MDEX 10-Q
Madison Technologies Inc. (MDEX)
United states
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| quarterly report under section 13 0r 15(d) of the securities exchange act of 1934 |
For
the quarterly period ended
| transition report under section 13 0r 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 incorporation or organization) |
(I.R.S. Employer Identification No.) |
| Not Applicable | Not Applicable | |
| (Address of principal executive offices) | (Zip Code) |
| Not Applicable |
| (Registrant’s telephone number, including area code) |
| n/a |
| (Former name, former address and former fiscal year, if changed since last report) |
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.
☒
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).
☒
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 filer | ☐ | Accelerated filer | ☐ |
| ☐ | Smaller 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 ☒
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.
| Class | Outstanding at September 26, 2022 | |
| Common Stock - $0.001 par value |
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 2 |
MADISON TECHNOLOGIES INC.
INTERIM Financial Statements
MARCH 31, 2022 and 2021
(unaudited)
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 3 |
MADISON TECHNOLOGIES INC.
(UNAUDITED)
TABLE OF Contents
| CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
| Balance Sheets | 4 |
| Statements of Operations | 5 |
| Statements of Stockholders’ Deficit | 6 |
| Statements of Cash Flows | 7 |
| Notes to the Financial Statements | 8-27 |
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 4 |
MADISON TECHNOLOGIES INC.
condensed consolidated Balance Sheets
(Unaudited)
| March 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivables, net | ||||||||
| Note receivables | ||||||||
| Due from related party | ||||||||
| Intangible assets, net | ||||||||
| Equipment, net | ||||||||
| Investments | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Derivative liability | ||||||||
| Current portion of lease liabilities | ||||||||
| Promissory notes | ||||||||
| Convertible notes payable | ||||||||
| Interest payable on senior secured notes | ||||||||
| Long term portion of lease liability obligations | ||||||||
| Long term convertible notes, net of discount | ||||||||
| Total liabilities | ||||||||
| Preferred Shares - Series C, $ par value; | ||||||||
| Preferred Shares - Series D, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares - Series E, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares - Series E-1, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares - Series F, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares - Series G, $ par value; convertible, stated value $ | ||||||||
| Preferred Shares – Series H, $par value; convertible, stated value $ | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Capital Stock: | ||||||||
| Preferred Shares – shares authorized, $ par value Preferred Shares - Series A, $ par value; | ||||||||
| Preferred Shares - Series B, $ par value; shares designated, shares issued and outstanding, March 31, 2022 and December 31, 2021, respectively | ||||||||
| Common Shares - $ par value; shares authorized shares issued and outstanding, March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 5 |
MADISON TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS of Operations
(Unaudited)
| Three Months Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Revenues | $ | $ | ||||||
| Operating Expenses | ||||||||
| Selling, general and administrative | ||||||||
| Television operations | ||||||||
| Amortization of intangible assets | ||||||||
| Professional fees | ||||||||
| Loss on asset disposals | ||||||||
| Total operating expenses | ||||||||
| Loss before other expense | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income | ||||||||
| ( | ) | ( | ) | |||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Loss from discontinued operations | ( | ) | ||||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share-Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Average number of shares of common stock outstanding | ||||||||
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 6 |
MADISON TECHNOLOGIES INC.
CONDENSED CONSOLIDATED StatementS of stockholders’ DEFICIT
(Unaudited)
| Additional | ||||||||||||||||||||||||
| Common | Preferred | Paid In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Additional | ||||||||||||||||||||||||
| Common | Preferred | Paid In | Accumulated | |||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Conversion of debt to Series D Preferred | - | |||||||||||||||||||||||
| Series E Preferred issued for assets | - | |||||||||||||||||||||||
| Series G Preferred issued for subscriptions sold | - | |||||||||||||||||||||||
| Equity portion on convertible debt issued | - | |||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 7 |
MADISON TECHNOLOGIES INC.
CONDENSED CONSOLIDATED StatementS of cash flows
(unaudited)
| For the Three Months Ended | ||||||||
| March 31 2022 | March 31 2021 | |||||||
| Cash Flows from operating activities: | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Amortized interest | ||||||||
| Amortization | ||||||||
| Fair value of Warrant issued for services | ||||||||
| Foreign exchange on notes payable | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts payable and accruals | ||||||||
| Payment of lease liability | ( | ) | ||||||
| Accounts receivable | ||||||||
| Due from related party | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from investing activities: | ||||||||
| Purchases of equipment, intangible assets and goodwill | ( | ) | ||||||
| Funds advanced for note receivable | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash Flows from financing activities: | ||||||||
| Proceeds from convertible notes sold | $ | $ | ||||||
| Shares subscribed but not issued | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE | ||||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | $ | $ | ||||||
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 8 |
MADISON TECHNOLOGIES INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2022
Note 1 Nature of Operations
Our Company was incorporated on June 15, 1998 in the State of Nevada, USA and our common shares are publicly traded on the OTC Markets OTCQB.
We, through our wholly-owned subsidiary, Sovryn Holdings, Inc. (“Sovryn”) acquired three un-affiliated Class A/LPTV TV. Each licensed TV station can broadcast between 10 and 12 channels over-the-air, 24 hours per day/7 days per week. In 2021, we generated revenue by leasing channels to third parties on KNLA/KNET, a Class A television station in Los Angeles, KVVV, a low power television station in Houston and KYMU-LD, a low power television station in Seattle.
