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MDEX Madison

Filed: 23 Sep 21, 11:05am

 

 

 

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 June 30, 2021

 

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.)

 

450 Park Avenue, 30th Floor, New York, NY 10022
(Address of principal executive offices) (Zip Code)

 

(212) 339-5888
(Registrant’s telephone number, including area code)

 

n/a
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol 

Name of each exchange on which registered

Common MDEX OTCQB

 

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

 

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

 

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

 

Larger accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
(Do not check if a smaller reporting company)   

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☒ No

 

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 September 17, 2021
Common Stock - $0.001 par value 24,972,565

 

 

 

 
 

 

MADISON TECHNOLOGIES INC.

(UNAUDITED)

TABLE OF Contents

 

INTERIM FINANCIAL STATEMENTS 
  
Interim Balance Sheets3
  
Interim Statements of Operations4
  
Interim Statements of Stockholders’ Equity (Deficit)5 - 6
  
Interim Statements of Cash Flows7
  
Notes to the Interim Financial Statements8 - 25

 

-2-
 

 

MADISON TECHNOLOGIES INC.

INTERIM CONSOLIDATED Balance Sheets

(UNAUDITED)

 

  June 30, 2021  December 31, 2020 
ASSETS        
         
CURRENT ASSETS        
Cash $5,640,797  $9,491 
Accounts receivables  80,766     
Prepaid expenses and Deposits  45,653   67,718 
Due from related party – Note 15  85,388   - 
Total Current Assets  5,852,604   77,209 
Intangible Assets – Note 3  9,089,113   433,407 
Equipment, net – Note 5  674,043   - 
Inventory – Note 6  146,324   - 
Investments – Note 7, Note 12  372,500   - 
Operating lease right-of-use assets, net – Note 8  695,858   - 
Goodwill – Note 4  6,504,326   - 
Total Assets $23,334,768  $510,616 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
         
CURRENT LIABILITIES        
Accounts payable and accrued charges – Note 9 $530,002  $61,779 
Customer Deposits  78,812   - 
License fee payable – Note 10  33,500   33,500 
Current portion of lease liabilities – Note 8  81,947   - 
Demand notes and accrued interest payable – Note 13  -   20,486 
Convertible notes payable – Note 14  -   494,992 
Interest payable on convertible notes – Note 15  453,750   - 
Total current liabilities  1,178,011   610,757 
Long term portion of lease liability obligations – Note 8  623,858   - 
Long term convertible notes – Note 15  15,151,122   57,759 
         
Total liabilities  16,952,991   668,516 
         
STOCKHOLDERS’ EQUITY (DEFICIIT)        
Capital Stock: (Note 17 and 18)        
Preferred Shares – 50,000,000 shares authorized, $0.001 par value        
Preferred Shares - Series A, $0.001 par value; 3%, stated value $100 per share 100,000 shares designated, Nil shares issued and outstanding $-  $93 
Preferred Shares - Series B, $0.001 par value; Super Voting 100 shares designated, 100 shares issued and outstanding  -   - 
Preferred Shares - Series C, $0.001 par value; 2%, stated value $100 per share 10,000 shares designated, NaN issued  -   - 
Preferred Shares - Series D, $0.001 par value; convertible, stated value $3.32 per share, 230,000 shares designated, 230,000 shares issued and outstanding  230   - 
Preferred Shares - Series E, $0.001 par value; convertible, stated value $1,000 per share, 1,000 shares designated, 1,000 shares issued and outstanding  1   - 
Preferred Shares - Series F, $0.001 par value; convertible, stated value $1 per share, 1,000 shares designated, 1,000 shares issued and outstanding  1   - 
Preferred Shares - Series G, $0.001 par value; convertible, stated value $1,000 per share, 3,000 shares designated, NaN issued  -   - 
Preferred stock value  -   - 
Common Shares - $0.001 par value; 500,000,000 shares authorized 24,972,565 shares issued and outstanding (Dec 31, 2020 - 23,472,565 shares)  24,972   23,472 
Additional Paid in Capital:        
Preferred shares Series A  -   343,001 
Preferred shares Series D  667,984   - 
Preferred shares Series E  4,225,061   - 
Common Shares  1,331,570   959,976 
Shares subscribed  4,173,000   - 
Accumulated deficit  (4,041,042)  (1,484,442)
Total stockholders’ equity (deficit)  6,381,777   (157,900)
Total liabilities and stockholders’ equity (deficit) $23,334,768  $510,616 

 

See Accompanying Notes to the Financial Statements.

 

-3-
 

 

MADISON TECHNOLOGIES INC.

 

INTERIM CONSOLIDATED STATEMENTS of Operations

(UNAUDITED)

 

  For the three  For the three  For the six.  For the six 
  Months Ended  Months Ended  Months Ended  Months Ended 
  Jun 30, 2021  Jun 30, 2020  Jun 30, 2021  Jun 30, 2020 
             
Revenues                
Sales $296,025  $199  $296,025  $954 
Cost of sales  -   (113)  -   (732)
                 
Gross Margin  296,025   86   296,025   222 
                 
Operating Expenses                
Amortization  179,789   -   215,073   - 
Amortized right of use assets  19,370   -   19,370   - 
Consulting fees  216,750   -   279,500   - 
General and administrative  146,970   7,863   159,903   11,869 
Lender fees  285,583   -   285,583   - 
Management fees  182,077   -   206,077   - 
Marketing and product development  109,289   -   178,535   - 
Professional fees  264,938   1,829   523,719   3,469 
Royalties  34,210   -   68,045   - 
                 
Total operating expenses  1,438,976   9,692   1,935,805   15,338 
                 
Loss before other expense  (1,142,951)  (9,606)  (1,639,780)  (15,116)
                 
Other Items                
Amortized interest  (103,122)  -   (236,322)  - 
Interest  (453,750)  (1,561)  (680,498)  (3,073)
                 
Net loss and comprehensive loss $(1,699,823) $(11,167) $(2,556,600) $(18,189)
                 
Net loss per share-Basic and diluted $(0.072) $(0.001) $(0.106) $(0.001)
                 
Average number of shares of common stock outstanding  23,748,881   18,757,565   24,168,698   18,757,565 

 

See Accompanying Notes to the Financial Statements.

 

-4-
 

 

MADISON TECHNOLOGIES INC.

 

INTERIM CONSOLIDATED Statements of stockholders’ EQUITY (DEFICIT)

(UNAUDITED)

 

   Series A   Series B   Series D   Series E   Series F   Common 
  Number of Shares 
  Preferred  Preferred  Preferred  Preferred  Preferred    
  Series A  Series B  Series D  Series E  Series F  Common 
Balance, December 31, 2020 $93  $-  $-  $-  $-  $23,472 
Balance, December 31, 2020  92,999   100   -   -   -   23,472,565 
Cancellation of Preferred Series A  (93)  -   -   -   -   - 
Cancellation of Preferred Series A  (92,999)  -   -   -   -   - 
Conversion of debt to Preferred Series D  -   -   230   -   -   - 
Conversion of debt to Preferred Series D  -   -   230,000   -   -   - 
Shares issued for acquisition of assets – Series E  -   -   -   1   -   - 
Shares issued for assets – Series E  -   -   -   1,000   -   - 
Shares issued for convertible notes – Series F  -   -   -   -   1   - 
Shares issued for convertible note – Series F  -   -   -   -   1,000   - 
Equity portion on convertible debt issued  -   -   -   -   -   - 
Equity portion on convertible debt issued  -   -   -   -   -   - 
Shares issued for voting control – Series B  

-

   

-

   

-

   

-

   

-

   

1,500,000

 
Shares issued for voting control – Series B                      1500 
Share subscriptions received – Series G  -   -   -   -   -   - 
Shares subscriptions received – Series G  -   -   -   -   -   - 
Net loss for the period  -   -   -   -   -   - 
Balance, June 30, 2021  -   100   230,000   1,000   1,000   24,972,565 

 

  Amount 
  Pref  Pref  Pref  Pref  Pref    
  Series A  Series B  Series D  Series E  Series F  Common 
Balance, December 31, 2020 $93  $-  $-  $-  $-  $23,472 
Cancellation of Preferred Series A  (93)  -   -   -   -   - 
Conversion of debt to Preferred Series D  -   -   230   -   -   - 
Shares issued for acquisition of assets – Series E  -   -   -   1   -   - 
Shares issued for convertible notes – Series F  -   -   -   -   1   - 
Equity portion on convertible debt issued  -   -   -   -   -   - 
Shares issued for voting control – Series B  

-

   

-

   

-

   

-

   

-

   

1,500

 
Share subscriptions received – Series G  -   -   -   -   -   - 
Net loss for the period  -   -   -   -   -   - 
Balance, June 30, 2021 $-  $-  $230  $1  $1  $24,972 

 

-5-
 

 

   Series A   Series B   Series D     Series E   Series F   Common   Subscribed   Accumulated  Total 
  Additional Paid In Capital 
  Pref  Pref  Pref  Pref  Pref     Shares  Accumulated    
  Series A  Series B  

Series D

  Series E  Series F  Common  Subscribed  Deficit  Total 
Balance, December 31, 2020 $343,001  $-  $-  $-  $-  $959,976  $-  $(1,484,442) $(157,900)
Cancellation of Preferred Series A  (343,001)  -   -   -   -   343,094   -   -   - 
Conversion of debt to Preferred Series D  -   -   667,984   -   -   -   -   -   668,214 
Shares issued for assets – Series E  -   -   -   4,225,061   -   -   -   -   4,225,062 
Shares issued for convertible notes – Series F  -   -   -   -   -   -   -   -   1 
Equity portion on convertible debt issued  -   -   -   -   -   30,000   -   -   30,000 
Shares issued for voting control – Series B  

-

   

-

   

-

   

-

   

-

   

(1,500

)  -   -   - 
Share subscriptions received – Series G  -   -   -   -   -   -   4,173,000   -   4,173,000 
Net loss for the period  -   -   -   -   -   -   -   (2,556,600)  (2,556,600)
Balance, June 30, 2021 $-  $-  $667,984  $4,225,061  $-  $1,331,570  $4,173,000  $(4,041,042) $6,381,777 

 

        Additional          
  Common     Paid In  Shares  Accumulated    
  Shares  Amount  Capital  Subscribed  Deficit  Total 
                   
Balance, December 31, 2019  18,057,565  $18,057  $197,845  $-  $(574,279) $(358,377)
Net loss for the period  -   -   -   -   (18,189)  (18,189)
                         
Balance, June 30, 2020  18,057,565  $18,057  $197,845  $-  $(592,468) $(376,566)

 

See Accompanying Notes to the Financial Statements

 

-6-
 

 

MADISON TECHNOLOGIES INC.

interim consolidated Statements of cash flows

(Unaudited)

 

  For the six  For the six 
  Months Ended  Months Ended 
  June 30, 2021  June 30, 2020 
       
Cash flows from operating activities:        
Net loss for the period $(2,556,600) $(18,189)
Adjustments to reconcile net loss to cash used in operating activities:        
Amortization  234,443   - 
Amortized interest  236,322   - 
Interest on lease  16,953   - 
Accrued interest on notes payable  463,706   3,073 
Foreign exchange on notes payable  (179)  (1,655)
Changes in non-cash working capital items:        
Accounts receivables  (80,666)  - 
Prepaid expenses  22,065   (18,822)
Due from related party  (85,388)  - 
Accounts payable and accrued charges  468,223   1,742 
Customer deposits  78,812   - 
Lease payments  (26,376)  - 
Net cash used in operating activities  (1,228,685)  (33,851)
         
Cash flows from investing activities:        
Inventory  (146,324)  - 
Intangible assets  (8,859,951)  - 
Equipment  (684,871)  - 
Deposits on Investments  (372,500)  - 
Goodwill  (2,279,364)  - 
Net cash provided by investing activities  (12,343,010)  - 
         
Cash flows from financing activities:        
Proceeds from convertible notes issued  15,030,000   - 
Shares subscriptions received but not issued  4,173,000   - 
Shares for Debts - Series F  1   - 
Proceeds from notes payable  -   37,500 
Net cash provided by financing activities  19,203,001   37,500 
         
Net increase in cash  5,631,306   3,649 
Cash, beginning of year  9,491   1,366 
Cash, end of year $5,640,797  $5,015 
         
Note 22 Additional cash flow information        
         
SUPPLEMENTAL DISCLOSURE        
         
Interest paid $216,792  $- 
Taxes paid $-  $- 

 

See Accompanying Notes to the Financial Statements

 

-7-
 

 

MADISON TECHNOLOGIES INC.

