AIADVERTISING, INC. Cautionary Statements
The following Management's Discussion and Analysis should be read in conjunction
with our Consolidated Financial Statements and the related notes thereto as set
forth in our Form 10-K for the year ended
ABOUT US-
OUR MISSION-
Is to partner with marketers who are looking to challenge the "status quo" and empower them with a unified solution to eliminate wasted spend, replace human guesswork with AI-enabled predictions to provide accountability and provide transparency to their marketing budget.
OURSOLUTION-
Our proprietary software empowers marketers by intelligently automating data- driven, repetitive tasks, and improving their ability to make predictions at scale.
What is AI (Artificial Intelligence)?
AI is computer science field that enables computer software to perform human-like intelligence tasks, like speech recognition, image recognition, reasoning, decision making, and learning. AI learns through observation and interaction with the world. It learns, for example, by observing humans interact with objects and people, by observing the objects themselves, and by interacting with humans.
AI isn't magic; it's math. Very advanced math that can help machines perform well-defined intelligence tasks better than humans. AI powers everything from self-driving cars to Amazon recommendations to image recognition that tags your friends on Facebook.
AI is an umbrella term. It encompasses many different subfields and technologies, including neural networks, natural language processing (NLP), natural language generation (NLG), and deep learning.
Machine learning is one of these subfields.
What is machine learning?
Machine learning is AI where the computer software is tasked with learning without being explicitly programmed. An AI system that uses machine learning is not always explicitly programmed with the rules of how to learn. Instead, it is allowed to learn through a combination of instruction from humans and experimentation on its own.
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Over time, an AI system using machine learning can get better at the task it was built to do. It can even find its own approaches to completing a task that humans never taught it or intended it to learn. This is why there is so much excitement around AI that uses machine learning:
Unlike traditional software, which has to be manually updated by programmers, AI with machine learning can become smarter on its own. It can improve its performance on tasks over time, which can create powerful results for individuals and companies.
What is the difference between AI and machine learning?
Machine learning is always a type of AI, but AI is not always machine learning. The difference lies in the ability of an AI system to become smarter on its own. If AI can teach itself without explicit human training and get better over time, then it's true machine learning. If it can't, then some may still call it artificial intelligence, but it's more like intelligent automation with a narrow application. It can still solve problems that require human intelligence.
The AIAD Platform Features
Our software platform harnesses the power of machine learning and artificial intelligence to eliminate guesswork, predict what works, and prove advertising's impact on financial results. Key features of our platform include:
Alignment - We start with the end in mind and use a comprehensive discovery process to outline goals and key performance indicators (KPIs) to connect them to revenue targets. By aligning on the desired outcomes, our platform renders marketing and content calendars built upon the defined goals and objectives.
Insights - AI Data Services inventories and aggregates data from all of a client's tools, such as customer relationship management (CRM), sales, marketing, accounting, and customer service tools into a unified data warehouse where it is cleaned, organized, and tagged. This allows the artificial intelligence in our platform to segment customers and prospective customers by revealing patterns, signals, and insights to draw commonalities between points and grouping them into personas (fictional characters used to represent larger groups that share similarities). Once these audiences are segmented, we use unique engagement predictors leveraging psychographic models to identify motivations, behaviors, influences, and interests. These insights inform the type of creative assets these audience segments will most likely respond to. The models are leveraged to find new incremental audiences.
Activate - Our AI platform scores our clients' existing creative assets and intelligently recommends enhancements to optimize performance. Our AI leverages the audience personas of who will see the ads to accurately personalize and predict more successful creative assets. This predictive engine allows clients to know the likelihood that their ad will resonate with their audiences before placing the ad. Our AI can then dynamically create hundreds or thousands of variations of highly targeted ads based on what our AI knows about the specific audience personas. Combined with our software, our teams then help our clients place these ads through the channels that will produce the highest results.
Decisions - The AiAd dashboard aggregates data from all marketing channels to connect marketing strategies to financial results. Our platform continuously monitors and validates each campaign's impact and provides recommendations to maximize their effectiveness. Leveraging machine learning, it provides ongoing analysis and optimization of behavioral profiles, creative, audience segments, and media activation. Our platform empowers marketers to know what works, what doesn't, what's next, and why so they can make the most informed decisions.
The Market Opportunity
According to
·McKinsey Global Institute estimates up to a
·PwC sees a truly global effect from AI, with an estimated 14 percent lift in
global GDP possible by 2030, a total contribution of
·In 2021 alone, Gartner projects AI augmentation will create
·IDC states that efficiencies driven by AI in CRM could increase global revenues
by
·The COVID-19 pandemic has accelerated AI-powered digital transformation across businesses. Additional research from McKinsey cites that 25 percent of almost 2,400 business leaders surveyed said they increased AI adoption due to the pandemic.
