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 Or 15(d) of the securities exchange act of 1934 |
For
the quarterly period ended
| transition report under section 13 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 incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| n/a |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| OTCQB |
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
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 ☒
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 December 17, 2021 | |
| Common Stock - $0.001 par value |
MADISON TECHNOLOGIES INC.
(UNAUDITED)
TABLE OF Contents
| INTERIM FINANCIAL STATEMENTS | |
| Interim Balance Sheets | 3 |
| Interim Statements of Operations | 4 |
| Interim Statements of Stockholders’ Equity (Deficit) | 5 - 6 |
| Interim Statements of Cash Flows | 7 |
| Notes to the Interim Financial Statements | 8 - 29 |
| -2- |
MADISON TECHNOLOGIES INC.
INTERIM CONSOLIDATED Balance Sheets
(UNAUDITED)
| September 30, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivables | - | |||||||
| Note receivables – Note 3 | - | |||||||
| Prepaid expenses and Deposits | ||||||||
| Due from related party – Note 18 | - | |||||||
| Intangible Assets – Note 4 | ||||||||
| Equipment, net – Note 6 | - | |||||||
| Inventory – Note 7 | - | |||||||
| Investments – Note 8, Note 13 | - | |||||||
| Operating lease right-of-use assets, net – Note 9 | - | |||||||
| Goodwill – Note 5 | - | |||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued charges – Note 10 | $ | $ | ||||||
| Customer Deposits | - | |||||||
| Due to related party – Note 18 | - | |||||||
| License fee payable – Note 11 | ||||||||
| Current portion of lease liabilities – Note 9 | - | |||||||
| Demand notes and accrued interest payable – Note 14 | - | |||||||
| Subordinate note payable and interest payable – Note 17 | ||||||||
| Convertible notes payable – Note 15 | ||||||||
| Interest payable on convertible notes – Note 15 | - | |||||||
| Long term portion of lease liability obligations – Note 9 | - | |||||||
| Long term convertible notes – Note 16 | ||||||||
| Total liabilities | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIIT) | ||||||||
| Capital Stock: (Note 19 and 20) | ||||||||
| Preferred Shares – shares authorized, $ par value | ||||||||
| Preferred Shares - Series A, $ par value; | $ | $ | ||||||
| Preferred Shares - Series B, $ par value; Super Voting shares designated, shares issued and outstanding | - | - | ||||||
| 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 $ | - | - | ||||||
| Common Shares - $ par value; shares authorized shares issued and outstanding (Dec 31, 2020 - shares) | ||||||||
| Additional Paid in Capital: | ||||||||
| Preferred shares Series A | - | |||||||
| Preferred shares Series D | - | |||||||
| Preferred shares Series E | - | |||||||
| Common Shares | ||||||||
| Shares subscribed | - | |||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See Accompanying Notes to the Financial Statements.
| -3- |
MADISON TECHNOLOGIES INC.
INTERIM CONSOLIDATED STATEMENTS of Operations
(UNAUDITED)
| For the three | For the three | For the nine | For the nine | |||||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| Sep 30, 2021 | Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| Sales | $ | $ | $ | $ | ||||||||||||
| Miscellaneous income | - | |||||||||||||||
| Cost of sales | - | ( | ) | - | ( | ) | ||||||||||
| Net Revenues | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Amortization | ( | ) | ||||||||||||||
| Amortized right of use assets | - | - | ||||||||||||||
| Accretion of lease liability | - | - | ||||||||||||||
| Broadcasting/station expenses | - | - | ||||||||||||||
| Consulting fees | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Financing fees | - | - | ||||||||||||||
| Management fees | ||||||||||||||||
| Marketing and product development | - | - | ||||||||||||||
| Professional fees | ||||||||||||||||
| Royalties | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss before other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on disposal of assets | ( | ) | - | ( | ) | - | ||||||||||
| Amortized interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 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 Financial Statements.
| -4- |
MADISON TECHNOLOGIES INC.
INTERIM CONSOLIDATED Statements of stockholders’ EQUITY (DEFICIT)
(UNAUDITED)
For September 30, 2021
| Number of Shares | ||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Pref | Pref | |||||||||||||||||||||||||||||||||
| Preferred Series A | Preferred Series B | Preferred Series D | Preferred Series E | Series E-1 | Preferred Series F | Series G | Series H | Common | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
| Cancellation of Preferred Series A | ( | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Conversion of debt to Preferred Series D | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Shares issued for acquisition of assets | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Shares issued for convertible note | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Equity portion on convertible debt issued | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Shares subscriptions received | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Shares issued for voting control Series B | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
| Equity portion on convertible subordinated notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Balance, September 30, 2021 | - | - | - | - | ||||||||||||||||||||||||||||||||
| Amount | ||||||||||||||||||||||||||||||||||||
| Pref | Pref | Pref | Pref | Pref | Pref | Pref | Pref | |||||||||||||||||||||||||||||
| Series A | Series B | Series D | Series E | Series E-1 | Series F | Series G | Series H | Common | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | | - | - | - | - | - | - | - | $ | ||||||||||||||||||||||||||
| Cancellation of Preferred Series A | ( | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Conversion of debt to Preferred Series D | - | - | $ | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Shares issued for acquisition of assets | - | - | - | $ | - | - | - | - | - | |||||||||||||||||||||||||||
| Shares issued for convertible note | - | - | - | - | - | $ | - | - | - | |||||||||||||||||||||||||||
| Equity portion on convertible debt issued | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Shares subscriptions received | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Shares issued for voting control Series B | - | - | - | - | - | - | - | - | $ | |||||||||||||||||||||||||||
| Equity portion on convertible subordinated notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| -5- |
| Additional Paid In Capital | ||||||||||||||||||||||||||||||||||||||||||||||||
| Pref | Pref | Pref | Pref | |||||||||||||||||||||||||||||||||||||||||||||
| Pref Series A | Series B | Pref Series D | Pref Series E | Series E-1 | Series F | Series G | Series H | Common | Shares Subscribed | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | - | - | - | - | - | - | - | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Cancellation of Preferred Series A | ( | ) | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Conversion of debt to Preferred Series D | - | - | $ | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition of assets | - | - | - | $ | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Shares issued for convertible note | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Equity portion on convertible debt issued | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Shares subscriptions received | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Shares issued for voting control Series B | - | - | - | - | - | - | - | - | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Equity portion on convertible subordinated notes | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||
For September 30, 2020
| Number of shares | ||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series A | Series B | Additional Paid In Capital | ||||||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Preferred | Preferred | Common | Preferred | Preferred | Accumulated | ||||||||||||||||||||||||||||||||||||
| Shares | Shares | Shares | Amount | Amount | Amount | Series A | Series B | Common | Deficit | Total | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | - | - | $ | $ | - | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | - | - | - | - | $ | - | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | - | - | - | - | $ | - | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||
| Conversion
of debt at $ | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of shares for services | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Shares issued for license | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Convertible debt issued | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
See Accompanying Notes to the Financial Statements
| -6- |
MADISON TECHNOLOGIES INC.
interim consolidated Statements of cash flows
(Unaudited)
| For the nine | For the nine | |||||||
| Months Ended | Months Ended | |||||||
| Sep 30, 2021 | Sep 30, 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Amortization | ||||||||
| Amortized interest | ||||||||
| Accrued interest on notes payable | ||||||||
| Foreign exchange on notes payable | ( | ) | ||||||
| Loss on disposal of assets | - | |||||||
| Services paid with shares | - | |||||||
| Changes in non-cash working capital items: | ||||||||
| Accounts receivables | ( | ) | - | |||||
| Interest receivable | ( | ) | - | |||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Due from related party | ( | ) | - | |||||
| Accounts payable and accrued charges | ||||||||
| Due to related party | ||||||||
| Interest payable | - | |||||||
| Customer deposits | - | |||||||
| Lease payments | - | |||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Inventory | ( | ) | - | |||||
| Intangible assets | ( | ) | ( | )- | ||||
| Equipment | ( | ) | - | |||||
| Deposits on investments | ( | ) | - | |||||
| Note receivable | ( | ) | - | |||||
| Disposal of assets | ( | ) | - | |||||
| Goodwill | ( | ) | - | |||||
| ( | ) | ( | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from convertible notes issued | ||||||||
| Shares subscriptions received but not issued | - | |||||||
| Subordinate loan | ||||||||
| Subordinate convertible loans | ||||||||
| Shares for Debts - Series F | - | |||||||
| Proceeds from notes payable | - | |||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash | ||||||||
| Cash, beginning of year | ||||||||
| Cash, quarter end | $ | $ | ||||||
| Note 22 Additional cash flow information | ||||||||
| SUPPLEMENTAL DISCLOSURE | ||||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | $ | $ | ||||||
See Accompanying Notes to the Financial Statements
| -7- |
MADISON TECHNOLOGIES INC.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2021
Note 1 Nature and Continuance of Operations
The Company was incorporated on June 15, 1998 in the State of Nevada, USA and the Company’s common shares are publicly traded on the OTC Markets OTCQB.
Up until fiscal 2014, the Company (“Madison”) was in the business of mineral exploration. On May 28, 2014, the Company formalized an agreement whereby it purchased assets associated with a smokeless cannabis delivery system. The Company planned to develop this system for commercial purposes. On December 14, 2014, this asset purchase agreement was terminated.
On September 16, 2016, the Company entered into an exclusive distribution product license agreement with Tuffy Packs, LLC to distribute products into the United Kingdom and 43 other essentially European countries. The Company sold ballistic panels which are personal body armors, that conform to the National Institute of Justice (NIJ) Level IIIA threat requirements. The Company’s plan of operations and sales strategy included online and social media marketing, as well as attending various tradeshows and conferences. As the Company failed to make specified payments as required, the agreement was amended to a non-exclusive basis. The Company has closed this business.
On
July 17, 2020, the Company entered into an acquisition agreement to acquire the Casa Zeta-Jones Brand License Agreement from Luxurie
Legs, LLC of Delaware (“Luxurie”). Luxurie transferred all its rights, title and interest in the License Agreement to the
Company in exchange for the Company’s newly issued preferred convertible Series A stock. Upon conversion, the stock could control
up to
On September 28, 2020, the Company entered into a share exchange agreement to acquire % interest of Posto Del Sole Inc., a jewelry designer company to further develop the Company’s existing brands and create new designer labels. The title and rights will be transferred when all the terms and conditions in the Securities Exchange Agreement are met. At December 31, 2020, the share exchange had not closed and advances made to Posto Del Sole Inc. were expensed. The Company has rescinded the agreement.
