United states
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | quarterly report under section 13 0r 15(d) of the securities exchange act of 1934 |
For the quarterly period ended March 31, 20222023
| ☐ | transition report under section 13 0r 15(d) of the securities exchange act of 1934 |
For the transition period from ________________________to _______________________
Commission file number 000-51302
Madison Technologies Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 85-2151785 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☐ Yes ☒No
☒Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (s. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☐ Yes ☒No
☒Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Larger accelerated filer | ☐ | Accelerated filer | ☐ | ||
| Non-accelerated filer | Smaller reporting 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
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
| Class | Outstanding at | |
| Common Stock, |
MADISON TECHNOLOGIES INC.
INTERIM Financial Statements
MARCH 31, 2022 and 2021
(unaudited)
MADISON TECHNOLOGIES INC.
(UNAUDITED)
TABLE OF Contents
FORM 10-Q
March 31, 2023
©
MADISON TECHNOLOGIES INC.
condensed consolidated Balance Sheets
(Unaudited)
| March 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 206,399 | $ | 55,656 | ||||
| Accounts receivables, net | 122,979 | 167,800 | ||||||
| Note receivables | 799,362 | 749,603 | ||||||
| Due from related party | - | 709,259 | ||||||
| Total Current Assets | 1,128,740 | 1,682,318 | ||||||
| Intangible assets, net | 12,225,195 | 12,196,646 | ||||||
| Equipment, net | 1,449,021 | 1,486,347 | ||||||
| Investments | 101 | 101 | ||||||
| Operating lease right-of-use assets, net | 1,374,203 | 1,400,980 | ||||||
| Total Assets | $ | 16,177,260 | $ | 16,766,392 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 896,437 | $ | 791,802 | ||||
| Derivative liability | 3,664,329 | 3,464,529 | ||||||
| Current portion of lease liabilities | — | 3,767 | ||||||
| Promissory notes | 824,904 | 491,741 | ||||||
| Convertible notes payable | 1,374,761 | 850,000 | ||||||
| Interest payable on senior secured notes | 825,000 | 453,750 | ||||||
| Total current liabilities | 7,534,431 | 6,055,589 | ||||||
| Long term portion of lease liability obligations | 1,468,233 | 1,464,728 | ||||||
| Long term convertible notes, net of discount | 13,333,601 | 12,919,392 | ||||||
| Total liabilities | 22,387,265 | 20,439,709 | ||||||
| Preferred Shares - Series C, $ par value; 2%, stated value $100 per share shares designated, issued and outstanding, March 31, 2022 and December 31, 2021, respectively; | - | - | ||||||
| Preferred Shares - Series D, $ par value; convertible, stated value $3.32 per share, shares designated, and shares issued and outstanding, March 31, 2022 and December 31, 2021, respectively; converted | 155 | 155 | ||||||
| Preferred Shares - Series E, $ par value; convertible, stated value $1,000 per share, shares designated, issued and outstanding, March 31, 2022 and December 31, 2021, respectively; shares exchanged to Series E-1 | - | - | ||||||
| Preferred Shares - Series E-1, $ par value; convertible, stated value $0.87 per share, shares designated, and shares issued and outstanding, March 31, 2022 and December 31, 2021, respectively; | 1,153 | 1,153 | ||||||
| Preferred Shares - Series F, $ par value; convertible, stated value $1 per share, shares designated, issued and outstanding, March 31, 2022 and December 31, 2021, respectively; shares converted | - | - | ||||||
| Preferred Shares - Series G, $ par value; convertible, stated value $1,000 per share, shares designated, issued and outstanding, March 31, 2022 and December 31, 2021, respectively; shares converted | - | - | ||||||
| Preferred Shares – Series H, $par value; convertible, stated value $1 per share, shares designated, issued and outstanding, March 31, 2022 and December 31, 2021, respectively; | 40 | 40 | ||||||
| Temporary equity value | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Capital Stock: | ||||||||
| Preferred Shares – shares authorized, $ par value Preferred Shares - Series A, $ par value; 3%, stated value $100 per share shares designated, and shares issued and outstanding, March 31, 2022 and December 31, 2021, respectively; | - | - | ||||||
| Preferred Shares - Series B, $ par value; shares designated, shares issued and outstanding, March 31, 2022 and December 31, 2021, respectively | - | - | ||||||
| Preferred Stock value | ||||||||
| Common Shares - $ par value; shares authorized shares issued and outstanding, March 31, 2022 and December 31, 2021, respectively | 1,599,095 | 1,599,095 | ||||||
| Additional paid in capital | 10,473,261 | 10,473,261 | ||||||
| Accumulated deficit | (18,283,709 | ) | (15,747,021 | ) | ||||
| Total stockholders’ deficit | (6,211,353 | ) | (3,674,665 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 16,177,260 | $ | 16,766,392 | ||||
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 593 | $ | — | ||||
| Prepaid expenses | — | 12,722 | ||||||
| Assets from discontinued operations | — | 11,726,332 | ||||||
| Total Current Assets | 593 | 11,739,054 | ||||||
| Investments | — | 100 | ||||||
| Total Assets | $ | 593 | $ | 11,739,154 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 960,994 | $ | 741,399 | ||||
| Derivative liability | 4,429,329 | 4,429,329 | ||||||
| Promissory notes | 1,061,415 | 936,112 | ||||||
| Convertible notes | 2,283,297 | 1,883,295 | ||||||
| Interest payable on senior secured notes | 3,753,750 | 3,300,000 | ||||||
| Senior secured notes, net of discount | 15,013,449 | 14,599,240 | ||||||
| Liabilities from discontinued operations | — | 2,582,902 | ||||||
| Total current liabilities | 27,502,234 | 28,472,277 | ||||||
| Preferred Shares–- Series C, $0.001 par value; 2%, stated value $100 per share 10,000 shares designated, 0 issued and outstanding, March 31, 2023 and December 31, 2022, respectively; | — | — | ||||||
| Preferred Shares–- Series D, $0.001 par value; convertible, stated value $3.32 per share, 230,000 shares designated, 155,000 shares issued and outstanding, March 31, 2023 and December 31, 2022, respectively; 75,000 converted | 155 | 155 | ||||||
| Preferred Shares–- Series E, $0.001 par value; convertible, stated value $1,000 per share, 1,000 shares designated, 0 issued and outstanding, March 31, 2023 and December 31, 2022, respectively; 1,000 shares exchanged for Series E-1 | — | — | ||||||
| Preferred Shares – Series E-1, $ par value; convertible, stated value $per share, shares designated, shares issued and outstanding, March 31, 2023 and December 31, 2022, respectively; | 1,153 | 1,153 | ||||||
| Preferred Shares – Series F, $ par value; convertible, stated value $ per share, shares designated, issued and outstanding, March 31, 2023 and December 31, 2022, respectively; shares converted | — | — | ||||||
| Preferred Shares – Series G, $ par value; convertible, stated value $ per share, shares designated, issued and outstanding, March 31, 2023 and December 31, 2022, respectively; shares converted | — | — | ||||||
| Preferred Shares – Series H, $ par value; convertible, stated value $ per share, shares designated, issued and outstanding, March 31, 2023 and December 31, 2022, respectively; | 40 | 40 | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Capital Stock: | ||||||||
| Preferred Shares – shares authorized, $ par value; | — | — | ||||||
| Preferred Shares–- Series A, $0.001 par value; 3%, stated value $100 per share, 100,000 shares designated, 0 shares issued and outstanding, March 31, 2023 and December 31, 2022, respectively; | — | — | ||||||
| Preferred Shares–- Series B, $0.001 par value; 100 shares designated, 100 shares issued and outstanding, March 31, 2023 and December 31, 2022, respectively | — | — | ||||||
| Common Shares - $ par value; shares authorized, shares issued and outstanding, March 31, 2023 and December 31, 2022, respectively | 1,603,095 | 1,603,095 | ||||||
| Additional paid in capital | 10,549,165 | 10,549,265 | ||||||
| Accumulated deficit | (39,655,249 | ) | (28,886,831 | ) | ||||
| Total stockholders’ deficit | (27,502,989 | ) | (16,734,471 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 593 | $ | 11,739,154 | ||||
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
MADISON TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS of Operations
(Unaudited)
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, 2022 | March 31, 2021 | March 31, 2023 | March 31, 2022 | |||||||||||||
| Revenues | $ | 474,999 | $ | - | $ | — | $ | — | ||||||||
| Operating Expenses | ||||||||||||||||
| Selling, general and administrative | 181,994 | 82,179 | 350,830 | 44,502 | ||||||||||||
| Television operations | 87,632 | - | ||||||||||||||
| Amortization of intangible assets | 80,494 | 35,284 | ||||||||||||||
| Professional fees | 1,098,279 | 340,531 | 107,740 | 663,805 | ||||||||||||
| Loss on asset disposals | 52,668 | - | ||||||||||||||
| Total operating expenses | 1,501,067 | 457,994 | 458,570 | 708,307 | ||||||||||||
| Loss before other expense | (1,026,068 | ) | (457,994 | ) | (458,570 | ) | (708,307 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income (expenses) | ||||||||||||||||
| Other income | — | 9,381 | ||||||||||||||
| Loss on disposition of assets | (15,859,990 | ) | — | |||||||||||||
| Interest expense | (1,520,001 | ) | (359,948 | ) | (1,135,202 | ) | (1,520,001 | ) | ||||||||
| Other income | 9,381 | - | ||||||||||||||
| Total non operating expense | (1,510,620 | ) | (359,948 | ) | ||||||||||||
| Total other expense | (16,995,192 | ) | (1,510,620 | ) | ||||||||||||
| Loss from continuing operations | (2,536,688 | ) | (817,942 | ) | (17,453,762 | ) | (2,218,927 | ) | ||||||||
| Loss from discontinued operations | - | (38,835 | ) | |||||||||||||
| Income (loss) from discontinued operations | 6,685,344 | (317,761 | ) | |||||||||||||
| Net loss and comprehensive loss | $ | (2,536,688 | ) | $ | (856,777 | ) | $ | (10,768,418 | ) | $ | (2,536,688 | ) | ||||
| Net loss per share-Basic and diluted | $ | (0.002 | ) | $ | (0.037 | ) | $ | (0.006 | ) | $ | (0.002 | ) | ||||
| Average number of shares of common stock outstanding | 1,599,095,027 | 23,472,565 | 1,603,095,243 | 1,599,095,027 | ||||||||||||
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
MADISON TECHNOLOGIES INC.
MADISON TECHNOLOGIES INC.
CONDENSED CONSOLIDATED StatementS of stockholders’ DEFICIT
(Unaudited)
| Additional | ||||||||||||||||||||
| Common | Paid In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, December 31, 2022 | 1,603,095,243 | $ | 1,603,095 | $ | 10,549,265 | $ | (28,886,831 | ) | $ | (16,734,471 | ) | |||||||||
| Net loss for the period | — | — | (100) | (10,768,418 | ) | (10,768,518 | ) | |||||||||||||
| Balance, March 31, 2023 | 1,603,095,243 | $ | 11,603,095 | $ | 10,549,165 | $ | (39,655,249 | ) | $ | (27,502,989 | ) | |||||||||
| Additional | ||||||||||||||||||||
| Common | Paid In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, December 31, 2021 | 1,599,095,027 | $ | 1,599,095 | $ | 10,473,261 | $ | (15,747,021 | ) | $ | (3,674,665 | ) | |||||||||
| Net loss for the period | — | — | — | (2,536,688 | ) | (2,536,688 | ) | |||||||||||||
| Balance, March 31, 2022 | 1,599,095,027 | $ | 1,599,095 | $ | 10,473,261 | $ | (18,283,709 | ) | $ | 6,211,353 | ||||||||||
| Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||
| Additional | ||||||||||||||||||||||||
| Common | Preferred | Paid In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2021 | 1,599,095,027 | $ | 1,599,095 | $ | 1,348 | $ | 10,473,261 | $ | (15,747,021 | ) | $ | (3,674,665 | ) | |||||||||||
| Net loss for the period | - | - | - | - | (2,536,688 | ) | (2,536,688 | ) | ||||||||||||||||
| Balance, March 31, 2022 | 1,599,095,027 | $ | 1,599,095 | $ | 1,348 | $ | 10,473,261 | $ | (18,283,709 | ) | $ | (6,211,353 | ) | |||||||||||
| Additional | ||||||||||||||||||||||||
| Common | Preferred | Paid In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2020 | 23,472,565 | $ | 23,472 | $ | - | $ | 1,302,977 | $ | (1,484,442 | ) | $ | (157,900 | ) | |||||||||||
| Conversion of debt to Series D Preferred | - | - | - | 667,984 | - | 667,984 | ||||||||||||||||||
| Series E Preferred issued for assets | - | - | - | 4,225,061 | - | 4,225,061 | ||||||||||||||||||
| Series G Preferred issued for subscriptions sold | - | - | - | 510,000 | - | 510,000 | ||||||||||||||||||
| Equity portion on convertible debt issued | - | - | - | 30,000 | - | 30,000 | ||||||||||||||||||
| Net loss for the period | - | - | - | - | (856,777 | ) | (856,777 | ) | ||||||||||||||||
| Balance, March 31, 2021 | 23,472,565 | $ | 23,472 | $ | - | $ | 6,736,115 | $ | (2,341,219 | ) | $ | (4,418,368 | ) | |||||||||||
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
MADISON TECHNOLOGIES INC.