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We believe
Ad-targeting companies such as
This is cause for enormous concern within the advertising industry. The Cookie
Apocalypse coming in 2022 could wipe out 85% of the digital market according to
Data Science Analyst,
We believe that our AIAD platform will deliver a solution that will overcome
this problem caused by
Instead, our platform uses AI to manage "personas" which we believe will now become more important than ever for targeting purposes. Cookies are dead. Also, our use of personas will overcome another challenge for the ad targeting industry created by Apple as soon as it releases its next operating system that will ask users to opt in to share their location on every mobile app. As a result, location data will decrease significantly to the point where it won't be scalable.
A persona is a proxy for a brand's target audience. A proxy represents someone who has the same interests, priorities and concerns as the brand's buyers. Within the brand's target market, there are several ideal customer profiles, and each ideal customer profile could have a multiple number of personas. Developing these personas is based on extensive research and requires the use of artificial intelligence and machine learning tools.
We believe the
Past Revenue Model
Historically, we charged a fixed or variable implementation fee to design, build and execute on digital marketing campaigns. These campaigns or custom solutions consisted of professional services fees as well as mark up on media spend. Our professional services were billed at hourly or monthly rates, depending on the customer's needs.
Future Revenue
Beginning in Q4 of 2021, we pivoted the focus of our business to a software licensing and delivery model, whereby our software is centrally hosted and licensed on a monthly subscription basis. We charge a flat percentage of clients' monthly ad spend budget for software license fees, and a flat percentage of their monthly ad spend budget for media activation and placement. We believe this provides greater transparency to the client as well as makes the Company's revenue more consistent and predictable. We believe this shift towards SaaS recurring revenue can potentially be highly valuable to the Company and its shareholders.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations, including the discussion on liquidity and capital resources, are
based upon our Consolidated Financial Statements, which have been prepared in
accordance with accounting principles generally accepted in
The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the estimated recoverable amounts of trade accounts receivable, impairment of long-lived assets, revenue recognition, and deferred tax assets. We believe the following critical accounting policies require more significant judgment and estimates used in the preparation of the Consolidated Financial Statements.
Among the significant judgments made by management in the preparation of our Consolidated Financial Statements are the following:
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Revenue recognition
On
Included in revenue are costs that are reimbursed by our clients, including third party services, such as photographers and stylists, furniture, supplies, and the largest component, digital advertising. We have determined, based on our review of ASC 606-10-55-39, that the amounts classified as reimbursable costs should be recorded as gross, due to the following factors:
? The Company is primarily in control of the inputs of the project and
responsible for the completion of the client contract;
? We have discretion in establishing price; and
? We have discretion in supplier selection.
Accounts receivable
The Company extends credit to its customers who are located nationwide.
Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers' financial condition. Management reviews accounts receivable on a regular basis, based on contracted terms and how recently payments have been received to determine if any such amounts will potentially be uncollected. The Company includes any balances that are determined to be uncollectible in its allowance for doubtful accounts.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of a long-lived asset, management evaluates whether the estimated future undiscounted net cash flows from the asset are less than its carrying amount. If impairment is indicated, the long-lived asset would be written down to fair value. Fair value is determined by an evaluation of available price information at which assets could be bought or sold, including quoted market prices, if available, or the present value of the estimated future cash flows based on reasonable and supportable assumptions.
Indefinite Lived Intangibles and Goodwill Assets
The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, "Business Combinations," where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.
The Company tests for indefinite lived intangibles and goodwill impairment in
the fourth quarter of each year and whenever events or circumstances indicate
that the carrying amount of the asset exceeds its fair value and may not be
recoverable. In accordance with its policies, the Company performed a
qualitative assessment of indefinite lived intangibles and goodwill at
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The impairment test conducted by the Company includes an assessment of whether events occurred that may have resulted in impairment of goodwill and intangible assets. Because it was determined that events had occurred which effected the fair value of goodwill and intangible assets, the Company conducted the two-step approach to determine the fair value and required adjustment. The steps are as follows:
1. Based on the totality of qualitative factors, determine whether the carrying
amount of the intangible asset may not be recoverable. Qualitative factors
and key assumptions reviewed include the following:
? Increases in costs, such as labor, materials or other costs that could
negatively affect future cash flows. The Company assumed that costs associated
with labor, materials, and other costs should be consistent with fair market
levels. If the costs were materially higher than fair market levels, then such
costs may adversely affect the future cash flows of the Company or reporting
units.
