UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended September 30, ~~2019.~~2020.

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from _______________ to ______________

Commission File Number: 000-13215

CLOUDCOMMERCE, INC.
(Exact name of registrant as specified in its charter)

NEVADA	30-0050402
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

321 Sixth Street, San Antonio, TX 78215
(Address of principal executive offices) (Zip Code)

(805) 964-3313
Registrant’s telephone number, including area code

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

Tile of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

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 x 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 x No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	x	Smaller reporting company	x
		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 x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

As of November ~~14, 2019,~~13, 2020, the number of shares outstanding of the registrant’s class of common stock was ~~187,635,088.~~645,938,541.

Table of Contents

PART I – FINANCIAL INFORMATION		Page

Item 1.1.	~~Condensed~~ Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets as of December 31, ~~2018~~2019 and September 30, ~~2019~~2020 (unaudited)	4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019 (unaudited)	5
	Condensed Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019 (unaudited)	78
	Notes to Condensed Consolidated Financial Statements (unaudited)	89

Item 2.2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3538

Item 3.3.	Quantitative and Qualitative Disclosures About Market Risk	4244

Item 4.	~~Item 4~~Controls and Procedures.	~~Controls and Procedures~~	4245

PART II - OTHER INFORMATION

Item 1.	~~Item 1~~Legal Proceedings.	~~Legal Proceedings~~	4345

Item 1A.	~~Item 1A~~Risk Factors.	~~Risk Factors~~	4345

Item 2.2.	Unregistered Sales of Equity Securities and Use of Proceeds	4345

Item 3.3.	Defaults Upon Senior Securities	4345

Item 4.	~~Item 4~~Mine Safety Disclosures.	~~Mine Safety Disclosures~~	4345

Item 5.	~~Item 5~~Other Information.	~~Other Information~~	4345

Item 6.	~~Item 6~~Exhibits.	~~Exhibits~~	4446

	Signatures		4546

Table of Contents

PART I. - FINANCIAL INFORMATION

Item 1. ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

CLOUDCOMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2019 December 31, 2018
(unaudited)
ASSETS
CURRENT ASSETS
     Cash $ 84,698 $ 116,312
     Accounts receivable, net 1,211,250 923,703
     Accounts receivable, net - related party 32,046 78,753
     Costs in excess of billings 26,499 99,017
     Prepaid and other current Assets 52,537 74,284
TOTAL CURRENT ASSETS 1,407,030 1,292,069

PROPERTY & EQUIPMENT, net 108,538 138,739
RIGHT-OF-USE ASSETS 306,210 —

OTHER ASSETS
      Lease deposit 9,800 13,800
      Goodwill and other intangible assets, net 7,663,772 8,396,151
               TOTAL OTHER ASSETS 7,673,572 8,409,951

  TOTAL ASSETS $ 9,495,350 $ 9,840,759

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable $ 1,471,826 $ 1,619,115
Accounts payable, related party 63,944 —
Accrued expenses 569,029 766,160
Operating lease liability 307,476 —
Lines of credit 740,428 417,618
Deferred revenue and customer deposit 1,320,397 1,081,570
Convertible notes and interest payable, current, net 514,830 225,089
Derivative Liability 213,611 —
Finance lease obligation, current 29,324 34,038
Notes payable 506,919 375,000
Notes payable, related parties 1,006,886 920,470
TOTAL CURRENT LIABILITIES 6,744,670 5,439,060

LONG TERM LIABILITIES
Finance lease obligation, long term —   20,654
Accrued expenses, long term 200,453 203,603
TOTAL LONG TERM LIABILITIES 200,453 224,257

TOTAL LIABILITIES 6,945,123 5,663,317
COMMITMENTS AND CONTINGENCIES (see Note 14)

SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value;
5,000,000 Authorized shares:
Series A Preferred stock; 10,000 authorized, 10,000 shaes issued and
outstanding; 10 10
Series B Preferred stock; 25,000 authorized, 18,025 shares issued and
outstanding; 18 18
Series C Preferred Stock; 25,000 authorized, 14,425 shares issued and
outstanding; 14 14
Series D Preferred Stock; 90,000 authorized, 90,000 shares issued and
outstanding; 90 90
Series E Preferred stock; 10,000 authorized, 10,000 shares issued and
outstanding; 10 10
Common stock, $0.001 par value;
2,000,000,000 authorized shares; 173,041,338 and 137,512,588 shares
issued and outstanding, respectively 173,050 137,513
Additional paid in capital 29,814,318 29,532,735
Accumulated deficit (27,437,283 ) (25,492,948 )
TOTAL SHAREHOLDERS' EQUITY 2,550,227 4,177,442

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,495,350 $ 9,840,759
September 30, 2020 December 31, 2019
(unaudited)
ASSETS
CURRENT ASSETS
     Cash $ 77,364 $ 819,328
     Accounts receivable, net 528,849 854,650
     Accounts receivable, net - related party —   2,876
     Costs in excess of billings 17,119 21,606
     Prepaid and other current Assets 31,714 26,849
TOTAL CURRENT ASSETS 655,046 1,725,309

PROPERTY & EQUIPMENT, net 66,076 91,422
RIGHT-OF-USE ASSETS 196,247 266,758

OTHER ASSETS
      Lease deposit 9,800 9,800
      Goodwill and other intangible assets, net 593,915 658,877
               TOTAL OTHER ASSETS 603,715 668,677

  TOTAL ASSETS $ 1,521,084 $ 2,752,166

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable $ 1,528,629 $ 1,868,329
Accounts payable, related party 10,517 41,738
Accrued expenses 584,386 569,168
Operating lease liability 196,247 266,758
Lines of credit 297,294 476,962
Deferred revenue and customer deposit 1,360,649 2,080,762
Convertible notes and interest payable, current, net 181,363 468,145
Derivative Liability —   342,850
Finance lease obligation, current —   20,654
Notes payable 1,208,682 506,919
Notes payable, related parties 783,624 1,018,524
TOTAL CURRENT LIABILITIES 6,151,391 7,660,809

LONG TERM LIABILITIES
Finance lease obligation, long term —   —
Accrued expenses, long term 196,603 199,403
TOTAL LONG TERM LIABILITIES 196,603 199,403

TOTAL LIABILITIES 6,347,994 7,860,212
COMMITMENTS AND CONTINGENCIES (see Note 14)

SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value;
5,000,000 Authorized shares:
Series A Preferred stock; 10,000 authorized, 10,000 shaes issued and
outstanding; 10 10
Series B Preferred stock; 25,000 authorized, 18,025 shares issued and
outstanding; 18 18
Series C Preferred Stock; 25,000 authorized, 14,425 shares issued and
outstanding; 14 14
Series D Preferred Stock; 90,000 authorized, 90,000 shares issued and
outstanding; 90 90
Series E Preferred stock; 10,000 authorized, 10,000 shares issued and
outstanding; 10 10
Series F Preferred stock; 800,000 authorized, 2,413 shares issued and
outstanding; 2 —
Series G Preferred stock; 2,600 authorized, 2,597 shares issued and
outstanding; 3 —
Common stock, $0.001 par value;
2,000,000,000 authorized shares; 645,938,541 and 419,638,507 shares
issued and outstanding, respectively 645,947 419,648
Additional paid in capital 31,068,371 30,088,492
Accumulated deficit (36,541,375 ) (35,616,328 )
TOTAL SHAREHOLDERS' EQUITY (4,826,910 ) (5,108,046 )

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,521,084 $ 2,752,166

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4
Table of Contents
CLOUDCOMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018

REVENUE $ 2,041,977 $ 2,879,414 $ 6,649,901 $ 6,188,320
REVENUE - related party 26,463 397,438 $ 226,028 2,562,290
        TOTAL REVENUE 2,068,440 3,276,852 6,875,929 8,750,610

OPERATING EXPENSES
  Salaries and outside services 1,041,800 1,679,547 3,125,853 4,602,802
  Selling, general and administrative expenses 1,281,574 1,359,153 4,108,595 4,385,178
  Stock based compensation 83,178 110,027 246,822 396,004
  Depreciation and amortization 254,840 254,305 764,684 762,490

TOTAL OPERATING EXPENSES 2,661,392 3,403,032 8,245,954 10,146,474

LOSS FROM OPERATIONS BEFORE OTHER INCOME AND TAXES (592,952 ) (126,180 ) (1,370,025 ) (1,395,864 )

OTHER INCOME (EXPENSE)
   Other income/(expense) —   330 —   330
   Loss on sale of fixed assets —   (2,084 ) —   (24,442 )
   Gain (loss) on extinguishment of debt —   —   —   —
   Gain (loss) on changes in derivative liability 121,390 121,390
Interest expense (403,140 ) (82,754 ) (695,700 ) (185,191 )

TOTAL OTHER INCOME (EXPENSE) (281,750 ) (84,508 ) (574,310 ) (209,303 )

LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (874,702 ) (210,688 ) (1,944,335 ) (1,605,167 )

PROVISION (BENEFIT) FOR INCOME TAXES —   (105,795 ) —   (341,581 )

NET LOSS (874,702 ) (104,893 ) (1,944,335 ) (1,263,586 )

PREFERRED DIVIDENDS 37,437 51,049 132,911 180,842

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (912,139 ) $ (155,942 ) $ (2,077,246 ) $ (1,444,428 )

NET LOSS PER SHARE
    BASIC $ (0.01 ) $ (0.00 ) $ (0.01 ) $ (0.01 )
    DILUTED $ (0.01 ) $ (0.00 ) $ (0.01 ) $ (0.01 )

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
    BASIC 147,419,740 136,292,785 140,851,262 133,917,766
    DILUTED 147,419,740 136,292,785 140,851,262 133,917,766
Three Months Ended Nine Months Ended
September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

REVENUE $ 2,403,176 $ 2,041,977 $ 8,016,164 $ 6,649,901
REVENUE - related party —   26,463 $ 3,640 226,028
        TOTAL REVENUE 2,403,176 2,068,440 8,019,804 6,875,929

COST OF REVENUE 1,689,259 1,630,059 5,771,834 5,178,479
        Gross Profit 713,917 438,381 2,247,970 1,697,450

OPERATING EXPENSES
  Salaries and outside services 601,784 420,629 1,466,368 1,041,940
  Selling, general and administrative expenses 379,245 355,864 1,279,248 1,260,851
  Depreciation and amortization 31,902 254,840 95,560 764,684

TOTAL OPERATING EXPENSES 1,012,931 1,031,333 2,841,176 3,067,475

LOSS FROM OPERATIONS BEFORE OTHER INCOME AND TAXES (299,014 ) (592,952 ) (593,206 ) (1,370,025 )

OTHER INCOME (EXPENSE)
   Other income —   —   6 —
   Gain on sale of fixed assets 300 —   300 —
   Gain on extinguishment of debt —   —   28,971 —
   Gain on changes in derivative liability 57 121,390 131,018 121,390
Interest expense (75,185 ) (403,140 ) (492,136 ) (695,700 )

TOTAL OTHER INCOME (EXPENSE) (74,828 ) (281,750 ) (331,841 ) (574,310 )

LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES (373,842 ) (874,702 ) (925,047 ) (1,944,335 )

PROVISION (BENEFIT) FOR INCOME TAXES —   —   —   —

NET LOSS (373,842 ) (874,702 ) (925,047 ) (1,944,335 )

PREFERRED DIVIDENDS 33,420 37,437 89,550 132,911

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (407,262 ) $ (912,139 ) $ (1,014,597 ) $ (2,077,246 )

NET LOSS PER SHARE
    BASIC $ (0.00 ) $ (0.01 ) $ (0.00 ) $ (0.01 )
    DILUTED $ (0.00 ) $ (0.01 ) $ (0.00 ) $ (0.01 )

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
    BASIC 645,938,541 147,419,740 548,873,963 140,851,262
    DILUTED 645,938,541 147,419,740 548,873,963 140,851,262

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5
Table of Contents
CLOUDCOMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

Nine Month Period Ended September 30, 2018
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total

Balance, December 31, 2017 142,450 $ 142 130,252,778 $ 130,252 $ 29,094,147 $ (22,622,935 ) $ 6,601,606

Dividend on Series A Preferred stock ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Dividend on Series D Preferred stock ($0.38 per share) —   —   —   —   (34,477 ) —   (34,477 )

Stock based compensation —   —   —   —   160,072 —   160,072

Net loss —   —   —   —   —   (791,369 ) (791,369 )

Balance, March 31, 2018 (unaudited) 142,450 $ 142 130,252,778 $ 130,252 $ 29,199,742 $ (23,414,304 ) $ 5,915,832

Conversion of convertible note —   —   6,026,301 6,027 18,079 —   24,106

Dividend on Series A Preferred stock ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Dividend on Series D Preferred stock ($0.61 per share) —   —   —   —   (55,316 ) —   (55,316 )

Stock based compensation —   —   —   —   125,904 —   125,904

Net loss —   —   —   —   —   (360,974 ) (360,974 )

Balance, June 30, 2018 (unaudited) 142,450 $ 142 136,279,079 $ 136,279 $ 29,268,409 $ (23,775,278 ) $ 5,629,552

Conversion of convertible note —   —   —   —   —   —   —

Dividend on Series A Preferred stock ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Dividend on Series D Preferred stock ($0.34 per share) —   —   —   —   (31,049 ) —   (31,049 )

Stock based compensation —   —   —   —   110,028 —   110,028

Stock Option Exercise —   —   1,233,509 1,234 (1,234 )

Net loss —   —   —   —   —   (111,243 ) (111,243 )

Balance, September  30, 2018 (unaudited) 142,450 $ 142 137,512,588 $ 137,513 $ 29,326,154 $ (23,886,521 ) $ 5,577,288

Nine Month Period Ended September 30, 2019

Balance, December 31, 2018 142,450 $ 142 137,512,588 $ 137,513 $ 29,532,735 $ (25,492,948 ) $ 4,177,442

Series A preferred stock dividend declared ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Series D preferred stock dividend declared ($0.46 per share) —   —   —   —   (41,690 ) —   (41,690 )

Stock based compensation —   —   —   —   81,370 —   81,370

Net loss —   —   —   —   —   (343,919 ) (343,919 )

Balance, March 31, 2019 (unaudited) 142,450 $ 142 137,512,588 $ 137,513 $ 29,552,415 $ (25,836,867 ) $ 3,853,203

Series A preferred stock dividend declared ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Series D preferred stock dividend declared ($0.15 per share) —   —   —   —   (13,784 ) —   (13,784 )

Stock based compensation —   —   —   —   82,274 —   82,274

Net loss —   —   —   —   —   (725,714 ) (725,714 )

Balance, June 30, 2019 (unaudited) 142,450 $ 142 137,512,588 $ 137,513 $ 29,600,905 $ (26,562,581 ) $ 3,175,979

Conversion of convertible note 35,537,150 35,537 65,379 100,916

Series A preferred stock dividend declared ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Series D preferred stock dividend declared ($0.19 per share) —   —   —   —   (17,437 ) —   (17,437 )

Stock based compensation —   —   —   —   83,178 —   83,178

Discount on note 102,293 102,293

Net loss —   —   —   —   —   (874,702 ) (874,702 )

Balance, September 30, 2019 (unaudited) 142,450 $ 142 173,049,738 $ 173,050 $ 29,814,318 $ (27,437,283 ) $ 2,550,227
~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~
Nine Months Ended September 30, 2019
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total

Balance, December 31, 2018 142,450 $ 142 137,512,588 $ 137,513 $ 29,532,735 $ (25,492,948 ) $ 4,177,442

Series A preferred stock dividend declared ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Series D preferred stock dividend declared ($0.46 per share) —   —   —   —   (41,690 ) —   (41,690 )

Stock based compensation —   —   —   —   81,370 —   81,370

Net loss —   —   —   —   —   (343,919 ) (343,919 )

Balance, March 31, 2019 (unaudited) 142,450 $ 142 137,512,588 $ 137,513 $ 29,552,415 $ (25,836,867 ) $ 3,853,203

Series A preferred stock dividend declared ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Series D preferred stock dividend declared ($0.15 per share) —   —   —   —   (13,784 ) —   (13,784 )

Stock based compensation —   —   —   —   82,274 —   82,274

Net loss —   —   —   —   —   (725,714 ) (725,714 )

Balance, June 30, 2019 (unaudited) 142,450 $ 142 137,512,588 $ 137,513 $ 29,600,905 $ (26,562,581 ) $ 3,175,979

Conversion of convertible note —   —   35,537,150 35,537 65,379 —   100,916

Series A preferred stock dividend declared ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Series D preferred stock dividend declared ($0.19 per share) —   —   —   —   (17,437 ) —   (17,437 )

Stock based compensation —   —   —   —   83,178 —   83,178

Discount on note —   —   —   —   102,293 —   102,293

Net loss —   —   —   —   —   (874,702 ) (874,702 )

Balance, September 30, 2019 (unaudited) 142,450 $ 142 173,049,738 $ 173,050 $ 29,814,318 $ (27,437,283 ) $ 2,550,227

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Table of Contents
Nine Months Ended September 30, 2020

Balance, December 31, 2019 142,450 $ 142 419,638,507 $ 419,648 $ 30,088,492 $ (35,616,328 ) $ (5,108,046 )

Conversion of convertible note —   —   78,857,470 78,857 10,165 —   89,022

Exchange debt-for-equity 2,597 3 —   —   259,695 —   259,698

Series A preferred stock dividend declared ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Series D preferred stock dividend declared ($0.10 per share) —   —   —   —   (9,025 ) —   (9,025 )

Series F preferred stock dividend declared ($0.28 per share) —   —   —   —   (473 ) —   (473 )

Stock based compensation —   —   —   —   111,248 —   111,248

Derivative settlement —   —   —   —   80,357 —   80,357

Other - RegA Investor Funds 1,391 1 —   —   34,774 —   34,775

Net loss —   —   —   —   —   (128,820 ) (128,820 )

Balance, March 31, 2020 (unaudited) 146,438 $ 146 498,495,977 $ 498,505 $ 30,555,233 $ (35,745,148 ) $ (4,691,264 )

Conversion of convertible note —   —   147,442,564 147,442 55,476 —   202,918

Series A preferred stock dividend declared ($2.00 per share) —   —   —   —   (20,000 ) —   (20,000 )

Series D preferred stock dividend declared ($0.06 per share) —   —   —   —   (5,562 ) —   (5,562 )

Series F preferred stock dividend declared ($0.66 per share) —   —   —   —   (1,070 ) —   (1,070 )

Stock based compensation —   —   —   —   117,128 —   117,128

Derivative settlement —   —   —   —   258,748 —   258,748

Other - RegA Investor Funds 240 1 —   —   8,499 —   8,500

Net loss —   —   —   —   —   (422,385 ) (422,385 )

Balance, June 30, 2020 (unaudited) 146,678 147 645,938,541 645,947 30,968,452 (36,167,533 ) (4,552,987 )

Series A preferred stock dividend declared ($2.00 per share) —   —   (20,000 ) —   (20,000 )

Series D preferred stock dividend declared ($0.13 per share) —   —   (12,116 ) —   (12,116 )

Series F preferred stock dividend declared ($0.54 per share) —   —   (1,304 ) —   (1,304 )

Stock based compensation —   —   116,289 —   116,289

Other - RegA Investor Funds 782 —   17,050 —   17,050

Net loss —   —   —   —   —   (373,842 ) (373,842 )

Balance, September 30, 2020 (unaudited) 147,460 $ 147 645,938,541 $ 645,947 $ 31,068,371 $ (36,541,375 ) $ (4,826,910 )
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CLOUDCOMMERCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30, 2019 September 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,944,335 ) $ (1,263,586 )
Adjustment to reconcile net loss to net cash
(used in) operating activities
Bad debt expense 4,668 213,960
Depreciation and amortization 764,684 762,490
Loss on sale of fixed assets —   24,442
Gain on extinguishment of debt —
Non-cash compensation expense 246,822 396,004
Amortization of Beneficial Conversion Feature 79,366 —
(Gain)/loss on derivative liability valuation (121,390 )
Derivative expense 265,404 —
Change in assets and liabilities:
(Increase) Decrease in:
Accounts receivable (245,508 ) (1,056,788 )
Prepaid expenses and other assets 21,747 (1,220 )
Costs in excess of billings 72,518 (211,383 )
Lease deposit 4,000 (4,500 )
Accounts payable (83,345 ) 584,230
Accrued expenses (129,996 ) (68,896 )
Change in lease obligation (19,368 ) (24,135 )
Customer Deposits 566,539 176,974
Deferred income (327,712 ) 163,139
Deferred taxes —   (341,580 )

NET CASH USED IN OPERATING ACTIVITIES (845,906 ) (650,849 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for purchase of fixed assets (2,104 ) (53,356 )
Proceeds from the sale of fixed assets —   39,503

NET CASH USED IN INVESTING ACTIVITIES (2,104 ) (13,853 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation (6,000 ) (27,000 )
Payment of dividend (24,142 ) (157,610 )
Conversion of Debt for Equity —
Proceeds  on line of credit, net 211,119 102,770
Proceeds from issuance of notes, related party 53,500 —
Proceeds from issuance of notes payable 450,000 1,141,000
Principal payments on term loan (493,081 ) (340,600 )
Proceeds from issuance of term loan 625,000 —

NET CASH PROVIDED BY FINANCING ACTIVITIES 816,396 718,560

NET INCREASE / (DECREASE) IN CASH (31,614 ) 53,858

CASH, BEGINNING OF PERIOD 116,312 272,321

CASH, END OF PERIOD $ 84,698 $ 326,179

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 123,223 $ 121,545
Taxes paid $ —   $ 17,545

Non-cash financing activities:
Cashless exercise of stock options $ —   $ —
Acquisition of Parscale Media for notes payable $ —   $ 1,000,000
Right of use assets $ 306,210 $ —
Derivative discount $ 371,831 $ —
Conversion of notes payable to common stock $ 105,059 $ 24,106
Nine Months Ended
September 30, 2020 September 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (925,047 ) $ (1,944,335 )
Adjustment to reconcile net loss to net cash
(used in) operating activities
Bad debt expense 41,073 4,668
Depreciation and amortization 95,560 764,684
Non-cash compensation expense 344,665 246,822
Amortization of Beneficial Conversion Feature —   79,366
Gain on derivative liability valuation (131,018 ) (121,390 )
Derivative expense 260,140 265,404
Change in assets and liabilities:
(Increase) Decrease in:
Accounts receivable 287,604 (245,508 )
Prepaid expenses and other assets (4,865 ) 21,747
Costs in excess of billings 4,487 72,518
Lease deposit —   4,000
Accounts payable (370,921 ) (83,345 )
Accrued expenses (183,850 ) (129,996 )
Change in lease obligation —   (19,368 )
Customer Deposits (720,113 ) 566,539
Deferred income —   (327,712 )

NET CASH USED IN OPERATING ACTIVITIES (1,302,285 ) (845,906 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for purchase of fixed assets (5,252 ) (2,104 )

NET CASH USED IN INVESTING ACTIVITIES (5,252 ) (2,104 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation (20,654 ) (6,000 )
Payment of dividend (21,152 ) (24,142 )
Conversion of Debt for Equity —   —
Proceeds from issuance of preferred stock 60,325
Proceeds on line of credit, net (63,709 ) 211,119
Principal payments on debt, third party (91,000 ) 53,500
Proceeds from issuance of notes payable —   450,000
Principal payments on term loan (78,917 ) (493,081 )
Proceeds from issuance of term loan 780,680 625,000

NET CASH PROVIDED BY FINANCING ACTIVITIES 565,573 816,396

NET INCREASE / (DECREASE) IN CASH (741,964 ) (31,614 )

CASH, BEGINNING OF PERIOD 819,328 116,312

CASH, END OF PERIOD $ 77,364 $ 84,698

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 193,864 $ 123,223
Taxes paid $ —   $ —

Non-cash financing activities:
Conversion of notes payable to common stock $ 291,940 $ 105,059
Exchange of Debt-to-Equity (Preferred) $ 259,698 $ —
Derivative settlement $ 339,105 $ —
Right of use assets $ 70,511 $ 306,210
Derivative discount $ 127,273 $ 371,831

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CLOUDCOMMERCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, ~~2019~~2020

