UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission
file number:
| (Exact name of registrant as specified in its charter) |
(State
or other jurisdiction of |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | None | None |
Indicate
by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of registrant’s common stock outstanding, as of August 9, 2024 was .
DIGITAL LOCATIONS, INC.
INDEX
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGITAL LOCATIONS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Total current assets | ||||||||
| Other assets: | ||||||||
| Deposits | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, MEZZANINE AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Accrued interest, notes payable | ||||||||
| Derivative liabilities | ||||||||
| Convertible note payable, in default | ||||||||
| Convertible notes payable – related parties ($ | ||||||||
| Convertible notes payable, net of discount of $ | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities – convertible notes payable, net of discount of $ | ||||||||
| Total liabilities | ||||||||
| Mezzanine: | ||||||||
| Preferred stock, $ par value; stated value $ | ||||||||
| Series B, shares issued and outstanding at June 30, 2024 and December 31, 2023 | ||||||||
| Series E, shares issued and outstanding at June 30, 2024 and December 31, 2023 | ||||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $ par value; shares authorized, shares issued and outstanding at June 30, 2024 and December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities, mezzanine and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
| 3 |
DIGITAL LOCATIONS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (loss) on change in derivative liabilities | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Net income per common share: | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
See accompanying notes to condensed consolidated financial statements
| 4 |
DIGITAL LOCATIONS, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders’ Deficit
Three and Six Months Ended June 30, 2024 (Unaudited)
Series B Preferred Stock | Series E Preferred Stock | Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Vesting of consultant stock options | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Vesting of consultant stock options | - | - | - | |||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statement
| 5 |
DIGITAL LOCATIONS, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders’ Deficit
Three and Six Months Ended June 30, 2023 (Unaudited)
Series B Preferred Stock | Series E Preferred Stock | Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for conversion of notes payable and accrued interest payable | - | - | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of Series E preferred stock for cash | - | - | ||||||||||||||||||||||||||||||||||
| Vesting of consultant stock options | - | - | - | |||||||||||||||||||||||||||||||||
| Settlement of derivative liabilities | - | - | - | |||||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ( | |||||||||||||||||||||||||||||||||
| Issuance of Series E preferred stock for cash | - | - | ||||||||||||||||||||||||||||||||||
| Vesting of consultant stock options | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
| 6 |
DIGITAL LOCATIONS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount to interest expense | ||||||||
| (Gain) loss on change in derivative liabilities | ( | ) | ||||||
| Financing fees | ||||||||
| Stock option compensation | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accounts payable – related party | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Accrued interest, notes payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible notes payable | ||||||||
| Proceeds from the issuance of Series E preferred stock | ||||||||
| Proceeds from notes payable | ||||||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental Disclosure: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash financing and investing activities: | ||||||||
| Common shares issued in conversion of debt | $ | $ | ||||||
| Settlement of derivative liabilities | $ | $ | ||||||
| Debt discount for derivative liabilities | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements
| 7 |
DIGITAL LOCATIONS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
Six Months Ended June 30, 2024
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Digital Locations, Inc. (the “Company”) was incorporated in the State of Nevada on August 25, 2006 as Zingerang, Inc. On April 2, 2007, the Company changed its name to Carbon Sciences, Inc. and on November 14, 2017, the Company changed its name to Digital Locations, Inc.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information refer to the financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2023.
