 14, 2020)

 

 

10.9

Convertible Promissory Note, dated March 16, 2020, between Digital Locations, Inc. and Geneva Roth Remark Holdings, Inc. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 13, 2020)

 

 

10.10

Convertible Promissory Note, dated June 22, 2020, between Digital Locations, Inc. and Geneva Roth Remark Holdings, Inc. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 13, 2020)

 

 

10.11

Convertible Promissory Note, dated July 7, 2020, between Digital Locations, Inc. and Geneva Roth Remark Holdings, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 25, 2020)

 

 

10.12

Convertible Promissory Note, dated July 8, 2020, between Digital Locations, Inc. and Crown Bridge Partners, LLC (Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 25, 2020)

 

 

10.13

Convertible Promissory Note, dated August 18, 2020, between Digital Locations, Inc. and Geneva Roth Remark Holdings, Inc. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 25, 2020)

 

 

10.14

Convertible Promissory Note, dated October 1, 2020, between Digital Locations, Inc. and Geneva Roth Remark Holdings, Inc. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2020)

 

 

10.15

Convertible Promissory Note, dated November 9, 2020, between Digital Locations, Inc. and Geneva Roth Remark Holdings, Inc. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2020)

 

 

10.16

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

 

 

10.17

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

 

 

10.18

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

 

 

10.19

Convertible Promissory Note, dated January 8, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 8, 2021)

 

 
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10.20

Convertible Promissory Note, dated March 18, 2021 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 29, 2021)

 

 

10.21

Securities Purchase Agreement, dated April 2, 2021 (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 8, 2021)

 

 

10.22*

Convertible Promissory Note, dated April 5, 2021

 

 

10.23*

Convertible Promissory Note, dated May 10, 2021

 

31.1*

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2*

Certification of the Acting Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1*

Certification of the Chief Executive Officer furnished pursuant to Section 1350 of Chapter 63 of 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

32.2*

Certification of the Acting Chief Financial Officer furnished pursuant to Section 1350 of Chapter 63 of 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

EX-101.INS

XBRL INSTANCE DOCUMENT

 

 

EX-101.SCH

XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

 

 

EX-101.CAL

XBRL TAXONOMY EXTENSION CALCULATION LINKBASE

 

 

EX-101.DEF

XBRL TAXONOMY EXTENSION DEFINITION LINKBASE

 

 

EX-101.LAB

XBRL TAXONOMY EXTENSION LABELS LINKBASE

 

 

EX-101.PRE

XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

 

*Filed herewith

 

 
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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Barbara, State of California, on May 14, 2021.

 

 

DIGITAL LOCATIONS, INC.

 

 

 

 

By:

/s/ William E. Beifuss, Jr.

 

 

 

Chief Executive Officer
(Principal Executive Officer)

Acting Chief Financial Officer
(Principal Financial/Accounting Officer)

 

 
43