Digital Locations, Inc. - Quarter Report: 2021 September (Form 10-Q)

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 September 30, 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

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.

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 November 15, 2021 was 258,523,325.

DIGITAL LOCATIONS, INC.

INDEX

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

See notes to condensed consolidated financial statements

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Operations 

(Unaudited) 

See notes to condensed consolidated financial statements

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statement of Stockholders’ Deficit

Nine Months Ended September 30, 2021

(Unaudited)

See notes to condensed consolidated financial statements.

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Condensed Consolidated Statement of Stockholders’ Deficit

Nine Months Ended September 30, 2020

(Unaudited)

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements

DIGITAL LOCATIONS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

Nine Months Ended September 30, 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 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 and nine months ended September 30, 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 September 30, 2021, our current liabilities exceeded our current assets by $4,790,514 and we had a total stockholders’ deficit of $8,377,260. In addition, the Company has reported negative cash flows from operations since inception. Current revenues are not sufficient to cover operating expenses. 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.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

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.

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

Fair Value of Financial Instruments

Disclosures about fair value of financial instruments, require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2021 and December 31, 2020, we believe the amounts reported for cash, accounts payable, accounts payable - related party, accrued expenses and other current liabilities, accrued interest, notes payable and convertible notes payable approximate fair value because of their short maturities.

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 as of September 30, 2021 and December 31, 2020:

During the nine months ended September 30, 2021, the Company had the following activity in its derivative liabilities account:

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 real estate, physical assets and billboards to wireless telephone carriers for placement of wireless communications network equipment. Contracts have been signed among the Company, the property owner, and the wireless telephone operator. Monthly payments are received by the Company from the wireless carriers, with the Company paying the property owner a percentage of revenues ranging from 70% to 85%. The net amount is retained by the Company as consideration for its intermediary services and recorded as revenues in the accompanying statements of operations.

Lease Accounting

Pursuant to the underlying contracts, the Company does not own the property and equipment which is leased by 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 and nine months ended September 30, 2021, the Company received payments from two cell phone carriers, with one carrier representing substantially all payments.

During the three months and nine months ended September 30, 2021, the Company had one landlord receiving all Company payments for lease of billboard site locations.

Income (Loss) per Share

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

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

For the nine months ended September 30, 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 nine months ended September 30, 2021 and through the date of filing of this report that the Company believes will have a material impact on its financial statements.

NOTE 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.

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:

During the three months and nine months ended September 30, 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:

4. CONVERTIBLE NOTES PAYABLE

Convertible Promissory Note - $29,500 in Default

On March 14, 2013, we entered into an agreement to issue a 5% convertible promissory note in the principal amount of $29,500, which is convertible into shares of our common stock at a conversion price equal to the lesser of $1.50 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note, with a principal balance of $29,500 as of September 30, 2021 and December 31, 2020, matured on March 14, 2015, and is currently in default.

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

Effective August 29, 2019, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $25,000. The note matured on August 29, 2020. The Company received proceeds of $22,000 after an original issue discount of $1,500 and payment of $1,500 in legal fees. The lender, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 50% discount from the lowest trading price during the 25 days prior to conversion. The Company 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 September 30, 2021 and December 31, 2020, which amount is in default.

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

Effective July 8, 2020, the Company entered into an agreement to issue a 10% convertible note with an institutional investor in the principal amount of $40,000. The note matured on July 8, 2021. The Company received proceeds of $35,000 after an original issue discount of $2,200 and payment of $2,800 in legal fees. The lender, at its option, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 50% discount from the lowest trading price during the 25 days prior to conversion. 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 nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $24,131 and the debt discount was fully amortized. The note had a principal balance of $40,000 as of September 30, 2021 and December 31, 2020, which amount is in default.

Convertible Promissory Notes - Related Parties of $58,600

On December 31, 2012, we issued 5% convertible promissory notes to two employees in exchange for services rendered in the aggregate amount of $58,600. The notes are convertible into shares of our common stock at a conversion price equal to the lesser of $2.00 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We recorded a total debt discount of $57,050 related to the conversion feature of the notes, which has been fully amortized to interest expense, along with a derivative liability at inception. One of the notes with a principal balance of $25,980 as of September 30, 2021, matured on December 31, 2014 and is currently in default. The maturity date of a second note with a principal balance of $32,620 as of September 30, 2021 has been extended to December 31, 2021.

