Mobiquity Technologies, Inc. - Quarter Report: 2022 September (Form 10-Q)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-41117
MOBIQUITY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
| new york | 11-3427886 | |
| (State of jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) | |
| 35 Torrington Lane, SHOREHAM, NY | 11786 | |
| (Address of principal executive offices | (Zip Code) |
(516) 246-9422
(Registrant's telephone number)
Not Applicable
(Former name, address and fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
| Common Stock, $.0001 par value | MOBQ | The Nasdaq Stock Market LLC |
| Common Stock Purchase Warrants | MOBQW | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one)
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock, as of December 9, 2022, was .
MOBIQUITY TECHNOLOGIES, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
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MOBIQUITY TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Mobiquity Technology, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
| Assets | September 30, | December 31, | ||||||
| 2022 | 2021 (restated) | |||||||
| Current Assets | ||||||||
| Cash | $ | 855,246 | $ | 5,385,245 | ||||
| Accounts receivable, net | 980,473 | 388,112 | ||||||
| Prepaid and other current assets | 21,825 | 11,700 | ||||||
| Total Current Assets | 1,857,544 | 5,785,057 | ||||||
| Property and equipment (net of accumulated depreciation of $16,775 and $20,200, respectively) | 17,620 | 20,335 | ||||||
| Goodwill | 1,352,865 | 1,352,865 | ||||||
| Intangible assets (net of accumulated amortization of $2,207,208 and $1,756,657, respectively) | 796,468 | 1,247,019 | ||||||
| Total Assets | $ | 4,024,497 | $ | 8,405,276 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,675,394 | $ | 2,367,600 | ||||
| Notes payable | – | 656,504 | ||||||
| Total Current Liabilities | 1,675,394 | 3,024,104 | ||||||
| Long Term Liabilities | ||||||||
| Notes payable | 150,000 | 2,462,500 | ||||||
| Total Long-Term Liabilities | 150,000 | 2,462,500 | ||||||
| Total Liabilities | 1,825,394 | 5,486,604 | ||||||
| Stockholders' Equity | ||||||||
| AAA Preferred stock; $ par value, shares authorized; shares issued and outstanding, respectively | |
|
493,869 |
|
|
|
493,869 |
|
| Series C, Preferred stock, $ par value, shares authorized, shares issued and outstanding | – | – | ||||||
| Series E, Preferred stock, $ par value, shares authorized, shares issued and outstanding | 4,935,040 | 4,935,040 | ||||||
| Common stock, $ par value, shares authorized and shares issued, respectively and and shares outstanding, respectively | |
|
927 |
|
|
|
650 |
|
| Treasury stock $ par value shares at cost | (1,350,000 | ) | (1,350,000 | ) | ||||
| Additional paid in capital | 206,355,362 | 201,284,007 | ||||||
| Accumulated deficit | (208,236,095 | ) | (202,444,894 | ) | ||||
| Total Stockholders' Equity | 2,199,103 | 2,918,672 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 4,024,497 | $ | 8,405,276 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Mobiquity Technology, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 (restated) | 2022 | 2021 (restated) | |||||||||||||
| Revenues | $ | 904,223 | $ | 572,745 | $ | 3,367,346 | $ | 1,797,052 | ||||||||
| Cost of revenues | 936,824 | 690,702 | 1,916,720 | 2,439,501 | ||||||||||||
| Gross profit (loss) | (32,601 | ) | (117,957 | ) | 1,450,626 | (642,449 | ) | |||||||||
| General and administrative expenses | 2,239,988 | 2,548,087 | 6,524,042 | 5,804,791 | ||||||||||||
| Loss from operations | (2,272,589 | ) | (2,666,044 | ) | (5,073,416 | ) | (6,447,240 | ) | ||||||||
| Other income (expenses) | ||||||||||||||||
| Interest expense | (4,664 | ) | (809,316 | ) | (148,631 | ) | (1,522,643 | ) | ||||||||
| Loss on extinguishment of debt - related party | – | – | (855,296 | ) | – | |||||||||||
| Inducement expense | – | – | (101,000 | ) | – | |||||||||||
| Interest income | 746 | 18 | 1,320 | 18 | ||||||||||||
| Loss on disposal of fixed assets | (3,673 | ) | – | (3,673 | ) | – | ||||||||||
| Gain on settlement of liability | – | – | 389,495 | – | ||||||||||||
| Gain on forgiveness of debt | – | – | – | 265,842 | ||||||||||||
| Total other income (expense) - net | (7,591 | ) | (809,298 | ) | (717,785 | ) | (1,256,783 | ) | ||||||||
| Net loss | $ | (2,280,180 | ) | $ | (3,475,342 | ) | $ | (5,791,201 | ) | $ | (7,704,023 | ) | ||||
| Loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Mobiquity Technology, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
September 30, 2022
| AAA | Series E | Series C | Additional | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Treasury Shares | Accumulated | Stockholders' | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, at January 1, 2022 | 31,413 | $ | 493,869 | 61,688 | $ | 4,935,040 | $ | 6,460,751 | $ | 650 | $ | 201,284,007 | 37,500 | $ | (1,350,000 | ) | $ | (202,444,894 | ) | $ | 2,918,672 | ||||||||||||||||||||||||||||||||||||
| Common stock issued for services | – | – | – | 50,000 | 5 | 84,495 | – | 84,500 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 32,254 | – | 32,254 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | – | – | – | – | – | – | – | – | 2,162 | – | – | – | 2,162 | ||||||||||||||||||||||||||||||||||||||||||||
| Note conversion | – | – | – | 1,443,333 | 145 | 2,680,020 | – | 2,680,165 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | (2,440,044 | ) | (2,440,044 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, at March 31, 2022 | 31,413 | $ | 493,869 | 61,688 | $ | 4,935,040 | $ | 7,954,084 | $ | 800 | $ | 204,082,938 | 37,500 | $ | (1,350,000 | ) | $ | (204,884,938 | ) | $ | 3,277,709 | ||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 1,479 | – | 1,479 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | – | – | – | – | – | – | – | – | 7,359 | – | – | – | 7,359 | ||||||||||||||||||||||||||||||||||||||||||||
| Note and warrant conversion | – | – | – | 408,000 | 41 | 988,590 | – | 988,631 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | (1,070,977 | ) | (1,070,977 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, at June 30, 2022 | 31,413 | $ | 493,869 | 61,688 | $ | 4,935,040 | $ | 8,362,084 | $ | 841 | $ | 205,080,366 | 37,500 | $ | (1,350,000 | ) | $ | (205,955,915 | ) | $ | 3,204,201 | ||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | – | – | – | 882,448 | 83 | 1,137,417 | – | 1,137,500 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 25,954 | – | 25,954 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued for services | – | – | – | – | – | – | – | – | 3,203 | – | – | – | 3,203 | ||||||||||||||||||||||||||||||||||||||||||||
| Note and warrant conversion | – | – | – | 27,107 | 3 | 108,422 | – | 108,425 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | (2,280,180 | ) | (2,280,180 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, at September 30, 2022 | 31,413 | $ | 493,869 | 61,688 | $ | 4,935,040 | $ | 9,271,639 | $ | 927 | $ | 206,355,362 | 37,500 | $ | (1,350,000 | ) | $ | (208,236,095 | ) | $ | 2,199,103 | ||||||||||||||||||||||||||||||||||||
continued
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Mobiquity Technology, Inc.