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

June 30, 2021

 

Note 1 Nature and Continuance of Operations

 

The Company was incorporated on June 15, 1998 in the State of Nevada, USA and the Company’s common shares are publicly traded on the OTC Markets OTCQB.

 

Up until fiscal 2014, the Company (“Madison”) was in the business of mineral exploration. On May 28, 2014, the Company formalized an agreement whereby it purchased assets associated with a smokeless cannabis delivery system. The Company planned to develop this system for commercial purposes. On December 14, 2014, this asset purchase agreement was terminated.

 

On September 16, 2016, the Company entered into an exclusive distribution product license agreement with Tuffy Packs, LLC to distribute products into the United Kingdom and 43 other essentially European countries. The Company sold ballistic panels which are personal body armors, that conform to the National Institute of Justice (NIJ) Level IIIA threat requirements. The Company’s plan of operations and sales strategy included online and social media marketing, as well as attending various tradeshows and conferences. As the Company failed to make specified payments as required, the agreement was amended to a non-exclusive basis. The Company has closed this business.

 

On July 17, 2020, the Company entered into an acquisition agreement to acquire the Casa Zeta-Jones Brand License Agreement from Luxurie Legs, LLC of Delaware (“Luxurie”). Luxurie transferred all its rights, title and interest in the License Agreement to the Company in exchange for the Company’s newly issued preferred convertible Series A stock. Upon conversion, the stock could control up to 95% of the outstanding common shares. The agreement also required voting control, represented by newly issued shares of super voting preferred Series B stock.

 

On September 28, 2020, the Company entered into a share exchange agreement to acquire 51% interest of Posto Del Sole Inc., a jewelry designer company to further develop the Company’s existing brands and create new designer labels. The title and rights will be transferred when all the terms and conditions in the Securities Exchange Agreement are met. At December 31, 2020, the share exchange had not closed and advances made to Posto Del Sole Inc. were expensed. The Company has rescinded the agreement.

 

On February 16, 2021, the Company entered into a share exchange agreement to acquire 100% interest of Sovryn Holdings Inc. by issuing 1,000 Preferred Series E shares, making Sovryn Holdings Inc. a wholly owned subsidiary of the Company. At the same time, the Company settled all debts including loans, convertible notes and accrued interest by issuing 230,000 Preferred Series D shares.

 

During the quarter ended March 31, 2021, the Company incorporated CZJ License, Inc. in the State of Nevada, and transferred all the Casa Zeta-Jones Brand License and operations into the subsidiary. The Preferred Series A shares were cancelled. Holders of Preferred Series A received option agreements to purchase shares of CZJ License, Inc. at $10 per share to a maximum of 300,000 shares. The option agreements are exercisable for a period of one year.

 

During the quarter ended June 30, 2021, the shareholders of the Company approved to amend the Articles of Incorporation to change its name from Madison Technologies, Inc. to Go.TV, Inc. At the same time, to also amend and restate the Company’s Articles of Incorporation to increase the Company’s authorized common stock from 500,000,000 shares to 6,000,000,000 shares. At the date of this report, the name change and amendment to increase the authorized capital of the Company is pending on regulatory approval.

 

These condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States or “US GAAP” applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown and these consolidated interim financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company had not yet achieved profitable operations, had accumulated losses of $4,041,042 since its inception and expects to incur further losses in the development of its business, all of which casts doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company entered into a number of agreements that provided financing. That said, there is no assurance that the businesses being funded by this additional debt will ultimately be successful.

 

-8-
 

 

Note 2 Summary of Significant Accounting Policies

 

Basis of presentation

 

While the information presented is unaudited, it includes all adjustments, which are, in our opinion of management, necessary to present fairly the financial position, result of operations and cashflows for the interim period presented in accordance with accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature. These consolidated interim financial statements should be read in conjunction with the Company’s December 31, 2020 annual financial statements. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that can be expected for the period ended December 31, 2021.

 

The accompanying condensed consolidated interim financial statements include the accounts of the Company and its two wholly owned subsidiaries, CZJ License, Inc. (“CZJ”) and Sovryn Holdings, Inc. (“Sovryn”)

 

Use of estimates

 

The preparation of the 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.

 

Revenue Recognition

 

Revenues derived from the leasing of television station channels are recognized when services are provided. These revenues are billed in advance, arrears and/or are prepaid. The performance obligation is the monthly services rendered. At the moment, the Company has one main revenue source which is leasing of television channels. Where there is a leasing contract for channels, the Company bills monthly for its services as rendered. Where there is no contract, the revenue is recognized as provided.

 

Accounts Receivables

 

Trade accounts receivable are stated at the amount the Company expects 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, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. As of June 30, 2021, the Company believes there are no receivables considered uncollectible.

 

-9-
 

 

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. The Company adopted the new standard April 19, 2021. The Company has elected not to recognize lease assets and lease liabilities for leases with an initial term of 12 months or less.

 

Segment Reporting

 

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance of its corporation wide basis in comparison to its various businesses. The Company has three reportable segments. The business of CZJ, Sovryn and Madison Technologies Inc. The segments are determined based on several factors including the nature of products and services, nature of production processes and delivery channels, and rental of television stations. The operating segment’s performance is evaluated based on its segment income. Segment income is defined as the net sales less cost of sales, general and administrative expenses and does not include amortization of any sorts, stock-based compensation or any other charges (income), and interest. As at June 30, 2021, the Company reported revenues for its rental of radio stations.

 

Schedule of Revenue

  For the six 
  months ended 
  Jun 30, 2021 
Net Sales    
Madison Technologies Inc. $- 
Sovryn Holdings Inc.  296,025 
CZJ License Inc.  - 
Total Sales $296,025 
     
Total Assets    
Madison Technologies Inc. $9,373,786 
Sovryn Holdings Inc.  13,451,820 
CZJ License Inc.  509,162 
Total Assets $23,334,768 

 

Change in significant accounting policies

 

There has been no change in the accounting policies from those disclosed in the notes to the audited financial statements for the year ended December 31, 2020 except the ones disclosed here.

 

Recently Issued Accounting Pronouncements

 

The Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued, which may be in advance of their effective date. On August 5, 2020, the FASB issued a new standard (ASU 2020-06) to reduce the complexity of accounting for convertible debt. The standard is effective for Smaller Reporting Companies for fiscal years beginning after December 15, 2023. Management is reviewing this standard as it believes this may impact on its financial reporting Management does not believe that other any pronouncement not yet effective but recently issued would, if adopted, have a material effect on the accompanying financial statements.

 

-10-
 

 

Note 3 Intangible Assets

 

The Company has several classes of intangible assets. Except for Federal Communication Commission Licenses (“FCC”), the following intangible assets have finite useful lives and are amortized on a straight-line basis over their useful lives. Amortization starts when the asset is available for use. FCC licenses are considered indefinite-lived intangible assets which are not amortized but instead are tested at least annually for impairment. 

 Schedule of Intangible Assets

  June 30, 2021  December 31, 2020 
  Cost  Depreciation  Net  Cost  Depreciation  Net 
Tuffy Packs, LLC License $50,000  $50,000  $-  $50,000  $50,000  $- 
Website for Casa-Zeta Jones Brand  10,000   -   10,000   10,000   -   10,000 
Domain Name – Go.TV  100,000   -   100,000   -   -   - 
Customer lists  1,360,250   133,677   1,226,573   -   -   - 
Casa Zeta-Jones Brand License  488,094   135,255   352,839   488,094   64,687   423,407 
Licenses  7,399,701   -   7,399,701   -   -   - 
                         
  $9,408,045  $318,932  $9,089,113  $548,094  $114,687  $433,407 

 

Note 4 Goodwill

 

Goodwill has been recorded on investment purchases where the value of the investment is greater than the identifiable net assets purchased. The amount is not amortized but rather is tested for impairment at least annually. Goodwill was recorded on the following investments:

 

 Schedule of Goodwill

Purchase of 100% of the common shares of Sovryn Holdings, Inc. $4,224,962 
KNLA- KNET acquisition  1,570,734 
KVVV acquisition  708,630 
Total $6,504,326 

 

Note 5 Equipment

 

Equipment are amortized over their useful lives.

 

Schedule of Equipment

    Cost Depreciation Net 
Transmitter 10 years $376,815 $6,530 $370,285 
Antenna 10 years $103,275 $1,575 $101,700 
Tech Equip 5 years $204,782 $2,724 $202,058 
    $684,872 $10,829 $674,043 

 

Note 6 Inventory

 

Inventory consists of deposits for tooling, product tubes and bottles for the CZJ product lines. Inventories are stated at the lower of cost or net realizable value. As at June 30, 2021, inventory was $146,324.

 

-11-
 

 

Note 7 Investments

 

Investments consists of deposits for the acquisitions of various television stations for which Sovryn has entered into and have not closed. As at June 30, 2021, the Company escrowed a total of $372,500. As described in Note 11 Asset Purchase, $285,000 was escrowed for the W27EB Acquisition and $87,500 in the KYMU Acquisition.

 

Note 8 Right of Use Assets

 

Sovryn has four (4) operating leases ranging from a period of 34 months to a period of 220.5 months. The annual interest rate used was 15%. As at June 30, 2021, the remaining right of use assets are as follows:

 

Schedule of Remaining Right of Use Assets

      Accumulated   
    Amount Amortization Net 
Tower lease - 1 54.5 mths $266,442 $12,222 $254,220 
Tower lease - 2 34 mths  113,063  3,326  109,737 
Generator lease 54.5 mths  55,639  2,552  53,087 
Studio lease 220.5 mths  280,084  1,270  278,814 
    $715,228 $19,370 $695,858 

 

The remaining lease liability at June 30, 2021 was $705,805. The current portion of the lease liability was $81,947 and the non-current portion of the lease liability was $623,858.

