TPT GLOBAL TECH, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS. (Form 10-K)
Forward-Looking Statements and Related Risks.
This Form 10-K contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate," "continue," or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include but are not limited to economic conditions generally and in the industries in which we may participate; competition within our chosen industry, including competition from much larger competitors; technological advances and failure to successfully develop business relationships. Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. As reflected in the accompanying financial statements, as of
December 31, 2021, we had an accumulated deficit totaling $44,921,837. This raises substantial doubts about our ability to continue as a going concern.
We generate revenue primarily through telecommunications and internet services and as an e-commerce and cloud solutions provider in the west
PLAN OF OPERATIONS
Our investment budget for the next 12 months
Liquidity and capital resource requirements
If we can raise sufficient capital resources, we intend to spend significant funds after our planned fundraising event equally throughout 2022 as follows.
Equipment purchases and manufacturing
$ 2,250,000Acquisitions $ 500,000Debt Restructuring $ 7,300,000Working Capital, including marketing $ 11,470,000Brokerage commissions $ 2,280,000Offering expenses $ 200,000 $ 38,000,00060 Table of Contants Although the items set forth above indicate management's present estimate of our use of the net proceeds, we may reallocate the proceeds or utilize them for other corporate purposes. Our actual use of proceeds may vary from these estimates because of a number of factors, including whether we are successful in completing future acquisitions, whether we obtain additional funding, what other obligations have been incurred by us, the operating results of our initial acquisition activities, and whether we are able to operate profitably. If our need for working capital increases, we may seek additional funds through loans or other financing. There are no commitments for any such financing, and there can be no assurance that these funds may be obtained in the future if the need arises. RESULTS OF OPERATIONS
For the year ended
During the year ended
Gross profit for the year ended
December 31, 2021was $2,227,404compared to $3,900,677for the prior period. The decrease was due primarily to the decrease in net customers consistent with the decrease in revenues. This decrease is reflected also in the decrease in gross profit percentage from 35% to 22%. When the revenue decrease occurs from a decrease in customers, the cost of sales does not always proportionately follow with committed towers contracts in place. During the year ended December 31, 2021, we recognized $8,905,220in expenses compared to $12,105,016for the prior period. The decrease was a result of a lower impairment of goodwill and long-lived assets of $1,709,054than in the prior year. In addition, research and development expense was $1,000,000in the prior year compared to $36,485in the current year, and depreciation of $682,111in the current year was much lower than the $1,054,702in the prior year as a result of the impairment of equipment in the prior year.
There were expenses derived from
Gain on extinction of
Interest expense increased for the year ended
December 31, 2021compared to the prior period by $1,105,399, which decrease is largely from the derivative debt being in default and the increase in convertible note agreements. Net loss for the current period was $4,095,507compared to $8,119,268. The primary reason for the decrease is the gain on debt extinguishment offset by decreases in customer base, an increase in derivative expense, decrease in impairment expense and research and development.
CASH AND CAPITAL RESOURCES
Cash flows generated from operating activities were not enough to support all working capital requirements for the years ended
December 31, 2021and 2020. Financing activities described below have helped with working capital and other capital requirements.