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
September 30, 2022
| Mezzanine | Series E | Series C | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Treasury Shares | Accumulated | Stockholders' | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, at January 1, 2021 (restated) | 56,413 | $ | 868,869 | 61,688 | $ | 4,935,040 | 1,500 | $ | 15,000 | 2,803,685 | $ | 282 | $ | 182,529,005 | 37,500 | $ | (1,350,000 | ) | $ | (184,111,511 | ) | $ | 2,886,685 | |||||||||||||||||||||||||||||||||
| Common stock issued for services | – | – | – | 10,000 | 81,825 | – | 81,825 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | – | – | – | 91,502 | 10 | 548,980 | – | 548,990 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 142,221 | – | 142,221 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | (2,355,158 | ) | (2,355,158 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, at March 31, 2021 (restated) | 56,413 | $ | 868,869 | 61,688 | $ | 4,935,040 | 1,500 | $ | 15,000 | 2,905,187 | $ | 292 | $ | 183,302,031 | 37,500 | $ | (1,350,000 | ) | $ | (186,466,669 | ) | $ | 1,304,563 | |||||||||||||||||||||||||||||||||
| Common stock issued for services | – | – | – | 5,000 | 37,975 | – | 37,975 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | – | – | – | 58,334 | 6 | 349,994 | – | 350,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 55,392 | – | 55,392 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Notes converted to common stock | – | – | – | 92,761 | 9 | 451,993 | – | 452,002 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Original issue discount shares | – | – | – | 39,500 | 5 | 268,145 | – | 268,150 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | (1,873,523 | ) | (1,873,523 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, at June 30, 2021 (restated) | 56,413 | $ | 868,869 | 61,688 | $ | 4,935,040 | 1,500 | $ | 15,000 | 3,100,782 | $ | 312 | $ | 184,465,530 | 37,500 | $ | (1,350,000 | ) | $ | (188,340,192 | ) | $ | 594,559 | |||||||||||||||||||||||||||||||||
| Common stock issued for services | – | – | – | 7,500 | 53,500 | – | 53,500 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for cash | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Note conversions | – | – | – | 130,904 | 13 | 702,486 | – | 702,499 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Original issue discount shares | – | – | – | 55,900 | 9 | 455,872 | – | 455,881 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion Series C preferred stock | – | – | (1,500 | ) | $ | (15,000 | ) | 375,000 | 38 | 14,962 | – | |||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 717,168 | – | 717,168 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | – | – | – | – | – | $ | (3,475,342 | ) | (3,475,342 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, at September 30, 2021 (restated) | 56,413 | $ | 868,869 | 61,688 | $ | 4,935,040 | $ | 3,670,086 | $ | 372 | $ | 186,409,518 | 37,500 | $ | (1,350,000 | ) | $ | (191,815,534 | ) | $ | (951,735 | ) | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Mobiquity Technology, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 (as restated) | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (5,791,201 | ) | $ | (7,704,023 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 7,045 | 5,555 | ||||||
| Amortization of intangibles | 450,551 | 1,350,551 | ||||||
| Stock issued for services | 84,500 | 173,300 | ||||||
| Loss on fixed asset disposal | 3,673 | – | ||||||
| Loss on debt extinguishment - related party | 855,296 | – | ||||||
| Gain on settlement of liability | (389,495 | ) | – | |||||
| Stock based compensation | 59,687 | 914,781 | ||||||
| Warrants issued for services | 12,724 | – | ||||||
| Stock issued with short-term convertible notes | – | 1,753,032 | ||||||
| Gain on forgiveness of debt | – | (265,842 | ) | |||||
| Inducement expense | 101,000 | – | ||||||
| Changes in operating assets and liabilities | ||||||||
| (Increase) decrease in accounts receivable | (592,362 | ) | 1,013,223 | |||||
| (Increase) decrease in prepaid expenses and other assets | (10,125 | ) | 43,787 | |||||
| Increase (decrease) in accounts payable and accrued expenses | (294,284 | ) | (201,613 | ) | ||||
| Net cash used in operating activities | (5,502,991 | ) | (2,917,249 | ) | ||||
| Investing Activities | ||||||||
| Purchase of property and equipment | (8,004 | ) | – | |||||
| Net cash used in investing activities | (8,004 | ) | – | |||||
| Financing Activities | ||||||||
| Proceeds from the issuance of notes payable | – | 2,868,500 | ||||||
| Common stock issued for cash, net | 1,137,500 | 898,990 | ||||||
| Repayment on notes payable | (156,504 | ) | (716,918 | ) | ||||
| Net cash provided by financing activities | 980,996 | 3,050,572 | ||||||
| Net change in cash | (4,529,999 | ) | 133,323 | |||||
| Cash - beginning of period | 5,385,245 | 602,182 | ||||||
| Cash - end of period | $ | 855,246 | $ | 735,505 | ||||
| Supplemental disclosure of cash flow Information | ||||||||
| Cash paid for interest | $ | 145,052 | $ | 303,643 | ||||
| Cash paid for taxes | $ | 2,420 | $ | 2,005 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of debt to common stock and warrants | $ | 2,812,500 | $ | 856,155 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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MOBIQUITY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2022
(UNAUDITED)
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Mobiquity Technologies, Inc. (“Mobiquity,” “we,” “our” or “the Company”), and its operating subsidiaries, is a next generation location data intelligence company. The Company provides precise unique, at-scale location data and insights on consumer’s real-world behavior and trends for use in marketing and research. We provide one of the most accurate and scaled solutions for mobile data collection and analysis, utilizing multiple geo-location technologies. The Company is seeking to implement several new revenue streams from its data collection and analysis, including, but not limited to, Advertising, Data Licensing, Footfall Reporting, Attribution Reporting, Real Estate Planning, Financial Forecasting and Custom Research. We also are a developer of advertising and marketing technology focused on the creation, automation, and maintenance of an advertising technology operating system (or ATOS). The ATOS platform blends artificial intelligence (or AI) and machine learning (ML) based optimization technology for automatic ad serving that manages and runs digital advertising campaigns.
The parent (Mobiquity Technologies, Inc.) and subsidiaries are organized as follows:
| Company Name | State of Incorporation | |
| Mobiquity Technologies, Inc. | New York | |
| Mobiquity Networks, Inc. | New York | |
| Advangelists, LLC | Delaware |
Liquidity, Going Concern and Management’s Plans
These condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As reflected in the accompanying condensed consolidated financial statements, for the nine months ended September 30, 2022, the Company had:
| · | Net loss of $5,791,201; and |
| · | Net cash used in operations was $5,502,991 |
Additionally, at September 30, 2022, the Company had:
| · | Accumulated deficit of $208,236,095 |
| · | Stockholders’ equity of $2,199,103, and |
| · | Working capital of $182,150 |
We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand of $855,246 at September 30, 2022.
The Company has incurred significant losses since its inception in 1998 and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial position, our cash flows and cash usage forecasts for the nine months ended September 30, 2022, and our current capital structure including equity-based instruments and our obligations and debts.
| 8 |
Without sufficient revenues from operations, if the Company does not obtain additional capital, the Company will be required to reduce the scope of its business development activities or cease operations. The Company may explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.
These factors create substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these condensed consolidated financial statements are issued. These condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Management’s strategic plans include the following:
| · | Execution of business plan focused on technology growth and improvement, |
| · | Seek out equity and/or debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders and investors will continue to advance capital to the Company or that the new business operations will be profitable. |
| · | Continuing to explore and execute prospective partnering or distribution opportunities, |
| · | Identifying unique market opportunities that represent potential positive short-term cash flow. |
Coronavirus (“COVID-19”) Pandemic
During the three months and nine months ended September 30, 2022, the Company’s financial results and operations were not materially adversely impacted by the COVID-19 pandemic. However, in the prior two (2) years, the Company suffered from the Pandemic and drastically curtailed its operations. The extent to which the Company’s future financial results could be impacted by the COVID-19 pandemic depends on future developments that are highly uncertain and cannot be predicted at this time. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities.
These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of September 30, 2022, and the results of operations and cash flows for the periods presented. The results of operations for the three months and nine months ended September 30, 2022, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2021, filed with the SEC on December 1, 2022.