1. BASIS OF PRESENTATION
The accompanying unaudited ~~Condensed~~ Consolidated Financial Statements ofCloudCommerce, Inc. (“CloudCommerce,” “we,” “us,” “our,” or the “Company”)and its wholly-owned subsidiaries,have been prepared in accordance with the instructions to interim financial reporting as prescribed by the Securities and Exchange Commission (the “SEC”).  The results for the interim periods are not necessarily indicative of results for the entire year.These interim financial statements do not include all disclosures required by generally accepted accounting principles (“GAAP”) and should be read in conjunction with our consolidated financial statements and footnotes in the Company's annual report on Form 10-K filed with the SEC on April ~~1, 2019.~~16, 2020. In the opinion of management,the unaudited ~~Condensed~~ Consolidated Financial Statements contained in this report include all known accruals and adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods reported herein. Any such adjustments are of a normal recurring nature.
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company's ~~condensed~~ consolidated financial position, results of operations or cash flows.
Going Concern
The accompanying~~Condensed~~Consolidated Financial Statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business.  The accompanying~~Condensed~~Consolidated Financial Statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern.  The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, anraise additional ~~cash infusion.~~capital. Historically, the Company has obtained funds from ~~its shareholders~~investors since its inception through sales of our securities. ~~It is management’s plan~~The Company will also seek to generate additional working capital from increasing sales from its data sciences, creative, website development and digital advertising service offerings, and ~~then~~ continue to pursue its business plan and purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of CloudCommerce is presented to assist in understanding the Company’s ~~Condensed~~Consolidated Financial Statements. The ~~Condensed~~Consolidated Financial Statementsand notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the ~~Condensed~~Consolidated Financial Statements.
The ~~Condensed~~ Consolidated Financial Statements include the Company and its wholly owned subsidiaries, CLWD Operations, Inc., a Delaware corporation (“CLWD Operations”~~, formerly Indaba Group, Inc.~~), Parscale Digital, Inc., a Nevada corporation (“Parscale Digital”), WebTegrity, Inc., a Nevada corporation (“WebTegrity”), Data Propria, Inc., a Nevada corporation (“Data Propria”), Parscale Media, LLC, a Texas limited liability company (“Parscale Media”), and Giles Design Bureau, Inc., a Nevada corporation (“Giles Design Bureau”). All significant inter-company transactions are eliminated in consolidation.
Reclassifications
Certain prior periods have been recast to reflect current period presentation. During the quarter ended September 30, 2020 we began to recognize cost of revenue in the statement of operation. All prior periods have been recast to reflect this change.
Accounts Receivable
The Company extends credit to its customers, who are located nationwide. Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’ financial condition. Management reviews accounts receivable on a regular basis, based on ~~contracted~~contractual terms and how recently payments have been received to determine if any such amounts will potentially be uncollected. The Company includes any balances that are determined to be uncollectible in its allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off. The balance of the allowance account atSeptember 30, ~~2019~~2020 and December 31, ~~2018~~2019 are ~~$6,668~~$75,516 and ~~$45,613~~$118,589 respectively.
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On November 30, 2016, CLWD Operations entered into a 12-month agreement wherein amounts due from our customers were pledged to a third party, in exchange for a borrowing facility in amounts up to a total of $400,000. The agreement was amended on March 23, 2017, which increased the allowable borrowing amount by $100,000, to a maximum of $500,000. On November 30, 2017, the agreement ~~auto~~ renewed automatically for another twelve months. The proceeds from the facility are determined
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by the amounts we invoice our customers. We record the amounts due from customers in accounts receivable and the amount due to the third party as a liability, presented under “Lines of credit” on the Balance Sheet. During the term of this facility, the third-party lender has a first priority security interest in CLWD Operations’ assets, and therefore, we will ~~require~~need to obtain such third-party lender’s written consent to obligate CLWD Operations’ further or pledge its assets against additional borrowing facilities. Because of this position, it may be difficult for CLWD Operations to secure additional secured borrowing facilities. The cost of this secured borrowing facility is 0.05% of the daily balance. As ofSeptember 30, ~~2019~~2020, the balance due from this arrangement was ~~$10,950.~~$242,082.
On October 19, 2017, Parscale Digital entered into a 12-month agreement wherein amounts due from our customers were pledged to a third party, in exchange for a borrowing facility in amounts up to a total of $500,000. The proceeds from the facility are determined by the amounts we invoice our customers. The Company evaluated this facility in accordance with ASC 860, classifying it as a secured borrowing arrangement. We record the amounts due from customers in accounts receivable and the amount due to the third party as a liability, presented as a “Lines of credit” on the Balance Sheet. During the term of this facility, the third-party lender has a first priority security interest in ~~the~~ Parscale Digital, and ~~will,~~ therefore, we will ~~require~~need to obtain such third-party lender’s written consent to obligate Parscale Digital further or pledge its assets against additional borrowing facilities. Because of this position, it may be difficult for the Company to secure additional secured borrowing facilities. The cost of this secured borrowing facility is 0.05% of the daily balance. On April 12, 2018, the Company amended the secured borrowing arrangement, which increased the maximum allowable balance by $250,000, to a totalof $750,000. As ofSeptember 30, ~~2019~~2020, the balance due from this arrangement was~~$374,282~~. $55,212.
On August 2, 2018, Giles Design Bureau, WebTegrity, and Data Propria entered into 12-month agreements wherein amounts due from our customers were pledged to a third-party, in exchange for borrowing facilities in amounts up to a total of $150,000, $150,000 and $600,000, respectively. The proceeds from the facility are determined by the amounts we invoice our customers. We evaluated these facilities in accordance with ASC 860, classifying as secured borrowing arrangements. We record the amounts due from customers in accounts receivable and the amount due to the third party as a liability, presented under “Lines of credit” on the Balance Sheet. During the term of these facilities, the third-party lender ~~has~~had a first priority security interest in the respective entities, and, ~~will,~~ therefore, we ~~will require~~would need to obtain such third-party lender’s written consent to obligate the entities further or pledge our assets against additional borrowing facilities. Because of this position, it may be difficult for the entities to secure additional secured borrowing facilities. The cost of this secured borrowing facilities is 0.056%, 0.056% and 0.049%, respectively, of the daily balance.These three borrowing facilities had an expiration date of August 22, 2020 and were not renewed. As of September30, ~~2019~~,2020, the combined balance due from these arrangement was ~~$355,196~~zero.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in our revenue recognition, the allowance for doubtful account receivable, fair value assumptions in accounting for business combinations and analyzing goodwill, intangible assets and long-lived asset impairments and adjustments, the deferred tax valuation allowance, and the fair value of stock options and warrants.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of ~~three~~nine months or less to be cash equivalents. As ofSeptember 30, ~~2019~~2020, the Company held cash and cash equivalents in the amount of ~~$84,698,~~$77,364, which was held in the Company’s operating bank accounts. Of this amount, none was held in any one account, in amounts exceeding the FDIC insured limit of $250,000.
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Property and Equipment
Property and equipment are stated at cost, and are depreciated or amortized using the straight-line method over the following estimated useful lives:
Furniture, fixtures & equipment 7 Years
Computer equipment 5 Years
Commerce server 5 Years
Computer software 3 - 5 Years
Leasehold improvements Length of the lease

Depreciation expenses were ~~$32,305~~$30,598 and ~~$31,009~~$32,305 for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019, respectively.
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Revenue Recognition

The Company recognizes income when the service is provided or when product is delivered. We present revenue, net of customer incentives. Most of our income is generated from professional services and site development fees. We provide online marketing services that we purchase from third parties. The gross revenue presented in our statement of operations includes digital advertising revenue. We also offer professional services such as development services. The fees for development services with multiple deliverables constitute a separate unit of accounting in accordance with ASC 606, which are recognized as the work is performed. Upfront fees for development services or other customer services are deferred until certain implementation or contractual milestones have been achieved. If we have performed work for our clients, but have not invoiced clients for that work, then we record the value of the work on the balance sheet as costs in excess of billings. The terms of services contracts generally are for periods of less than one year. The deferred revenue and customer deposits as of September 30, ~~2019,~~2020, and December 31, ~~2018~~2019 were ~~$1,320,397~~$1,360,649 and ~~$1,081,570,~~$2,080,762, respectively. ~~See footnote 3 for a disclosure~~The costs in excess of ~~our use~~billings as of ~~estimates~~September 30, 2020 and ~~judgement, as it relates to revenue recognition.~~
December 31, 2019 was $17,119 and $21,606, respectively.
We always strive to satisfy our customers by providing superior quality and service. Since we typically bill based on a Time and Materials basis, there are no returns for work delivered. When discrepancies or disagreements arise, we do our best to reconcile those by assessing the situation on a case-by-case basis and determining if any discounts can be given. Historically, no significant discounts have been granted.
Included in revenue are costs that are reimbursed by our clients, including third party services, such as photographers and stylists, furniture, supplies, and the largest component, digital advertising. We have determined, based on our review of ASC 606-10-55-39, that the amounts classified as reimbursable costs should be recorded as gross revenue, due to the following factors:

● The Company is primarily in control of the inputs of the project and responsible for the completion of the client contract;

● We have discretion in establishing price; and

● We have discretion in supplier selection.

Research and Development
Research and development costs are expensed as incurred. Total research and development costs were zero for the nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.
Advertising Costs
The Company expenses the cost of advertising and promotional materials when incurred. Total advertising costs were ~~$4,797~~$117,691 and ~~$32,800~~$4,797 for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019, respectively.
Fair value of financial instruments
The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities are carried at cost, which approximates their fair value, due to the relatively short maturity of these instruments. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s notes payable have stated borrowing rates
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that are consistent with those currently available to the Company and, accordingly, the Company believes the carrying value of these debt instruments approximates their fair value.
Fair value is defined as the price to sell an asset or transfer a liability, between market participants at the measurement date.Fair value measurements assume that the asset or liability is (1) exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or liability, and (3) the market participants are independent, knowledgeable, able and willing to transact an exchange. Fair value accounting and reporting establishes a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures about fair value measurements. Considerable judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.
ASC Topic 820 established a ~~three-tier~~nine-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

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

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

~~As ofSeptember 30, 2019, and December 31, 2018, the Company had no assets that are required to be valued~~We measure certain financial instruments at fair value on a recurring basis. ~~As ofSeptember 30, 2019,~~Assets and ~~December 31, 2018, the Companyhad~~ liabilities ~~that are required to be values~~measured at fair value on a recurring basis ~~which~~ are ~~disclosed in footnote 10 “Derivative Liabilities”.~~as follows at September 30, 2020 and December 31, 2019:
September 30, 2020 Level 1 Level 2 Level 3 Total
Assets $ —   $ —   $ —   $ —
  Total assets measured at fair value $ —   $ —   $ —   $ —
Liabilities
  Derivative liability $ —   $ —   $ —   $ —
  Total liabilities measured at fair value $ —   $ —   $ —   $ —
December 31, 2019 Level 1 Level 2 Level 3 Total
Assets $ —   $ —   $ —   $ —
  Total assets measured at fair value $ —   $ —   $ —   $ —

Liabilities
  Derivative liability $ —   $ —   $ 342,850 $ 342,850
  Total liabilities measured at fair value $ —   $ —   $ 342,850 $ 342,850
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of a long-lived asset, management evaluates whether the estimated future undiscounted net cash flows from the asset are less than its carrying amount. If impairment is indicated, the long-lived asset would be written down to fair value. Fair value is determined by an evaluation of available price information at which assets could be bought or sold, including quoted market prices, if available, or the present value of the estimated future cash flows based on reasonable and supportable assumptions.
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Indefinite Lived Intangibles and Goodwill Assets
The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions ~~believed~~we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
The Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performed a qualitative assessment of indefinite lived intangibles and goodwill at December 31, ~~2018~~2019 and determined the fair value of each intangible asset and goodwill exceeded the respective carrying values. Therefore, no impairment of indefinite lived intangibles and goodwill was recognized.

The impairment test conducted by the Company includes a ~~three-step~~nine-step approach to determine whether it is more likely than not that impairment exists. If it is determined, after step one, that it is not more likely than not, that impairment exists, then no further analysis is conducted. The ~~three~~nine steps are as follows:

1. Based on the totality of qualitative factors, determine whether the carrying amount of the intangible asset may not be recoverable. Qualitative factors and key assumptions reviewed include the following:

● Increases in costs, such as labor, materials or other costs that could negatively affect future cash flows. The Company assumed that costs associated with labor, materials, and other costs should be consistent with fair market levels. If the costs were materially higher than fair market levels, then such costs may adversely affect the future cash flows of the Company or reporting units.

● Financial performance, such as negative or declining cash flows, or reductions in revenue may adversely affect recoverability of the recorded value of the intangible assets. During our analysis, the Company assumes that revenues should remain relatively consistent or show gradual growth month-to-month and quarter-to-quarter. If we report revenue declines, instead of increases or flat levels, then such condition may adversely affect the future cash flows of the Company or reporting units.
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● Legal, regulatory, contractual, political, business or other factors that could affect future cash flows. During our analysis, the Company assumes that the legal, regulatory, political or business conditions should remain consistent, without placing material pressure on the Company or any of its reporting units. If such conditions were to become materially different than what has been experienced historically, then such conditions may adversely affect the future cash flows of the Company or reporting units.

● Entity-specific events such as losses of management, key personnel, or customers, may adversely affect future cash flows. During our analysis, the Company assumes that members of management, key personnel, and customers will remain consistent period-over-period. If not effectively replaced, the loss of members of management and key employees could adversely affect operations, culture, morale and overall success of the company. In addition, if material revenue from key customers is lost and not replaced, then future cash flows will be adversely affected.

● Industry or market considerations, such as competition, changes in the market, changes in customer dependence on our service ~~offering,~~offerings, or obsolescence could adversely affect the Company or its reporting units. We understand that the ~~market~~markets we serve are constantly changing, requiring us to change with ~~it.~~them. During our analysis, we assume that we will address new opportunities in service offering and industries served. If we do not make such changes, then we may experience declines in revenue and cash flow, making it difficult to re-capture market share.
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● Macroeconomic conditions such as deterioration in general economic conditions or limitations on accessing capital could adversely affect the Company. During our analysis, we acknowledge that macroeconomic factors, such as the economy, may affect our business plan because our customers may reduce budgets for our services. If there are material declines in the economy, which lead to reductions in revenue then such conditions may adversely affect the Company.

2. Compare the carrying amount of the intangible asset to the fair value.

3. If the carrying amount is greater than the fair value, then the carrying amount is reduced to reflect fair value.

In accordance with its policies, the Company performed a qualitative assessment of indefinite lived intangibles and goodwill at December 31, ~~2017~~2019 and determined there was impairment of indefinite lived intangibles and goodwill from our ~~Indaba acquisition.~~Parscale Media and Parscale Creative acquisitions. Accordingly, all intangible assets and goodwill related to the ~~Indaba acquisition has~~Parscale Media and Parscale Creative acquisitions have been written off, amounting to ~~$1,239,796.~~$744,444 for Parscale Media and $6,016,323 for Parscale Creative. This amount reduced the consolidated balances of Parscale Digital, as outlined below. This amount is included in Operating Expenses on the Income Statement, for the ~~six months~~year ended December 31, ~~2017.~~2019. An impairment assessment was also conducted during the year ended December 31, ~~2018~~2019 related to the WebTegrity acquisition and determined that no impairment of intangible assets or goodwill was necessary.
Goodwill and Intangible assets are comprised of the following, presented as net of amortization:

September 30, 2019
Parscale Digital¹ WebTegrity CloudCommerce Total
Customer list 730,463 93,088 —   823,551
Non-compete agreement 77,778 —   —   77,778
Domain name and trademark —   —   27,443 27,443
Brand name 2,030,000 130,000 —   2,160,000
Goodwill 4,145,000 430,000 —   4,575,000
Total 6,983,241 653,088 27,443 7,663,772
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September 30, 2020
Parscale Digital WebTegrity CloudCommerce Total
Customer list $ —   $ 7,161 $ —   $ 7,161
Non-compete agreement —   —   —   —
Domain name and trademark —   —   26,754 26,754
Brand name —   130,000 —   130,000
Goodwill —   430,000 —   430,000
Total $ —   $ 567,161 $ 26,754 $ 593,915

December 31, 2018 December 31, 2019
Parscale Digital¹ WebTegrity CloudCommerce Total Parscale Digital WebTegrity CloudCommerce Total
Customer list 1,327,879 157,534 —   1,485,413 $ —   $ 71,606 $ —   $ 71,606
Non-compete agreement 147,778 —   —   147,778 —   —   —   —
Domain name and trademark —   —   27,960 27,960 —   —   27,271 27,271
Brand name 2,030,000 130,000 —   2,160,000 —   130,000 —   130,000
Goodwill 4,145,000 430,000 —   4,575,000 —   430,000 —   430,000
Total 7,650,657 717,534 27,960 8,396,151 $ —   $ 631,606 $ 27,271 $ 658,877

¹ ~~Includes the goodwill and intangible assets of Parscale Media.~~
Business Combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair value, at the acquisition date, of assets received, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquiree. Any costs directly attributable to the business combination are expensed in the period incurred. The acquiree’s identifiable assets and liabilities are recognized at their fair values at the acquisition date.
Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.
Concentrations of Business and Credit Risk
The Company operates in a single industry segment. The Company markets its services to companies and individuals in many industries and geographic locations. The Company’s operations are subject to rapid technological advancement and intense competition. Accounts receivable represent financial instruments with potential credit risk. The Company typically
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offers its customers credit terms. The Company makes periodic evaluations of the credit worthiness of its enterprisecustomers and other than obtaining deposits pursuant to its policies, it generally does not require collateral. In the event of nonpayment, the Company has the ability to terminate services.As of September 30, ~~2019,~~2020, the Company held cash and cash equivalents in the amount of ~~$84,698,~~$77,364, which was held in the operating bank accounts. Of this amount, none was held in any one account, in amounts exceeding the FDIC insured limit of $250,000. For further discussion on concentrations see footnote ~~13.~~14.
Stock-Based Compensation
The Company addressed the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The transactions are accounted for using a fair-value-based method and recognized as expenses in our statement of operations.
Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the ~~condensed~~ consolidated statement of operations during the nine months ended September 30, ~~2019,~~2020, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of September 30, ~~2019~~2020 based on the grant date fair value estimated. Stock-based compensation expense recognized in the ~~condensed~~ consolidated statement of operations for the nine months ended September 30, ~~2019~~2020 is based on awards ultimately expected to vest or has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation expense recognized in the ~~condensed~~ consolidated statements of operations during the nine months ended September 30, 2020 and 2019 were $344,665 and ~~2018 were~~ $246,822, ~~and $396,004,~~ respectively.
Basic and Diluted Net Income (Loss) per Share Calculations
Income (Loss) per Share dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The shares for employee options, warrants and convertible notes were used in the calculation of the income per share.
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For the nine months ended September 30, 2020, the Company has excluded 216,242,922 shares of common stock underlying options, 10,000 Series A Preferred shares convertible into 100,000,000 shares of common stock, 18,025 Series B Preferred shares convertible into 450,625,000 shares of common stock, 14,425 Series C Preferred shares convertible into 144,250,000 shares of common stock, 90,000 Series D Preferred shares convertible into 225,000,000 shares of common stock, 10,000 Series E Preferred shares convertible into 20,000,000 shares of common stock, 2,597 Series G Preferred shares convertible into 136,684,211 shares of common stock and 18,136,300 shares of common stock underlying $181,363 in convertible notes, because their impact on the loss per share is anti-dilutive.
For the nine months ended September 30, 2019,, the Company has excluded 151,475,799 shares of common stock underlying options, 10,000 Series A Preferred shares convertible into 100,000,000 shares of common stock, 18,025 Series B Preferred shares convertible into 450,625,000 shares of common stock, 14,425 Series C Preferred shares convertible into 144,250,000 shares of common stock, 90,000 Series D Preferred shares convertible into 225,000,000 shares of common stock, 10,000 Series E Preferred shares convertible into 20,000,000 shares of common stock and 87,138,607 shares of common stock underlying $766,530 in convertible notes, because their impact on the loss per share is anti-dilutive.
For the nine months ended September 30, 2018, the Company has excluded 151,475,799 shares of common stock underlying options, 10,000 Series A Preferred shares convertible into 100,000,000 shares of common stock, 18,025 Series B Preferred shares convertible into 450,625,000 shares of common stock, 14,425 Series C Preferred shares convertible into 144,250,000 shares of common stock, 90,000 Series D Preferred shares convertible into 225,000,000 shares of common stock, 10,000 Series E Preferred shares convertible into 20,000,000 shares of common stock and 39,725,600 shares of common stock underlying $281,582 in convertible notes, because their impact on the loss per share is anti-dilutive.
Dilutive per share amounts are computed using the weighted-average number of common shares outstanding and potentially dilutive securities, using the treasury stock method if their effect would be dilutive.
Accounting for Derivatives
The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative instruments at inception and on subsequent valuation dates.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current
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or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Recently Adopted Accounting Pronouncements
The Company does not elect to delay complying with any new or revised accounting standards, but to apply all standards required of public companies, according to those required application dates.
Management reviewed accounting pronouncements issued during the quarter ended September 30, 2020, and no pronouncements were adopted during the period.
Management reviewed accounting pronouncements issued during the year ended December 31, 2019, and the following pronouncements were adopted during the period.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“~~ASC 842”~~ASU 2016-02”). Under ~~ASC 842,~~ASU 2016-02, lessees ~~are recognized as~~recognize a right-of-use asset and a lease liability for all of their leases, other than those that meet the definition of a short-term lease. For income statement purposes, leases ~~are~~must be classified as either operating or finance. Operating leases ~~are expensed on a~~will result in straight-line ~~basis,~~expense, similar to current operating leases, while finance leases will result in a front-loaded pattern, similar to current capital ~~leases~~.~~The Company~~leases. We adopted ~~ASC~~Topic 842 effective January 1, 2019 and elected certain available transitional practical expedients.
~~Management reviewed accounting pronouncements issued during~~ This adoption resulted in right-of-use assets, in the ~~year ended~~amount of $352,943 and operating lease liability, in the amount of $352,943, to be added to the December 31, ~~2018, and~~2019 balance sheet. These additions are the ~~following pronouncements were adopted during~~result of an office lease in San Antonio. In the ~~period.~~
~~In May 2014, the FASB issued ASU No. 2014-09,~~~~Revenue from Contracts with Customers~~ (“ASU 2014-09”). The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein. The Company follows paragraph 606 of the FASB Accounting Standards Codification for revenue recognition and ASU 2014-09, adopting the pronouncements on January 1, 2018. The company considers revenue realized or realizable and earned when services are performed to such a degree that the performed service is delivered or deliverable to the client, or when a tangible item, such as interior décor or signage, is delivered to the client. Sinceprior year, the Company ~~was already recognizing revenue~~disclosed capital lease obligations, which has been changed to finance lease obligation in the current year, as a ~~manner consistent with paragraph 606~~result of this adoption. As of September 30, 2020, and December 31, 2019, the ~~FASB Accounting Standards Codification, there was no material impact on prior year results.~~
~~ASU 2014-09 supersedes existing guidance on revenue recognition with a five-step model for recognizing~~finance lease obligation totaled zero and measuring revenue from contracts with customers. The objective of the new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance also requires a number of disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows. The guidance can be applied retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with a cumulative effect adjustment to retained earnings for initial application of the guidance at the date of initial adoption (modified retrospective method). The Company adopted the new standard effective January 1, 2018 using the modified retrospective method applied to those contracts that were not completed or substantially completed as of January 1, 2018. The timing and measurement of revenue recognition under the new standard is not materially different than under the old standard. The adoption of the new standard had an immaterial impact on the Company's Condensed Consolidated Financial Statements.
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$20,654, respectively.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. We are currently in the process of evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.
In January 2017, the FASB issued 2017-04, Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test and eliminating the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative assessment. Instead, under this pronouncement, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment change for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects will be considered, if applicable. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to be realized. ~~The~~For the nine months ended September 30, ~~2019,~~2020, we used the federal tax rate of 21% in our determination of the deferred tax assets and liabilities balances.
For the 9 months ended
September 30, 2019