CONDENSED CONSOLIDATED StatementS of cash flows
(unaudited)
| For the Three Months Ended | ||||||||
| March 31 2022 | March 31 2021 | |||||||
| Cash Flows from operating activities: | ||||||||
| Net loss for the period | $ | (2,536,688 | ) | $ | (856,777 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Amortized interest | 707,999 | 133,200 | ||||||
| Amortization | 80,494 | 35,284 | ||||||
| Fair value of Warrant issued for services | 9,000 | - | ||||||
| Foreign exchange on notes payable | - | 311 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts payable and accruals | 475,884 | 518,286 | ||||||
| Payment of lease liability | (55,327 | ) | - | |||||
| Accounts receivable | 44,821 | - | ||||||
| Due from related party | 709,259 | - | ||||||
| Prepaid expenses | 1,760 | (966,903 | ) | |||||
| Net cash used in operating activities | (562,799 | ) | (1,136,599 | ) | ||||
| Cash Flows from investing activities: | ||||||||
| Purchases of equipment, intangible assets and goodwill | (44,941 | ) | - | |||||
| Funds advanced for note receivable | (51,517 | ) | - | |||||
| Net cash used in investing activities | (96,458 | ) | - | |||||
| Cash Flows from financing activities: | ||||||||
| Proceeds from convertible notes sold | $ | 810,000 | $ | 15,030,000 | ||||
| Shares subscribed but not issued | - | 510,000 | ||||||
| Net cash provided by financing activities | 810,000 | 15,540,000 | ||||||
| Net increase (decrease) in cash | 150,743 | 14,403,401 | ||||||
| Cash, beginning of period | 55,656 | 9,491 | ||||||
| Cash, end of period | $ | 206,399 | $ | 14,412,892 | ||||
| SUPPLEMENTAL DISCLOSURE | ||||||||
| Interest paid | $ | 453,750 | $ | - | ||||
| Taxes paid | $ | - | $ | - | ||||
| For the Three Months Ended | ||||||||
| March 31, 2023 | March 31, 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations for the period | $ | (17,453,762 | ) | $ | (2,218,927 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Amortized interest | 699,516 | 652,933 | ||||||
| Amortization | — | — | ||||||
| Fair value of Warrant issued for services | — | 9,000 | ||||||
| Loss on disposal of assets | 15,874,921 | — | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts payable and accruals | 673,343 | 354,976 | ||||||
| Payment of lease liability | — | — | ||||||
| Accounts receivable | — | — | ||||||
| Due from related party | — | — | ||||||
| Prepaid expenses | 12,722 | 13,317 | ||||||
| Net cash used in operating activities | (193,260 | ) | (1,188,701 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of equipment, intangible assets and goodwill | — | (30,427 | ) | |||||
| Funds advanced for note receivable | — | (51,517 | ) | |||||
| Net cash used in investing activities | — | (81,944 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible and subordinate notes sold | $ | 240,000 | $ | 810,000 | ||||
| Net cash provided by financing activities | 240,000 | 810,000 | ||||||
| Cash flows from continuing operations | 46,740 | (460,645 | ) | |||||
| Cash flows from discontinued operations: | ||||||||
| Net cash provided by (used in) operating activities | (46,147 | ) | 474,446 | |||||
| Net cash used in investing activities | — | (14,514 | ) | |||||
| Cash flows from discontinued operations | (46,147 | ) | 459,932 | |||||
| Net (decrease) increase in cash | 593 | (713 | ) | |||||
| Cash, beginning of period | — | 729 | ||||||
| Cash, end of period | $ | 593 | $ | 16 | ||||
| SUPPLEMENTAL DISCLOSURE | ||||||||
| Interest paid | $ | — | $ | 453,750 | ||||
| Taxes paid | $ | — | $ | — | ||||
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
MADISON TECHNOLOGIES INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2022
Note 1 Nature of Operations
Our CompanyMadison Technologies Inc. (“Madison” or the “Company” or “we” or “us” or “our”) was incorporated on June 15, 1998 in the State of Nevada, USA and our shares of common sharesstock, par value $0.001 per share (“Common Stock”), are publicly tradedquoted on the Experts Market tier of the over-the-counter market operated by OTC Markets, OTCQB.Inc.
We through our wholly-owned subsidiary, Sovryn Holdings, Inc.are seeking to create, develop and launch BlockchainTV (“Sovryn”BCTV”) acquired three un-affiliated Class A/LPTV TV. Each licensed TV station can, the first-to-market 24/7 television broadcast between 10 and 12 channels over-the-air, 24 hours per day/7 days per week. In 2021, we generated revenue by leasing channelsstreaming communications network designed to third parties on KNLA/KNET, a Class A television stationbring the most up-to-date crypto information and entertainment to the masses in Los Angeles, KVVV, a low power television station in Houstonthe U.S. and KYMU-LD, a low power television station in Seattle.around the world.
On November 15, 2021, we sold our wholly owned subsidiary, CZJ License Inc. for $250,000.
During August 2021, our shareholders approved to amend and restate our Articles of Incorporation to increase our authorized common stock from shares to shares.
Note 2 Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. For the year ended December 31, 2021,2022, we generated no revenues from continuing operations, incurred a net loss of $14,262,57913,139,810 and as of December 31, 2022, had a working capital deficit and an accumulated deficit of $4,373,27113,860,314 and $15,747,02128,886,831, respectively, at December 31, 2021. We have not yet made the $0.4 million interest payments on the Notes held by Arena Partners LP that were due on April 1, 2022 and July 1, 2022, and we are currently in discussions with Arena Capital LP on a plan of forbearance.respectively. It is management’s opinion that these matters raise substantial doubt about our ability to continue as a going concern for a period of twelve months from the issuance date of this report. Our ability to continue as a going concern is dependent upon management’s ability to obtain a plan of forbearance, further implement our business plan and raise additional capital as needed from the sales of stock or debt.debt and further implement our business plan. The accompanying condensed consolidated financial statements do not include any adjustments that might be required should we be unable to continue as a going concern.
Note 3 Summary of Significant Accounting Policies
Use of estimates
The preparation of the condensed consolidated interim financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.
Consolidation
Consolidation
The accompanying condensed consolidated financial statements include the accounts of our current and former wholly owned subsidiaries, SovrynBlockchain.tv, Inc. and SovRryn Holdings Inc. and CZJ License Inc. CZJ License Inc. was(“Sovryn”). Sovryn is consolidated up until it was sold on November 15, 2021.January 31, 2023 and recognized as a discontinued operation. All the intercompany balances and transactions have been eliminated in the consolidation. During the year ended December 31, 2021, the operations of CZJ License Inc. were consolidated into our operation and were designated as discontinued.
Interim Reporting
While the information presented in the accompanying interim three monththree-month financial statements is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the Company’s December 31, 20212022 annual financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s December 31, 20212022 annual financial statements. Operating results for the three months ended March 31, 20222023 are not necessarily indicative of the results that can be expected for the year ended December 31, 2022.2023.
Segment reporting
We use “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance as the source for determining our reportable segments. Our chief operating decision maker is our chief executive officer, who reviews operating results to make decisions about allocating resources and assessing our entire performance. We did not report any segment information since we primarily generates sales from its television stations.on an aggregated basis.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Revenue recognition
We adopted the ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). We recognize revenue when we transfer promised services to the customer. The performance obligation is the monthly services rendered. We have one main revenue source which is leasing of television station channels. Accordingly, we recognize revenue when services are provided as time passes the customers have access to utilize the channel. These revenues are billed in advance, arrears and/or are prepaid. The performance obligation is the monthly services rendered. At the moment,March 31, 2023, we have one main revenue source, which is the leasing of television channels. Where there is a leasing contract for channels, we bill monthly for our services as rendered. Where there is no contract, the revenue is recognized as provided.
We recognize revenue in accordance with ASC 606 using the following 5 steps to identify revenues:
| ● | identify the contract with a customer; |
| ● | identify the performance obligations in the contract; |
| ● | determine the transaction price; |
| ● | allocate the transaction price to performance obligations in the contract; and |
| ● | recognize revenue as the performance obligation is satisfied. |
Advances from Client’sclient deposits are contract liabilities with customers that represent our obligation to either transfer goods or services in the future, or refund the amount received. Where possible, we obtain retainers to lessen our risk of non-payment by our customers. Advances from Client’sclient deposits are recognized as revenue as we meet specified performance obligations as detailed in the contract.
Accounts receivables
Trade accounts receivable are stated at the amount we expect to collect. Management considers the following factors when determining the collectability of specific customer accounts: customer credit worthiness, past transaction history, current economic industry trends and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. Based on the management’s assessment, we provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. As of March 31, 2022, our allowance for doubtful accounts receivable was $31,500.
Operating leases
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”). The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the term of the lease. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We adopted the new standard April 19, 2021. We have elected not to recognize lease assets and lease liabilities for leases with an initial term of 12 months or less.
Intangible assets
Intangible assets are non-monetary identifiable assets, controlled by us that will produce future economic benefits, based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. An intangible asset that does not meet these attributes will be recognized as an expense when it is incurred. Intangible assets that do, are capitalized and initially measured at cost. Those with a determinable life will be amortized on a systematic basis over their future economic life. Those with an indefinite useful life shall not be amortized until its useful life is determined to be longer indefinite. An intangible asset subject to amortization shall be periodically reviewed for impairment. A recoverability test will be performed and, if applicable, unscheduled amortization is considered.
License agreements have been capitalized, recorded at cost and amortized over the life of the contracts. They will be amortized over the life of the license to which it supports.
Equipment
Equipment represents purchases made for assets, whose useful life was determined to be greater than one year. The assets are initially recorded at cost and depreciated over their estimated useful lives.
Website development costs
We recognized the costs associated with developing a website in accordance with ASC 350-50 “Website Development Cost”. The website development costs are divided into three stages, planning, development and production. The development stage can further be classified as application and infrastructure development, graphics development and content development. In short, website development cost for internal use should be capitalized except content input and data conversion costs in content development stage.
Costs associated with the website consist primarily of website development costs paid to third party. These capitalized costs will be amortized based on their estimated useful life over three years upon the website becoming operational. Internal costs related to the development of website content will be charged to operations as incurred. Website development costs related to the customers are charged to cost of sales.
Impairment of Long-Lived Assets
In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and intangible assets we hold and use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
Concentration of credit risk
We place our cash and cash equivalents with a high credit quality financial institution. We maintain United States Dollars. We minimize its credit risks associated with cash by periodically evaluating the credit quality of its primary financial institution.
Financial instruments
Our financial instruments consist principally of cash, accounts payable, accrued liabilities and notes payable. The carrying amounts of such financial instruments in the accompanying financial statements approximate their fair values due to their relatively short-term nature or the underlying terms are consistent with market terms. It is the management’s opinion that we are not exposed to any significant currency or credit risks arising from these financial instruments.
Fair value measurements
We follow the guidelines in ASC Topic 820 “Fair Value Measurements and Disclosures”. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. All financial instruments approximate their fair value.
Level 1 — Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. | ||
| Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities | ||
| Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. |
Convertible Notes with Fixed Rate Conversion Options
We may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. We record the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Notenote date with a charge to interest expense in accordance with ASC 480 480–- “Distinguishing Liabilities from Equity”.
Derivative Liabilities
We have certain financial instruments that are derivatives or contain embedded derivatives. We evaluate all of our financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with us, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
Net Loss Per Share
Basic loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in our earnings (loss). Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. As of March 31, 2023 and 2022, no options were outstanding and and warrants were outstanding and exercisable.exercisable, respectively. Additionally, as of March 31, 2023 and 2022, the outstanding principal balance, including accrued interest of the third-party convertible debt, totaled $22,154,828 and $19,383,713, respectively, and was convertible into and shares of Common Stock.Stock, respectively. We issued shares of preferred stock (“Preferred StockStock”) that may be converted into our Common Stock. Of the outstanding shares of Preferred Stock as of March 31, 2022,2023, as applicable, Series A Preferred Stock was convertible into shares of Common Stock, Series D Preferred Stock was convertible into shares of Common shares,Stock, Series E-1 Preferred Stock was convertible into shares of Common sharesStock and Series H Preferred Stock was convertible into shares of Common shares.Stock. The total potentially dilutive shares calculated are and as of March 31, 2023 and 2022, respectively. It should be noted that contractually the limitations on the third-party notes (and the related warrants) limit the number of shares converted tointo either 4.99% or 9.99% of the then outstanding sharesshares.. As of March 31, 2022,2023 and 2021,2022, potentially dilutive securities consisted of the following:
| March 31, 2022 | March 31, 2021 | |||||||
| Warrants | 203,673,016 | 192,073,017 | ||||||
| Convertible Preferred Stock | 1,346,895,000 | 230,000,000 | ||||||
| Convertible debt | 951,018,661 | 835,839,600 | ||||||
| Total | 2,501,586,677 | 1,257,912,617 | ||||||
| March 31, 2023 | March 31, 2022 | |||||||
| Warrants | 286,173,016 | 203,673,016 | ||||||
| Convertible Preferred Stock | 1,665,451,580 | 1,346,895,000 | ||||||
| Convertible debt | 1,187,237,384 | 951,018,661 | ||||||
| Total | 3,136,861,880 | 2,501,586,677 | ||||||
Business Combinations
In accordance with ASC 805-10, “Business Combinations”, we account for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that we hold in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in our results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.
Credit losses
In June 2016, the FASB issued ASU 326, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires us to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. We are currently assessing the impact of the adoption of this ASU on its financial statements.
Related Party Transactions
We follow FASB ASC subtopic 850-10, “Related Party Transactions”, for the identification of related parties and disclosure of related party transactions.
Pursuant to ASC 850-10-20, related parties include: a)(a) our affiliates; b)(b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c)(c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d)(d) our principal owners; e)©) our management; f)(f) other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g)(g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Material related party transactions are required to be disclosed in the condensed consolidated financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a)(a) the nature of the relationship(s) involved; b)(b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c)(c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d)(d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Discontinued operations
Discontinued operations are components of an entity that either have been disposed or abandoned or is classified as held for sale. Additionally, in order to qualify as a discontinued operation, the disposal or abandonment must represent a strategic shift that has or will have a major effect on an entity’s operations and financial results.
Income taxes
We follow the guideline under ASC Topic 740 Income Taxes. “Accounting for Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding our future profitability, the future tax benefits of its losses have been fully reserved.
Recently Issued Accounting Pronouncements
We adopt new pronouncements relating to generally accepted accounting principles applicable to us as they are issued, which may be in advance of their effective date.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact this new guidance will have on its financial statements
We do not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying condensed consolidated financial statements.
Note 4 Notes Receivable
Schedule of Notes Receivable
| March 31, 2022 | December 31, 2021 | |||||||
| Secured note – Top Dog Productions Inc. | $ | 520,268 | $ | 468,750 | ||||
| Convertible note – ZA Group | 250,000 | 250,000 | ||||||
| Prepaid expenses | 12,902 | 24,042 | ||||||
| Accrued interest | 16,192 | 6,811 | ||||||
| Total Notes Receivable | $ | 799,362 | $ | 749,603 | ||||
On September 9, 2021, we entered into a secured promissory note with Top Dog Productions Inc. We agreed to lend an aggregate principal sum of up to $2,000,000 that accrues at a rate of 5% per annum. The note receivable and all accrued interest is due on September 9, 2022. The principal and interest amount of the note may be prepaid in whole or in part at any time, without penalty nor premium. Accrued interest is $11,526 at March 31, 2022.
On November 15, 2021, we entered into a $250,000 convertible promissory note with ZA Group Inc. for the sale of its wholly owned subsidiary, CZJ License Inc. The note accrues at a rate of 5% per annum. The principal and accrued interest of the note receivable will be due and payable on November 5, 2023. At any time after 180 days following the date of the note receivable, we may convert all or any part of the outstanding and unpaid amount of the note into fully paid and non-assessable shares of common stock of ZA Group Inc. at a fixed conversion price of $0.005 per share. Accrued interest is $4,666 at March 31, 2022.