On
November 15, 2021, we sold our wholly owned subsidiary, CZJ License Inc. for $
During August 2021, our shareholders approved to amend and restate our Articles of Incorporation to increase our authorized common stock from shares to shares.
Note 2 Going Concern
The
accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the
recoverability of assets and the satisfaction of liabilities in the normal course of business. For the year ended December 31, 2021,
we incurred a net loss of $
Note 3 Summary of Significant Accounting Policies
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.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 9 |
Consolidation
The accompanying consolidated financial statements include the accounts of our wholly owned subsidiaries, Sovryn Holdings Inc. and CZJ License Inc. CZJ License Inc. was consolidated up until it was sold on November 15, 2021. All the intercompany balances and transactions have been eliminated in the consolidation. During the year ended December 31, 2021, the operations of CZJ License Inc. were consolidated into our operation and were designated as discontinued.
Interim Reporting
While the information presented in the accompanying interim three month financial statements is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the Company’s December 31, 2021 annual financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s December 31, 2021 annual financial statements. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that can be expected for the year ended December 31, 2022.
Segment reporting
We use “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance as the source for determining our reportable segments. Our chief operating decision maker is our chief executive officer, who reviews operating results to make decisions about allocating resources and assessing our entire performance. We did not report any segment information since we primarily generates sales from its television stations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Revenue recognition
We adopted the ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). We recognize revenue when we transfer promised services to the customer. The performance obligation is the monthly services rendered. We have one main revenue source which is leasing of television station channels. Accordingly, we recognize revenue when services are provided as time passes the customers have access to utilize the channel. These revenues are billed in advance, arrears and/or are prepaid. The performance obligation is the monthly services rendered. At the moment, we have one main revenue source which is leasing of television channels. Where there is a leasing contract for channels, we bill monthly for our services as rendered. Where there is no contract, the revenue is recognized as provided.
We recognize revenue in accordance with ASC 606 using the following 5 steps to identify revenues:
| ● | identify the contract with a customer; |
| ● | identify the performance obligations in the contract; |
| ● | determine the transaction price; |
| ● | allocate the transaction price to performance obligations in the contract; and |
| ● | recognize revenue as the performance obligation is satisfied. |
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 10 |
Advances from Client’s deposits are contract liabilities with customers that represent our obligation to either transfer goods or services in the future, or refund the amount received. Where possible, we obtain retainers to lessen our risk of non-payment by our customers. Advances from Client’s deposits are recognized as revenue as we meet specified performance obligations as detailed in the contract.
Accounts receivables
Trade
accounts receivable are stated at the amount we expect to collect. Management considers the following factors when determining the collectability
of specific customer accounts: customer credit worthiness, past transaction history, current economic industry trends and changes in
customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. Based
on the management’s assessment, we provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation
allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the
valuation allowance and a credit to accounts receivable. As of March 31, 2022, our allowance for doubtful accounts receivable was $
Operating leases
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”). The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the term of the lease. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We adopted the new standard April 19, 2021. We have elected not to recognize lease assets and lease liabilities for leases with an initial term of 12 months or less.
Intangible assets
Intangible assets are non-monetary identifiable assets, controlled by us that will produce future economic benefits, based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. An intangible asset that does not meet these attributes will be recognized as an expense when it is incurred. Intangible assets that do, are capitalized and initially measured at cost. Those with a determinable life will be amortized on a systematic basis over their future economic life. Those with an indefinite useful life shall not be amortized until its useful life is determined to be longer indefinite. An intangible asset subject to amortization shall be periodically reviewed for impairment. A recoverability test will be performed and, if applicable, unscheduled amortization is considered.
License agreements have been capitalized, recorded at cost and amortized over the life of the contracts. They will be amortized over the life of the license to which it supports.
Equipment
Equipment represents purchases made for assets, whose useful life was determined to be greater than one year. The assets are initially recorded at cost and depreciated over their estimated useful lives.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 11 |
Website development costs
We recognized the costs associated with developing a website in accordance with ASC 350-50 “Website Development Cost”. The website development costs are divided into three stages, planning, development and production. The development stage can further be classified as application and infrastructure development, graphics development and content development. In short, website development cost for internal use should be capitalized except content input and data conversion costs in content development stage.
Costs associated with the website consist primarily of website development costs paid to third party. These capitalized costs will be amortized based on their estimated useful life over three years upon the website becoming operational. Internal costs related to the development of website content will be charged to operations as incurred. Website development costs related to the customers are charged to cost of sales.
Impairment of Long-Lived Assets
In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and intangible assets we hold and use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
Concentration of credit risk
We place our cash and cash equivalents with a high credit quality financial institution. We maintain United States Dollars. We minimize its credit risks associated with cash by periodically evaluating the credit quality of its primary financial institution.
Financial instruments
Our financial instruments consist principally of cash, accounts payable, accrued liabilities and notes payable. The carrying amounts of such financial instruments in the accompanying financial statements approximate their fair values due to their relatively short-term nature or the underlying terms are consistent with market terms. It is the management’s opinion that we are not exposed to any significant currency or credit risks arising from these financial instruments.
Fair value measurements
We follow the guidelines in ASC Topic 820 “Fair Value Measurements and Disclosures”. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 12 |
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. All financial instruments approximate their fair value.