? Financial performance, such as negative or declining cash flows, or reductions
in revenue may adversely affect recoverability of the recorded value of the
intangible assets. During our analysis, the Company assumes that revenues
should remain relatively consistent or show gradual growth month-to-month and
quarter-to-quarter. If we report revenue declines, instead of increases or
flat levels, then such condition may adversely affect the future cash flows of
the Company or reporting units.
? Legal, regulatory, contractual, political, business or other factors that
could affect future cash flows. During our analysis, the Company assumes that
the legal, regulatory, political or business conditions should remain
consistent, without placing material pressure on the Company or any of its
reporting units. If such conditions were to become materially different than
what has been experienced historically, then such conditions may adversely
affect the future cash flows of the Company or reporting units.
? Entity-specific events such as losses of management, key personnel, or
customers, may adversely affect future cash flows. During our analysis, the
Company assumes that members of management, key personnel, and customers will
remain consistent period-over-period. If not effectively replaced, the loss of
members of management and key employees could adversely affect operations,
culture, morale and overall success of the Company. In addition, if material
revenue from key customers is lost and not replaced, then future cash flows
will be adversely affected.
? Industry or market considerations, such as competition, changes in the market,
changes in customer dependence on our service offering, or obsolescence could
adversely affect the Company or its reporting units. We understand that the
markets we serve are constantly changing, requiring us to change with them.
During our analysis, we assume that we will address new opportunities in
service offerings and industries served. If we do not make such changes, then
we may experience declines in revenue and cash flow, making it difficult to
re-capture market share.
? Macroeconomic conditions such as deterioration in general economic conditions
or limitations on accessing capital could adversely affect the Company. During
our analysis, we acknowledge that macroeconomic factors, such as the economy,
may affect our business plan because our customers may reduce budgets for our
services. If there are material declines in the economy, which lead to
reductions in revenue then such conditions may adversely affect the Company.
2. Compare the carrying amount of the intangible asset to the fair value.
3. If the carrying amount is greater than the fair value, then the carrying
amount is reduced to reflect fair value.
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Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management's estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, and accrued liabilities are carried at
cost, which approximates their fair value, due to the relatively short maturity
of these instruments. As of
Fair value is defined as the price to sell an asset or transfer a liability, between market participants at the measurement date. Fair value measurements assume that the asset or liability is (1) exchanged in an orderly manner, (2) the exchange is in the principal market for that asset or liability, and (3) the market participants are independent, knowledgeable, able and willing to transact an exchange. Fair value accounting and reporting establishes a framework for measuring fair value by creating a hierarchy for observable independent market inputs and unobservable market assumptions and expands disclosures about fair value measurements. Considerable judgment is required to interpret the market data used to develop fair value estimates. As such, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current exchange. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair value.
Off-Balance Sheet Arrangements
None
Recently Adopted Accounting Pronouncements
The Company does not elect to delay complying with any new or revised accounting standards, but to apply all standards required of public companies, according to those required application dates.
Management reviewed accounting pronouncements issued during the quarter ended
Management reviewed accounting pronouncements issued during the year ended
In
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Recently Issued Accounting Pronouncements Not Yet Adopted
In
In
Results of Operations for the Three months Ended
REVENUE
Total revenue for the three months ended
COST OF REVENUE
Cost of revenue for the three months ended
The increase was primarily due to the increase in digital marketing ad costs, platform fees, salaries, and partially offset by decrease of discontinued operations.
SALARIES AND OUTSIDE SERVICES
Salaries and outside services for the three months ended
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative ("SG&A") expenses for the three months
ended
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for the three months ended
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OTHER INCOME AND EXPENSE
Total other income and expense for the three months ended
NET INCOME/(LOSS)
The net loss for the three months ended
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital (i.e. the difference between current assets
and current liabilities) of
Cash flow used in operating activities was
Cash flow provided by investing activities was
Cash flow provided by financing activities was
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
During the current period, one investor provided short-term financing under a
stock purchase arrangement disclosed in footnote 10. The Company does not have
any long-term sources of liquidity. As of
The Company has negative monthly cash flows from operations of approximately
The Consolidated Financial Statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. Management believes that our current cash flow will sustain our operations and obligations as they become due, and will allow the development of our core business operations. Furthermore, the Company anticipates that it will raise additional capital through investments from our existing shareholders, prospective new investors and future revenue generated by our operations.
Any additional capital we may raise through the sale of equity or equity-backed securities may dilute current stockholders' ownership percentages and could also result in a decrease in the fair market value of our equity securities. The terms of the securities issued by us in future capital transactions may be more favorable to new investors and may include preferences, superior voting rights and the issuance of warrants or other derivative securities which may have a further dilutive effect.
Furthermore, any additional debt or equity or other financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business. Further, we may not be able to continue operations if we do not generate sufficient revenues from operations.
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We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our reported financial results.
Off-Balance Sheet Arrangements
None
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