Note 5 -Intangible Assets
Our Federal Communication Commission Licenses (“FCC”) and domain name are considered indefinite-lived intangible assets that are not amortized, but instead are tested at least annually for impairment. The Market Advantage intangible asset is being amortized on a straight-line basis over 94 months from the acquisition date. Amortization expense for the three months ended March 31, 2022 and 2021 was $6,260 and $0, respectively.
Schedule of Intangible Assets
| March 31, 2022 | ||||||||||||
| Cost | Amortization | Net | ||||||||||
| Domain Name | $ | 172,427 | $ | - | $ | 172,427 | ||||||
| Market Advantage | 58,843 | 6,260 | 52,583 | |||||||||
| FCC Licenses | 10,159,063 | - | 10,159,063 | |||||||||
| $ | 10,390,333 | $ | 6,260 | $ | 10,384,073 | |||||||
Future amortization expense of the intangible assets is as follows:
Schedule of Future Amortization Expenses of Intangible Assets
For the Twelve Months Ending March 31, | ||||
| 2022 | $ | 7,512 | ||
| 2023 | 7,512 | |||
| 2024 | 7,512 | |||
| 2025 | 7,512 | |||
| 2026 | 7,512 | |||
| Thereafter | 15,023 | |||
| Total | $ | 52,583 | ||
Note 6 Goodwill
As of March 31, 2022, we carry goodwill for the following television station asset purchases made in 2021:
Schedule of Goodwill Asset Purchase
| KNLA - KNET acquisition | $ | 977,059 | ||
| KVVV acquisition | 613,097 | |||
| KYMU acquisition | 225,966 | |||
| Total | $ | 1,816,122 |
Note 7 Equipment
Schedule of Equipment
Useful Life | Cost | Accumulated Depreciation | Net | |||||||||||
| Transmitter | 10 years | $ | 854,059 | $ | (72,718 | ) | $ | 781,341 | ||||||
| Antenna | 10 years | 283,029 | (23,784 | ) | 259,245 | |||||||||
| Tech Equipment | 5 years | 446,155 | (61,713 | ) | 384,442 | |||||||||
| Office Equipment | 5 years | 7,389 | (1,232 | ) | 6,157 | |||||||||
| Microwave | 5 years | 22,065 | (4,229 | ) | 17,836 | |||||||||
| $ | 1,612,697 | $ | (169,938 | ) | $ | 1,449,021 | ||||||||
Depreciation expense was $53,718 and $0 for the three months ended March 31, 2022 and 2021, respectively.
Note 8 Right of Use Assets
We have six operating leases ranging from a period of 80 months to a period of 332 months. The annual interest rate used was 15%. As at March 31, 2022, the remaining right of use assets are as follows:
Schedule of Remaining Right of Use Assets
| Term | Accumulated | |||||||||||||||
| (in months) | Amount | Amortization | Net | |||||||||||||
| Tower Lease 1 | 171.5 | $ | 547,663 | $ | 36,092 | $ | 511,571 | |||||||||
| Tower lease - 2 | 91 | 244,079 | 25,966 | 218,113 | ||||||||||||
| Tower Lease - 3 | 332 | 233,043 | 4,174 | 228,869 | ||||||||||||
| Generator Lease | 171.5 | 109,507 | 7,217 | 102,290 | ||||||||||||
| Studio Lease - 1 | 217.5 | 280,084 | 12,703 | 267,381 | ||||||||||||
| Studio Lease - 2 | 80 | 49,561 | 3,582 | 45,979 | ||||||||||||
| $ | 1,463,937 | $ | 89,734 | $ | 1,374,203 | |||||||||||
The remaining lease liability at March 31, 2022 was $1,468,233. The current portion of the lease liability was $0 and the non-current portion of the lease liability was $1,468,233.
Schedule of Remaining Lease Liability
| 2022 | $ | 168,553 | ||
| 2023 | 231,120 | |||
| 2024 | 239,780 | |||
| 2025 | 253,163 | |||
| 2026 | 261,433 | |||
| Remaining | 3,244,121 | |||
| Lease obligations, net | 4,398,170 | |||
| Amount representing interest | 2,929,937 | |||
| Remaining lease liability | 1,468,233 | |||
| Less current portion | - | |||
| Non-current lease obligation | $ | 1,468,233 |
Note 92 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of December 31 are summarized below:
Schedule of Accounts Payable and Accrued Liabilities
| March 31, 2022 | December 31. 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
| Accounts payable | $ | 729,970 | $ | 659,219 | $ | 385,797 | $ | 371,987 | ||||||||
| Customer deposits | 67,313 | 78,812 | ||||||||||||||
| Accrued expenses | 44,456 | 38,238 | 293,210 | 174,078 | ||||||||||||
| Accrued interest | 54,698 | 15,533 | 281,988 | 195,334 | ||||||||||||
| Total | $ | 896,437 | $ | 791,802 | $ | 960,994 | $ | 741,399 | ||||||||
Note 103 Securities Exchange AgreementsDerivative Liability
Sovryn Holdings, Inc.
We entered intoincur a Securities Exchange Agreement on February 16, 2021derivative liability when we issue warrants in connection with Sovryn, a Delaware corporation and acquired %the sale of notes payable. Management has determined that the shares of Sovryn in exchange for i) shares of our Series B Preferred Stock to be transferred by Jeffrey Canouse, our CEO at the time, to a designee of Sovryn and ii) shares of Series E Preferred Stock. Upon the effectiveness of an amendment to out Articles of Incorporation to increase our authorized common stock, from par value $ to par value $ per share, from shares to shares, all shares of Series E Preferred Stock issued to the shareholders shall automatically convert into approximately shares of our Common Stock. The Series E Preferred Stock votes on an as-converted basis with our Common Stock prior to their conversion. The Series E Preferred Stock represented approximately % of the fully diluted sharesdaily closing price of our Common Stock afteris not a reliable factor for determining the closingvalue of the transactions contemplated by the Securities Purchase Agreement. The valuation for the Preferred Series E shares was determined to be $ basedwarrants and corresponding derivative liability on the market valuebasis that (i) the total volume of our Common Stock traded is approximately 3,700,000 shares we exchanged at the date the transaction. The transaction was recorded as an asset purchase and we recorded goodwill of $ which was based on the market valuesince January 1, 2023, representing 0.2% of our outstanding shares exchanged atand (ii) since July 2022 through the date of this Quarterly Report on form 10-Q, our Common Stock is listed on the transaction.
Note 11 Asset Purchase
On April 19, 2021, pursuantOTC Expert Market that limits visibility of our Common Stock to investors. Valuation methods such at Black-Scholes rely on daily closing prices and their volatility. As a February 17, 2021 asset purchase agreement, Sovryn paidbetter representation of value, management used a totalshare price of $10,182,534$0.018 per share to acquiredetermine the licenses and Federal Communications Commission (“FCC”) authorizations toderivative liability from warrants issued through December 31, 2022, which was the KNET-CD and KNLA-CD Class A television stations (“the Los Angeles Stations”), certain tangible personal property, real property, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilitiesper share price used in connection with the Los Angeles Stations.
The following table shows the estimated fair valuesissuance of 255,555,556 shares of Common Stock issued upon conversion of the Los Angeles Stations’ assets acquiredSeries G Preferred Stock on November 2, 2021. For warrants issued since January 1, 2023, management used a $0.000 price to determine the derivative liability given the absence of trading volume and liabilities assumed atour financial condition.
For the April 19, 2021 purchase date:three months ended March 31, 2023, our derivative liability was as follows:
Schedule of Asset AcquisitionsDerivative Liability
| ASSETS ACQUIRED | ||||
| Transmitter equipment | $ | 576,944 | ||
| Technical equipment | 183,841 | |||
| Antenna systems | 128,562 | |||
| Microwave equipment | 22,065 | |||
| Total tangible assets acquired | 911,412 | |||
| Total liabilities assumed | - | |||
| NET TANGIBLE ASSETS ACQUIRED | $ | 911,412 | ||
| INTANGIBLE ASSETS ACQUIRED | ||||
| FCC licenses | 8,294,063 | |||
| Transmitter site leasehold | ||||
| Goodwill | 977,059 | |||
| INTANGIBLE ASSETS ACQUIRED | 9,271,122 | |||
| NET ASSETS ACQUIRED | $ | 10,182,534 | ||
| March 31, 2023 | ||||
| Balance at January 1, 2023 | $ | 4,429,329 | ||
| Liability for Warrants issued | — | |||
| Balance at March 31, 2023 | $ | 4,429,329 | ||
In the three months ended March 31, 2023, we issued warrants to purchase up to 40,000,000 shares of Common Stock at $ per share.
On June 1, 2021, pursuant to a March 14, 2021 an asset purchase agreement, Sovryn paid a total of $1,500,000 to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVVV-LD low power television station (“the Houston Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Houston Station.
The following table shows the estimated fair values of the Houston Station’s assets acquired and liabilities assumed at the June 1, 2021 purchase date:
| ASSETS ACQUIRED | ||||
| Transmitter equipment | $ | 107,141 | ||
| Technical equipment | 71,399 | |||
| Antenna systems | 112,211 | |||
| Furniture and equipment | 7,389 | |||
| Total tangible assets acquired | 298,140 | |||
| Total liabilities assumed | - | |||
| NET TANGIBLE ASSETS ACQUIRED | $ | 298,140 | ||
| INTANGIBLE ASSETS ACQUIRED | ||||
| FCC licenses | 530,000 | |||
| Transmitter site leasehold | 58,763 | |||
| Goodwill | 613,097 | |||
| INTANGIBLE ASSETS ACQUIRED | 1,201,860 | |||
| NET ASSETS ACQUIRED | $ | 1,500,000 | ||
On September 24, 2021, pursuant to a March 29, 2021 an asset purchase agreement, Sovryn paid a total of $1,864,920 to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KYMU-LD low power television station (“the Seattle Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Seattle Station.
The following table shows the estimated fair values of the Seattle Station’s assets acquired and liabilities assumed at the September 24, 2021 purchase date:
| ASSETS ACQUIRED | ||||
| Transmitter equipment | $ | 169,974 | ||
| Technical equipment | 91,274 | |||
| Antenna systems | 42,256 | |||
| Microwave equipment | - | |||
| Total tangible assets acquired | 303,954 | |||
| Total liabilities assumed | - | |||
| NET TANGIBLE ASSETS ACQUIRED | $ | 303,954 | ||
| Goodwill | ||||
| INTANGIBLE ASSETS ACQUIRED | ||||
| FCC licenses | 1,335,000 | |||
| Goodwill | 225,966 | |||
| INTANGIBLE ASSETS ACQUIRED | 1,560,966 | |||
| NET ASSETS ACQUIRED | $ | 1,864,920 | ||
Note 124 Note PayablePromissory Notes
On December 28, 2021, we soldissued a $500,000 promissory note that bears interest at 12% per annum and matures on April 5, 2022March 31, 2023, as amended.. In connection with the note sale,such issuance, we issued 500,000 Warrantswarrants that expire on December 31, 2023 and may be converted in shares of our Common Stock startingon or after June 26, 2022 at a price of $ per share. We estimate the value the Warrantsuch warrant to be approximately $9,000, based on a value of $ per share of our Common Stock as of December 28, 2021.The2021. The promissory note is subordinate to the Notesconvertible notes having an aggregate principal amount of $16.5 million (collectively, the “Notes”), which we issued to funds affiliated with Arena Investors, LP (collectively, the Investors.“Investors”). As of March 31, 2022,2023, $500,000 in note principal is outstanding. We have not yet repaid the noteholder and are in default.
10
On January 14, 2022, we soldissued an unsecured $165,000 150,000note payable that matures onwith $15,000 in fees payable upon its April 5, 2022, has a $15,000 original issuance discount and $15,000 in maturity date, which we treated as deferred financing fees that we paid and amortize over the term of the note. The obligation is subordinate to the Notes we issued to the Investors. As of March 31, 2022,2023, $165,000 120,000in note principal is outstanding. We have not yet repaid the noteholder and are in default.
On January 14, 2022, we soldissued an unsecured $165,000150,000 note payable that matures on April 5, 2022, has a $15,000 original issuance discount andwith $15,000 in fees thatpayable upon its April 5, 2022 maturity date, which we paidtreated as deferred financing fees and amortizeamortized over the term of the note. The obligation is subordinate to the Notes we issued to the Investors. As of March 31, 2022,2023, $165,000135,000 in note principal is outstanding. We have not yet repaid the noteholder and are in default.
On April 27, 2022, we issued a $125,000 unsecured note payable that has a $12,500 original issue discount and matured on December 31, 2022. In connection with such issuance, we issued the noteholder a warrant to purchase up to 2,500,000 shares of our Common Stock at $0.025 per share that is exercisable starting September 15, 2022 and until April 15, 2024. We estimate the total value of such warrants to be $45,000, based on a $ price per share of our Common Stock that we treat as a debt discount and amortize over the term of the note. As of March 31, 2023, $125,000 in note principal is outstanding. We have not yet repaid the noteholder and are in default.