Level 1 — Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. | ||
| Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities | ||
| Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. |
Convertible Notes with Fixed Rate Conversion Options
We may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. We record the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.
Derivative Liabilities
We have certain financial instruments that are derivatives or contain embedded derivatives. We evaluate all our financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with us, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
Net Loss Per Share
Basic
loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for
the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in our earnings (loss). Diluted
loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the
period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. As of March 31,
2022, no options were outstanding and warrants were outstanding and exercisable. Additionally, as of March 31, 2022, the
outstanding principal balance, including accrued interest of the third-party convertible debt, totaled $
| March 31, 2022 | March 31, 2021 | |||||||
| Warrants | ||||||||
| Convertible Preferred Stock | ||||||||
| Convertible debt | ||||||||
| Total | ||||||||
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 13 |
Business Combinations
In accordance with ASC 805-10, “Business Combinations”, we account for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that we hold in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in our results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.
Credit losses
In June 2016, the FASB issued ASU 326, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires us to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. We are currently assessing the impact of the adoption of this ASU on its financial statements.
Related Party Transactions
We follow FASB ASC subtopic 850-10, “Related Party Transactions”, for the identification of related parties and disclosure of related party transactions.
Pursuant to ASC 850-10-20, related parties include: a) our affiliates; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d) our principal owners; e) our management; f) other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
Material related party transactions are required to be disclosed in the consolidated financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 14 |
Discontinued operations
Discontinued operations are components of an entity that either have been disposed or abandoned or is classified as held for sale. Additionally, in order to qualify as a discontinued operation, the disposal or abandonment must represent a strategic shift that has or will have a major effect on an entity’s operations and financial results.
Income taxes
We follow the guideline under ASC Topic 740 Income Taxes. “Accounting for Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding our future profitability, the future tax benefits of its losses have been fully reserved.
Recently Issued Accounting Pronouncements
We adopt new pronouncements relating to generally accepted accounting principles applicable to us as they are issued, which may be in advance of their effective date.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact this new guidance will have on its financial statements
We do not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
Note 4 Notes Receivable
| March 31, 2022 | December 31, 2021 | |||||||
| Secured note – Top Dog Productions Inc. | $ | $ | ||||||
| Convertible note – ZA Group | ||||||||
| Prepaid expenses | ||||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
On
September 9, 2021, we entered into a secured promissory note with Top Dog Productions Inc. We agreed to lend an aggregate principal sum
of up to $
On
November 15, 2021, we entered into a $
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 15 |
Note 5 -Intangible Assets
Our
Federal Communication Commission Licenses (“FCC”) and domain name are considered indefinite-lived intangible assets that
are not amortized, but instead are tested at least annually for impairment. The Market Advantage intangible asset is being amortized
on a straight-line basis over 94 months from the acquisition date. Amortization expense for the three months ended March 31, 2022 and
2021 was $
| March 31, 2022 | ||||||||||||
| Cost | Amortization | Net | ||||||||||
| Domain Name | $ | $ | $ | |||||||||
| Market Advantage | ||||||||||||
| FCC Licenses | ||||||||||||
| $ | $ | $ | ||||||||||
Future amortization expense of the intangible assets is as follows:
For the Twelve Months Ending March 31, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
Note 6 Goodwill
As of March 31, 2022, we carry goodwill for the following television station asset purchases made in 2021:
| KNLA - KNET acquisition | $ | |||
| KVVV acquisition | ||||
| KYMU acquisition | ||||
| Total | $ |
Note 7 Equipment
Useful Life | Cost | Accumulated Depreciation | Net | |||||||||||
| Transmitter | $ | $ | ( | ) | $ | |||||||||
| Antenna | ( | ) | ||||||||||||
| Tech Equipment | ( | ) | ||||||||||||
| Office Equipment | ( | ) | ||||||||||||
| Microwave | ( | ) | ||||||||||||
| $ | $ | ( | ) | $ | ||||||||||
Depreciation
expense was $
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 16 |
Note 8 Right of Use Assets
We
have
| Term | Accumulated | |||||||||||||||
| (in months) | Amount | Amortization | Net | |||||||||||||
| Tower Lease 1 | $ | $ | $ | |||||||||||||
| Tower lease - 2 | ||||||||||||||||
| Tower Lease - 3 | ||||||||||||||||
| Generator Lease | ||||||||||||||||
| Studio Lease - 1 | ||||||||||||||||
| Studio Lease - 2 | ||||||||||||||||
| $ | $ | $ | ||||||||||||||
The
remaining lease liability at March 31, 2022 was $
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Remaining | ||||
| Lease obligations, net | ||||
| Amount representing interest | ||||
| Less current portion | ||||
| Non-current lease obligation | $ |
Note 9 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of December 31 are summarized below:
| March 31, 2022 | December 31. 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Customer deposits | ||||||||
| Accrued expenses | ||||||||
| Accrued interest | ||||||||
| Total | $ | $ | ||||||
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 17 |
Note 10 Securities Exchange Agreements
Sovryn Holdings, Inc.