$4,095,507and $8,119,268, respectively, in losses, and we used $995,093and $489,573, respectively, in cash for operations for the years ended December 31, 2021and 2020. We calculate the net cash used by operating activities by decreasing, or increasing in case of gain, our let loss by those items that do not require the use of cash such as depreciation, amortization, promissory note issued for research and development, note payable issued for legal fees, derivative expense or gain, gain on extinguishment of debt, loss on conversion of notes payable, impairment of goodwill and long-loved assts and share-based compensation which totaled to a net $(1,170,451)for 2021 and $5,378,277for 2020. In addition, we report increases and reductions in liabilities as uses of cash and deceases assets and increases in liabilities as sources of cash, together referred to as changes in operating assets and liabilities. For the year ended December 31, 2021, we had a net increase in our assets and liabilities of $4,270,865primarily from an increase in accounts payable from lag of payments for accounts payable for cash flow considerations and an increase in the balances from our operating lease liabilities. For the year ended December 31, 2020we had a net increase to our assets and liabilities of $2,251,418for similar reasons. Cash flows from financing activities were $1,169,810and $817,608for the years ended December 31, 2021and 2020, respectively. For the year ended December 30, 2021, these cash flows were generated from the sale of Series D Preferred Stock, common stock subscriptions of $610,502, proceeds from convertible notes, loans and advances of $3,900,400offset by payment on convertible loans, advances and factoring agreements of $3,502,592and payments on convertible notes and amounts payable - related parties of $64,480. For the year ended December 31, 2020, cash flows from financing activities primarily came from proceeds from the sale of interest in QuikLABS of $460,000, convertible notes, loans and advances of $1,753,204offset by payments on convertible loans, advances and factoring
$1,169,330. 61 Table of Contants
Cash flows generated by (used in) investing activities have been
December 2019, COVID-19 emerged and has subsequently spread worldwide. The World Health Organizationhas declared COVID-19 a pandemic resulting in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining of people whomay have been exposed to the virus. After close monitoring and responses and guidance from federal, state and local governments, in an effort to mitigate the spread of COVID-19, around March 18, 2020for a period of time, the Company closed its Blue Collar office in Los Angelesand its TPT SpeedConnect offices in Michigan, Idahoand Arizona. Most employees were working remotely, however this is not possible with certain employees and all subcontractors that work for Blue Collar. The Company continues to monitor developments, including government requirements and recommendations at the national, state, and local level to evaluate possible extensions to all or part of such closures. The Company has taken advantage of the stimulus offerings and received $1,402,700in PPP loans. All of these PPP loans were forgiven in the year ended December 31, 2021. The Company is also in the process of trying to raise debt and equity financing, some of which may have to be used for working capital shortfalls if revenues continue to decline. In order for us to continue as a going concern for a period of one year from the issuance of these financial statements, we will need to obtain additional debt or equity financing and look for companies with cash flow positive operations that we can acquire. There can be no assurance that we will be able to secure additional debt or equity financing, that we will be able to acquire cash flow positive operations, or that, if we are successful in any of those actions, those actions will produce adequate cash flow to enable us to meet all our future obligations. Most of our existing financing arrangements are short-term. If we are unable to obtain additional debt or equity financing, we may be required to significantly reduce or cease operations. (REMAINDER OF PAGE LEFT BLANK INTENTIONALLY) 62 Table of Contants A summary of material terms of our financing arrangements as of December 31, 2021is as follows: Balance Rate Due Date Past Due Conversion Secured Third party debt: Loans and May 2020 to Company advances $ 941,2423.76-14 % March 2021 $ 580,942None assets Convertible at $0.15to Convertible $0.25per Company Notes Payable 1,162,606 6-24 % (1) $ 508,771share stock February 2020 Factoring to October Agreements 723,754 30-43% 2021 $ 101,244None Receivables Total third party debt $ 2,827,602Related party debt: 1 Mo Libor Trucom Line of Credit $ 3,043,390plus 2.0 % (2) $3,043,390None assets Debt VuMe Live (Matrixsites)(5) 5,000,000 0 % (3) None None assets 42 Debt (Lion Phone) 350,000 0 % None None None None Debt (Blue August 31, Blue Collar Collar)(4) 1,600,000 3 % 2020 $1,600,000None assets Debt (Air February 1, Air Fitness Fitness)(6) 500,000 --- 2021 500,000 (6) None assets Convertible at $0.15to Various in $1.00per Company Convertible Debt 902,781 4-6 % 2020 and 2021 $902,781share assets Shareholder Debt 49,452 0 % None None None None Total related party debt $ 11,445,623Total financing arrangements $ 14,272,925
(1) Different dates of
(2) Modified later for
Part of the acquisition included a promissory note of
at 3%. The promissory note is secured by the assets of Blue Collar.