Management acknowledges its responsibility for the preparation of the accompanying unaudited condensed consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the consolidated results of its operations for the periods presented.
| 9 |
Principles of Consolidation
These condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
Business Segments and Concentrations
The Company uses the “management approach” to identify its reportable segments. The management approach requires companies to report segment financial information consistent with information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s reportable segments. The Company manages its business as a single reporting segment.
Customers in the United States accounted for 100% of our revenues. We do not have any property or equipment outside of the United States.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material. Significant estimates include the fair value of equity instruments issued for services, valuation allowance of deferred tax assets, and useful life of intangible assets.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.
Fair Value of Financial Instruments
The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. 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, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
| · | Level 1 — Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; | |
| · | Level 2 — Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and | |
| · | Level 3 — Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
| 10 |
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
As of September 30, 2022 and December 31, 2021, the Company does not have any financial instruments measured on a recurring or nonrecurring basis at fair value.
The Company’s financial instruments, including cash, accounts receivable, and accounts payable and accrued expenses are carried at historical cost. At September 30, 2022 and December 31, 2021, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments. The fair value of the Company’s convertible notes payable and notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.
Cash and Cash Equivalents and Concentration of Credit Risk
For purposes of the condensed consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market accounts to be cash equivalents.
At September 30, 2022 and December 31, 2021, respectively, the Company did not have any cash equivalents.
The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC, which is $250,000. At September 30, 2022 and December 31, 2021, the Company did not experience any losses on cash balances in excess of FDIC insured limits. At September 30, 2022, and December 31, 2021, the Company exceeded FDIC insured limits by $582,321 and $5,103,273, respectively.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral. Two of our customers combined accounted for approximately 45% of accounts receivable. In addition, two customers combined accounted for approximately 48% of the Company’s revenue for the nine months ended September 30, 2022.
Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.
Allowance for doubtful accounts was $820,990 at September 30, 2022 and December 31, 2021. This allowance relates to receivables generated in previous years for which collection is uncertain as the customers have been adversely impacted by COVID-19.
Bad debt expense (recovery) is recorded as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations.
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Impairment of Long-lived Assets
Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include but are not limited to significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets.
If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets.
Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations.
Management reviews the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Goodwill
The Company’s goodwill of $1,352,865 represents the excess of the consideration transferred for acquired businesses over the fair value of the underlying identifiable net assets. Goodwill is not amortized but instead, it is tested for impairment at least annually. In the event that management determines that the value of goodwill has become impaired, the Company will record a charge in an amount equal to the excess of the reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit during the fiscal quarter in which the determination is made.
The Company performs its annual impairment tests of goodwill as of December 31st of each year, or more frequently, if certain indicators are present. Goodwill is required to be tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment level, which is referred to as a component. Management identifies its reporting units by assessing whether components (i) have discrete financial information available, (ii) engage in business activities, and (iii) whether a segment manager regularly reviews the component’s operating results. Net assets and goodwill of acquired businesses are allocated to the reporting unit associated with the acquired business based on the anticipated organizational structure of the combined entities. If two or more components are deemed economically similar, those components are aggregated into one reporting unit when performing the annual goodwill impairment review. The Company has one reporting unit as of December 31, 2021.
Intangible Assets
In December 2018, the Company acquired the majority of its intangible assets through its acquisition of Advangelists LLC. The Company amortizes its identifiable definite-lived intangible assets over a period of 5 years. See Note 3 for further details.
In 2020 and 2021, the Company identified triggering events due to the reduction in its projected revenue from adverse economic conditions caused by the COVID-19 pandemic and uncertainty for recovery given the volatility of the capital markets. The Company performed impairment assessments of its ATOS Platform intangible asset in December 2020 and determined that the carrying value of the asset exceeded its fair value by an estimate of $4,000,000. A similar assessment was performed in December 2021 resulting in additional impairment of $3,600,000. Both charges were recognized in the fourth quarter of each fiscal year for a total loss on impairment of $7,600,000, which resulted in the asset being written down to a net book value of zero.
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Derivative Liabilities
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic No. 480, (“ASC 480”), “Distinguishing Liabilities from Equity” and FASB ASC Topic No. 815, (“ASC 815”) “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The Company uses a binomial model to determine fair value.
Upon conversion of a note where the embedded conversion option has been bifurcated and accounted for as a derivative liability, the Company records the shares at fair value, relieves all related notes, derivatives, and debt discounts, and recognizes a net gain or loss on debt extinguishment. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date. As of September 30, 2022, and December 31, 2021, the Company had no derivative liabilities.
Debt Issue Cost
Debt issuance cost paid to lenders, or third parties are amortized to interest expense in the condensed consolidated statements of operations, over the life of the underlying debt instrument, with the unamortized portion reported net with related principal outstanding on the condensed consolidated balance sheet.
Revenue Recognition
The Company’s revenues are generated from internet advertising, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606). In accordance with ASC 606, revenue is recognized when promised services are transferred to a customer. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five steps:
Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services (performance obligations), the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation. Currently, the Company does not have any contracts that contain multiple performance obligations.
Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of September 30, 2022, and 2021, respectively, contained a significant financing component.
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Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. Currently, the Company does not have any contracts that contain multiple performance obligations.
Recognize revenue when or as the Company satisfies a performance obligation.
The Company satisfies performance obligations at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 90 days.
Contract Liabilities
Contract liabilities represent deposits made by customers before the satisfaction of performance obligation and recognition of revenue. Upon completion of the performance obligation(s) that the Company has with the customer based on the terms of the contract, the liability for the customer deposit is relieved and revenue is recognized.
Revenues
All revenues recognized was from internet advertising for all periods ended September 30, 2022, and September 30, 2021.
Advertising
Advertising costs are expensed as incurred. Advertising costs are included as a component of general and administrative expense in the condensed consolidated statements of operations.
The Company recognized $0 and $159 in marketing and advertising costs during the nine months ended September 30, 2022, and 2021, respectively.
Stock-Based Compensation
The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options.
The fair value of stock-based compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
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When determining fair value of stock-based compensation, the Company considers the following assumptions in the Black-Scholes model:
| · | Exercise price, |
| · | Expected dividends, |
| · | Expected volatility, |
| · | Risk-free interest rate; and |
| · | Expected life of option |
Stock Warrants
In connection with certain financing, consulting and collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date and records fair value as expense over the requisite service period or at the date of issuance if there is not a service period.
Income Taxes
The Company accounts for income tax using the asset and liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of September 30, 2022, and December 31, 2021, respectively, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
The Company recognizes interest and penalties related to uncertain income tax positions in other expense. No interest and penalties related to uncertain income tax positions were recorded for the nine months ended September 30, 2022, and 2021, respectively.
Pursuant to ASC 260-10-45, basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the periods presented.
Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. In the event of a net loss, diluted loss per share is the same as basic loss per share since the effect of the potential common stock equivalents upon conversion would be anti-dilutive.
The following potentially dilutive equity securities outstanding as of September 30, 2022, and 2021 were as follows:
| September 30, 2022 | September 30, 2021 | |||||||
| Convertible notes payable and accrued interest | – | 801,250 | ||||||
| Stock Options | 1,162,721 | 301,845 | ||||||
| Warrants | 4,680,050 | 472,886 | ||||||
| Total common stock equivalents | 5,842,771 | 1,575,981 | ||||||
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Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recent Accounting Pronouncements
Changes to accounting principles are established by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability and impact of all ASU’s on our consolidated financial position, results of operations, stockholders’ equity, cash flows, or presentation thereof.
Credit Losses: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. In May 2019, the FASB issued ASU 2019-05, which provides transition relief for entities adopting ASU 2016-13. For entities that have adopted ASU 2016-13, the amendments in ASU 2019-05 are effective for fiscal years beginning after December 15, 2019, including interim periods therein. An entity may early adopt ASU No. 2019-05 in any interim period after its issuance if the entity has adopted ASU 2016-13. For all other entities, the effective date will be the same as the effective date of ASU 2016-13. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the expected impact of adopting ASU 2016-13 on its consolidated financial statements and disclosures.