Going Concern
The
accompanying financial statements are prepared using accounting principles generally accepted in the United States of America applicable
to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. As of
June 30, 2024, our current liabilities exceeded our current assets by $
The ability of the Company to continue as a going concern is dependent upon, among other things, raising additional capital. The Company has obtained operating funds primarily from the issuance of convertible debt. Management believes this funding will continue and will provide the additional cash needed to meet the Company’s obligations as they become due. There can be no assurance, however, that the Company will be successful in accomplishing its objectives. Without such additional capital we may be required to cease operations. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
| 8 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are disclosed in Note 2 to the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2023. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company’s interim financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment and intangible assets, operating lease obligations, impairment of assets, the deferred tax valuation allowance, the fair value of stock options and derivative liabilities. Actual results could differ from those estimates.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and of SCS, LLC (“SCS”), its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Intangible Assets
The
identifiable intangible assets acquired in the SCS acquisition are amortized using the straight-line method over an estimated life of
Derivative Liabilities
We have identified the conversion features of some of our convertible notes payable as derivatives due to their variable conversion price. Where the number of common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional convertible debt is included in the value of the derivatives. We estimate the fair value of the derivatives using a Black-Scholes pricing model and/or a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
During the six months ended June 30, 2024, the Company had the following activity in its derivative liabilities account:
| Derivative liabilities as of December 31, 2023 | $ | |||
| Addition to liabilities for new debt/shares issued | ||||
| Change in fair value | ||||
| Derivative liabilities as of June 30, 2024 | $ |
The significant assumptions used in the valuation of the derivative liabilities during the six months ended June 30, 2024, are as follows:
| Expected life | ||||
| Risk free interest rates | % | |||
| Expected volatility | % |
| 9 |
Fair Value of Financial Instruments
Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of June 30, 2024 and December 31, 2023, we believe the amounts reported for cash, accounts payable, accounts payable – related party, accrued expenses and other current liabilities, accrued interest, notes payable and certain notes payable approximate fair value because of their short maturities.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASC”) Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; | |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and | |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
We measure certain financial instruments at fair value on a recurring basis as follows:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| June 30, 2024: | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| December 31, 2023: | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total liabilities measured at fair value | $ | $ | $ | $ | ||||||||||||
| 10 |
Revenue Recognition
We have adopted Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) pursuant to which revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
We determine revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a customer; | |
| ● | identification of the performance obligations in the contract; | |
| ● | determination of the transaction price; | |
| ● | allocation of the transaction price to the performance obligations in the contract; and | |
| ● | recognition of revenue when, or as, we satisfy a performance obligation. |
Through
its wholly owned subsidiary, the Company acts as an intermediary or agent to facilitate a platform through which property owners market
billboards to wireless telephone carriers for placement of wireless communications network equipment. Contracts have been signed among
the Company, the property owner, and the wireless telephone operator. Monthly payments are received by the Company from the wireless
carriers, with the Company paying the property owner a percentage of revenues ranging from
Lease Accounting
Pursuant to the underlying contracts, the Company does not own the property and equipment which is leased by the cell phone carriers but acts as an intermediary or agent between the property owner and the cell phone carriers. Therefore, in accordance with ASC Topics 840 and 841, “Leases,” the Company records revenues net of amounts received from cell phone carriers and payments made to property owners.
Concentrations of Credit Risk, Major Customers, and Major Vendors
During the three and six months ended June 30, 2024 and 2023, the Company received payments from two cell phone carriers, with one carrier representing substantially all payments.
During the three and six months ended June 30, 2024 and 2023, the Company had one landlord receiving all Company payments for lease of billboard site locations.
Basic net income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options to acquire common stock, using the treasury stock method and the average market price per share during the period, and shares issuable upon exercise of convertible notes payable.
| 11 |
| Three Months Ended June 30, 2024 | ||||
| Basic weighted average number of shares | ||||
| Dilutive effect of: | ||||
| Series B preferred stock | ||||
| Series E preferred stock | ||||
| Convertible notes payable | ||||
| Diluted weighted average number of shares | ||||
| Three Months Ended | Six Months Ended June 30, | |||||||||||
| June 30, 2023 | 2024 | 2023 | ||||||||||
| Series B preferred stock | ||||||||||||
| Series E preferred stock | ||||||||||||
| Convertible notes payable | ||||||||||||
| Total | ||||||||||||
Stock-based compensation is measured at the grant date based on the value of the award granted using either the Black-Scholes option pricing model or a multinomial lattice model based on projections of various potential future outcomes and recognized over the period in which the award vests or straight-line. For stock awards no longer expected to vest, any previously recognized stock compensation expense is reversed in the period of termination. The stock-based compensation expense is included in general and administrative expenses.
