TPT GLOBAL TECH, INC. Forward-Looking Statements and Associated 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 ofDecember 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 revenues primarily through telecommunications and Internet services
and as a provider of ecommerce and cloud solutions in the western
PLAN OF OPERATIONS
Our Capital Budget for the next 12 months
Liquidity and Capital Resource Needs
If we can raise sufficient capital resources, we intend to expend significant funds after our intended funding event equally throughout 2022 as follows.
Equipment purchases and manufacturing
$ 2,250,000 Acquisitions$ 500,000 Debt Restructuring$ 7,300,000 Working Capital, including marketing$ 11,470,000 Brokerage commissions$ 2,280,000 Offering expenses$ 200,000 $ 38,000,000 60 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 endedDecember 31, 2021 was$2,227,404 compared to$3,900,677 for 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 endedDecember 31, 2021 , we recognized$8,905,220 in expenses compared to$12,105,016 for the prior period. The decrease was a result of a lower impairment of goodwill and long-lived assets of$1,709,054 than in the prior year. In addition, research and development expense was$1,000,000 in the prior year compared to$36,485 in the current year, and depreciation of$682,111 in the current year was much lower than the$1,054,702 in the prior year as a result of the impairment of equipment in the prior year.
There was derivative expense of
Gain on extinguishment of
Interest expense increased for the year endedDecember 31, 2021 compared 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$4,095,507 compared 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operating activities were not enough to support all working capital requirements for the years endedDecember 31, 2021 and 2020. Financing activities described below have helped with working capital and other capital requirements.
We incurred$4,095,507 and$8,119,268 , respectively, in losses, and we used$995,093 and$489,573 , respectively, in cash for operations for the years endedDecember 31, 2021 and 2020. We calculate the net cash used by operating activities by decreasing, or increasing in case of gain, our let loss by those items that do not require the use of cash such as depreciation, amortization, promissory note issued for research and development, note payable issued for legal fees, derivative expense or gain, gain on extinguishment of debt, loss on conversion of notes payable, impairment of goodwill and long-loved assts and share-based compensation which totaled to a net$(1,170,451) for 2021 and$5,378,277 for 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 endedDecember 31, 2021 , we had a net increase in our assets and liabilities of$4,270,865 primarily 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 endedDecember 31, 2020 we had a net increase to our assets and liabilities of$2,251,418 for similar reasons. Cash flows from financing activities were$1,169,810 and$817,608 for the years endedDecember 31, 2021 and 2020, respectively. For the year endedDecember 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$3,900,400 offset by payment on convertible loans, advances and factoring agreements of$3,502,592 and payments on convertible notes and amounts payable - related parties of$64,480 . For the year endedDecember 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$1,753,204 offset by payments on convertible loans, advances and factoring
agreements of$1,169,330 . 61 Table of Contants
Cash flows provided by (used in) investing activities were
InDecember 2019 , COVID-19 emerged and has subsequently spread worldwide. TheWorld Health Organization has 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 peoplewho may 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, aroundMarch 18, 2020 for a period of time, the Company closed its Blue Collar office inLos Angeles and its TPT SpeedConnect offices inMichigan ,Idaho andArizona . 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$1,402,700 in PPP loans. All of these PPP loans were forgiven in the year endedDecember 31, 2021 . The Company is also in the process of trying to raise debt and equity financing, some of which may have to be used for working capital shortfalls if revenues continue to decline. In order for us to continue as a going concern for a period of one year from the issuance of these financial statements, we will need to obtain additional debt or equity financing and look for companies with cash flow positive operations that we can acquire. There can be no assurance that we will be able to secure additional debt or equity financing, that we will be able to acquire cash flow positive operations, or that, if we are successful in any of those actions, those actions will produce adequate cash flow to enable us to meet all our future obligations. Most of our existing financing arrangements are short-term. If we are unable to obtain additional debt or equity financing, we may be required to significantly reduce or cease operations. (REMAINDER OF PAGE LEFT BLANK INTENTIONALLY) 62 Table of Contants A summary of material terms of our financing arrangements as ofDecember 31, 2021 is as follows: Balance Rate Due Date Past Due Conversion Secured Third party debt: Loans and May 2020 to Company advances$ 941,242 3.76-14 % March 2021$ 580,942 None assets Convertible at$0.15 to Convertible$0.25 per Company Notes Payable 1,162,606 6-24 % (1)$ 508,771 share stock February 2020 Factoring to October Agreements 723,754 30-43% 2021$ 101,244 None Receivables Total third party debt$ 2,827,602 Related party debt: 1 Mo Libor Trucom Line of Credit$ 3,043,390 plus 2.0 % (2)$3,043,390 None 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$1,600,000 None assets Debt (Air February 1, Air Fitness Fitness)(6) 500,000 --- 2021 500,000 (6) None assets Convertible at$0.15 to Various in$1.00 per Company Convertible Debt 902,781 4-6 % 2020 and 2021$902,781 share assets Shareholder Debt 49,452 0 % None None None None Total related party debt$ 11,445,623 Total financing arrangements$ 14,272,925
(1) Various dates from
(2) Subsequently amended to
(3)
offering.