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers: In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). Under ASU 2021-08, an acquirer in a business combination must apply ASC 606 principles when recognizing and measuring acquired contract assets and contract liabilities. The provisions of ASU 2021-08 are applicable for the Company for fiscal years and interim periods beginning after December 15, 2022. The Company is currently evaluating the impact of ASU 2021-08 on its consolidated financial statements and related disclosures.
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions: On September 30, 2022, the FASB issued ASU 2022-03 (“ASU 2022-03”), which clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the sale of an equity security. The ASU also requires specific disclosures related to such an equity security, including (1) the fair value of such equity securities reflected in the balance sheet, (2) the nature and remaining duration of the corresponding restrictions, and (3) any circumstances that could cause a lapse in the restrictions. ASU 2022-03 clarifies that a “contractual restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the equity security’s unit of account. Accordingly, an entity should not consider the contractual sale restriction when measuring the equity security’s fair value (i.e., the entity should not apply a discount related to the contractual sale restriction, as stated in ASC 820-10-35-36B as amended by the ASU). The ASU also prohibits an entity from recognizing a contractual sale restriction as a separate unit of account. For public business entities, ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of ASU 2022-03 on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncement
In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year.
We adopted this pronouncement on January 1, 2022; however, the adoption of this standard did not have a material effect on the Company’s consolidated financial statements.
Reclassification
Certain prior period amounts have been reclassified for consistency with current period presentation. These reclassifications had no effect on the reported results of operations and primarily consisted of classifying stock-based compensation within general and administrative expense rather than presenting separately.
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NOTE 3: RESTATEMENT
On December 1, 2022, the Company filed its Annual Report on Form 10-K/A (Amendment No. 2), effectively restating its previously issued financial statements for the annual periods ended December 31, 2021 and 2020, and the quarterly periods within such years.
As a result of the restatements disclosed in Amendment No. 2 of the 2021 Form 10-K/A, the quarterly financial statements for the periods ended March 31, 2022 and June 30, 2022 are being effectively restated in this current Form 10-Q for the quarter ended September 30, 2022, as follows:
| As of March 31, 2022 | ||||||||||||
| Balance Sheet Data (Unaudited) | As Previously Reported | Adjustment | As Restated | |||||||||
| Additional paid in capital | $ | 207,172,747 | $ | (3,089,809 | ) | $ | 204,082,938 | |||||
| Accumulated deficit | $ | (207,974,747 | ) | $ | 3,089,809 | $ | (204,884,938 | ) | ||||
| Total Stockholders' Equity | $ | 3,277,709 | $ | – | $ | 3,277,709 | ||||||
| As of June 30, 2022 | ||||||||||||
| Balance Sheet Data (Unaudited) | As Previously Reported | Adjustment | As Restated | |||||||||
| Additional paid in capital | $ | 208,670,675 | $ | (3,590,309 | ) | $ | 205,080,366 | |||||
| Accumulated deficit | $ | (209,546,224 | ) | $ | 3,590,309 | $ | (205,955,915 | ) | ||||
| Total Stockholders' Equity | $ | 3,204,201 | $ | – | $ | 3,204,201 | ||||||
| Three Months Ended June 30, 2022 | ||||||||||||
| Statement of Operations Data (Unaudited) | As Previously Reported | Adjustment | As Restated | |||||||||
| General and administrative expenses | $ | 2,255,965 | $ | (500,500 | ) | $ | 1,755,465 | |||||
| Loss from operations | $ | (1,008,780 | ) | $ | 500,500 | $ | (508,280 | ) | ||||
| Net loss | $ | (1,571,477 | ) | $ | 500,500 | $ | (1,070,977 | ) | ||||
| Net loss per share – basic and diluted | $ | (0.20 | ) | $ | (0.13 | ) | ||||||
| Six Months Ended June 30, 2022 | ||||||||||||
| Statement of Operations Data (Unaudited) | As Previously Reported | Adjustment | As Restated | |||||||||
| General and administrative expenses | $ | 4,784,554 | $ | (500,500 | ) | $ | 4,284,054 | |||||
| Loss from operations | $ | (3,301,327 | ) | $ | 500,500 | $ | (2,800,827 | ) | ||||
| Net loss | $ | (4,011,521 | ) | $ | 500,500 | $ | (3,511,021 | ) | ||||
| Net loss per share – basic and diluted | $ | (0.50 | ) | $ | (0.44 | ) | ||||||
| Six Months Ended June 30, 2022 | ||||||||||||
| Cash Flow Data (Unaudited) | As Previously Reported | Adjustment | As Restated | |||||||||
| Net loss | $ | (4,011,521 | ) | $ | 500,500 | $ | (3,511,021 | ) | ||||
| Stock-based compensation | $ | 543,754 | $ | (500,500 | ) | $ | 43,254 | |||||
| Net cash used in operating activities | $ | (3,054,760 | ) | $ | – | $ | (3,054,760 | ) | ||||
| 17 |
The Company erroneously recorded a total of $ in stock-based compensation expense during the quarter ended June 30, 2022 pursuant to three stock option awards granted in April 2019. The expense associated with these awards should have been fully recognized during the year ended December 31, 2021 based on the requisite service periods underlying the option awards. This adjustment is reflected in the restated accounts for the year ended December 31, 2021, and all affected and restated quarterly periods within fiscal years 2020 and 2021, as disclosed in the Annual Report on Form 10-K/A (Amendment No. 2) for the years ended December 31, 2021 and 2020 filed with the SEC on December 1, 2022. All other adjustments to additional paid-in capital and accumulated deficit, totaling $3,089,809, relate to adjustments recorded prior to January 1, 2022 as discussed in the Form 10-K/A (Amendment No. 2).
NOTE 4 – INTANGIBLE ASSETS
The Company’s identifiable intangible assets, other than goodwill, consists of customer relationships and the ATOS Platform.
The ATOS platform:
| · | creates an automated marketplace of advertisers and publishers on digital media outlets to host online auctions to facilitate the sale of ad time slots (known as digital real estate) targeted at users while engaged on their connected TV, computer, or mobile device, and |
| · | gives advertisers the capability to understand and interact with their audiences and engage them in a meaningful way by the using ads in both image and video formats (known as rich media) to increase their customer base and foot traffic to their physical locations. |
The Company’s intangible asset balances, including accumulated amortization, are as follows:
| Useful Lives | September 30, 2022 | December 31, 2021 | ||||||||
| Customer relationships | 5 years | $ | 3,003,676 | $ | 3,003,676 | |||||
| Less accumulated amortization | (2,207,208 | ) | (1,756,657 | ) | ||||||
| Net carrying value | $ | 796,468 | $ | 1,247,019 | ||||||
The ATOS platform was determined to be fully impaired as of December 31, 2021. During the nine months ended September 30, 2022, the Company recognized $450,551 of amortization expense related to the intangible assets which is included in general and administrative expenses on the condensed consolidated statements of operations.