Current tax provision:
    Federal
          Taxable income $ —
          Total current tax provision $ —

Deferred tax provision:
    Federal
          Loss carryforwards $ 3,125,894
          Change in valuation allowance (3,125,894 )
          Total deferred tax provision $ —
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For the nine months ended
September 30, 2020
Current tax provision:
Federal
          Taxable income $ —
          Total current tax provision $ —

Deferred tax provision:
    Federal
          Loss carryforwards $ 3,339,113
          Change in valuation allowance (3,339,113 )
          Total deferred tax provision $ —

3. REVENUE RECOGNITION
On January 1, 2018, the Company adopted ASU 2014-09Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”),using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.The adoption of ASC 606 did not have a material impact on the Company’s ~~Condensed~~ Consolidated Financial Statements.
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The core principles of revenue recognition under ASC 606 includes the following five criteria:
1. Identify the contract with the customer
Contract with our customers may be oral, written, or implied. A written and signed contract stating the terms and conditions is the preferred method and is consistent with most customers. The terms of a written contract may be contained within the body of an email, during which proposals are made and campaign plans are outlined, or it may be a stand-alone document signed by both parties. Contracts that are oral in nature are consummated in status and pitch meetings and may be later followed up with an email detailing the terms of the arrangement, along with a proposal document. No work is commenced without an understanding between the Company and our customers, that a valid contract exists.
2. Identify the performance obligations in the contract
Our sales and account management teams define the scope of services to be offered, to ensure all parties are in agreement and obligations are being delivered to the customer as promised. The performance obligation may not be fully identified in a mutually signed contract, but may be outlined in email correspondence, face-to-face meetings, additional proposals or scopes of work, or phone conversations.
3. Determine the transaction price
Pricing is discussed and identified by the operations team prior to submitting a proposal to the customer. Based on the obligation presented, third-party service pricing is established, and time and labor are estimated, to determine the most accurate transaction pricing for our customer. Price is subject to change upon agreed parties, and could be fixed or variable, milestone focused or time and materials.
4. Allocate the transaction price to the performance obligations in the contract
If a contract involves multiple obligations, the transaction pricing is allocated accordingly, during the performance obligation phase (criteria 2 above).
5. Recognize revenue when (or as) we satisfy a performance obligation
The Company uses several means to satisfy the performance obligations:
a. Billable Hours – The Company employs a time tracking system where employees record their time by project. This method of satisfaction is used for time and material projects, change orders, website edits, ~~revisions to designs, and any other project that is hours-based. The hours satisfy the performance obligation as the hours are incurred.~~
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revisions to designs, and any other project that is hours-based. The hours satisfy the performance obligation as the hours are incurred.
b. Ad Spend - To satisfy ad spend, the Company generates analytical reports monthly or as required to show how the ad dollars were spent and how the targeting resulted in click-throughs. The ad spend satisfies the performance obligation, regardless of the outcome or effectiveness of the campaign. In addition, the Company utilizes third party invoices after the ad dollars are spent, in order to satisfy the obligation.
c. Milestones – If the contract requires milestones to be hit, then the Company satisfies the performance obligation when that milestone is completed and presented to the customer for review. As each phase of a project is complete, we consider it as a performance obligation being satisfied and transferred to the customer. At this point, the customer is invoiced the amount due based on the transaction pricing for that specific phase and/or we apply the customer deposit to recognize revenue.
d. Monthly Retainer – If the contract is a retainer for work performed, then the customer is paying the Company for its expertise and accessibility, not for a pre-defined amount of output. In this case, the obligation is satisfied at the end of the period, regardless of the amount of work effort required.
e. Hosting – Monthly recurring fees for hosting are recognized on a monthly basis, at a fixed rate. Hosting contracts are typically one-year and reviewed annually for renewal. Prices are subject to change at management discretion.
The Company generates income from five main revenue streams: data science, creative design, web development, digital marketing, and other. Each revenue stream is unique, and includes the following features:
Data Science – Data Propria
We analyze big data (large volume of information) to reveal patterns and trends associated with human behavior and interactions that can lead to better decisions and strategic business moves. As a result of our data science work, our clients are able to make informed and valuable decisions to positively impact their bottom lines. We classify revenue as
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data science that includes polling, research, modeling, data fees, consulting and reporting.Contracts are generated to assure both the Company and the client are committed to partnership and both agree to the defined terms and conditions and are typically less than one year. Transaction pricing is usually a lump sum, which is estimated by specific project requirements. The Company recognizes revenue when performance obligations are met, including, when the data sciences service is performed, polling is conducted, or support hours are expended. If the data sciences service is a fixed fee retainer, then the obligation is earned at the end of the period, regardless of how much service is performed.
Creative Design – Giles Design Bureau
We provide branding and creative design services, which we believe, set apart our clients from their competitors and establish ~~themselves~~them in their specific ~~market.~~markets. We believe in showcasing our ~~client’s brand~~clients’ brands uniquely and creatively to infuse the public with curiosity to learn more. We classify revenue as creative design that includesbranding, photography, copyrighting, printing, signs and interior design.Contracts are generated to assure both the company and the client are committed to partnership and both agree to the defined terms and conditions and are typically less than one year. The Company recognizes revenue when performance obligations are met, usually when creative design services obligations are complete, when the hours are recorded, designs are presented, website themes are complete, or any other criteria as mutually agreed.
Web Development – WebTegrity
We develop websites that attract high levels of traffic for our clients. We offer our clients the expertise to manage and protect their website, and the agility to adjust their online marketing strategy as their business expands.We classify revenue as web development that includeswebsite coding, website patch installs, ongoing development support and fixing inoperable sites.Contracts are generated to assure both the company and the client are committed to the partnership and both agree to the defined terms and conditions. Although most projects are long-term (6-8 months) in scope, we do welcome short-term projects which are invoiced as the work is completed at a specified hourly rate. In addition, we offer monthly hosting support packages, which ensures websites are functioning properly. The Company records web development revenue as earned, when the developer hours are recorded (if T&M arrangements) or when the milestones are achieved (if a milestone arrangement).
Digital Marketing – Parscale Digital
We have a reputation for providing digital marketing services that get results. We classify revenue as digital marketing that includesad spend, SEO management and digital ad support.Billable hours and advertising spending are estimated based on client specific needs and subject to change with client concurrence. Revenue is recognized when ads are run on one of the
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third-party platforms or when the hours are recorded by the digital marketing specialist, if the obligation relates to support or services.
Other
We offer services that do not fit into the other four categories but rely heavily on the “other” services to provide the entire support package for our clients. Included in this category aredomain name management, account management, web hosting, client training, and partner commissions. Revenue is recognized for these services as the service is performed (such as account management or training) or during the month in which the service was provided (such as hosting, partner commissions and domain name registration).
Included in creative design and digital marketing revenues are costs that are reimbursed by our clients, including third party services, such as photographers and stylists, furniture, supplies, and the largest component, digital advertising. We have determined, based on our review, that the amounts classified as reimbursable costs should be recorded as gross (principal), due to the following factors:
- The Company is the primary obligor in the arrangement;
- We have latitude in establishing price;
- We have discretion in supplier selection; and
- The Company has credit risk
During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we included ~~$2,230,894~~$4,518,054 and $5,385,924 respectively, in revenue, related to reimbursable costs.
The deferred revenue and customer deposits as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$1,320,397~~$1,360,649 and ~~$1,081,570,~~$2,080,762, respectively.
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For the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited), revenue was disaggregated into the five categories as follows:
Nine months Ended September 30, 2019 (unaudited) Nine months Ended September 30, 2018 (unaudited)
Nine months ended
September 30, 2020 (unaudited)

Nine months ended
September 30, 2019 (unaudited)
Third Parties Related Parties Total Third Parties Related Parties Total Third Parties Related Parties Total Third Parties Related Parties Total
Data Sciences $ 844,052 $ 14,400 $ 858,452 $ 686,600 $ 34,550 $ 721,150 $ 490,195 $ —   $ 490,195 $ 844,052 $ 14,400 $ 858,452
Design 1,503,778 624 1,504,402 1,057,669 196,033 1,253,702 1,891,221 —   1,891,221 1,503,778 624 1,504,402
Development 1,326,802 29,620 1,356,422 786,302 117,894 904,196 284,613 —   284,613 1,326,802 29,620 1,356,422
Digital Advertising 2,082,378 152,860 2,235,238 2,610,276 1,738,023 4,348,299 5,093,191 3,640 5,096,831 2,082,378 152,860 2,235,238
Other 892,891 28,524 921,415 1,047,473 475,790 1,523,263 256,944 —   256,944 892,891 28,524 921,415
Total $ 6,649,901 $ 226,028 $ 6,875,929 $ 6,188,320 $ 2,562,290 $ 8,750,610 $ 8,016,163 $ 3,640 $ 8,019,804 $ 6,649,901 $ 226,028 $ 6,875,929

4.    LIQUIDITY AND OPERATIONS
The Company had a net loss of $925,047 for the nine months ended September 30, 2020, and $1,944,335 for the nine months endedSeptember 30, 2019~~, and $1,263,586 for the nine months endedSeptember 30, 2018~~, and net cash used in operating activities of ~~$906,026~~$1,302,285 and ~~$650,849,~~$845,906, in the same periods, respectively.
As of September 30, ~~2019,~~2020, the Company had a short-term borrowing relationship with ~~three~~nine lenders. The lenders provided short-term and long-term financing under a secured borrowing arrangement, using our accounts receivable as collateral, disclosed in footnote 7, as well as convertible notes disclosed in footnote 8. As of September 30, ~~2019,~~2020, there were no unused sources of liquidity, nor were there any commitments of material capital expenditures.

While the Company expects that its capital needs in the foreseeable future may be met by cash-on-hand and projected positive cash-flow, there is no assurance that the Company will be able to generate enough positive cash flow to finance its growth and business operations in which event, the Company may need to seek outsider source of capital. There can be no assurance that such capital will be available on terms that are favorable to the Company or at all. In the current financial environment, it could become difficult for the Company to obtain working capital and other business financing. There can be no assurance that the Company would be able to obtain additional working capital through the sale of its securities or from any other source.
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5. BUSINESS ACQUISITIONS
Parscale Creative, Inc.
On August 1, 2017, the Company completed the acquisition of Parscale Creative, Inc., ~~a Nevada corporation~~ (“Parscale Creative”) through a merger agreement with the surviving entity, the Company’s wholly owned subsidiary, Parscale Digital, Inc., ~~a Nevada corporation~~ (“Parscale Digital”), surviving the merger. The total purchase price of $7,945,000, was paid in the form of the issuance of ninety thousand (90,000) shares of the Company's Series D Convertible Preferred Stock, at a liquidation preference of one hundred dollars ($100) per share, plus dividend payments based on 5% of adjusted revenue of Parscale Digital. Adjusted revenue is defined as total revenue, minus digital marketing media buys. Based on the growth of Parscale Digital, the actual amount of the dividend payments is estimated to be in the range of $850,000 and $1,300,000, over 36 months, if we achieve 0.5% to 3% monthly adjusted revenue growth. The dividend payments are recorded as a reduction to additional paid in capital. During the nine months ended September 30, ~~2019,~~2020, we did not pay any dividend related to the Series D Convertible Preferred stock, and as of September 30, ~~2019,~~2020, the accrued balance of the Series D Preferred dividend payable was ~~$200,872.~~$237,664. At the closing of the acquisition, Brad Parscale, the 100% owner of Parscale Creative, was appointed to the Company’s Board of Directors. The Company assumed net liabilities of $535,000, related to this acquisition.
Under the purchase method of accounting, the transactions were valued for accounting purposes at $7,945,000, which was the fair value of Parscale Creative at the time of acquisition. The assets and liabilities of Parscale Creative were recorded at their respective fair values as of the date of acquisition. The acquisition date estimated fair value of the consideration transferred and purchase price allocation consisted of the following:
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Cash $ 200,000
Customer deposits and accrued expenses (535,000 )
Net tangible liabilities $ (335,000 )

Non-compete agreements $ 280,000
Brand name 1,930,000
Customer list 2,090,000
Goodwill 3,645,000
Total purchase price $ 7,945,000

Issuance of series D convertible preferred stock $ 7,610,000
Net tangible liabilities 335,000
Total purchase price $ 7,945,000

During the year ended December 31, 2019, we determined that the goodwill and intangibles related to the Parscale Creative acquisition were impaired. Therefore, all remaining indefinite and finite-lived intangibles, and goodwill were written off. The amount of the write off, included in operating expenses was $6,016,323, for the year ended December 31, 2019.
WebTegrity, LLC
On November 15, 2017, the Company completed the acquisition of WebTegrity. As of that date, the Company’s operating subsidiary, Parscale Digital, Inc., ~~a Nevada corporation,~~ merged with WebTegrity and the name of the combined subsidiary remained unchanged as Parscale Digital. The total purchase price of $900,000, was paid in the form of the issuance of ten thousand (10,000) shares of the Company's Series E Convertible Preferred Stock, at a liquidation preference of one hundred dollars ($100) per share. On April 16, 2018, we organized WebTegrity as a Nevada corporation, and split WebTegrity from Parscale Digital.
Under the purchase method of accounting, the transactions were valued for accounting purposes at $900,000, which was the fair value of WebTegrity at the time of acquisition. The assets and liabilities of WebTegrity were recorded at their respective fair values as of the date of acquisition. The acquisition date estimated fair value of the consideration transferred and purchase price allocation consisted of the following:
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Current assets $ 78,000
Fixed assets 30,000
Liabilities (48,000 )
Net assets 60,000
Brand name 130,000
Customer list 280,000
Goodwill 430,000
Total purchase price $ 900,000

Issuance of Series E Convertible Preferred Stock $ 900,000
The Parscale Creative and WebTegrity acquisitions are based on a preliminary purchase price allocation, and include identifiable intangible assets, which were based on their estimated fair values as of the acquisition date. The excess of purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The allocation of the purchase price required management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to identifiable intangible assets. These estimated fair values were based on information obtained from management of the acquired companies and historical experience and, with respect to the long-lived tangible and intangible assets, were made with the assistance of an independent valuation firm.
Parscale Media, LLC
On August 1, 2017, the Company entered into a purchase agreement with Brad Parscale, to purchase Parscale Media, LLC, a website hosting ~~business, formed under the laws of Texas.~~business. Under the terms of the agreement, the Company agreed to pay Mr. Parscale $1,000,000 in cash, upon closing the transaction, but in no event later than January 1, 2018.
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On February 1, 2018, the Company entered into an amended purchase agreement which provided for the issuance of a promissory note to Mr. Parscale as consideration for the acquisition, under which the Company agreed to pay Mr. Parscale $1,000,000 in twelve equal installments, and interest of 4% on the promissory note (the “Parscale Media Note”). On November 20, 2018, the Company exchanged the remaining balance of the Parscale Media Note for an equal amount owed by Mr. Parscale to the Company. As of November 20, 2018, the balance on the Parscale Media Note was zero.
Current assets $ —
Brand name 100,000
Customer list 400,000
Goodwill 500,000
Total purchase price $ 1,000,000

During the year ended December 31, ~~2018, it was~~2019, we determined that ~~due~~the goodwill and intangibles related to the Company never having paid federal income taxes and having a large net operating loss (NOL), it is unlikely we will pay federal income taxes in the foreseeable future. This change in estimate resulted in the Company removing the deferred tax liability from the purchase price of Parscale Media ~~with a corresponding adjustment to goodwill. During~~acquisition were imparted. Therefore, all remaining indefinite and finite-lived intangibles, and goodwill were written off. The amount of the write off, included in operating expenses was $744,444, for the year ended December 31, ~~2018, this change in estimate resulted in a reduction of deferred tax liability to zero and goodwill to $500,000, or reductions of $125,000 to each.~~2019.
The above Parscale Creative, WebTegrity, and Parscale Media acquisitions are based on a preliminary purchase price allocation, and include identifiable intangible assets, which were based on their estimated fair values as of the acquisition date. The excess of purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The allocation of the purchase price required management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to identifiable intangible assets. These estimated fair values were based on information obtained from management of the acquired companies and historical experience and, with respect to the long-lived tangible and intangible assets, were made with the assistance of an independent valuation firm.
~~Pro forma results~~
The following tables set forth the unaudited pro forma results of the Company as if the acquisitions of Parscale Creative and WebTegrity had taken place on the first day of the period presented. These combined results are not necessarily indicative of the results that may have been achieved had the companies been combined as of the first day of the period presented.

Nine months ended,
September 30, 2019

Nine months ended,
September 30, 2018
Total revenues $ 6,875,929 $ 8,759,175
Net income (loss) (1,944,335 ) (1,245,592 )
Basic and diluted net earnings per common share $ (0.01 ) $ (0.01 )
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6. INTANGIBLE ASSETS
Domain Name
On June 26, 2015, the Company purchased the rights to the domain “CLOUDCOMMERCE.COM”, from a private party at a purchase price of $20,000, plus transaction costs of $202. We use the domain as the main landing page for the Company. The total recorded cost of this domain of $20,202 has been included in other assets on the balance sheet. As of~~June~~September 30, 2020, ~~2015,~~ we determined that this domain has an indefinite useful life, and as such, is not included in depreciation and amortization expense. The Company will assess this intangible asset annually for impairment, in addition to it being classified with indefinite useful life.
Trademark
On September 22, 2015, the Company purchased the trademark rights to “CLOUDCOMMERCE”, from a private party at a purchase price of $10,000. The total recorded cost of this trademark of $10,000 has been included in other assets on the balance sheet. The trademark expires in 2020 and may be renewed for an additional 10 years. As of September 30, 2015, we determined that this intangible asset has a definite useful life of 174 months, and as such, will be included in depreciation and amortization expense. For the nine months endedSeptember 30, ~~2019~~2020 and ~~2018,~~2019, the Company included $517 and $517,
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respectively, in depreciation and amortization expense related to this trademark. As of September 30, ~~2019,~~2020, the balance on this intangible asset was ~~$7,241.~~$6,552.
Non-Compete Agreements
In connection withthe Company’s August 1, 2017, acquisition of Parscale Creative, Brad Parscale agreed to certain non-compete provisions, for a period of ~~three~~nine years. The Company has placed a value on this non-compete agreement at $280,000, amortized over a period of 36 months. For the ~~nine months~~years ended ~~September 30,~~December 31, 2019 and 2018 we have included ~~$70,000~~$93,333 and ~~$70,000~~$93,333 in amortization expense related to this non-compete agreement. During our annual impairment analysis, we determined that the intangible assets of Parscale Creative were impaired. Therefore, as of December 31, 2019, the remaining balance of this intangible asset of $54,444 was written off and included in loss on impairment of goodwill and intangible assets on the income statement. As of September 30, ~~2019,~~2020, the balance on this intangible asset was ~~$77,778.~~zero.
Customer List
On August 1, 2017, the Company acquired Parscale Creative, and ~~have~~has calculated the value of the customer list acquired at $2,090,000, with a useful life of 3 years. ~~For~~During the ~~nine months~~year ended ~~September 30,~~December 31, 2019, the Company performed our annual impairment analysis and ~~2018~~ we ~~included $497,416 and $505,778 in depreciation and amortization expense related to~~determined that the ~~customer list, and~~intangible assets of Parscale Creative were impaired. Therefore, as of ~~September 30,~~December 31, 2019, the remaining balance of this intangible asset of $386,879 was ~~$552,685.~~written off and included in loss on impairment of goodwill and intangible assets on the income statement. As of December 31, 2019, the balance on this intangible asset was zero.
On November 15, 2017, the Company acquired WebTegrity, and ~~have~~has calculated the value of the customer list acquired at $280,000, with a useful life of 3 years. For the ~~nine months~~years ended September 30, ~~2019~~2020 and ~~2018,~~2019, we included ~~$64,446~~$64,445 and ~~$66,297~~$64,446 in depreciation and amortization expense related to the customer list, and as of September 30, ~~2019,~~2020, the remaining balance of this intangible asset was ~~$93,088.~~$7,161.
On February 1, 2018, the Company acquired Parscale Media, and ~~have~~has calculated the value of the customer list acquired at $400,000, with a useful life of 3 years. ~~For~~During the ~~nine months~~year ended ~~September 30,~~December 31, 2019, the Company performed our annual impairment analysis and ~~2018,~~ we ~~included $100,000 and $88,889 in depreciation and amortization expense related to~~determined that the ~~customer list, and~~intangible assets of Parscale Media were impaired. Therefore, as of ~~September 30,~~December 31, 2019, the remaining balance of this intangible asset of $144,445 was ~~$177,778.~~written off and included in loss on impairment of goodwill and intangible assets on the income statement. As of December 31, 2019, the balance of this intangible asset was zero.
Brand Name
On August 1, 2017, the Company acquired Parscale Creative, and ~~have~~has calculated the value of the brand name at $1,930,000, which isincluded in other assets on the balance sheet. As ofSeptember 30, ~~2019~~2020, we have determined that this brand name has an indefinite useful life, and as such, is not included in depreciation and amortization expense. The Company will assess this intangible asset annually for impairment, in addition to it being classified with an indefinite useful life. In evaluating whether this brand had an indefinite useful life, the Company considered the following criteria:
o Expected use – We expected to retain the name and brand, leveraging the good reputation and client following. The name Parscale was revered in the digital advertising space.
o Expected useful life of related group – The Parscale name does not relate to another intangible asset or
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group of intangible assets. Therefore, this criterion was not considered.
o Limits to useful life – There was no legal, regulatory, or contractual limitation to this intangible asset’s life.
o Historical experience – The Company has experience with intangible assets, both definite and indefinite lived, in extending the life of the asset. However, this asset does not require an extension or renewal, in order for it to remain on our balance sheet.
o Effects of other factors – The Company did consider this in evaluating the useful life. Given the political and media climate in the country, there is a chance that the Parscale name could be harmed. The factor that we evaluated was whether that harm could affect the reputation and quality clients came to rely upon. We came to the conclusion that even if the political or media climate diminished the Parscale name, our client base is dedicated to the name, and not swayed by politics or media coverage. In addition, there is a large group of clients who find more appeal to the Parscale name, because of political or media pressure.
o Maintenance required – There is no maintenance expenditure to obtain future cash flows. Therefore, this criterion was not taken into consideration.
During the year ended December 31, 2019, the Company performed our annual impairment analysis and we determined that the intangible assets of Parscale Creative were impaired. Therefore, as of December 31, 2019, the remaining balance of this intangible ~~asset’s life.~~
~~Historical experience – The Company has experience with~~asset of $1,930,000 was written off and included in loss on impairment of goodwill and intangible assets ~~both definite and indefinite lived, in extending~~on the ~~life~~income statement. As of December 31, 2019, the ~~asset. However,~~balance on this intangible asset ~~does not require an extension or renewal, in order for it to remain on our balance sheet.~~
Effects of other factors – The Company did consider this in evaluating the useful life. Given the political and media climate in the country, there is always a chance that the Parscale name could be harmed. The factor that we evaluated was whether that harm could affect the reputation and quality clients came to rely upon. We came to the conclusion that even if the political or media climate diminished the Parscale name, our client base is dedicated to the name, and not swayed by politics or media coverage. In addition, there is a large group of clients who find more appeal to the Parscale name, because of political or media pressure.
~~Maintenance required – There is no maintenance expenditure to obtain future cash flows. Therefore, this criterion was not taken into consideration.~~
zero.
On November 15, 2017, the Company acquired WebTegrity, and have calculated the value of the brand name at $130,000, which isincluded in other assets on the balance sheet. As ofSeptember 30, ~~2019, we have determined that this brand name has an indefinite useful life, and as such, is not included in depreciation and amortization expense. The Company will assess~~
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this intangible asset annually for impairment, in addition to it being classified with an indefinite useful life. In evaluating whether this brand had an indefinite useful life, the Company considered the following criteria:
Expected use – We expected to retain the name and brand, leveraging the good reputation and client following. Within the WordPress industry, the WebTegrity name was well known, and the founder of the company has been asked to speak at various conferences.
~~Expected useful life of related group – The WebTegrity name does not relate to another intangible asset or group of intangible assets. Therefore, this criterion was not considered.~~
~~Limits to useful life – There was no legal, regulatory, or contractual limitation to this intangible asset’s life.~~
~~Historical experience – This asset does not require an extension or renewal, in order for it to remain on our balance sheet.~~
Effects of other factors – We did consider this criterion in determining useful life, especially since WebTegrity was in a highly competitive industry, mostly relying on the WordPress platform. Was there a chance of obsolescence or decline due to competition. In addition, we concluded that there was not a chance of obsolescence or decline due to competition. Even though there is much competition, WebTegrity produced a quality product with a great team, resulting in long term clients.
~~Maintenance required – There is no maintenance expenditure to obtain future cash flows. Therefore, this criterion was not taken into consideration.~~
~~On February 1, 2018, the Company acquired Parscale Media, and have calculated the value of the brand name at $100,000, which isincluded in other assets on the balance sheet. As ofSeptember 30, 2019~~2020, we have determined that this brand name has an indefinite useful life, and as such, is not included in depreciation and amortization expense. The Company will assess this intangible asset annually for impairment, in addition to it being classified with an indefinite useful life. In evaluating whether this brand had an indefinite useful life, the Company considered the following criteria:
o Expected use – We expected to retain the name and brand, leveraging the good reputation and client following. Within the WordPress industry, the WebTegrity name was well known, and the founder of the company has been asked to speak at various conferences.
o Expected useful life of related group – The WebTegrity name does not relate to another intangible asset or group of intangible assets. Therefore, this criterion was not considered.
o Limits to useful life – There was no legal, regulatory, or contractual limitation to this intangible asset’s life.
o Historical experience – This asset does not require an extension or renewal, in order for it to remain on our balance sheet.
o Effects of other factors –WebTegrity was in a highly competitive industry, mostly relying on the WordPress platform. We also considered whether there was a chance of obsolescence or decline due to competition. In addition, we concluded that there was not a chance of obsolescence or decline due to competition. Even though there is much competition, WebTegrity produced a quality product with a great team, resulting in long term clients.
o Maintenance required – There is no maintenance expenditure to obtain future cash flows. Therefore, this criterion was not taken into consideration.
On February 1, 2018, the ~~name~~Company acquired Parscale Media, and ~~brand, leveraging~~have calculated the ~~good reputation and client following. Many~~value of the brand name at $100,000, which is included in other assets on the balance sheet. As of September 30, 2020, we have determined that this brand name has an indefinite useful life, and as such, is not included in depreciation and amortization expense. The Company will assess this intangible asset annually for impairment, in addition to it being classified with an indefinite useful life. In evaluating whether this brand had an indefinite useful life, the Company considered the following criteria:
o Expected use – We expected to retain the name and brand, leveraging the good reputation and client following. Many of the digital advertising clients also relied upon Parscale Media to provide hosting services, so the Parscale name was very synonymous with dependability and quality.
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o Expected useful life of related group – Although the Parscale name is typically thought of in connection with digital advertising, we determined that it did not belong in a group of costs related to digital advertising. Therefore, this criterion was not considered.
o Limits to useful life – There was no legal, regulatory, or contractual limitation to this intangible asset’s life.
o Historical experience – This asset does not require an extension or renewal, in order for it to remain on our balance sheet.
o Effects of other factors – See explanation of the Parscale name above.
o Maintenance required – There is no maintenance expenditure to obtain future cash flows. Therefore, this criterion was not taken into consideration.
During the year ended December 31, 2019, the Company performed our annual impairment analysis and it was determined that the intangible assets of Parscale Media ~~to provide hosting services, so~~were impaired. Therefore, as of December 31, 2019, the ~~Parscale name was very synonymous with dependability and quality.~~
~~Expected useful life~~remaining balance of related group – Although the Parscale name is typically thought of in connection with digital advertising, we determined that it did not belong in a group of costs related to digital advertising. Therefore, this criterion was not considered.
~~Limits to useful life – There was no legal, regulatory, or contractual limitation to~~ this intangible ~~asset’s life.~~
~~Historical experience – This~~ asset ~~does not require an extension or renewal,~~of $100,000 was written off and included in ~~order for it to remain~~loss on ~~our~~impairment of goodwill and intangible assets on the income statement. As of December 31, 2019, the balance ~~sheet.~~
~~Effects~~ of ~~other factors – See explanation of the Parscale name above.~~
~~Maintenance required – There is no maintenance expenditure to obtain future cash flows. Therefore,~~ this ~~criterion~~intangible asset was ~~not taken into consideration.~~
zero.
Goodwill
On August 1, 2017, the Company acquired Parscale Creative, and have calculated the value of the goodwill at $3,645,000, which iswas included in other assets on the balance sheet. ~~The~~During the year ended December 31, 2019, the Company ~~will assess~~performed our annual impairment analysis and it was determined that the goodwill and intangible assets of Parscale Creative were impaired. Therefore, as of December 31, 2019, the balance of this goodwill of $3,645,000 was written off and included in loss on impairment of goodwill and intangible ~~asset for impairment, if an event occurs that may affect~~assets on the ~~fair value, or at least annually.~~income statement. As of December 31, 2019, the balance of this goodwill was zero.
On November 15, 2017, the Company acquired WebTegrity, and have calculated the value of the goodwill at $430,000, which isincluded in other assets on the balance sheet. The Company will assess this intangible asset for impairment, if an event occurs that may affect the fair value, or at least annually.
On February 1, 2018, the Company acquired Parscale Media, and have calculated the value of the goodwill at $500,000, which isincluded in other assets on the balance sheet. ~~The~~During the year ended December 31, 2019, the Company ~~will assess~~performed our annual impairment analysis and it was determined that the goodwill and intangible assets of Parscale Media were impaired. Therefore, as of December 31, 2019, the balance of this goodwill of $500,000 was written off and included in loss on impairment of goodwill and intangible ~~asset for impairment, if an event occurs that may affect~~assets on the ~~fair value, or at least annually.~~income statement. As of December 31, 2019, the balance of this goodwill was zero.
The Company’s intangible assets consist of the following:
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September 30, 2019 December 31, 2018 September 30, 2020 December 31, 2019
Gross Accumulated Amortization Net Gross Accumulated Amortization Net Gross Accumulated Amortization Net Gross Accumulated Amortization Net
Customer list 2,770,000 (1,946,449 ) 823,551 2,770,000 (1,284,587 ) 1,485,413 $ 280,000 $ (272,839 ) $ 7,161 $ 280,000 $ (208,394 ) $ 71,606
Non-compete agreement 280,000 (202,222 ) 77,778 280,000 (132,222 ) 147,778 —   —   —   —   —   —
Domain name and trademark 30,201 (2,758 ) 27,443 30,201 (2,241 ) 27,960 30,201 (3,447 ) 26,754 30,201 (2,930 ) 27,271
Brand name 2,160,000 —   2,160,000 2,160,000 —   2,160,000 130,000 —   130,000 130,000 —   130,000
Goodwill 4,575,000 —   4,575,000 4,575,000 —   4,575,000 430,000 —   430,000 430,000 —   430,000
Total 9,815,201 (2,151,429 ) 7,663,772 9,815,201 (1,419,050 ) 8,396,151 $ 870,201 $ (276,286 ) $ 593,915 $ 870,201 $ (211,324 ) $ 658,877