Note 13 5 Convertible Notes Payable
The principal portions of ourOur convertible notes payable, all of which are current liabilities, are as follows as of:
Schedule of Convertible Notes Payable
| March 31, 2023 | December 31, 2022 | |||||||||
| Series 1 | (a) | 1,050,000 | 1,050,000 | |||||||
| Series 2 | (b) | 470,000 | 250,000 | |||||||
| Series 3 | (c) | 208,000 | 208,000 | |||||||
| Series 4 | (d) | 220,000 | 550,000 | |||||||
| Series 5 | (e) | 542,500 | 192,500 | |||||||
| Series 6 | (f) | 55,000 | 55,000 | |||||||
| Principal outstanding | 2,545,500 | 2,305,500 | ||||||||
| Less discount | 262,203 | 426,094 | ||||||||
| Principal outstanding, net | $ | 2,283,297 | $ | 1,879,406 | ||||||
| March 31, 2022 | December 31, 2021 | |||||||||||
| Senior Secured | [a] | $ | 16,500,000 | $ | 16,500,000 | |||||||
| Series 1 | [b] | 850,000 | 850,000 | |||||||||
| Series 2 | [c] | 325,000 | - | |||||||||
| Series 3 | [d] | 275,000 | - | |||||||||
| Total | 17,950,000 | 17,350,000 | ||||||||||
| Less current portion | 1,450,000 | 850,000 | ||||||||||
| Long-term portion | $ | 16,500,000 | $ | 16,500,000 | ||||||||
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| (a) | Series 1: We issued a total of $1,050,000 in subordinated convertible notes that bear interest at 6% per annum, matured on December 31, 2022 and may be converted at the noteholder’s option at any time into shares of our Common Stock at a fixed price of $ per share. We have not yet repaid the noteholders and are in default. |
| (b) | Series 2: On January 6, 2022, we issued to one of our shareholders a $250,000 unsecured note payable that bears interest at 12% per annum and matured on April 6, 2022. In connection with such issuance, we issued the noteholder a warrant to purchase up to shares of our Common Stock at $0.021 per share at any time starting July 1, 2022 and ending July 1, 2024. We estimate the value of the warrant to be $112,500, based on a $ price per share of our Common Stock that is treated as a debt discount to be amortized over the term of the note. We have not yet repaid the noteholder and are in default. On January 14, 2022, we issued to one of our shareholders a $25,000 unsecured note payable that bears interest at 12% per annum and matured on April 6, 2022. In connection with such issuance, we issued the noteholder a warrant to purchase up to shares of our Common Stock at $0.021 per share at any time starting July 1, 2022 and ending July 1, 2024. We estimate the value of the warrant to be $10,800, based on a $ price per share of our Common Stock that we treated as a debt discount to be amortized over the term of the note. In May 2022, we repaid the note. On February 17, 2022, we issued a $50,000 unsecured note payable that bears interest at 12% per annum and matured on April 6, 2022. In connection with such issuance, we issued the noteholder a warrant to purchase up to shares of our Common Stock at $0.021 per share at any time starting July 1, 2022, and ending July 1, 2024. We estimate the value of the warrant to be $22,500, based on a $ price per share of our Common Stock that we treat as a debt discount that we amortized over the term of the note. In April 2022, we repaid the note. |
| (c) | Series 3: On February 15, 2022, we issued two $137,500 unsecured convertible notes payable bearing an 11.25% interest rate per annum that matured on February 23, 2023 and have a $15,000 original issue discount. In connection with such issuances, we issued the noteholders warrants to purchase up to shares of our Common Stock at $0.10 per share that are exercisable at any time until February 11, 2027. We estimate the total value of the warrants to be $90,000, based on a $ price per share of our Common Stock that we treat as a debt discount and amortize over the terms of the notes along with the deferred financing fees. The notes’ principal and interest may be converted into our Common Stock at $ per share. On October 25, 2022, the noteholder converted $67,000 and $13,004 of note principal and interest, respectively. We have not yet repaid the noteholders their outstanding principal and interest and are in default. |
| (d) | Series 4: On May 5, 2022, we issued a shareholder a convertible subordinate note totaling $110,000 that accrues interest at 12% per annum and matured on May 5, 2023. The note may be converted into shares of our Common Stock at $0.02 per share. In connection with such issuance, we issued the noteholder a warrant to purchase up to shares of our Common Stock at $ per share. We have not yet repaid the noteholders and are in default. On June 24, 2022, we issued a convertible subordinate note totaling $110,000 that accrues interest at 12% per annum and matured on May 5, 2023. The note may be converted into shares of our Common Stock at $0.02 per share. In connection with such issuance, we issued the noteholder a warrant to purchase up to 5,000,000 shares of our Common Stock at $ per share. We have not yet repaid the noteholders and are in default. |
| (e) | Series 5: On May 5, 2022, we issued an $82,500 note payable that has a $7,500 original issue discount, matured on May 5, 2023 and bears interest at 12% per annum. In connection with such issuance, we issued the noteholder a warrant to purchase up to shares of our Common Stock at $0.02 per share that is exercisable upon issuance until May 5, 2029. We estimate the total value of the warrants to be $67,500, based on a $ price per share of our Common Stock that we treat as a debt discount and amortize over the term of the note. As of March 31, 2023 and December 31, 2022, $82,500 in note principal is outstanding. We have not yet repaid the noteholders and are in default. On May 5, 2022, we issued a $110,000 note payable that has a $10,000 original issue discount and matured on May 5, 2023 and bears interest at 12% per annum. In connection with such issuance, we issued the noteholder a warrant to purchase up to shares of our Common Stock at $0.02 per share that is exercisable upon issuance until May 5, 2029. We estimate the total value of the warrants to be $90,000, based on a $ price per share of our Common Stock that we treat as a debt discount and amortize over the term of the note. As of March 31, 2023 and December 31, 2022, $110,000 in note principal is outstanding. We have not yet repaid the noteholders and are in default. On October 14, 2022, we issued a $110,000 note payable that has a $10,000 original issue discount and matured on October 14, 2023 and bears interest at 12% per annum. In connection with such issuance, we issued the noteholder a warrant to purchase up to shares of our Common Stock at $0.02 per share that is exercisable upon issuance until May 5, 2029. We estimate the total value of the warrants to be $90,000, based on a $ price per share of our Common Stock that we treat as a debt discount and amortize over the term of the note. As of March 31, 2023 and December 31, 2022, $110,000 in note principal is outstanding. We have not yet repaid the noteholders and are in default. On December 2, 2022, we issued a $220,000 note payable that has a $20,000 original issue discount and matured on October 14, 2023 and bears interest at 12% per annum. In connection with such issuance, we issued the noteholder a warrant to purchase up to shares of our Common Stock at $0.02 per share that is exercisable upon issuance until May 5, 2029. We estimate the total value of the warrants to be $180,000, based on a $ price per share of our Common Stock that we treat as a debt discount and amortize over the term of the note. As of March 31, 2023 and December 31, 2022, $220,000 in note principal is outstanding. We have not yet repaid the noteholder and are in default. |
| (f) | Series 6: On September 16, 2022, we issued a $55,000 note payable that has a $5,000 original issue discount and matured on September 16, 2023 and bears interest at 12% per annum. The note may be converted into shares of our Common Stock at the lesser of $ per share or at a 50% discount to the lowest closing price of our Common Stock within the past twenty days prior to a conversion. As of March 31, 2023 and December 31, 2022, $55,000 in note principal is outstanding. We have not yet repaid the noteholders and are in default. |
On February 17, 2022, we issued a $50,000 unsecured note payable that bears interest at 12% per annum and matured on April 6, 2022. In connection with the note sale, we issued the noteholder a Warrant to purchase 1,250,000 shares of our Common Stock at $0.021 per share at any time starting July 1, 2022 and ending July 1, 2024. We estimate the value of the Warrant to be $22,500, based on a $ price per share of our Common Stock that we treat as a debt discount that we amortized over the term of the note. In April 2022, we repaid the note.
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Note 6 Senior Secured Notes
On February 17, 2021, we entered into a securities purchase agreement with In connection with the issuance of the Notes, we issued to the Investors |
The Notes have a term of thirty-six months and mature on February 17, 2024, unless earlier converted. The Notes accrue interest at a rate of11% per annum, subject to increase to 20% per annum upon default. Interest is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at our election, any interest payable on an applicable payment date may be paid in registered shares of our Common Stock in an amount equal (A) the amount of the interest payment due on such date, divided by (B) an amount equal to 80% of the average volume-weighted average price of our Common Stock for the five (5) days immediately preceding the date of conversionconversion.. At March 31, 20222023 and December 31, 20210222, accrued and unpaid interest was $825,0003,619,000 and $453,7503,300,000, respectively. We have not yet made the $453,750 million interest payments on the Notes held by Arena Partners LP that were due on April 1, 2022 and July 1, 2022, and we are currently in discussions with Arena Capital LP on a plan of forbearance.
On September 24, 2021, the Company and the Investors amended the Notes and related closing documents, by executing the Limited Waiver and First Amendment the closing documents (“the amendment”). Thedocuments. Such amendment also waived specified events of default. The Notes arewere henceforth convertible at any time, at the holder’s option, into shares of our Common Stock at a price of $ per share, subject to an event of default event adjustment. Notwithstanding the foregoing, at any time during the continuance of any Eventevent of Default,default, the Conversionconversion price in effect shall be equal toequals the alternate conversion price.price provided in the Notes. If at any time the conversion price as determined hereunder for any conversion would be less than the par share value of the Common Stock, then at the sole discretion of the Holder, thesuch conversion price hereunder may equalequals such par value for such conversion and the conversion amount for such conversion may be increased to include Additional Principal where Additional Principal means(defined as such additional amount to be added to the principal amount of thisthe Note to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the conversion price not been adjusted by the Holderholder thereof to the par value price, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price iswas also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with our issuance of our Common Stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. We maydid not have a right to redeem the Notes.
As part of thesuch purchase agreement with the Investors, we issued warrants to purchase up to 192,073,017 Warrants.shares of Common Stock. On September 24, 2021, we and the InvestorInvestors amended the warrant agreementwarrants such that each Warrant iswarrant became exercisable for a period of five (5) years from the date of issuance at an initial exercise price equal to $ per share, that is adjusted to $ per share when interest is paid late, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The exercise price is also subject to adjustment due to certain events, including stock dividends, stock splits and recapitalizations. The Holder may be eligible forInvestors could exercise the warrants on a cashless exercise.exercise basis.
The Series F Preferred Stock has no voting rights and shall convertconverts into 4.9% of our issued and outstanding shares of our Common Stock on a fully diluted basis upon Common Shareholder Approvalthe date on which stockholder approval for such issuance is obtained.. The Series F Preferred Stock was subsequently converted and 192,073,017 common shares of Common Stock, which were issued on October 11, 2021.
The Investors have contractually agreed to restrict their ability to exercise the Warrants and convert the Notes such that the number of shares of our Common Stock held by the Investors and their affiliates after such conversion or exercise does not exceed 9.99% of our then issued and outstanding shares of Common Stock. 14
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Note 14 Related PartyOn October 27, 2022, the agent (the “Agent”) for the Investors notified us that certain events of default have occurred and were continuing under the Notes. On November 21, 2022, we, the Investors and the Agent entered into a Forbearance Agreement, pursuant to which, among other things, we acknowledged the outstanding principal balances of the Notes, that we have an obligation for interest, including default interest, fees and expenses in connection with the Notes, that we have no rights of offset, defenses, claims or counterclaims with respect to our obligations and pursuant to a side letter, dated as of November 21, 2022, we agreed to achieve certain milestones by the dates as set forth therein. The Forbearance Agreement expired on December 30, 2022.
We entered into a consulting agreementAs of March 31, 2023 and December 31, 2022, the outstanding liability for the Notes is as follows:
Schedule of senior secured Note
| March 31, 2023 | December 31, 2022 | |||||||
| Principal | $ | 16,500,000 | $ | 16,500,000 | ||||
| Less discount | 1,486,551 | 1,900,760 | ||||||
| Principal, net of discount | $ | 15,013,449 | $ | 14,599,240 | ||||
As of March 31, 2023 and December 31, 2022, accrued interest payable was $3,753,750 and $3,300,000, respectively, with Warren Zenna of Zenna Consulting Group to provide oversight of marketing and communications services. The agreement commenced March 1, 2021 and ended on July 31, 2021. We paid Zenna Consulting Group $0 fees ininterest accruing at 11% per annum for the three months ended March 31, 2022 and 2021, respectively. Mr. Zenna is a member of our Board of Directors. On March 1, 2022, we granted a Warrant to Mr. Zenna to purchase up to 2023.
500,000 shares of our Common Stock at $
0.025Note 7 Related Party per share, on a cashless exercise basis, at any time beginning September 1, 2022 and ending September 1, 2026. We estimate the value the Warrant to be approximately $9,000, based on the $ price per share of our Common Stock on March 1, 2022.
Effective January 1, 2022, we entered into a management consulting agreement with GreenRock LLC, a company controlled by Philip Falcone, for a period of one year ending December 31, 2022, under which we provideprovided monthly remuneration of $35,000, plus expenses in connection with his duties, responsibilities and performance as our chief executive officer. In February 2021, our subsidiary, Sovryn Holdings Inc., entered into consulting agreement with GreenRock LLC to provide us with chief executive officer services. In the three months ended March 31, 20222023 and 2021,2022, we paid GreenRock LLC $40,000 35,000and $0 40,000in fees, respectively. Mr. Falcone is the managing member of GreenRock LLC and iswas our Chief Executive Officer.Officer until November 6, 2023. We paid GreenRock LLC abonuses of $128,473 and $233,140 bonus for the three months ended March 31, 2023 and 2022.
On April 7, 2021, we issued shares of our Common Stock to Mr. Canouse in exchange for transferring his shares of our Series B Preferred Stock to FFO1 Irrevocable Trust, an entity controlled by Mr. Falcone, our CEO and Chairman of our Board of Directors. The shares were valued at $1,500. The shares of Series B Preferred Stock that provide a 51% voting control regardless of the number of common or other voting securities we have issued at present or at any time in the future, such that the holder of the Series B Preferred shares shall maintain majority voting control over matters voted on by our shareholders. FFO1 Irrevocable Trust also holds Preferred Series E-1 shares and FFO2 Irrevocable Trust holds Preferred Series E-1 shares. Lisa Falcone, wife of Mr. Falcone, is the trustee of FFO2 Irrevocable Trust and Ms. Falcone has shared voting and dispositive power.
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Note 158 Mezzanine Equity
We account for certain of our Preferred Stock in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Based on this guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the various Seriesseries of our Preferred Stock, which is subject to conditional redemption, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the condensed consolidated balance sheetssheets.
Preferred Shares
Series A Preferred Stock
On February 16, 2021, we cancelled all the Preferred Series A shares. In exchange, the holdersThere are designated and authorized shares of Series A Preferred shares received one-year option agreementsStock, subject to purchasea 9.99% conversion limitation and anti-dilution rights for 24 months from the time of issuance. Holders of Series A Preferred Stock are entitled to receive, when and as declared, dividends equal to 3% per annum on the stated value, payable in additional shares of Series A Preferred Stock. Holders of Series A Preferred Stock have the right to vote on any matter submitted to our wholly owned subsidiaryshareholders for vote, on an as-converted basis. Each share of Series A Preferred Stock may be convertible into shares of Common Stock, or as adjusted to equal the conversion ratio multiplied by a fraction, the numerator of which is the number of shares outstanding on a fully diluted basis after the issuance of the dilution shares, and the denominator is .
On July 17, 2020, we issued Series A Preferred Stock at a value of $343,094, with
As at $ per share for up to shares. The option agreement expired without being exercised.March 31, 2023, no shares of Series A Preferred Stock are outstanding.