On February 16, 2021, the Company entered into a share exchange agreement to acquire % interest of Sovryn Holdings Inc. by issuing Preferred Series E shares, making Sovryn Holdings Inc. a wholly owned subsidiary of the Company. At the same time, the Company settled all debts including loans, convertible notes and accrued interest by issuing Preferred Series D shares.
During the quarter ended March 31, 2021, the Company incorporated CZJ License, Inc. in the State of Nevada, and transferred all the Casa Zeta-Jones Brand License and operations into the subsidiary. The Preferred Series A shares were cancelled. Holders of Preferred Series A received option agreements to purchase shares of CZJ License, Inc. at $ per share to a maximum of shares. The option agreements are exercisable for a period of .
During the quarter ended June 30, 2021, the shareholders of the Company approved to amend the Articles of Incorporation to change its name from Madison Technologies, Inc. to Go.TV, Inc. and at the same time, to also amend and restate the Company’s Articles of Incorporation to increase the Company’s authorized common stock from shares to shares. At the date of this report, the amendment to increase the authorized capital of the Company was approved while the name change is pending regulatory approval.
During the quarter ended September 30, 2021, the Company filed a new series of convertible Preferred Series E-1 of which shares were designated with a par value of $ and a stated value of $ per share. At the same time, the Company also amended the conversions of Preferred Shares of Series E, Series F and Series G (see Note 20).
Subsequent to the period ended September 30, 2021, the Company filed a new series of convertible Preferred Series H of which shares were designated with a par value of $ and a stated value of $ per share.
| -8- |
These
condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in
the United States or “US GAAP” applicable to a going concern, which assumes that the Company will be able to meet its obligations
and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown
and these consolidated interim financial statements do not give effect to adjustments that would be necessary to the carrying values
and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company had not yet achieved
profitable operations, had accumulated losses of $
Note 2 Summary of Significant Accounting Policies
Basis of presentation
While the information presented is unaudited, it includes all adjustments, which are, in our opinion of management, necessary to present fairly the financial position, result of operations and cashflows for the interim period presented in accordance with accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature. These consolidated interim financial statements should be read in conjunction with the Company’s December 31, 2020 annual financial statements. Operating results for the nine months ended September 30, 2021 are not necessarily indicative of the results that can be expected for the period ended December 31, 2021.
The accompanying condensed consolidated interim financial statements include the accounts of the Company and its two wholly owned subsidiaries, CZJ License, Inc. (“CZJ”) and Sovryn Holdings, Inc. (“Sovryn”)
Use of estimates
The preparation of the consolidated interim financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.
Revenue Recognition
Revenues derived from the leasing of television station channels are recognized when services are provided. These revenues are billed in advance, arrears and/or are prepaid. The performance obligation is the monthly services rendered. At the moment, the Company has one main revenue source which is leasing of television channels. Where there is a leasing contract for channels, the Company bills monthly for its services as rendered. Where there is no contract, the revenue is recognized as provided.
| -9- |
Accounts Receivables
Trade accounts receivable are stated at the amount the Company expects to collect. Management considers the following factors when determining the collectability of specific customer accounts: customer credit worthiness, past transaction history, current economic industry trends and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. Based on the management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. As of September 30, 2021, the Company believes there are no receivables considered uncollectible.
Operating Leases
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”). The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the term of the lease. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company adopted the new standard April 19, 2021. The Company has elected not to recognize lease assets and lease liabilities for leases with an initial term of 12 months or less.
Segment Reporting
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance of its corporation wide basis in comparison to its various businesses. The Company has three reportable segments. The business of CZJ, Sovryn and Madison Technologies Inc. The segments are determined based on several factors including the nature of products and services, nature of production processes and delivery channels, and rental of television stations. The operating segment’s performance is evaluated based on its segment income. Segment income is defined as the net sales less cost of sales, general and administrative expenses and does not include amortization of any sorts, stock-based compensation or any other charges (income), and interest. As of September 30, 2021, the Company reported revenues for its rental of radio stations.
| For the nine | ||||
| months ended | ||||
| Sep 30, 2021 | ||||
| Net Revenues | ||||
| Madison Technologies Inc. | $ | |||
| Sovryn Holdings Inc. | ||||
| CZJ License Inc. | ||||
| Total Revenues | $ | |||
| Total Assets | ||||
| Madison Technologies Inc. | $ | |||
| Sovryn Holdings Inc. | ||||
| CZJ License Inc. | ||||
| Total Assets | $ | |||
| -10- |
Change in significant accounting policies
There has been no change in the accounting policies from those disclosed in the notes to the audited financial statements for the year ended December 31, 2020.
Recently Issued Accounting Pronouncements
The Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued, which may be in advance of their effective date. On August 5, 2020, the FASB issued a new standard (ASU 2020-06) to reduce the complexity of accounting for convertible debt. The standard is effective for Smaller Reporting Companies for fiscal years beginning after December 15, 2023. Management is reviewing this standard as it believes this may impact on its financial reporting Management does not believe that other any pronouncement not yet effective but recently issued would, if adopted, have a material effect on the accompanying financial statements.
Note 3 – Note Receivable
On
September 9, 2021, the Company entered into a secured promissory note with Top Dog Productions Inc. The Company agreed to lend an aggregate
principal sum of up to $
| Amount | Interest | Total | ||||||||
| $ | $ | $ | ||||||||
Note 4 - Intangible Assets
The Company has several classes of intangible assets. Except for Federal Communication Commission Licenses (“FCC”), the following intangible assets have finite useful lives and are amortized on a straight-line basis over their useful lives. Amortization starts when the asset is available for use. FCC licenses are considered indefinite-lived intangible assets which are not amortized but instead are tested at least annually for impairment.
| June 30, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Cost | Depreciation | Net | Cost | Depreciation | Net | |||||||||||||||||||
| Tuffy Packs, LLC License | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Website for Casa-Zeta Jones Brand | ||||||||||||||||||||||||
| Domain Name – Go.TV | ||||||||||||||||||||||||
| Market Advantage | ||||||||||||||||||||||||
| Casa Zeta-Jones Brand License | ||||||||||||||||||||||||
| Licenses | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Note 5 - Goodwill
Goodwill has been recorded on investment purchases where the value of the investment is greater than the identifiable net assets purchased. The amount is not amortized but rather is tested for impairment at least annually. Goodwill was recorded on the following investments:
| Purchase of | $ | |||
| KNLA- KNET acquisition | ||||
| KVVV acquisition | ||||
| Total | $ |
| -11- |
Note 6 - Equipment
Equipment are amortized over their useful lives.
| Cost | Additions | Total | Depreciation | Net | ||||||||||||||||||
| Transmitter | $ | $ | $ | $ | $ | |||||||||||||||||
| Antenna | ||||||||||||||||||||||
| Tech Equipment | ||||||||||||||||||||||
| Office Equipment | ||||||||||||||||||||||
| Microwave | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||
During the period, the following was disposed:
| Loss/Gain | ||||||||||||
| Cost | Depreciation | Disposition | ||||||||||
| Tech Equipment | $ | $ | $ | |||||||||
Note 7 - Inventory
Inventory
consists of deposits for tooling, product tubes and bottles for the CZJ product lines. Inventories are stated at the lower of cost or
net realizable value. As of September 30, 2021, inventory was $
Note 8 - Investments
Investments
consists of deposits for the acquisitions of various television stations for which Sovryn has entered into and have not closed or have
closed but not yet evaluated nor re-allocated to its components. At September 30, 2021, the Company escrowed a total of $
| Closed for KYMU | $ | |||
| Closed for K05NH | ||||
| Escrowed for W27EB | ||||
| Escrowed for KPHE | ||||
| Escrowed for KVSD | ||||
| $ |
| -12- |
Note 9 - Right of Use Assets
Sovryn
has four (
| Accumulated | ||||||||||||||
| Amount | Amortization | Net | ||||||||||||
| Tower lease - 1 | $ | $ | $ | |||||||||||
| Tower lease - 2 | ||||||||||||||
| Generator lease | ||||||||||||||
| Studio lease | ||||||||||||||
| $ | $ | $ | ||||||||||||
The
remaining lease liability at September 30, 2021 was $
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Remaining | ||||
| Lease obligations, net | ||||
| Amt representing interest | ||||
| Less current portion | ||||
| Non-current lease obligation | $ | |||
Note 10 - Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of September 30, 2021 are summarized below:
| Sep 30, 2021 | Dec 31, 2020 | |||||||
| Audit fees | $ | $ | ||||||
| Accounting fees | ||||||||
| Legal fees | ||||||||
| General Admin expenses | ||||||||
| Consulting fees | - | |||||||
| Management fees | - | |||||||
| Total | $ | $ | ||||||
Note 11 - License Agreements
| A | The
Company entered into an exclusive product license agreement on September 16, 2016 with Tuffy Packs, LLC, a Texas corporation, to
sell Ballistic Panels in certain countries, essentially in Europe. The license was for a period of |
| 1. | $ | |
| 2. | An
additional $ | |
| 3. | A
final payment of $ |
| -13- |
At
December 31, 2018, the Company had paid $
As a result of the failure to make payments as required under the agreement, the Company was informed on March 20, 2017, that going forward, the agreement would be on a non-exclusive basis. During the period ended March 31, 2021, the Company has terminated the business.
| B. | On
July 17, 2020, the Company entered into an acquisition agreement with Luxurie Legs, LLC, a Delaware corporation, to acquire the Casa
Zeta-Jones Brand license agreement. The license agreement, as amended, grants the Company the worldwide rights to promote and sell
certain products, and license the rights to manufacture, promote and sell such products under the brand Casa Zeta-Jones and more.
The license agreement purchase included the issuance of Series A 3% Convertible Preferred Series A shares valued at $ |
The values were based on the licensor obtaining % of the Company’s common shares, whose value was discounted by a % factor, given the lightly traded history in its shares.