Total amortization expense charged to operations for the nine months ended September 30, 2020, and 2019 were $64,962 and ~~2018 were$732,379 and $487,354,~~$732,379, respectively.The following table of remaining amortization of finite life intangible assets, for the years ended December 31, includes the intangible assets acquired, in addition to the CloudCommerce trademark:

2019 (excluding nine months ended September 30, 2019) $ 244,126
2020 646,953
2021 11,801
2022 690
2023 690
Thereafter 4,310
Total $ 908,570
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2020 $ 7,333
2021 690
2022 690
2023 690
Thereafter 4,310
Total $ 13,713

7. CREDIT FACILITIES
Lines of Credit
~~The Company has assumed an outstanding liability related to a bank line of credit agreement from the acquisition of Indaba. As of December 31, 2017, the balance was zero.~~
On November 30, 2016, CLWD Operations entered into a 12-month agreement wherein amounts due from our customers were pledged to a third party, in exchange for a borrowing facility in amounts up to a total of $400,000. The agreement was amended on March 23, 2017, which increased the allowable borrowing amount by $100,000, to a maximum of $500,000. On November 30, 2017, the agreement ~~auto~~ renewed automatically for another twelve months. The proceeds from the facility are determined by the amounts we invoice our customers. We record the amounts due from customers in accounts receivable and the amount due to the third party as a liability, presented under “Lines of credit” on the Balance Sheet. During the term of this facility, the third-party lender has a first priority security interest in CLWD Operations, and therefore, we will ~~require~~need to obtain such third-party lender’s written consent to obligate CLWD Operations further or pledge our assets against additional borrowing facilities. Because of this position, it may be difficult for CLWD Operations to secure additional secured borrowing facilities. The cost of this secured borrowing facility is 0.05% of the daily balance. During the nine months endedSeptember 30, ~~2019~~2020and ~~2018,~~2019, the Company included ~~$1,745~~$16,310 and ~~$16,008,~~$1,745, respectively, in interest expense, related to this secured borrowing facility, and as ofSeptember 30, ~~2019~~2020and December 31, ~~2018,~~2019, the outstanding balances were ~~$10,950~~$242,082 and ~~zero,~~$5,228, respectively.
On October 19, 2017, Parscale Digital entered into a 12 month agreement with a third party to sell the rights to amounts due from our customers, in exchange for a borrowing facility in amounts up to a total of $500,000. The agreement was amended on April 12, 2018, which increased the allowable borrowing amount by $250,000, to a maximum of $750,000. The proceeds from the facility are determined by the amounts we invoice our customers. We evaluated this facility in accordance with ASC
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860, classifying it as a secured borrowing arrangement. As such, we record the amounts due from customers in accounts receivable and the amount due to the third party as a liability, presented under “Lines of credit” on the Balance Sheet. During the term of this facility, the third party lender has a first priority security interest in Parscale Digital, and ~~will,~~ therefore, we will ~~require~~need to obtain such third party lender’s written consent to obligate it further or pledge our assets against additional borrowing facilities. Because of this position, it may be difficult for Parscale Digital to secure additional secured borrowing facilities. The cost of this secured borrowing facility is 0.05% of the daily balance. During the nine months endedSeptember 30, ~~2019~~2020 and ~~2018,~~2019, the Company included ~~$59,557~~$39,883 and ~~$53,491,~~$59,557, respectively, in interest expense, related to this secured borrowing facility, and as ofSeptember 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the outstanding balances were ~~$374,282~~$55,212 and ~~$102,988,~~$258,646, respectively. This borrowing facility expired on October 19, 2020 and was not renewed.
On August 2, 2018, Giles Design Bureau, WebTegrity, and Data Propria entered into a 12 month agreements with a third party to sell the rights to amounts due from our customers, in exchange for borrowing facilities in amounts up to a total of $150,000, $150,000 and $600,000, respectively. The proceeds from the facility are determined by the amounts we invoice our customers. We evaluated these facilities in accordance with ASC 860, classifying as secured borrowing arrangements. As such, we record the amounts due from customers in accounts receivable and the amount due to the third party as a liability, presented under “Lines of credit” on the Balance Sheet. During the term of these facilities, the third party lender has a first priority security interest in the respective entities, and ~~will,~~ therefore, we ~~will require~~would be required to obtain such third party lender’s written consent to obligate the entities further or pledge their assets against additional borrowing ~~facilities. Because of this position, it may be difficult for the entities to secure additional secured borrowing facilities.~~facilities The cost of ~~this~~these secured borrowing facilities isare 0.056%, 0.056% and 0.049%, respectively, of the daily balance. During the nine months endedSeptember 30, ~~2019~~2020and ~~2018,~~2019, the Company included ~~$87,661~~$65,752 and ~~$3,526,~~$87,661, respectively, in interest expense, related to these secured borrowing facilities, and as ofSeptember 30, ~~2019~~2020and December 31, ~~2018,~~2019, the combined outstanding balances were ~~$355,196~~zero and ~~$321,106,~~$213,088, respectively.These three borrowing facilities had an expiration date of August 22, 2020 and were not renewed.
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8.    CONVERTIBLE NOTES PAYABLE
During fiscal year 2019, the Company issued convertible promissory notes with variable conversion prices, as outlined below. The conversion prices for each of the notes is tied to the trading price of the Company’s common stock. Because of the fluctuation in stock price, the Company is required to report derivative gains and losses each quarter, which was included in earnings, and an overall derivative liability balance on the balance sheet, beginning during the quarter ended September 30, 2019. The Company also records a discount related to the convertible notes, which reduces the outstanding balance of the total amount due and presented as a net outstanding balance on the balance sheet. As of September 30, ~~2019,~~2020, the balance of the discount was ~~$151,285.~~zero. The discount is amortized throughout the term of the notes and included in interest expense. For the quarter ended September 30, ~~2019,~~2020, the amount of amortization related to the discount, included in interest expense was ~~$179,433.~~zero.
On March 25, 2013, the Company issued a convertible promissory note (the “March 2013 Note”) in the amount of up to $100,000, at which time we received an initial advance of $50,000 ~~was received~~ to cover operational expenses. The lender, a related party, advanced an additional $20,000 on April 16, 2013, $15,000 on May 1, 2013 and $15,000 on May 16, 2013, for a total draw of $100,000. The terms of the March 2013 Note, as amended, allow the lender to convert all or part of the outstanding balance plus accrued interest, at any time after the effective date, at a conversion price of $0.004 per share. The March 2013 Note ~~bears~~bore interest at a rate of 10% per year and matured on March 25, 2018. ~~The Company is working with the lender to extend the maturity date, and remove the March 2013 Note from default status.~~ On May 23, 2014, the lender converted $17,000 of the outstanding balance and accrued interest of $1,975 into 4,743,699 shares of common stock. On October 14, 2014, the lender converted $17,000 of the outstanding balance and accrued interest of $2,645 into 4,911,370 shares of common stock. On April 17, 2018, the lender converted $16,000 of the outstanding balance and accrued interest of $8,106 into 6,026,301 shares of common stock. On June 23, 2020, the lender converted $50,000 of the outstanding balance and accrued interest of $36,260 into 21,565,068 shares of common stock. The balance of the March 2013 Note, as ofSeptember 30, ~~2019~~2020 was ~~$82,116, which includes $32,116 of accrued interest.~~zero.
On April 20, 2018, the Company issued a convertible promissory note (the “April 2018 Note”) in the amount of up to $200,000, at which time we received an initial advance of $200,000 ~~was received~~ to cover operational expenses. The terms of the April 2018 Note, as amended, allow the lender, a related party, to convert all or part of the outstanding balance plus accrued interest, at any time after the effective date, at a conversion price of $0.01 per share. The April 2018 Note bears interest at a rate of 5% per year and matures on April 20, 2021. During the year ended December 31, 2018, it was determined that the April 2018 Note offered a conversion price which was lower than the market price, and therefore included a beneficial conversion feature. The Company included the amortization of this beneficial conversion feature in interest expense in the amount of $139,726 during the year ended December 31, 2018, and $60,274 during the year ended December 31, 2019. During the year ended December 31, 2019, it was determined that the conversion feature of the April 2018 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the April 2018 Note. The fair value of the April 2018 Notes has been determined by using the Binomial lattice formula from the effective date of the note. On June 23, 2020, the lender converted $38,894 of the outstanding balance and accrued interest of $4,236 into 4,313,014 shares of common stock. The balance of the April 2018 Note, as ofSeptember 30, ~~2019,~~2020, was ~~$214,466,~~$181,363, which includes ~~$14,466~~$20,257 of accrued interest.
On January 16, 2019 the Company issued a promissory note (the “January 16, 2019 Note”) in the amount of $103,000 at which time the Company received $100,000, and the remaining $3,000 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The January 16, 2019 Note ~~bears~~bore interest at a rate of 10% per year, ~~is payable on~~had a maturity date of January 16, 2020, and iswas convertible into common stock 180 days after issuance. The conversion price is
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was calculated as a 39% discount off of the average of the two lowest trading prices during the 20 trading days prior to conversion. ~~The~~During the year ended December 31, 2019, the lender converted the entire balance of $103,000, plus $5,150 interest into 44,780,900 shares, leaving a balance of zero. Because the ~~January 16, 2019 Note, as~~Company records the value of ~~September 30, 2019~~convertible notes at fair value, no gain or loss is ~~$24,790, which includes $6,590 of accrued interest. To date, the lender has converted the following from the January 16, 2019 Note:~~recorded upon conversion.
Date Principle Interest Total Shares
7/17/19 $ 12,000 —   $ 12,000 1,967,213
8/27/19 12,000 —   12,000 3,870,968
9/4/19 15,000 —   15,000 5,172,414
9/5/19 15,000 —   15,000 5,172,414
9/13/19 16,000 —   16,000 6,956,522
9/25/19 14,800 —   14,800 7,047,619
$ 84,800 $ —   $ 84,800 30,187,150
On January 31, 2019 the Company issued a promissory note (the “January 31, 2019 Note”) in the amount of $53,500 at which time the Company received $50,000, and the remaining $3,500 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The January 31, 2019 Note ~~bears~~bore interest at a rate of 10% per year, ~~is payable on~~had a maturity date of January 31, 2020, and iswas convertible into common stock 180 days after issuance. The conversion price iswas calculated as a 39% discount to the lowest trading prices during the 15 trading days prior to conversion. ~~The~~During the year ended December 31, 2019, the lender converted the entire balance of $53,500, plus $3,165 interest and fee into 56,483,670 shares. During the ~~January~~quarter ended March 31, ~~2019 Note, as ofSeptember 30, 2019is $41,255, which includes $3,371 of accrued interest. To date,~~2020, the lender ~~has~~ converted $3,935 accrued interest and fees into 4,300,327 shares, leaving a balance of zero. Because the ~~following from~~Company records the ~~January 31, 2019 Note:~~value of convertible notes at fair value, no gain or loss is recorded upon conversion.
Date Principle Fees Total Shares
8/5/19 $ 7,838.60 $ 250 $ 8,088.60 2,550,000
9/4/19 7,777.60 250 8,027.60 2,800,000
$ 15,616.20 $ 500 $ 16,116.20 5,350,000
On February 21, 2019 the Company issued a promissory note (the “February 21, 2019 Note”) in the amount of $53,000 at which time the ~~company~~Company received of $50,000, and the remaining $3,000 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The February 21, 2019 Note ~~bears~~bore interest at a
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rate of 10% per year, ~~is payable on~~had a maturity date of February 21, 2020, and iswas convertible into common stock 180 days after issuance. The conversion price iswas calculated as a 39% discount to the average of the two lowest trading prices during the 20 trading days prior to conversion. ~~The~~During the year ended December 31, 2019, the lender converted the entire balance of $53,000, plus $2,650 interest into 62,281,512 shares, leaving a balance of zero. Because the ~~February 21, 2019 Note, as~~Company records the value of~~September 30, 2019~~ convertible notes at fair value, no gain or loss is ~~$56,209, which includes $3,209 of accrued interest.~~recorded upon conversion.
On April 24, 2019 the Company issued a promissory note (the “April 24, 2019 Note”) in the amount of $43,000 at which time the ~~company~~Company received of $43,000, and the remaining $3,000 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The April 24, 2019 Note ~~bears~~bore interest at a rate of 10% per year, ~~is payable on~~had a maturity date of April 24, 2020, and iswas convertible into common stock 180 days after issuance. The conversion price iswas calculated as a 39% discount off of the average of the two lowest trading prices during the 20 trading days prior to conversion. ~~The~~During the year ended December 31, 2019, the lender converted the entire balance of $43,000, plus $2,150 interest into 53,117,648 shares, leaving a balance of zero. Because the ~~April 24, 2019 Note, as~~Company records the value of~~September 30, 2019~~ convertible notes at fair value, no gain or loss is ~~$44,873, which includes $1,873 of accrued interest.~~recorded upon conversion.
On May ~~02,~~2, 2019 the Company issued a convertible promissory note (the “May ~~02,~~2, 2019 Note”) in the amount of $48,500 at which time the Company received $45,000, and the remaining $3,500 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The May ~~02,~~2, 2019 Note ~~bears~~bore interest at a rate of 10% per year, ~~is payable on~~had a maturity date of May ~~02,~~2, 2020, and iswas convertible into common stock 180 days after issuance. The conversion price iswas calculated as a 39% discount to the ~~average of the two~~ lowest trading ~~prices~~price during the 2015 trading days prior to conversion. The ~~balance~~conversion feature of the May ~~02,~~2, 2019 Note aswas considered a derivative in accordance with current accounting guidelines because of~~September~~ the reset conversion features of the May 2, 2019 Note. The fair value of the May 2, 2019 Notes has been determined by using the Binomial lattice formula from the effective date of the note. During the quarter ended March 31, 2020, the lender converted $40,772 principal and fees into 39,200,000 shares. During the quarter ended June 30, ~~2019is $50,506, which includes $2,006~~2020, the lender converted $13,578 principal, interest and fees into 22,258,360 shares, leaving a balance of ~~accrued interest.~~zero.
On June 10, 2019 the Company issued a promissory note (the “June 10, 2019 Note”) in the amount of $53,000 at which time the ~~company~~Company received of $50,000, and the remaining $3,000 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The June 10, 2019 Note ~~bears~~bore interest at a rate of 10% per year, ~~is payable on~~had a maturity date of June 10, 2020, and iswas convertible into common stock 180 days after issuance. The conversion price iswas calculated as a 39% discount to the average of the two lowest trading prices during the 20 trading days prior to conversion. ~~The~~During the year ended December 31, 2019, the lender converted the entire balance of $53,000, plus $2,650 interest into 65,470,589 shares, leaving the ~~June 10, 2019 Note, as~~balance of~~September 30, 2019is $54,626, which includes $1,626 of accrued interest.~~
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zero.
On July 16, 2019 the Company issued a convertible promissory note (the “July 16, 2019 Note”) in the amount of $43,000 at which time the ~~company~~Company received of $40,000, and the remaining $3,000 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The July 16, 2019 Note ~~bears~~bore interest at a rate of 10% per year, ~~is payable on~~had a maturity date of July 10, 2020, and iswas convertible into common stock 180 days after issuance. The conversion price iswas calculated as a 39% discount to the ~~average of the two~~ lowest trading ~~prices~~price during the 2015 trading days prior to conversion. ~~The balance~~Because the conversion feature of the July 16, 2019 Note was not available to the lender, as of September 30, 2020, the July 16, 2019 ~~is $43,895, which includes $895~~Note was not considered a derivative. The Company will include the July 16, 2019 Note in the valuation and accounting for derivatives once the 180 days conversion restriction period expires. During the quarter ended June 30, 2020, the lender converted $52,300 principal, interest and fees into 91,500,000 shares, leaving a balance of ~~accrued interest.~~zero.
On September 4, 2019 the Company issued a convertible promissory note (the “September 4, 2019 Note”) in the amount of $53,000 at which time the Company received of $50,000, and the remaining $3,000 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The September 4, 2019 Note ~~bears~~bore interest at a rate of 10% per year, ~~is payable on~~had a maturity date of September 4, 2020, and iswas convertible into common stock 180 days after issuance. The conversion price iswas calculated as a 39% discount to the average of the two lowest trading prices during the 20 trading days prior to conversion. ~~The balance~~Because the conversion feature of the September 4, 2019 Note was not available to the lender, as of December 31, 2019, the September 4, 2019 Note was not considered a derivative. The Company will include the September 4, 2019 Note in the valuation and accounting for derivatives once the 180 days conversion restriction period expires. During the quarter ended March 31, 2020, the lender converted $48,000 principal into 35,357,143 shares. During the quarter ended June 30, 2020, the lender converted $7,650 principal and interest into 7,806,122 shares, leaving a balance of zero.
On December 2, 2019~~is $53,378,~~ the Company issued a convertible promissory note (the “December 2, 2019 Note”) in the amount of $38,000 at which time the Company received of $35,000, and the remaining $3,000 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The December 2, 2019 Note bore interest at a rate of 10% per year, had a maturity date of December 2, 2020, and was convertible into common stock 180 days
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after issuance. The conversion price was calculated as a 39% discount to the average of the two lowest trading prices during the 20 trading days prior to conversion. Because the conversion feature of the December 2, 2019 Note was not available to the lender, as of December 31, 2019, the December 2, 2019 Note was not considered a derivative. On June 1, 2020, the Company repaid the remaining balance of the December 2, 2019 note, of $55,824, which includes ~~$378~~principal, interest and prepayment penalty, leaving a balance of ~~accrued interest.~~zero. The prepayment penalty of $16,528 was included in interest expense for the quarter ended June 30, 2020.
On December 5, 2019 the Company issued a convertible promissory note (the “December 5, 2019 Note”) in the amount of $53,000 at which time the Company received of $50,000, and the remaining $3,000 was retained by the lender to cover legal and administrative cost. The proceeds were used to cover operational expenses. The December 5, 2019 Note bore interest at a rate of 10% per year, had a maturity date of December 5, 2020, and was convertible into common stock 180 days after issuance. The conversion price was calculated as a 39% discount to the average of the two lowest trading prices during the 20 trading days prior to conversion. Because the conversion feature of the December 5, 2019 Note was not available to the lender, as of December 31, 2019, the December 5, 2019 Note was not considered a derivative. On June 3, 2020, the Company repaid the remaining balance of the December 2, 2019 note, of $77,859, which includes principal, interest and prepayment penalty, leaving a balance of zero. The prepayment penalty of $22,988 was included in interest expense for the quarter ended June 30, 2020.
9.    NOTES PAYABLE
Related Party Notes Payable
On August 3, 2017, the Company issued a promissory note (the “August 3, 2017 Note”) in the amount of $25,000, at which time the entire balance of $25,000 was received to cover operational expenses. The August 3, 2017 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the August 3, 2017 Note, as ofSeptember 30, ~~2019~~2020 is ~~$27,897,~~$28,952, which includes ~~$2,699~~$3,952 of accrued interest.
On August 15, 2017, the Company issued a promissory note (the “August 15, 2017 Note”) in the amount of $34,000, at which time the entire balance of $34,000 was received to cover operational expenses. The August 15, 2017 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the August 15, 2017 Note, as ofSeptember 30, ~~2019~~2020 is ~~$37,824,~~$39,319 which includes ~~$3,610~~$5,319 of accrued interest.
On August 28, 2017, the Company issued a promissory note (the “August 28, 2017 Note”) in the amount of $92,000, at which time the entire balance of $92,000 was received to cover operational expenses. The August 28, 2017 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the August 28, 2017 Note, as ofSeptember 30, ~~2019~~2020 is ~~$102,032~~$106,228 which includes ~~$9,616~~$14,228 of accrued interest.
On September 28, 2017, the Company issued a promissory note (the “September 28, 2017 Note”) in the amount of $63,600, at which time the entire balance of $63,600 was received to cover operational expenses. The September 28, 2017 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the September 28, 2017 Note, as ofSeptember 30, ~~2019~~2020 is ~~$69,995,~~$73,166, which includes ~~$6,377~~$9,566 of accrued interest.
On October 11, 2017, the Company issued a promissory note (the “October 11, 2017 Note”) in the amount of $103,500, at which time the entire balance of $103,500 was received to cover operational expenses. The October 11, 2017 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the October 11, 2017 Note, as ofSeptember 30, ~~2019~~2020 is ~~$113,694,~~$118,883, which includes ~~$10,194~~$15,383 of accrued interest.
On October 27, 2017, the Company issued a promissory note (the “October 27, 2017 Note”) in the amount of $106,000, at which time the entire balance of $106,000 was received to cover operational expenses. The October 27, 2017 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the October 27, 2017 Note, as ofSeptember 30, ~~2019~~2020 is ~~$116,208,~~$121,522, which includes ~~$10,207~~$15,522 of accrued interest.
On November 15, 2017, the Company issued a promissory note (the “November 15, 2017 Note”) in the amount of $62,000, at which time the entire balance of $62,000 was received to cover operational expenses. The November 15, 2017 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the November 15, 2017 Note, as ofSeptember 30, ~~2019~~2020 is ~~$67,809,~~$70,918, which includes ~~$5,809~~$8,918 of accrued interest.
On November 27, 2017, the Company issued a promissory note (the “November 27, 2017 Note”) in the amount of $106,000, at which time the entire balance of $106,000 was received to cover operational expenses. The November 27, 2017
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Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the November 27, 2017 Note, as ofSeptember 30, ~~2019~~2020 is ~~$115,758,~~$121,072, which includes ~~$9,758~~$15,072 of accrued interest.
On November 30, 2017, the Company issued a promissory note (the “November 30, 2017 Note”) in the amount of $30,000, at which time the entire balance of $30,000 was received to cover operational expenses. The November 30, 2017 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the
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~~effective date. The balance of the November 30, 2017 Note, as ofSeptember 30, 2019is $32,749, which includes $2,749 of accruedinterest.~~
On December 19, 2017, the Company issued a promissory note (the “December 19, 2017 Note”) in the amount of $42,000, at which time the entire balance of $42,000 was received to cover operational expenses. The December 19, 2017 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the December 19, 2017 Note, as ofSeptember 30, ~~2019~~2020 is ~~$45,740,~~$47,845, which includes ~~$3,740~~$5,845 of accrued interest.
On January 3, 2018, the Company issued a promissory note (the “January 3, 2018 Note”) in the amount of $49,000, at which time the entire balance of $49,000 was received to cover operational expenses. The January 3, 2018 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the January 3, 2018 Note, as ofSeptember 30, ~~2019~~2020 is ~~$53,262,~~$55,719, which includes ~~$4,262 of accrued interest.~~
On January 30, 2018, the Company issued a promissory note (the “January 30, 2018 Note”) in the amount of $72,000, at which time the entire balance of $72,000 was received to cover operational expenses. The January 30, 2018 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the January 30, 2018 Note, as of~~September 30, 2019is $77,997, which includes $5,997 of accrued interest.~~
On February 1, 2018, the Company entered into an amended purchase agreement and promissory note with Mr. Parscale, which facilitated the closing of the Parscale Media acquisition and established a revised payment arrangement, under which the Company agreed to pay Mr. Parscale $1,000,000 in twelve equal installments, which includes 4% interest. On November 20, 2018, the Company exchanged the remaining balance of the Parscale Media Note for an equal amount owed by Mr. Parscale to the Company. As of November 20, 2018, the balance on the Parscale Media Note was zero.
On February 2, 2018, the Company issued a promissory note (the “February 2, 2018 Note”) in the amount of $85,000, at which time the entire balance of $85,000 was received to cover operational expenses. The February 2, 2018 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the February 2, 2018 Note, as of~~September 30, 2019is $92,045, which includes $7,045 of accrued interest.~~
On July 23, 2019, the Company issued a promissory note (the “July 23, 2019 Note”) in the amount of $25,000, at which time the entire balance of $25,000 was received to cover operational expenses. The July 23, 2019 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the July 23, 2019 Note, as of~~September 30, 2019is $25,236, which includes $236 of accrued interest.~~
On August 20, 2019, the Company issued a promissory note (the “August 20, 2019 Note”) in the amount of $10,000, at which time the entire balance of $10,000 was received to cover operational expenses. The August 20, 2019 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the August 20, 2019 Note, as of~~September 30, 2019is $10,056, which includes $56 of accrued interest.~~
On August 28, 2019, the Company issued a promissory note (the “August 28, 2019 Note”) in the amount of $18,500, at which time the entire balance of $18,500 was received to cover operational expenses. The August 28, 2019 Note bears interest at a rate of 5% per year and is payable upon demand, but in no event later than 36 months from the effective date. The balance of the August 28, 2019 Note, as of~~September 30, 2019is $18,584, which includes $84~~$6,719 of accrued interest.
As ofSeptember 30, ~~2019~~2020, and December 31, ~~2018,~~2019, the notes payable due to related parties totaled ~~$1,006,886~~$783,626 and ~~$920,470,~~$1,018,524, respectively.
On January 17, 2020, the Company exchanged the below related party notes payable for 2,597 shares of Series G preferred stock. The table includes the balances of each note, on the date of the exchange. During the quarter ended June 30, 2020, the Company included $560 in interest expense, related to the exchanged notes. As of June 30, 2020, the balances of the exchanged notes were zero.
Note Date Principal Accrued Interest Total Due Gain on Exchange Series G Preferred Shares
November 30, 2017 $ 30,000 $ 3,197 $ 33,197 $ 70 $ 331
January 30, 2018 72,000 7,072 79,072 168 789
February 1, 2018 85,000 8,314 93,314 198 931
July 23, 2019 25,000 610 25,610 58 256
August 20, 2019 10,000 205 10,205 23 102
August 28, 2019 18,500 360 18,860 43 188
Total $ 240,500 $ 19,758 $ 260,258 $ 560 $ 2,597
Third Party Notes Payable
On June 29, 2018, the Company issued a promissory note (the “June 2018 Note”), in the amount of $750,000, at which time the Company received $735,000. The remaining $15,000 was retained by the lender as an origination fee. On February 28, 2019 the promissory note was refinanced, and the balance increased to $1,000,000 (the “February 28, 2019 Note”). As of the date of closing the lender withheld $25,443 from the $375,000 balance increase as an origination fee, netting $349,557 to the Company, and on April 3, 2019 the Company received the remaining $250,000. The February 28, 2019 Note bears interest at a rate of 18% per year and is amortized over 12 months. During the nine months ended September 30, ~~2019,~~2020, the Company made payments totaling ~~$559,794,~~$142,735, and included ~~$92,157~~$63,818 in interest expense related to this note. As ofSeptember 30, ~~2019~~2020, the outstanding balance on the February 28, 2019 Note was ~~$506,919.~~$428,002. The company is not in default on this note.
On May 5, 2020, the Company issued a promissory note (the “May 2020 Note”) in the amount of $780,680, at which time the entire balance of $780,680 was received to cover payroll and other operating expenses. This May 2020 Note was issued through the Small Business Administration Paycheck Protection Program (the “PPP Program”), and bears interest at a rate of 1% per year. The PPP Program loans allow a deferment period of 6 months, which would require payments to be made starting November 5, 2020. Although we anticipate that this loan will be forgiven, based on the terms of the PPP Program, we have included the balance on the Balance Sheet as Notes Payable. As of September 30, 2020, the balance on the May 2020 Note was $783,846, which includes $3,166 of accrued interest.
10.  DERIVATIVE LIABILITIES
~~The~~During the prior year, the Company determined that the convertible notes outstanding as of ~~September 30,~~December 31, 2019 contained an embedded derivative ~~instrument~~instruments as the conversion price was based on a variable that was not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 – 40.
During the quarter ended June 30,
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2020, all convertible notes that contained embedded derivative instruments were converted, leaving a derivative liability balance of zero. As of September 30, 2020, the Company had a single convertible note (see footnote 8), which is convertible at a fixed price and therefore does not contain an embedded derivative.