Series C Preferred Stock
There are designated and authorized shares of Series C Preferred Stock.Stock, containing a 9.99% conversion limitation. Holders of Series C Preferred Stock shall beare entitled to receive, when and as declared, dividends equal to 2% per annum on the stated value, payable in additional shares of Series C Preferred Stock. So long as any shares of Series C Preferred Stock remain outstanding, without the consent of the holders of 80% of the shares of Series C Preferred Stock then outstanding, we may not redeem, repurchase or otherwise acquire directly or indirectly any securities deemed junior to such Series C Preferred Stock (“Junior Securities”) nor may we directly or indirectly pay or declare or make any distribution upon, nor may any distribution be made in respect of, any Junior Securities, nor may any monies be set aside for or applied to the purchase or redemption of any Junior Securities. Each holder of the Series C Preferred Stock has the right to vote on any matter submitted to our shareholders for a vote, on an as converted basis. Each share of Series C Preferred Stock may be convertible into shares of our Common Stock. As ofat March 31, 2022 and December 31, 2021,2023, no shares of Series C Preferred Stock are outstanding.
outstanding.
Series D Preferred Stock
There are designated and authorized shares of Series D Preferred Stock, withsubject to a 4.99% conversion caplimitation, which may be increased to a maximum of 9.99%9.99% by a holder by written notice to us. There is a stated value of $ per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series D are issued. Series D are ranked as a Seniorpari passu with the Series E Preferred Stock and the Series F Preferred Stock and as senior to all previously issued series of Preferred Stock and the Common Stock and have no voting rights. Each share of Series D Preferred Stock may be converted tointo common shares.
On February 16, 2021, we settled $1,028,000 in note payables, convertible notes payable and accrued interest for 230,000 shares of our Series D Preferred Stock, of which shares of Series D Preferred Stock were converted into shares of our Common Stock and Series D Preferred shares remain unconverted and outstanding as of March 31, 2022 and December 31, 2021.2023.
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Series E Preferred Stock
There are designated and authorized shares of Series E Preferred Stock having a stated value of $ per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series E are issued. Series E are ranked pari passu with the Series D Preferred Stock and Series F Preferred Stock and as senior to all previously issued series of Preferred Stock and the Common Stock. It has voting rights equal to the number of shares of Common Stock into which the Series E Preferred Stock would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that holders of shares Series E Preferred Stock voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series E Preferred Stock, constitutes the approval of such action by both the class or the series as applicable. To the extent that holders of shares of Series E Preferred Stock are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series E Preferred Stock entitles the holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the conversion rate is calculated. Holders of Series E Preferred Stock are entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by vote. As long as any shares of Series E Preferred Stock are outstanding, we may not, without the affirmative vote of the holders of all the then outstanding shares of Series E Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series E Preferred Stock or alter or amend the Series E certificate of designations (the “Series E Certificate”), (b) amend our articles of incorporation or other charter documents in any manner that adversely affects any rights of a holder, or (c) enter into any agreement with respect to any of the foregoing.
On September 16, 2021, the conversion rate for each share of Series E Preferred Stock was amended to equal (i)(a) 56.60% multiplied by, (b) the Fully-Diluted shares as of the Approval Date (each as defined in the Series E Certificate), divided by (ii) the total number of shares of Series E Preferred Stock, (iii) rounded to the nearest thousandth. The total number of Fully-Diluted Shares is set as of, and cannot change after the Approval Date. Based on the current fully-diluted shares outstanding, this equated to 2,243,888,889 shares of Common Stock. Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all options outstanding as of such date of exercise, divided by 0.4340.
On February 16, 2021, we issued shares of Series E Preferred Stock to acquire Sovryn that we valued at $4,225,062 based on a value of 100% of ourthe per share price of Common Stock at the time.
On September 16, 2021, the holders of our Series E Preferred Stock entered into an Exchange Agreementexchange agreement with us whereby on October 11, 2021, the Series E Preferred shares were exchanged for Series E-1 Preferred shares and shares of Common Stock. We valued the exchange at the same $4,225,062 value as was assigned to the shares of Series E Preferred Stock. As ofat March 31, 2022 and December 31, 2021,2023, shares of Series E Preferred Stock are outstanding.
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Series E-1 Preferred Stock
There are designated and authorized shares of Series E-1 Preferred Stock, which have a stated value of $ per share. Shares of Series E-1 Preferred Stock are pari passu with the Series D Preferred Stock and Series F Preferred Stock and are senior in dividend rights and liquidation preference to our Common Stock and all other Common Stock Equivalents. It has votes equal to the number of shares of common stock into which the Series E-1 Preferred Stock would be convertible on the record date for the vote or consent of stockholders, and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. It has votes equal to the number of shares of common stock into which the Series E-1 Preferred Stock would be convertible on the record date for the vote or consent of stockholders, and shall otherwise have voting rights and powers equal to the voting rights and powers of Common Stock. To the extent that holders of shares of Series E-1 Preferred Stock voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series E-1 Preferred Stock constitutes the approval of such action by both the class or the series as applicable. To the extent that holders of Series E-1 Preferred Stock are entitled to vote on matters with holders of shares of Common Stock and vote together as one class, each share of Series E-1 Preferred Stock entitles the holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the conversion rate is calculated. Holders of Series E-1 Preferred Stock are entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by vote. As long as any shares of Series E-1 Preferred Stock are outstanding, we issued oncannot, without the affirmative vote of the Holders of all the then outstanding shares of Series E-1 Preferred Stock, (a) alter or change adversely, the powers, preferences or rights given to the Series E-1 Preferred Stock or alter or amend the Series E-1 certificate of designations (the “Series E-1 Certificate”), (b) amend our articles of incorporation or other charter documents in any manner that adversely affects any rights of a holder, or (c) enter into any agreement with respect to any of the foregoing. On October 11, 2021, in exchange for ourthe Series E Preferred Stock.E-1 shares were issued. At March 31, 20222023 and December 31, 2021, Preferred shares of Series E-1 sharesPreferred Stock remain outstanding.
Each share of Series E-1 Preferred Stock may be converted tointo common shares.shares of Common Stock.
Series F Preferred Stock
There are designated and authorized shares of Series F Preferred Stock. Stock, which have a stated value of $1.00 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series F are issued. Shares of Series F Preferred Stock are pari passu with the Series D Preferred Stock and Series F Preferred Stock and senior in dividend rights and liquidation preference to our Common Stock and all other Common Stock Equivalents. It has voting rights equal to the number of shares of common stock into which the Series F Preferred Stock would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. It has votes equal to the number of shares of common stock into which the Series F Preferred Stock would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that holders of shares of Series F Preferred Stock voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series F Preferred Stock constitutes the approval of such action by both the class or the series as applicable. To the extent that holders of shares of Series F Preferred Stock are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series F Preferred Stock entitles the holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the conversion rate is calculated. Holders of Series F Preferred Stock are entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by vote. As long as any shares of Series F Preferred Stock are outstanding, we cannot, without the affirmative vote of the holders of all the then outstanding shares of Series F Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series F Preferred Stock or alter or amend the Series F certificate of designations (the “Series F Certificate”), (b) amend our articles of incorporation or other charter documents in any manner that adversely affects any rights of a holder, or (c) enter into any agreement with respect to any of the foregoing.
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On February 17, 2021, we issued to the Investors shares of Series F Preferred Stock that convert into shares of Common Stock, which we valued at $864,000, based on the underlying value of shares our Common Stock that were $ per share at the time.
On September 16, 2021, the conversion rate for each share of Series F Preferred Stock was amended to equal (i)(a) 4.84% multiplied by, (b) the Fully-Diluted shares as of the Approval Date (each as defined in the Series F Certificate), divided by (ii) the total number of shares of Series F Preferred Stock, (iii) rounded to the nearest thousandths place. The total number of Fully-Diluted Shares is set as of, and can not change after the Approval Date. Based on the full-diluted shares outstanding, this equated to 192,073,017 shares of Common Stock on the Approval Date. Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all options outstanding as of such date of exercise, divided by 0.9516.
On October 11, 2021, the shares of Series F Preferred Stock were converted into shares of Common Stock.
As ofat March 31, 20222023 and December 31, 2021,2022, shares of Series F Preferred Stock are outstanding.
Series G Preferred Stock
On August 20, 2021, the certificate of designation for the Series G Preferred Stock was amended. There are now designated and authorized Series G Preferred Stock, subject to a 4.99% conversion limitation, which may be increased to a maximum of 9.9% by a holder by written notice to us. The Series G Preferred Stock has a stated value of $ per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series G Preferred Stock are issued. The Series G Preferred Stock is ranked as a as a series of junior Preferred Stock. It has voting rights equal to the number of shares of common stock into which the Series G Preferred Stock would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that holders of shares of Series G Preferred Stock voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series G Preferred Stock constitutes the approval of such action by both the class or the series as applicable. To the extent that holders of shares of Series G Preferred Stock are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series G Preferred Stock entitles the holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the conversion rate is calculated. Holders of Series G are entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by vote. As long as any shares of Series G Preferred Stock are outstanding, we cannot, without the affirmative vote of the holders of all the then outstanding shares of Series G Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series G Preferred Stock or alter or amend the Series G certificate of designations (the “Series G Certificate”), (b) amend our articles of incorporation or other charter documents in any manner that adversely affects any rights of a holder, or (c) enter into any agreement with respect to any of the foregoing.
On September 16, 2021, the conversion rate for each share of Series G Preferred Stock was amended to equal (i)(a) 6.45% multiplied by, (b) the Fully-Diluted shares as of the Approval Date (each as defined in the Series G Certificate, divided by (ii) the total number of shares of Series G Preferred Stock, (iii) rounded to the nearest thousandths place. The total number of Fully-Diluted Shares is set as of, and does not change after the Approval Date. Based on the current fully-diluted shares outstanding, this equated to 255,555,556 shares of common stock on the Approval Date. Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all options outstanding as of such date of exercise, divided by 0.9355.
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We received $ in subscriptions for of shares Series G Preferred SharesStock that we valued at $1,000 per share based on the cash price. On November 2, 2021, all of the authorized and issued shares of Series G Preferred Stock were converted into shares of our Common Stock. At March 31, 2022 and December 31, 2021,2023, shares of Series G Preferred Stock are outstanding.
Series H Preferred Stock
On November 5, 2021, we designated shares of Series H Preferred Stock, which have a stated value of $ per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series H are issued. Shares of Series H Preferred Stock have no voting rights and are senior in dividend rights and liquidation preference to our Common Stock and all other Common Stock Equivalents. Each share of Series H Preferred Stock may be converted into 1,000 shares of Common Stock, subject to a maximum ownership limit of 9.99%.
On November 11, 2021, pursuant to an Exchange Agreementexchange agreement that we entered into with the Investors, of our shares of Common sharesStock held by the Investors were exchanged for shares of our Series H Preferred Stock and we cancelled the 39,895,000 shares. We valued the Common shares. Each shareshares and shares of Series H Preferred Stock may be converted to common shares, subject to a maximum ownership limit of 9.99%. We valued the Common shares and Series H Preferred shares at $3,989,500. At March 31, 20222023 and December 31, 2021,2022, shares of Series H Preferred Stock remain outstanding.
Note 169 Shareholders’ Equity
Preferred Stock
As of March 31, 20222023 and December 31, 2021,2022, we are authorized to issue shares of $ par value Preferred Stock, with designations, voting, and other rights and preferences to be determined by our Board of Directors of which remain available for designation and issuance.
Series B Preferred Stock
There are designated and authorized shares of Series B Preferred Stock. Holders of Series B Preferred Stock have the right to vote on all shareholder matters equal to 51% of the total votevoting power of Common stockholders. Theeach class of stock outstanding. Holders of shares of Series B Preferred Stockholder isare entitled to such 51% voting rights regardless of the number of common shares or other voting shares issued by the company at any time. Such provision grants the holder of Series B Preferred Stock majority control of us, unless otherwise canceled.
On July 17, 2020, Series B Preferred Stock were issued to acquire the Casa Zeta-Jones Brand License Agreement (the “License Agreement”) from Luxurie Legs, LLC, a limited liability company organized pursuant to the laws of the State of Delaware (“LUXURIE”), pursuant to which, at the effective time, LUXURIE transferred all of its right, title and interest in the License Agreement. The Series B Preferred Stock was valued at par at $.Agreement to Madison in exchange for a controlling interest in Madison represented by newly issued preferred stock. Although the Series B Preferred Stock is entitled to 51% voting rights as described above, the stock has no dividend rate nor conversion feature.Furthermore, the shares were not issued to the investors, but rather were granted to new unrelated management.
On February 17, 2021, the shares Series B Preferred Stock were transferred from Mr. Canouse (our former director and CEO)Chief Executive Officer), to the FFO1 2021 Irrevocable Trust, a company Mr. Falcone (our director and CEO) is the trustee and has the voting and dispositive power. The 100 shares of Series B Preferred are included in the Pledged Assets.
At March 31, 20222023 and December 31, 2021,2022, there were Series B Preferred shares outstanding, respectively.
Common Stock
In August 14, 2021, our shareholders approved an increase in authorized Common Stock to from , which became effective the same day. As of March 31, 20222023 and December 31, 20212022 there were
Our Board of Directors and majority stockholder approved the decision to not move forward with a reverse stock split ratio of 25 to 1 share, and approved a reverse stock split ratio from 10 to 1 share, which is currently subject to regulatory approval.
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Warrants
On February 17, 2021,January 10, 2023, we issued two unsecured convertible subordinate notes totaling $192,073,017220,000 Warrantsand in connection with one of the notes sold, we issued the noteholder a warrant to Arena Investors that are exercisable for a five-year period from the datepurchase up to shares of issuance and, based on an amendment made on September 24, 2021, the Warrants may be converted into our Common Stock at $0.02 per share, subject to a maximum ownership limit of 9.99%. The exercise price is subject to adjustment due to stock dividends, stock splits and recapitalizations and other events. We valued the Warrants at $ based on a value of $ per share for our Common Stock at the time.
On December 28, 2021, we entered into a promissory note payablestarting January 10, 2023 and provided 500,000 Warrants. Each Warrant is exercisable at $0.025 per share and expires on December 31, 2023. We valued the Warrants at $9,000 based on a value of $ per share for our Common Stock at the time.ending January 10, 2030.
The Warrants issued arewere loan incentives. The value was allocated to the warrants based on its fair value on the date of the grant, as determined using the Black-Scholes option pricing model.