 Schedule of Remaining Lease Liability

   2021 
2022 $182,421 
2023  188,098 
2024  180,708 
2025  150,839 
2026  83,061 
Remaining  653,725 
Lease obligations, net  1,438,852 
Amt representing interest  733,047 
Remaining lease liability  705,805 
Less current portion  81,947 
Non-current lease obligation $623,858 

 

Note 9 Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities as of June 30, 2021 are summarized below:

 

Schedule of Accounts Payable and Accrued Liabilities

  Jun 30, 2021  Dec 31, 2020 
Audit fees $5,800  $25,800 
Accounting fees  6,000   8,100 
Legal fees  192,843   25,118 
Office expenses  49,775   335 
Consulting fees  50,000   - 
Lender’s fees  225,583   - 
Management fees  -   3,000 
         
Total $530,001  $62,353 

 

-12-
 

 

Note 10 License Agreements

 

AThe Company entered into an exclusive product license agreement on September 16, 2016 with Tuffy Packs, LLC, a Texas corporation, to sell Ballistic Panels in certain countries, essentially in Europe. The license was for a period of two years and may be renewed for successive terms of two years each. The payment terms for the license was as follows:

 

 1.$10,000 payable within seven days after the effective date;
 2.An additional $15,000 payable within 30 days after the effective date; and
 3.A final payment of $25,000 payable within 90 days of the effective date.

 

At December 31, 2018, the Company had paid $16,500 to the Licensor, leaving an unpaid balance of $33,500. To date, the Company has recorded a total license amortization of $50,000, which fully amortizes the license.

 

As a result of the failure to make payments as required under the agreement, the Company was informed on March 20, 2017, that going forward, the agreement would be on a non-exclusive basis. During the period ended March 31, 2021, the Company has terminated the business.

 

B.On July 17, 2020, the Company entered into an acquisition agreement with Luxurie Legs, LLC, a Delaware corporation, to acquire the Casa Zeta-Jones Brand license agreement. The license agreement, as amended, grants the Company the worldwide rights to promote and sell certain products, and license the rights to manufacture, promote and sell such products under the brand Casa Zeta-Jones and more. The license agreement purchase included the issuance of 92,999 Series A 3% Convertible Preferred Series A shares valued at $343,094, 10,000 Preferred Series B voting shares valued at $nil, the assumption of $45,000 in debt and costs incurred of $100,000.

 

The values were based on the licensor obtaining 95% of the Company’s common shares, whose value was discounted by a 50% factor, given the lightly traded history in its shares.

 

The Company is subject to the following terms:

 

 a.A 3.5 year term as follows:

 

 i.Year 1: execution – December 31, 2021
 ii.Year 2: January 1, 2022 – December 31, 2022
 iii.Year 3: January 1, 2023 – December 31, 2023

 

 b.Marketing date November 2020, On Shelf Date February 15, 2021.
   
 c.Royalty payments with a rate of 8%, net of sales, subject to guaranteed minimums noted below.
   
 d.Advance prepayment of $150,000 to be applied against royalties, paid as follows:

 

 i.$50,000 upon signing (paid)
 ii.$50,000 on July 20, 2020 (paid)
 iii.$50,000 on September 1, 2020 (paid)

 

 e.Guaranteed minimum sales and guaranteed minimum royalties:

 Schedule of Guaranteed Minimum Royalties

Year 

Guaranteed

Minimum Royalties

 

Guaranteed

Minimum Sales

 
        
i. 7/17/20 – 12/31/21 $250,000 $3,200,000 
ii. 1/1/22 – 12/31/22 $250,000 $3,200,000 
iii. 1/1/23 – 12/31/23 $250,000 $3,200,000 

 

 f.The Company to provide the Licensor with 50 gift sets of Licensed Products annually.

 

-13-
 

 

Note 11 Securities Exchange Agreements

 

Sovryn Holdings, Inc.

 

The Company entered into a Securities Exchange Agreement on February 16, 2021 with Sovryn, a Delaware corporation and acquire 100% of the shares of Sovryn in exchange for i) 100 shares of Series B Preferred Stock of the Company to be transferred by Jeffrey Canouse, the Company’s CEO to a designee of Sovryn and ii) 1,000 shares of Series E Convertible Preferred Stock. Upon the effectiveness of an amendment to the Company’s Articles of Incorporation to increase the Company’s authorized common stock, from par value $0.001 to par value $0.0001 per share, from 500,000,000 shares to 6,000,000,000 shares, all shares of Series E Convertible Preferred Stock issued to the shareholders shall automatically convert into approximately 2,305,000,000 shares of common stock of the Company. The Series E Convertible Preferred Stock votes on an as-converted basis with the common stock prior to their conversion. The Series E Preferred Stock shall represent approximately 59% of the fully diluted shares of common stock of the Company after the closing of the transactions contemplated by the Securities Purchase Agreement. The valuation for the Preferred Series E shares was determined to be $4,225,062 (See Note 11). The valuation recorded was based on the market value of the shares of the Company at the date the transaction was exchanged. The transaction was recorded as an asset purchase and the Company recorded goodwill of $4,224,962 which was based on the market value of the shares the Company exchanged at the date of the transaction. The Preferred Series E shares have not been converted to common stock shares as of the date of this report.

 

Posto Del Sole, Inc.

 

The Company entered into a Securities Exchange Agreement on September 25, 2020 with Posto Del Sole Inc. (“PDS”) a New York corporation, to acquire 51% of the shares of PDS and in return, the Company will issue 10,000 Preferred Series C shares. (See Note 11). As part of the agreement, the Company is to provide monthly investments to a total aggregate of $1,000,000 during the twelve-month period following the closing. PDS had 60 days from closing to provide the necessary financial statements and notes in order to satisfy regulatory requirements and disclosures. As at December 31, 2020 PDS had not provided any such information, the Securities Exchange Agreement had not closed and as a result, the Company wrote off advances of $165,000 that were made to PDS in anticipation of closing. The Company has rescinded the agreement and has no plans to move forward with the acquisition.

 

Note 12 Asset Purchase

 

KNLA-KNET Acquisition

 

On February 17, 2021, Sovryn entered into an asset purchase agreement (the “Asset Purchase Agreement”) with NRJ TV III CA OPCO, LLC, a Delaware limited liability company (“OpCo”) and NRJ TV III CA License Co., LLC, a Delaware limited liability company (together with OpCo, “Sellers”). Upon the terms and subject to the satisfaction of the conditions described in the Asset Purchase Agreement, Sovryn will acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KNET-CD and KNLA-CD Class A television stations owned by the Sellers (the “Acquired Stations”), certain tangible personal property, real property, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Acquired Stations (the “Asset Sale Transaction”). As consideration for the Asset Sale Transaction, Sovryn has agreed to pay the Sellers $10,000,000, $2,000,000 of which was paid to Sellers upon execution of the Asset Purchase Agreement, as follows: (i) an escrow deposit of $1,000,000 to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Sellers (the “Escrow Fee”) and (ii) a non-refundable option fee of $1,000,000 (the “Option Fee”).

 

The closing of the Asset Sale Transaction (the “Closing”) was subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Acquired Stations, from Sellers to Sovryn (the “FCC Consent”). The Closing shall occur no more than five (5) business days following the later of (i) the date on which the FCC Consent has been granted and (ii) the other conditions to the Closing set forth in the Asset Purchase Agreement. The asset purchase was consummated on April 19, 2021.

 

-14-
 

 

KVVV Acquisition

 

On March 14, 2021 Sovryn entered into an asset purchase agreement (the “KVVV Asset Purchase Agreement”) with Abraham Telecasting Company, LLC, a Texas limited liability company (the “Houston Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KVVV Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVVV-LD low power television station owned by the Houston Seller (the “Houston Acquired 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 Acquired Station (the “KVVV Asset Sale Transaction”). As consideration for the KVVV Asset Sale Transaction, Sovryn has agreed to pay the Houston Seller $1,500,000 in cash, $87,500 of which was paid to the Houston Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Houston Seller (the “KVVV Escrow Fee”).

 

The closing of the KVVV Asset Sale Transaction (the “KVVV Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Houston Acquired Station, from the Houston Seller to Sovryn (the “Houston FCC Consent”). The KVVV Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Houston FCC Consent has been granted and (ii) the other conditions to the KVVV Closing set forth in the KVVV Asset Purchase Agreement. The closing of the KVVV Asset Sale Transaction consummated on June 1, 2021.

 

KMYU Acquisition

 

On March 29, 2021, Sovryn, entered into an asset purchase agreement (the “KYMU Asset Purchase Agreement”) with Seattle 6 Broadcasting Company, LLC, a Washington limited liability company (the “Seattle Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KYMU Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the KYMU-LD low power television station owned by the Seattle Seller (the “Seattle Acquired 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 Acquired Station (the “KYMU Asset Sale Transaction”). As consideration for the Seattle Asset Sale Transaction, Sovryn has agreed to pay the Seattle Seller $1,750,000, $87,500 of which was paid to the Seattle Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Seattle Seller (the “Seattle Escrow Fee”).

 

The closing of the KYMU Asset Sale Transaction (the “KMYU Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Seattle Acquired Station, from Seattle Seller to Sovryn (the “Seattle FCC Consent”). The Seattle Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Seattle FCC Consent has been granted and (ii) the other conditions to the KMYU Closing set forth in the KMYU Asset Purchase Agreement. As at June 30, 2021, the transaction has not closed.

 

W27EB Acquisition

 

On June 9, 2021, Sovryn entered into an asset purchase agreement (the “W27EB Asset Purchase Agreement”) with Local Media TV Chicago, LLC, a Delaware limited liability company (the “Chicago Seller”). Upon the terms and subject to the satisfaction of the conditions described in the W27EB Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the W27EB-LD low power television station owned by the Chicago Seller (the “Chicago Acquired 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 Chicago Acquired Station (the “W27EB Asset Sale Transaction”). As consideration for the W27EB Asset Sale Transaction, Sovryn has agreed to pay the Chicago Seller $5,700,000 in cash, $285,000 of which was paid to the Chicago Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Chicago Seller (the “W27EB Escrow Fee”).

 

The closing of the W27EB Asset Sale Transaction (the “W27EB Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Chicago Acquired Station, from the Chicago Seller to Sovryn (the “Chicago FCC Consent”). The W27EB Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the Chicago FCC Consent has been granted and (ii) the other conditions to the W27EB Closing set forth in the W27EB Asset Purchase Agreement. As at June 30, 2021, the transaction has not closed.

 

-15-
 

 

KPHE Acquisition

 

On July 13, 2021, Sovryn entered into an asset purchase agreement (the “KPHE Asset Purchase Agreement”) with Lotus TV of Phoenix LLC, an Arizona limited liability company (the “Phoenix Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KPHE Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KPHE-LD low power television station owned by the Phoenix Seller (the “Phoenix Acquired 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 Phoenix Acquired Station (the “KPHE Asset Sale Transaction”). As consideration for the KPHE Asset Sale Transaction, Sovryn has agreed to pay the Phoenix Seller $2,000,000 in cash, $100,000 of which was paid to the Phoenix Seller (subsequent to the period end) and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Phoenix Seller (the “KPHE Escrow Fee”).