The Company is subject to the following amended terms:
| a. | A year term as follows: |
| i. | Year
1: | |
| ii. | Year
2: | |
| iii. | Year
3: |
| b. | Marketing date Jan 2022, On Shelf Date April 30, 2022 | |
| c. | Royalty
payments with a rate of | |
| d. | Advance
prepayment of $ |
| i. | $ | |
| ii. | $ | |
| iii. | $ |
| e. | Guaranteed minimum sales and guaranteed minimum royalties: |
| Year | Guaranteed Minimum Royalties | Guaranteed Minimum Sales | ||||||||
| i. | 7/17/20 – 12/31/22 | $ | $ | |||||||
| ii. | 1/1/22 – 12/31/23 | $ | $ | |||||||
| iii. | 1/1/23 – 12/31/24 | $ | $ | |||||||
| f. | The Company to provide the Licensor with 50 gift sets of Licensed Products annually. |
| -14- |
Note 12 - Securities Exchange Agreements
Sovryn Holdings, Inc.
The Company entered into a Securities Exchange Agreement on February 16, 2021 with Sovryn, a Delaware corporation and acquire % of the shares of Sovryn in exchange for i) shares of Series B Preferred Stock of the Company to be transferred by Jeffrey Canouse, the Company’s CEO to a designee of Sovryn and ii) shares of Series E Convertible Preferred Stock. Upon the effectiveness of an amendment to the Company’s Articles of Incorporation to increase the Company’s authorized common stock, from par value $ to par value $ per share, from shares to shares, all shares of Series E Convertible Preferred Stock issued to the shareholders shall automatically convert into approximately shares of common stock of the Company. The Series E Convertible Preferred Stock votes on an as-converted basis with the common stock prior to their conversion. The Series E Preferred Stock shall represent approximately % of the fully diluted shares of common stock of the Company after the closing of the transactions contemplated by the Securities Purchase Agreement. The valuation for the Preferred Series E shares was determined to be $ (See Note 11). The valuation recorded was based on the market value of the shares of the Company at the date the transaction was exchanged. The transaction was recorded as an asset purchase and the Company recorded goodwill of $ which was based on the market value of the shares the Company exchanged at the date of the transaction. The Preferred Series E shares have not been converted to common stock shares as of the date of this report.
Posto Del Sole, Inc.
The Company entered into a Securities Exchange Agreement on September 25, 2020 with Posto Del Sole Inc. (“PDS”) a New York corporation, to acquire % of the shares of PDS and in return, the Company will issue Preferred Series C shares. (See Note 11). As part of the agreement, the Company is to provide monthly investments to a total aggregate of $ during the twelve-month period following the closing. PDS had 60 days from closing to provide the necessary financial statements and notes in order to satisfy regulatory requirements and disclosures. As at December 31, 2020 PDS had not provided any such information, the Securities Exchange Agreement had not closed and as a result, the Company wrote off advances of $ that were made to PDS in anticipation of closing. The Company has rescinded the agreement and has no plans to move forward with the acquisition.
Note 13 - Asset Purchase
KNLA-KNET Acquisition
On
February 17, 2021, Sovryn entered into an asset purchase agreement (the “Asset Purchase Agreement”) with NRJ TV III CA OPCO,
LLC, a Delaware limited liability company (“OpCo”) and NRJ TV III CA License Co., LLC, a Delaware limited liability company
(together with OpCo, “Sellers”). Upon the terms and subject to the satisfaction of the conditions described in the Asset
Purchase Agreement, Sovryn will acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the
KNET-CD and KNLA-CD Class A television stations owned by the Sellers (the “Acquired Stations”), certain tangible personal
property, real property, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in
connection with the Acquired Stations (the “Asset Sale Transaction”). As consideration for the Asset Sale Transaction, Sovryn
has agreed to pay the Sellers $
The closing of the Asset Sale Transaction (the “Closing”) was subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Acquired Stations, from Sellers to Sovryn (the “FCC Consent”). The Closing shall occur no more than five (5) business days following the later of (i) the date on which the FCC Consent has been granted and (ii) the other conditions to the Closing set forth in the Asset Purchase Agreement. The asset purchase was consummated on April 19, 2021.
| -15- |
KVVV Acquisition
On
March 14, 2021 Sovryn entered into an asset purchase agreement (the “KVVV Asset Purchase Agreement”) with Abraham Telecasting
Company, LLC, a Texas limited liability company (the “Houston Seller”). Upon the terms and subject to the satisfaction of
the conditions described in the KVVV Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission
(“FCC”) authorizations to the KVVV-LD low power television station owned by the Houston Seller (the “Houston Acquired
Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and
prepaid items together with certain assumed liabilities in connection with the Houston Acquired Station (the “KVVV Asset Sale Transaction”).
As consideration for the KVVV Asset Sale Transaction, Sovryn has agreed to pay the Houston Seller $
The closing of the KVVV Asset Sale Transaction (the “KVVV Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Houston Acquired Station, from the Houston Seller to Sovryn (the “Houston FCC Consent”). The KVVV Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Houston FCC Consent has been granted and (ii) the other conditions to the KVVV Closing set forth in the KVVV Asset Purchase Agreement. The closing of the KVVV asset purchase consummated on June 1, 2021.
KMYU Acquisition
On
March 29, 2021, Sovryn, entered into an asset purchase agreement (the “KYMU Asset Purchase Agreement”) with Seattle 6 Broadcasting
Company, LLC, a Washington limited liability company (the “Seattle Seller”). Upon the terms and subject to the satisfaction
of the conditions described in the KYMU Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the
KYMU-LD low power television station owned by the Seattle Seller (the “Seattle Acquired Station”), certain tangible personal
property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed
liabilities in connection with the Seattle Acquired Station (the “KYMU Asset Sale Transaction”). As consideration for the
Seattle Asset Sale Transaction, Sovryn has agreed to pay the Seattle Seller $
The closing of the KYMU Asset Sale Transaction (the “KMYU Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Seattle Acquired Station, from Seattle Seller to Sovryn (the “Seattle FCC Consent”). The Seattle Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Seattle FCC Consent has been granted and (ii) the other conditions to the KMYU Closing set forth in the KMYU Asset Purchase Agreement. The closing of the KYMU asset purchase consummated at the end of September 2021.
W27EB Acquisition
On
June 9, 2021, Sovryn entered into an asset purchase agreement (the “W27EB Asset Purchase Agreement”) with Local Media TV
Chicago, LLC, a Delaware limited liability company (the “Chicago Seller”). Upon the terms and subject to the satisfaction
of the conditions described in the W27EB Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission
(“FCC”) authorizations to the W27EB-LD low power television station owned by the Chicago Seller (the “Chicago Acquired
Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and
prepaid items together with certain assumed liabilities in connection with the Chicago Acquired Station (the “W27EB Asset Sale
Transaction”). As consideration for the W27EB Asset Sale Transaction, Sovryn has agreed to pay the Chicago Seller the amended price
of $
The closing of the W27EB Asset Sale Transaction (the “W27EB Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Chicago Acquired Station, from the Chicago Seller to Sovryn (the “Chicago FCC Consent”). The W27EB Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the Chicago FCC Consent has been granted and (ii) the other conditions to the W27EB Closing set forth in the W27EB Asset Purchase Agreement. As at September 30, 2021, the transaction has not closed.
| -16- |
KPHE Acquisition
On
July 13, 2021, Sovryn entered into an asset purchase agreement (the “KPHE Asset Purchase Agreement”) with Lotus TV of Phoenix
LLC, an Arizona limited liability company (the “Phoenix Seller”). Upon the terms and subject to the satisfaction of the conditions
described in the KPHE Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”)
authorizations to the KPHE-LD low power television station owned by the Phoenix Seller (the “Phoenix Acquired Station”),
certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together
with certain assumed liabilities in connection with the Phoenix Acquired Station (the “KPHE Asset Sale Transaction”). As
consideration for the KPHE Asset Sale Transaction, Sovryn has agreed to pay the Phoenix Seller $
The closing of the KPHE Asset Sale Transaction (the “KPHE Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Phoenix Acquired Station, from the Phoenix Seller to Sovryn (the “Phoenix FCC Consent”). The KPHE Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the Phoenix FCC Consent has been granted and (ii) the other conditions to the KPHE Closing set forth in the KPHE Asset Purchase Agreement. At September 30, 2021, the transaction had not closed.
K05NH Acquisition
On August 20, 2021, Sovryn entered into an asset purchase agreement (the “K05NH Asset Purchase Agreement”) with Mako Communications, LLC, a Texas Limited Liability Company (the “Boise” Seller). Upon the terms and subject to the satisfaction of the conditions described in the Boise Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the K05NH-D low power television station construction permit owned by the Boise Seller (the “Boise Acquired Station”) in connection with the Boise Acquired Station (the “Boise Asset Sale Transaction”). As consideration for the Boise Asset Sale Transaction, Sovryn has agreed to pay the Boise Seller $1 in cash.
The closing of the Boise Asset Sale Transaction (the “Boise Closing”) is subject to, among other things, consent by the FCC to the assignment of the construction permits pertaining to the Boise Station, from the Boise Seller to Sovryn (the “Boise FCC Consent”). The Boise Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the Boise FCC Consent has been granted and (ii) the other conditions to the Boise Closing set forth in the Boise Asset Purchase Agreement. During the period ended September 30, 2021, the K05NH asset purchase was consummated.