(5) Matrix sites debt of
public offering and holds a security interest in the assets that have been acquired.
convertible, is payable six months from origination (
agreed between the Company and the former owners (currently without control
interest holders) of
have been acquired. This note payable became overdue as a result of
2020. Consequences of not repaying the Blue Collar
$1,600,000debt, the Matrixsites $5,000,000debt and the Air Fitness $500,000debt are outlined in the security agreements which are generally the following: The lender (seller) may foreclose on the assets in the event of default of non-payment or other default and may bid in the assets at foreclosure at less than the debt. This could have the practical effect of taking away the assets pledged, through the foreclosure and, may leave a deficiency under the note, which would mean the company would have none of the assets and still retain liability for an unknown amount, and have no business related to these acquisitions. 63 Table of Contants CRITICAL ACCOUNTING POLICIES Revenue Recognition
January 1, 2018, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers, and all of the related amendments ("new revenue standard"). We recorded the change, which was immaterial, related to adopting the new revenue standard using the modified retrospective method. Under this method, we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. This results in no restatement of prior periods, which continue to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new revenue standard to continue to be immaterial on an ongoing basis. We have applied the new revenue standard to all contracts as of the date of initial application and as such, have used the following criteria described below in more detail for each business unit:
Identify the contract with the customer.
Identify performance obligations in the contract.
Determine the price of the transaction.
Allocate the transaction price to the performance obligations in the contract.
Recognize revenue when or as we satisfy a performance obligation.
Reserves are recorded as a reduction in net sales and are not considered material to our consolidated statements of income for the years ended
December 31, 2021and 2020. In addition, we invoice our customers for taxes assessed by governmental authorities such as sales tax and value added taxes, where applicable. We present these taxes on a net basis. The Company's revenue generation for the years ended December 31, 2021and 2020 came from the following sources disaggregated by services and products, which sources are explained in detail below. For the year ended For the year ended December 31, 2021 December 31, 2020 TPT SpeedConnect $ 7,579,003 $ 9,958,770 Blue Collar 1,545,721 1,051,120 TPT MedTech 155,919 30,484 Other (1) 179,757 14,405
Total Service Revenue $9,460,400 $11,054,779 TPT MedTech – Product Revenue
566,689 - K Telecom - Product Revenue 2,490 39,391 Total Product Revenues $ 569,179 $ 39,391 Total Revenue $ 10,029,579 $ 11,094,170 (1) Includes international sales for the year ended
December 31, 2021of $165,834related to TPT Asia.
TPT SpeedConnect: ISP and telecom revenues
TPT SpeedConnect is a rural Internet provider operating in 10 Midwestern States under the trade name SpeedConnect. TPT SC's primary business model is subscription based, pre-paid monthly reoccurring revenues, from wireless delivered, high-speed internet connections. In addition, the company resells third-party satellite and DSL internet and IP telephony services. Revenue generated from sales of telecommunications services is recognized as the transaction with the customer is considered closed and the customer receives and accepts the services that were the result of the transaction. There are no financing terms or variable transaction prices. Due date is detailed on monthly invoices distributed to customer. Services billed monthly in advance are deferred to the proper period as needed. Deferred revenue are contract liabilities for cash received before performance obligations for monthly services are satisfied. Deferred revenue for TPT SpeedConnect at
December 31, 2021and 2020 are $421,643and $292,847, respectively. Certain of our products require specialized installation and equipment. For telecom products that include installation, if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and installation revenue is recognized when the installation is complete. The Installation Technician collects the signed quote containing terms and conditions when installing the site equipment at customer premises. Revenue for installation services and equipment is billed separately from recurring ISP and telecom services and is recognized when equipment is delivered and installation is completed. Revenue from ISP and telecom services is recognized monthly over the contractual period, or as services are rendered
and accepted by the customer. 64 Table of Contants The overwhelming majority of our revenue continues to be recognized when transactions occur. Since installation fees are generally small relative to the size of the overall contract and because most contracts are for two years or less, the impact of not recognizing installation fees over the contract is immaterial.
Blue collar: media production services
Blue Collar creates original live action and animated content productions and has produced hundreds of hours of material for the television, theatrical, home entertainment and new media markets. Blue Collar designs branding and marketing campaigns and has had agreements with some of the world's largest companies including PepsiCo, Intel, HP, WalMart and many other Fortune 500 companies. Additionally, they create motion picture, television and home entertainment marketing campaigns for studios including Sony, DreamWorks,
Twentieth Century Fox, Universal Studios, Paramount Studios, and Warner Brothers. With regard to revenue recognition, Blue Collar receives an agreement from each client to perform defined work. Some agreements are written, some are verbal. Work may include creation of marketing materials and/or content creation. Some work may be short term and take weeks to create and some work may be longer and take months to create. There are instances where customer agreements segregate identifiable obligations (like filming on site vs. film editing and final production) with separate transaction pricing. The performance obligation is generally satisfied upon delivery of such film or production products, at which time revenue is recognized. There are no financing terms or variable transaction prices.