Recently Issued Accounting Pronouncements
There were no new accounting pronouncements issued by the FASB during the six months ended June 30, 2024, and through the date of filing of this report, that the Company believes will have a material impact on its financial statements.
Reclassifications
Certain amounts in the condensed consolidated financial statements for the prior year periods have been reclassified to conform to the presentation for the current year periods.
3. CONVERTIBLE NOTES PAYABLE
Convertible Promissory Note – $29,500 in Default
On
March 14, 2013, we entered into an agreement to issue a
| 12 |
Convertible Notes Payable of $795,642
On
June 20, 2023, the Company entered into a
On
November 6, 2023, the Company entered into a
On
March 12, 2024, the Company entered into a
4. LONG-TERM CONVERTIBLE NOTES PAYABLE
On
January 7, 2021, the Company issued two long-term convertible notes payable, each in the principal amount of $
5. MEZZANINE
Series B Preferred Stock
On March 2, 2016, the Company filed a Certificate of Designation for its Series B Preferred Stock (the “Series B Certificate”) with the Secretary of State of Nevada designating shares of its authorized preferred stock as Series B Preferred Stock. The shares of Series B Preferred Stock have a par value of $ per share.
The
total face value of this entire series is three million dollars ($
| 13 |
During the six months ended June 30, 2024, the holder did not convert any shares of Series B Preferred Stock into shares of the Company’s common stock.
As
of June 30, 2024 and December 31, 2023, the Company had shares of Series B Preferred Stock outstanding and recorded as mezzanine
at face value of $
The holders of outstanding shares of the Series B Preferred Stock (the “Series B Holders”) are entitled to receive dividends pari passu with the holders of Common Stock, except upon a liquidation, dissolution and winding up of the Company, in which case the Series B Preferred Stock has a preference. Such dividends will be paid equally to all outstanding shares of Series B Preferred Stock and Common Stock, on an as-if-converted basis with respect to the Series B Preferred Stock. The Series B Holders may elect to use the most favorable conversion price for the purpose of determining the as-if-converted number of shares.
In
the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Series B Holder shall be
entitled to receive, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such
assets are capital or surplus of any nature, an amount equal to $
Series E Preferred Stock
Effective
April 2, 2021, the Company filed a Certificate of Designation with the State of Nevada designating shares of its authorized preferred
stock as Series E Preferred Stock. The shares of Series E Preferred Stock have a par value of $ per share and a stated face value
of $
On
April 2, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor (the “Investor”),
pursuant to which the Investor agreed to purchase up to shares of the Company’s Series E Preferred Stock (the “Series
E Preferred Stock”) at a purchase price of $ per share. In accordance with the SPA, the Investor paid for Series E Preferred
Stock by surrendering to the Company for cancellation, $
| 14 |
The holders of outstanding Series E Preferred Stock are entitled to receive dividends pari passu with the holders of common stock, except upon a liquidation, dissolution and winding up of the Company, in which case the Shares have a preference. Such dividends will be paid equally to all outstanding Series E Preferred Stock and common stock, on an as-if-converted basis with respect to the Series E Preferred Stock.
In
the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, holders of Shares shall be entitled
to receive, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets
are capital or surplus of any nature, an amount equal to $
If the assets to be distributed to holders of the Series E Preferred Stock are insufficient to permit the receipt by such holders of the full preferential amounts, then all of such assets will be distributed among such holders ratably in accordance with the number of such shares then held by each such holder.
Each
share of Series E Preferred Stock is convertible into shares of fully paid and non-assessable shares of common stock of the Company at
a fixed conversion price of $
In no event will holders of Series E Preferred Stock be entitled to convert any such shares, such that upon conversion the sum of (1) the number of shares of common stock beneficially owned by the holder and its affiliates (other than shares of common stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Series E Preferred Stock or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to these limitations), and (2) the number of shares of common stock issuable upon the conversion of Shares, would result in beneficial ownership by the holder and its affiliates of more than % of the outstanding shares of common stock. The limitations on conversion may be waived by the Holder upon, at the election of the holder of Shares, not less than 61 days prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the holder of Shares, as may be specified in such notice of waiver).