Future amortization, for the years ending December 31, is as follows:
| 2022 (balance of 2022) | $ | 150,184 | ||
| 2023 | 600,735 | |||
| 2024 | 45,549 | |||
| Total | $ | 796,468 |
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NOTE 5 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
Summary of notes payable and convertible notes payable:
| September 30, 2022 | December 31, 2021 | |||||||
| Convertible Note Payable - Related Party (d) | $ | – | $ | 2,562,500 | ||||
| Small Business Administration (a) | 150,000 | 150,000 | ||||||
| Convertible Notes (c) | – | 250,000 | ||||||
| Notes Payable – Accounts Receivable Factoring (b) | – | 156,504 | ||||||
| Total Debt | 150,000 | 3,119,004 | ||||||
| Current portion of debt | – | 656,504 | ||||||
| Long-term portion of debt | $ | 150,000 | $ | 2,462,500 | ||||
__________________
| (a) | The Company received an Economic Injury Disaster Loan from the SBA which carries a thirty-year term, and a three-point seven five percent interest rate, maturity date is July of 2050. Total accrued and unpaid interest on the debt was $9,832 at September 30, 2022 and is included in accounts payable and accrued expenses on the accompanying balance sheet. | |
| (b) | Business Capital Providers, Inc. purchased certain future receivables from the Company at a discount under agreements dated July of 2021. All loans have been repaid in full as of September 30, 2022. |
| (c) |
Several private investors, who were unaffiliated shareholders of the Company and accredited investors as provided under Regulation D Rule 501 promulgated under the Securities Act of 1933, provided financing under convertible debt agreements during the period June 2021 through September 2021 pursuant to subscription agreements. During the nine months ended September 30, 2022, one investor agreed to convert $150,000 of debt principal at a reduced conversion rate of $2.00 per share under an induced conversion arrangement that included an explicit time limit of two dates at the reduced rate. The conversion resulted in the issuance of 75,000 shares of common stock and recognition of $101,000 in inducement expense.
The remaining $100,000 in principal relates to three individual convertible notes bearing interest at 10% per annum and having a maturity date of July 1, 2022. The promissory notes contain an automatic conversion feature, effectively converting all outstanding and unpaid principal on the maturity date at a conversion rate of $4.00 per share. On July 1, 2022, the convertible notes and accrued interest of $8,425 were converted into 27,107 common shares at the $4.00 conversion rate. The outstanding principal and accrued interest were classified to additional paid-in capital upon conversion. |
| (d) | Gene Salkind, who is a director of the Company, and an affiliate of Dr. Salkind executed 15% Senior Secured Convertible Promissory Notes in September 2019. The convertible promissory notes have the following terms, as amended: |
| · | The Salkind lenders may convert the notes at any time at a conversion rate of $4.00. |
| · | The Company may convert the notes at any time that the trailing thirty (30) day volume weighted average price per share (as more particularly described in the Notes) of the Company’s common stock is above $4.00 per share. |
Upon conversion of the debt principal, the Company is to issue warrants to the debt holders for the purchase of common shares of the Company. The number of shares granted under the warrants is equivalent to 50% of the total shares issued under the debt principal converted. The warrants are immediately exercisable at a price of $4.00 per share through September 2029.
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The notes contained customary events of default, which, if uncured, entitle the holders to accelerate payment of the principal and all accrued and unpaid interest under their notes.
During the nine months ended September 30, 2022, the debt holders converted all the remaining $2,052,500 of outstanding debt in two separate conversion transactions at mutually and board approved reduced conversion prices of $1.50 and $1.25 per share which also resulted in additional warrants being issued due to 50% warrant coverage based on the total shares issued. A total of restricted common shares and warrants to purchase 888,166 restricted common shares at an exercise price of $4.00 per share through September 2029 were issued in connection with these conversions. The Company determined that these transactions resulted in debt extinguishment accounting under Accounting Standards Codification 470-50, Debt Modifications and Extinguishments. As a result, the Company recorded a total loss on debt extinguishment for the nine months ended September 30, 2022, of $855,296, which represented the excess of the debt reacquisition price over its carrying value at the time of the conversions. Accrued and unpaid interest on the Salkind convertible notes of $235,563 remains outstanding at September 30, 2022 and is included in accounts payable and accrued expenses on the accompanying balance sheet which can be converted at the original conversion rate of $4.
NOTE 6 – STOCKHOLDERS’ EQUITY
Shares Issued for Cash
During the nine months ended September 30, 2022, the Company issued shares of common stock for $1,137,500 of cash proceeds. During the nine months ended September 30, 2021, the Company issued shares of common stock for $898,990 of cash proceeds.
Shares Issued for Services
During the nine months ended September 30, 2022, the Company issued shares of common stock, at $1.69 per share for $84,500 in exchange for services rendered. During the quarter ended September 30, 2021, the Company issued shares of common stock, at $7.50 to $9.73 per share for $81,825 in exchange for services rendered.
Shares issued upon conversion of debt:
During the nine months ended September 30, 2022, Dr. Gene Salkind, his wife, and a trust converted an aggregate of $2,562,500 of secured debt in exchange for shares of common stock as well as warrants to purchase 888,166 shares of common stock at an exercise price of $4.00 per share through September 2029, see Note 5.
During the nine months ended September 30, 2022, a lender also converted $150,000 of debt into shares of common stock at a reduced exercise price of $2.00 per share. The Company recorded an inducement expense of $101,000, see Note 5.
During the nine months ended September 30, 2022, the three remaining convertible notes automatically converted $100,000 of outstanding debt and accrued interest of $8,425 into shares of common stock at a conversion price of $ per share, see Note 5.
Stock Options
During Fiscal 2005, the Company established, and the stockholders approved, an Employee Benefit and Consulting Services Compensation Plan (the “2005 Plan”) for the granting of up to 5,000 non-statutory and incentive stock options and stock awards to directors, officers, consultants and key employees of the Company. On June 9, 2005, the Board of Directors amended the Plan to increase the number of stock options and awards to be granted under the Plan to 10,000 shares. During Fiscal 2009, the Company established a plan of long-term stock-based compensation incentives for selected Eligible Participants of the Company covering 10,000 shares. This plan was adopted by the Board of Directors and approved by stockholders in October 2009 and shall be known as the 2009 Employee Benefit and Consulting Services Compensation Plan (the “2009 Plan”). In September 2013, the Company’s stockholders approved an increase in the number of shares covered by the 2009 Plan to 25,000 shares. In February 2015, the Board approved, subject to stockholder approval within one year, an increase in the number of shares under the 2009 Plan to 50,000 shares; however, stockholder approval was not obtained within the requisite one year and the anticipated increase in the 2009 Plan was canceled. In the first quarter of 2016, the Board approved, and stockholders ratified a 2016 Employee Benefit and Consulting Services Compensation Plan covering 25,000 shares (the “2016 Plan”) and approving moving all options which exceeded the 2009 Plan limits to the 2016 Plan. In December 2018, the Board of Directors adopted and in February 2019. the stockholders ratified the 2018 Employee Benefit and Consulting Services Compensation Plan covering 75,000 shares (the “2018 Plan”). On April 2, 2019, the Board approved the “2019 Plan” identical to the 2018 Plan, except that the 2019 Plan covers 150,000 shares. The 2019 Plan required stockholder approval by April 2, 2020, to be able to grant incentive stock options under the 2019 Plan. On October 13, 2021, the Board approved the “2021 Plan” identical to the 2018 Plan, except that the 2019 Plan covers 1,100,000 post-split shares. The 2005, 2009, 2016, 2018, 2019 and 2021 plans are collectively referred to as the “Plans.”
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In March of 2022, Anne S. Provost was elected to the board of directors and was granted 25,000 options from the Company’s 2021 stock option plan with immediate vesting, at an exercise price of $4.57, and expiration of December 2031.
In April of 2022, Dean Julia was granted 12,500 options from the Company’s 2021 stock option plan with immediate vesting, at an exercise price of $1.55, and expiration of April 2031.
All stock options under the Plans are granted at or above the fair market value of the common stock at the grant date. Employee and non-employee stock options vest over varying periods and generally expire either 5 or 10 years from the grant date. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model. For option grants, the Company will take into consideration payments subject to the provisions of ASC 718 “Stock Compensation”. Previously, such assumptions were determined based on historical data. The weighted average assumptions made in calculating the fair values of options granted during the nine months ended September 30, 2022, and September 30, 2021 are as follows:
| Nine Months Ended September 30 |
||||||||
| 2022 | 2021 | |||||||
| Expected volatility | - % | |||||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | - % | |||||||
| Expected life (in years) | - | |||||||
Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||||
| Outstanding, January 1, 2022 | 1,135,909 | $ | 16.69 | $ | – | |||||||||||
| Granted | 37,500 | $ | 3.56 | $ | – | |||||||||||
| Cancelled and expired | (10,688 | ) | $ | 21.77 | – | $ | – | |||||||||
| Outstanding, September 30, 2022 | 1,162,721 | $ | 16.22 | $ | – | |||||||||||
| Options exercisable, September 30, 2022 | 1,154,483 | $ | 16.16 | $ | – | |||||||||||
The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2022, was $.