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 period ended April 2, 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 period ended April 2, 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. 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.

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.

On April 2, 2021, total outstanding principal of $892,190 and total accrued interest payable of $395,220 were converted to shares of the Company’s Series E Preferred Stock, extinguishing the debt in full.

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.

On April 2, 2021, total outstanding principal of $460,000 and total accrued interest payable of $165,514 were converted to shares of the Company’s Series E Preferred Stock, extinguishing the debt in full.

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.

On April 2, 2021, total outstanding principal of $500,000 and total accrued interest payable of $151,255 were converted to shares of the Company’s Series E Preferred Stock, extinguishing the debt in full.

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.

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.

On April 2, 2021, total outstanding principal of $490,500 and total accrued interest payable of $101,224 were converted to shares of the Company’s Series E Preferred Stock, extinguishing the debt in full.

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.

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 nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $50,000, with the debt discount fully amortized to interest expense.

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 nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $60,000, with the debt discount fully amortized to interest expense.

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 nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $90,000, with the debt discount fully amortized to interest expense.

On April 2, 2021, total outstanding principal of $275,000 and total accrued interest payable of $13,353 were converted to shares of the Company’s Series E Preferred Stock, extinguishing the debt in full.

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 nine months ended September 30, 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 nine months ended September 30, 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.

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 nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $24,773 and the debt discount has been fully amortized. During the nine months ended September 30, 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.

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 nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $30,299 and the debt discount has been fully amortized. During the nine months ended September 30, 2021, we issued the lender shares of our common stock in consideration for the conversion of principal of $35,000 and accrued interest of $2,100, extinguishing the debt in full.

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 nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $33,500 and the debt discount has been fully amortized. During the nine months ended September 30, 2021, we issued the lender shares of our common stock in consideration for the conversion of principal of $33,500 and accrued interest of $2,010, extinguishing the debt in full.

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 nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $45,500 and the debt discount has been fully amortized. During the nine months ended September 30, 2021, we issued the lender shares of our common stock in consideration for the conversion of principal of $45,500 and accrued interest of $2,730, extinguishing the debt in full.

April 5, 2021 Convertible Promissory Note - $43,500

Effective April 5, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,500 with a maturity date of April 5, 2022. The Company received net proceeds of $40,000 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 $43,500 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $21,214, resulting in a remaining debt discount of $22,286 as of September 30, 2021. The note had a principal balance of $43,500 as of September 30, 2021.

May 10, 2021 Convertible Promissory Note - $43,750

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, 2022. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $43,750 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $18,958, resulting in a remaining debt discount of $24,792 as of September 30, 2021. The note had a principal balance of $43,750 as of September 30, 2021.

June 7, 2021 Convertible Promissory Note - $38,500

Effective June 7, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $38,500 with a maturity date of June 7, 2022. The Company received net proceeds of $35,000 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 $38,500 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $12,130, resulting in a remaining debt discount of $26,370 as of September 30, 2021. The note had a principal balance of $38,500 as of September 30, 2021.

July 12, 2021 Convertible Promissory Note - $38,500

Effective July 12, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of July 12, 2022. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $41,798 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $9,161, resulting in a remaining debt discount of $32,637 as of September 30, 2021. The note had a principal balance of $43,750 as of September 30, 2021.

August 31, 2021 Convertible Promissory Note - $38,500

Effective August 31, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of August 31, 2022. The Company received net proceeds of $40,000 after payment of $3,750 in legal fees and fees to the lender. The lender, at its option after 180 days from the issuance of the note, may convert the unpaid principal balance of, and accrued interest on, the note into shares of the Company’s common stock at a 45% discount from the lowest trading price during the 20 trading days prior to conversion. The Company may prepay the note during the 180 days from the issuance of the note at a redemption premium of 150%. After the expiration of 180 days after issuance, the Company has no right of prepayment. We recorded a debt discount of $41,559 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2021, amortization of debt discount was recorded to interest expense in the amount of $3,415, resulting in a remaining debt discount of $38,144 as of September 30, 2021. The note had a principal balance of $43,750 as of September 30, 2021.