For the three months ended March 31, 2022,2023, a summary of our warrant activity is as follows:
Schedule of Warrants Activity
| Number of Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Weighted- Average Grant-Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding and exercisable at January 1, 2022 | 192,573,017 | $ | 0.020 | 4.13 | $ | 482,666 | $ | 3,465,573 | ||||||||||||
| - | ||||||||||||||||||||
| Issued | 11,100,000 | $ | 0.039 | 2.90 | 71,935 | $ | 199,800 | |||||||||||||
| Exercised | - | - | - | - | - | |||||||||||||||
| Expired | - | - | - | — | - | |||||||||||||||
| Outstanding and exercisable at March 31, 2022 | 203,673,016 | $ | 0.021 | 4.06 | $ | 446,578 | $ | 3,664,329 | ||||||||||||
| Number of Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Weighted- Average Grant- Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding and exercisable at January 1, 2023 | 246,173,016 | $ | 0.021 | 3.69 | $ | 399,783 | $ | 4,431,114 | ||||||||||||
| - | ||||||||||||||||||||
| Issued | 40,000,000 | $ | 0.020 | 6.79 | — | $ | — | |||||||||||||
| Exercised | — | — | — | — | — | |||||||||||||||
| Expired | — | — | — | — | — | |||||||||||||||
| Outstanding and exercisable at March 31, 2023 | 286,173,016 | $ | 0.021 | 3.91 | $ | 343,904 | $ | 4,431,114 | ||||||||||||
Note 1710 Discontinued Operations
On February 16, 2021, we cancelled allIn the Series A Preferred Stock sharesfourth quarter of 2022, management at that time determined that Sovryn’s television broadcast business was not an efficient use of our resources to develop and offered their holder’s option agreementslaunch BCTV, our core business, and management sought to purchase up to shares of CZJ License, Inc., our wholly owned subsidiary atexit Sovryn’s business and pay down the time, at an option price of $ per share. The option agreements are exercisable forCompany’s senior debt associated with acquiring Sovryn’s assets and creating its business. As a period of one year fromresult, Sovryn is recognized as a discontinued operation in the date of issuance and were not exercised.
On November 15, 2021, we entered into a Purchase and Sale agreement with ZA Group Inc. to sell CZJ License Inc. for $250,000. At Closing, the ZA Group Inc. delivered a convertible promissory note with a principal amount equal to the purchase price. The interest rate on the note was 5% per annum and matures on November 5, 2023. The note may be converted, from time to time, after 180 days from the issuance date of the note into common stock of ZA Group Inc., at a fixed conversion price of $0.005 per share, subject to a beneficiary ownership limitation of not more than 4.99% of the outstanding shares of common stock of ZA Group Inc.
At November 15, 2021, CZJ License Inc.’s accounts were eliminated from theaccompanying condensed consolidated financial statements. All expenses incurred by CZJ License Inc. upEffective February 1, 2023, we assigned 100% ownership of Sovryn to November 15, 2021 have been disclosed as discontinued operations.the Investors. The previous year’s assets, liabilities and expenses have been similarly classified for comparative purposes. The following is a summary of Sovryn for the three months ended March 31, 2023 and 2022:
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Schedule of Previous Year Assets Liabilities and Expenses
| March 31, | March 31, | |||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Assets | ||||||||||||||||
| Prepaid Expenses | $ | - | $ | 37,218 | ||||||||||||
| Website | - | 10,000 | ||||||||||||||
| Intangible Assets - License | - | 423,410 | ||||||||||||||
| Assets | - | 470,628 | ||||||||||||||
| Current assets | $ | — | $ | 342,264 | ||||||||||||
| Property, equipment and right-of-use assets | — | 2,823,224 | ||||||||||||||
| Intangible assets | — | 12,027,769 | ||||||||||||||
| Total Assets | — | 15,193,257 | ||||||||||||||
| Liabilities | ||||||||||||||||
| Accounts Payable & Accrued | - | 33,500 | ||||||||||||||
| Liabilities | - | 33,500 | ||||||||||||||
| Expenses | ||||||||||||||||
| Accounts payable and accrued liabilities | — | 620,306 | ||||||||||||||
| Lease liability obligations | — | 1,468,233 | ||||||||||||||
| Total Liabilities | — | 2,088,539 | ||||||||||||||
| Revenues | 163,473 | 474,999 | ||||||||||||||
| Selling, general and administrative | (9,886 | ) | (134,589 | ) | ||||||||||||
| Television operation | — | (87,632 | ) | |||||||||||||
| Amortization | 74,760 | 64,687 | — | (80,494 | ) | |||||||||||
| Selling, general and administrative | 190,857 | 152,939 | ||||||||||||||
| Professional fees | 213,500 | 172,750 | — | (201,336 | ) | |||||||||||
| Interest expense | — | (2,904 | ) | |||||||||||||
| Gain (loss) on asset disposals | 6,695,083 | (52,668 | ) | |||||||||||||
| Impairment loss | — | — | ||||||||||||||
| - | ||||||||||||||||
| Expenses | $ | 479,117 | $ | 390,376 | ||||||||||||
| Gain (loss) from discontinued operations | $ | (6,521,724 | ) | $ | (84,624 | ) | ||||||||||
Note 18 Commitments
On September 28, 2020, we entered into a one-year renewable employment agreement with Mr. Canouse, our Chief Executive Officer at the time. In the three months ended March 31, 2022 and 2021, Mr. Canouse received $24,487 and $0, respectively. Mr. Canouse resigned on July 1, 2022.
On February 17, 2021, we sold the Investors $16,500,000 of Notes and we entered into a Security Agreement and a Guaranty Agreement with the Investors that secure the Notes with liens on all of our tangible and intangible assets. We have not yet made the $0.4 million interest payments on the Notes held by Arena Partners LC that were due on April 1, 2022 and July 1, 2022, and as a result, under the Note terms, the interest rate is 20.0% per annum. We are currently in discussions with the Investors on a plan of forbearance; however, there is no assurance that we will be successful in completion of a plan, which may disrupt our operations and result in a restructuring of obligations.
On October 20, 2021, we entered into a Stock Acquisition Agreement with Top Dog Productions Inc., Jay Blumefield and Anthony Marsh whereby we will acquire all of the shares of Top Dog Productions Inc., and in exchange, we will pay the purchase price of $10,000,000 in shares of our Common Stock. The number of shares of Common Stock to be issued will be subject to a “collar”, with a minimum number of 16,666,667 shares in the event that the closing bid and ask price before the Closing for our is $0.60 or greater, and a maximum number of 25,000,000 shares in the event that the closing bid and ask price before the Closing for our stock is $0.40 or less, with ratable adjustments for a Closing Price between $0.40 and $0.60. The Closing is subject to receipt of audited and other financial statements of Top Dog Productions, other deliverables, and terms and conditions. This agreement is also subject to standard termination provisions including if the Closing had not occurred within 60 days of the execution of the Agreement. As of March 31, 2022, the agreement has not closed.
On January 12, 2022, we entered into a consulting agreement with EF Hutton as a lead underwriter. The agreement is for one year and we may terminate the agreement on or after 270th day with 30-days written notice. EF Hutton may terminate the agreement on or after 120 days from execution of the agreement. EF Hutton agrees to provide underwriting the sale of up to $20 million of securities. In return, we grant EF Hutton an option to acquire up to 15% of the total number of securities we offer , provide an underwriting discount of 7% of the total gross proceeds, provide warrants equal to 5% of the aggregate number of shares of Common Stock sold in the offering, warrants to be exercisable at any time in whole or in part for 4 ½ years commencing 6 months from the effective date of offering at a price per share equal to 100% of the public offering price per security. EF Hutton may also provide advisory services for a cash fee of 7% of capital raised for equity placements, 6% for debt placements, closing warrants equal to 3% of aggregate proceeds sold in offering with the warrants to expire in 5 years. We agree to pay expenses for marketing, promotional materials and other costs associated with the work.
In January 2022, we entered into a six-month consulting agreement with a third party to provide strategic and business services relating to the blockchain project that we amended in February 2022. The first two months are payable at $25,000 per month and the remaining four months are payable at $10,000 per month. We have paid $25,000 to date.
In February 2022, we entered into a consulting agreement to establish, launch, manage, operate and produce a 24/7 broadcast network devoted to cryptocurrency, NFT, Web3 and blockchain technology. In consideration for the wide range and scope of work, we agreed to pay the consultant a fee in the aggregate of $600,000, of which $450,000 has been paid and $150,000 is payable upon the launch of the network.
In February 2022, we entered into a consulting agreement with a third party to provide corporate marketing strategy, creation and development of content for distribution, market development, communications, products and growth. The agreement ends the earlier of June 30, 2022 or when an executed Employment Agreement is signed with us. Upon execution of the consulting agreement, we paid the consultant $100,000 and we are obligated to pay a service fee $30,000 per month for March through June. As part of the arrangement, we granted the consultant a Warrant to acquire up to shares of our Common Stock at an exercise price of $0.025 per share that is contingent upon our entering into an Employment Agreement or extending the consulting agreement, which did not occur. As of the date of this report, we paid $160,000.
In March 2022, we entered into a six-month service agreement for press releases, campaigns and social media advertisings. The service fee is $30,000 per month plus expenses. The agreement may not be terminated during the initial six months and we must provide no less than 30-day prior written notice to the termination.
Note 1911 Income Taxes
Income tax recovery differs from that which would be expected from applying the effective tax rates to the net income (loss) as follows:
Schedule of Income Tax Expense
| March 31, 2022 | March 31, 2021 | March 31, 2023 | March 31, 2022 | |||||||||||||
| Net loss for the three-month period | $ | (2,536,688 | ) | $ | (856,777 | ) | $ | (10,768,418 | ) | $ | (2,536,688 | ) | ||||
| Statutory and effective tax rates | 21.0 | % | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||
| Income taxes expenses (recovery) at the effective rate | $ | (532,704 | ) | $ | (179,923 | ) | $ | (2, 261,368 | ) | $ | (532,704 | ) | ||||
| Effect of change in tax rates | - | - | — | — | ||||||||||||
| Permanent differences | - | - | — | — | ||||||||||||
| Valuation allowance | 532,704 | 179,923 | 2,261,368 | 532,704 | ||||||||||||
| Income tax expense and income tax liability | $ | - | $ | - | $ | — | $ | — | ||||||||
As of March 31, 20222023 and December 31, 20212022, the tax effect of the temporary timing differences that give rise to significant components of deferred income tax asset are noted below. A valuation allowance has been recorded, as management believes it is more likely than not that the deferred income tax asset will not be realized.
Schedule of Deferred Income Tax Asset
| March 31, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
| Tax loss carried forward | $ | - | $ | - | $ | — | $ | — | ||||||||
| Deferred tax assets | $ | 3,527,846 | $ | 2,995,142 | $ | 5,020,728 | $ | 2,759,360 | ||||||||
| Valuation allowance | (3,527,846 | ) | (2,995,142 | ) | (5,020,728 | ) | (2,759,360 | ) | ||||||||
| Deferred taxes recognized | $ | - | $ | - | $ | — | $ | — | ||||||||
Tax losses of approximately $1430 million will expire in 20402039 and 2040.
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Note 2012 Subsequent Events
In April 2022, we sold unsecured convertible subordinate notes totaling $275,000On September 21, 2023, the Agent for the Investors delivered a notice to us that accrue interest at 6% per annumthe Agent has exercised the Investors’ rights to vote the Pledged Interests (as defined in such notice) and mature on to exercise the Investors’ rights, powers and privileges, to pass certain resolutions and to amend our bylaws then in effect to, among other things, (i) remove the board of directors of the Company (the “Board of Directors”) and all officers of the Company, and (ii) reduce the number of the Board of Directors from three to one director. As a result of the Agent delivering such notice and exercising its rights to vote the Pledged Interests, a change of control of the Company occurred (the “Change of Control”).
December 31, 2022. The loans may
On the two-year anniversary of the October 11, 2021 issuance of the Series E-1 shares, the shares were to be automatically converted into shares of our Common Stock at $ per share, subject to a beneficial ownership limitation of %. In connection with one of the notes sold, we issued the noteholder a Warrant to purchase up to 2,500,0001,152,500,000 shares of our Common Stock, at $ per share starting September 15, 2022however we did not process the conversion and ending April 15, 2024.
In May 2022, we sold a shareholder a convertible subordinate note totaling $110,000 that accrues interest at 12% per annum and matures in May 2023. The loan may be converted into shares of our Common Stock at $0.02 per share. In connection with the note sale, we issued the noteholder a Warranthave not to purchase 5,000,000 shares of our Common Stock at $ per share
In June 2022, we sold a convertible subordinate note totaling $110,000 that accrues interest at 12% per annum and matures in May 2023. The loan may be converted into shares of our Common Stock at $0.02 per share. In connection with the note sale, we issued the noteholder a Warrant to purchase 5,000,000 shares of our Common Stock at $ per share.date.
On June 10, 2022, we entered into an agreement with a third party pursuant to which we received $125,000 in cash that we repay daily at $1,837 per diem until we have paid $183,750 in total. AsNovember 6, 2023, the shareholders of June 30, 2022, we owe $163,538.the Company removed Philip Falcone and Warren Zenna as our directors and appointed Thomas Amon as the sole member of our board of directors. Mr. Amon removed all Company officers and appointed himself as the Company’s President, Secretary, Treasurer, Chief Executive Officer, Chief Financial Officer, Principal Executive Officer and Principal Accounting Officer.
On November 10, 2023, Philip Falcone, individually and on behalf of the Company and other named defendants, filed a Confession of Judgment affirming that a promissory note (the “Z4 Note”) had been issued by the Company, dated December 28, 2021, by Z4 MGMT LLC (“Z4”), which was guaranteed by each of FFO1 2021 Irrevocable Trust and FFO2 2021 Irrevocable Trust. The Z4 Note was initially payable on February 15, 2022, and had an original principal balance of $500,000 with an interest rate of 12% per annum. The Z4 Note’s expiration date was extended to July 5, 2022, then further extended to March 31, 2023, and as of October 1, 2023, the revised principal balance, along with interest accrued, totaled $581,304. On such date, Z4 filed an Affidavit of Default affirming that the Z4 Note was in default and requesting a judgment in the amount of $581,304 against the Company, FFO1 2021 Irrevocable Trust, FFO2 2021 Irrevocable Trust, and Mr. Falcone personally, in favor of Z4.
On February 18, 2024, Agile Capital Funding LLC (“Agile”) filed a Confession of Judgment executed by Philip Falcone with the Supreme Court of the State of New York County of New York that affirmed that the Company owes Agile for funds received on January 30, 2023, less funds the Company subsequently repaid, and for accrued interest and collection fees, which Agile determined to be $190,444 as of February 18, 2024. To date, the liability for the judgment has not been satisfied.
Presently, we are default on all of our outstanding promissory and convertible notes payable (See Notes 4, 5 and 6), which have $3.5 million in aggregate principal outstanding plus accrued interest, penalties and fees.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.OPERATIONS.
Forward-Looking Statements
The following discussion and analysis of our financial condition, changes in financial condition and results of operations for the three months ended March 31, 2022,2023, should be read in conjunctiontogether with our unaudited condensed consolidated financial statements and related notes for the three months ended March 31, 2021.