We entered into a Securities Exchange Agreement on February 16, 2021 with Sovryn, a Delaware corporation and acquired % of the shares of Sovryn in exchange for i) shares of our Series B Preferred Stock to be transferred by Jeffrey Canouse, our CEO at the time, to a designee of Sovryn and ii) shares of Series E Preferred Stock. Upon the effectiveness of an amendment to out Articles of Incorporation to increase our authorized common stock, from par value $ to par value $ per share, from shares to shares, all shares of Series E Preferred Stock issued to the shareholders shall automatically convert into approximately shares of our Common Stock. The Series E Preferred Stock votes on an as-converted basis with our Common Stock prior to their conversion. The Series E Preferred Stock represented approximately % of the fully diluted shares of our Common Stock after the closing of the transactions contemplated by the Securities Purchase Agreement. The valuation for the Preferred Series E shares was determined to be $ based on the market value of our shares we exchanged at the date the transaction. The transaction was recorded as an asset purchase and we recorded goodwill of $ which was based on the market value of our shares exchanged at the date of the transaction.
Note 11 Asset Purchase
On
April 19, 2021, pursuant to a February 17, 2021 asset purchase agreement, Sovryn paid a total of $
The following table shows the estimated fair values of the Los Angeles Stations’ assets acquired and liabilities assumed at the April 19, 2021 purchase date:
| ASSETS ACQUIRED | ||||
| Transmitter equipment | $ | |||
| Technical equipment | ||||
| Antenna systems | ||||
| Microwave equipment | ||||
| Total tangible assets acquired | ||||
| Total liabilities assumed | ||||
| NET TANGIBLE ASSETS ACQUIRED | $ | |||
| INTANGIBLE ASSETS ACQUIRED | ||||
| FCC licenses | ||||
| Goodwill | ||||
| INTANGIBLE ASSETS ACQUIRED | ||||
| NET ASSETS ACQUIRED | $ | |||
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 18 |
On
June 1, 2021, pursuant to a March 14, 2021 an asset purchase agreement, Sovryn paid a total of $
The following table shows the estimated fair values of the Houston Station’s assets acquired and liabilities assumed at the June 1, 2021 purchase date:
| ASSETS ACQUIRED | ||||
| Transmitter equipment | $ | |||
| Technical equipment | ||||
| Antenna systems | ||||
| Furniture and equipment | ||||
| Total tangible assets acquired | ||||
| Total liabilities assumed | ||||
| NET TANGIBLE ASSETS ACQUIRED | $ | |||
| INTANGIBLE ASSETS ACQUIRED | ||||
| FCC licenses | ||||
| Transmitter site leasehold | ||||
| Goodwill | ||||
| INTANGIBLE ASSETS ACQUIRED | ||||
| NET ASSETS ACQUIRED | $ | |||
On
September 24, 2021, pursuant to a March 29, 2021 an asset purchase agreement, Sovryn paid a total of $
The following table shows the estimated fair values of the Seattle Station’s assets acquired and liabilities assumed at the September 24, 2021 purchase date:
| ASSETS ACQUIRED | ||||
| Transmitter equipment | $ | |||
| Technical equipment | ||||
| Antenna systems | ||||
| Microwave equipment | ||||
| Total tangible assets acquired | ||||
| Total liabilities assumed | ||||
| NET TANGIBLE ASSETS ACQUIRED | $ | |||
| Goodwill | ||||
| INTANGIBLE ASSETS ACQUIRED | ||||
| FCC licenses | ||||
| Goodwill | ||||
| INTANGIBLE ASSETS ACQUIRED | ||||
| NET ASSETS ACQUIRED | $ | |||
Note 12 Note Payable
On
December 28, 2021, we sold a $
On
January 14, 2022, we sold an unsecured $
On January 14, 2022, we sold an unsecured $
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 19 |
Note 13 Convertible Notes Payable
The principal portions of our convertible notes payable are as follows as of:
| March 31, 2022 | December 31, 2021 | |||||||||||
| Senior Secured | [a] | $ | $ | |||||||||
| Series 1 | [b] | |||||||||||
| Series 2 | [c] | |||||||||||
| Series 3 | [d] | |||||||||||
| Less current portion | ||||||||||||
| Long-term portion | $ | $ | ||||||||||
| [a] |
The
Notes have a term of thirty-six months and mature on February 17, 2024, unless earlier converted.
On September 24, 2021, the Company and the Investors amended the Notes and related closing documents, by executing the Limited Waiver and First Amendment the closing documents (“the amendment”). The amendment also waived specified events of default. The Notes are henceforth convertible at any time, at the holder’s option, into shares of our Common Stock at a price of $ per share, subject to default event adjustment. Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion price in effect shall be equal to the alternate conversion price. If at any time the conversion price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the conversion price hereunder may equal such par value for such conversion and the conversion amount for such conversion may be increased to include Additional Principal, where Additional Principal means such additional amount to be added to the principal amount of this Note to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the conversion price not been adjusted by the Holder to the par value 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 our issuance of our Common Stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. We may not redeem the Notes.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 20 |
As
part of the agreement with the Investors, we issued
The Investors have contractually agreed to restrict their ability to exercise the Warrants and convert the Notes such that the number of shares of our Common Stock held by the Investors and their affiliates after such conversion or exercise does not exceed 9.99% of our then issued and outstanding shares of Common Stock.