Total accrued interest payable on notes payable was $56,029 and $820,584 as of September 30, 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 on 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 $42,540 during the nine months ended September 30, 2021, resulting in a debt discount of $312,365 as of September 30, 2021.

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. In June 2021, the PPP loan was forgiven, with a gain on debt forgiveness of $9,501 recorded in the accompanying statement of operations.

7. MEZZANINE

Series B Preferred Stock

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

The total face value of this entire series is three million dollars ($3,000,000). Each share of Series B Preferred Stock has a stated face value of $100, and effective April 2, 2021, is convertible into shares of fully paid and non-assessable shares of common stock of the Company at a fixed conversion price of $0.0015 per share. During the nine months ended September 30, 2021, the holder converted a total of 418 shares of Series B Preferred Stock valued at $41,800 into 27,866,667 shares of the Company’s common stock. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the Series B Preferred Stock.

As of September 30, 2021 and December 31, 2020, the Company had 14,637 and 15,055 shares of Series B Preferred Stock outstanding, respectively, and recorded as mezzanine at face value of $1,463,700 and $1,505,500, respectively, due to certain default provisions requiring mandatory cash redemption that are outside the control of the Company.

These shares were originally issued in March 2016 for the redemption and cancellation of $1,615,362 of convertible promissory notes and $264,530 of accrued interest payable. 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 $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.

Series E Preferred Stock

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

On April 2, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor (the “Investor”), pursuant to which the Investor agreed to purchase up to 45,000 shares of the Company’s Series E Preferred Stock (the “Shares”) at a purchase price of $100 per share. In accordance with the SPA, Investor paid for 34,900 Shares by surrendering to the Company for cancellation, $2,617,690 of principal, $826,566 of accrued interest, and $45,740 in fees through April 2, 2021 under various 10% convertible notes held by Investor. The Series E Preferred Stock was valued by an independent valuation firm at $23,393,601 and the Company recognized a loss on debt extinguishment of $16,490,508 and settled derivative liabilities totaling $3,617,188.

As an inducement for the Investor entering into the SPA, the Company agreed that Investor will have the right, exercisable in its sole discretion, to purchase the remaining 10,100 of authorized shares of Series E Preferred Stock at a purchase price of $100 per Share at any time until April 2, 2031. In September 2021, the Investor purchased 500 additional shares of Series E Preferred Stock for cash of $50,000, the stated value of the shares. As of September 30, 2021, the Company had 35,400 shares of Series E Preferred Stock outstanding recorded as mezzanine at face value of $3,540,000 due to certain default provisions requiring mandatory cash redemption that are outside the control of the Company.

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

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

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

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

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

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

8. STOCKHOLDERS’ DEFICIT

As of September 30, 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 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.

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 September 30, 2021 and December 31, 2020, the Company had 218,760,555 and 133,337,561 shares of common stock issued and outstanding, respectively.

During the nine months ended September 30, 2021, the Company issued a total of 48,651,640 shares of common stock in consideration for the conversion of $242,261 of principal of convertible notes payable and accrued interest payable of $26,961. In connection with the convertible debt conversions, the Company settled derivative liabilities of $264,517. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the convertible notes.

Also, during the nine months ended September 30, 2021, the Company issued a total of 27,866,667 shares of common stock in consideration for the conversion of 418 shares of Series B Preferred Stock valued at $41,800 and issued 8,904,687 shares of common stock for services valued at $212,998.

During the nine months ended September 30, 2020, the Company issued a total of 122,279,532 shares of common stock: 112,501,754 shares for the conversion of $222,137 of principal of convertible notes payable, accrued interest payable of $23,664, and fees of $10,750; 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 of $3. In connection with the convertible debt and Series B preferred stock conversions, the Company reduced derivative liabilities by $429,518. There was no gain or loss on settlement of debt due to the conversions occurring within the terms of the convertible notes.

9. STOCK OPTIONS

As of September 30, 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.