The Company determined the fair values of the embedded convertible notes derivatives and tainted convertible notes using the lattice valuation model. The balance of the fair value of the derivative liability as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 is as follows:

Balance at December 31, 2018 $ —
Additions 437,294
Conversions (102,293 )
Fair value gain (121,390 )
Balance at September 30, 2019 $ 213,611
Balance at December 31, 2019 $ 342,850
Additions due to new convertible notes 127,273
Reduction due to conversions and adjustments (339,105 )
Mark-to-market adjustment (131,018 )
Balance at September 30, 2020 $ —

During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company incurred losses of $0 and $0, respectively, on the conversion of convertible notes. In connection with the convertible notes, for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company recorded ~~$31,168~~$9,295 and ~~$10,514,~~$31,168, respectively, of interest expense and ~~$113,970~~$260,140 and ~~$0,~~$113,970, respectively, of debt discount amortization expense. As of September 30, ~~2019~~2020, and December 31, ~~2018,~~2019, the Company had approximately ~~$66,532~~zero and ~~$35,363,~~$57,964, respectively, of accrued interest related to the convertible ~~notes.~~notes that contained embedded derivative.

11.  CAPITAL STOCK
At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s authorized stock consists of 2,000,000,000 shares of common stock, par value $0.001 per ~~share. The Company is also authorized to issue~~share, and 5,000,000 shares of preferred stock, par value of $0.001 per share.  The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares. The conversion of certain outstanding preferred stock could have a significant impact on our common stockholders. As of the date of this report, the Board has designated Series A, Series B, Series C, Series D, Series E, Series F, and Series EG Preferred Stock.
Series A Preferred
The Company has designated 10,000 shares of its preferred stock as Series A Preferred Stock. Each share of Series A Preferred Stock is convertible into 10,000 shares of the Company’s common stock. The holders of outstanding shares of Series A Preferred Stock are entitled to receive dividends, payable quarterly, out of any assets of the Corporation legally available therefor, at the rate of $8 per share ~~per annum,~~annually, payable in preference and priority to any payment of any dividend on the common stock. As of September 30, ~~2019,~~2020, the Company has 10,000 shares of Series A Preferred Stock outstanding.During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we paid dividends of $20,000 and ~~$40,000,~~$20,000, respectively, to the holders of Series A Preferred stock. As of September 30, ~~2019,~~2020, the balance owed on the Series A Preferred stock dividend was ~~$40,000.~~$120,000.
Series B Preferred
The Company has designated 25,000 shares of its preferred stock as Series B Preferred Stock. Each share of Series B Preferred Stock has a stated value of $100. The Series B Preferred Stock is convertible into shares of ~~fully paid and non-assessable shares of~~ the Company's common stock in amount determined by dividing the stated value by a conversion price of $0.004 per share. The Series B Preferred Stock ~~shall~~does not ~~be entitled~~have voting rights except as required by law and with respect to ~~vote, as a separate class or otherwise, on any matter presented to~~certain protective provisions set forth in the ~~stockholders~~Certificate of ~~the Company for their action or consideration at any meeting~~Designation of ~~stockholders of the Company.~~Series B Preferred Stock. As of September 30, ~~2019,~~2020, the Company has 18,025 shares of Series B Preferred Stock outstanding.
Series C Preferred
The Company has designated 25,000 shares of its preferred stock as Series C Preferred Stock. Each share of Series C Preferred Stock has a stated value of $100. The Series C Preferred Stock is convertible into shares of ~~fully paid and non-assessable shares of~~ the Company's common stock by dividing the stated value by a conversion price of $0.01 per share. The Series C Preferred Stock ~~shall~~does not ~~be entitled~~have voting rights except as required by law and with respect to ~~vote, as a separate class or otherwise, on any matter presented to~~certain protective provisions set forth in the ~~stockholders~~Certificate of ~~the Company for their action or consideration at any meeting~~Designation of ~~stockholders of the Company.~~Series C Preferred Stock. As of September 30, ~~2019,~~2020, the Company has 14,425 shares of Series C Preferred Stock outstanding.
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Series D Preferred
The Company has designated 90,000 shares of its preferred stock as Series D Preferred Stock. Each share of Series D Preferred Stock has a stated value of $100. The Series D Preferred Stockis convertible into common stock at a ratio of 2,500 shares of common stock per share of preferred stock, and pays a quarterly dividend, calculated as (1/90,000) x (5% of the Adjusted Gross Revenue) of the Company’s subsidiary Parscale Digital.Adjusted Gross Revenue shall mean the top line gross revenue of Parscale Digital, as calculated under GAAP (generally accepted accounting principles) less any reselling revenue attributed to third party advertising products or service, such as, but not limited to, search engine keyword campaign fees, social media campaign fees, radio or television advertising fees, and the like. The Series D Preferred Stock ~~shall~~does not ~~be entitled~~have voting rights except as required by law and with respect to ~~vote, as a separate class or otherwise, on any matter presented to~~certain protective provisions set forth in the ~~stockholders~~Certificate of ~~the Company for their action or~~
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~~consideration at any meeting~~Designation of ~~stockholders of the Company.~~Series D Preferred Stock. As of September 30, ~~2019,~~2020, the Company ~~has~~had 90,000 shares of Series D Preferred Stock outstanding. During the nine months ended September 30, ~~2019,~~2020, and ~~2018,~~2019, we paid dividends of zero, and ~~$97,610~~zero respectively, to the holders of Series D Preferred stock. As of September 30, ~~2019,~~2020, the balance owed on the Series D Preferred stock dividend was ~~$200,872~~$237,664, $12,116 of which relates to the quarter ended September 30, 2020.
Series E Preferred
The Company has designated 10,000 shares of its preferred stock as Series E Preferred Stock. Each share of Series E Preferred Stock has a stated value of $100. The Series E Preferred Stock is convertible into shares of ~~fully paid and non-assessable shares of~~ the Company's common stock in an amount determined by dividing the stated value by a conversion price of $0.05 per share. The Series E Preferred Stock ~~shall~~does not ~~be entitled~~have voting rights except as required by law and with respect to ~~vote, as a separate class or otherwise, on any matter presented to~~certain protective provisions set forth in the ~~stockholders~~Certificate of ~~the Company for their action or consideration at any meeting~~Designation of ~~stockholders of the Company.~~Series E Preferred Stock. As of September 30, ~~2019,~~2020, the Company has 10,000 shares of Series E Preferred Stock outstanding.
Series F Preferred
The Company has designated 800,000 shares of its preferred stock as Series F Preferred Stock. Each share of Series F Preferred Stock has a stated value of $25. The Series F Preferred Stock is not convertible into common stock. The holders of outstanding shares of Series F Preferred Stock are entitled to receive dividends, at the annual rate of 10%, payable monthly, payable in preference and priority to any payment of any dividend on the Company’s common stock. The Series F Preferred Stock does have voting rights, except as required by law and with respect to certain protective provisions set forth in the Certificate of Designation. To the extent it may lawfully do so, the Company may, in its sole discretion, after the first anniversary of the original issuance date of the Series F Preferred Stock, redeem any or all of the then outstanding shares of Series F Preferred Stock at a redemption price of $25 per share plus any accrued but unpaid dividends. The Series F Preferred Stock is being offered in connection with the Company’s offering under Regulation A under the Securities Act of 1933, as amended. As of September 30, 2020, the Company had 2,413 shares of Series F Preferred Stock outstanding.
Series G Preferred
On February 6, 2020, the Company designated 2,600 shares of its preferred stock as Series G Preferred Stock. Each share of Series G Preferred Stock has a stated value of $100. The Series G Preferred Stock is convertible into shares of the Company's common stock in an amount determined by dividing the stated value by a conversion price of $0.0019 per share. The Series G Preferred Stock does not have voting rights except as required by law and with respect to certain protective provisions set forth in the Certificate of Designation of Series G Preferred Stock. As of September 30, 2020, the Company had 2,597 shares of Series G Preferred Stock outstanding.
12.  STOCK OPTIONS AND WARRANTS
Stock Options
On July 10, 2003, the Company adopted the Warp 9, Inc. Stock Option Plan for directors, executive officers, and employees of and key consultants to the Company. Pursuant to the now terminated plan, the Company could issue 5,000,000 shares of common stock. The plan was administered by the Company’s Board of Directors, and options granted under the plan could be either incentive options or nonqualified options. Each option was exercisable in full or in installment and at such time as designated by the Board. Notwithstanding any other provision of the plan or of any option agreement, each option expired on the date specified in the option agreement, which date was to be no later than the tenth anniversary of the date on which the option was granted (fifth anniversary in the case of an incentive option granted to a greater-than-10% stockholder). The purchase price per share of the common stock under each incentive option was to be no less than the fair market value of the common stock on the date the option was granted (110% of the fair market value in the case of a greater-than-10% stockholder). The purchase price per share of the common stock under each nonqualified option was to be specified by the Board at the time the option is granted, and could be less than, equal to or greater than the fair market value of the shares of common stock on the date such nonqualified option was granted, but was to be no less than the par value of shares of common stock. The plan provided specific language as to the termination of options granted thereunder. Currently, there are no outstanding options issued under the plan.
~~The following options were issued outside of the Warp 9, Inc. Stock Option Plan:~~
On August 1, 2017, we granted non-qualified stock options to purchase up to 10,000,000 shares of our common stock to a key employee, at aan exercise price of $0.01 per share. The stock options vest equally over a period of 36 months and expire August 1, 2022. These options allow the optionee to exercise on a cashless basis, resulting in no cash payment to the company upon exercise. If the optionee exercises on a cashless basis, then the above water value (difference between the option price and the fair market price at the time of exercise) is used to purchase shares of common stock. Under this method, the number of shares of common stock issued will be less than the number of options used to obtain those shares of common stock. OnDuring the quarter ended September 30, 2018, the employee exercised, on a cashless basis, 3,324,201 options, resulting in the issuance of 1,233,509 shares of common stock.
On September 18, 2017, we granted non-qualified stock options to purchase up to 1,800,000 shares of our common stock to three key employees, at aan exercise price of $0.05 per share.The stock options vest equally over a period of 36 months and expire September 18, 2022.These options allow the optionee to exercise on a cashless basis, resulting in no cash payment to the company upon exercise.During the year ended December 31, 2019, two of the employees who held
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1,200,000 options, collectively, left the company and the options were forfeited, and during the period ended June 30, 2020, a key employee who held 600,000 options left the Company and the options were forfeited.
On January 3, 2018, we granted non-qualified stock options to purchase up to 20,000,000 shares of our common stock to ~~three~~nine key employees, at aan exercise price of $0.04 per share.The stock options vest equally over a period of 36 months and expire January 3, 2023.These options allow the optionee to exercise on a cashless basis, resulting in no cash payment to the Company upon exercise.
On January 17, 2020, we granted non-qualified stock options to purchase up to 283,000,000 shares of our common stock to ten key employees and nine directors, at an exercise price of $0.0019 per share. The stock options vest equally over a period of 36 months and expire January 17, 2025. These options allow the optionee to exercise on a cashless basis, resulting in no cash payment to the Company upon exercise, anytime after January 17, 2021.
On June 2, 2020, we granted non-qualified stock options to purchase up to 17,000,000 shares of our common stock to a director, at an exercise price of $0.0018 per share. The stock options vest equally over a period of 36 months and expire June 2, 2025. These options allow the optionee to exercise on a cashless basis, resulting in no cash payment to the Company upon exercise, anytime after June 2, 2021.
The Company used the historical industry index to calculate volatility, since the Company’s stock history did not represent the expected future volatility of the Company’s common stock. The fair value of options granted during the nine months ending September 30, ~~2019~~2020 and ~~2018,~~2019, were determined using the Black Scholes method with the following assumptions:
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Nine months ~~Ended~~ended Nine months ~~Ended~~ended
September 30, ~~2019~~2020 September 30, ~~2018~~2019
Risk free interest rate —  1.86 % —   ~~5.00~~ %
Stock volatility factor —  272 % —   ~~397~~ %
Weighted average expected option life —  5 years ~~5 years~~—
Expected dividend yield —  0 % ~~none~~—

A summary of the Company’s stock option activity and related information follows:
Nine months Ended
September 30, 2019 Nine months Ended
September 30, 2018 Nine months ended
September 30, 2020 Nine months ended
September 30, 2019
Weighted Weighted Weighted Weighted
average average average average
exercise exercise exercise exercise
Options price Options price Options price Options price
Outstanding - beginning of period 151,475,799 $ 0.017 154,800,000 $ 0.017 150,275,799 $ 0.0160 154,800,000 $ 0.017
Granted —   $ —   —   $ —   300,000,000 $ 0.0018 —   —
Exercised —   $ —   (3,324,201 ) $ 0.010 —   —   (3,324,201 ) $ 0.010
Forfeited —   $ —   —   $ —   (600,000 ) —   —   —
Outstanding - end of period 151,475,799 $ 0.017 151,475,799 $ 0.017 449,675,799 $ 0.0067 151,475,799 $ 0.017
Exercisable at the end of period 139,708,310 $ 0.015 129,108,310 $ 0.014 216,242,922 $ 0.0116 129,108,310 $ 0.014
Weighted average fair value of
options granted during the period $ —   $ 800,000 $ 568,300 $ 800,000