 

The closing of the KPHE Asset Sale Transaction (the “KPHE Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Phoenix Acquired Station, from the Phoenix Seller to Sovryn (the “Phoenix FCC Consent”). The KPHE Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the Phoenix FCC Consent has been granted and (ii) the other conditions to the KPHE Closing set forth in the KPHE Asset Purchase Agreement.

 

KVSD Acquisition

 

On August 31, 2021, Sovryn entered into an asset purchase agreement (the “KVSD Asset Purchase Agreement”) with D’Amico Brothers Broadcasting Corp., a California company (the “San Diego Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KVSD Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVSD-LD low power television station owned by the San Diego Seller (the “San Diego Acquired 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 San Diego Acquired Station (the “KVSD Asset Sale Transaction”). As consideration for the KVSD Asset Sale Transaction, Sovryn has agreed to pay the San Diego Seller $1,500,000 in cash, $75,000 of which was paid to the San Diego Seller (subsequent to the period end) and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the San Diego Seller (the “KVSD Escrow Fee”).

 

The closing of the KVSD Asset Sale Transaction (the “KVSD Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the San Diego Acquired Station, from the San Diego Seller to Sovryn (the “San Diego FCC Consent”). The KVSD Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the San Diego FCC Consent has been granted and (ii) the other conditions to the KVSD Closing set forth in the KVSD Asset Purchase Agreement.

 

Note 13 Note Payable

 

The Company had one note payable that was accruing interest at 5% per annum. The note was unsecured and matured on June 30, 2021. On February 16, 2021, the note and accrued interest was settled with Convertible Preferred Series D shares. Each Series D Convertible Preferred Stock shall be convertible into common stock of the Company at a ratio of 1,000 shares of common stock for each share of Series D Convertible Preferred Stock held.

 

Schedule of Notes Payable

  

February 16,

2021

  

December 31,

2020

 
       
Note payable bearing interest at 5% $20,000  $20,000 
Accrued interest thereon  216   486 
  $20,216  $20,486 

 

Note 14 Convertible Notes and Accrued Interest Payable

 

On February 16, 2021, the Company settled the following debts and interests thereof including the note payable above (Note 8), with 230,00 shares of Convertible Preferred Series D shares. Each Series D Convertible Preferred Stock shall be convertible into common stock of the Company at a ratio of 1,000 shares of common stock for each share of Series D Convertible Preferred Stock held. A summary of the convertible notes and accrued interest payable were settled as follow:

 Schedule of Convertible Notes and Accrued Interest Payable

Face

Value

 

Conversion

Rate

 Interest rate  Due Date 

Accrued

Interest

 

Carrying

Value

 

Feb 15

2021

Total

 

Dec 31

2020

Total

$10,000 $0.005   -   - $- $500 $500 $500(a)
$85,000 $0.01   -   -  -  50,800  50,800  50,800(b)
$50,000 $0.01   10%  05/01/2022  2,500  50,000  52,500  52,500(c)
$5,000 $0.01   10%  05/01/2022  259  5,000  5,259  5,259(d)
$12,500 $0.01   10%  6/23/2021  457  7,500  7,957  7,957(d)
$20,000 $0.04   -   -  -  20,000  20,000  20,000 
$68,490 $0.05   -   -  -  68,490  68,490  68,490(e)
$25,000 $0.05   12%  -  20,056  25,000  45,056  44,682(f)
$25,000 $0.05   8%  -  32,047  25,000  57,047  56,797(f)
$23,622 $0.05   5%  -  16,388  23,622  40,010  39,551(f)
$684,000 $0.05   10%  Various  22,066  220,799  242,865  154,444(g)
$75,000 $    10%  Various  1,788  55,331  57,119  51,771(h)
              $95,561 $552,042 647,603 $552,751 
   Less long-term portion                57,759 
   Current portion             $647,603 $494,992 

 

-16-
 

 

All notes are unsecured and, except where specifically noted, are due on demand. Except for notes denoted below under (e). No conversion shall result in the Holder holding in excess of 9.99% of the total issued and outstanding common stock of the Company at any time.

 

 (a)On October 28, 2020, $9,500 was converted into 1,900,000 common shares.
 (b)On July 23, 2020, $16,900 in debt and $950 in costs were converted into 1,785,000 common shares and on November 2, 2020, $17,300 was converted into 1,730,000 common shares.
 (c)The notes are convertible into common stock at the discretion of the Holder at the lesser of $0.01 or 50% of the lowest closing bid price for the Company’s stock during the 20 immediately preceding the date of delivery by Holder to the Company of the Conversion Notice.
 (d)The notes are convertible into common stock at the discretion of the Holder at 50% of the lowest closing bid price for the Company’s common stock during the 30 trading days immediately preceding the date of delivery by Holder to the Company of the Conversion Notice.
 (e)Included in this debt is $490 due to the former CEO. The debt was repaid via check.
 (f)On April 2, 2020, these notes terms were changed from non-convertible to convertible at $0.05 debt to 1 common share. They were also amended to include the above noted clause with respect to holding less than 9.99% of the issued and outstanding common stock. During the year ended December 31, 2020, interest accrued on this debt was $6,164 (2019 - $6,146). For comparative purposes, these amounts previously shown as debt payable as at December 31, 2019, have been reclassified as convertible debt.
 (g)Based on the intrinsic value of the beneficial conversion feature, as per FASB topic ASC 470-20 Debt with Conversion and other Options, it was determined that all of the value of the following notes that were issued should be allocated to equity and amortized to interest, based on the due date of the debt. A summary of the balances is as follows as at February 15, 2021:

 

Schedule of Convertible Notes

Allocated to   Amortized Accrued   
Equity Due Date as interest at 10% Total 
$30,000 03-31-2021 $24,293 $1,627 $25,920 
 100,000 07-20-2021  56,051  5,726  61,777 
 60,000 08-31-2021  27,406  2,860  30,266 
 20,000 09-30-2021  7,688  816  8,504 
 60,000 10-31-2021  18,715  2,022  20,737 
 50,000 10-31-2021  14,504  1,507  16,011 
 50,000 10-31-2021  14,504  1,507  16,011 
 10,000 11-04-2021  2,671  277  2,948 
 110,000 11-18-2021  25,476  2,622  28,098 
 55,000 11-19-2021  12,262  1,310  13,572 
 27,000 12-31-2021  4,292  481  4,773 
 27,000 12-31-2021  4,292  481  4,773 
 20,000 12-31-2021  2,976  318  3,294 
 30,000 12-31-2021  3,747  382  4,129 
 17,500 01-31-2022  961  65  1,026 
 17,500 01-31-2022  961  65  1,026 
$684,000   $220,799 $22,067 $242,865 

 

-17-
 

 

 (h)Based on the intrinsic value of the beneficial conversion feature, as per FASB topic ASC 470-20 Debt with Conversion and other Options, it was determined that a portion of the value of the following notes issued should be allocated to equity and amortized to interest, based on the due date of the debt. These notes are convertible into common stock at the discretion of the Holder at 70% of the lowest closing bid price for the Company’s common stock during the 20 trading days immediately preceding the date of delivery by Holder to the Company of the Conversion Notice. The face value of each note is $25,000 and a summary of the balances is as follows as at February 15, 2021:

 Schedule of Convertible Notes

Allocated to

equity

 Due date 

Amortized as

Interest

 

Accrued

Interest

at 10%

 Total 
$10,714 07-31-2021 $4,397 $822 $19,505 
 10,714 08-31-2021  3,279  610  18,175 
 7,468 09-30-2021  1,501  404  19,438 
$28,896   $9,177 $1,836 $57,118 

 

Note 15 – Convertible Notes Payable and Interest Payable

 

Arena Investors LP convertible promissory notes

 

On February 17, 2021, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “Investors”) pursuant to which it issued convertible notes in an aggregate principal amount of $16.5 million for an aggregate purchase price of $15 million (collectively, the “Notes”). In connection with the issuance of the Notes, the Company issued to the Investors warrants to purchase an aggregate of 192,073,017 shares of Common Stock (collectively, the “Warrants”) and 1,000 shares of series F convertible preferred stock (the “Series F Preferred Stock”).

 

The Notes each have a term of thirty-six months and mature on February 17, 2023, unless earlier converted. The Notes accrue interest at a rate of 11% per annum, subject to increase to 20% per annum upon and during the occurrence of an event of default. Interest is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at the Company’s election, any interest payable on an applicable payment date may be paid in registered Common Stock of the Company (rather than cash) 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 VWAP of the Common Stock for the five (5) days immediately preceding the date of conversion.

 

The Notes are convertible at any time, at the holder’s option, into shares of our common stock equal to the lesser of: (i) the amount determined by dividing (A) $50,000,000, by (B) the total number of shares of preferred stock, Common Stock and Common Stock Equivalents outstanding on such Conversion Date (assuming full conversion or exercise of all then issued and outstanding securities of the Company that are exercisable for or convertible into such equity securities of the Company) and (ii) $1.00, subject to adjustment herein (the “Conversion Price”), subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion Price in effect shall be equal to 75% of the average VWAP of the Common Stock for the five (5) Trading Days on the Trading Market immediately preceding the date of conversion (the Alternative Conversion Price”); provided, however, that the Alternate Conversion Price may not exceed $0.015 per share, as adjusted pursuant to the terms of the Notes. The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. The Notes may not be redeemed by the Company.

 

-18-
 

 

At June 30,2021, the loan summary was:

 Summary of Loan 

Face Loan Amortized Carrying Accrued   
Value Proceeds Interest Value Interest 11% Total 
$16,500,000 $15,00,0000 $151,122 $15,151,122 $453,750 $15,604,872 

 

As part of the agreement with Arena Partners, the Company issued 192,073,016 warrants. Each Warrant is exercisable for a period of five (5) years from the date of issuance at an initial exercise price to (i) 125%, times (ii) the amount determined by dividing (A) $50,000,000, by (B) the total number of shares of preferred stock, Common Stock and Common Stock Equivalents outstanding on such Conversion Date (assuming full conversion or exercise of all then issued and outstanding securities of the Company that are exercisable for or convertible into such equity securities of the Company), subject to adjustment herein, 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 Series F Preferred Stock have no voting rights and shall convert into 4.9% of our issued and outstanding shares of common stock on a fully diluted basis upon Shareholder Approval. The Series F Preferred Stock was issued but not converted to common shares as of the date of this report.

 

Each of the Investors have contractually agreed to restrict their ability to exercise the Warrants and convert the Notes such that the number of shares of the Company common stock held by each of them and their affiliates after such conversion or exercise does not exceed 9.99% of the Company’s then issued and outstanding shares of common stock.

 

Note 16 Related Party

 

On September 28, 2020, the Company entered into a renewable employment agreement with the Jeff Canouse, former President and CEO of the Company as described in Note 20, Commitments. The former President is the CEO and sole director of CZJ License Inc., the Company’s wholly owned subsidiary. As of June 30, 2021, Mr. Canouse had received $48,000 pursuant to his employment agreement (2020 - $34,000 in management fees, $24,000 of which was pursuant to the employment agreement).

 

On April 7, 2021, the Company issued 1,500,000 common shares to Jeff Canouse in exchange for transferring his 100 shares of the Company’s Series B Preferred Stock to Phil Falcone. The shares were valued at $1,500.