| [b] | Series 1:
|
| [c] | Series 2:
On
January 14, 2022, we sold one of our shareholders a $
On
February 17, 2022, we sold a $ |
| [d] | Series 3:
|
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 21 |
Note 14 Related Party
We
entered into a consulting agreement with Warren Zenna of Zenna Consulting Group to provide oversight of marketing and communications
services. The agreement commenced March 1, 2021 and ended on July 31, 2021. We paid Zenna Consulting Group $
Effective
January 1, 2022, we entered into a management consulting agreement with GreenRock LLC, a company controlled by Philip Falcone, for a
period of one year ending December 31, 2022, under which we provide monthly remuneration of $
On
April 7, 2021, we issued shares of our Common Stock to Mr. Canouse in exchange for transferring his shares of our Series
B Preferred Stock to FFO1 Irrevocable Trust, an entity controlled by Mr. Falcone, our CEO and Chairman of our Board of Directors. The
shares were valued at $
Note 15 Mezzanine Equity
We account for certain of our Preferred Stock in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Based on this guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the various Series of Preferred Stock, which is subject to conditional redemption, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the consolidated balance sheets
Preferred Shares
Series A Preferred Stock
On February 16, 2021, we cancelled all the Preferred Series A shares. In exchange, the holders of Series A Preferred shares received one-year option agreements to purchase shares of our wholly owned subsidiary at the time, CZJ License, Inc. at $ per share for up to shares. The option agreement expired without being exercised.
Series C Preferred Stock
There
are designated and authorized Series C Preferred Stock.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 22 |
Series D Preferred Stock
There
are designated and authorized Series D Preferred Stock with a
On
February 16, 2021, we settled $
Series E Preferred Stock
On
February 16, 2021, we issued shares of Series E Preferred Stock to acquire Sovryn that we valued at $
On
September 16, 2021, the holders of our Series E Preferred Stock entered into an Exchange Agreement with us whereby on October 11, 2021,
the Series E Preferred shares were exchanged for Series E-1 Preferred shares and shares of Common Stock.
We valued the exchange at the same $
Series E-1 Preferred Stock
There are designated and authorized Series E-1 Preferred Stock that we issued on October 11, 2021 in exchange for our Series E Preferred Stock. At March 31, 2022 and December 31, 2021, Preferred Series E-1 shares remain outstanding. Each share of Series E-1 Preferred Stock may be converted to common shares.
Series F Preferred Stock
There
are designated and authorized Series F Preferred Stock. On February 17, 2021, we issued the Investors shares of Series F
Preferred Stock that convert into shares of Common Stock, which we valued at $
Series G Preferred Stock
We
received $ in subscriptions for of Series G Preferred Shares that we valued at $
Series H Preferred Stock
On
November 11, 2021, pursuant to an Exchange Agreement that we entered into with the Investors, of our Common shares held by
the Investors were exchanged for shares of our Series H Preferred Stock and we cancelled the
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 23 |
Note 16 Shareholders’ Equity
Preferred Stock
As of March 31, 2022 and December 31, 2021, we are authorized to issue shares of $ par value Preferred Stock, with designations, voting, and other rights and preferences to be determined by our Board of Directors of which remain available for designation and issuance.
Series B Preferred Stock
There
are designated and authorized Series B Preferred Stock.
On
July 17, 2020, Series
B Preferred Stock were issued pursuant to the License Agreement. The Series B Preferred Stock was valued at par at $.
On February 17, 2021, the Series B Preferred Stock were transferred from Mr. Canouse (our former director and CEO), to FFO1 Irrevocable Trust, a company Mr. Falcone (our director and CEO) is the trustee and has the voting and dispositive power.
At March 31, 2022 and December 31, 2021, there were Series B Preferred shares outstanding, respectively.
Common Stock
In August 14, 2021, our shareholders approved an increase in authorized Common Stock to from , which became effective the same day. As of March 31, 2022 and December 31, 2021 there were , and , shares outstanding, respectively.
Our
Board of Directors and majority stockholder approved the decision to not move forward with a reverse stock split ratio of
Warrants
On
February 17, 2021, we issued
On
December 28, 2021, we entered into a promissory note payable and provided
The Warrants issued are loan incentives. The value was allocated to the warrants based on fair value on the date of the grant as determined using the Black-Scholes option pricing model.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 24 |
For the three months ended March 31, 2022, a summary of our warrant activity is as follows:
| Number of Warrants | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Weighted- Average Grant-Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding and exercisable at January 1, 2022 | $ | $ | $ | |||||||||||||||||
| - | ||||||||||||||||||||
| Issued | $ | $ | ||||||||||||||||||
| Exercised | ||||||||||||||||||||
| Expired | ||||||||||||||||||||
| Outstanding and exercisable at March 31, 2022 | $ | $ | $ | |||||||||||||||||
Note 17 Discontinued Operations
On February 16, 2021, we cancelled all the Series A Preferred Stock shares and offered their holder’s option agreements to purchase up to shares of CZJ License, Inc., our wholly owned subsidiary at the time, at an option price of $ per share. The option agreements are exercisable for a period of one year from the date of issuance and were not exercised.
On
November 15, 2021,
At November 15, 2021, CZJ License Inc.’s accounts were eliminated from the consolidated financial statements. All expenses incurred by CZJ License Inc. up to November 15, 2021 have been disclosed as discontinued operations. The previous year’s assets, liabilities and expenses have been similarly classified for comparative purposes.
| Assets | ||||||||
| Prepaid Expenses | $ | $ | ||||||
| Website | ||||||||
| Intangible Assets - License | ||||||||
| Liabilities | ||||||||
| Accounts Payable & Accrued | ||||||||
| Expenses | ||||||||
| Amortization | ||||||||
| Selling, general and administrative | ||||||||
| Professional fees | ||||||||
| - | ||||||||
| $ | $ |
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 25 |
Note 18 Commitments
On
September 28, 2020, we entered into a one-year renewable employment agreement with Mr. Canouse, our Chief Executive Officer at the time.