Except as required by law, holder of Series E Preferred Stock are not entitled to vote, as a separate class or otherwise, on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company, provided, however, each holder of outstanding Share will be entitled, on the same basis as holders of common stock, to receive notice of such action or meeting and so long as any Shares remain outstanding, the Company will not, without first obtaining the approval of the holders of at least a majority of the then outstanding Shares voting together as one class alter or change the rights, preferences or privileges of the Shares so as to affect materially and adversely such Shares.
6. STOCKHOLDERS’ DEFICIT
As of June 30, 2024, the Company’s authorized stock consisted of shares of common stock, with a par value of $ per share. The Company is also authorized to issue shares of preferred stock, with a par value of $ per share. The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares. See Note 5.
| 15 |
Common Stock
As of June 30, 2024 and December 31, 2023, the Company had shares of common stock issued and outstanding.
During the six months ended June 30, 2024 shares of common stock were issued.
During
the six months ended June 30, 2023, the Company issued a total of shares of common stock for the conversion of $
As of June 30, 2024, the Board of Directors of the Company granted non-qualified stock options exercisable for a total of shares of common stock to its officers, directors, and consultants.
The Company issued and stock options during the six months ended June 30, 2024 and 2023, respectively.
We recognized stock option compensation expense of $ and $ for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2023, we had unrecognized stock option compensation expense totaling $.
| Shares | Weighted Average Exercise Price | Weighted Remaining Contract Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2023 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | $ | |||||||||||||||
| Forfeited or expired | $ | |||||||||||||||
| Outstanding as of June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable as of June 30, 2024 | $ | $ | ||||||||||||||
| 16 |
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $ as of June 30, 2024, which would have been received by the holders of in-the-money options and warrants had the holders exercised their options and warrants as of that date.
8. RELATED PARTY TRANSACTIONS
On
December 31, 2012, we issued
Effective
December 1, 2021, the Company’s Board of Directors appointed Rich Berliner as the Chief Executive Officer of the Company and a
member of the Board of Directors. On that date, the Company entered into an Independent Contractor Agreement, pursuant to which Mr. Berliner
will serve as the Chief Executive Officer of the Company for an initial term of six months subject to automatic renewal for six months
unless terminated by the Company or Mr. Berliner. Mr. Berliner will receive base compensation of $
Further,
pursuant to the Independent Contractor Agreement, the Company granted to Mr. Berliner ten-year non-qualified stock options to acquire
up to shares of the Company’s common stock as compensation under the Independent Contractor Agreement. The options
vest over a -month period with options vesting at the end of month 6 and options vesting in months 7 through
the end of month 36. The options were initially exercisable at an exercise price of $ and vest % upon a sale of the company,
as defined in the option agreement. If Mr. Berliner’s service is terminated for cause (as defined in the option agreement), the
options (whether vested or unvested) shall immediately terminate and cease to be exercisable. During the year ended December 31, 2023
the Company reduced the exercise price of the options to $
Pursuant
to a written consulting agreement dated May 31, 2013, and amended effective November 1, 2016, William E. Beifuss, Jr., our President,
Chief Executive Officer and Acting Chief Financial Officer is to receive fees of $
On
December 22, 2020, the Company issued non-qualified stock options to purchase up to a total of shares of our common stock
to four officers, directors, and consultants of the Company. The options vest and are exercisable on a cash or cashless
basis for a period of five years from the date of grant at an exercise price of $ per share. Of these non-qualified stock options,
Mr. Beifuss received and Byron Elton, a member of the Board of Directors, received . During the year ended December
31, 2023 the Company reduced the exercise price of Mr. Beifuss’ and Mr. Eltons’s options to $
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On
February 8, 2022, the Company issued non-qualified stock options to purchase up to a total of shares of our common stock to
Mr. Beifuss and shares to a consultant. The options vest and are exercisable on a cash or cashless basis
for a period of ten years from the date of grant at an exercise price of $ per share. During the year ended December 31, 2023,
the Company reduced the exercise price to $
9. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of filing of this report, there were no pending or threatened lawsuits.