 

The Company entered into a consulting agreement with a director of the Company, Warren Zenna of Zenna Consulting Group to provide oversight of marketing and communications services. The agreement commenced March 1, 2021 through to December 31, 2021. The Company pays Zenna Consulting Group a monthly retainer of $15,000. As of June 30, 2021, the Company paid $57,000 in fees.

 

Philip Falcone is the President and CEO of the Company who currently holds 100 Series B Preferred Super Voting shares which he is entitled to 51% voting rights no matter how many shares of common stock or other voting stock of the Company are issued or outstanding in the future, such that he shall always have majority voting control of the Company. Philip Falcone is also the CEO of Sovryn Holdings, Inc., the Company’s wholly owned subsidiary. At June 30, 2021, Mr. Falcone was paid $135,000 to his company, Green Rock LLC, for management fees. An aggregate of $85,388 was owing from Mr. Falcone for advances paid by the Company.

 

Note 17 Common Stock

 

During the period ended June 30, 2021, the Company issued 1,500,000 common shares to Jeff Canouse in exchange for transferring his 100 shares of the Company’s Series B Preferred Stock to Phil Falcone. The shares were valued at $1,500. (see Note 18)

 

The Company issued 192,073,016 warrants during the period ended June 30, 2021. (See Note 14) The warrants are exercisable for a period of 5 years from the date of issuance.

 

The following common stock transactions occurred during the year ended December 31, 2020:

 

On July 23, 2020, the Company issued 1,785,000 shares of common stock pursuant to the conversion of a note payable of $16,900 at $0.01 per share plus legal fees of $950, totaling $17,850.

 

-19-
 

 

On October 28, 2020, the Company issued 1,900,000 shares of common stock pursuant to the conversion of a note payable of $9,500 at $0.005 per share.

 

On November 2, 2020, the Company issued 1,730,000 shares of common stock pursuant the conversion of a note payable of $17,300 at $0.01 per share.

 

There are no shares subject to warrants or options as of December 31, 2020.

 

Note 18 Preferred Shares

 

Series A 3% Convertible Preferred Stock, par value $0.001 with a stated value of $100 per share

 

There are 100,000 designated and authorized Series A 3% convertible preferred stock with a 9.99% conversion cap and anti-dilution rights for 24 months from time of issuance. Holders of Series A 3% Preferred Stock shall be 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 3% Convertible Preferred Stock have the right to vote on any matter that may be submitted to the Company’s shareholders for vote, on an as converted basis, either by written consent or by proxy. Each share of Series A 3% Convertible Preferred Stock may be convertible into 3420 shares of Common Stock, or as adjusted to equal the conversion ratio multiplied by a fraction, the numerator of which shall be the number of shares outstanding on a fully diluted basis after the issuance of the dilution shares, and the denominator shall be 360,000,000. (See Form 8K filing on August 6, 2020, Exhibit 10.3)

 

On July 17, 2020, 92,999 Series A 3% Convertible Preferred Stock were issued pursuant to the License Agreement at a value of $343,094 The acquisition cost was derived using the current market price of $0.04 x 95% of the number of the issued and outstanding shares of the Company at the time (18,057,565) x 50% of the value. (See Note 4).

 

On February 16, 2021, the Company cancelled all the Preferred Series A shares. In exchange, the holders of Series A Preferred shares received option agreements to purchase shares of the wholly owned subsidiary, CZJ License, Inc. at $10 per share for up to 300,000 shares. The option agreements are exercisable for a period of one year.

 

As at June 30, 2021, there were Nil Series A Preferred shares outstanding.

 

Series B Super Voting Preferred Stock, par value $0.001

 

There are 100 designated and authorized Series B Super Voting Preferred Stock. Holders with Series B Super Voting Preferred Stock have the right to vote on all shareholder matters equal to 51% of the total vote of common stockholders. The Series B Super Voting Preferred Stockholder is entitled to 51% voting rights no matter how many shares of common stock or other voting stock of the Company are issued or outstanding in the future, such that the holder of Series B Super Voting Preferred Stock shall always have majority control of the Company.

 

On July 17, 2020, 100 Series B Super Voting Preferred Stock were issued pursuant to the License Agreement. The Series B Super Voting Preferred Stock was valued at par at $Nil. Although the Series B Super Voting Preferred Stock is entitled to 51% voting rights as described above, the stock has no dividend rate nor a conversion feature. Furthermore, the shares were not issued to the investors but rather were granted to new unrelated management.

 

On February 17, 2021, the 100 Series B Super Voting Preferred Stock were transferred from Jeff Canouse, former director and CEO, to Philip Falcone, director and CEO of the Company.

 

Series C 2% Convertible Preferred Stock, par value $0.001 with a stated value of $100 per share

 

There are 10,000 designated and authorized Series C 2% convertible preferred stock with a 9.99% conversion cap. Holders of Series C 2% Preferred Stock shall be 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, neither the Company nor any subsidiary thereof shall, without the consent of the Holders of 80% of the shares of Series C Preferred Stock then outstanding, redeem, repurchase or otherwise acquire directly or indirectly any Junior Securities nor shall the Company directly or indirectly pay or declare or make any distribution upon, nor shall any distribution be made in respect of, any Junior Securities, nor shall 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 shall have the right to vote on any matter that may from time to time be submitted to the Company’s shareholders for a vote, on an as converted basis, either by written consent or by proxy. Each share of Series C 2% Convertible Preferred Stock may be convertible into 100 shares of Common Stock. (See Note 5)

 

As at June 30, 2021, 0 Series C Convertible Preferred shares were issued or outstanding.

 

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Series D Convertible Preferred Stock, par value $0.001 with a stated value of $3.32 per share

 

There are 230,000 designated and authorized Series D convertible preferred stock with a 4.99% conversion cap which may be increased to a maximum of 9.99% by holder by written notice to the Company. There is a stated value of $3.32 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 Senior Preferred Stock and have no voting rights. Each share of Series D Preferred Stock may be converted to 1,000 common shares.

 

On February 16, 2021, all outstanding debts including note payables, convertible notes payable, discounts, accrued interests and thereof totaling $688,214, were settled for the Company’s Series D convertible Preferred stock.

 

As at June 30, 2021, 230,000 Series D Preferred Shares were issued but not converted.

 

Series E Convertible Preferred Stock, par value $0.001 with a stated value of $1,000 per share

 

There are 1,000 designated and authorized Series E convertible preferred stock. There is a stated value of $1,000 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 as a Senior Preferred Stock. It has voting rights equal to the number of shares of common stock into which the Series E 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 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 Series E votes 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, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series E are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series E shall entitle 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 shall be 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 are outstanding, the Company shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series F, (a) alter or change adversely the powers, preferences or rights given to the Series E or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the 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, divided by (ii) the total number of shares of Series E, (iii) rounded to the nearest thousandths place. The total number of Fully-Diluted Shares shall be set as of, and shall not change after the Approval Date. Based on the current fully-diluted shares outstanding, this equates to 2,243,888,889 common shares. The 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, the Company entered into a Share Exchange Agreement with Sovryn Holdings Inc. (See Note 5). The Company issued 1,000 Series E convertible preferred shares to the shareholders of Sovryn Holdings Inc. valued at $4,225,062 (23,472,565 x $0.20 x 90%). The valuation was based on the market value of the shares of the Company at the date of the transaction.

 

As at June 30, 2021, 1,000 Series E Preferred Shares were issued but not converted.

 

On September 16, 2021, the Convertible Preferred Series E Holders entered into an Exchange Agreement whereby the aggregate 1,000 Series E preferred shares were exchanged to 1,152,500 Convertible Series E-1 preferred shares and 1,091,388,889 shares of common stock.

 

-21-
 

 

Series E-1 Convertible Preferred Stock, par value $0.001 with a stated value of $0.87 per share

 

There are 1,152,500 designated and authorized Series E-1 convertible preferred stock. There is a stated value of $0.87 per share. Series E-1 are ranked just above the Junior Stock, behind the Senior Preferred Stock. It has votes equal to the number of shares of common stock into which the which the Series E-1 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 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 Series E-1 votes 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, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series E-1 are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series E-1 shall entitle 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 shall be 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 are outstanding, the Company shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series E-1, (a) alter or change adversely the powers, preferences or rights given to the Series E-1 or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.

 

Each share of Series E-1 Preferred Stock may be converted to 1,000 common shares.

 

Series F Convertible Preferred Stock, par value $0.001 with a stated value of $1 per share

 

There are 1,000 designated and authorized Series F convertible preferred stock. There is a stated value of $1 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. Series F are ranked as a Senior Preferred Stock. It has voting rights equal to the number of shares of common stock into which the Series F 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 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 Series F votes 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, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series F are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series F shall entitle 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 shall be 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 are outstanding, the Company shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series F, (a) alter or change adversely the powers, preferences or rights given to the Series F or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the 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 F Preferred Stock was amended to equal (i)(a) 4.84% multiplied by, (b) the Fully-Diluted shares as of the Approval Date, divided by (ii) the total number of shares of Series F, (iii) rounded to the nearest thousandths place. The total number of Fully-Diluted Shares shall be set as of, and shall not change after the Approval Date. Based on the full-diluted shares outstanding, this equates to 192,073,017 shares of common stock on the Approval Date. The 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.

 

As at June 30, 2021, 1,000 Series F Preferred Shares were issued but not converted.

 

Series G Convertible Preferred Stock, par value $0.001 with a stated value of $1,000 per share

 

On August 20, 2021, the Series G Convertible Preferred Stock was amended. There are now 4600 designated and authorized Series E convertible preferred stock with a 4.99% conversion cap which may be increased to a maximum of 9.9% by holder by written notice to the Company. There is a stated value of $1,000 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 are issued. Series G are ranked as a Junior Preferred Stock. It has voting rights equal to the number of shares of common stock into which the Series G 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 Series G votes 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, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series G are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series G shall entitle 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 shall be 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 are outstanding, the Company shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series G, (a) alter or change adversely the powers, preferences or rights given to the Series G or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.

 

-22-
 

 

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, divided by (ii) the total number of shares of Series G, (iii) rounded to the nearest thousandths place. The total number of Fully-Diluted Shares shall be set as of, and shall not change after the Approval Date. Based on the current fully-diluted shares outstanding, this equates to 255,555,556 shares of common stock on the Approval Date. The 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.

 

As at June 30, 2021, 0 Series G Preferred Shares were issued or outstanding. The Company received $4,173,000 in subscriptions. Subsequent to June 30, 2021, the Company received a further $427,000.

 

Note 19 Warrants

 

On February 17, 2021, the Company provided Arena Partners LLP with 192,073,016 warrants. Each Warrant is exercisable for a period of five (5) years from the date of issuance at an initial exercise price to (i) 125%, times (ii) the amount determined by dividing (A) $50,000,000, by (B) the total number of shares of preferred stock, Common Stock and Common Stock Equivalents outstanding on such Conversion Date (assuming full conversion or exercise of all then issued and outstanding securities of the Company that are exercisable for or convertible into such equity securities of the Company), subject to adjustment herein, 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.

 

Note 20 Options

 

On February 16, 2021, the Company cancelled all the Series A Preferred shares and offered holders of Series A Preferred shares option agreements to purchase up to 300,000 shares of CZJ License, Inc., a wholly owned subsidiary of the Company at an option price of $10 per share. The option agreements are exercisable for a period of one year from the date of issuance.