The aggregate intrinsic value of options outstanding and options exercisable at September 30, 2022 is calculated as the difference between the exercise price of the underlying options and the market price of the Company's common stock for the shares that had exercise prices, that were lower than the $ closing price of the Company's common stock on September 30, 2022.
The Company’s results for the quarters ended September 30, 2022, and September 30, 2021, include employee share-based compensation expense totaling $ and $, respectively. Such amounts have been included in the condensed consolidated statements of operations within general and administrative expenses. The Company’s results for the nine months ended September 30, 2022, and September 30, 2021, include employee share-based compensation expense totaling $ and $ respectively. Such amounts have been included in the condensed consolidated statements of operations within general and administrative expenses
As of September 30, 2022, the unamortized compensation cost related to unvested stock option awards is $, expected to be recognized in fiscal year 2023.
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Warrants
During the nine months ended September 30, 2022, the Company issued warrants to a consulting company and were issued for the conversion of secured convertible notes to a related party (see Note 5 for the accounting for these warrants) for a total issuance of .
Effective January 2022, the Company entered into a consulting agreement in which the consultant was paid a total of warrants during the nine-month period ended September 30, 2022 for such services. The total fair value of the warrants issued to the consultant totaled $12,724 and was recognized as general and administrative expense on the accompanying condensed consolidated statement of operations.
The weighted average assumptions made in calculating the fair value of warrants granted during the three and nine months ended September 30, 2022, and 2021 are as follows:
| Nine Months Ended September 30 |
||||||||
| 2022 | 2021 | |||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | ||||||||
| Risk-free interest rate | % | % | ||||||
| Expected life (in years) | ||||||||
|
Warrant Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
| Outstanding, January 1, 2022 | 3,800,202 | $ | 15.19 | $ | – | |||||||||||
| Granted | 899,416 | $ | 4.01 | $ | – | |||||||||||
| Expired | (19,568 | ) | $ | 22.73 | – | $ | – | |||||||||
| Outstanding, September 30, 2022 | 4,680,050 | $ | 13.01 | $ | – | |||||||||||
| Warrants exercisable, September 30, 2022 | 4,680,050 | $ | 13.01 | $ | – | |||||||||||
The weighted-average grant-date fair value of warrants granted during the nine months ended September 30, 2022 and 2021 was $and $, respectively.
NOTE 8 – LITIGATION
In a Current Report on Form 8-K filed by the Company on March 23, 2022, the Company reported the termination of the Employment Agreement of Donald (Trey) Barrett III as Chief Operations and Strategy Officer. On April 12, 2022, Mr. Barrett commenced an arbitration against the Company before the American Arbitration Association alleging among other things that the Company terminated Mr. Barrett without cause in breach of the Employment Agreement. On August 12, 2022, the Company and Mr. Barrett reached a settlement in which, among other things, the Company and Mr. Barrett mutually deemed that the termination was not for-cause, the Company agreed to pay Mr. Barrett a sum which is not material to the business or financial condition of the Company, and Mr. Barrett’s non-competition restrictive covenant was canceled. The amount was paid in full settlement of the liability as of September 30, 2022 and the expense is included in general and administrative expenses on the accompanying condensed consolidated statement of operations.
NOTE 9 – SUBSEQUENT EVENTS
On November 2, 2022, we sold 40,000 restricted common shares for $50,000 in cash proceeds.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to the Company.
The information contained in this Form 10-Q and documents incorporated herein by reference are intended to update the information contained in the Company's Form 10-K/A for its fiscal year ended December 31, 2021 which includes our audited financial statements for the year ended December 31, 2021 and such information presumes that readers have access to, and will have read, the "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors" and other information contained in such Form 10-K/A and other Company filings with the Securities and Exchange Commission ("SEC").
This statement contains forward-looking statements within the meaning of the Securities Act. Discussions containing such forward-looking statements may be found throughout this statement. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the matters set forth in this statement. The accompanying condensed consolidated financial statements as of September 30, 2022, and 2021 and for the nine months ended September 30, 2022, and September 30, 2021 includes the accounts of Mobiquity Technologies, Inc. (the “Company”) and its wholly owned subsidiaries.
This Quarterly Report includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain risk factors discussed in our Annual Report on Form 10-K/A (Amendment No. 2) filed with the Securities and Exchange Commission (the “SEC”) on December 1, 2022.
The following discussion and analysis of the consolidated results of operations and financial condition of the Company for the three months and nine months ended September 30, 2022, and 2021, respectively, and should be read in conjunction with our condensed consolidated financial statements and the notes thereto that are included elsewhere in this Quarterly Report on Form 10-Q.
This Quarterly Report includes forward-looking statements, as that term is defined in the federal securities laws, based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. Words such as “anticipate,” “estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain risk factors discussed in our Annual Report on Form 10-K/A (Amendment No. 2) filed with the Securities and Exchange Commission (the “SEC”) on December 1, 2022.
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Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
Company Overview
Mobiquity Technologies, Inc. is a next-generation marketing and advertising technology and data intelligence company which operates through our proprietary software platforms in the programmatic advertising space.
Our product solutions are comprised of two proprietary software platforms:
| · | Our advertising technology operating system (or ATOS) platform; and | |
| · | Our data intelligence platform. |
Our ATOS platform blends artificial intelligence (or AI) and machine learning (ML) based optimization technology for automatic ad serving that manages digital advertising inventory and campaigns. Our data intelligence platform provides precise data and insights on consumer’s real-world behavior and trends for use in marketing and research.
We operate our business through two wholly owned subsidiaries. Advangelists LLC operates our ATOS platform business, and Mobiquity Networks, Inc. operates our data intelligence platform business.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements requires management to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.
Use of Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates, and those estimates may be material.
Risks and Uncertainties
The Company operates in an industry that is subject to intense competition and change in consumer demand. The Company’s operations are subject to significant risk and uncertainties including financial and operational risks including the potential risk of business failure.
The Company has experienced, and in the future expects to continue to experience, variability in sales and earnings. The factors expected to contribute to this variability include, among others, (i) the cyclical nature of the industry, (ii) general economic conditions in the various local markets in which the Company competes, including a potential general downturn in the economy, and (iii) the volatility of prices in connection with the Company’s distribution of the product. These factors, among others, make it difficult to project the Company’s operating results on a consistent basis.
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Fair Value of Financial Instruments
The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. 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, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
The three tiers are defined as follows:
| · | Level 1 —Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; | |
| · | Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and | |
| · | Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
As of September 30, 2022 and December 31, 2021, the Company does not have any financial instruments measured on a recurring or nonrecurring basis at fair value.
The Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued expenses, and accounts payable and accrued expenses, are carried at historical cost. At September 30, 2022 and December 31, 2021, respectively, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (“fair value option”). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding financial instruments.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.
Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.
Allowance for doubtful accounts was $820,990 at September 30, 2022 and December 31, 2021.
Bad debt expense (recovery) is recorded as a component of general and administrative expenses in the accompanying condensed consolidated statements of operations.
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Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 to align revenue recognition more closely with the delivery of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five steps:
Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s contracts as of September 30, 2022, and 2021, respectively, contained a significant financing component.
Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
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Recognize revenue when or as the Company satisfies a performance obligation.
The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.
For each revenue stream we only have a single performance obligation.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 90 days.
Stock-Based Compensation
The Company accounts for our stock-based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
The Company uses the fair value method for equity instruments granted to non-employees and uses the Black-Scholes model for measuring the fair value of options.