In the three months ended March 31, 2022 and 2021, Mr. Canouse received $
On
February 17, 2021, we sold the Investors $
On
October 20, 2021, we entered into a Stock Acquisition Agreement with Top Dog Productions Inc., Jay Blumefield and Anthony Marsh whereby
we will acquire all of the shares of Top Dog Productions Inc., and in exchange, we will pay the purchase price of $
On
January 12, 2022, we entered into a consulting agreement with EF Hutton as a lead underwriter. The agreement is for one year and we may
terminate the agreement on or after 270th day with 30-days written notice. EF Hutton may terminate the agreement on or after
120 days from execution of the agreement. EF Hutton agrees to provide underwriting the sale of up to $
In
January 2022, we entered into a six-month consulting agreement with a third party to provide strategic and business services relating
to the blockchain project that we amended in February 2022. The first two months are payable at $
In
February 2022, we entered into a consulting agreement to establish, launch, manage, operate and produce a 24/7 broadcast network devoted
to cryptocurrency, NFT, Web3 and blockchain technology. In consideration for the wide range and scope of work, we agreed to pay the consultant
a fee in the aggregate of $
In
February 2022, we entered into a consulting agreement with a third party to provide corporate marketing strategy, creation and development
of content for distribution, market development, communications, products and growth. The agreement ends the earlier of June 30, 2022
or when an executed Employment Agreement is signed with us. Upon execution of the consulting agreement, we paid the consultant $
In
March 2022, we entered into a six-month service agreement for press releases, campaigns and social media advertisings. The service fee
is $
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 26 |
Note 19 Income Taxes
Income tax recovery differs from that which would be expected from applying the effective tax rates to the net income (loss) as follows:
| March 31, 2022 | March 31, 2021 | |||||||
| Net loss for the three-month period | $ | ( | ) | $ | ( | ) | ||
| Statutory and effective tax rates | % | % | ||||||
| Income taxes expenses (recovery) at the effective rate | $ | ( | ) | $ | ( | ) | ||
| Effect of change in tax rates | ||||||||
| Permanent differences | ||||||||
| Valuation allowance | ||||||||
| Income tax expense and income tax liability | $ | $ | ||||||
As of March 31, 2022 and December 31, 2021 the tax effect of the temporary timing differences that give rise to significant components of deferred income tax asset are noted below. A valuation allowance has been recorded as management believes it is more likely than not that the deferred income tax asset will not be realized.
| March 31, 2022 | December 31, 2021 | |||||||
| Tax loss carried forward | $ | $ | ||||||
| Deferred tax assets | $ | $ | ||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred taxes recognized | $ | $ | ||||||
Tax
losses of approximately $
Note 20 Subsequent Events
In
April 2022, we sold unsecured convertible subordinate notes totaling $
In
May 2022, we sold a shareholder a convertible subordinate note totaling $
In
June 2022, we sold a convertible subordinate note totaling $
On
June 10, 2022, we entered into an agreement with a third party pursuant to which we received $
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 27 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
The following discussion of our financial condition, changes in financial condition and results of operations for the three months ended March 31, 2022, should be read in conjunction with our unaudited condensed consolidated financial statements and related notes for the three months ended March 31, 2021.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about DLT Resolutions’ industry, management’s beliefs, and certain assumptions made by management. Forward-looking statements include our expectations regarding product, services, and maintenance revenue, annual savings associated with the organizational changes effected in prior years, and short- and long-term cash needs. In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements. In addition, statements about the potential effects of the COVID-19 pandemic on the Company’s businesses, results of operations and financial condition may constitute forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. Risks and uncertainties of our business include those set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on August 26, 2022, under “Item 1A. Risk Factors” as well as additional risks described in this Form 10-Q. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
GENERAL
Madison Technologies Inc. (“Madison”) is a Nevada corporation that was incorporated on June 15, 1998.
We, through our wholly-owned subsidiary, Sovryn Holdings, Inc. (“Sovryn”) acquired three un-affiliated Class A/LPTV TV. Each licensed TV station can broadcast between 10 and 12 channels over-the-air, 24 hours per day/7 days per week. We generated revenue by leasing channels to third parties on KNLA/KNET, a Class A television station in Los Angeles, KVVV, a low power television station in Houston and KYMU-LD, a low power television station in Seattle.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 28 |
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.
Three months ended March 31, 2022 and 2021
Revenues
Net Revenues increased to $474,999 for the three months ended March 31, 2022 from $0 for the three months ended March 31, 2021. The increase resulted from the acquisitions of television stations in 2021 and the $474,999 revenues generated by the lease agreements held by those stations. We anticipate 2022 Net Revenues will increase compared to 2021 Net Revenues as a result a full year of operating the television stations acquired during 2021 and the launch of BLOCKCHAIN.TV in 2022.
Amortization
Amortization increased to $80,494 for the three months ended March 31, 2022 from $35,284 for the three months ended March 31, 2021. The increase resulted from the Sovryn acquisitions in 2021 of television stations that have amortizable tangible and intangible assets.