 

As at June 30, 2021, 0 options were exercised.

 

Note 21 Commitments

 

The Company entered into a one-year employment agreement with Jeffrey Canouse on September 28, 2020 as President and Chief Executive Officer. The term may be renewed or non-renewed with not less than thirty days’ notice prior to the expiration of the initial employment term. The employment may be terminated by death or disability, terminated with or without cause or terminated by the employee. If the employee is terminated by the Company without cause or by the employee for good reason, then the Company will continue to pay his base salary of $8,000 for the remainder of the employment term or renewal term. Beginning on the first anniversary date of the initial salary increase and continue on each anniversary of the increase date, the base salary shall be increased by an amount not less than 5% times the base salary in effect, plus any additional amount as determined by the Company’s Board of Directors. As of June 30, 2021, Canouse had received $48,000 pursuant to his employment agreement (2020 - $34,000 in management fees, $24,000 of which was pursuant to the employment agreement).

 

The Company entered into a one-year employment agreement with Walter Hoelzel on September 29, 2020 as Chief Marketing Officer. The term may be renewed or non-renewed with not less than thirty days’ notice prior to the expiration of the initial employment term. The employment may be terminated by death or disability, terminated with or without cause or terminated by the employee. If the employee is terminated by the Company without cause or by the employee for good reason, then the Company will continue to pay his base salary of $5,000 for the remainder of the employment term or renewal term. As of June 30, 2021, Hoelzel had received $30,000 pursuant to his employment agreement (2020 - $25,000 in consulting fees, $15,000 of which were pursuant to the employment agreement).

 

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The Company entered into a one-year employment agreement with Stuart Sher on September 29, 2020 as Chief Creative Officer. The term may be renewed or non-renewed with not less than thirty days’ notice prior to the expiration of the initial employment term. The employment may be terminated by death or disability, terminated with or without cause or terminated by the employee. If the employee is terminated by the Company without cause or by the employee for good reason, then the Company shall continue to pay his base salary for the remainder of the employment term or renewal term. As of June 30, 2021, Sher had received $30,000 pursuant to his employment agreement (2020 - $25,000 in consulting fees, $15,000 of which were pursuant to the employment agreement).

 

The Company entered into a consulting agreement with Virtue Development Company on September 29, 2020 for project consultancy. The consulting agreement is for 6 months with 6 months renewal options at the beginning of the 5th month. The monthly compensation is $4,250 and as at June 30, 2021, the Company had incurred $25,500 (2020 - $12,750) in fees pursuant to this agreement.

 

The Company entered into a consulting agreement with Oscaleta Partners LLC on November 1, 2020 as project manager. The consulting agreement may be terminated by either party at the end of the initial 6 months term by giving 30 days written notice to the other party or at any time with cause. The monthly compensation is $25,000 and as of December 31, 2020, the Company incurred $75,000 in consulting fees. The consulting agreement with Oscaleta Partners LLC had been terminated.

 

The Company entered into a one-year consulting agreement with Bernt Ullmann on November 23, 2020 to provide market exposure services. The monthly compensation is $5,000 per month and as of June 30, 2021, the Company incurred $30,000 (2020 - $5,000) fees.

 

On February 17, 2021, the Company and its subsidiaries entered into a Security Agreement and a Guaranty Agreement with Arena Investors LP, for securing the loans evidenced by the $16.5 million notes to the Company. The Security Agreement includes all chattels, properties, equipment, inventory, documents, instruments, interests, stocks, securities, rights, grants, intellectual properties, general intangibles, records, cash, computer programs, all FCC licenses, contracts, agreements, and goods, etc. without limitation.

 

The Company entered into a consulting agreement with a director of the Company, Warren Zenna of Zenna Consulting Group to provide oversight of marketing and communications services. The agreement commenced March 1, 2021 through to December 31, 2021. The Company pays Zenna Consulting Group a monthly retainer of $15,000. As at June 30, 2021, the Company paid $57,000 in fees.

 

The Company entered into a one-year employment agreement with Henry Turner on May 15, 2021 as the Company’s Chief Technology Officer and Chief Operations Officer. Mr. Turner may be terminated at any time, with or without reason, with notice. His annual base compensation is $150,000. As at June 30, 2021, the Company paid $23,077 in fees pursuant to his employment agreement.

 

Note 22 Additional Cash Flow Information

 

During the six months ended June 30, 2021, the following transaction did not involve cash:

 

(a)Demand notes, convertible notes and interest with a carrying value of $668,214 were exchanged for 230,000 preference shares of Series D.

 

(b)$715,228 in operating leases for equipment were capitalized and leases payable of the same amount were recorded.

 

(c)1,000 Series E preference shares were issued for 100% of the common shares of Sovryn Holdings Inc. The shares were valued at $4,225,062 and goodwill of $4,224,962 was recorded. Common shares of $100 were eliminated on consolidation.

 

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Note 23 Subsequent Events

 

Subsequent to June 30, 2021, the Company received $427,000 from investors pursuant to private placement subscriptions for Series G Preferred Stock.

 

On July 13, 2021 Sovryn Holdings Inc. entered into an agreement with Lotus TV of Phoenix LLC for the purchase of KPHE-LD and paid a deposit of $100,000. (See Note 11).

 

On August 20, 2021, the Company amended the authorized capital of the Convertible Preferred Series G shares from 3,000 to 4,600 shares (see Note 18).

 

On August 31, 2021, Sovryn Holdings Inc. entered into an agreement with D’Amico Brothers Broadcasting Corp. for the purchase of KVSD-LD and paid a deposit of $75,000. (See Note 11)

 

The President and director of CZJ License Inc. loaned the Company $33,144.

 

The CEO and director of Madison Technologies was advanced a further $89,573.33 and will be recorded as a receivable due Madison Technologies, Inc.

 

The Company received $500,000 in loans pursuant to a 6% convertible subordinated promissory note. The conversion shall be converted at $0.021 per share, subject to adjustments.

 

On September 16, 2021, the Company filed a new series of Preferred Series E-1 of which 1,152,500 shares were designated with a par value of $0.001 and a stated value of $0.87 per share. At the same time, the Company also amended the conversions of Preferred Shares of Series E, Series F and Series G (See Note 18).

 

On September 16, 2021, the Holders of Convertible Preferred Series E shares entered into an exchange agreement to exchange the 1,000 Preferred Series E shares to 1,152,500 Convertible Preferred Series E-1 shares and 1,091,388,889 common shares. (See Note 18).

 

On September 16, 2021, the Company amended the conversion rates of Preferred Series E, F and G shares (see Note 18).

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

 

This Quarterly Report on Form 10-Q includes forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Factors that might cause or contribute to such forward-looking statements include, but are not limited to, those set forth in the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2021. The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this report.

 

GENERAL

 

Overview

 

We, through our wholly-owned subsidiary, Sovryn Holdings, Inc. (“Sovryn”), have embarked on an acquisition strategy, rolling-up un-affiliated Class A/LPTV TV stations in the top 100 DMA’s (Designated Market Areas) with a goal of building out a nationwide platform through one or more station acquisitions per DMA. Each licensed TV station can broadcast between 10 and 12 and potentially more revenue “streams” of content (“channels”) over-the-air, 24 hours per day/7 days per week. Management’s strategy is to stage the acquisitions focusing on DMA’s 1-30 and expanding thereafter on DMA’s 31-100, acquiring one station per DMA and building a portfolio of 100 stations within 18-24 months. Management has currently identified and held discussions with a number stations owners, has received FCC approval for two acquisitions: (i) KNLA/KNET, a Class A television station in Los Angeles, and (ii) KVVV, a low power television station in Houston and has entered into asset purchase agreements for the following television stations: (i) KYMU-LD, a low power television station in Seattle (ii) W27EB, a Class A television station in Chicago (iii) KPHE-LB, a low power television station in Phoenix and (iv) KVSD-LD, a low power station in San Diego. We have also signed non-binding letters of intent to acquire stations in New York in Miami, Atlanta, Tampa and St. Louis and has also entered into a binding LOI to acquire Top Dog Productions, Inc., a television production company d/b/a “The Jay & Tony Show”, which produces content for third party networks.

 

Madison’s objective is to not only create one the largest, most comprehensive, state of the art, broadcast Over-The-Air (“OTA”) content distribution platforms to capitalize on the changing media and distribution landscape and on the growing OTA viewership in the U.S. but also embark on unique content development and network creation for distribution over its platform. The over-the-air programming carried on these stations is initially expected to include entertainment, shopping, weather, sports as well as religious networks and networks targeting select ethnic groups with lease agreements as the prime source of revenue. Pricing of lease agreements is in part determined by market rank, signal contour and number of OTA TV households in a given market, as well as supply and demand.

 

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As the platform is built out, management not only anticipates substantial operational synergies from the roll-up but also an expansion in the revenue base with greater channel utilization, the addition of high-quality third-party content providers that are currently not reaching the “OTA” viewers, which now stands at an estimated 20mm households (44mm people) out of 108mm TV HH’s nationwide as well as revenue generated via the acquisition of “The Jay & Tony Show”

 

Station Operations

 

Madison’s plan is to acquire 50 independent TV stations in the top 30 DMA’s over the next 8-12 months. In addition, Madison expects to grow the station base to 100 tv stations nationwide through additional acquisitions targeting the top 100 DMA’s across the nation, ultimately covering 80% of the population of the U.S. over the next 18-24 months.

 

Each licensed TV station has the capability of delivering 10+ different revenue “streams” (channels) of content Over-the-Air, 24 hours per day/7 days per week . If converted to the new FCC approved ATSC 3.0 technology, the streaming capacity will increase to 25+ channels or more, giving Sovryn the potential to stream content upon completion of the roll-up to over 2500 channels aggregated over expected 100 stations.

 

Madison will operate the stations remotely and centrally, eliminating the need for in-market personnel or a studio facility. Remote operations of stations results in significant cost efficiencies. Recent FCC deregulation in TV broadcasting has eliminated the need for full time employees and studio facilities operating Class A and Low Power stations allowing for greater cost efficiency.

 

Recent Developments

 

On February 16, 2021, we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Sovryn Holdings, Inc. (“Sovryn”) and the holders (the “Sovryn Shareholders”) of Sovryn’s issued and outstanding shares of common stock, par value $0.0001 per share (“Sovryn Common Shares”), pursuant to which the Shareholders exchanged 100% of the outstanding Sovryn Common Shares, for (i) 100 shares of series B preferred stock, par value $0.001 per share (“Series B Preferred Stock”), of the Company which was transferred by Jeffrey Canouse, the Company’s controlling shareholder and existing Chief Executive Officer (the “Controlling Shareholder”), to the designee of Sovryn and (ii) 1,000 shares of series E convertible preferred stock, par value $0.001 per share of Sovryn (“Series E Preferred Stock,” and together with Series B Preferred Stock, the “Preferred Exchange Shares,” and the foregoing exchange of Sovryn Common Shares for Preferred Exchange Shares being the “Equity Exchange”).