As of September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, the intrinsic value of the stock options was approximately ~~zero~~$1,397,950 and ~~$212,950,~~zero, respectively. Stock option expense for the nine months ended September 30, ~~2019~~2020, and ~~2018~~2019 were ~~$246,822~~$344,665 and ~~$396,004,~~$246,822, respectively.
The Black Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions
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can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
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The weighted average remaining contractual life of options outstanding, as of September 30, ~~2019~~2020 was as follows:
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
$ 0.050 1,800,000 2.97
$ 0.040 20,000,000 3.26
$ 0.015 35,000,000 2.90
$ 0.013 60,000,000 2.35
$ 0.013 15,000,000 2.47
$ 0.010 6,675,799 2.84
$ 0.005 12,500,000 2.87
$ 0.004 500,000 2.04
151,475,799
Weighted
Average
Number of remaining
Exercise options contractual
prices outstanding life (years)
$ 0.0400 20,000,000 2.26
$ 0.0150 35,000,000 1.90
$ 0.0131 60,000,000 1.35
$ 0.0130 15,000,000 1.47
$ 0.0100 6,675,799 1.84
$ 0.0053 12,500,000 1.87
$ 0.0040 500,000 1.03
$ 0.0019 283,000,000 4.30
$ 0.0018 17,000,000 4.67
449,675,799
Warrants
During the fiscal year ended December 31, 2019 the Company entered into a consulting agreement related to our offering under Regulation A. The Company agreed to pay a consultant a monthly fee, plus a warrant to purchase 10,000,000 shares of the Company’s capital stock on a cashless basis. The warrant was issued at a price of $0.0067 per share. As of September 30, 2020, and December 31, 2019, there were 10,000,000 and 10,000,000 warrants outstanding, respectively.
The fair value of warrants granted during the year ended December 31, 2019 and 2018, were determined using the Black Scholes method with the following assumptions:
Nine months ended Year Ended
September 30, 2020 December 31, 2019
Risk free interest rate —   1.86 %
Stock volatility factor —   272 %
Weighted average expected warrant life —   10 years
Expected dividend yield —   0 %
A summary of the Company’s warrant activity and related information follows:
Nine months ended
September 30, 2020 Year Ended
December 31, 2019
Weighted average Weighted average
Warrants exercise price Warrants exercise price
Outstanding - beginning of period 10,000,000 $ 0.0067 —   $ —
Issued —   $ —   10,000,000 $ 0.0067
Exercised —   $ —   —   $ —
Forfeited —   $ —   —   $ —
Outstanding - end of period 10,000,000 $ 0.0067 10,000,000 $ 0.0067
Exercisable at the end of period 10,000,000 $ 0.0067 10,000,000 $ 0.0067
Weighted average fair value of
warrants granted during the period $ —   $ 67,000
Warrant expense for the nine months ended September 30, 2020, and 2019 ~~and 2018, the Company issued no warrants for services.~~were both zero.
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13.  RELATED PARTIES
Bountiful Capital, LLC, loaned the Company $100,000 on January 12, 2016, $500,000 through multiple fundings on the April 2016 Note, $500,000 through multiple fundings on the October 2016 Note, $38,000 on May 16, 2017, $46,000 on May 30, 2017, $26,000 on June 14, 2017, $23,500 on June 29, 2017, $105,000 on July 10, 2017, $50,500 on July 14, 2017, $53,500 on July 30, 2017, $25,000 on August 3, 2017, $34,000 on August 16, 2017, $92,000 on August 28, 2017, $63,600 on September 28, 2017, $103,500 on October 11, 2017, $106,000 on October 27, 2017, $62,000 on November 15, 2017, $106,000 on November 27, 2017, $30,000 on November 30, 2017, $42,000 on December 19, 2017, $49,000 on January 3, 2018, $72,000 on January 30, 2018, $85,000 on February 2, 2018, $25,000 on July 23, 2019, $10,000 on August 20, 2019 and $18,500 on August 28, 2019, as unsecured promissory notes (the “Bountiful Notes”). The terms of the Bountiful Notes include interest of 5% and are due and payable upon demand, but in no case later than 36 months after the effective date. On July 31, 2017, notes payable amounting to $1,442,500 and accrued interest of $43,414 were converted into 14,425 shares of Series C preferred stock. On January 17, 2020, notes payable amounting to $240,500 and accrued interest of $19,758 were converted into 2,597 shares of Series G preferred stock. AtSeptember 30, ~~2019~~2020 and December 31, ~~2018~~2019, principal on the Bountiful Notes and accrued interest totaled $~~1,006,886~~783,626 and ~~$920,470~~$1,018,524. The Company’s chief financial officer, Greg Boden, also serves as the president of Bountiful Capital, LLC.
Brad Parscale ~~has~~ served on the board of directors of the Company ~~since~~from the acquisition of Parscale Creative on August 1, ~~2017.~~2017 until his resignation on December 10, 2019. Mr. Parscale is also the owner of Parscale Strategy, ~~LLC (“Parscale Strategy”), the largest customer of Parscale Digital.~~LLC. During the nine months endedSeptember 30, ~~2019~~2020 and ~~2018,~~2019, the Company earned ~~$194,492~~$3,640 and ~~$2,562,290,~~$194,492, respectively, in revenue from providing services to Parscale Strategy, and as ofSeptember 30, ~~2019~~2020 and December 31, ~~2018,~~2019, Parscale Strategy had an outstanding accounts receivable of ~~$32,046~~zero and ~~$78,753,~~$5,417, respectively.
On August 1, 2017, Parscale Digital signed a lease with Giles-Parscale, Inc., a related party, to provide a workplace for the employees of Parscale Digital. Giles-Parscale, Inc., is wholly owned by Jill Giles, an employee of the Company. Details on this lease are included in Note ~~14.~~15.
On August 1, 2017, Parscale Digital signed a lease with Parscale Strategy for computer equipment and office furniture. Parscale Strategy is wholly owned by Brad ~~Parscale, who serves on the CloudCommerce board of directors.~~Parscale. Details of this lease are included in Note ~~14.~~
On April 28, 2018, Data Propria entered into an agreement to lease approximately 2,073 square feet of office space located at 311 Sixth Street, San Antonio, TX 78215, for a period of twelve months, commencing May 1, 2018, at a cost of $4,000 per month, plus a pro rata share of building maintenance expenses. This lease was signed with a related party, Jill Giles, an employee of the Company. Upon expiration the company did not renew this lease.15.
As of September 30, ~~2019,~~2020, we had convertible notes in the amount of ~~$296,852~~$181,363 with a relative of a shareholder that owns in excess of 5%. of our common stock. We believe that the terms of those convertible notes are consistent with arm’s length transactions.
14. CONCENTRATIONS
For the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company had ~~one~~three and one major customers who represented
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approximately ~~13%~~52% and ~~37%~~13% of total revenue, respectively. At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, accounts receivable from ~~two~~three and two customers, represented approximately ~~46%~~34% and ~~19%~~46% of total accounts receivable, respectively. The customers comprising the concentrations within the accounts receivable are not the same customers that comprise the concentrations with the revenues discussed above.
15.  COMMITMENTS AND CONTINGENCIES
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases” Topic 842, which amends the guidance in former ASC Topic 840, Leases. The new standard increases transparency and comparability most significantly by requiring the recognition by lessees of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for all leases longer than 12 months. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. For lessees, leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement, over the expected term on a straight-line basis. Operating leases are recognized on the balance sheet as right-of-use assets, current operating lease liabilities and non-current operating lease liabilities. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on our ~~condensed~~ consolidated balance sheets. Finance leases are included in property and equipment, current liabilities, and long-term liabilities on our ~~condensed~~ consolidated balance sheets.
The Company adopted the new lease guidance effective January 1, 2019 using the modified retrospective transition approach, applying the new standard to all of its leases existing at the date of initial application which is the effective date of adoption. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The Company has elected the practical expedient to combine lease and non-lease components as a single component. We did not elect the hindsight practical expedient which permits
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entities to use hindsight in determining the lease term and assessing impairment. The adoption of the lease standard did not change our previously reported ~~condensed~~ consolidated statements of operations and did not result in a cumulative catch-up adjustment to opening equity. As of September 30, ~~2019,~~2020, the company recognized ROU assets of ~~$306,210~~$196,247 and lease liabilities of ~~$307,476.~~$196,247.
The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes its incremental borrowing rate of 10%, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. In calculating the present value of the lease payments, the Company elected to utilize its incremental borrowing rate based on the remaining lease terms as of the January 1, 2019 adoption date.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Our leases have remaining lease terms of 1 year to 3 years, some of which include options to extend the lease term for up to an undetermined number of years.
Operating Leases
As a result of the WebTegrity acquisition, we assumed a lease for office space used by the WebTegrity employees, at 14603 Huebner Road, Suite 3402, San Antonio, TX 78230. The lease was executed on March 20, 2017 for a period of 36 months, commencing March 20, 2017, at a rate of $2,750 per month from April 1, 2017 through March 31, 2018, $2,950 per month from April 1, 2018 through March 31, ~~2019,~~2020, and $3,150 per month from April 1, 2019 through March 31, 2020. As of ~~September 30,~~December 31, 2019, ~~it has been determined that~~ the Company will not attempt to extend this lease past the March 31, 2020 expiration date. This lease does not include a residual value guarantee, nor do we expect any material exit costs. As of January 1, 2019, we determined that this lease meets the criterion to be classified as a ROU Asset and is included on the balance sheet as Right-Of-Use Assets. As of ~~September~~October 15, 2019, the Company vacated this office space and moved to the 321 Sixth Street, San Antonio, TX location. The landlord relieved the Company of any further liability by leasing the space to another party. As of March 30, ~~2019,~~2020, the ROU asset and liability balances of this lease were ~~$17,094~~zero and ~~$18,361,~~zero, respectively.
On August 1, 2017, Parscale Digital signed a lease agreement with Giles-Parscale, Inc., a related party, which commenced on August 1, 2017, for approximately 8,290 square feet, at 321 Sixth Street, San Antonio, TX 78215, for $9,800 per month, plus a pro rata share of the common building expenses. The lease expires on July 31, 2022. As of September 30, ~~2019,~~2020, it is unclear whether we will attempt to extend this lease beyond the July 31, 2022 expiration date. However, because the lease expiration is greater than twelve months, the lease liability is included on the Balance Sheet as Right-of-use lease. This lease does not include a residual value guarantee, nor do we expect any material exit costs. As of January 1, 2019, we determined that this lease meets the criterion to be classified as a ROU Asset and is included on the balance sheet as Right-Of-Use Assets. As of September 30, ~~2019,~~2020, the ROU asset and liability balances of this lease were ~~$289,115~~$196,247 and ~~$289,115,~~$196,247, respectively.
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On October 24, 2017, we executed a lease agreement for office space located at 1933 Cliff Drive, Santa Barbara, CA, commencing March 1, 2018 for a period of 36 months, at a rate of $2,795 per month, plus a pro rata share of the common area maintenance. As of September 31, 2018, the Company vacated this office space and the landlord relieved the Company of any further liability by leasing the space to another party. As of September 30, 2018, the Company moved its headquarters to 321 Sixth Street in San Antonio, Texas.
On February 12, 2018, we executed a lease agreement for office space at 1415 Park Avenue West, Denver, CO 80205, expiring August 14, 2018, at a cost of $800 per month. This lease was cancelled on September 30, 2018, at no cost to the Company.
On April 28, 2018, Data Propria entered into an agreement to lease approximately 2,073 square feet of office space located at 311 Sixth Street, San Antonio, TX 78215, for a period of twelve months, commencing May 1, 2018, at a cost of $4,000 per month, plus a pro rata share of building maintenance expenses. This lease was signed with a related party, Jill Giles, an employee of the Company. The Company did not extend this lease upon expiration on April 30, 2019.
Total operating lease expense for the nine months ended September 30, 2020 and 2019 was $70,511 and ~~2018 was~~ $134,093, ~~and $118,957,~~ respectively. The Company is also required to pay its pro rata share of taxes, building maintenance costs, and insurance in according to the lease agreement.
On May 21, 2014, the Company entered into a settlement agreement with the landlord of our previous location at 6500 Hollister Ave., Goleta, CA, to make monthly payments on past due rent totaling $227,052. Under the terms of the agreement, the Company will make monthly payments of $350 on a reduced balance of $40,250. Upon payment of $40,250, the Company will record a gain on extinguishment of debt of $186,802. As of September 30, ~~2019,~~2020, the Company recorded the outstanding balance under this settlement agreement as a long-term accrued expense, with the current portion of the debt recorded in accrued expenses. As of September 30, ~~2019,~~2020, and December 31, ~~2018,~~2019, the Company owed ~~$17,500~~$14,000 and ~~$21,000~~$16,450 on the outstanding reduced payment terms, respectively.
The Company is required to pay its pro rata share of taxes, building maintenance costs, and insurance in accordance with the operating lease agreements of Parscale Digital, WebTegrity, and Data Propria.
Finance Leases
On August 1, 2017, Parscale Digital signed a lease agreement with Parscale Strategy, a related party, for the use of office equipment and furniture. The lease provides for a term of thirty-six (36) months, at a monthly payment of $3,000, and an option topurchase all items at the end of the lease for one dollar. It is certain that the Company will exercise this purchase option. We have evaluated this lease in accordance with ASC 840-30 and determined that it meets the definition of a finance lease.
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The following is a schedule of the net book value of the finance lease.
Assets September 30, 2019 December 31, 2018 September 30, 2020 December 31, 2019
Leased equipment under finance lease, $ 100,097 $ 100,097 $ 100,097 $ 100,097
less accumulated amortization (53,799 ) (35,176 ) (78,630 ) (60,007 )
Net $ 46,298 $ 64,921 $ 21,467 $ 40,090

Liabilities September 30, 2019 December 31, 2018
Obligations under finance lease (current) $ 29,324 $ 34,039
Obligations under finance lease (noncurrent) —   20,654
Total $ 29,324 $ 54,693
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Liabilities September 30, 2020 December 31, 2019
Obligations under finance lease (current) $ —   $ 20,654
Obligations under finance lease (noncurrent) —   —
Total $ —   $ 20,654

Below is a reconciliation of leases to the financial statements.
ROU Operating Leases Finance Leases ROU Operating Leases Finance Leases
Leased asset balance $ 306,210 $ 46,298 $ 196,247 $ 21,467
Liability balance 307,476 29,234 196,247 —
Cash flow (operating) 134,093 —
Cash flow (financing) —   6,000
Cash flow (non-cash) 70,511 —
Interest expense $ 26,624 $ 1,631 $ 17,689 $ 21,467

The following is a schedule, by years, of future minimum lease payments required under the operating and finance leases.

Years Ending
December 31, ROU Operating Leases Finance Leases
2020 $ 29,400 $ —
2021 117,600 —
2022 68,600 —
2023 —   —
Thereafter —   —
Total $ 215,600 $ —
Less imputed interest (19,353 ) —
Total liability $ 196,247 $ —
Years Ending
December 31, ROU Operating Leases Finance Leases
2019 * $ 38,850 $ 9,000
2020 127,050 21,000
2021 117,600 —
2022 68,600 —
2023 —   —
Thereafter —   —
Total $ 352,100 $ 30,000
Less imputed interest (44,624 ) (676 )
Total liability $ 307,476 $ 29,324
~~_______________~~
* Excludes nine months ended September 30, 2019
Other information related to leases is as follows:
Lease Type Weighted Average Remaining Term Weighted Average Discount Rate (1)
Operating Leases
~~2.8 years~~
    22 months 10 %
Finance Leases ~~0.8 years~~      0 months 10 %
_____________
(1) This discount rate is consistent with our borrowing rates from various lenders.
Legal Matters
The Company may be involved in legal actions and claims arising in the ordinary course of business, from time to time, none of which at this time the ~~time are considered~~Company considers to be material to the Company’s business or financial condition.
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16. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
During the nine months ended September 30, 2020, there were the following non-cash activities.
- Certain lenders converted a total of $291,940 of principal, interest and fees, into 226,300,034 common shares. As a result of these conversions, we recorded a reduction to the derivative liability of $339,105.
- The values of the ROU operating leases assets and liabilities each declined $70,511, netting to zero on the statement of cash flows.
- Recorded an initial derivative discount for notes that became convertible during the period, in the amount of $127,273, which was converted and eliminated.
- Related party debt and interest in the amount of $259,698 was exchanged for 2,597 shares of series G preferred stock. See footnote 9 for the details of this exchange.
During the nine months ended September 30, 2019, there were the following non-cash activities.
- On August 5, 2019, a lender converted a portion of the January 31, 2019 Note into common stock. The conversion included $8,089 of principal, plus $250 of interest, which was converted into 2,550,000 common ~~shares~~shares.
- On September 4, 2019, a lender converted a portion of the January 31, 2019 Note into common stock. The conversion included $8,028 of principal, plus $250 of interest, which was converted into 2,800,000 common ~~shares~~shares.
- On July 17, 2019, a lender converted a portion of the January 16, 2019 Note into common stock. The conversion included $12,000 of principal, plus zero of interest, which was converted into 1,967,213 common ~~shares~~shares.
- On August 27, 2019, a lender converted a portion of the January 16, 2019 Note into common stock. The conversion included $12,000 of principal, plus zero of interest, which was converted into 3,870,968 common ~~shares~~shares.
- On September 4, 2019, a lender converted a portion of the January 16, 2019 Note into common stock. The conversion included $15,000 of principal, plus zero of interest, which was converted into 5,172,414 common ~~stock~~stock.
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- On September 5, 2019, a lender converted a portion of the January 16, 2019 Note into common stock. The conversion included $15,000 of principal, plus zero of interest, which was converted into 5,172,414 common ~~shares~~shares.
- On September 13, 2019, a lender converted a portion of the January 16, 2019 Note into common stock. The conversion included $16,000 of principal, plus zero of interest, which was converted into 6,956,522 common ~~shares~~shares.
- On September 25, 2019, a lender converted a portion of the January 16, 2019 Note into common stock. The conversion included $14,800 of principal, plus zero of interest, which was converted into 7,047,619 common ~~shares~~shares.
- Recorded the initial values of ROU operating leases, which increased ROU assets by $365,460 and operating lease liability by $365,460, netting to zero on the statement of cash flows.
~~During the nine months ended September 30, 2018, there were the following non-cash financing activities:~~
- ~~On February 1, 2018, the Company acquired Parscale Media for $1,000,000 payable by a note over twelve months.~~
- On April 17, 2018, a lender converted a portion of the March 2013 Note into common stock. The conversion included $16,000 of principal, plus $8,106 of interest, which was converted into 6,026,301 common shares.
- ~~On September 30, 2018, an employee exercised, on a cashless basis, 3,324,201 options, resulting in 1,233,509 shares of common stock.~~
17.  SUBSEQUENT EVENTS
Management has evaluated subsequent events according to ASC TOPIC 855 as of the date of the financial statements and has determined that the following subsequent events are reportable.
On October 28, 2019 a lender presented a conversion notice to the Company, which converted $11,300 principle into 7,062,500 shares of common stock. This conversion was in accordance with the terms of the convertible note.
On November 4, 2019 a lender presented a conversion notice to the Company, which converted $6,900 principle plus $5,150 interest into 7,531,250 shares of common stock. This conversion was in accordance with the terms of the convertible note.
- On October 21, 2020, the Company issued a self-amortizing promissory note (the “October 2020 Note”) in the amount of $600,000 at which time the Company received $570,000 and the remaining $30,000 was retained by the lender as an original issue discount. The proceeds were used to pay off the June 2018 Note (see footnote 9), as well as to cover operating expenses. The October 2020 Note bears interest at a rate of 12% per year, and has a maturity date of October 21, 2021, with monthly principal and interest payments commencing approximately 90 days after issuance of the note. The first payment of $61,889 is due January 19, 2021. The October 2020 Note is convertible into common stock only upon a default, such as missing a payment when due. The conversion price is equal to the closing bid price on the day prior to conversion, with no discount off the prior day price. It has not been determined whether the conversion feature of the October 2020 Note qualifies as a derivative instrument, but such analysis will be conducted during the fourth quarter of 2020.
- On October 30, 2020, the Company repaid the remaining balance of the June 2018 Note (see footnote 9), with the proceeds of the October 2020 Note. At the time of the payoff, the principal balance of the June 2018 Note was approximately $428,000.
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~~Item 2.~~ ~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statements
The following Management’s Discussion and Analysis should be read in conjunction with our Consolidated Financial Statements and the related notes thereto as set forth in our Form 10-K for the year ended December ~~31,~~31,2019, and the ~~Condensed~~ Consolidated Financial Statements and notes thereto included in Item 1 of this Quarterly Report ofon form 10-Q. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, herein, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this quarterly report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors including, but not limited to, those noted under the “Risk Factors” section of the reports ~~filed~~we file with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this quarterly report, except as may by required under applicable law.
Overview
CloudCommerce, Inc.(“CloudCommerce,” “we,” “us,” “our,” or the “Company”)is a leading provider of data driven solutions. We develop solutions that help our clients acquire, engage, and retain their customers by leveraging cutting edge digital strategies and technologies. We focus intently on using data analytics to drive the creation of great user experiences and effective digital marketing campaigns. Whether it is creating omni-channel experiences, engaging a specific audience, or energizing voters in political campaigns, we believe data is the key to digital success. Our goal is to become the industry leader by always applying a “data first” strategy and acquiring other companies that can help us achieve this vision.
To better serve our customers and create value for our shareholders, we strategically acquire profitable cloud commerce solutions providers with strong management teams.
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We believe our products and services allow our clients to lower costs and focus on promoting and marketing their brand, product line and website while leveraging the investments we have made in technology and infrastructure to operate a dynamic digital presence.
Data Analytics – Data Propria
To deliver the highest Return on Investment (“ROI”) for our ~~customer’s~~customers’ digital marketing ~~campaign,~~campaigns, we utilize sophisticated data science to identify the correct universes to target relevant audiences. Our ability to understand and translate data drives every decision we make. By listening to and analyzing our customers’ data we are able to make informed decisions that positively impact our customers’ business. We leverage industry-best tools to aggregate and visualize data across multiple sources, and then our data and behavioral scientists segment and model that data to be deployed in targeted marketing campaigns. We have data analytics expertise in retail, wholesale, distribution, logistics, manufacturing, political, and several other industries.
Digital Marketing – Parscale Digital
We help our customers get their message out, educate their market and tell their story. We do so creatively and effectively by deploying powerful call-to-action digital campaigns with national reach, and boosting exposure and validation with coordinated advertising in print media. Our fully-developed marketing plans are founded on sound research methodologies, brand audits and exploration of the competitive landscape. Whether our customer is a challenger brand, a political candidate, or a well-known household name, our strategists are skillful at leveraging data and creating campaigns that move people to make decisions.
Branding and Creative Services – Giles Design Bureau
We approach branding from a “big picture” perspective, establishing a strong identity and then building on that to develop a comprehensive branding program that tells our customer’s story, articulates what sets our customer apart from their competitors and establishes our customer in their market.
Development and Managed Infrastructure Support – WebTegrity
Commerce-focused, user-friendly digital websites and apps elevates our customer’s marketing position and draw consumers to their products and services. Our platform-agnostic approach allows us to architect and build solutions that are the
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best fit for each customer. Once the digital properties are built, our experts will help manage and protect the website or app and provide the expertise needed to scale the infrastructure needed as our customer’s business grows.
As we noted in our 10-K filed for the year ended December 31, 2019, we are subject to risks associated with a global pandemic, such as the current Covid-19 pandemic, which could adversely affect the Company. Although the Company’s business and revenue could be adversely affected by the Covied-19 pandemic, we have and plan to continue our operations through remote working arrangements, through our workplace technology solutions, which allow employees to work effectively and remain connected.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon our~~Condensed~~Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our~~Condensed~~Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the estimated recoverable amounts of trade accounts receivable, impairment of long-lived assets, revenue recognition, and deferred tax assets. We believe the following critical accounting policies require more significant judgment and estimates used in the preparation of the~~Condensed~~Consolidated Financial Statements.
Among the significant judgments made by management in the preparation of our ~~Condensed~~Consolidated Financial Statementsare the following:
Revenue recognition
On January 1, 2018, the Company adopted ASU 2014-09Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”), using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The adoption of ASC 606 did not have a material impact on the Company’s ~~Condensed~~ Consolidated Financial Statements.

Included in revenue are costs that are reimbursed by our clients, including third party services, such as photographers and stylists, furniture, supplies, and the largest component, digital advertising. We have determined, based on our review of ASC 606-10-55-39, that the amounts classified as reimbursable costs should be recorded as gross, due to the following factors:

● The Company is primarily in control of the inputs of the project and responsible for the completion of the client contract;
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● We have discretion in establishing price; and

● We have discretion in supplier selection.