KVSD Acquisition
On
August 31, 2021, Sovryn entered into an asset purchase agreement (the “KVSD Asset Purchase Agreement”) with
D’Amico Brothers Broadcasting Corp., a California company (the “San Diego Seller”). Upon the terms and subject to
the satisfaction of the conditions described in the KVSD Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal
Communications Commission (“FCC”) authorizations to the KVSD-LD low power television station owned by the San Diego
Seller (the “San Diego Acquired Station”), certain tangible personal property, certain real property leases, contracts,
intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the San Diego
Acquired Station (the “KVSD Asset Sale Transaction”). As consideration for the KVSD Asset Sale Transaction, Sovryn has
agreed to pay the San Diego Seller $
The closing of the KVSD Asset Sale Transaction (the “KVSD Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the San Diego Acquired Station, from the San Diego Seller to Sovryn (the “San Diego FCC Consent”). The KVSD Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the San Diego FCC Consent has been granted and (ii) the other conditions to the KVSD Closing set forth in the KVSD Asset Purchase Agreement. As at September 30, 2021, the transaction has not closed.
| -17- |
K07AAJ and W05DK Acquisition
On
October 25, 2021, Sovryn entered into an asset purchase agreement (“Bakerfiled and San Juan Asset Purchase Agreement”) with
Mako Communications, LLC, a Texas Limited Liability company (the “Bakerfield and San Juan Seller”). Upon the terms and subject
to the satisfaction of the conditions described in the Bakerfield and San Juan Asset Purchase Agreement, Sovryn agreed to acquire the
licenses and Federal Communications Commission (“FCC”) authorizations to the K07AAJ-D and W05DK-D low power television stations
construction permits owned by the Bakerfield and San Juan Seller (the “Bakerfield and San Juan Acquired Station”) in connection
with the Bakerfield and San Juan Acquired Station (the “Bakerfield and San Juan Asset Sale Transaction”). As consideration
for the Bakerfield and San Juan Asset Sale Transaction, Sovryn has agreed to pay the Bakerfield and San Juan Seller $
The closing of the Bakerfield and San Juan Asset Sale Transaction (the “Bakerfield and San Juan Closing”) is subject to, among other things, consent by the FCC to the assignment of the construction permits pertaining to the Bakerfield and San Juan Acquired Station, from the Bakerfield and San Juan Seller to Sovryn (the “Bakerfield and San Juan FCC Consent”). The Bakerfield and San Juan Closing shall occur no more than the three (3) business days following the later to occur of (i) the date on which the Bakerfield and San Juan FCC Consent has been granted and (ii) the other conditions to the Bakerfield and San Juan Closing set forth in the Bakerfield and San Juan Asset Purchase Agreement.
WANN Acquisition
On
November 3, 2021, Sovryn entered into an asset purchase agreement (“WANN Asset Purchase Agreement”) with Prism Broadcasting
Network Inc, a Georgia corporation (the “Atlanta Seller”). Upon the terms and subject to the satisfaction of the conditions
described in the WANN Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”)
authorizations to the WANN-CD low power television station owned by the Atlanta Seller (the “Atlanta Acquired Station”),
certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together
with certain assumed liabilities in connection with the Atlanta Acquired Station (the “WANN Asset Sale Transaction”). As
consideration for the WANN Asset Sale Transaction, Sovryn has agreed to pay the Atlanta Seller $
The closing of the WANN Asset Sale Transaction (the “WANN Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Atlanta Acquired Station, from the Atlanta Seller to Sovryn (the “Atlanta FCC Consent”). The WANN Closing shall occur no more than the ten (10) business days following the later to occur of (i) the date on which the WANN FCC Consent has been granted and (ii) the other conditions to the WANN Closing set forth in the WANN Asset Purchase Agreement.
Note 14 - Note Payable
The
Company had one note payable that was accruing interest at
February 16, 2021 | December 31, 2020 | |||||||
| Note payable bearing interest at | $ | $ | ||||||
| Accrued interest thereon | ||||||||
| $ | $ | |||||||
| -18- |
Note 15 - Convertible Notes and Accrued Interest Payable
On February 16, 2021, the Company settled the following debts and interests thereof including the note payable above (Note 8), with shares of Convertible Preferred Series D shares. Each Series D Convertible Preferred Stock shall be convertible into common stock of the Company at a ratio of shares of common stock for each share of Series D Convertible Preferred Stock held. A summary of the convertible notes and accrued interest payable were settled as follow:
Face Value | Conversion Rate | Interest rate | Due Date | Accrued Interest | Carrying Value | Feb 15 2021 Total | Dec 31 2020 Total | |||||||||||||||||||||||
| $ | $ | - | $ | $ | $ | $ | (a) | |||||||||||||||||||||||
| $ | $ | - | (b) | |||||||||||||||||||||||||||
| $ | $ | % | (c) | |||||||||||||||||||||||||||
| $ | $ | % | (d) | |||||||||||||||||||||||||||
| $ | $ | % | (d) | |||||||||||||||||||||||||||
| $ | $ | - | ||||||||||||||||||||||||||||
| $ | $ | - | (e) | |||||||||||||||||||||||||||
| $ | $ | % | - | (f) | ||||||||||||||||||||||||||
| $ | $ | % | - | (f) | ||||||||||||||||||||||||||
| $ | $ | % | - | (f) | ||||||||||||||||||||||||||
| $ | $ | % | (g) | |||||||||||||||||||||||||||
| $ | % | (h) | ||||||||||||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||||||||
Less long-term portion | ||||||||||||||||||||||||||||||
Current portion | $ | $ | ||||||||||||||||||||||||||||
All
notes are unsecured and, except where specifically noted, are due on demand. Except for notes denoted below under (e).
| (a) | ||
| (b) | ||
| (c) | ||
| (d) | ||
| (e) | ||
| (f) | ||
| (g) |
| -19- |
| Allocated to | Amortized | Accrued | ||||||||||||||
| Equity | Due Date | as interest | at 10% | Total | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| (h) |
Allocated to equity | Due date | Amortized as Interest | Accrued Interest at 10% | Total | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
Note 16 – Convertible Notes Payable and Interest Payable
Arena Investors LP convertible promissory notes
On
February 17, 2021, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “Investors”)
pursuant to which it issued convertible notes in an aggregate principal amount of $
| -20- |
The
Notes each have a term of thirty-six months and mature on
On
September 24, 2021, the Company and the Investors amended the Notes.
At September 30,2021, the loan summary was:
| Face | Loan | Amortized | Carrying | Accrued | ||||||||||||||||||
| Value | Proceeds | Interest | Value | Interest 11% | Total | |||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||
As
part of the agreement with the Investors, the Company issued
| -21- |
Note 17 - Subordinate Loans
There
are 4 convertible subordinate loans accruing interest at
| Allocated to | Amortized | Accrued | ||||||||||||||
| Equity | Due Date | as Interest | Interest at 6% | Total | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
There
was a $
Note 18 - Related Party
On
September 28, 2020, the Company entered into a renewable employment agreement with Jeff Canouse, former President and CEO of the Company
as described in Note 23, Commitments. The former President is the CEO and sole director of CZJ License Inc., the Company’s
wholly owned subsidiary. As of September 30, 2021, Mr. Canouse had received $
On
April 7, 2021, the Company issued common shares to Jeff Canouse in exchange for transferring his shares of the Company’s
Series B Preferred Stock to Phil Falcone. The shares were valued at $
The
Company entered into a consulting agreement with a director of the Company, Warren Zenna of Zenna Consulting Group to provide oversight
of marketing and communications services. The agreement commenced March 1, 2021 through to December 31, 2021. The Company pays Zenna
Consulting Group a monthly retainer of $
| -22- |
Note 19 - Common Stock
During
the nine-month period ended September 30, 2021, the Company issued common shares to Jeff Canouse in exchange for transferring
his shares of the Company’s Series B Preferred Stock to Phil Falcone. The shares were valued at $
The
Company issued
The following common stock transactions occurred during the year ended December 31, 2020:
On
July 23, 2020, the Company issued shares of common stock pursuant to the conversion of a note payable of $
On
October 28, 2020, the Company issued shares of common stock pursuant to the conversion of a note payable of $
On
November 2, 2020, the Company issued shares of common stock pursuant the conversion of a note payable of $
There are no shares subject to warrants or options as of December 31, 2020.
Note 20 - Preferred Shares
Series A 3% Convertible Preferred Stock, par value $0.001 with a stated value of $100 per share
There
are designated and authorized Series A 3% convertible preferred stock with a
On
July 17, 2020, Series A 3% Convertible Preferred Stock were issued pursuant to the License Agreement at a value of $
On February 16, 2021, the Company cancelled all the Preferred Series A shares. In exchange, the holders of Series A Preferred shares received option agreements to purchase shares of the wholly owned subsidiary, CZJ License, Inc. at $ per share for up to shares. The option agreements are exercisable for a period of one year.
At September 30, 2021, there were Series A Preferred shares outstanding.
Series B Super Voting Preferred Stock, par value $0.001
There
are designated and authorized Series B Super Voting Preferred Stock. Holders with Series B Super Voting Preferred Stock have the
right to vote on all shareholder matters equal to
On July 17, 2020, Series B Super Voting Preferred Stock were issued pursuant to the License Agreement. The Series B Super Voting Preferred Stock was valued at par at $. Although the Series B Super Voting Preferred Stock is entitled to 51% voting rights as described above, the stock has no dividend rate nor conversion feature. Furthermore, the shares were not issued to the investors but rather were granted to new unrelated management.
On February 17, 2021, the Series B Super Voting Preferred Stock were transferred from Jeff Canouse, former director and CEO, to Philip Falcone, director and CEO of the Company.
| -23- |
Series C 2% Convertible Preferred Stock, par value $0.001 with a stated value of $100 per share
There
are designated and authorized Series C 2% convertible preferred stock with a
As of September 30, 2021, Series C Convertible Preferred shares were issued or outstanding.
Series D Convertible Preferred Stock, par value $0.001 with a stated value of $3.32 per share
There
are designated and authorized Series D convertible preferred stock with a
On
February 16, 2021, all outstanding debts including note payables, convertible notes payable, discounts, accrued interests and thereof
totaling $
As of September 30, 2021, Series D Preferred Shares were issued but not converted.
Series E Convertible Preferred Stock, par value $0.001 with a stated value of $1,000 per share
There are designated and authorized Series E convertible preferred stock. There is a stated value of $ per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series E are issued. Series E are ranked as a Senior Preferred Stock. It has voting rights equal to the number of shares of common stock into which the Series E would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that Series E votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series E, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series E are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series E shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series E shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series E are outstanding, the Company shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series F, (a) alter or change adversely the powers, preferences or rights given to the Series E or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.
| -24- |
Based on the current fully-diluted shares outstanding, this equates to common shares. The Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all Options outstanding as of such date of exercise, divided by 0.4340.
As of September 30, 2021, Series E Preferred Shares were issued but not converted.