The fair value of stock-based compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
When determining fair value of stock-based compensation, the Company considers the following assumptions in the Black-Scholes models:
| · | Exercise price, |
| · | Expected dividends, |
| · | Expected volatility, |
| · | Risk-free interest rate; and |
| · | Expected life of option |
Recent Accounting Standards
Changes to accounting principles are established by the FASB in the form of ASU’s to the FASB’s Codification. We consider the applicability and impact of all ASU’s on our consolidated financial position, results of operations, stockholders’ deficit, cash flows, or presentation thereof. Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the consolidated financial statements of the Company.
In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity; Own Equity (“ASU 2020-06”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes from GAAP separation models for convertible debt that require the convertible debt to be separated into a debt and equity component, unless the conversion feature is required to be bifurcated and accounted for as a derivative or the debt is issued at a substantial premium. As a result, after adopting the guidance, entities will no longer separately present such embedded conversion features in equity and will instead account for the convertible debt wholly as debt. The new guidance also requires use of the “if-converted” method when calculating the dilutive impact of convertible debt on earnings per share, which is consistent with the Company’s current accounting treatment under the current guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, but only at the beginning of the fiscal year.
We adopted this pronouncement on January 1, 2022; however, the adoption of this standard did not have a material effect on the Company’s consolidated financial statements.
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Plan of Operation
Mobiquity intends to hire several new sales and sales support individuals to help generate additional revenue using the Advangelists platform and the Mobiquity Networks MobiExchange. Mobiquity’s sales team will focus on Advertising Agencies, Brands, and publishers to help increase both supply and demand across the Advangelists platform while providing unique data segments utilizing MobiExchange. Together the Advangelists platform and MobiExchange platform creates multiple revenue streams for Mobiquity. The first is licensing the Advangelists platform as a white-label product for use by Advertising Agencies, DSP’s, Publishers, and Brands. Under the White-Label scenario, the user licenses the technology and is responsible for running its own business operations and is billed a percentage of volume run through the platform. The second revenue stream is a managed services model in which the user is billed a higher percentage of revenue run through the platform, but all services are managed by the Mobiquity/Advangelists team. The third revenue model is a seat model, where the user is billed a percentage of revenue run through the platform and business operations are shared between the user and the Mobiquity/Advangelists team. Additional revenue can be generated by offering data segments and digital audiences through MobiExchange for use in omnichannel marketing programs that include but not limited to programmatic advertising email marketing and SMS. The goal of the sales team is to inform potential users of the benefits in efficiency and effectiveness of utilizing the end-to-end, fully integrated ATOS created by Advangelists and Mobiquity Networks.
Results of Operations
Quarter Ended September 30, 2022, versus Quarter Ended September 30, 2021
The following table sets forth certain selected condensed statement of operations data for the periods indicated in dollars. In addition, we note that the period-to-period comparison may not be indicative of future performance.
| Quarter Ended | ||||||||
| September 30, 2022 | September 30, 2021 (as restated) | |||||||
| Revenues | $ | 904,223 | $ | 572,745 | ||||
| Cost of revenues | 936,824 | 690,702 | ||||||
| Gross loss | (32,601 | ) | (117,957 | ) | ||||
| General and administrative expenses | 2,239,988 | 2,548,087 | ||||||
| Loss from operations | $ | (2,272,589 | ) | $ | (2,666,044 | ) | ||
We generated revenues of $904,223 in the third quarter of 2022 as compared to $572,745 in the same period for 2021, an increase in revenues of $331,478. The nationwide economic impact of COVID-19 during the past twenty-four months severely reduced operations and we are now seeing a turnaround starting in the third quarter of 2022 with a decreasing impact from COVID-19, although we have concerns regarding the overall US economy and a potential recession. The Company has developed several new features which we believe will help grow revenue in 2023 and beyond. We anticipate releasing one or more new products and services in 2023 that will address many of the changes that have affected the AdTech industry over the last year.
Cost of revenues was $936,824 or 103.6% of revenues in the third quarter of 2022 as compared to $690,702 or 120.6% of revenues in the same fiscal period of fiscal 2021. Costs of revenues include audience building, targeting features and web services for storage of our data and web engineers who are building and maintaining our platforms. Our ability to capture and store data for sales does not translate to increased cost of sales.
Gross loss was $32,601 or 3.6% of revenues for the third quarter of 2022 as compared to $117,957 in the same fiscal period of 2021 or 20.5% of revenues. The increased sales have resulted from increased efforts from our sales force and the recovery from COVID-19.
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General and administrative expenses were $2,239,988 for the third quarter of fiscal 2022 compared to $2,548,087 in the comparable period of the prior year, a decrease of $308,099. Decreased operating costs primarily related to a decrease in stock-based compensation expense of approximately $691,000 and amortization expense of $300,000, offset primarily by increases in computer expense of approximately $313,000, professional fees of approximately $127,000 and salaries of approximately $118,000.
The net loss from operations for the third quarter of fiscal 2022 was $2,272,589 as compared to $2,666,044 for the comparable period of the prior year. While our loss from operations decreased by approximately $393,000 due to improved revenues over the comparable third quarter of 2021, the continuing operating loss is attributable to the focused effort in creating the products and services required to move forward with our business.
Nine Months Ended September 30, 2022, versus Nine Months Ended September 30, 2021
The following table sets forth certain selected condensed statement of operations data for the periods indicated in dollars. In addition, we note that the period-to-period comparison may not be indicative of future performance.
| Nine Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 (as restated) | |||||||
| Revenues | $ | 3,367,346 | $ | 1,797,052 | ||||
| Cost of revenues | 1,916,720 | 2,439,501 | ||||||
| Gross profit (loss) | 1,450,626 | (642,449 | ) | |||||
| General and administrative expenses | 6,524,042 | 5,804,791 | ||||||
| Loss from operations | $ | (5,073,416 | ) | $ | (6,447,240 | ) | ||
We generated revenues of $3,367,346 in the first nine months of 2022 as compared to $1,797,052 in the same period for 2021, an increase of $1,570,294. The nationwide economic impact of COVID-19 during the past twenty-four months severely reduced operations and we are now seeing a turnaround starting in the third quarter of 2022 with a decreasing impact from COVID-19, although we have concerns regarding the overall US economy and a potential recession. The Company has developed several new features which we believe will help grow revenue in 2023 and beyond. We anticipate releasing one or more new products and services in 2023 that will address many of the changes that have affected the AdTech industry over the last year.
Cost of revenues was $1,916,720 or 56.9% of revenues in the first nine months of 2022 as compared to $2,439,501 or 135.7% of revenues in the same fiscal period of fiscal 2021. Costs of revenues include audience building, targeting features and web services for storage of our data and web engineers who are building and maintaining our platforms. Our ability to capture and store data for sales does not translate to increased cost of sales. During the first nine months of 2021, the Company incurred certain costs associated with populating the MobiExchange platform with “targeting data” and “audiences.” Such costs were not repeated or as substantial during 2022 thus resulting in higher overall margins associated with revenue for the MobiExchange services for the nine months ended September 30, 2022.
Gross profit (loss) was $1,450,626 or 43.1% of revenues for the first nine months of 2022 as compared to $(642,449) in the same fiscal period of 2021 or (35.7%) of revenues. The increased sales have resulted from increased efforts from our sales force and the recovery from COVID-19.
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General and administrative expenses were $6,524,042 for the first nine months of fiscal 2022 compared to $5,804,791 in the comparable period of the prior year, an increase of $719,251. Increased operating costs primarily related to salaries of $292,192, computer support of $951,131, and license and fees of $199,341, offset by reduced stock-based compensation expense of $855,094.
The net loss from operations for the first nine months of fiscal 2022 was $5,073,416 as compared to $6,447,240 for the comparable period of the prior year. While our loss from operations decreased by approximately $1,373,824 due to improved revenues over the comparable nine months of 2021, the continuing operating loss is attributable to the focused effort in creating the products and services required to move forward with our business.