TPT MedTech: income from medical tests
TPT MedTech operates in the Point of Care Testing ("POCT") market by primarily offering mobile medical testing facilities and software equipped for mobile devices to monitor and manage personalized healthcare. Services used from our mobile medical testing facilities are billing through credit cards at the time of service. Revenue is generated from our software platform as users sign up for our mobile healthcare monitor and management application and tests are performed. If medical testing is in one our own owned facility, the usage of the software application is included in the testing fees. If the testing is in a non-owned outside contracted facility, fees are generated from the usage of the software application on a per test basis and billed monthly. TPT MedTech also offers various products. One is to build and sell its mobile testing facilities called QuikLABs designed for mobile testing. This is used by TPT MedTech for its own testing services. Another is to build customized mobile gyms for exercising. This is sold to third parties. Another is medical equipment, one of which is a sanitizing unit called SANIQuik which is used as a safe and flexible way to sanitize providing an additional routine to hand washing and facial coverings. The SANIQuik has not yet been approved for sale in
the United Statesbut has in some parts of the European community. Revenues from these products are recognized when a product is delivered, the sales transaction considered closed and accepted by a customer. When deposits are received for which a product has not been delivered, it is recognized as deferred revenue. Deferred revenue as of December 31, 2021and 2020 was $41,000and $41,000, respectively. There are no financing terms or variable transaction prices for either of these products.
SDM: e-commerce, email marketing and web design services
SDM generates revenue by providing ecommerce, email marketing and web design solutions to small and large commercial businesses, complete with monthly software support, updates and maintenance. Services are billed monthly. There are no financing terms or variable transaction prices. Platform infrastructure support is a prepaid service billed in monthly recurring increments. The services are billed a month in advance and due prior to services being rendered. The revenue is deferred when invoiced and booked in the month the service is provided. There is no deferred revenue at
December 31, 2021and 2020. Software support services (including software upgrades) are billed in real time, on the first of the month. Web design service revenues are recognized upon completion of specific projects. Revenue is booked in the month the services are rendered and payments are due on the final day of the month. There are usually no contract revenues that are deferred until services are performed.
K Telecomgenerates revenue from reselling prepaid phones, SIM cards, and rechargeable minute traffic for prepaid phones to its customers (primarily retail outlets). Product sales occur at the customer's locations, at which time delivery occurs and cash or check payment is received. The Company recognizes the revenue when they receive payment at the time of delivery. There are no financing terms or variable transaction prices. 65 Table of Contants
Copperhead Digital: ISP and Telecom Revenues
Copperhead Digital operated as a regional internet and telecom services provider operating in
Arizonaunder the trade name Trucom. Although there are currently no customers and it will take capital to reopen this revenue stream, Copperhead Digital operated as a wireless telecommunications Internet Service Provider ("ISP") facilitating both residential and commercial accounts. Copperhead Digital's primary business model was subscription based, pre-paid monthly reoccurring revenues, from wireless delivered, high-speed internet connections. In addition, the company resold third-party satellite and DSL internet and IP telephony services. Revenue generated from sales of telecommunications services was recognized as the transaction with the customer is considered closed and the customer received and accepted the services that were the result of the transaction. There are no financing terms or variable transaction prices. Due date was detailed on monthly invoices distributed to customer. Services billed monthly in advance were deferred to the proper period as needed. Deferred revenue was contract liabilities for cash received before performance obligations for monthly services are satisfied. Certain of its products required specialized installation and equipment. For telecom products that included installation, if the installation met the criteria to be considered a separate element, product revenue was recognized upon delivery, and installation revenue was recognized when the installation was complete. The Installation Technician collected the signed quote containing terms and conditions when installing the site equipment at customer premises. Revenue for installation services and equipment was billed separately from recurring ISP and telecom services and was recognized when equipment was delivered, and installation was completed. Revenue from ISP and telecom services was recognized monthly over the contractual period, or as services were rendered and accepted by the customer. The overwhelming majority of revenue was recognized when transactions occurred. Since installation fees were generally small relative to the size of the overall contract and because most contracts were for a year or less, the impact of not recognizing installation fees over the contract was immaterial. Use of Estimates The preparation of financial statements in conformity with United Statesgenerally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. The Company's consolidated financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented. Share-based Compensation
We are required to value and record compensation expense for all stock-based awards (including stock options) granted to employees and directors based on estimated fair value . Compensation expense for awards classified as equity is measured at the grant date based on the fair value of the award and is expensed to income over the required service period.