On September 16, 2021, the Convertible Preferred Series E Holders entered into an Exchange Agreement whereby the aggregate Series E preferred shares were exchanged for Convertible Series E-1 preferred shares and shares of common stock. As of September 30, 2021, no convertible Series E-1 preferred shares and none of the shares of common stock were issued.
Series E-1 Convertible Preferred Stock, par value $0.001 with a stated value of $0.87 per share
There are designated and authorized Series E-1 convertible preferred stock. There is a stated value of $ per share. Series E-1 are ranked just above the Junior Stock, behind the Senior Preferred Stock. It has votes equal to the number of shares of common stock into which the Series E-1 would be convertible on the record date for the vote or consent of stockholders, and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. It has votes equal to the number of shares of common stock into which the Series E-1 would be convertible on the record date for the vote or consent of stockholders, and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that Series E-1 votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series E-1, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series E-1 are entitled to vote on matters with holders of shares of Common Stock and vote together as one class, each share of Series E-1 shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series E-1 shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series E-1 are outstanding, the Company shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series E-1, (a) alter or change adversely, the powers, preferences or rights given to the Series E-1 or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing. As of September 30, 2021, of the Series E-1 shares were issued.
Each
share of Series E-1 Preferred Stock may be converted to
| -25- |
Series F Convertible Preferred Stock, par value $0.001 with a stated value of $1 per share
There are designated and authorized Series F convertible preferred stock. There is a stated value of $ per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series F are issued. Series F are ranked as a Senior Preferred Stock. It has voting rights equal to the number of shares of common stock into which the Series F would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. It has votes equal to the number of shares of common stock into which the Series F would be convertible on the record date for the vote or consent of stockholders and shall otherwise have voting rights and powers equal to the voting rights and powers of common stock. To the extent that Series F votes separately as a class or series as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of a majority of the shares of the outstanding Series F, shall constitute the approval of such action by both the class or the series as applicable. To the extent that Series F are entitled to vote on matters with holders of shares of Common Stock, voting together as one class, each share of Series F shall entitle the Holder thereof to cast that number of votes per share as is equal to the number of shares of Common Stock into which it is then convertible using the record date as of which the Conversion Rate is calculated. Holders of Series F shall be entitled to written notice of all stockholder meetings or written consents with respect to which they would be entitled by Vote. As long as any shares of Series F are outstanding, the Company shall not, without the affirmative vote of the Holders of all the then outstanding shares of Series F, (a) alter or change adversely the powers, preferences or rights given to the Series F or alter or amend the Certificate of Designations, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holder, or (c) enter into any agreement with respect to any of the foregoing.
Based on the full-diluted shares outstanding, this equates to shares of common stock on the Approval Date. The Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all Options outstanding as of such date of exercise, divided by 0.9516.
As of September 30, 2021, Series F Preferred Shares were issued but not converted.
Series G Convertible Preferred Stock, par value $0.001 with a stated value of $1,000 per share
On
August 20, 2021, the Series G Convertible Preferred Stock was amended. There are now designated and authorized Series G convertible
preferred stock with a 4.99% conversion cap which may be increased to a maximum of
| -26- |
Based on the full-diluted shares outstanding, this equates to shares of common stock on the Approval Date. The Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all Options outstanding as of such date of exercise, divided by 0.9516.
As of September 30, 2021, Series F Preferred Shares were issued but not converted.
Series G Convertible Preferred Stock, par value $0.001 with a stated value of $1,000 per share
On
August 20, 2021, the Series G Convertible Preferred Stock was amended. There are now designated and authorized Series G convertible
preferred stock with a 4.99% conversion cap which may be increased to a maximum of
Based on the current fully-diluted shares outstanding, this equates to shares of common stock on the Approval Date. The Fully-Diluted means the aggregate of (A) the total number of shares of Common Stock outstanding as of such date, (B) the number of shares of Common Stock (including all such Common Stock equivalents) into which all Convertible Securities outstanding as of such date could be converted or exercised, and (C) the number of shares of Common Stock (including all such Common Stock equivalents) issuable upon exercise of all Options outstanding as of such date of exercise, divided by 0.9355.
As
of September 30, 2021, Series G Preferred Shares were issued or outstanding. The Company received $ in subscriptions for
Series H Convertible Preferred Stock, par value $0.001 with a stated value of $1 per share
On
November 5, 2021, the Company designated Series H Convertible Preferred Stock. There is a stated value of $ per share, subject
to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or
other similar events occurring after the date which the Series H are issued. Series H are ranked after the Junior Preferred Stock.
Note 21 - Warrants
On
February 17, 2021, the Company provided Arena Partners LLP with
Note 22 - Options
On February 16, 2021, the Company cancelled all the Series A Preferred shares and offered holders of Series A Preferred shares option agreements to purchase up to shares of CZJ License, Inc., a wholly owned subsidiary of the Company at an option price of $ per share. The option agreements are exercisable for a period of one year from the date of issuance.
As
of September 30, 2021,
Note 23 - Commitments
The
Company entered into a one-year employment agreement with Jeffrey Canouse on September 28, 2020 as President and Chief Executive Officer.
The term may be renewed or non-renewed with not less than thirty days’ notice prior to the expiration of the initial employment
term. The employment may be terminated by death or disability, terminated with or without cause or terminated by the employee. If the
employee is terminated by the Company without cause or by the employee for good reason, then the Company will continue to pay his base
salary of $
| -27- |
The
Company entered into a one-year employment agreement with Walter Hoelzel on September 29, 2020 as Chief Marketing Officer. The term may
be renewed or non-renewed with not less than thirty days’ notice prior to the expiration of the initial employment term. The employment
may be terminated by death or disability, terminated with or without cause or terminated by the employee. If the employee is terminated
by the Company without cause or by the employee for good reason, then the Company will continue to pay his base salary of $
The
Company entered into a one-year employment agreement with Stuart Sher on September 29, 2020 as Chief Creative Officer. The term may be
renewed or non-renewed with not less than thirty days’ notice prior to the expiration of the initial employment term. The employment
may be terminated by death or disability, terminated with or without cause or terminated by the employee. If the employee is terminated
by the Company without cause or by the employee for good reason, then the Company shall continue to pay his base salary for the remainder
of the employment term or renewal term. As of September 30, 2021, Mr. Sher had received $
The
Company entered into a consulting agreement with Virtue Development Company on September 29, 2020 for project consultancy. The consulting
agreement is for 6 months with 6 months renewal options at the beginning of the 5th month. The monthly compensation is $
The
Company entered into a consulting agreement with Oscaleta Partners LLC on November 1, 2020 as project manager. The consulting agreement
may be terminated by either party at the end of the initial 6 months term by giving 30 days written notice to the other party or at any
time with cause. The monthly compensation is $
The
Company entered into a one-year consulting agreement with Bernt Ullmann on November 23, 2020 to provide market exposure services. The
monthly compensation is $
On
February 17, 2021, the Company and its subsidiaries entered into a Security Agreement and a Guaranty Agreement with Arena Investors LP,
for securing the loans evidenced by the $
The
Company entered into a consulting agreement with a director of the Company, Warren Zenna of Zenna Consulting Group to provide oversight
of marketing and communications services. The agreement commenced March 1, 2021 and ended on July 31, 2021. The Company paid Zenna Consulting
Group a monthly retainer of $
The
Company entered into a one-year employment agreement with Henry Turner on May 15, 2021 as the Company’s Chief Technology Officer
and Chief Operations Officer. Mr. Turner may be terminated at any time, with or without reason, with notice. His annual base compensation
is $
| -28- |
Note 24 - Additional Cash Flow Information
During the nine months ended September 30, 2021, the following transaction did not involve cash:
| (a) | Demand
notes, convertible notes and interest with a carrying value of $ | |
| (b) | $ | |
| (c) |
Series E preference shares were issued for 100% of the common shares of Sovryn Holdings Inc. The shares were valued at $ |
Note 25 - Subsequent Events
Subsequent
to the period ended September 30, 2021, the President and director of CZJ License Inc. loaned the Company $
A
further aggregate estimate of $
Sovryn
paid additional deposits in the aggregate amount of $
On October 11, 2021, the Series E Preferred Shareholders entered into an Exchange Agreement to exchange their Series E Preferred Shares to Series E-1 Preferred Shares. As part of this exchange, common shares were issued and Series E-1 Preferred Shares were issued. Each Series E-1 preferred share converts to common shares. As of the date of this report, none of the Series E-1 preferred shares were converted.
On October 11, 2021, the Series F Preferred Shareholders converted their preferred shares and common shares were issued.
On
October 20, 2021, the Company entered into a Stock Acquisition Agreement with Top Dog Productions Inc., Jay Blumefield and Anthony Marsh
whereby the Company will acquire all of the shares of Top Dog Productions Inc., and in exchange, the Company will pay the purchase price
of $
On
October 25, 2021, Sovryn entered into an asset purchase agreement with Mako Communications, LLC, a Texas Limited Liability company
to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the K07AAJ-D and W05DK-D low power
television stations construction permits for the Bakerfield and San Juan. As consideration for the Bakerfield and San Juan Asset Sale
Transaction, Sovryn has agreed to pay $
On November 2, 2021, the subscribers of $ for Series G Preferred Shares were issued an aggregate of common shares.
On November 3, 2021, Sovryn entered into an asset
purchase agreement with Prism Broadcasting Network Inc, a Georgia corporation to acquire the licenses and Federal Communications Commission
(“FCC”) authorizations to the WANN-CD low power television station. As consideration for the WANN Asset Sale Transaction,
Sovryn has agreed $
On November 8, 2021, the Series F Preferred Shareholders entered into an Exchange Agreement to exchange common shares for Series H Preferred Shares. Each of the Series H Preferred Shares converts to common shares. A total of Series H Preferred Shares were issued.
On November 15, 2021,
On November 24, 2021, Preferred Series D shares were converted to common shares.
| -29- |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
This Quarterly Report on Form 10-Q includes forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Factors that might cause or contribute to such forward-looking statements include, but are not limited to, those set forth in the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the SEC on April 15, 2021. The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this report.