Accounts receivable
The Company extends credit to its customers who are located nationwide. Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’ financial condition. Management reviews accounts receivable on a regular basis, based on contracted terms and how recently payments have been received to determine if any such amounts will potentially be uncollected. The Company includes any balances that are determined to be uncollectible in its allowance for doubtful accounts.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of a long-lived asset, management evaluates whether the estimated future undiscounted net cash flows from the asset are less than its carrying amount. If impairment is indicated, the long-lived asset would be written down to fair value. Fair value is determined by an evaluation of available price information at which assets could be bought or sold, including quoted market prices, if available, or the present value of the estimated future cash flows based on reasonable and supportable assumptions.
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Indefinite Lived Intangibles and Goodwill Assets
The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, “Business Combinations,” where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
The Company tests for indefinite lived intangibles and goodwill impairment in the fourth quarter of each year and whenever events or circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In accordance with its policies, the Company performed a qualitative assessment of indefinite lived intangibles and goodwill at December 31, ~~2018~~2019 and determined ~~there was no~~the fair value of each intangible asset and goodwill did not exceed the respective carrying values. Therefore, an impairment of indefinite lived intangibles and ~~goodwill.~~goodwill was recognized.
The impairment test conducted by the Company includes ~~a three-step~~an assessment of whether events occurred that may have resulted in impairment of goodwill and intangible assets. Because it was determined that events had occurred which effected the fair value of goodwill and intangible assets, the Company conducted the two-step approach to determine ~~whether it is more likely than not that impairment exists. If it is determined, after step one, that it is not more likely than not, that impairment exists, then no further analysis is conducted.~~the fair value and required adjustment. The ~~three~~ steps are as follows:

1. Based on the totality of qualitative factors, determine whether the carrying amount of the intangible asset may not be recoverable. Qualitative factors and key assumptions reviewed include the following:

● Increases in costs, such as labor, materials or other costs that could negatively affect future cash flows. The Company assumed that costs associated with labor, materials, and other costs should be consistent with fair market levels. If the costs were materially higher than fair market levels, then such costs may adversely affect the future cash flows of the Company or reporting units.

● Financial performance, such as negative or declining cash flows, or reductions in revenue may adversely affect recoverability of the recorded value of the intangible assets. During our analysis, the Company assumes that revenues should remain relatively consistent or show gradual growth month-to-month and quarter-to-quarter. If we report revenue declines, instead of increases or flat levels, then such condition may adversely affect the future cash flows of the Company or reporting units.

● Legal, regulatory, contractual, political, business or other factors that could affect future cash flows. During our analysis, the Company assumes that the legal, regulatory, political or business conditions should remain consistent, without placing material pressure on the Company or any of its reporting units. If such conditions were to become materially different than what has been experienced historically, then such conditions may adversely affect the future cash flows of the Company or reporting units.

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● Entity-specific events such as losses of management, key personnel, or customers, may adversely affect future cash flows. During our analysis, the Company assumes that members of management, key personnel, and customers will remain consistent period-over-period. If not effectively replaced, the loss of members of management and key employees could adversely affect operations, culture, morale and overall success of the Company. In addition, if material revenue from key customers is lost and not replaced, then future cash flows will be adversely affected.

● Industry or market considerations, such as competition, changes in the market, changes in customer dependence on our service offering, or obsolescence could adversely affect the Company or its reporting units. We understand that the ~~market~~markets we serve are constantly changing, requiring us to change with ~~it.~~them. During our analysis, we assume that we will address new opportunities in service ~~offering~~offerings and industries served. If we do not make such changes, then we may experience declines in revenue and cash flow, making it difficult to re-capture market share.
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● Macroeconomic conditions such as deterioration in general economic conditions or limitations on accessing capital could adversely affect the Company. During our analysis, we acknowledge that macroeconomic factors, such as the economy, may affect our business plan because our customers may reduce budgets for our services. If there are material declines in the economy, which lead to reductions in revenue then such conditions may adversely affect the Company.

2. Compare the carrying amount of the intangible asset to the fair value.

3. If the carrying amount is greater than the fair value, then the carrying amount is reduced to reflect fair value.

In accordance with its policies, the Company performed a qualitative assessment of indefinite lived intangibles and goodwill at December 31, 2019 and determined there was impairment of indefinite lived intangibles and goodwill from our Parscale Media and Parscale Creative acquisitions. Accordingly, all intangible assets and goodwill related to the Parscale Media and Parscale Creative acquisitions have been written off, amounting to $744,444 for Parscale Media and $6,016,323 for Parscale Creative. This amount reduced the consolidated balances of Parscale Digital. This amount was included in Operating Expenses on the Income Statement, for the year ended December 31, 2019. An impairment assessment was also conducted during the year ended December 31, 2019 related to the WebTegrity acquisition and determined that no impairment of intangible assets or goodwill was necessary.
Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions ~~believed~~we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Fair value of financial instruments
The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities are carried at cost, which approximates their fair value, due to the relatively short maturity of these instruments. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s notes payable have stated borrowing rates that are consistent with those currently available to the Company and, accordingly, the Company believes the carrying value of these debt instruments approximates their fair value.
Fair value is defined as the price to sell an asset or transfer a liability, between market participants at the measurement date.Fair value measurements assume that the asset or liability is (1) exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or liability, and (3) the market participants are independent, knowledgeable, able and willing to transact an exchange. Fair value accounting and reporting establishes a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures about fair value measurements. Considerable judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.
Off-Balance Sheet Arrangements
~~None.~~
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None
~~Recent~~Recently Adopted Accounting Pronouncements
The Company does not elect to delay complying with any new or revised accounting standards, but to apply all standards required of public companies, according to those required application dates.
Management reviewed accounting pronouncements issued during the quarter ended September 30, 2020, and no pronouncements were adopted during the period.
Management reviewed accounting pronouncements issued during the year ended December 31, 2019, and the following pronouncements were adopted during the period.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“~~ASC 842”~~ASU 2016-02”). Under ~~ASC 842,~~ASU 2016-02, lessees ~~are recognized as~~recognize a right-of-use asset and a lease liability for all of their leases, other than those that meet the definition of a short-term lease.
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For income statement purposes, leases ~~are~~ must be classified as either operating or finance. Operating leases ~~are expensed on a~~ will result in straight-line ~~basis,~~expense, similar to current operating leases,, while finance leases will result in a front-loaded pattern, similar to current capital ~~leases~~.~~The Company~~leases. We adopted ~~ASC~~Topic 842 effective January 1, 2019 and elected certain available transitional practical expedients.
~~Management reviewed accounting pronouncements issued during~~ This adoption resulted in right-of-use assets, in the ~~year ended~~amount of $266,758 and operating lease liability, in the amount of $266,758, to be added to the December 31, ~~2018, and~~2019 balance sheet. These additions are the ~~following pronouncements were adopted during~~result of an office lease in San Antonio. In the ~~period.~~
~~In May 2014, the FASB issued ASU No. 2014-09,~~~~Revenue from Contracts with Customers~~ (“ASU 2014-09”). The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein. The Company follows paragraph 606 of the FASB Accounting Standards Codification for revenue recognition and ASU 2014-09, adopting the pronouncements on January 1, 2018. The company considers revenue realized or realizable and earned when services are performed to such a degree that the performed service is delivered or deliverable to the client, or when a tangible item, such as interior décor or signage, is delivered to the client. Sinceprior year, the Company ~~was already recognizing revenue~~disclosed capital lease obligations, which has been changed to finance lease obligation in the current year, as a ~~manner consistent with paragraph 606~~result of this adoption. As of September 30, 2020, and December 31, 2019, the ~~FASB Accounting Standards Codification, there was no material impact on prior year results.~~
~~Since the Company was already recognizing revenue in a manner consistent with paragraph 606 of the FASB Accounting Standards Codification, there was no material impact on prior year results.~~
~~ASU 2014-09 supersedes existing guidance on revenue recognition with a five-step model for recognizing~~finance lease obligation totaled zero and measuring revenue from contracts with customers. The objective of the new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance also requires a number of disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows. The guidance can be applied retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with a cumulative effect adjustment to retained earnings for initial application of the guidance at the date of initial adoption (modified retrospective method). The Company adopted the new standard effective January 1, 2018 using the modified retrospective method applied to those contracts that were not completed or substantially completed as of January 1, 2018. The timing and measurement of revenue recognition under the new standard is not materially different than under the old standard. The adoption of the new standard had an immaterial impact on the Company’s~~CondensedConsolidated Financial Statements~~.$20,654, respectively.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. We are currently in the process of evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.
In January 2017, the FASB issued 2017-04, Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test and eliminating the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative assessment. Instead, under this pronouncement, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment change for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects will be considered, if applicable. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
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Results of Operations for the Three Months Ended September 30, ~~2019,~~2020, compared to the Three Months Ended September 30, ~~2018.~~2019.
REVENUE
Total revenue for the three months ended September 30, ~~2019 decreased~~2020 increased by ~~$1,208,412~~$334,736 to ~~$2,068,440,~~$2,403,176, compared to ~~$3,276,852~~$2,068,440 for the three months ended September 30, ~~2018.~~2019.  The ~~decrease~~increase was primarily due to ~~a reduction in~~demand for our digital marketing services.
COST OF REVENUE
Cost of revenue ~~from a related party as well as third parties.~~for the three months ended September 30, 2020 increased by $59,200 to $1,689,259, compared to $1,630,059 for the three months ended September 30, 2019. The ~~Company expects to continue to see a reduction in revenue from this related party.~~
~~The Company did not change pricing methodology or structure, so all decreases in revenue were~~increase was primarily due to ~~decreases~~the increase in ~~volume.~~
digital marketing ad costs.
SALARIES AND OUTSIDE SERVICES
Salaries and outside services for the three months ended September 30, ~~2019 decreased~~2020 increased by ~~$637,747~~$181,155 to ~~$1,041,800,~~$601,784, compared to ~~$1,679,547~~$420,629 for the three months ended September 30, ~~2018.~~2019.  The ~~decrease~~increase was primarily due to ~~a reduction of outside services expenses as a result of a reduction~~increases in ~~revenue. Beginning January 1, 2019, the Company established a new paid time off policy, by which the Company eliminated all accrued paid time off, reducing December 31, 2018 balances~~salary expense and payments to ~~zero.~~contractors.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative (“SG&A”) expenses for the three months ended September 30, ~~2019 decreased~~2020 increased by ~~$77,579~~$23,381 to ~~$1,281,574~~$379,245 compared to ~~$1,359,153~~$355,864 for the three months ended September 30, ~~2018.~~2019.  The ~~decrease~~increase was primarily due to ~~a decrease~~an increase in ~~operating~~advertising and insurance expenses, partially offset by reductions in travel ~~and payroll taxes.~~
~~STOCK BASED COMPENSATION~~
Stock based compensation expenses for the three months ended September 30, 2019 decreased by $26,849 to $83,178, compared to $110,027 for the three months ended September 30, 2018. The decrease was due to several stock option issuances being fully expensed in the current period.expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for thethree months ended September 30, 2020 decreased by $222,938 to $31,902 compared to $254,840 for the three months ended September 30, 2019~~increased by $535 to $254,840 compared to $254,305 for thethree months ended September 30, 2018~~. The ~~increase~~decrease was primarily due to the ~~purchase~~impairment of goodwill and intangible assets, as of December 31, 2019, which eliminated additional ~~fixed assets.~~amortization of intangible assets in the current period.
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OTHER INCOME AND EXPENSE
Total other income and expense for the three months ended September 30, 2020 increased by $206,865 to net other expense of $74,885 compared to net other expense of $281,750 for thethree months ended September 30, 2019 ~~increased~~ ~~by $197,242 to net other expense of $281,750 compared to net other expense of $84,508 for thethree months ended September 30, 2018~~. The increase in net other income and expense was primarily due to the utilization of a secured borrowing arrangement, and the implementation of derivative accounting, both resulting in higher interest expense. The convertible notes issued during the period were not convertible into common stock until 180 days after funding. As these notes became convertible, the Company adds derivative liabilities to the balance sheet, and mark-to-market ~~and discount amortization~~ adjustments to ~~the income statement. Those mark-to-market and amortization adjustments are included in other expense.~~derivatives.
NET LOSS
The net loss for the three months ended September 30, ~~2019~~2020 was ~~$874,702,~~$373,842, compared to the net loss of ~~$104,893~~$874,702 for the three months ended September 30, ~~2018.~~2019.  The ~~increase~~decrease in net loss for the period was primarily due to an increase in third party revenue and decreases in ~~related party revenue,~~amortization, partially offset by ~~decreases~~increases in salaries and ~~outside services.~~SG&A expenses.
Results of Operations for the Nine ~~months~~Months Ended September 30, ~~2019,~~2020, compared to the Nine ~~months~~Months Ended September 30, ~~2018.~~2019.
REVENUE
Total revenue for the nine months ended September 30, ~~2019 decreased~~2020 increased by ~~$1,874,681~~$1,143,875 to ~~$6,875,929,~~$8,019,804, compared to ~~$8,750,610~~$6,875,929 for the nine months ended September 30, ~~2018.~~2019.  The ~~decrease~~increase was primarily due to ~~a reduction in~~demand for our digital marketing services.
COST OF REVENUE
Cost of revenue ~~from a related party, partially offset~~for the nine months ended September 30, 2020 increased by ~~revenue increases from third parties.~~$593,355 to $5,771,834, compared to $5,178,479 for the nine months ended September 30, 2019. The ~~Company expects to continue to see a reduction in revenue from this related party.~~
~~The Company did not change pricing methodology or structure, so all decreases in revenue were~~increase was primarily due to ~~decreases~~the increase in ~~volume.~~
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digital marketing ad costs.
SALARIES AND OUTSIDE SERVICES
Salaries and outside services for the nine months ended September 30, ~~2019 decreased~~2020 increased by ~~$1,476,949~~$424,428 to ~~$3,125,853,~~$1,466,638, compared to ~~$4,602,802~~$1,041,940 for the nine months ended September 30, ~~2018.~~2019.  The ~~decrease~~increase was primarily due to ~~a reduction~~increases of salary expense and ~~paid time off expenses. Beginning January 1, 2019, the Company established a new paid time off policy, by which the company eliminated all accrued paid time off, reducing prior year balances~~payments to ~~zero.~~contractors.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative (“SG&A&A”) expenses for the nine months ended September 30, ~~2019 decreased~~2020 increased by ~~$276,498~~$18,397 to ~~$4,108,680~~$1,279,248 compared to ~~$4,385,178~~$1,260,851 for the nine months ended September 30, ~~2018.~~2019.  The ~~decrease~~increase was primarily due to ~~a decrease~~an increase in ~~operating~~advertising and insurance expenses, partially offset by reductions in travel ~~and payroll taxes.~~
~~STOCK BASED COMPENSATION~~
Stock based compensation expenses for the nine months ended September 30, 2019 decreased by $149,182 to $246,822 compared to $396,004 for the nine months ended September 30, 2018. The decrease was due to several stock option issuances being fully expensed in the current period.expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for thenine months ended September 30, 2020 decreased by $669,124 to $95,560 compared to $764,684 for the nine months ended September 30, 2019~~increased by $2,194 to $764,684, compared to $762,490 for thenine months ended September 30, 2018~~. The ~~increase~~decrease was primarily due to the ~~purchase~~impairment of goodwill and intangible assets, as of December 31, 2019, which eliminated additional ~~fixed assets.~~amortization of intangible assets in the current period.
OTHER INCOME AND EXPENSE
Total other income and expense for the nine months ended September 30, 2020 increased by $242,412 to net other expense of $331,898 compared to net other expense of $574,310 for thenine months ended September 30, 2019 ~~increased~~ ~~by $365,007 to net other expense of $574,310 compared to net other expense of $209,303 for thenine months ended September 30, 2018~~. The increase in net other income and expense was primarily due to the utilization of a secured borrowing arrangement, and the implementation of derivative accounting, both resulting in higher interest expense. As our convertible notes became convertible, the Company added derivative liabilities to the balance sheet, and mark-to-market ~~and discount amortization~~ adjustments to ~~the income statement. Those mark-to-market and amortization adjustments are included in other expense.~~derivatives.
NET LOSS
The net loss for the nine months ended September 30, ~~2019~~2020 was ~~$1,944,335,~~$925,047, compared to the net loss of ~~$1,263,586~~$1,944,335 for the nine months ended September 30, ~~2018.~~2019.  The ~~increase~~decrease in net loss for the period was primarily due to an increase in third party revenue and decreases in ~~related party revenue,~~amortization, partially offset by ~~decreases~~increases in salaries and ~~outside services.~~SG&A expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a net working capital deficit (i.e. the difference between current assets and current liabilities) of($~~5,337,726)~~5,496,345) at September 30, ~~2019~~2020 compared to a net working capital deficit of ($~~4,146,991)~~5,935,500) at fiscal year ended December 31, ~~2018.~~2019.
Cash flow used in operating activities was ~~$845,906~~$1,302,285 for the nine months ended September 30, ~~2019,~~2020, compared to cash flow used in operating activities of ~~$650,849~~$845,906 for the nine months ended September 30, ~~2018.~~2019. The increase in cash flow used in operating activities of ~~$195,057~~$456,379 was primarily due to ~~increases~~reductions in customer deposits and accounts payable, ~~and deferred revenue,~~ partially offset by ana reduction in net loss and increase ofin accounts receivable.
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Cash flow used in investing activities was ~~$2,104~~$5,252 for the nine months ended September 30, ~~2019,~~2020, compared to cash flow used in investing activities of ~~$13,853~~$2,104 for the nine months ended September 30, ~~2018.~~2019.  The ~~decrease~~increase in cash flow used in investing activities of ~~$11,749~~$3,148 was primarily due to ~~a reduction in~~ the purchase of ~~computers, partially offset by the reduction of fixed asset disposals.~~computers.
Cash flow provided by financing activities was ~~$816,396~~$565,573 for the nine months ended September 30, ~~2019,~~2020, compared to cash flow provided by financing activities of ~~$718,560~~$816,396 for the nine months ended September 30, ~~2018.~~2019.  The ~~increase~~decrease in cash flow provided by financing activities of ~~$97,836~~$250,823 was due to ~~additional~~reduction of borrowings, partially offset by debt repayments.
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
As of September 30, ~~2019,~~2020, the Company had short-term borrowing relationships with ~~three~~six lenders. Two lenders provide short-term funding for operations, through the use of convertible notes in 2019, disclosed in Note 8 to the financial statements included in
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this ~~offering statement. One~~report. During the current period, one lender provides short-term financing under a secured borrowing arrangement, using our accounts receivable as collateral, disclosed in Note 7. The Company does not have any long-term sources of liquidity. As of September 30, ~~2019,~~2020, there were no unused sources of liquidity, nor were there any commitments of material capital expenditures.
The Company has negative monthly cash flows from operations of approximately ~~$20,000.~~$100,000, which does not include debt service of an additional $100,000 per month. The Company’s current cash is sufficient to sustain the Company’s operations for approximately 30 days without additional borrowings. To satisfy cash needs, the Company relies on various borrowing mechanisms to fund operations and service debt, as discussed above. We believe that, through our borrowing arrangements, we will have 12 months of cash available.
The ~~Condensed~~ Consolidated Financial Statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying ~~Condensed~~ Consolidated Financial Statements do not reflect any adjustments that might result if we are unable to continue as a going concern. Our independent auditors, in their report on our audited financial statements for the year ended December 31, ~~2018~~2019 expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon, among other things, raising additional ~~cash infusion.~~capital. Management believes that the additional cash needed to meet our obligations as they become due, and which will allow the development of our core business operations, will be received through investments in the Company made by our existing shareholders, prospective new investors and future revenue generated by our operations.
Accessing the credit markets remains difficult for smaller companies.
Any additional capital ~~raised~~we may raise through the sale of equity or equity-backed securities may dilute current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities. The terms of the securities issued by us in future capital transactions may be more favorable to new investors and may include preferences, superior voting rights and the issuance of warrants or other derivative securities which may have a further dilutive effect.
Furthermore, any additional debt or equity or other financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business. Further, we may not be able to continue operations if we do not generate sufficient revenues from operations.
We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our reported financial results.
Off-Balance Sheet Arrangements
None
Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not ~~Applicable.~~required for small reporting companies.
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Item 4.  CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, with the participation of the Company's principal executive officer and principal financial ~~officers~~officer, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as ~~amended)~~amended (the “Exchange Act”), as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on that evaluation, our management concluded that, as of September 30, ~~2019,~~2020, our disclosure controls and procedures were ~~not effective due to the following material weaknesses:~~
~~1. lack of segregation of duties; and~~
~~2. failure to implement accounting controls of acquired businesses.~~
~~To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses.~~
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~~To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our Condensed Consolidated Financial Statementsincluded in this report have been prepared in accordance with generally accepted accounting principles.  Accordingly, management believes that theCondensed Consolidated Financial Statementsincluded in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.~~
~~No Attestation Report by Independent Registered Accountant~~
~~The effectiveness of our internal control over financial reporting as ofSeptember 30, 2019~~ ~~has not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company.~~effective.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter endedSeptember 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The Company’s management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II.  - OTHER INFORMATION
Item 1.  LEGAL PROCEEDINGS
The Company may be involved in legal actions and claims arising in the ordinary course of business from time to time in the future. However, at this time there are no current legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.
Item 1A.  RISK FACTORS
There have been no material changes to the risk factors disclosed in “Risk Factors” in our Form 10-K filed with the SEC on April ~~1, 2019.~~16, 2020.
Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
~~None.~~During the three months ended September 30, 2020, the Company issued 782 shares of Series F Preferred Stock at a purchase price of $25.00 per share. The Company relied upon the exemption from registration provided by Regulation A under the Securities Act of 1933, as amended.
Item 3.  DEFAULTS UPON SENIOR SECURITIES
None.
Item 4.  MINE SAFETY DISCLOSURES
Not applicable.
Item 5.  OTHER INFORMATION
None
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Item 6.  EXHIBITS
(a)           Exhibits
EXHIBIT NO. DESCRIPTION
31.1 Section 302 ~~Certification~~Certification*
31.2 Section 302 ~~Certification~~Certification*
32.1 Section 906 ~~Certification~~Certification**
32.2 Section 906 ~~Certification~~Certification**
EX-101.INS XBRL INSTANCE DOCUMENT*
EX-101.SCH XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT*
EX-101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE*
EX-101.DEF XBRL TAXONOMY EXTENSION DEFINITION LINKBASE*
EX-101.LAB XBRL TAXONOMY EXTENSION LABELS LINKBASE*
EX-101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE*

* Filed herewith.
** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections.
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SIGNATURES

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

CLOUDCOMMERCE, INC.
(Registrant)

Dated: November ~~14, 2019~~13, 2020 By: /s/ Andrew Van Noy

Andrew Van Noy
Chief Executive Officer and President
(Principal Executive Officer)

/s/ Gregory Boden

Gregory Boden
Chief Financial Officer
(Principal Financial and Accounting Officer)

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	September 30, 2019			December 31, 2018
	(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	84,698		$	116,312
Accounts receivable, net		1,211,250			923,703
Accounts receivable, net - related party		32,046			78,753
Costs in excess of billings		26,499			99,017
Prepaid and other current Assets		52,537			74,284
TOTAL CURRENT ASSETS		1,407,030			1,292,069

PROPERTY & EQUIPMENT, net		108,538			138,739
RIGHT-OF-USE ASSETS		306,210			—

OTHER ASSETS
Lease deposit		9,800			13,800
Goodwill and other intangible assets, net		7,663,772			8,396,151
TOTAL OTHER ASSETS		7,673,572			8,409,951

TOTAL ASSETS	$	9,495,350		$	9,840,759

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	1,471,826		$	1,619,115
Accounts payable, related party		63,944			—
Accrued expenses		569,029			766,160
Operating lease liability		307,476			—
Lines of credit		740,428			417,618
Deferred revenue and customer deposit		1,320,397			1,081,570
Convertible notes and interest payable, current, net		514,830			225,089
Derivative Liability		213,611			—
Finance lease obligation, current		29,324			34,038
Notes payable		506,919			375,000
Notes payable, related parties		1,006,886			920,470
TOTAL CURRENT LIABILITIES		6,744,670			5,439,060