Liquidity and Capital Resources
We have a history of operating losses, and our management has concluded that factors raise substantial doubt about our ability to continue as a going concern and our auditor has included an explanatory paragraph relating to our ability to continue as a going concern in its audit report for the fiscal years ended December 31, 2021, and 2020.
The Company had cash of $855,246 at September 30, 2022. Cash used in operating activities for the nine months ended September 30, 2022, was $5,502,991. This resulted primarily from a net loss of $5,791,201 offset by stock-based compensation of $72,411, amortization of $450,551, common stock issued for services of $84,500, increase in accounts receivable of $592,362 and $384,284 decrease in accounts payable and accrued expenses, non-cash gain on settlement of liability $389,495, loss on debt extinguishment of $55,296 and inducement expense of $101,000. Cash used in investing activities results from the purchase of property and equipment of $8,004. Cash flows provided by financing activities of $980,996 resulted from cash paid on debt of $156,504 offset by net proceeds received from the sale of common stock of $1,137,500.
Our company commenced operations in 1998 and was initially funded by our three founders, each of whom has made demand loans to our company that have been satisfied. Since 1999, we have relied on equity financing and borrowings from outside investors to supplement our cash flow from operations and expect this to continue in 2022 and beyond until cash flow from our proximity marketing operations becomes substantial.
Our Auditors Have Issued a Going Concern Opinion
The Company’s independent registered public accounting firm has expressed substantial doubt as to the Company’s ability to continue as a going concern as of December 31, 2021. The unaudited condensed consolidated financial statements in this report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the unaudited condensed consolidated financial statements, these conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The Company’s plans regarding these matters are also described in the notes to the Company’s unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
Bridge Financing
In September 2021, the Company entered into securities purchase agreements 2021, with two accredited investors, Talos Victory Fund, LLC, and Blue Lake Partners LLC, pursuant to which the Company issued 10% promissory notes with a maturity date of September 20, 2022, in the aggregate principal amount of $1,125,000. On the closing date of this financing, the holders delivered the net amount of $910,000 of the purchase price to the Company in exchange for the notes (which was net of the original issue discount and other fees, and expenses related to this financing). In addition, the Company issued warrants to purchase an aggregate of 56,250 shares of its common stock to these holders. Spartan Capital Securities LLC and Revere Securities LLC acted as placement agents on this transaction.
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Public Financing
On October 19, 2021, the Company filed a Form S-1 Registration Statement (File no. 333-260364) with the Securities and Exchange Commission to raise over $10 million dollars in an underwritten public offering. The next day the Company filed an application to list our common stock on the NASDAQ Capital Market under the symbol “MOBQ.” This offering was completed on December 13, 2021, and the Company retired the loans of, Talos Victory Fund, LLC and Blue Lake Partners LLC out of the gross proceeds it received of approximately $10.3 million.
Debt Financing
We have the following debt financing in place through September 30, 2022:
Gene Salkind, who is our Chairman of the Board and one of our directors, and his affiliate provided us an aggregate of $2,700,000 in convertible debt financing for convertible promissory notes and common stock purchase warrants. Dr. Salkind’s principal debt was reduced to $2,562,500 in December 2021. During the quarter ended March 31, 2022, Dr. Gene Salkind, his wife, and a trust converted an aggregate of $2,052,500 of secured debt to a total of 1,368,333 restricted common shares and warrants to purchase 684,166 additional restricted common shares at an exercise price of $4.00 per share through September 2029 leaving a balance of $510,000 in secured debt.
On June 28, 2022, Dr. Salkind and his wife converted their secured principal debt in the amount of $510,000 at a conversion price of $1.25 per share. A total of 408,000 restricted common shares were issued and per his loan agreement, the Company issued warrants to purchase 204,000 additional restricted common shares at an exercise price of $4.00 per share through September 2029. No commissions were paid in connection with this transaction which is exempt under Section 3 (a) (9) of the Securities Act of 1934, as amended. Reference is made to “note 4” which describes other debt and receivable financing, which is incorporated herein by reference.
Three of the unsecured convertible promissory outstanding notes automatically converted on September 30, 2022, at $4.00 per common share.
In June 2020, the Company received a $150,000 Economic Injury Disaster Loan from the SBA which carries a 30-year term, payable in monthly installments of principal plus interest at the annual rate of 3.75% maturity date is July of 2050. This loan is secured by all the assets of the Company. Payments are deferred for the first two years, and payments of principal and interest are made over the remaining loan term.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit the attention by those responsible for oversight of the company’s financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
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Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). Our management has determined that, as of September 30, 2022, the Company’s disclosure controls are not effective, including the following:
| · | The Company lacks segregation of duties similar to other companies our size; and |
| · |
Given our restatement of the year ended December 31, 2021 financial statements, we lacked the necessary controls over financial reporting.
The Company has hired additional staff, both internally and externally to the finance department with sufficient GAAP and public company financial reporting experience and have instituted the necessary controls to remedy the above issues
In the fourth quarter of 2022, senior management will reevaluate the disclosure controls based on the independent internal control testing performed to determine the effectiveness. |
We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
There were changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter, which includes the integration of the new staff mentioned above, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may be engaged in various lawsuits and legal proceedings in the ordinary course of our business. We are currently not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse effect on our business, financial condition or results of operations. See Note 8 in the footnotes to the condensed consolidated financial statements herein for description of legal proceedings.
ITEM 1A. RISK FACTORS
Incorporated by reference are the risk factors contained in our Form 10-K/A Amendment No. 2 for the fiscal year ended December 31, 2021.
ITEM 2. CHANGES IN SECURITIES.
(a) From January 1, 2022, through September 30, 2022, we had no sales or issuances of unregistered capital stock, except as referenced above and in the table below:
| Date of Sale | Title of Security | Number Sold | Consideration Received and Description of Underwriting or Other Discounts to Market Price or Convertible Security, Afforded to Purchasers |
Exemption from Registration Claimed |
If Option, Warrant or Convertible Security, terms of exercise or conversion | |||||
| Jan. – September 2022 | Common Stock | 50,000 shares | Services rendered |
Rule 506, Section 4(2) |
Not applicable | |||||
| Jan. – March 2022 | Common Stock |
1,443,333 shares 684,166 warrants |
Note conversion of $2,502,500 of Secured debt and $150,000 of unsecured debt |
Section 3(a)(9) | Secured debt converted at $1.50 per share and unsecured debt converted at $2.00 per share (1) | |||||
| April – June 2022 | Common Stock | 408,000 shares and 204,000 warrants |
Note conversion of $510,000 |
Section 3(a)(9) | Secured debt converted at $1.25 per share (2) | |||||
| July – September 2022 | Common Stock | 882,448 shares |
$1,137,500 raised, no commissions paid |
Rule 506, |
Not applicable |
_________________
| (1) | The secured investor converted $2,502,500 of principal into 1,368,333 common shares and warrants to purchase 684,166 shares of common stock at an exercise price of $4.00 per share through September 2029. | |
| (2) | The secured investor converted $510,000 of principal into 408,000 common shares and warrants to purchase 204,000 shares of common stock at an exercise price of $4.00 per share through September 2029. |
In the nine months ended September 30, 2022, and 2021, there were no repurchases by the Company of its Common Stock.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS.
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_______________
| * | Filed herewith |
| ** | Previously filed under Form S-1 Registration Statement, File No. 333-260364. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MOBIQUITY TECHNOLOGIES, INC. | ||
| Date: December 9, 2022 | By: | /s/ Dean L. Julia |
| Dean L. Julia, | ||
| Principal Executive Officer | ||
| Date: December 9, 2022 | By: | /s/ Sean McDonnell |
| Sean McDonnell, | ||
| Principal Financial Officer | ||
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