GENERAL
Overview
We, through our wholly-owned subsidiary, Sovryn Holdings, Inc. (“Sovryn”), have embarked on an acquisition strategy, rolling-up un-affiliated Class A/LPTV TV stations in the top 100 DMA’s (Designated Market Areas) with a goal of building out a nationwide platform through one or more station acquisitions per DMA. Each licensed TV station can broadcast between 10 and 12 or channels creating more revenue “streams” over-the-air, 24 hours per day/7 days per week. Management’s strategy is to stage the acquisitions focusing on DMA’s 1-30 and expanding thereafter on DMA’s 31-100, acquiring one station per DMA and building a portfolio of 100 stations within 18-24 months. Management has currently identified and held discussions with a number stations owners, has received FCC approval for three stations which have been acquired: (i) KNLA/KNET, a Class A television station in Los Angeles, and (ii) KVVV, a low power television station in Houston and has entered into asset purchase agreements for the following television stations: (iii) KYMU-LD, a low power television station in Seattle; three stations in which we anticipate closing in Janauary 2022 (i) W27EB, a Class A television station in Chicago (ii) KPHE-LB, a low power television station in Phoenix and (iii) KVSD-LD, a low power station in San Diego. We have also entered into purchase agreements for operating stations in New York and Atlanta and Construction Permits (“CP”) in San Juan Puerto Rico, Boise, ID and Bakersfield, CA. In addition, Sovryn has entered into non-binding letters of intent to acquire stations in Miami, Tampa and St. Louis and has also entered into a binding LOI to acquire Top Dog Productions, Inc., a television production company d/b/a “The Jay & Tony Show”, which produces content for third party networks.
Madison’s objective is to not only create one the largest, most comprehensive, state of the art, broadcast Over-The-Air (“OTA”) content distribution platforms to capitalize on the changing media and distribution landscape and on the growing OTA viewership in the U.S. but also embark on unique content development and network creation for distribution over its platform. The over-the-air programming carried on these stations is initially expected to include entertainment, shopping, weather, sports as well as religious networks and networks targeting select ethnic groups with lease agreements as the prime source of revenue. Pricing of lease agreements is in part determined by market rank, signal contour and number of OTA TV households in a given market, as well as supply and demand.
| -30- |
As the platform is built out, management not only anticipates substantial operational synergies from the roll-up but also an expansion in the revenue base with greater channel utilization, the addition of high-quality third-party content providers that are currently not reaching the “OTA” viewers, which now stands at an estimated 20mm households (44mm people) out of 108mm TV HH’s nationwide as well as revenue generated via the acquisition of “The Jay & Tony Show”
Station Operations
Madison’s plan is to acquire 50 independent TV stations in the top 30 DMA’s over the next 8-12 months. In addition, Madison expects to grow the station base to 100 tv stations nationwide through additional acquisitions targeting the top 100 DMA’s across the nation, ultimately covering 80% of the population of the U.S. over the next 18-24 months.
Each licensed TV station has the capability of delivering 10+ different revenue “streams” (channels) of content Over-the-Air, 24 hours per day/7 days per week . If converted to the new FCC approved ATSC 3.0 technology, the streaming capacity will increase to 25+ channels or more, giving Sovryn the potential to stream content upon completion of the roll-up to over 2500 channels aggregated over expected 100 stations.
Madison will operate the stations remotely and centrally, eliminating the need for in-market personnel or a studio facility. Remote operations of stations results in significant cost efficiencies. Recent FCC deregulation in TV broadcasting has eliminated the need for full time employees and studio facilities operating Class A and Low Power stations allowing for greater cost efficiency.
Recent Developments
On February 16, 2021, we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Sovryn Holdings, Inc. (“Sovryn”) and the holders (the “Sovryn Shareholders”) of Sovryn’s issued and outstanding shares of common stock, par value $0.0001 per share (“Sovryn Common Shares”), pursuant to which the Shareholders exchanged 100% of the outstanding Sovryn Common Shares, for (i) 100 shares of series B preferred stock, par value $0.001 per share (“Series B Preferred Stock”), of the Company which was transferred by Jeffrey Canouse, the Company’s controlling shareholder and existing Chief Executive Officer (the “Controlling Shareholder”), to the designee of Sovryn and (ii) 1,000 shares of series E convertible preferred stock, par value $0.001 per share of Sovryn (“Series E Preferred Stock,” and together with Series B Preferred Stock, the “Preferred Exchange Shares,” and the foregoing exchange of Sovryn Common Shares for Preferred Exchange Shares being the “Equity Exchange”).
Upon the effectiveness of an amendment to our Articles of Incorporation to increase the Company’s authorized common stock, par value $0.0001 per share, from 500,000,000 shares to 6,000,000,000 shares, all shares of Series E Preferred Stock issued to the Shareholders shall automatically convert into approximately 2,305,000,000 shares of common stock of the Company (“Shareholder Approval”). The Series E Convertible Preferred Stock votes on an as-converted basis with the common stock prior to their conversion. The Series E Preferred Stock shall represent approximately 57% of the fully-diluted shares of common stock of the Company after the closing of the transactions contemplated by the Securities Purchase Agreement (as defined below).
Immediately prior to the closing of, and as a condition to, the Share Exchange Agreement, the Company entered into a Share Transfer Agreement (the “Share Transfer Agreement”), pursuant to which the Controlling Shareholder transferred all of the shares of Series B Preferred Stock held by him to an entity controlled by Philip Falcone, the Company’s new chief executive officer. The Series B Preferred Stock entitles the holder thereof to majority voting control of the Company by virtue of the 51% super voting rights attributed to the holder of the Series B Preferred Stock. The Controlling Shareholder owned all 100 Shares of Series B Preferred Stock, entitling him to 51% of the aggregate votes taken by shareholders of any class on all matters being voted upon.
| -31- |
Immediately prior to the closing of the Share Exchange Agreement, we entered into Exchange Agreements (the “Convertible Note Exchange Agreements”) with the holders of our outstanding convertible promissory notes (the “Convertible Notes”). Pursuant to Convertible Note Exchange Agreements, the holders of the Convertible Notes were issued, in exchange for their Convertible Notes, a total of 230,000 shares of our newly-designated Series D Convertible Preferred Stock. Our new Series D Convertible Preferred Stock is convertible into common stock at a ratio of 1,000 shares of common stock for each share of preferred stock held. Immediately prior to the closing of the Share Exchange Agreement, we entered into Exchange Agreements (the “Preferred Stock Exchange Agreements” and together with the Convertible Note Exchange Agreements, the “Exchange Agreements”) with the holders of our outstanding series A convertible preferred stock (the “Series A Preferred Stock”). Pursuant to the Preferred Stock Exchange Agreements, the holders of the Series A Convertible Preferred Stock were issued, in exchange for their Series A Preferred Stock, options to purchase a majority of the outstanding shares of common stock of a newly to be formed wholly owned subsidiary of the Company to be called CZJ License, Inc.
On February 17, 2021, we entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “Investors”) pursuant to which the company issued convertible notes in an aggregate principal amount of $16.5 million for an aggregate purchase price of $15 million (collectively, the “Notes”). In connection with the issuance of the Notes, we issued to the Investors warrants to purchase an aggregate of 192,073,017 shares of Common Stock (collectively, the “Warrants”) and 1,000 shares of series F convertible preferred stock (the “Series F Preferred Stock”).
The Notes each have a term of thirty-six months and mature on February 17, 2023, unless earlier converted. The Notes accrue interest at a rate of 11% per annum, subject to increase to 20% per annum upon and during the occurrence of an event of default. Interest is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at the Company’s election, any interest payable on an applicable payment date may be paid in registered Common Stock of the Company (rather than cash) in an amount equal (A) the amount of the interest payment due on such date, divided by (B) an amount equal to 80% of the average VWAP of the Common Stock for the five (5) days immediately preceding the date of conversion.
On September 24, 2021, the Company and the Investors amended the Notes. The Notes are convertible at any time, at the holder’s option, into shares of our common stock equal to $0.02 per share subject to 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 the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. The Notes may not be redeemed by the Company
As part of the agreement with the Investors, the Company issued 192,073,016 warrants. On September 24, 2021, the Company and the Investor amended the warrant agreement such that each Warrant is exercisable for a period of five (5) years from the date of issuance at an initial exercise price equal to $0.025 per share, subject to adjustment herein, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The exercise price is also subject to adjustment due to certain events, including stock dividends, stock splits and recapitalizations. The Holder may be eligible for cashless exercise.
The Series F Preferred Stock have no voting rights and shall convert into approximately 192,073,017 shares of common stock upon Shareholder Approval. Subsequent to the period ended September 30, 2021, the 1,000 Series F Preferred Stock were converted to 192,073,017 common shares. On November 8, 2021, the Series F Preferred Shareholders entered into an Exchange Agreement to exchange 39,895,000 common shares for 39,895 Series H Preferred Shares. Each of the Series H Preferred Shares converts to 1,000 common shares. A total of 39,895 Series H Preferred Shares were issued.
| -32- |
On February 17, 2021, Sovryn, entered into an asset purchase agreement (the “Asset Purchase Agreement”) with with NRJ TV II CA OPCO, LLC, a Delaware limited liability company (“OpCo”) and NRJ TV III CA License Co., LLC, a Delaware limited liability company (together with OpCo, “Sellers”). Upon the terms and subject to the satisfaction of the conditions described in the Asset Purchase Agreement, Sovryn will acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KNET-CD and KNLA-CD Class A television stations owned by the Sellers (the “Acquired Stations”), certain tangible personal property, real property, contracts, intangible property, files, claims and prepaid items together with certain assumed liablities in connection with the Acquired Stations (the “Asset Sale Transaction”). As consideration for the Asset Sale Transaction, Sovryn has agreed to pay the Sellers $10,000,000, $2,000,000 of which was paid to Sellers upon execution of the Asset Purchase Agreement, as follows: (i) an escrow deposit of $1,000,000 to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Sellers (the “Escrow Fee”) and (ii) a non-refundable option fee of $1,000,000 (the “Option Fee”). The closing of the Asset Sale Transaction took place on April 19, 2021.