LONG TERM LIABILITIES
Finance lease obligation, long term		—			20,654
Accrued expenses, long term		200,453			203,603
TOTAL LONG TERM LIABILITIES		200,453			224,257

TOTAL LIABILITIES		6,945,123			5,663,317
COMMITMENTS AND CONTINGENCIES (see Note 14)

SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value;
5,000,000 Authorized shares:
Series A Preferred stock; 10,000 authorized, 10,000 shaes issued and
outstanding;		10			10
Series B Preferred stock; 25,000 authorized, 18,025 shares issued and
outstanding;		18			18
Series C Preferred Stock; 25,000 authorized, 14,425 shares issued and
outstanding;		14			14
Series D Preferred Stock; 90,000 authorized, 90,000 shares issued and
outstanding;		90			90
Series E Preferred stock; 10,000 authorized, 10,000 shares issued and
outstanding;		10			10
Common stock, $0.001 par value;
2,000,000,000 authorized shares; 173,041,338 and 137,512,588 shares
issued and outstanding, respectively		173,050			137,513
Additional paid in capital		29,814,318			29,532,735
Accumulated deficit		(27,437,283	)		(25,492,948	)
TOTAL SHAREHOLDERS' EQUITY		2,550,227			4,177,442

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	9,495,350		$	9,840,759

	September 30, 2020			December 31, 2019
	(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	77,364		$	819,328
Accounts receivable, net		528,849			854,650
Accounts receivable, net - related party		—			2,876
Costs in excess of billings		17,119			21,606
Prepaid and other current Assets		31,714			26,849
TOTAL CURRENT ASSETS		655,046			1,725,309

PROPERTY & EQUIPMENT, net		66,076			91,422
RIGHT-OF-USE ASSETS		196,247			266,758

OTHER ASSETS
Lease deposit		9,800			9,800
Goodwill and other intangible assets, net		593,915			658,877
TOTAL OTHER ASSETS		603,715			668,677

TOTAL ASSETS	$	1,521,084		$	2,752,166

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	1,528,629		$	1,868,329
Accounts payable, related party		10,517			41,738
Accrued expenses		584,386			569,168
Operating lease liability		196,247			266,758
Lines of credit		297,294			476,962
Deferred revenue and customer deposit		1,360,649			2,080,762
Convertible notes and interest payable, current, net		181,363			468,145
Derivative Liability		—			342,850
Finance lease obligation, current		—			20,654
Notes payable		1,208,682			506,919
Notes payable, related parties		783,624			1,018,524
TOTAL CURRENT LIABILITIES		6,151,391			7,660,809

LONG TERM LIABILITIES
Finance lease obligation, long term		—			—
Accrued expenses, long term		196,603			199,403
TOTAL LONG TERM LIABILITIES		196,603			199,403

TOTAL LIABILITIES		6,347,994			7,860,212
COMMITMENTS AND CONTINGENCIES (see Note 14)

SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value;
5,000,000 Authorized shares:
Series A Preferred stock; 10,000 authorized, 10,000 shaes issued and
outstanding;		10			10
Series B Preferred stock; 25,000 authorized, 18,025 shares issued and
outstanding;		18			18
Series C Preferred Stock; 25,000 authorized, 14,425 shares issued and
outstanding;		14			14
Series D Preferred Stock; 90,000 authorized, 90,000 shares issued and
outstanding;		90			90
Series E Preferred stock; 10,000 authorized, 10,000 shares issued and
outstanding;		10			10
Series F Preferred stock; 800,000 authorized, 2,413 shares issued and
outstanding;		2			—
Series G Preferred stock; 2,600 authorized, 2,597 shares issued and
outstanding;		3			—
Common stock, $0.001 par value;
2,000,000,000 authorized shares; 645,938,541 and 419,638,507 shares
issued and outstanding, respectively		645,947			419,648
Additional paid in capital		31,068,371			30,088,492
Accumulated deficit		(36,541,375	)		(35,616,328	)
TOTAL SHAREHOLDERS' EQUITY		(4,826,910	)		(5,108,046	)

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,521,084		$	2,752,166

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018

REVENUE	$	2,041,977		$	2,879,414		$	6,649,901		$	6,188,320
REVENUE - related party		26,463			397,438		$	226,028			2,562,290
TOTAL REVENUE		2,068,440			3,276,852			6,875,929			8,750,610

OPERATING EXPENSES
Salaries and outside services		1,041,800			1,679,547			3,125,853			4,602,802
Selling, general and administrative expenses		1,281,574			1,359,153			4,108,595			4,385,178
Stock based compensation		83,178			110,027			246,822			396,004
Depreciation and amortization		254,840			254,305			764,684			762,490

TOTAL OPERATING EXPENSES		2,661,392			3,403,032			8,245,954			10,146,474

LOSS FROM OPERATIONS BEFORE OTHER INCOME AND TAXES		(592,952	)		(126,180	)		(1,370,025	)		(1,395,864	)

OTHER INCOME (EXPENSE)
Other income/(expense)		—			330			—			330
Loss on sale of fixed assets		—			(2,084	)		—			(24,442	)
Gain (loss) on extinguishment of debt		—			—			—			—
Gain (loss) on changes in derivative liability		121,390						121,390
Interest expense		(403,140	)		(82,754	)		(695,700	)		(185,191	)

TOTAL OTHER INCOME (EXPENSE)		(281,750	)		(84,508	)		(574,310	)		(209,303	)

LOSS FROM OPERATIONS BEFORE PROVISION FOR TAXES		(874,702	)		(210,688	)		(1,944,335	)		(1,605,167	)

PROVISION (BENEFIT) FOR INCOME TAXES		—			(105,795	)		—			(341,581	)

NET LOSS		(874,702	)		(104,893	)		(1,944,335	)		(1,263,586	)

PREFERRED DIVIDENDS		37,437			51,049			132,911			180,842

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(912,139	)	$	(155,942	)	$	(2,077,246	)	$	(1,444,428	)

NET LOSS PER SHARE
BASIC	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.01	)
DILUTED	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.01	)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC		147,419,740			136,292,785			140,851,262			133,917,766
DILUTED		147,419,740			136,292,785			140,851,262			133,917,766

	Nine Month Period Ended September 30, 2018
									Additional
	Preferred Stock				Common Stock				Paid-in			Accumulated
	Shares		Amount		Shares		Amount		Capital			Deficit			Total

Balance, December 31, 2017		142,450	$	142		130,252,778	$	130,252	$	29,094,147		$	(22,622,935	)	$	6,601,606

Dividend on Series A Preferred stock ($2.00 per share)		—		—		—		—		(20,000	)		—			(20,000	)

Dividend on Series D Preferred stock ($0.38 per share)		—		—		—		—		(34,477	)		—			(34,477	)

Stock based compensation		—		—		—		—		160,072			—			160,072

Net loss		—		—		—		—		—			(791,369	)		(791,369	)

Balance, March 31, 2018 (unaudited)		142,450	$	142		130,252,778	$	130,252	$	29,199,742		$	(23,414,304	)	$	5,915,832

Conversion of convertible note		—		—		6,026,301		6,027		18,079			—			24,106

Dividend on Series A Preferred stock ($2.00 per share)		—		—		—		—		(20,000	)		—			(20,000	)

Dividend on Series D Preferred stock ($0.61 per share)		—		—		—		—		(55,316	)		—			(55,316	)

Stock based compensation		—		—		—		—		125,904			—			125,904

Net loss		—		—		—		—		—			(360,974	)		(360,974	)

Balance, June 30, 2018 (unaudited)		142,450	$	142		136,279,079	$	136,279	$	29,268,409		$	(23,775,278	)	$	5,629,552

Conversion of convertible note		—		—		—		—		—			—			—

Dividend on Series A Preferred stock ($2.00 per share)		—		—		—		—		(20,000	)		—			(20,000	)

Dividend on Series D Preferred stock ($0.34 per share)		—		—		—		—		(31,049	)		—			(31,049	)

Stock based compensation		—		—		—		—		110,028			—			110,028

Stock Option Exercise		—		—		1,233,509		1,234		(1,234	)

Net loss		—		—		—		—		—			(111,243	)		(111,243	)

Balance, September 30, 2018 (unaudited)		142,450	$	142		137,512,588	$	137,513	$	29,326,154		$	(23,886,521	)	$	5,577,288

		Nine Month Period Ended September 30, 2019

Balance, December 31, 2018		142,450	$	142		137,512,588	$	137,513	$	29,532,735		$	(25,492,948	)	$	4,177,442

Series A preferred stock dividend declared ($2.00 per share)		—		—		—		—		(20,000	)		—			(20,000	)

Series D preferred stock dividend declared ($0.46 per share)		—		—		—		—		(41,690	)		—			(41,690	)

Stock based compensation		—		—		—		—		81,370			—			81,370

Net loss		—		—		—		—		—			(343,919	)		(343,919	)

Balance, March 31, 2019 (unaudited)		142,450	$	142		137,512,588	$	137,513	$	29,552,415		$	(25,836,867	)	$	3,853,203

Series A preferred stock dividend declared ($2.00 per share)		—		—		—		—		(20,000	)		—			(20,000	)

Series D preferred stock dividend declared ($0.15 per share)		—		—		—		—		(13,784	)		—			(13,784	)

Stock based compensation		—		—		—		—		82,274			—			82,274

Net loss		—		—		—		—		—			(725,714	)		(725,714	)

Balance, June 30, 2019 (unaudited)		142,450	$	142		137,512,588	$	137,513	$	29,600,905		$	(26,562,581	)	$	3,175,979

Conversion of convertible note						35,537,150		35,537		65,379						100,916

Series A preferred stock dividend declared ($2.00 per share)		—		—		—		—		(20,000	)		—			(20,000	)

Series D preferred stock dividend declared ($0.19 per share)		—		—		—		—		(17,437	)		—			(17,437	)

Stock based compensation		—		—		—		—		83,178			—			83,178

Discount on note										102,293						102,293

Net loss		—		—		—		—		—			(874,702	)		(874,702	)

Balance, September 30, 2019 (unaudited)		142,450	$	142		173,049,738	$	173,050	$	29,814,318		$	(27,437,283	)	$	2,550,227

	Nine Months Ended September 30, 2019
									Additional
	Preferred Stock				Common Stock				Paid-in			Accumulated
	Shares		Amount		Shares		Amount		Capital			Deficit			Total

Balance, December 31, 2018		142,450	$	142		137,512,588	$	137,513	$	29,532,735		$	(25,492,948	)	$	4,177,442

Series A preferred stock dividend declared ($2.00 per share)		—		—		—		—		(20,000	)		—			(20,000	)

Series D preferred stock dividend declared ($0.46 per share)		—		—		—		—		(41,690	)		—			(41,690	)

Stock based compensation		—		—		—		—		81,370			—			81,370

Net loss		—		—		—		—		—			(343,919	)		(343,919	)


Balance, March 31, 2019 (unaudited)		142,450	$	142		137,512,588	$	137,513	$	29,552,415		$	(25,836,867	)	$	3,853,203

Series A preferred stock dividend declared ($2.00 per share)		—		—		—		—		(20,000	)		—			(20,000	)

Series D preferred stock dividend declared ($0.15 per share)		—		—		—		—		(13,784	)		—			(13,784	)

Stock based compensation		—		—		—		—		82,274			—			82,274

Net loss		—		—		—		—		—			(725,714	)		(725,714	)


Balance, June 30, 2019 (unaudited)		142,450	$	142		137,512,588	$	137,513	$	29,600,905		$	(26,562,581	)	$	3,175,979

Conversion of convertible note		—		—		35,537,150		35,537		65,379			—			100,916

Series A preferred stock dividend declared ($2.00 per share)		—		—		—		—		(20,000	)		—			(20,000	)

Series D preferred stock dividend declared ($0.19 per share)		—		—		—		—		(17,437	)		—			(17,437	)

Stock based compensation		—		—		—		—		83,178			—			83,178

Discount on note		—		—		—		—		102,293			—			102,293

Net loss		—		—		—		—		—			(874,702	)		(874,702	)


Balance, September 30, 2019 (unaudited)		142,450	$	142		173,049,738	$	173,050	$	29,814,318		$	(27,437,283	)	$	2,550,227

	Nine Months Ended September 30, 2020

Balance, December 31, 2019	142,450	$	142	419,638,507	$	419,648	$	30,088,492		$	(35,616,328	)	$	(5,108,046	)

Conversion of convertible note	—		—	78,857,470		78,857		10,165			—			89,022

Exchange debt-for-equity	2,597		3	—		—		259,695			—			259,698

Series A preferred stock dividend declared ($2.00 per share)	—		—	—		—		(20,000	)		—			(20,000	)

Series D preferred stock dividend declared ($0.10 per share)	—		—	—		—		(9,025	)		—			(9,025	)

Series F preferred stock dividend declared ($0.28 per share)	—		—	—		—		(473	)		—			(473	)

Stock based compensation	—		—	—		—		111,248			—			111,248

Derivative settlement	—		—	—		—		80,357			—			80,357

Other - RegA Investor Funds	1,391		1	—		—		34,774			—			34,775

Net loss	—		—	—		—		—			(128,820	)		(128,820	)

Balance, March 31, 2020 (unaudited)	146,438	$	146	498,495,977	$	498,505	$	30,555,233		$	(35,745,148	)	$	(4,691,264	)

Conversion of convertible note	—		—	147,442,564		147,442		55,476			—			202,918

Series A preferred stock dividend declared ($2.00 per share)	—		—	—		—		(20,000	)		—			(20,000	)

Series D preferred stock dividend declared ($0.06 per share)	—		—	—		—		(5,562	)		—			(5,562	)

Series F preferred stock dividend declared ($0.66 per share)	—		—	—		—		(1,070	)		—			(1,070	)

Stock based compensation	—		—	—		—		117,128			—			117,128

Derivative settlement	—		—	—		—		258,748			—			258,748

Other - RegA Investor Funds	240		1	—		—		8,499			—			8,500

Net loss	—		—	—		—		—			(422,385	)		(422,385	)

Balance, June 30, 2020 (unaudited)	146,678		147	645,938,541		645,947		30,968,452			(36,167,533	)		(4,552,987	)

Series A preferred stock dividend declared ($2.00 per share)	—		—					(20,000	)		—			(20,000	)

Series D preferred stock dividend declared ($0.13 per share)	—		—					(12,116	)		—			(12,116	)

Series F preferred stock dividend declared ($0.54 per share)	—		—					(1,304	)		—			(1,304	)

Stock based compensation	—		—					116,289			—			116,289

Other - RegA Investor Funds	782		—					17,050			—			17,050

Net loss	—		—	—		—		—			(373,842	)		(373,842	)

Balance, September 30, 2020 (unaudited)	147,460	$	147	645,938,541	$	645,947	$	31,068,371		$	(36,541,375	)	$	(4,826,910	)

Furniture, fixtures & equipment		7 Years
Computer equipment		5 Years
Commerce server		5 Years
Computer software		3 - 5 Years
Leasehold improvements		Length of the lease

December 31, 2019	Level 1		Level 2		Level 3		Total
Assets	$	—	$	—	$	—	$	—
Total assets measured at fair value	$	—	$	—	$	—	$	—

Liabilities
Derivative liability	$	—	$	—	$	342,850	$	342,850
Total liabilities measured at fair value	$	—	$	—	$	342,850	$	342,850

	September 30, 2019
	Parscale Digital¹		WebTegrity		CloudCommerce		Total
Customer list		730,463		93,088		—		823,551
Non-compete agreement		77,778		—		—		77,778
Domain name and trademark		—		—		27,443		27,443
Brand name		2,030,000		130,000		—		2,160,000
Goodwill		4,145,000		430,000		—		4,575,000
Total		6,983,241		653,088		27,443		7,663,772

	September 30, 2020
	Parscale Digital		WebTegrity		CloudCommerce		Total
Customer list	$	—	$	7,161	$	—	$	7,161
Non-compete agreement		—		—		—		—
Domain name and trademark		—		—		26,754		26,754
Brand name		—		130,000		—		130,000
Goodwill		—		430,000		—		430,000
Total	$	—	$	567,161	$	26,754	$	593,915

	For the 9 months ended
	September 30, 2019

Current tax provision:
Federal
Taxable income	$	—
Total current tax provision	$	—

Deferred tax provision:
Federal
Loss carryforwards	$	3,125,894
Change in valuation allowance		(3,125,894	)
Total deferred tax provision	$	—

	For the nine months ended
	September 30, 2020
Current tax provision:
Federal
Taxable income	$	—
Total current tax provision	$	—

Deferred tax provision:
Federal
Loss carryforwards	$	3,339,113
Change in valuation allowance		(3,339,113	)
Total deferred tax provision	$	—

	Nine months Ended September 30, 2019 (unaudited)						Nine months Ended September 30, 2018 (unaudited)						Nine months ended September 30, 2020 (unaudited)						Nine months ended September 30, 2019 (unaudited)
	Third Parties		Related Parties		Total		Third Parties		Related Parties		Total		Third Parties		Related Parties		Total		Third Parties		Related Parties		Total
Data Sciences	$	844,052	$	14,400	$	858,452	$	686,600	$	34,550	$	721,150	$	490,195	$	—	$	490,195	$	844,052	$	14,400	$	858,452
Design		1,503,778		624		1,504,402		1,057,669		196,033		1,253,702		1,891,221		—		1,891,221		1,503,778		624		1,504,402
Development		1,326,802		29,620		1,356,422		786,302		117,894		904,196		284,613		—		284,613		1,326,802		29,620		1,356,422
Digital Advertising		2,082,378		152,860		2,235,238		2,610,276		1,738,023		4,348,299		5,093,191		3,640		5,096,831		2,082,378		152,860		2,235,238
Other		892,891		28,524		921,415		1,047,473		475,790		1,523,263		256,944		—		256,944		892,891		28,524		921,415
Total	$	6,649,901	$	226,028	$	6,875,929	$	6,188,320	$	2,562,290	$	8,750,610	$	8,016,163	$	3,640	$	8,019,804	$	6,649,901	$	226,028	$	6,875,929

Cash	$	200,000
Customer deposits and accrued expenses		(535,000	)
Net tangible liabilities	$	(335,000	)

Non-compete agreements	$	280,000
Brand name		1,930,000
Customer list		2,090,000
Goodwill		3,645,000
Total purchase price	$	7,945,000

Issuance of series D convertible preferred stock	$	7,610,000
Net tangible liabilities		335,000
Total purchase price	$	7,945,000

Current assets	$	78,000
Fixed assets		30,000
Liabilities		(48,000	)
Net assets		60,000
Brand name		130,000
Customer list		280,000
Goodwill		430,000
Total purchase price	$	900,000

Current assets	$	—
Brand name		100,000
Customer list		400,000
Goodwill		500,000
Total purchase price	$	1,000,000

	Nine months ended, September 30, 2019			Nine months ended, September 30, 2018
Total revenues	$	6,875,929		$	8,759,175
Net income (loss)		(1,944,335	)		(1,245,592	)
Basic and diluted net earnings per common share	$	(0.01	)	$	(0.01	)

2019 (excluding nine months ended September 30, 2019)	$	244,126
2020		646,953
2021		11,801
2022		690
2023		690
Thereafter		4,310
Total	$	908,570

Date		Principle		Interest		Total		Shares
	7/17/19	$	12,000		—	$	12,000		1,967,213
	8/27/19		12,000		—		12,000		3,870,968
	9/4/19		15,000		—		15,000		5,172,414
	9/5/19		15,000		—		15,000		5,172,414
	9/13/19		16,000		—		16,000		6,956,522
	9/25/19		14,800		—		14,800		7,047,619
		$	84,800	$	—	$	84,800		30,187,150

Date		Principle		Fees		Total		Shares
	8/5/19	$	7,838.60	$	250	$	8,088.60		2,550,000
	9/4/19		7,777.60		250		8,027.60		2,800,000
		$	15,616.20	$	500	$	16,116.20		5,350,000

Note Date	Principal		Accrued Interest		Total Due		Gain on Exchange		Series G Preferred Shares
November 30, 2017	$	30,000	$	3,197	$	33,197	$	70	$	331
January 30, 2018		72,000		7,072		79,072		168		789
February 1, 2018		85,000		8,314		93,314		198		931
July 23, 2019		25,000		610		25,610		58		256
August 20, 2019		10,000		205		10,205		23		102
August 28, 2019		18,500		360		18,860		43		188
Total	$	240,500	$	19,758	$	260,258	$	560	$	2,597

Balance at December 31, 2018	$	—
Additions		437,294
Conversions		(102,293	)
Fair value gain		(121,390	)
Balance at September 30, 2019	$	213,611

Balance at December 31, 2019	$	342,850
Additions due to new convertible notes		127,273
Reduction due to conversions and adjustments		(339,105	)
Mark-to-market adjustment		(131,018	)
Balance at September 30, 2020	$	—

	Nine months ~~Ended~~ended			Nine months ~~Ended~~ended
	September 30, ~~2019~~2020			September 30, ~~2018~~2019
Risk free interest rate		— 1.86	%		—	~~5.00~~	%
Stock volatility factor		— 272	%		—	~~397~~	%
Weighted average expected option life		— 5 years			~~5 years~~—
Expected dividend yield		— 0	%			~~none~~—

	Nine months Ended September 30, 2019				Nine months Ended September 30, 2018					Nine months ended September 30, 2020					Nine months ended September 30, 2019
			Weighted					Weighted					Weighted					Weighted
			average					average					average					average
			exercise					exercise					exercise					exercise
	Options		price		Options			price		Options			price		Options			price
Outstanding - beginning of period		151,475,799	$	0.017		154,800,000		$	0.017		150,275,799		$	0.0160		154,800,000		$	0.017
Granted		—	$	—		—		$	—		300,000,000		$	0.0018		—			—
Exercised		—	$	—		(3,324,201	)	$	0.010		—			—		(3,324,201	)	$	0.010
Forfeited		—	$	—		—		$	—		(600,000	)		—		—			—
Outstanding - end of period		151,475,799	$	0.017		151,475,799		$	0.017		449,675,799		$	0.0067		151,475,799		$	0.017
Exercisable at the end of period		139,708,310	$	0.015		129,108,310		$	0.014		216,242,922		$	0.0116		129,108,310		$	0.014
Weighted average fair value of
options granted during the period			$	—				$	800,000				$	568,300				$	800,000

				Weighted
				Average
		Number of		remaining
Exercise		options		contractual
prices		outstanding		life (years)
$	0.050		1,800,000		2.97
$	0.040		20,000,000		3.26
$	0.015		35,000,000		2.90
$	0.013		60,000,000		2.35
$	0.013		15,000,000		2.47
$	0.010		6,675,799		2.84
$	0.005		12,500,000		2.87
$	0.004		500,000		2.04
			151,475,799

	Nine months ended		Year Ended
	September 30, 2020		December 31, 2019
Risk free interest rate		—		1.86	%
Stock volatility factor		—		272	%
Weighted average expected warrant life		—		10 years
Expected dividend yield		—		0	%

	Nine months ended September 30, 2020				Year Ended December 31, 2019
			Weighted average				Weighted average
	Warrants		exercise price		Warrants		exercise price
Outstanding - beginning of period		10,000,000	$	0.0067		—	$	—
Issued		—	$	—		10,000,000	$	0.0067
Exercised		—	$	—		—	$	—
Forfeited		—	$	—		—	$	—
Outstanding - end of period		10,000,000	$	0.0067		10,000,000	$	0.0067
Exercisable at the end of period		10,000,000	$	0.0067		10,000,000	$	0.0067
Weighted average fair value of
warrants granted during the period			$	—			$	67,000

	ROU Operating Leases		Finance Leases		ROU Operating Leases		Finance Leases
Leased asset balance	$	306,210	$	46,298	$	196,247	$	21,467
Liability balance		307,476		29,234		196,247		—
Cash flow (operating)		134,093		—
Cash flow (financing)		—		6,000
Cash flow (non-cash)						70,511		—
Interest expense	$	26,624	$	1,631	$	17,689	$	21,467