Selling, general and administrative fees
Selling, general and administrative fees increased to $181,994 for the three months ended March 31, 2022 from $82,179 for the three months ended March 31, 2021. The increase was primarily the result of selling and overhead expenses for our television stations that we started operating in 2021 following their acquisitions.
Television operations
Television operation expenses are $87,632 and $0 for the three months ended March 31, 2022 and 2021. The expenses are direct costs of operating the television stations we acquired in 2021.
Professional Fees
Professional Fees increased to $1,098,279 for the three months ended March 31, 2022 from $340,531 for the three months ended March 31, 2021. The increase was primarily the result of an increase in the legal and accounting expense associated with the acquisitions of television stations, the financing associated with those acquisitions, management fees, and, the expense associated with regulatory filings for the SEC, including the Form S1 Registration.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 29 |
Loss on asset disposals
Our loss on asset disposals was $52,668 and $0 for the three months ended March 31, 2022 and 2021. Our initial objective was to create one the largest, most comprehensive, state of the art OTA content distribution platforms to capitalize on the changing media and distribution landscape and on the growing OTA viewership in the U.S. We are exploring more capital efficient and technology centric alternatives to its planned station acquisition distribution platform. While there is no guarantee that it will be successful with this alternative approach, we have determined that it will postpone further capital expenditures on acquisitions and as a result, the planned acquisitions have been terminated and future acquisition plans have been put on hold while we evaluate this alternative approach. As a result, we recognized a $52,668 of loss from disposition of OTA assets.
Interest Expense
Interest expense increased to $1,520,001 for the three months ended March 31, 2022 from $359,948 for the three months ended March 31, 2021. The $1,160,053 increase resulted from the financings associated with the acquisition of television stations and development of BLOCKCHAIN.TV.
Discontinued Operations
Our loss from discontinued operations was $0 and $38,835 for the three months ended March 31, 2022 and 2021, respectively. On November 15, 2021, we sold our subsidiary, CZJ License Inc. and designated its operations as discontinued. The previous year’s assets, liabilities and expenses have been similarly classified for comparative purposes.
Net Loss
Net Loss increased to $2,536,688 for the three months ended March 31, 2022 from $856,777 for the three months ended March 31, 2021. The increase was primarily the result of $1,520,001 of interest expense for debt instruments we issued in 2021 and 2022. Net Loss on a basic and diluted basis of $0.002 per share for the three months ended March 31, 2022, based on 1,599,095,027 weighted average shares outstanding, as compared to a Net Loss of $0.037 per share for the three months ended March 31, 2021, based on 23,472,567 weighted average shares outstanding. The increase in weighted average shares outstanding relates primarily to issuances of 192,073,017 shares to the Investors on October 11, 2021 in connection with the $16,500,000 Notes we sold, the 1,091,388,889 shares we issued on October 11, 2021 to Preferred Series E-1 holders in pursuant to an Exchange Agreement and the 255,555,556 shares we issued on November 2, 2021 in exchange for 4,600 shares of our Series G Preferred Stock.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 30 |
Liquidity and Capital Resources
Cash and Working Capital
As at March 31, 2022, we had $206,399 in cash and a $6,405,680 working capital deficit, compared to cash of $55,656 and working capital deficit of $4,373,271 as at December 31, 2021.
We will require additional capital to meet our long-term operating requirements. We have not yet made the $0.4 million interest payments on the Notes held by Arena Partners LC that were due on April 1, 2022 and July 1, 2022, and as a result, under the Note terms, the interest rate is 20.0% per annum. We are currently in discussions with Arena Capital LP, on a plan of forbearance; however, there is no assurance that we will be successful in completion of a plan, which may disrupt our operations and result in a restructuring of obligations.
We expect to raise additional capital through the sale of equity and/or debt securities; however, there is no assurance that we will be successful at raising additional capital in the future. If our plans are not achieved and/or if significant unanticipated events occur, we may have to further modify our business plan, which may require us to raise additional capital. As of March 31, 2022, our principal source of liquidity was our cash, which totaled $206,399. 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, to make acquisitions and to pay interest on our Notes. We expect that the principal uses of cash in the future will be for continuing operations associated with rolling out the business plan and for interest payments.
Net Cash Used in Operating Activities
We used cash of $562,799 in operating activities during three months ended March 31, 2022 compared to cash used of $1,136,599 in operating activities during the previous year’s three-month period. The increase was primarily the result of increase in expenses associated with the build out and roll out of our business plan.
Net Cash Used in Investing Activities
We used cash of $96,458 in investing activities during the three months ended March 31, 2022 compared to cash used of $0 in investing activities during the previous year’s three-month period. The increase was the result of enhancements to our website and funds advanced to Top Dog Productions Inc. associated with our agreement to acquire them.
Net Cash Provided (Used in) by Financing Activities
Net cash flows provided by financing activities of $810,000 for the three months ended March 31, 2022 were from the proceeds of subordinated notes payable and Warrants that we sold to investors, compared to $15,540,000 of cash provided by financing activities during the previous fiscal year that we generated from the Arena financing in February 2021.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 31 |
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements including arrangements that would affect its liquidity, capital resources, market risk support and credit risk support or other benefits.