 

Upon the effectiveness of an amendment to our Articles of Incorporation to increase the Company’s authorized common stock, par value $0.0001 per share, from 500,000,000 shares to 6,000,000,000 shares, all shares of Series E Preferred Stock issued to the Shareholders shall automatically convert into approximately 2,305,000,000 shares of common stock of the Company (“Shareholder Approval”). The Series E Convertible Preferred Stock votes on an as-converted basis with the common stock prior to their conversion. The Series E Preferred Stock shall represent approximately 57% of the fully-diluted shares of common stock of the Company after the closing of the transactions contemplated by the Securities Purchase Agreement (as defined below).

 

Immediately prior to the closing of, and as a condition to, the Share Exchange Agreement, the Company entered into a Share Transfer Agreement (the “Share Transfer Agreement”), pursuant to which the Controlling Shareholder transferred all of the shares of Series B Preferred Stock held by him to an entity controlled by Philip Falcone, the Company’s new chief executive officer. The Series B Preferred Stock entitles the holder thereof to majority voting control of the Company by virtue of the 51% super voting rights attributed to the holder of the Series B Preferred Stock. The Controlling Shareholder owned all 100 Shares of Series B Preferred Stock, entitling him to 51% of the aggregate votes taken by shareholders of any class on all matters being voted upon.

 

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Immediately prior to the closing of the Share Exchange Agreement, we entered into Exchange Agreements (the “Convertible Note Exchange Agreements”) with the holders of our outstanding convertible promissory notes (the “Convertible Notes”). Pursuant to Convertible Note Exchange Agreements, the holders of the Convertible Notes were issued, in exchange for their Convertible Notes, a total of 230,000 shares of our newly-designated Series D Convertible Preferred Stock. Our new Series D Convertible Preferred Stock is convertible into common stock at a ratio of 1,000 shares of common stock for each share of preferred stock held. Immediately prior to the closing of the Share Exchange Agreement, we entered into Exchange Agreements (the “Preferred Stock Exchange Agreements” and together with the Convertible Note Exchange Agreements, the “Exchange Agreements”) with the holders of our outstanding series A convertible preferred stock (the “Series A Preferred Stock”). Pursuant to the Preferred Stock Exchange Agreements, the holders of the Series A Convertible Preferred Stock were issued, in exchange for their Series A Preferred Stock, options to purchase a majority of the outstanding shares of common stock of a newly to be formed wholly owned subsidiary of the Company to be called CZJ License, Inc.

 

On February 17, 2021, we entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “Investors”) pursuant to which the company issued convertible notes in an aggregate principal amount of $16.5 million for an aggregate purchase price of $15 million (collectively, the “Notes”). In connection with the issuance of the Notes, we issued to the Investors warrants to purchase an aggregate of 192,073,017 shares of Common Stock (collectively, the “Warrants”) and 1,000 shares of series F convertible preferred stock (the “Series F Preferred Stock”).

 

The Notes each have a term of thirty-six months and mature on February 17, 2023, unless earlier converted. The Notes accrue interest at a rate of 11% per annum, subject to increase to 20% per annum upon and during the occurrence of an event of default. Interest is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at the Company’s election, any interest payable on an applicable payment date may be paid in registered Common Stock of the Company (rather than cash) 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 VWAP of the Common Stock for the five (5) days immediately preceding the date of conversion.

 

The Notes are convertible at any time, at the holder’s option, into shares of our common stock equal to the lesser of: (i) the amount determined by dividing (A) $50,000,000, by (B) the total number of shares of preferred stock, Common Stock and Common Stock Equivalents outstanding on such Conversion Date (assuming full conversion or exercise of all then issued and outstanding securities of the Company that are exercisable for or convertible into such equity securities of the Company) and (ii) $1.00, subject to adjustment (the “Conversion Price”), subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion Price in effect shall be equal to 75% of the average VWAP of the Common Stock for the five (5) Trading Days on the Trading Market immediately preceding the date of conversion (the Alternative Conversion Price”); provided, however, that the Alternate Conversion Price may not exceed $0.015 per share, as adjusted pursuant to the terms of the Notes. The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. The Notes may not be redeemed by the Company.

 

Each Warrant is exercisable for a period of five years from the date of issuance at an initial exercise price to (i) 125%, times (ii) the amount determined by dividing (A) $50,000,000, by (B) the total number of shares of preferred stock, Common Stock and Common Stock Equivalents outstanding on such Conversion Date (assuming full conversion or exercise of all then issued and outstanding securities of the Company that are exercisable for or convertible into such equity securities of the Company), subject to adjustment herein, 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 Series F Preferred Stock have no voting rights and shall convert into approximately 192,073,017 shares of common stock upon Shareholder Approval.

 

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On February 17, 2021, Sovryn, entered into an asset purchase agreement (the “Asset Purchase Agreement”) with with NRJ TV II CA OPCO, LLC, a Delaware limited liability company (“OpCo”) and NRJ TV III CA License Co., LLC, a Delaware limited liability company (together with OpCo, “Sellers”). Upon the terms and subject to the satisfaction of the conditions described in the Asset Purchase Agreement, Sovryn will acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KNET-CD and KNLA-CD Class A television stations owned by the Sellers (the “Acquired Stations”), certain tangible personal property, real property, contracts, intangible property, files, claims and prepaid items together with certain assumed liablities in connection with the Acquired Stations (the “Asset Sale Transaction”). As consideration for the Asset Sale Transaction, Sovryn has agreed to pay the Sellers $10,000,000, $2,000,000 of which was paid to Sellers upon execution of the Asset Purchase Agreement, as follows: (i) an escrow deposit of $1,000,000 to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Sellers (the “Escrow Fee”) and (ii) a non-refundable option fee of $1,000,000 (the “Option Fee”). The closing of the Asset Sale Transaction took place on April 19, 2021.

 

On March 14, 2021, Sovryn entered into an asset purchase agreement (the “KVVV Asset Purchase Agreement”) with Abraham Telecasting Company, LLC, a Texas limited liability company (the “Houston Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KVVV Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVVV-LD low power television station owned by the Houston Seller (the “Houston Acquired 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 Acquired Station (the “KVVV Asset Sale Transaction”). As consideration for the KVVV Asset Sale Transaction, Sovryn has agreed to pay the Houston Seller $1,500,000 in cash, $87,500 of which was paid to the Houston Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Houston Seller (the “KVVV Escrow Fee”). The closing of the KVVV Asset Sale Transaction (the “KVVV Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Houston Acquired Station, from the Houston Seller to Sovryn (the “Houston FCC Consent”). The KVVV Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Houston FCC Consent has been granted and (ii) the other conditions to the KVVV Closing set forth in the KVVV Asset Purchase Agreement. The closing of the KVVV Asset Sale Transaction took place on June 1, 2021.

 

On March 29, 2021, Sovryn, entered into an asset purchase agreement (the “KYMU Asset Purchase Agreement”) with Seattle 6 Broadcasting Company, LLC, a Washington limited liability company (the “Seattle Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KYMU Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the KYMU-LD low power television station owned by the Seattle Seller (the “Seattle Acquired 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 Acquired Station (the “KYMU Asset Sale Transaction”). As consideration for the Seattle Asset Sale Transaction, Sovryn has agreed to pay the Seattle Seller $1,750,000, $87,500 of which was paid to the Seattle Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Seattle Seller (the “Seattle Escrow Fee”). The closing of the KYMU Asset Sale Transaction (the “KMYU Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Seattle Acquired Station, from Seattle Seller to Sovryn (the “Seattle FCC Consent”). The Seattle Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Seattle FCC Consent has been granted and (ii) the other conditions to the KMYU Closing set forth in the KMYU Asset Purchase Agreement.

 

On June 9, 2021, Sovryn, entered into an asset purchase agreement (the “W27EBAsset Purchase Agreement”) with Local Media TV Chicago, LLC, a Delaware limited liability company (the “Chicago Seller”). Upon the terms and subject to the satisfaction of the conditions described in the W27EB Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the W27EB-D Class A television station owned by the Chicago Seller (the “Chicago Acquired 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 Chicago Acquired Station (the “W27EBAsset Sale Transaction”). As consideration for the Chicago Asset Sale Transaction, Sovryn has agreed to pay the Chicago Seller $5,700,000, $285,000 of which was paid to the Chicago Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Chicago Seller (the “Chicago Escrow Fee”). The closing of the W27EB Asset Sale Transaction (the “W27EB Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Chicago Acquired Station, from Chicago Seller to Sovryn (the “Chicago FCC Consent”). The Chicago Closing shall occur no more than third (3rd) business days following the later to occur of (i) the date on which the Chicago FCC Consent has been granted and (ii) the other conditions to the W27EB Closing set forth in the W27EB Asset Purchase Agreement.

 

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On July 13, 2021, Sovryn, entered into an asset purchase agreement (the “KPHE Asset Purchase Agreement”) with Lotus TV of Phoenix LLC, an Arizona limited liability company (the “Arizona Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KPHE Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the KPHE-LD low power television station owned by the Arizona Seller (the “Arizona Acquired 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 Arizona Acquired Station (the “Arizona Asset Sale Transaction”). As consideration for the Arizona Asset Sale Transaction, Sovryn has agreed to pay the Arizona Seller $2,000,000, $100,000 of which was paid to the Arizona Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Arizona Seller (the “Arizona Escrow Fee”). The closing of the KPHE Asset Sale Transaction (the “Arizona Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Arizona Acquired Station, from Arizona Seller to Sovryn (the “Arizona FCC Consent”). The Arizona Closing shall occur no more than five (5) business days following the later to occur of (i) the date on which the Arizona FCC Consent has been granted and (ii) the other conditions to the Arizona Closing set forth in the KPHE Asset Purchase Agreement.

 

On August 31, 2021, Sovryn entered into an asset purchase agreement (the “KVSD Asset Purchase Agreement”) with D’Amico Brothers Broadcasting Corp., a California company (the “San Diego Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KVSD Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVSD-LD low power television station owned by the San Diego Seller (the “San Diego Acquired 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 San Diego Acquired Station (the “KVSD Asset Sale Transaction”). As consideration for the KVSD Asset Sale Transaction, Sovryn has agreed to pay the San Diego Seller $1,500,000 in cash, $75,000 of which was paid to the San Diego Seller (subsequent to the period end) and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the San Diego Seller (the “KVSD Escrow Fee”).

 

The closing of the KVSD Asset Sale Transaction (the “KVSD Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the San Diego Acquired Station, from the San Diego Seller to Sovryn (the “San Diego FCC Consent”). The KVSD Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the San Diego FCC Consent has been granted and (ii) the other conditions to the KVSD Closing set forth in the KVSD Asset Purchase Agreement.

 

RESULTS OF OPERATIONS

 

Our financial statements 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 term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

 

Six months ended June 30, 2021 and June 30, 2020

 

Sales

 

Sales increased to $296,025 for the six months ended June 30, 2021 from $954 for the six months ended June 30, 2020. The increase was primarily the result of the acquisition of KNLA/KNET and KVVV television stations and the revenues associated with the existing lease agreements held by those stations.

 

Amortization

 

Amortization increased to $215,073 for the six months ended June 30, 2021 from $0 for the six months ended June 30, 2020. The increase was primarily the result of additional amortization as a result of the acquisition of KNLA/KNET and KVVV television stations.