(4) On
Part of the acquisition included a promissory note of
at 3%. The promissory note is secured by the assets of Blue Collar.
(5) Matrixsites debt of
is payable
public offering and has a security interest in the assets that were acquired.
(6)
convertible, is payable six months from origination (
agreed up by the Company and the former owners (currently non-controlling
interest holders) of
were acquired. This Note Payable became delinquent subsequent to
2020.
Consequences of not repaying the Blue Collar $1,600,000 debt, the Matrixsites
$5,000,000 debt and the Air Fitness $500,000 debt 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
OnJanuary 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 the performance obligations in the contract.
Determine the transaction price.
Allocate the transaction price to 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 endedDecember 31, 2021 and 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 endedDecember 31, 2021 and 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 Services Revenues $ 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, 2021 of
$165,834 related to TPT Asia.
TPT SpeedConnect: ISP and Telecom Revenue
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 atDecember 31, 2021 and 2020 are$421,643 and$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: Medical Testing Revenue
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 States but 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, 2021 and 2020 was $41,000
and $41,000 , respectively. There are no financing terms or variable transaction
prices for either of these products.
SDM: Ecommerce, 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 atDecember 31, 2021 and 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 Telecom generates 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 Revenue
Copperhead Digital operated as a regional internet and telecom services provider operating inArizona under 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 withUnited States generally 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 measure and recognize compensation expense for all share-based payment awards (including stock options) made to employees and directors based on estimated fair value. Compensation expense for equity-classified awards is measured at the grant date based on the fair value of the award and is recognized as an expense in earnings over the requisite service period.
We record compensation expense related to non-employees that are awarded stock in conjunction with selling goods or services and recognize compensation expenses over the vesting period of such awards.
InJune 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. DuringNovember 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 effectiveDecember 31, 2015 .
It is our policy to record costs associated with interest and penalties related to tax in the selling, general and administrative line of the consolidated statements of operations.
Goodwill Goodwill relates 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.Goodwill is not amortized, but it is subject to periodic review for impairment. We test goodwill balances for impairment on an annual basis as ofDecember 31st or 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$663,434 and$853,366 of goodwill during the years endedDecember 31, 2021 and 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.
Net assets acquired are recorded at their fair value and are subject to 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 ofDecember 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$330,508 and$1,849,630 for the years endedDecember 31, 2021 and 2020, respectively. 67 Table of Contants Leases InFebruary 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 Stock which is
guaranteed 60% of outstanding common stock 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, 2021 and
2,500,000,000 as of April 6, 2022 .
(2) Holders of the Series D Preferred Stock may decide after 12 months to
convert to common stock @ 75% of the 30 day average market closing price
(for previous 30 business days) divided into
automatic conversion of the Series D Preferred Stock without consent of
holders upon any national exchange listing approval and the registration
effectiveness of common stock underlying the conversion rights. The
automatic conversion to common from Series D Preferred shall be @ 75% of
the 30 day average market closing price (for previous 30 business days)
divided into $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 Carlo model. 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 ofDecember 31, 2021 , the Company marked to market the fair value of the debt derivatives and determined a fair value of$4,042,910 ($3,057,026 from the convertible notes and$985,884 from the warrants) in Note 6. The Company recorded an expense of$3,536,901 and gain of$1,140,323 from change in fair value of debt derivatives for the years endedDecember 31, 2021 and 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$0.011 for the Company's common stock. COVID-19 InDecember 2019 , COVID-19 emerged and has subsequently spread worldwide. TheWorld Health Organization has 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 peoplewho may 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, aroundMarch 18, 2020 for a period of time, the Company closed its Blue Collar office inLos Angeles and its TPT SpeedConnect offices inMichigan ,Idaho andArizona . 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$1,402,700 in PPP loans. All of these PPP loans were forgiven in the year endedDecember 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. ThroughDecember 31, 2021 , the Company raised$855,094 from 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$5,000,000 through a registration statement that was filed with theSEC . In addition, subsequent toDecember 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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