Operating Lease
As of June 30, 2024, we had no material operating leases requiring us to recognize an operating lease liability and corresponding right-of-use asset.
Effective
February 1, 2022, the Company entered into an operating lease agreement with a term of
For
the six months ended June 30, 2024 and 2023, the Company recognized total rent expense of $
Research and Development Agreement
On
June 6, 2023, the Company engaged Florida International University (FIU) to perform the research necessary to develop technology that
will enable high-speed Internet service to be delivered from satellites directly to smartphones. Under the agreement, the Company is
to pay $
10. SUBSEQUENT EVENTS
Management
has evaluated subsequent events according to the requirements of ASC Topic 855, and subsequent to June 30, 2023 the Company received proceeds of $
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The objective of this Management’s Discussion and Analysis of Financial Condition is to allow investors to view the Company from management’s perspective, considering items that would have a material impact on future operations. Certain statements below, and elsewhere in this report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements frequently are accompanied by such words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements contained herein after the date of this report. Subsequent written and oral forward-looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024, and in other reports filed by us with the SEC.
You should read the following description of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and accompanying notes included in this report.
Overview
To help connect a world of more than 8 billion people, the Company is developing a new technology that will enable high-speed Internet service to be delivered from satellites directly to smartphones. We aim to redesign the link technology between satellites and smartphones, which includes novel antenna designs, new integrated circuits, and innovative frequency management to support indoor and outdoor data connection.
On June 6, 2023, the Company engaged Florida International University (FIU) to perform the research necessary to develop this technology. Successful development and implementation of this technology will allow next generation smartphones, anywhere in the world, to access high-speed Internet service and benefit from remote learning, health care, government services, telework, participation in public affairs and various sources of entertainment.
In a digitally divided world of “haves and have nots”, high speed internet is usually available only in densely populated areas of the world. Much of the world is still underserved with terrestrial wireless phone and data connections. Connecting satellites directly with smartphones to receive high speed internet service is technically very challenging but represents an extraordinary business opportunity.
FIU has assembled a team of people with the background, experience and talent to perform such research. Located in Miami, the University is one of the most respected in the communications field and has an impressive facility capable of designing the tools necessary to make this research viable.
The research being conducted is related the to Company’s “Satenna™” offering, a breakthrough technology that we hope will enable delivery of high-speed Internet from satellites directly to smartphones all over the world. Through its partnership with FIU, a solution is being developed that only requires modifications on the smartphone side. This breakthrough can potentially eliminate the need to make costly and time-consuming modifications to existing or future satellites.
While this research is under way, there are no guarantees that it will achieve anything of commercial value or patentable concepts. Every effort is being made to develop technology, circuits, antenna designs and frequency compatibility and the Company is realistic about the time, money and effort necessary for a breakthrough.
Previously, the Company was engaged in the business of maintaining its portfolio of acquired small cell sites to help meet the then-expected demand of rapidly growing 5G networks. We currently receive revenue from previously developed sites. We are no longer adding additional locations to this business nor are we seeking more sites.
Additionally, the Company and Smartify agreed to cancel and terminate a prior Marketing Agreement as of November 9, 2023, and the Company has no plans to pursue additional business opportunities in the small cell cite space, instead focusing its efforts on its “Satenna™” project of enabling high-speed Internet service to be delivered from satellites directly to smartphones.
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Going Concern
The accompanying financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. As of June 30, 2024, our current liabilities exceeded our current and total assets by $6,087,304 and we had an accumulated deficit of $59,179,382. The Company currently does not have the cash resources to meet its operating commitments for the next twelve months and expects to have ongoing requirements for capital investment or debt to implement its business plan. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern for a reasonable period of time.