 

Consulting Fees

 

Consulting Fees increased to $279,500 for the six months ended June 30, 2021 from $0 for the six months ended June 30, 2020. The increase was primarily the result of agreements put in place by the company for sales, finance and general consulting purposes

 

General and administrative fees

 

General and Administrative fees increased by $148,038 to $159,903 for the six months ended June 30, 2021 from $11,869 for the six months ended June 30, 2020. The increase was primarily the result expenses for associated administrative and salary expenses related to headcount.

 

Lender Fees

 

Lender Fees increased to $285,583 for the six months ended June 30, 2021 from $0 for the six months ended June 30, 2020. The increase was primarily the result of various expenses associated with the covenant and regulatory filings and financing documentation.

 

Management Fees

 

Management Fees increased to $206,077 for the six months ended June 30, 2021 from $0 for the six months ended June 30, 2020. The increase was primarily the result of management agreements put in place up on the acquisition of Sovryn Holdings and the television stations and associated financings.

 

Marketing and Product Development Fees

 

Marketing and Product Development Fees increased to $178,535 for the six months ended June 30, 2021 from $0 for the six months ended June 30, 2020. The increase was primarily the result of fee arrangements put in place for marketing related activities.

 

Professional Fees

 

Professional Fees increased to $523,719 for the six months ended June 30, 2021 from $1,829 for the six months ended June 30, 2020. The increase was primarily the result of an increase in the legal and accounting expense associated with the acquisitions of Sovry Holdings, Inc,, KNLA/KNET, KVVV television stations and the financing associated with those acquisitions.

 

Royalties

 

Royalties increased to $34,210 for the six months ended June 30, 2021 from $0 for the six months ended June 30, 2020. The increase was primarily the result of sales of products at the CZJ unit.

 

Amortized Interest

 

Amortized Interest increased by to $236,322 for the six months ended June 30, 2021 from $0 for the six months ended June 30, 2020. The increase was primarily the result of financing associated with the acquisition of KNLA/KNET and KVVV television stations.

 

Interest

 

Interest increased by $677,425, or 99.5%, to $680,498 for the six months ended June 30, 2021 from $3,073 for the six months ended June 30, 2020. The increase was primarily the result of financing put in place for working capital and the acquisition of KNLA/KNET and KVVV television stations.

 

Net Loss

 

Net Loss increased by $2,538,411, or 99.2%, to $2,556,600 for the six months ended June 30, 2021 from $18,189 for the six months ended June 30, 2020. The increase was primarily the result of an increase in expenses associated with the build-out and roll-out of the Sovryn Holdings business plan

 

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Three months ended June 30, 2021 and June 30, 2020

 

Sales

 

Sales increased to $296,025 for the three months ended June 30, 2021 from $199 for the three months ended June 30, 2020. The increase was primarily the result of the acquisition of KNLA/KNET and KVVV television stations and the revenues associated with the existing lease agreements held by those stations.

 

Amortization

 

Amortization increased to $179,789 for the three months ended June 30, 2021 from $0 for the three months ended June 30, 2020. The increase was primarily the result of additional amortization as a result of the acquisition of KNLA/KNET and KVVV television stations.

 

Consulting Fees

 

Consulting Fees increased to $216,750 for the three months ended June 30, 2021 from $0 for the three months ended June 30, 2020. The increase was primarily the result of agreements put in place by the company for sales, finance and general consulting purposes

 

General and administrative fees

 

General and Administrative fees increased to $146,970 for the six months ended June 30, 2021 from $7,863 for the six months ended June 30, 2020. The increase was primarily the result of expenses for associated administrative and salary expenses related to headcount.

 

Lender Fees

 

Lender Fees increased to $285,583 for the three months ended June 30, 2021 from $0 for the three months ended June 30, 2020. The increase was primarily the result of various expenses associated with the covenant and regulatory filings and financing documentation.

 

Management Fees

 

Management Fees increased to $182,077 for the three months ended June 30, 2021 from $0 for the three months ended June 30, 2020. The increase was primarily the result of management agreements put in place up on the acquisition of Sovryn Holdings and the television stations and associated financings.

 

Marketing and Product Development Fees

 

Marketing and Product Development Fees increased to $109,289 for the three months ended June 30, 2021 from $0 for the three months ended June 30, 2020. The increase was primarily the result of fee arrangements put in place for marketing related activities.

 

Professional Fees

 

Professional Fees increased to $264,938 for the three months ended June 30, 2021 from $0 for the three months ended June 30, 2020. The increase was primarily the result of an increase in legal and accounting expense associated with the acquisitions of Sovryn Holdings, Inc,, KNLA/KNET, KVVV television stations and the financing associated with those acquisitions.

 

Royalties

 

Royalties increased to $68,045 for the three months ended June 30, 2021 from $0 for the three months ended June 30, 2020. The increase was primarily the result of sales of products at the CZJ unit.

 

Amortized Interest

 

Amortized Interest increased by to $103,122 for the three months ended June 30, 2021 from $0 for the three months ended June 30, 2020. The increase was primarily the result of financing associated with the acquisition of KNLA/KNET and KVVV television stations.

 

Interest

 

Interest increased by $ , or %, to $453,750 for the three months ended June 30, 2021 from $1,561 for the three months ended June 30, 2020. The increase was primarily the result of the financing put in place for working capital and the acquisition of KNLA/KNET and KVVV television stations.

 

Net Loss

 

Net Loss increased to $1,699,823 for the six months ended June 30, 2021 from $11,167 for the six months ended June 30, 2020. The increase was primarily the result of an increase in expenses associated with the build-out and roll-out of the Sovryn Holdings, business plan

 

Liquidity and Capital Resources

 

Cash and Working Capital

 

As at June 30, 2021, Madison had cash of $5,640,797 and a working capital surplus of $4,674,593, compared to cash of $9,491 and working capital deficit of $100,141 as at December 31, 2020.

 

We will require additional capital to meet our long-term operating requirements. 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 of June 30, 2021, our principal source of liquidity was our cash, which totaled $14,412,892 and additional loans and accrued unreimbursed expenses from related parties. Historically, our principal sources 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. We expect that the principal uses of cash in the future will be for continuing operations, funding of research and development, including our clinical trials, and general working capital requirements.

 

Net Cash Used in Operating Activities

 

Madison used cash of $1,228,685 in operating activities during the first six months of fiscal 2021 compared to cash used of $33,851 in operating activities during the same period in the previous fiscal year. The increase was primarily the result of increase in expenses associated with the build out and roll out of Sovryn Holdings business plan.

 

Net Cash Provided (Used in) Investing Activities

 

Madison used cash of $12,343,010 in investing activities during the first six months of fiscal 2021 compared to cash used of $0 in investing activities during the same period in the previous fiscal year. The increase was primarily the result of acquisitions and expenses associated with KNLA/KNET and KVVV television stations.

 

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Net Cash Provided by Financing Activities

 

Net cash flows provided by financing activities of $19,203,001 for the first six months of fiscal 2021, were from the proceeds of the Arena financing in February 2021 and Share subscriptions received but not issued for our Series G preferred stock compared to cash used of $37,500 in financing activities during the same period in the previous fiscal year.

 

Off-balance Sheet Arrangements

 

Madison has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Going Concern

 

Madison has not attained profitable operations and is dependent upon obtaining financing to pursue any extensive business activities. For these reasons, Madison’s auditors stated in their report that they have substantial doubt Madison will be able to continue as a going concern.

 

Tabular Disclosure of Contractual Obligations

 

Madison is 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.

 

Critical Accounting Policies

 

Madison’s financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Management believes that understanding the basis and nature of the estimates and assumptions involved with the following aspects of Madison’s financial statements is critical to an understanding of Madison’s financial statements.

 

Use of estimates

 

The preparation of the 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.

 

Change in significant accounting policies

 

There has been no change in the accounting policies from those disclosed in the notes to the audited financial statements for the year ended December 31, 2020.

 

Recently Issued Accounting Pronouncements

 

The Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued, which may be in advance of their effective date. On August 5, 2020, the FASB issued a new standard (ASU 2020-06) to reduce the complexity of accounting for convertible debt. The standard is effective for Smaller Reporting Companies for fiscal years beginning after December 15, 2023. Management is reviewing this standard as it believes this may impact on its financial reporting Management does not believe that other any pronouncement not yet effective but recently issued would, if adopted, have a material effect on the accompanying financial statements.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Madison is 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.

 

Disclosure Controls and Procedures

 

In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by Madison’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of Madison’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of June 30, 2021. 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 and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

 

Based on that evaluation, Madison’s management concluded, as of the end of the period covered by this report, that Madison’s 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, Madison has identified material weaknesses in internal control over financial reporting, as discussed below.

 

Madison’s internal control over financial reporting is a process designed under the supervision of Madison’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Madison’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles. 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 Madison’s 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 Madison’s 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.

 

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 Madison’s 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 of outside directors on Madison’s board of 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 by Madison’s Chief Financial Officer in connection with the audit of its financial statements as of December 31, 2020 and communicated the matters to management.

 

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Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an effect on Madison’s financial results. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on Madison’s board of directors caused and continues to cause an ineffective oversight in the establishment and monitoring of the required internal controls over financial reporting.

 

Madison is committed to improving its financial organization. As part of this commitment and when funds are available, Madison will create a position to Madison 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 more outside directors to its board of directors who will also be appointed to the audit committee of Madison resulting in a fully functioning audit committee who 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 more 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 Madison’s 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 Madison if personnel turn-over issues within the department occur. This coupled with the appointment of additional outside directors will greatly decrease any control and procedure issues Madison may encounter in the future.

 

Management will continue to monitor and evaluate the effectiveness of Madison’s 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.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes in Madison’s internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, Madison’s internal control over financial reporting.

 

Limitations on the Effectiveness of Controls and Procedures

 

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.

 

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Part II – Other Information

 

ITEM 1. LEGAL PROCEEDINGS.

 

Madison is not a party to any pending legal proceedings and, to the best of Madison’s knowledge, none of Madison’s property or assets are the subject of any pending legal proceedings.

 

ITEM 1A. RISK FACTORS

 

Madison is 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 three months ended June 30, 2021, the Company entered into subscription agreements for the sale of an aggregate of 4,173 shares of Series G convertible preferred stock for aggregate gross proceeds of $4,173,000. The Series G Preferred Stock have no voting rights and shall convert into shares of common stock on a fully diluted basis upon Shareholder Approval. The Series G Preferred Stock was issued but not converted to common shares as of the date of this report.

 

The Series G Preferred Stock sold was not registered under the Securities Act or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering. The investors in such securities are each an “accredited investor” as such term is defined in Regulation D promulgated under the Securities Act.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

No report required.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

No report required.

 

ITEM 5. OTHER INFORMATION

 

No report required.

 

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ITEM 6. EXHIBITS

 

Exhibit

Number

 Description
   
31.1* Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2* Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1** Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2** Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS* XBRL Instance Document
   
101.SCH* XBRL Taxonomy Extension Schema Document
   
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
   
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.
**Furnished.

 

-36-
 

 

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: September 23, 2021By:/s/ Philip A. Falcone
 Name:Philip A. Falcone
 Title:CEO
  

(Principal Executive Officer and Principal

Financial and Accounting Officer)

 

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