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

We recognized stock option compensation expense of $395,840 and $0 for the three months ended September 30, 2021 and 2020, respectively, and $1,200,489 and $0 for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we had unrecognized stock option compensation expense totaling $3,415,680.

A summary of the Company’s stock options and warrants as of September 30, 2021, and changes during the nine months then ended is as follows:

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.0140 as of September 30, 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:

10. 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.

The significant assumptions used in the valuation of the derivative liabilities as of September 30, 2021 are as follows:

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

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.

11. 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 $90,000 for each of the nine months ended September 30, 2021 and 2020. Fees payable to Mr. Beifuss of $50,000 and $80,000 are included in accounts payable - related party as of September 30, 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 8, 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.

12. 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 September 30, 2021 and 2020, the Company recognized operating lease cost of $3,000. For the nine months ended September 30, 2021 and 2020, the Company recognized operating lease cost of $9,000.

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.

13. SUBSEQUENT EVENTS

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

Convertible Note

Effective October 7, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of October 7, 2022. The Company received net proceeds of $40,000 after payment of $3,000 in legal fees and $750 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

In October 2021, a lender converted principal of $43,500 and $2,610 accrued interest payable into 7,950,000 shares of the Company’s common stock, extinguishing in full the April 15, 2021 Convertible Note.

In November 2021, a lender converted principal of $43,750 and $2,625 accrued interest payable into 8,431,818 shares of the Company’s common stock, extinguishing in full the May 10, 2021 Convertible Note.

Common Shares Issued for Services

In October 2021, the Company issued 11,000,000 shares of common stock for legal services valued at $123,200, based on the closing market price of the Company’s common stock on the date of the engagement agreement.

In October 2021, the Company issued 714,285 shares of common stock for consulting services valued at $10,000, based on the closing market price of the Company’s common stock on the date of the invoice for services.

Series B Preferred Stock Conversion

In October 2021, a holder converted 175 shares of the Company’s Series B Preferred Stock valued at $17,500 into 11,666,667 shares of the Company’s common stock.

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.

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 and nine months ended September 30, 2021 are not comparable to the results of operations for the three months and nine months ended September 30, 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.

Recent Developments

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

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

Results of Operations

Three Months and Nine Months Ended September 30, 2021 Compared to the Three Months and Nine Months Ended September 30, 2020

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 $6,955 for the three months ended September 30, 2021 and $18,199 for the nine months ended September 30, 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 and nine months ended September 30, 2020.

General and Administrative Expenses

General and administrative expenses increased to $576,089 in the three months ended September 30, 2021 from $77,250 in the three months ended September 30, 2020 and increased to$1,824,167 in the nine months ended September 30, 2021 from $249,836 in the nine months ended September 30, 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 from the issuance of non-qualified stock options of $395,840 in the three months ended September 30, 2021 and $1,200,489 in the nine months ended September 30, 2021. We had no such compensation expense in the three months and nine months ended September 30, 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 September 30, 2021 and $1,500 in the nine months ended September 30, 2021 consisted of the amortization of intangible assets acquired in the SCS LLC business acquisition. Depreciation of property and equipment was $162 in the three months ended September 30, 2020 and $480 in the nine months ended September 30, 2020.

Other Income (Expense)

Our interest expense decreased to $128,045 in the three months ended September 30, 2021 from $142,803 in the three months ended September 31, 2020. The decrease in interest expense in the current year quarter resulted primarily from the conversion of convertible debt to Series E Preferred Stock in April 2021. Our interest expense increased to $640,548 in the nine months ended September 30, 2021 from $490,448 in the nine months ended September 30, 2020 resulting primarily from higher amortization of debt discount as significant debt with remaining unamortized discount was converted to Series E Preferred Stock in April 2021with the unamortized discount charged to interest expense. 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 gains on change in derivative liabilities of $2,404,367 in the three months ended September 30, 2021, $270,671 in the three months ended September 30, 2020 and $6,099,260 in the nine months ended September 30, 2021. We reported a loss in change in derivative liabilities of $555,917 in the nine months ended September 30, 2020. A significant portion of the gains in the current fiscal year is due to the reduction of derivative liabilities associated with our Series B Preferred Stock. We estimate the fair value of the derivatives associated with our convertible notes and 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.