On March 14, 2021, Sovryn entered into an asset purchase agreement (the “KVVV Asset Purchase Agreement”) with Abraham Telecasting Company, LLC, a Texas limited liability company (the “Houston Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KVVV Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVVV-LD low power television station owned by the Houston Seller (the “Houston Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Houston Acquired Station (the “KVVV Asset Sale Transaction”). As consideration for the KVVV Asset Sale Transaction, Sovryn has agreed to pay the Houston Seller $1,500,000 in cash, $87,500 of which was paid to the Houston Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Houston Seller (the “KVVV Escrow Fee”). The closing of the KVVV Asset Sale Transaction (the “KVVV Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Houston Acquired Station, from the Houston Seller to Sovryn (the “Houston FCC Consent”). The KVVV Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Houston FCC Consent has been granted and (ii) the other conditions to the KVVV Closing set forth in the KVVV Asset Purchase Agreement. The closing of the KVVV Asset Sale Transaction took place on June 1, 2021.
On March 29, 2021, Sovryn, entered into an asset purchase agreement (the “KYMU Asset Purchase Agreement”) with Seattle 6 Broadcasting Company, LLC, a Washington limited liability company (the “Seattle Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KYMU Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the KYMU-LD low power television station owned by the Seattle Seller (the “Seattle Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Seattle Acquired Station (the “KYMU Asset Sale Transaction”). As consideration for the Seattle Asset Sale Transaction, Sovryn has agreed to pay the Seattle Seller $1,750,000, $87,500 of which was paid to the Seattle Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Seattle Seller (the “Seattle Escrow Fee”). The closing of the KYMU Asset Sale Transaction (the “KMYU Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Seattle Acquired Station, from Seattle Seller to Sovryn (the “Seattle FCC Consent”). The Seattle Closing occurred at the end of September 2021.
On June 9, 2021, Sovryn, entered into an asset purchase agreement (the “W27EBAsset Purchase Agreement”) with Local Media TV Chicago, LLC, a Delaware limited liability company (the “Chicago Seller”). Upon the terms and subject to the satisfaction of the conditions described in the W27EB Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the W27EB-D Class A television station owned by the Chicago Seller (the “Chicago Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Chicago Acquired Station (the “W27EBAsset Sale Transaction”). As consideration for the Chicago Asset Sale Transaction, Sovryn has agreed to pay the Chicago Seller an amended price of $6,000,000, $300,000 of which was paid to the Chicago Seller and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Chicago Seller (the “Chicago Escrow Fee”). The assignment has been approved for transfer by the FCC , The company has since amended the closing of the W27EB Asset Sale Transaction (the “W27EB Closing”) to December 28th, 2021.
| -33- |
On July 13, 2021, Sovryn, entered into an asset purchase agreement (the “KPHE Asset Purchase Agreement”) with Lotus TV of Phoenix LLC, an Arizona limited liability company (the “Arizona Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KPHE Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the KPHE-LD low power television station owned by the Arizona Seller (the “Arizona Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Arizona Acquired Station (the “Arizona Asset Sale Transaction”). As consideration for the Arizona Asset Sale Transaction, Sovryn agreed to pay the Arizona Seller $2,000,000, $100,000 of which was paid to the Arizona Seller to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Arizona Seller (the “Arizona Escrow Fee”).The FCC has since consented to the transfer and Sovryn, which is currently in discussions to amend the closing date to January 14th, has increased the escrowed amount to $450,000 as a result.
On August 31, 2021, Sovryn entered into an asset purchase agreement (the “KVSD Asset Purchase Agreement”) with D’Amico Brothers Broadcasting Corp., a California company (the “San Diego Seller”). Upon the terms and subject to the satisfaction of the conditions described in the KVSD Asset Purchase Agreement, Sovryn agreed to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVSD-LD low power television station owned by the San Diego Seller (the “San Diego Acquired Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the San Diego Acquired Station (the “KVSD Asset Sale Transaction”). As consideration for the KVSD Asset Sale Transaction, Sovryn has agreed to pay the San Diego Seller $1,500,000 in cash, $75,000 of which was paid to the San Diego Seller (subsequent to the period end) and to be held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the San Diego Seller (the “KVSD Escrow Fee”). The FCC has since consented to the transfer, and Sovryn, which is currently in discussions to amend the closing date to January 14th, has increased the escrowed amounts to $275,000.
Sovryn, entered into an asset purchase agreements (the “WXNY and WANN Asset Purchase Agreements”) with New York Spectrum Holdings Corp. (“WXNY New York Seller”) and Prism Broadcasting (the “WANN Atlanta Seller”). The FCC has consented to the transfer of the WXNY license and Sovryn is currently in the process of scheduling a closing date. Purchase price for the New York station in total is $5.4mm. Upon the terms and subject to the satisfaction of the conditions described in the WANN Agreement Asset Purchase Agreement, Sovryn agreed to acquire the licenses and FCC authorizations to the WANN-CD, a Class A low power television station owned by the Prism Broadcasting (the “Atlanta Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Atlanta Station (the “WANN Asset Sale Transaction”). As consideration for the Atlanta Asset Sale Transaction, Sovryn has agreed to pay the Atlanta Seller $5,250,000, $200,000 of which was paid and is held in escrow pursuant to the terms of an escrow agreement entered into between Sovryn and the Atlanta seller. The closing of the WANN Asset Sale Transaction (the “WANN Closing”) is subject to, among other things, consent by the FCC to the assignment of the FCC authorizations pertaining to the Atlanta Acquired Station, from Atlanta Seller to Sovryn (the “ Atlanta FCC Consent”). The Atlanta Closing shall occur no more than ten (10) business days following the later to occur of (i) the date on which the Atlanta FCC Consent has been granted and (ii) the other conditions to the WANN Closing set forth in the WANN Asset Purchase Agreement.
In addition, Sovryn entered into an Asset Purchase Agreement (the “San Juan, Boise and Bakersfield Construction Permits) with Mako Communications (“the CP Seller”). Purchase price for the three CP’s is $115,000, $10,000 of which has been paid and held in Escrow. The FCC has consented to the transfer and Sovryn is in discussions with Mako to schedule a closing date.
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.
| -34- |
Nine months ended September 30, 2021 and September 30, 2020
Sales
Net Sales increased to $760,053 for the nine months ended September 30, 2021 from $401 for the nine months ended September 30, 2020. The increase resulted from the acquisition of KNLA/KNET, KVVV and KYMU television stations and the revenues associated with the existing lease agreements held by those stations.
Amortization
Amortization increased to $140,826 for the nine months ended September 30, 2021 from $20,884 for the nine months ended September 30, 2020. The increase resulted from the acquisition of tangible and intangible assets of KNLA/KNET, KVVV and KYMU television stations.
Consulting Fees
Consulting Fees increased to $348,500 for the nine months ended September 30, 2021 from $40,000 for the nine months ended September 2021. The increase was primarily the result of agreements put in place by the company for sales, finance and general consulting purposes.
General and administrative fees
General and Administrative fees increased to $149,905 for the nine months ended September 30,2021 from $18, 009 for the nine months ended September 20, 2020. The increase was primarily the result expenses for associated administrative and salary expenses related to headcount.
Lender Fees
Arena Capital Lender Fees increased to $1,606,275 for the nine months ended September 30,2021 from $0 for the nine months ended September 30, 2020. The increase was primarily the result of various expenses associated with the covenant and regulatory filings and financing documentation.
Management Fees
Management Fees increased to $360,462 for the nine months ended September 30, 2021 from $10,000 for the nine months ended September 30, 2020. The increase was primarily the result of management agreements put in place up on the acquisition of Sovryn, its television stations and associated financings.
Marketing and Product Development Fees
Marketing and Product Development Fees increased to $207,325 for the nine months ended September 30, 2021 from $0 for the nine months ended September 30, 2020. The increase resulted from fee arrangements put in place for marketing related activities.
Professional Fees
Professional Fees increased to $1,041,630 for the nine months ended September 30, 2021 from $31,519 for the nine months ended September 30, 2020. The increase was primarily the result of an increase in the legal and accounting expense associated with the acquisitions of Sovryn, KNLA/KNET, KVVV and KYMU television stations, the financing associated with those acquisitions , the expense associated with the Asset Purchase Agreements for WXNY and WANN and, the expense associated with regulatory filings for the SEC, including the Form S1 Registration.
| -35- |
Royalty Expense
Royalty expense decreased to $35,323 for the nine months ended September 30, 2021 from $41,667 for the nine months ended September 30, 2020. The decrease resulted from amended terms in the agreement with CZJ products.
Amortized Interest
Amortized Interest increased by to $372,177 for the nine months ended September 30, 2021 from $0 for the nine months ended September 30, 2020. The increase resulted from financing associated with the acquisition of KNLA/KNET, KVVV and KYMU television stations.
Interest
Interest increased to $1,151,531, the nine months ended September 30, 2021 from $7,592 for the nine months ended September 30, 2020. The increase was the result of financing put in place for working capital and the acquisition of KNLA/KNET, KVVV and KYMU television stations.
Net Loss
Net Loss increased to $4,961,892 for the nine months ended September 30, 2021 from $183,902 for the nine months ended September 30, 2020. The increase was primarily the result of an increase in expenses associated with the build-out and roll-out of the Sovryn Holdings business plan, notably, expenses associated with the professional fees incurred with the acquisitions and other necessary regulatory filings as well as interest expense from the Arena Capital credit facility.
Three months ended September 30, 2021 and September 30, 2020
Sales
Net sales increased to $464,028 for the three months ended September 30, 2021 from $179 for the three months ended September 30, 2020. The increase was the result of the acquisition of KNLA/KNET , KVVV and KYMU television stations and the revenues associated with the existing lease agreements held by those stations.
Amortization
Amortization decreased to ($74,276) for the three months ended September 30, 2021 from $20,884 for the three months ended September 30, 2020. The decrease resulted from a change in allocation of capitalized purchased costs arising from updated valuation reports.
Consulting Fees
Consulting Fees increased to $69,000 for the three months ended September 30, 2021 from $40,000 for the three months ended September 30, 2020. The increase was primarily the result of agreements put in place by the company for sales, finance and general consulting purposes
General and administrative fees
General and Administrative fees increased to $110,936 for the 3 months ended September 30, 2021 from $6,320 for the three months ended September 30, 2020. The increase was primarily the result of expenses for associated administrative and salary expenses related to headcount.
| -36- |
Lender Fees
Lender Fees increased to $1,320,692 for the three months ended September 30, 2021 from $0 for the three months ended September 30, 2020. The increase resulted from various expenses associated with the Arena Capital financing.
