AIADVERTISING, INC. The following Management's Discussion and Analysis should be read in conjunction
with our consolidated financial statements and the related notes thereto
included elsewhere herein. The Management's Discussion and Analysis contains
forward-looking statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions. Any statements
that are not statements of historical fact are forward-looking statements. When
used, the words "believe," "plan," "intend," "anticipate," "target," "estimate,"
"expect," and the like, and/or future-tense or conditional constructions
("will," "may," "could," "should," etc.), or similar expressions, identify
certain of these forward-looking statements. These forward-looking statements
are subject to risks and uncertainties that could cause actual results or events
to differ materially from those expressed or implied by the forward-looking
statements in this annual report. Our actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of several factors including, but not limited to, those
noted under "Risk Factors" of the reports filed with the
Overview-
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 financial statements, which have been prepared in accordance with
accounting principles generally accepted in
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Among the significant judgments made by management in the preparation of our financial statements are the following:
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. After all attempts to collect a receivable have failed, the
receivable is written off. The balances of the allowance account at
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, 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
market we serve are constantly changing, requiring us to change with it.
During our analysis, we assume that we will address new opportunities in
service offering 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.
In accordance with its policies, the Company performed a qualitative assessment
of indefinite lived intangibles and goodwill at
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December 31, 2021 AiAdvertising Total Domain name 20,202 20,202 Total $ 20,202$ 20,202 December 31, 2020 AiAdvertising Total Domain name 26,582 26,842 Total $ 26,582$ 26,582 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. During year ended 2020, the Company's notes payable had
stated borrowing rates that were consistent with those currently available to
the Company and, accordingly, the Company believes the carrying value of these
debt instruments approximated their fair value. 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
Recent 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 year ended
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Management reviewed accounting pronouncements issued during the year ended
In
Recently Issued Accounting Pronouncements Not Yet Adopted
In
In
Results of Operations for the Year Ended
REVENUE
Total revenue for the year ended
COST OF REVENUE
Cost of revenue for the year ended
SALARIES AND OUTSIDE SERVICES
Salaries and outside services for the year ended
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SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
SG&A expenses for the year ended
LOSS ON IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
Loss on impairment of goodwill and intangible assets for the year ended
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses for the year ended
OTHER INCOME AND EXPENSE
Total other income and expense for the year ended
NET LOSS
The net loss for the year ended
LIQUIDITY AND CAPITAL RESOURCES
The Company had a 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.
As of
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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, additionally 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.
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.
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