The ability of the Company to continue as a going concern is dependent upon, among other things, raising additional capital. The Company has obtained operating funds primarily from the issuance of convertible debt. Management believes this funding will continue and will provide the additional cash needed to meet the Company’s obligations as they become due. There can be no assurance, however, that the Company will be successful in accomplishing its objectives. Without such additional capital we may be required to cease operations. The accompanying financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.
Results of Operations
Three Months and Six Months Ended June 30, 2024 Compared to the Three Months and Six Months Ended June 30, 2023
Revenues
Revenues, all from SCS, were $0 and $8,008 for the three months ended June 30, 2024 and 2023, respectively and $0 and $12,980 for the six months ended June 30, 2024 and 2023, respectively. Monthly payments are received by the Company from wireless carriers, with the Company paying the property owner a percentage of revenues ranging from 70% to 85%. The net amount is retained by the Company as consideration for its intermediary services and recorded as revenues. During the three and six months ended June 30, 2024 the Company did not earn amounts from wireless carriers in excess of the amounts billed by properly owners, therefore a net $0 revenue was recorded.
General and Administrative Expenses
General and administrative expenses decreased from the prior period and were $568,490 and $1,075,067 in the three months ended June 30, 2024 and 2023, respectively. Included in these expenses is non-cash stock option compensation expense of $385,549 and $741,156 for the three months ended June 30, 2024 and 2023, respectively. In the six months ended June 30, 2024 and 2023, general and administrative expenses were $1,405,086 and $2,012,927, respectively. Included in these expenses is non-cash stock option compensation expense of $717,098 and $1,486,604 for the six months ended June 30, 2024 and 2023, respectively.
Depreciation and Amortization Expense
Depreciation and amortization expense of $500 in each of the three months ended June 30, 2024 and 2023 and $1,000 in each of the six months ended June 30, 2024 and 2023 consisted of the amortization of intangible assets acquired in the SCS business acquisition.
Other Income (Expense)
Our interest expense increased to $668,143 in the three months ended June 30, 2024 from $53,126 in the three months ended June 30, 2023 and increased to $2,117,243 in the six months ended June 30, 2024 from $129,007 in the six months ended June 30, 2023. The increase in interest expense in the current fiscal year resulted primarily from the Company obtaining new convertible loans with debt discounts being recorded for the full loan balance and having to be amortized into interest expense in the current year whereas in the prior year there was lower amortization of debt discount and accrued interest as there were multiple convertible notes payable fully converted to common stock.
We reported non-cash gains/(losses) on change in derivative liabilities of $3,700,994 and $(147,307) in the three months ended June 30, 2024 and 2023 respectively and $(768,309) and $1,055,614 in the six months ended June 30, 2024 and 2023, respectively. We estimate the fair value of the derivatives associated with our convertible notes payable using a Black-Scholes pricing model and/or a multinomial lattice model based on projections of various potential future outcomes. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements, and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
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Net Income (Loss)
Net income (loss) in the three and six months ended June 30, 2024 were $2,463,861 and $(4,291,638), respectively, compared to net income (loss) of $(1,267,992) and $(1,074,340) in the three and six months ended June 30, 2023. The changes are due to the factors described above.
Liquidity and Capital Resources
As of June 30, 2024, we had total current assets of $37,692, comprised of cash, and total current liabilities of $6,124,996, resulting in a working capital deficit of $6,087,304.
We funded our operations during the six months ended June 30, 2024 from the proceeds from the issuance of convertible notes payable of $685,000. We anticipate we will continue to fund our operations from this source in the short term.
Sources and Uses of Cash
During the six months ended June 30, 2024, we used net cash of $691,412 in operating activities as a result of our net loss of $4,291,638 offset by non-cash expenses of $3,534,788 and net changes in operating assets and liabilities of $65,438.
During the six months ended June 30, 2023, we used net cash of $517,855 in operating activities as a result of our net loss of $1,074,340 offset by non-cash expenses totaling $553,948 and net changes in operating assets and liabilities of $2,537.