Going Concern
The independent auditors’ reports accompanying our December 31, 2021 and 2020 financial statements contain an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Future Financings
Management anticipates continuing to rely on equity sales of our Common Stock in order to continue to fund our business operations. Issuances of additional Common Stock will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our Common Stock or arrange for debt or other financing to fund our planned activities.
Material Commitments for Capital Expenditures
We had no contingencies or long-term commitments at March 31, 2022.
Tabular Disclosure of Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
Critical Accounting Policies
We follow certain significant accounting policies when preparing our consolidated financial statements. A complete summary of these policies is included in Note 1 of Notes to Consolidated Financial Statements. Certain of the policies require management to make significant and subjective estimates or assumptions that may deviate from actual results. In particular, management makes estimates regarding the useful life of long-lived assets related to depreciation and amortization expense, estimates regarding fair value of our reporting units and future cash flows with respect to assessing potential impairment of both long-lived assets and goodwill and estimates of expense related to our debt and equity instruments. Each of these estimates is discussed in greater detail in the following discussion.
Long-Lived Assets, Depreciation and Amortization Expense and Valuation
We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset, or related asset group, may not be recoverable from estimated future undiscounted cash flows. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. In 2021, we recognized that we would not complete the acquisition of the TV station assets of W27EB and KPHE TV and we wrote off $1,150,000 in deposits paid to sellers of those assets.
Goodwill Valuation
Management performed the annual goodwill and indefinite-lived intangible assets impairment assessments as of December 31, 2021 and concluded that our goodwill for the Sovryn acquisition was impaired as of that date. Goodwill and indefinite lived assets are tested annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We follow a two-step process for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value of its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its implied fair value.
Derivative Liabilities
We have certain financial instruments that are derivatives or contain embedded derivatives. We evaluate all of our financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with us, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 32 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report on Form 10-K, an evaluation was carried out by our management, with the participation of our Chief Executive Officer, who also serves as our Principal Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of December 31, 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, to allow timely decisions regarding required disclosures.
Based on that evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the SEC rules and forms and that such information was accumulated or communicated to management to allow timely decisions regarding required disclosure. In particular, we identified material weaknesses in internal control over financial reporting, as discussed below.
Management’s Report on Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley (SOX) Section 404 A. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, management identified material weaknesses in internal control over financial reporting.
A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The matters involving internal controls and procedures that management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on our 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 and communicated to management in connection with the preparation and audit of our financial statements as of December 31, 2021 and the preparation of our 2021 quarterly financial statements.
As a result of the material weakness in internal control over financial reporting described above, management has concluded that, as of March 31, 2022, our internal control over financial reporting was not effective based on the criteria in Internal Control – Integrated Framework issued by COSO.
Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on our board of directors caused and continues to cause an ineffective oversight in the establishment and monitoring of the required internal controls over financial reporting.
We are committed to improving its financial organization. As part of this commitment and when funds are available, we will create a position to segregate duties consistent with control objectives and will increase its personnel resources and technical accounting expertise within the accounting function by: (i) appointing one or more outside directors to its board of directors who will also be appointed to our audit committee, resulting in a fully functioning audit committee that will undertake the oversight in the establishment and monitoring of required internal controls over financial reporting; and (ii) preparing and implementing sufficient written policies and checklists that will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 33 |
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 our Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses: (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support our internal controls if personnel turn-over issues within the department occur. This, coupled with the appointment of additional outside directors, is designed to greatly decrease any control and procedure issues we may encounter in the future.
Management will continue to monitor and evaluate the effectiveness of our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Our independent auditors have not issued an attestation report on management’s assessment of our internal control over financial reporting. As a result, this quarterly report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We are not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this quarterly report.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended March 31, 2022, 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.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 34 |
Part II – Other Information
ITEM 1. LEGAL PROCEEDINGS.
None.
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 quarter of the fiscal year covered by this report, (i) Madison did not modify the instruments defining the rights of its shareholders, (ii) no rights of any shareholders were limited or qualified by any other class of securities, and (iii) Madison did not sell any unregistered equity securities, except as follows:
On March 1, 2022, we granted a Warrant to Mr. Zenna, our Director, to purchase up to 500,000 shares of our Common Stock at $0.025 per share.
In 2022, we sold a total of $1,370,000 of notes payable, some of which are convertible into our Common Stock at fixed prices, and we issued certain noteholders, Warrants to purchase an aggregate of 17,350,000 shares of our Common Stock, on a cashless exercise basis, at prices ranging from $0.02 to $0.10 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have not yet made the $453,750 million interest payments on the senior secured Notes held by Arena Partners LP that were due on April 1, 2022 and July 1, 2022, and we are currently in discussions with Arena Capital LP on a plan of forbearance.
ITEM 4. MINE SAFETY DISCLOSURES
No report required.
ITEM 5. OTHER INFORMATION
No report required.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 35 |
ITEM 6. EXHIBITS
| (a) | Index to and Description of Exhibits |
All Exhibits required to be filed with the Form 10-Q are included in this quarterly report or incorporated by reference to Madison’s previous filings with the SEC, which can be found in their entirety at the SEC website at www.sec.gov under SEC File Number 000-51302.
| Form 10-Q - Q1 | Madison Technologies Inc. | Page 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 27, 2022 | By: | /s/ Philip Falcone |
| Name: | Philip Falcone | |
| Title: | President | |
| (Principal Executive Officer) | ||