We accrue compensation expense related to non-employees who receive stock in connection with the sale of goods or services and accrue compensation expense over the vesting period of these awards.
June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which amends ASC 718, Compensation - Stock Compensation. This ASU requires that most of the guidance related to stock compensation granted to employees be followed for non-employees, including the measurement date, valuation approach, and performance conditions. The expense is recognized in the same period as though cash were paid for the good or service. The effective date is the first quarter of fiscal year 2020, with early adoption permitted, including in interim periods. The ASU has been adopted using a modified-retrospective transition approach. The adoption is not considered to have a material effect on the consolidated financial statements. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in our income tax provision in the period of enactment. We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversal of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations, including taxable income in carryback periods. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce our income tax provision. 66 Table of Contants We account for uncertain tax positions using a "more-likely-than-not" recognition threshold. We evaluate uncertain tax positions on a quarterly basis and consider various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. During November 2015, the FASB issued Accounting Standards Update No. 2015-17, ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position. We adopted ASU 2015-17 effective December 31, 2015.
Our policy is to recognize the costs associated with tax-related interest and penalties in the selling, general and administrative line items of the consolidated statements of income.
Goodwill Goodwillrelates to amounts that arose in connection with our various business combinations and represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets when accounted for using the acquisition method of accounting. Goodwillis not amortized, but it is subject to periodic review for impairment. We test goodwill balances for impairment on an annual basis as of December 31stor whenever impairment indicators arise. We utilize several reporting units in evaluating goodwill for impairment using a quantitative assessment, which uses a combination of a guideline public company market-based approach and a discounted cash flow income-based approach. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit's carrying value exceeds its fair value. Based on our impairment testing, we recorded impairment charges of $663,434and $853,366of goodwill during the years ended December 31, 2021and 2020, respectively. Intangible Assets Our intangible assets consist primarily of customer relationships, developed technology, favorable leases, trademarks and the film library. The majority of our intangible assets were recorded in connection with our various business combinations. Our intangible assets are recorded at fair value at the time of their acquisition. Intangible assets are amortized over their estimated useful life on a straight-line basis. Estimated useful lives are determined considering the period the assets are expected to contribute to future cash flows. We evaluate the recoverability of our intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate impairment exists. Business Acquisitions Our business acquisitions have historically been made at prices above the fair value of the assets acquired and liabilities assumed, resulting in goodwill or some identifiable intangible asset. Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain. We generally employ the income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product life cycles, economic barriers to entry, a brand's relative market position and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.
The net assets acquired are recorded at their fair value and are subject to an adjustment upon finalization of the fair value analysis.
Long-Lived Assets We periodically review the carrying amount of our depreciable long-lived assets for impairment which include property and equipment and intangible assets. An asset is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not considered recoverable, the asset is adjusted to its fair value. Fair value is generally determined based on discounted future cash flow. As of
December 31, 2020, we adjusted the net book values of the equipment of Copperhead Digital as it became doubtful given the decrease in customers bases that the estimated future cash flows would recover the net book values. We recorded impairment expenses of $330,508and $1,849,630for the years ended December 31, 2021and 2020, respectively. 67 Table of Contants Leases In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). Topic 842 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. We adopted Topic 842 using the effective date, January 2019, as the date of our initial application of the standard. Consequently, financial information for the comparative periods has been updated. Our finance and operating lease commitments are subject to the new standard and we recognize as finance and operating lease liabilities and right-of-use assets. Research and Development
Our research and development programs focus on telecommunications products and services. Research and development costs are expensed as incurred. Any payments received from external parties to fund our research and development activities reduce the recorded research and development expenses.
Basic and diluted net loss per share
The Company computes net income (loss) per share in accordance with ASC 260, "Earning per Share"". ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholder (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of
December 31, 2021, the Company had shares that were potentially common stock equivalents as follows: 2021 Convertible Promissory Notes 429,623,112 Series A Preferred Stock (1) 1,349,817,125 Series B Preferred Stock 2,588,693 Series D Preferred Stock (2) 25,297,722 Stock Options and warrants 111,000,000 1,918,326,652 _________________
(1) Holder of the Series A preferred shares which are
guaranteed 60% of the outstanding common shares upon conversion. The company
would have to authorize additional shares for this to occur as only 1,250,000,000 shares were authorized as of
December 31, 2021and 2,500,000,000 as of April 6, 2022.
(2) Holders of Series D Preferred Shares may elect after 12 months of
convert into common stock at 75% of the 30-day average closing market price
(for the previous 30 working days) divided into
automatic conversion of the Series D Preferred Shares without the consent of
holders upon any national stock exchange listing approval and registration
effectiveness of the ordinary shares underlying the conversion rights. the
the automatic conversion into Preferred Series D common shares will be at 75% of
the average 30-day market closing price (for the previous 30 business days)
$5.00. In the event of default under some of the notes, the conversion rates change significantly, allowing certain noteholders to convert at a greater discount to the market, which results in amounts of issuable shares which cannot be determined at this time. An estimate of the issuable shares is reflected below.
Derivative financial instruments
Derivative financial instruments, as defined in ASC 815, "Accounting for Derivative Financial Instruments and Hedging Activities", consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets. The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company had issued financial instruments including convertible promissory notes payable with features during 2019 that were either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements. 68 Table of Contants The Company estimates the fair values of derivative financial instruments using the
Monte Carlomodel. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates (such as volatility, estimated life and interest rates) that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company's operating results will reflect the volatility in these estimate and assumption changes.
The Company issued convertible promissory notes which are convertible into common stock, at holders' option, at a discount to the market price of the Company's common stock. The Company has identified the embedded derivatives related to these notes relating to certain anti-dilutive (reset) provisions. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of debenture and to fair value as of each subsequent reporting date. As of
December 31, 2021, the Company marked to market the fair value of the debt derivatives and determined a fair value of $4,042,910( $3,057,026from the convertible notes and $985,884from the warrants) in Note 6. The Company recorded an expense of $3,536,901and gain of $1,140,323from change in fair value of debt derivatives for the years ended December 31, 2021and 2020, respectively. The fair value of the embedded derivatives was determined using Monte Carlo simulation method based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 115.4% to 298.6%, (3) weighted average risk-free interest rate of 0.06% to 1.26% (4) expected life of 0.25 to 4.79 years, and (5) the quoted market price of $0.011for the Company's common stock. COVID-19 In December 2019, COVID-19 emerged and has subsequently spread worldwide. The World Health Organizationhas declared COVID-19 a pandemic resulting in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining of people whomay have been exposed to the virus. After close monitoring and responses and guidance from federal, state and local governments, in an effort to mitigate the spread of COVID-19, around March 18, 2020for a period of time, the Company closed its Blue Collar office in Los Angelesand its TPT SpeedConnect offices in Michigan, Idahoand Arizona. Most employees were working remotely, however this is not possible with certain employees and all subcontractors that work for Blue Collar. The Company continues to monitor developments, including government requirements and recommendations at the national, state, and local level to evaluate possible extensions to all or part of such closures. The Company has taken advantage of the stimulus offerings and received $1,402,700in PPP loans. All of these PPP loans were forgiven in the year ended December 31, 2021. The Company is also in the process of trying to raise debt and equity financing, some of which may have to be used for working capital shortfalls if revenues continue to decline. The Company is also in the process of raising debt and equity financing. Through December 31, 2021, the Company raised $855,094from sales of Common Stock and Series D Preferred Stock. Some of this was by way of its agreement with White Lion where they agreed to provide the Company of up to $5,000,000through a registration statement that was filed with the SEC. In addition, subsequent to December 31, 2021, the Company entered into convertible promissory notes for a total of $543,500. As the COVID-19 pandemic is complex and rapidly evolving, the Company's plans as described above may change. At this point, we cannot reasonably estimate the duration and severity of this pandemic, which could have a material adverse impact on our business, results of operations, financial position and cash flows.
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