Forward Looking Statements
Thisincluded elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”). This Form 10-Q and such discussion contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about DLT Resolutions’our industry, management’s beliefs, and certain assumptions made by management.management that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include our expectations regarding product,our capital needs, future cash flows, financial results, business strategy, business plans and objectives, current and future operations, intentions, expectations any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and maintenance revenue, annual savings associated withany statements of assumptions underlying any of the organizational changes effected in prior years, and short- and long-term cash needs.foregoing. In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements. In addition, statements about the potential effects of the COVID-19 pandemic on the Company’s businesses, results of operations and financial condition may constitute forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. Risks and uncertainties of our business include those set forth in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, as filed with the SECU.S. Securities and Exchange Commission (“SEC”) on August 26, 2022,January 25, 2024 (the “Annual Report”), under “Item 1A. Risk Factors” as well as additional risks described in this Form 10-Q. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission,SEC, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
GENERALRecent Developments
Madison Technologies Inc. (“Madison”) isOn September 21, 2023, the Agent delivered a Nevada corporationnotice to us that was incorporated on June 15, 1998.the Agent exercised the Investors’ rights to vote the Pledged Interests and to exercise the Investors’ rights, powers and privileges, to pass certain resolutions and to amend our bylaws then in effect to, among other things, (i) remove the Board of Directors and all Company officers, and (ii) reduce the number of the Board of Directors from three directors to one director. As a result of the Agent sending such notice and exercising its rights to vote the Pledged Interests, the Change of Control occurred.
We, throughOn the two-year anniversary of the October 11, 2021 issuance of the Series E-1 shares, the shares were to be automatically converted into 1,152,500,000 shares of our wholly-owned subsidiary, Sovryn Holdings, Inc. (“Sovryn”) acquired three un-affiliated Class A/LPTV TV. Each licensed TV station can broadcast between 10Common Stock, however we did not process the conversion and 12 channels over-the-air, 24 hours per day/7 days per week. We generated revenue by leasing channelshave not to third parties on KNLA/KNET, a Class A television station in Los Angeles, KVVV, a low power television station in Houston and KYMU-LD, a low power television station in Seattle.date.
In addition to the defaults described above, as of the date of this Form 10-Q, and since the last day of the quarter ended March 31, 2023, we are in default under a certain loans payable for failure to pay principal and accrued interest on such loans, with an aggregate of approximately $3.8 million and $3.3 million of principal, accrued interest and late fees, as of such date and as of March 31, 2023 respectively. As a result of the Change of Control, we intend to strategize with the holders of such notes to extend, modify or otherwise revisit the terms of such indebtedness in order to resolve such outstanding defaults.
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On November 6, 2023, the shareholders of the Company removed Philip Falcone and Warren Zenna as our directors and appointed Thomas Amon as the sole member of our board of directors. Mr. Amon removed all our officers and was appointed as the Company’s President, Secretary, Treasurer, Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer.
On November 10, 2023, Philip Falcone, individually and on behalf of the Company and other named defendants, filed a Confession of Judgment affirming that the Z4 Note had been issued by the Company, dated December 28, 2021, by Z4, which was guaranteed by each of FFO1 2021 Irrevocable Trust and FFO2 2021 Irrevocable Trust. The Z4 Note was initially payable on February 15, 2022, and had an original principal balance of $500,000 with an interest rate of 12% per annum. The Z4 Note’s expiration date was extended to July 5, 2022, then further extended to March 31, 2023, and as of October 1, 2023, the revised principal balance, along with interest accrued, totaled $581,304. On such date, Z4 filed an Affidavit of Default affirming that the Z4 Note was in default and requesting a judgment in the amount of $581,304 against the Company, FFO1 2021 Irrevocable Trust, FFO2 2021 Irrevocable Trust, and Mr. Falcone personally, in favor of Z4. On December 5, 2023, a judgement in favor Z4 Management in the sum of $581,304 was rendered against us, Mr. Falcone, FFO1 2021 Irrevocable Trust and FFO2 2021 Irrevocable Trust.
On February 18, 2024, Agile Capital Funding LLC (“Agile”) filed a Confession of Judgment executed by Philip Falcone with the Supreme Court of the State of New York County of New York that affirmed that the Company owes Agile for funds received on January 30, 2023, less funds the Company subsequently repaid, and for accrued interest and collection fees, which Agile determined to be $190,444 as of February 18, 2024. To date, the liability for the judgment has not been satisfied.
Since October 2023, and as a result of the Change of Control, we have had minimal operations and nominal assets consisting almost entirely of cash. However, in December 2023, we held discussions with the head of content production of BCTV regarding initial plans to continue the Company’s business plans described above as intended prior to the Change of Control. However, we cannot make any guarantee as of the date of the filing of this Form 10-Q as to the timing and success of these plans, business relationships or reaching any self-imposed expectations, or that we will ultimately continue the Company’s business as so described. See “Forward-Looking Statements” in this Item 2 above.
RESULTS OF OPERATIONS
Our condensed consolidated unaudited financial statements included herein have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long termlong-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity and/or debt securities.
Three months ended March 31, 20222023 and 20212022
Revenues
Net Revenues increased to $474,999 for the three months ended March 31, 2022 from $0 for the three months ended March 31, 2021. The increase resulted from the acquisitions of television stations in 2021 and the $474,999 revenues generated by the lease agreements held by those stations. We anticipate 2022 Net Revenues will increase compared to 2021 Net Revenues as a result a full year of operating the television stations acquired during 2021 and the launch of BLOCKCHAIN.TV in 2022.
Amortization
Amortization increased to $80,494 for the three months ended March 31, 2022 from $35,284 for the three months ended March 31, 2021. The increase resulted from the Sovryn acquisitions in 2021 of television stations that have amortizable tangible and intangible assets.
Selling, general and administrative feesexpenses
Selling, generalGeneral and administrative feesexpenses increased to $181,994$350,830 for the three months ended March 31, 2023 from $44,502 for the three months ended March 31, 2022 from $82,179 for the three months ended March 31, 2021. The increase was primarily theas a result of selling and overhead expenses for our television stations that we started operating in 2021 following their acquisitions.
Television operations
Television operation expenses are $87,632 and $0 for the three months ended March 31, 2022 and 2021. The expenses are directhigher personnel costs of operating the television stations we acquired in 2021.from added personnel.
Professional Fees
Professional Fees increasedfees decreased to $1,098,279$107,740 for the three months ended March 31, 20222023, from $340,531$663,804 for the three months ended March 31, 2021.2022. The increasedecrease was primarily the result of an increasea decrease in the nonrecurring legal and accountingconsulting expense associated with the acquisitions of television stations the financing associated with those acquisitions, management fees, and the expense associated with regulatory filings for the SEC, including the Form S1 Registration.
Loss on asset disposals
Our loss on asset disposals was $52,668 and $0 for the three months ended March 31, 2022 and 2021. Our initial objective was to create one the largest, most comprehensive, state of the art OTA content distribution platforms to capitalize on the changing media and distribution landscape and on the growing OTA viewership in the U.S. We are exploring more capital efficient and technology centric alternatives to its planned station acquisition distribution platform. While there is no guarantee that it will be successful with this alternative approach, we have determined that it will postpone further capital expenditures on acquisitions and as a result, the planned acquisitions have been terminated and future acquisition plans have been put on hold while we evaluate this alternative approach. As a result, we recognized a $52,668 of loss from disposition of OTA assets.related matters.
Interest Expense
Interest expense increaseddecreased to $1,135,202 for the three months ended March 31, 2023 from $1,520,001 for the three months ended March 31, 20222022. The decrease resulted primarily from $359,948the interest cost of our debt held the Investors that accrued interest at an 11% rate per annum for the three months ended March 31, 2021. The $1,160,053 increase resulted from the financings associated with the acquisition of television stations2023 and development of BLOCKCHAIN.TV.
Discontinued Operations
Our loss from discontinued operations was $0 and $38,835did not include an assessment for default interest at 9% per annum that we accrued for the three months ended March 31, 2022. In addition, the costs of other financings associated with the acquisitions of television stations and development of BlockchainTV had amortization periods that expired prior to December 31, 2022.
Discontinued Operations
Our gain from discontinued operations was $6,685,344 and $317,762 for the three months ended March 31, 2023 and 2022, respectively. Effective February 1, 2023, we entered into an agreement with the Investors in which we exchanged our ownership of the assets associated with Sovryn’s broadcast television business in exchange for a $11,600,000 reduction in our obligation for the Notes. As a result, the revenues, expenses, assets and 2021, respectively. On November 15, 2021,liabilities of Sovryn are included as discontinued operations for the three months ended March 31, 2023 and 2022. The increase in our gain from discontinued operations resulted from Sovryn’s liabilities being transferred as part of the ownership transfer.
Loss on Disposition of Assets
Sovryn owed us $15,850,990 due to the Sovryn ownership transfer on February 1, 2023. The amount owed to us resulted primarily from funds that we sold our subsidiary, CZJ License Inc.advanced to Sovryn in order to purchase the television station assets. We wrote off the amount owed and designated its operations as discontinued. The previous year’s assets, liabilities and expenses have been similarly classified for comparative purposes.recognized the loss, which is consistent with the terms of the ownership transfer.
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Net Loss
Net Lossloss increased to $10,768,418 for the three months ended March 31, 2023, from $2,536,688 for the three months ended March 31, 2022 from $856,777 for the three months ended March 31, 2021.2022. The increase was primarily the result of $1,520,001the $15,850,990 loss from the disposition of interest expense for debt instruments we issuedSovryn in 2021 and 2022. Net Loss on a basic and diluted basis of $0.002 per share for the three months ended March 31, 2022, based on 1,599,095,0272023 that was partially offset by a $6,685,344 gain from the discontinued operations of Sovryn as described above. The net loss per basic diluted share was $0.006 and $0.002, respectively, with basic and diluted weighted averageaverages shares outstanding as compared to a Net Loss of $0.037 per share1,603,095,243 and 1,599,095,027 for the three months ended March 31, 2021, based on 23,472,567 weighted average shares outstanding. The increase in weighted average shares outstanding relates primarily to issuances of 192,073,017 shares to the Investors on October 11, 2021 in connection with the $16,500,000 Notes we sold, the 1,091,388,889 shares we issued on October 11, 2021 to Preferred Series E-1 holders in pursuant to an Exchange Agreement and the 255,555,556 shares we issued on November 2, 2021 in exchange for 4,600 shares of our Series G Preferred Stock.
respective periods.
Liquidity and Capital Resources
Cash and Working Capital
As at March 31, 2022,2023, we had $206,399$593 in cash and a $6,405,680$12,488,191 working capital deficit, compared to cash of $55,656$0 and working capital deficit of $4,373,271$3,673,317 as at December 31, 2021.2022. Our working capital deficit increased primarily as a result of transferring ownership of Sovryn on February 1, 2023.
We will require additional capital to meet our long-termlong- and short-term operating requirements. We have not yet madeFor the $0.4 million interest payments on the Notes held by Arena Partners LC that were due on April 1,year ended December 31, 2022 and July 1, 2022, and as a result, under the Note terms, the interest rate is 20.0% per annum. We are currently in discussions with Arena Capital LP, on a plan of forbearance; however, there is no assurance that we will be successful in completion of a plan, which may disrupt our operations and result in a restructuring of obligations.
We expect to raise additional capital through the sale of equity and/or debt securities; however, there is no assurance that we will be successful at raising additional capital in the future. If our plans are not achieved and/or if significant unanticipated events occur, we may have to further modify our business plan, which may require us to raise additional capital. As ofthree months ended March 31, 2022,2023, our principal source of liquidity was our cash which totaled $206,399. Historically, ourthat we obtained from borrowings. Our principal sourcesuse of cash have included proceeds from the sale of common stock and preferred stock and related party loans. Our principal uses of cash have included cash used in operations,was to make acquisitions and to pay interest on our Notes.fund operations. We expect that the principal uses of cash in the future will be for continuing operations associated with rolling out the business plan and for interest payments.repayment of notes payable that are not converted into our Common Stock or renegotiated.
Net Cash Used in Operating Activities
We used $193,260 cash of $562,799 in operating activities during the three months ended March 31, 20222023, compared to cash used of $1,136,599$1,188,700 in operating activities during the previous year’s three-month period. The increasedecrease was primarily the result of increasea decrease in expenses associated with the build outoperating activities and roll out of our business plan.interest.
Net Cash Used in Investing Activities
We used cash of $96,458$0 in investing activities during the three months ended March 31, 20222023, compared to cash used of $0$81,945 in investing activities during the previous year’s three-month period. The increasedecrease was the result of enhancementsthe deferral of investing activities in the three months ended March 31, 2023 due to our website and funds advanced to Top Dog Productions Inc. associated with our agreement to acquire them.cash constraints.
Net Cash Provided by Financing Activities
Net Cash Provided (Used in) by Financing Activities
Net cash flows provided by financing activities of $810,000$240,000 for the three months ended March 31, 20222023 were from the proceeds of subordinated notes payable and Warrants that we sold to investors, compared to $15,540,000$810,000 of cash provided by financing activities during the previous fiscal year that we generated from the Arena financing in February 2021.
proceeds of subordinated notes payable and warrants that we sold to investors.
Off-balanceOff-Balance Sheet Arrangements
We have no off-balance sheet arrangements including arrangements that would affect itsour liquidity, capital resources, market risk support and credit risk support or other benefits.
Going Concern
The independent auditors’ reportsauditor’s report accompanying our December 31, 2022 and 2021 and 2020consolidated audited financial statements in the Annual Report contain an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. TheSuch consolidated financial statements and the condensed consolidated financial statements in this Form 10-Q have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
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Future FinancingsTransactions with Related Parties
Management anticipates continuingEffective January 1, 2022, we entered into a management consulting agreement with GreenRock LLC, a company controlled by Mr. Falcone, for a period of one year ending December 31, 2022, pursuant to relywhich we provided monthly remuneration of $35,000, plus expenses in connection with his duties, responsibilities and performance as our chief executive officer. In February 2021, Sovryn entered into a consulting agreement with GreenRock LLC to provide us with chief executive officer services. The agreements expired on equity salesDecember 31, 2022 and were not renewed. In the three months ended March 31, 2023 and 2022, we paid GreenRock LLC $35,000 and $40,000 in fees, respectively. We paid GreenRock LLC bonuses of $128,473 and $233,140_for the three months ended March 31, 2023 and 2022, respectively.