We had no cash provided by or used in investing activities during the six months ended June 30, 2024 and 2023.
Net cash provided by financing activities was $685,000 during the six months ended June 30, 2023, comprised of proceeds from convertible notes payable.
Net cash provided by financing activities was $497,000 during the six months ended June 30, 2023, comprised of $362,000 of proceeds from the issuance of Series E Preferred Stock and $135,000 in proceeds from notes payable.
Historically, proceeds received from the issuance of debt and preferred stock have been sufficient to fund our current operating expenses. We estimate that we will need to raise substantial capital or financing over the next twelve months in order to explore business expansion opportunities and provide the necessary capital to meet our other general and administrative expenses. We anticipate that we will incur operating losses in the next twelve months. Our revenue is not expected to exceed our investment and operating costs in the next twelve months. Therefore, our future operations are dependent on our ability to secure additional financing. Our recent funding opportunities have been limited due to downturns in the U.S. equity and debt markets resulting from the world-wide Covid-19 pandemic. Future financing transactions, if available, may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and continued downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities.
Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences, or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.
Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.
Critical Accounting Policies
Our significant accounting policies are disclosed in Note 2 to our consolidated financial statements. The following is a summary of those accounting policies that involve significant estimates and judgment of management.
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Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment and intangible assets, operating lease obligations, impairment of assets, the deferred tax valuation allowance, the fair value of stock options and derivative liabilities. Actual results could differ from those estimates.
Intangible Assets
The identifiable intangible assets acquired in the SCS acquisition are amortized using the straight-line method over an estimated life of 5 years.
Derivative Liabilities
We have identified the conversion features of some of our convertible notes payable as derivatives due to their variable conversion price. Where the number of common shares to be issued under these agreements is indeterminate, the Company has concluded that the equity environment is tainted, and all additional convertible debt is included in the value of the derivatives. We estimate the fair value of the derivatives using a Black-Scholes pricing model and/or a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Fair Value of Financial Instruments
Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. We believe the amounts reported for cash, accounts payable, accounts payable – related party, accrued expenses and other current liabilities, accrued interest, notes payable and certain notes payable approximate fair value because of their short maturities.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASC”) Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; | |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and | |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Revenue Recognition
We have adopted Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) pursuant to which revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
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We determine revenue recognition through the following steps:
| ● | identification of the contract, or contracts, with a customer; | |
| ● | identification of the performance obligations in the contract; | |
| ● | determination of the transaction price; | |
| ● | allocation of the transaction price to the performance obligations in the contract; and | |
| ● | recognition of revenue when, or as, we satisfy a performance obligation. |
Through its wholly owned subsidiary, the Company acts as an intermediary or agent to facilitate a platform through which property owners market billboards to wireless telephone carriers for placement of wireless communications network equipment. Contracts have been signed among the Company, the property owner, and the wireless telephone operator. Monthly payments are received by the Company from the wireless carriers, with the Company paying the property owner a percentage of revenues ranging from 70% to 85%. The net amount is retained by the Company as consideration for its intermediary services and recorded as revenues in the accompanying statements of operations.
Recently Issued Accounting Pronouncements
There were no new accounting pronouncements issued by the FASB during the six months ended June 30, 2024, and through the date of filing of this report, that the Company believes will have a material impact on its financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of June 30, 2023, our Chief Executive Officer and Acting Chief Financial Officer have concluded that our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Our Chief Executive Officer and Acting Chief Financial Officer also concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
During the six months ended June 30, 2024, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
ITEM 1A. RISK FACTORS
There are no material changes from the risk factors previously disclosed in the Registrant’s annual report on Form 10-K filed on March 29, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| * | Filed herewith. |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Santa Barbara, State of California, on August 12, 2024.
| DIGITAL LOCATIONS, INC. | ||
| By: | /s/ Rich Berliner | |
Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ William E. Beifuss, Jr. | |
Acting Chief Financial Officer (Principal Financial/Accounting Officer) | ||
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