Management Fees
Management Fees increased to $154,385for the three months ended September 30, 2021 from $10,000 for the three months ended September 30, 2020. The increase was primarily the result of management agreements put in place up on the acquisition of Sovryn and the television stations and associated financings.
Marketing and Product Development Fees
Marketing and Product Development Fees increased to $28,790 for the three months ended September 30, 2021 from $0 for the three months ended June 30, 2020. The increase was primarily the result of fee arrangements put in place for marketing related activities.
Professional Fees
Professional Fees increased to $517,911 for the three months ended September 30, 2021 from $27,870 for the three months ended September 30, 2020. The increase was primarily the result of an increase in legal and accounting expense associated with the acquisitions of Sovryn, KNLA/KNET, KVVV and KYMU television stations and the financing associated with those acquisitions.
Royalties
Royalty expense decreased for the three months ended September 30, 2021 from $41,667 for the three months ended September 30, 2020. The decrease was primarily the result of the amended terms of the agreement with CZJ products.
Amortized Interest
Amortized Interest increased by to $135,855 for the three months ended September 30, 2021 from $14,633 for the three months ended September 30, 2020. The increase was primarily the result of financing associated with the acquisition of KNLA/KNET, KVVV and KYMU television stations.
Interest
Interest increased 471,033 $453,750 for the three months ended September 30, 2021 from $4,519 for the three months ended September 30, 2020. The increase was primarily the result of the financing put in place for working capital and the acquisition of KNLA/KNET, KVVV and KYMU television stations.
Net Loss
Net Loss increased to $2,405,292 for the three months ended September 30, 2021 from $165,714 for the 3 months ended September 30, 2020. The increase was primarily the result of an increase in expenses associated with the build-out and roll-out of the Sovryn business plan and expenses associated with the financing and Sovryn acquisitions.
| -37- |
Liquidity and Capital Resources
Cash and Working Capital
As at September 30, 2021, Madison had cash of $2,194,562 and a working capital surplus of $1,721,845, compared to cash of $9,491 and working capital deficit of $100,141 as at December 31, 2020.
We will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through the sale of equity and/or debt securities; however, there is no assurance that we will be successful at raising additional capital in the future. If our plans are not achieved and/or if significant unanticipated events occur, we may have to further modify our business plan, which may require us to raise additional capital. As of September 30, 2021, our principal source of liquidity was our cash, which totaled $2,194,562 ..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 and acquisitions. We expect that the principal uses of cash in the future will be for continuing operations, acquisitions and expenses associated with rolling out the business plan.
Net Cash Used in Operating Activities
Madison used cash of $4,182,399 in operating activities during the first nine months of fiscal 2021 compared to cash used of $33,851 in operating activities during the same period in the previous fiscal year. The increase was primarily the result of increase in expenses associated with the build out and roll out of Sovryn’s business plan.
Net Cash Provided (Used in) Investing Activities
Madison used cash of $14,462,531 in investing activities during the first nine months of fiscal 2021 compared to cash used of $0 in investing activities during the same period in the previous fiscal year. The increase was the result of acquisitions and expenses associated with KNLA/KNET, KVVV , KYMU television stations, deposits associated with signed purchase agreements and loans made to Top Dog Productions Inc.
Net Cash Provided by Financing Activities
Net cash flows provided by financing activities of $20,830,001 for the first nine months of fiscal 2021, were from the proceeds of the Arena financing in February 2021 and Share subscriptions received but not issued for our Series G preferred stock and proceeds from subordinated loans, compared to cash used of $209,000 in financing activities during the same period in the previous fiscal year.
Off-balance Sheet Arrangements
Madison has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Going Concern
Madison has not attained profitable operations and is dependent upon obtaining financing to pursue any extensive business activities. For these reasons, Madison’s auditors stated in their report that they have substantial doubt Madison will be able to continue as a going concern.
| -38- |
Tabular Disclosure of Contractual Obligations
Madison is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
Critical Accounting Policies
Madison’s financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Management believes that understanding the basis and nature of the estimates and assumptions involved with the following aspects of Madison’s financial statements is critical to an understanding of Madison’s financial statements.
Use of estimates
The preparation of the consolidated interim financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.
Change in significant accounting policies
There has been no change in the accounting policies from those disclosed in the notes to the audited financial statements for the year ended December 31, 2020.
Recently Issued Accounting Pronouncements
The Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued, which may be in advance of their effective date. On August 5, 2020, the FASB issued a new standard (ASU 2020-06) to reduce the complexity of accounting for convertible debt. The standard is effective for Smaller Reporting Companies for fiscal years beginning after December 15, 2023. Management is reviewing this standard as it believes this may impact on its financial reporting Management does not believe that other any pronouncement not yet effective but recently issued would, if adopted, have a material effect on the accompanying financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Madison is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by Madison’s management, with the participation of the Chief Executive Officer, of the effectiveness of Madison’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of September 30, 2021. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, Madison’s management concluded, as of the end of the period covered by this report, that Madison’s disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the SEC rules and forms and that such information was accumulated or communicated to management to allow timely decisions regarding required disclosure. In particular, Madison has identified material weaknesses in internal control over financial reporting, as discussed below.
| -39- |
Madison’s internal control over financial reporting is a process designed under the supervision of Madison’s Chief Executive Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Madison’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of Madison’s assets; | |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and | |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Madison’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of Madison’s annual or interim financial statements will not be prevented or detected on a timely basis.
The matters involving internal controls and procedures that management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on Madison’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by Madison’s Chief Financial Officer in connection with the audit of its financial statements as of December 31, 2020 and communicated the matters to management.
Management believes that the material weaknesses set forth in items (2), (3) and (4) above did not have an effect on Madison’s financial results. However, management believes that the lack of a functioning audit committee and lack of a majority of outside directors on Madison’s board of directors caused and continues to cause an ineffective oversight in the establishment and monitoring of the required internal controls over financial reporting.
Madison is committed to improving its financial organization. As part of this commitment and when funds are available, Madison will create a position to Madison to segregate duties consistent with control objectives and will increase its personnel resources and technical accounting expertise within the accounting function by: (i) appointing one or more outside directors to its board of directors who will also be appointed to the audit committee of Madison resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls over financial reporting; and (ii) preparing and implementing sufficient written policies and checklists that will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
| -40- |
Management believes that the appointment of one or more outside directors, who will also be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on Madison’s Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses: (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result proper segregation of duties and provide more checks and balances within the department. Additional personnel will also provide the cross training needed to support Madison if personnel turn-over issues within the department occur. This coupled with the appointment of additional outside directors will greatly decrease any control and procedure issues Madison may encounter in the future.
Management will continue to monitor and evaluate the effectiveness of Madison’s internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Changes in Internal Controls over Financial Reporting
There were no changes in Madison’s internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, Madison’s internal control over financial reporting.
Limitations on the Effectiveness of Controls and Procedures
Management, including our President and Chief Financial Officer, does not expect that Madison’s controls and procedures will prevent all potential error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Part II – Other Information
ITEM 1. LEGAL PROCEEDINGS.
Madison is not a party to any pending legal proceedings and, to the best of Madison’s knowledge, none of Madison’s property or assets are the subject of any pending legal proceedings.
ITEM 1A. RISK FACTORS
Madison is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 17, 2021, the Company entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “Investors”) pursuant to which we issued convertible notes in an aggregate principal amount of $16.5 million for an aggregate purchase price of $15 million (collectively, the “Notes”). In connection with the issuance of the Notes, the Company issued to the Investors warrants to purchase an aggregate of 192,073,017 shares of Common Stock (collectively, the “Warrants”) and 1,000 shares of series F convertible preferred stock (the “Series F Preferred Stock”).
The Notes each have a term of thirty-six months and mature on February 17, 2023, unless earlier converted. The Notes accrue interest at a rate of 11% per annum, subject to increase to 20% per annum upon and during the occurrence of an event of default. Interest is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at the Company’s election, any interest payable on an applicable payment date may be paid in registered Common Stock of the Company (rather than cash) in an amount equal (A) the amount of the interest payment due on such date, divided by (B) an amount equal to 80% of the average VWAP of the Common Stock for the five (5) days immediately preceding the date of conversion.
On September 24, 2021, the Company and the Investors amended the Notes. The Notes are convertible at any time, at the holder’s option, into shares of our common stock equal to $0.02 per share subject to 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 the issuance by the Company of common stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. The Notes may not be redeemed by the Company
As part of the agreement with Arena, the Company issued 192,073,016 warrants. On September 24, 2021, the Company and the Investor amended the warrant agreement such that each Warrant is exercisable for a period of five (5) years from the date of issuance at an initial exercise price equal to $0.025 per share, subject to adjustment herein, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The exercise price is also subject to adjustment due to certain events, including stock dividends, stock splits and recapitalizations. The Holder may be eligible for cashless exercise.
The Series F Preferred Stock have no voting rights and shall convert into approximately 192,073,017 shares of common stock upon Shareholder Approval. Subsequent to the period ended September 30, 2021, the 1,000 Series F Preferred Stock were converted to 192,073,017 common shares. On November 8, 2021, the Series F Preferred Shareholders entered into an Exchange Agreement to exchange 39,895,000 common shares for 39,895 Series H Preferred Shares. Each of the Series H Preferred Shares converts to 1,000 common shares. A total of 39,895 Series H Preferred Shares were issued.
During the three months ended September 30, 2021, the Company entered into Subordinated Loan Agreements for gross proceeds of $1,200,000, of which $350,000 was paid off subsequent to the quarter end.
The Loans were not registered under the Securities Act or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering. The investors in such securities are each an “accredited investor” as such term is defined in Regulation D promulgated under the Securities Act.
On November 2, 2021, the subscribers of $4,600,000 for Series G Preferred Shares were issued an aggregate of 255,555,556 common shares. Proceeds from the financing will be used for operations and general working capital.
On November 24, 2021, 75,000 Preferred Series D shares were converted to 75,000,000 common shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
| -41- |
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished. |
| -42- |
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: December 21, 2021 | By: | /s/ Philip A. Falcone |
| Name: | Philip A. Falcone | |
| Title: | CEO | |
| (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
| -43- |