On February 1, 2023, we entered into the Partial Foreclosure Agreement with the Investors pursuant to which we transferred ownership of our Common Stock in orderFederal Communications Commission (“FCC”) licenses and other broadcast television assets to continuea third-party entity controlled by the Investors. In consideration therefor, the Investors agreed to fund our business operations. Issuances of additional Common Stock will result in dilutionreduce the indebtedness under the Notes by $11,600,000. On September 21, 2023, the Agent for the Investors delivered to our existing stockholders. There is no assuranceus a notice that we will achieve any additional salesthe Agent has exercised the Investors’ rights to vote the Pledged Interests, including the 100 shares of our CommonSeries B Preferred Stock, or arrange for debt orand to exercise the Investors’ rights, powers and privileges to pass certain resolutions and to amend our bylaws then in effect to, among other financingthings, (i) remove the Board of Directors and all Company officers, and (ii) reduce the number of the Board of Directors from three directors to fund our planned activities.one director. As a result of the Agent sending such notice and exercising its rights to vote the Pledged Interests, the Change of Control occurred.
Material Commitments for Capital Expenditures
We had no contingencies or long-term commitments at March 31, 2022.
Tabular Disclosure of Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.2023.
Critical Accounting Policies
We follow certain significant accounting policies when preparing our consolidated financial statements. A complete summary of these policies is included in Note 1 of the Notes to Consolidated Financial Statements.the condensed consolidated financial statements included in this Form 10-Q. Certain of the policies require management to make significant and subjective estimates or assumptions that may deviate from actual results. In particular, management makes estimates regarding the useful life of long-lived assets related to depreciation and amortization expense, estimates regarding fair value of our reporting units and future cash flows with respect to assessing potential impairment of both long-lived assets and goodwill and estimates of expense related to our debt and equity instruments. Each of these estimates is discussed in greater detail in the following discussion.
Long-Lived Assets, Depreciation and Amortization Expense and Valuation
We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset, or related asset group, may not be recoverable from estimated future undiscounted cash flows. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. In 2021, we recognized that we would not complete the acquisition of the TV station assets of W27EB and KPHE TV and we wrote off $1,150,000 in deposits paid to sellers of those assets.
Goodwill Valuation
Management performed the annual goodwill and indefinite-lived intangible assets impairment assessments as of December 31, 2021 and concluded that our goodwill for the Sovryn acquisition was impaired as of that date. Goodwill and indefinite lived assets are tested annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We follow a two-step process for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its implied fair value.
Derivative Liabilities
We have certain financial instruments that are derivatives or contain embedded derivatives. We evaluate all of our financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with us, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report on Form 10-K,10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer, who also serves as our PrincipalChief Financial and Chief Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of DecemberMarch 31, 2021.2023. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the SEC rules and forms and that such information was accumulated or communicated to management to allow timely decisions regarding required disclosure. In particular, we identified material weaknesses in internal control over financial reporting, as discussed below.
Management’s Report on Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404 A.of the Sarbanes-Oxley Act. Our internal control framework over financial reporting is a process designed under the supervision of our Chief Executive Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles.principles (“US GAAP”). Internal control over financial reporting includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. | |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
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Management conducted an assessment of the effectiveness of our internal control over financial reporting as of DecemberMarch 31, 2021,2023, based on criteria established in Internal Control –IntegratedControl–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, management identified material weaknesses in internal control over financial reporting.
A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The matters involving internal controls and procedures that management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority ofno outside directors on our boardBoard of directors,Directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified and communicated to management in connection with the preparation and audit of our financial statements as of December 31, 20212022, and the preparation of our 2021 quarterly financial statements.this Form 10-Q.
As a result of the material weakness in internal control over financial reporting described above, management has concluded that, as of March 31, 2022,2023, our internal control over financial reporting was not effective based on the criteria in Internal Control – Integrated Framework issued by COSO.
Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and lack of a majority ofno outside directors on our boardBoard of directorsDirectors caused and continues to cause an ineffective oversight in the establishment and monitoring of the required internal controls over financial reporting.
We are committed to improving itsour financial organization. As part of this commitment and when funds are available, we will create a position to segregate duties consistent with control objectives and will increase its personnel resources and technical accounting expertise within the accounting function by: (i) appointing one or moreadditional outside directors to its board of directors who will also be appointed to our audit committee, resulting in a fully functioning audit committee that will undertake the oversight in the establishment and monitoring of required internal controls over financial reporting; and (ii) preparing and implementing sufficient written policies and checklists that will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
Management believes that the appointment of one or moreadditional outside directors, who will also be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses: (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support our internal controls if personnel turn-over issues within the department occur. This, coupled with the appointment of additional outside directors, is designed to greatly decrease any control and procedure issues we may encounter in the future.
Management will continue to monitor and evaluate the effectiveness of our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
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Our independent auditors have not issued an attestation report on management’s assessment of our internal control over financial reporting. As a result, this quarterly reportQuarterly Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We are not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the temporary rules of the Securities and Exchange CommissionSEC that permit us to provide only management’s report in this quarterly report.Form 10-Q.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended March 31, 2022,2023, that materially affected, or are reasonably likely to materially affect, Madison’sour internal control over financial reporting.
Limitations on the Effectiveness of Controls and Procedures 30
Management, including our President and Chief Financial Officer, does not expect that Madison’s controls and procedures will prevent all potential error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Part II – Other Information
ITEM 1. LEGAL PROCEEDINGS.
None.Other than the following proceedings, we are not a party to any material pending legal proceedings and, to the best of our knowledge, none of our property or assets are the subject of any material pending legal proceedings.
On January 30, 2023, in the Supreme Court of the State of New York, Philip A. Falcone provided Agile Capital Funding LLC (“Agile”) with an affidavit of confession of judgement for an obligation due to Agile from Sovryn and the Company’s failure to deliver to Agile accounts receivable, which were purchased by Sovryn and the Company pursuant to the Agreement for the Purchase and Sale of Future Receipts dated January 30, 2023. Agile filed an affidavit of facts in the Supreme Court in the State of New York on February 18, 2024 requesting an entry of judgement against Sovryn and the Company in the sum of $190,443.62 less any payments made in a timely manner. On January 30, 2023 the Supreme Court of the State of New York adjudged that Agile does recover the sum of $190,443.62.
On October 12, 2023, the Supreme Court of the State of New York in the County of Albany entered a final judgment against the Company approving the request of the Workers’ Compensation Board of the State of New York, the plaintiff in the case, seeking recovery of an outstanding assessment/award in the sum of $7,500.
On November 10, 2023, Philip Falcone, individually and on behalf of Madison and other named defendants, filed a Confession of Judgment affirming that the Z4 Note had been issued to the Company, dated December 28, 2021, by Z4 Management, which was guaranteed by each of FFO1 and FFO2. The Z4 Note was initially payable on February 15, 2022, and had an original principal balance of $500,000.00 with an interest rate of 12% per annum. The Z4 Note’s expiration date was extended to July 5, 2022, then further extended to March 31, 2023, and as of October 1, 2023, the revised principal balance, along with interest accrued, totaled $581,304. On such date, Z4 Management filed an Affidavit of Default affirming that the Z4Note was in default and requesting a judgment in the amount of $581,304 against Madison, FFO1, FFO2, and Mr. Falcone personally in favor of Z4 Management. On December 5, 2023, a judgement in favor Z4 Management in the sum of $581,304 was rendered against Madison, Mr. Falcone, FFO1 and FFO2.
ITEM 1A. RISK FACTORS
Madison isWe are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter of the fiscal year covered by this report, (i) Madison did not modify the instruments defining the rights of its shareholders, (ii) no rights of any shareholders were limited or qualified by any other class of securities, and (iii) Madison did not sell any unregistered equity securities, except as follows:
On March 1, 2022, we granted a Warrant to Mr. Zenna, our Director, to purchase up to 500,000 shares of our Common Stock at $0.025 per share.
In 2022,January 10, 2023, we sold a total of $1,370,000$220,000 of notes payable some of which are convertiblethat may be converted into our Common Stock at fixed prices of $0.02 per share, and we issued certain noteholders Warrantswarrants to purchase an aggregate of 17,350,00040,000,000 shares of our Common Stock, on a cashless exercise basis, at prices ranging fromexercisable for $0.02 to $0.10 per share.
The sale and the issuance of such securities were offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. Such determination was made based on the representations of such investors which included, in pertinent part, that such investors were either (A) an “accredited investor” within the meaning of Rule 501 of Regulation D or (B) a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act, and upon such further representations from each investor that (i) such investors acquired the securities for its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (ii) such investors agreed not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (iii) such investors had knowledge and experience in financial and business matters such that it was capable of evaluating the merits and risks of an investment in us, (iv) such investors had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of such offer and sale and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (v) such investors had no need for the liquidity in its investment in us and could afford the complete loss of such investment. In addition, there was no general solicitation or advertising for such securities issued in reliance upon these exemptions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
WeOn October 27, 2022, the Agent for the Investors notified us that certain Events of Default have occurred and are continuing under the Notes. On November 21, 2022, we, the Investors and the Agent entered into a Forbearance Agreement, pursuant to which, among other things, we acknowledged the outstanding principal balances of the Notes, that we have an obligation for interest, including default interest, fees and expenses in connection with the Notes, that we have no rights of offset, defenses, claims or counterclaims with respect to our obligations and pursuant to a side letter, dated as of November 21, 2022, we agreed to achieve certain milestones by the dates as set forth therein. The Forbearance Agreement expired on December 30, 2022.
In January 2023, outstanding principal amounts under the Notes of not yet made the $453,750less than $16.5 million interest payments on the senior secured Notes heldwere accelerated by Arena Partners LPin its capacity as Agent due to the occurrence of certain events of default under the Notes, which ultimately resulted in the Change of Control.
On January 28, 2023, the Agent for the Investors sent us an Event of Default/Notice of Intention to Seek Appointment of Receiver (the “Acceleration Notice”). The Acceleration Notice stated that werethe Agent and Investors (a) elected to cause the outstanding principal amount of the Notes, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof to become immediately due and payable in cash, (b) inform us of the Agent’s and Investors’ intent to commence legal action to collect any or all of the obligations under the Notes, and (c) seek the appointment of a receiver or trustee as a means of realizing proceeds on Apriltheir collateral.
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On February 1, 20222023, we entered into a partial strict foreclosure agreement with the Investors pursuant to which we transferred ownership of our FCC licenses and July 1, 2022,other broadcast television assets to a third party entity controlled by the Investors and received $11,600,000 in credit toward our indebtedness to the Investors.
On February 3, 2023, we are currentlyentered into a securities purchase agreement with a third party lender pursuant to which we borrowed $88,760 that accrues interest a 12% per annum and is repayable in discussions with Arena Capital LP on10 monthly installments starting March 15, 2023.
On September 21, 2023, the Agent for the Notes sent us a plannotice that the Agent has exercised the Investors’ rights to vote the Pledged Assets and to exercise the rights, powers and privileges as Investors, to pass certain resolutions and to amend our bylaws to, among other things, (i) remove the Board of forbearance.Directors and all officers of the Company, and (ii) reduce the number of the Board of Directors from three to one director. As a result of the Agent for the Notes sending such notice and exercising their rights to vote the Pledged Assets and exercising their rights, powers and privileges as Investors, the Change of Control occurred.
ITEM 4. MINE SAFETY DISCLOSURES
No report required.Not applicable.
ITEM 5. OTHER INFORMATION
No report required.
On January 10, 2023, we entered into securities purchase agreements with two investors (the “January 10th SPAs”). Pursuant to the January 10th SPAs, we sold a total of $220,000 of notes (the “January Notes”) that may be converted into our Common Stock at fixed prices of $0.02 per share, and we issued such investors warrants (the “January Warrants”) to purchase an aggregate of 40,000,000 shares of our Common Stock, exercisable for $0.02 per share. Copies of the forms of the January 10th SPAs, January Notes and January Warrants are attached as Exhibit 10.4, 4.1 and 4.2, respectively, to this Form 10-Q. The foregoing descriptions of the January 10th SPAs, the January Notes and the January Warrants are summaries and do not purport to be complete and are qualified in their entirety by reference to Exhibits 10.4, 4.1 and 4.2, respectively.
On February 1, 2023, we entered into a partial strict foreclosure agreement with the Investors (the “Partial Strict Foreclosure Agreement”) pursuant to which we transferred ownership of our FCC licenses and other broadcast television assets to a third party entity controlled by the Investors and received $11,600,000 in credit toward our indebtedness to the Investors. Also on February 1, 2023, the Company, Sovryn, Station Break Holdings, LLC, the Investors and several financial institutions who were parties to a 2021 purchase agreement with the Company entered into a restructuring agreement (the “Restructuring Agreement”) pursuant to which, among other things, in order to help address the continuing events of default under outstanding indebtedness owed to the Investors, Station Break Holdings, LLC was formed in order to assume the right to certain transferred collateral previously held by Sovryn and assumed the rights to certain obligations of the rights to such collateral held by the secured parties identified in the Partial Strict Foreclosure Agreement, upon approval from the FCC. On February 1, 2022, Sovryn entered into a local marketing agreement (the “Local Marketing Agreement”) with Station Break Operating, LLC, whereby Sovryn granted Station Break Operating, LLC rights to utilize its broadcast transmission facilities and assets in exchange for the partial satisfaction of certain existing loan obligations of the Company and Sovryn in connection with the Partial Strict Foreclosure Agreement. Copies of the Partial Strict Foreclosure Agreement, the Restructuring Agreement and the Local Marketing Agreement are attached as Exhibits 10.1, 10.2 and 10.3, respectively, to this Form 10-Q. The foregoing descriptions of the Partial Strict Foreclosure Agreement the Restructuring Agreement and Local Marketing Agreement are summaries and do not purport to be complete and are qualified in their entirety by reference to Exhibits 10.1, 10.2 and 10.3, respectively.
On February 3, 2023, we entered into a securities purchase agreement (the “February 2023 SPA”) with a third party lender pursuant to which we borrowed $88,760 and issued a promissory note (the “February 2023 Note”) that accrues interest a 12% per annum and is repayable in 10 monthly installments starting March 15, 2023. Copies of the February 2023 SPA and the February 2023 Note are attached as Exhibits 10.5 and 4.3, respectively, to this Form 10-Q. The foregoing descriptions of the February 2023 SPA and February 2023 Note are summaries and do not purport to be complete and are qualified in their entirety by reference to Exhibits 10.5 and 4.3, respectively.
ITEM 6. EXHIBITS
| (a) | Index to and Description of Exhibits |
All Exhibitsexhibits required to be filed with the Form 10-Q are included in this quarterly report or incorporated by reference to Madison’s previous filings with the SEC, which can be found in their entirety at the SEC website at www.sec.gov under SEC File Number 000-51302.
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| 101.INS | Inline XBRL Instance Document | |||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
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Signatures
In accordance with the requirements of the Securities Exchange Act of 1934, Madison Technologies Inc. has caused this report to be signed on its behalf by the undersigned duly authorized person.
| Madison Technologies Inc. | ||
| Dated: | By: | /s/ |
| Name: | ||
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