We reported a loss on extinguishment of debt of $16,490,508 in the nine months ended September 30, 2021 resulting from the issuance of Series E Preferred Stock in consideration for the conversion of convertible notes payable, accrued interest payable and fees. The Series E Preferred Stock was recorded at fair value of $23,393,601 as estimated by an independent valuation firm, resulting in a loss of $16,490,508 after recording the reduction of debt, accrued interest payable and derivative liabilities. There was no gain or loss on extinguishment of debt recorded in the three months ended September 30, 2021 and 2020 or in the nine months ended September 30, 2020.

In the nine months ended September 30, 2021, we received notice from the Internal Revenue Service that our PPP loan of $9,501 had been forgiven. Accordingly, we recorded a gain on forgiveness of PPP loan of $9,501 in the nine months ended September 30, 2021. There was no such gain recorded in the three months ended September 30, 2021 and 2020 or in the nine months ended September 30, 2020.

Net Income (Loss)

As a result of the above, and primarily as a result of gains on change in derivative liabilities, we reported net income of $1,706,688 in the three months ended September 30, 2021 and 2020. We reported net losses of $12,829,763 and $1,296,687 in the nine months ended September 30, 2021 and 2020.

Liquidity and Capital Resources

As of September 30, 2021, we had total current assets of $73,702, comprised of cash, and total current liabilities of $4,864,216, resulting in a working capital deficit of $4,790,514. Included in our current liabilities as of September 30, 2021 are derivative liabilities totaling $4,417,198, which we do not anticipate will require cash payments to settle.

Our liquidity was substantially improved with the issuance of shares of Series E Preferred Stock on April 2, 2021, where $2,617,690 of principal of convertible notes payable, $826,566 of accrued interest payable, and $45,740 of fees were converted to shares of Series E Preferred Stock.

We have funded our operations primarily from the proceeds of convertible notes payable. During the nine months ended September 30, 2021 and 2020, we received net proceeds from convertible notes payable of $467,000 and $155,000, respectively. Also, during the nine months ended September 30, 2021, we received $50,000 from the issuance of Series E Preferred Stock.

Recent Financing

Effective October 7, 2021, the Company entered into a 12% convertible note with an institutional investor in the principal amount of $43,750 with a maturity date of October 7, 2022. The Company received net proceeds of $40,000 after payment of $3,000 in legal fees and $750 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.

Sources and Uses of Cash

During the nine months ended September 30, 2021, we used net cash of $451,903 in operating activities as a result of our net loss of $12,829,763, non-cash gains totaling $6,108,765 and decreases in accounts payable of $30,837 and accounts payable - related party of $30,000, partially offset by non-cash expenses totaling $18,411,334, and increases in accrued expenses of $1,416 and accrued interest, notes payable of $134,712.

During the nine months ended September 30, 2020, we used net cash of $137,139 in operating activities as a result of our net loss of $1,296,687, partially offset by non-cash expenses totaling $848,275, decrease in prepaid expenses of $2,808 and increases in accounts payable of $91,571, accrued expenses of $18,317, and accrued interest, notes payable of $198,577.

During the nine months ended September 30, 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 nine months ended September 30, 2020.

Net cash provided by financing activities was $517,000 in the nine months ended September 30, 2021, comprised of proceeds from convertible notes payable of $467,000 and proceeds from the issuance of Series E Preferred Stock. Net cash provided by financing activities was $164,501 in the nine months ended September 30, 2020, comprised of proceeds from convertible notes payable of $155,000 and proceeds from PPP loan of 9,501.

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 September 30, 2021, the Company had no material assets that would be subject to impairment or change in valuation due to Covid-19. However as of September 30, 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.

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

Fair Value of Financial Instruments

Disclosures about fair value of financial instruments, require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2021 and December 31, 2020, we believe the amounts reported for cash, accounts payable, accounts payable - related party, accrued expenses and other current liabilities, accrued interest, notes payable and convertible notes payable approximate fair value because of their short maturities.

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:

We measure certain financial instruments at fair value on a recurring basis. Liabilities measured at fair value on a recurring basis are as follows as of September 30, 2021 and December 31, 2020: