The following discussion of our financial condition, changes in financial
condition and results of operations for the three months ended March 31, 2022,
should be read in conjunction with our unaudited condensed consolidated
financial statements and related notes for the three months ended March 31,
2021.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that have
been made pursuant to the provisions of the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on current expectations,
estimates, and projections about DLT Resolutions' industry, management's
beliefs, and certain assumptions made by management. Forward-looking statements
include our expectations regarding product, services, and maintenance revenue,
annual savings associated with the organizational changes effected in prior
years, and short- and long-term cash needs. In some cases, words such as
"anticipates," "expects," "intends," "plans," "believes," "estimates,"
variations of these words, and similar expressions are intended to identify
forward-looking statements. In addition, statements about the potential effects
of the COVID-19 pandemic on the Company's businesses, results of operations and
financial condition may constitute forward-looking statements. The statements
are not guarantees of future performance and are subject to certain risks,
uncertainties, and assumptions that are difficult to predict; therefore, actual
results may differ materially from those expressed or forecasted in any
forward-looking statements. Risks and uncertainties of our business include
those set forth in our Annual Report on Form 10-K for the year ended December
31, 2021, as filed with the SEC on August 26, 2022, under "Item 1A. Risk
Factors" as well as additional risks described in this Form 10-Q. Unless
required by law, we undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise. However, readers should carefully review the risk factors
set forth in other reports or documents we file from time to time with the
Securities and Exchange Commission, particularly the Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K.
GENERAL
Madison Technologies Inc. ("Madison") is a Nevada corporation that was
incorporated on June 15, 1998.
We, through our wholly-owned subsidiary, Sovryn Holdings, Inc. ("Sovryn")
acquired three un-affiliated Class A/LPTV TV. Each licensed TV station can
broadcast between 10 and 12 channels over-the-air, 24 hours per day/7 days per
week. We generated revenue by leasing channels to third parties on KNLA/KNET, a
Class A television station in Los Angeles, KVVV, a low power television station
in Houston and KYMU-LD, a low power television station in Seattle.
Form 10-Q - Q1 Madison Technologies Inc. Page 28
RESULTS OF OPERATIONS
Our financial statements have been prepared assuming that we will continue as a
going concern and, accordingly, do not include adjustments relating to the
recoverability and realization of assets and classification of liabilities that
might be necessary should we be unable to continue in operation. We expect we
will require additional capital to meet our long term operating requirements. We
expect to raise additional capital through, among other things, the sale of
equity or debt securities.
Three months ended March 31, 2022 and 2021
Revenues
Net Revenues increased to $474,999 for the three months ended March 31, 2022
from $0 for the three months ended March 31, 2021. The increase resulted from
the acquisitions of television stations in 2021 and the $474,999 revenues
generated by the lease agreements held by those stations. We anticipate 2022 Net
Revenues will increase compared to 2021 Net Revenues as a result a full year of
operating the television stations acquired during 2021 and the launch of
BLOCKCHAIN.TV in 2022.
Amortization
Amortization increased to $80,494 for the three months ended March 31, 2022 from
$35,284 for the three months ended March 31, 2021. The increase resulted from
the Sovryn acquisitions in 2021 of television stations that have amortizable
tangible and intangible assets.
Selling, general and administrative fees
Selling, general and administrative fees increased to $181,994 for the three
months ended March 31, 2022 from $82,179 for the three months ended March 31,
2021. The increase was primarily the result of selling and overhead expenses for
our television stations that we started operating in 2021 following their
acquisitions.
Television operations
Television operation expenses are $87,632 and $0 for the three months ended
March 31, 2022 and 2021. The expenses are direct costs of operating the
television stations we acquired in 2021.
Professional Fees
Professional Fees increased to $1,098,279 for the three months ended March 31,
2022 from $340,531 for the three months ended March 31, 2021. The increase was
primarily the result of an increase in the legal and accounting expense
associated with the acquisitions of television stations, the financing
associated with those acquisitions, management fees, and, the expense associated
with regulatory filings for the SEC, including the Form S1 Registration.
Form 10-Q - Q1 Madison Technologies Inc. Page 29
Loss on asset disposals
Our loss on asset disposals was $52,668 and $0 for the three months ended March
31, 2022 and 2021. Our initial objective was to create one the largest, most
comprehensive, state of the art OTA content distribution platforms to capitalize
on the changing media and distribution landscape and on the growing OTA
viewership in the U.S. We are exploring more capital efficient and technology
centric alternatives to its planned station acquisition distribution platform.
While there is no guarantee that it will be successful with this alternative
approach, we have determined that it will postpone further capital expenditures
on acquisitions and as a result, the planned acquisitions have been terminated
and future acquisition plans have been put on hold while we evaluate this
alternative approach. As a result, we recognized a $52,668 of loss from
disposition of OTA assets.
Interest Expense
Interest expense increased to $1,520,001 for the three months ended March 31,
2022 from $359,948 for the three months ended March 31, 2021. The $1,160,053
increase resulted from the financings associated with the acquisition of
television stations and development of BLOCKCHAIN.TV.
Discontinued Operations
Our loss from discontinued operations was $0 and $38,835 for the three months
ended March 31, 2022 and 2021, respectively. On November 15, 2021, we sold our
subsidiary, CZJ License Inc. and designated its operations as discontinued. The
previous year's assets, liabilities and expenses have been similarly classified
for comparative purposes.
Net Loss
Net Loss increased to $2,536,688 for the three months ended March 31, 2022 from
$856,777 for the three months ended March 31, 2021. The increase was primarily
the result of $1,520,001 of interest expense for debt instruments we issued in
2021 and 2022. Net Loss on a basic and diluted basis of $0.002 per share for the
three months ended March 31, 2022, based on 1,599,095,027 weighted average
shares outstanding, as compared to a Net Loss of $0.037 per share for the three
months ended March 31, 2021, based on 23,472,567 weighted average shares
outstanding. The increase in weighted average shares outstanding relates
primarily to issuances of 192,073,017 shares to the Investors on October 11,
2021 in connection with the $16,500,000 Notes we sold, the 1,091,388,889 shares
we issued on October 11, 2021 to Preferred Series E-1 holders in pursuant to an
Exchange Agreement and the 255,555,556 shares we issued on November 2, 2021 in
exchange for 4,600 shares of our Series G Preferred Stock.
Form 10-Q - Q1 Madison Technologies Inc. Page 30
Liquidity and Capital Resources
Cash and Working Capital
As at March 31, 2022, we had $206,399 in cash and a $6,405,680 working capital
deficit, compared to cash of $55,656 and working capital deficit of $4,373,271
as at December 31, 2021.
We will require additional capital to meet our long-term operating requirements.
We have not yet made the $0.4 million interest payments on the Notes held by
Arena Partners LC that were due on April 1, 2022 and July 1, 2022, and as a
result, under the Note terms, the interest rate is 20.0% per annum. We are
currently in discussions with Arena Capital LP, on a plan of forbearance;
however, there is no assurance that we will be successful in completion of a
plan, which may disrupt our operations and result in a restructuring of
obligations.
We expect to raise additional capital through the sale of equity and/or debt
securities; however, there is no assurance that we will be successful at raising
additional capital in the future. If our plans are not achieved and/or if
significant unanticipated events occur, we may have to further modify our
business plan, which may require us to raise additional capital. As of March 31,
2022, our principal source of liquidity was our cash, which totaled $206,399.
Historically, our principal sources of cash have included proceeds from the sale
of common stock and preferred stock and related party loans. Our principal uses
of cash have included cash used in operations, to make acquisitions and to pay
interest on our Notes. We expect that the principal uses of cash in the future
will be for continuing operations associated with rolling out the business plan
and for interest payments.
Net Cash Used in Operating Activities
We used cash of $562,799 in operating activities during three months ended March
31, 2022 compared to cash used of $1,136,599 in operating activities during the
previous year's three-month period. The increase was primarily the result of
increase in expenses associated with the build out and roll out of our business
plan.
Net Cash Used in Investing Activities
We used cash of $96,458 in investing activities during the three months ended
March 31, 2022 compared to cash used of $0 in investing activities during the
previous year's three-month period. The increase was the result of enhancements
to our website and funds advanced to Top Dog Productions Inc. associated with
our agreement to acquire them.
Net Cash Provided (Used in) by Financing Activities
Net cash flows provided by financing activities of $810,000 for the three months
ended March 31, 2022 were from the proceeds of subordinated notes payable and
Warrants that we sold to investors, compared to $15,540,000 of cash provided by
financing activities during the previous fiscal year that we generated from the
Arena financing in February 2021.
Form 10-Q - Q1 Madison Technologies Inc. Page 31
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements including arrangements that would
affect its liquidity, capital resources, market risk support and credit risk
support or other benefits.
Going Concern
The independent auditors' reports accompanying our December 31, 2021 and 2020
financial statements contain an explanatory paragraph expressing substantial
doubt about our ability to continue as a going concern. The financial statements
have been prepared assuming that we will continue as a going concern, which
contemplates that we will realize our assets and satisfy our liabilities and
commitments in the ordinary course of business.
Future Financings
Management anticipates continuing to rely on equity sales of our Common Stock in
order to continue to fund our business operations. Issuances of additional
Common Stock will result in dilution to our existing stockholders. There is no
assurance that we will achieve any additional sales of our Common Stock or
arrange for debt or other financing to fund our planned activities.
Material Commitments for Capital Expenditures
We had no contingencies or long-term commitments at March 31, 2022.
Tabular Disclosure of Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and is not required to provide the information required under this item.
Critical Accounting Policies
We follow certain significant accounting policies when preparing our
consolidated financial statements. A complete summary of these policies is
included in Note 1 of Notes to Consolidated Financial Statements. Certain of the
policies require management to make significant and subjective estimates or
assumptions that may deviate from actual results. In particular, management
makes estimates regarding the useful life of long-lived assets related to
depreciation and amortization expense, estimates regarding fair value of our
reporting units and future cash flows with respect to assessing potential
impairment of both long-lived assets and goodwill and estimates of expense
related to our debt and equity instruments. Each of these estimates is discussed
in greater detail in the following discussion.
Long-Lived Assets, Depreciation and Amortization Expense and Valuation
We review the carrying value of long-lived assets for impairment when events or
changes in circumstances indicate that the carrying amount of an asset, or
related asset group, may not be recoverable from estimated future undiscounted
cash flows. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset or asset group to estimated
undiscounted future cash flows expected to be generated by the asset or asset
group. If the carrying amount of the asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. In 2021, we recognized
that we would not complete the acquisition of the TV station assets of W27EB and
KPHE TV and we wrote off $1,150,000 in deposits paid to sellers of those assets.
Goodwill Valuation
Management performed the annual goodwill and indefinite-lived intangible assets
impairment assessments as of December 31, 2021 and concluded that our goodwill
for the Sovryn acquisition was impaired as of that date. Goodwill and indefinite
lived assets are tested annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. We follow a two-step
process for testing impairment. First, the fair value of each reporting unit is
compared to its carrying value to determine whether an indication of impairment
exists. If impairment is indicated, then the fair value of the reporting unit's
goodwill is determined by allocating the unit's fair value of its assets and
liabilities (including any unrecognized intangible assets) as if the reporting
unit had been acquired in a business combination. The amount of impairment for
goodwill is measured as the excess of its carrying value over its implied fair
value.
Derivative Liabilities
We have certain financial instruments that are derivatives or contain embedded
derivatives. We evaluate all of our financial instruments to determine if those
contracts or any potential embedded components of those contracts qualify as
derivatives to be separately accounted for in accordance with ASC 810-10-05-4
and 815-40. This accounting treatment requires that the carrying amount of any
derivatives be recorded at fair value at issuance and marked-to-market at each
balance sheet date. In the event that the fair value is recorded as a liability,
as is the case with us, the change in the fair value during the period is
recorded as either other income or expense. Upon conversion, exercise or
repayment, the respective derivative liability is marked to fair value at the
conversion, repayment or exercise date and then the related fair value amount is
reclassified to other income or expense as part of gain or loss on
extinguishment.
Form 10-Q - Q1 Madison Technologies Inc. Page 32
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