AiADVERTISING, INC - Form 10-Q SEC filing

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended September 30, 2022.

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from _______________ to ______________

Commission File Number: 000-13215

AiADVERTISING, INC.
(Exact name of registrant as specified in its charter)

Nevada	30-0050402
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

321 Sixth Street, San Antonio, TX 78215
(Address of principal executive offices) (Zip Code)

(805) 964-3313
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act: None

Tile of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	x	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

As of November 14, 2022, the number of shares outstanding of the registrant’s common stock, par value $0.001, was 1,160,232,156

Table of Contents

PART I – FINANCIAL INFORMATION		Page

Item 1.	Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)	4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and September 30, 2021 (unaudited)	5
	Condensed Consolidated Statement of Shareholders’ Equity (Deficit) for the nine months ended September 30, 2022 and September 30, 2021 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and September 30, 2021 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	42

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Mine Safety Disclosures	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

Signatures		45

PART I. - FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

AIADVERTISING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
		September 30, 2022		December 31, 2021
		(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	194,576	$	3,431,455
Accounts receivable, net		652,318		497,422
Costs in excess of billings		22,940		27,779
Prepaid and other current Assets		132,298		182,427
TOTAL CURRENT ASSETS		1,002,132		4,139,083

PROPERTY & EQUIPMENT, net		109,612		114,249
RIGHT-OF-USE ASSETS		182,467		66,369

OTHER ASSETS
Lease deposit		8,939		9,800
Goodwill and other intangible assets, net		20,202		20,202
TOTAL OTHER ASSETS		29,141		30,002

TOTAL ASSETS	$	1,323,352	$	4,349,703

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	1,551,206	$	791,727
Accounts payable, related party		10,817		10,817
Accrued expenses		56,693		72,158
Operating lease liability		27,302		66,369
Deferred revenue and customer deposit		788,064		491,635
TOTAL CURRENT LIABILITIES		2,434,082		1,432,706

LONG TERM LIABILITIES
Capital lease obligation, long term		155,165		-
TOTAL LONG TERM LIABILITIES		155,165		-

TOTAL LIABILITIES		2,589,247		1,432,706
COMMITMENTS AND CONTINGENCIES (see Note 14)

SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value; 5,000,000 Authorized shares:
Series B Preferred stock; 25,000 authorized, 18,025 shares issued and outstanding;		18		18
Series C Preferred Stock; 25,000 authorized, 14,425 shares issued and outstanding;		14		14
Series D Preferred Stock; 90,000 authorized, 86,021 and 90,000 shares issued and outstanding;		86		86
Series E Preferred stock; 10,000 authorized, 10,000 shares issued and outstanding;		10		10
Series F Preferred stock; 800,000 authorized, zero and 2,413 shares issued and outstanding;		-		-
Series G Preferred stock; 2,600 authorized, 2,597 shares issued and outstanding;		3		3
Common stock, $0.001 par value; 10,000,000,000 and 2,000,000,000 authorized shares; 1,145,958,101 and 1,007,953,473 shares issued and outstanding, respectively		1,145,967		1,055,566
Additional paid in capital		49,030,647		46,667,049
Common stock payable, consisting of 5,000,000 and 2,278,481 shares valued at $0.1128 and $0.001 respectively		566,278		564,000
Accumulated deficit		(52,008,918)		(45,369,749)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)		(1,265,895)		2,916,997

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)	$	1,323,352	$	4,349,703

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

AIADVERTISING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


		Three Months Ended				Nine Months Ended
		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021

REVENUE	$	1,850,456	$	1,779,848	$	4,668,744	$	5,327,648


COST OF REVENUE		1,788,484		1,381,612		4,952,104		3,660,895
Gross Profit		61,972		398,236		(283,360)		1,666,753

OPERATING EXPENSES
Salaries and outside services		1,125,497		377,101		3,249,006		2,503,342
Selling, general and administrative expenses		950,096		711,261		3,104,153		3,056,191
Depreciation and amortization		9,413		9,801		27,847		32,170
TOTAL OPERATING (INCOME) EXPENSES		2,085,006		1,098,163		6,381,006		5,591,703

INCOME (LOSS) FROM OPERATIONS BEFORE OTHER INCOME AND TAXES	$	(2,023,034)	$	(699,927)	$	(6,664,366)	$	(3,924,950)

OTHER INCOME (EXPENSE)
Gain (loss) on extinguishment of debt		-		186,803		-		282,418
Gain (loss) forgiveness of PPP Loan		-		-		-		-
Gain (loss) on Sales of Discontinued Operations		-		-		25,197		226,769
Interest expense		-		931,073		-		(3,155,424)
TOTAL OTHER INCOME (EXPENSE)	$	-	$	1,117,876	$	25,197	$	(2,646,237)

INCOME/(LOSS) FROM OPERATIONS BEFORE PROVISION FOR TAXES	$	(2,023,034)	$	417,949	$	(6,639,169)	$	(6,571,187)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS BEFORE PROVISION FOR TAXES	$	-	$	1,919	$	-	$	73,614

PROVISION (BENEFIT) FOR INCOME TAXES		-		-		-		-

NET INCOME/(LOSS)	$	(2,023,034)	$	419,868	$	(6,639,169)	$	(6,497,573)

PREFERRED DIVIDENDS		-		-		-		12,525

NET INCOME/(LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(2,023,034)	$	419,868	$	(6,639,169)	$	$ (6,510,098)

NET LOSS PER SHARE
BASIC	$	(0.00)	$	(0.00)	$	(0.01)	$	(0.01)
DILUTED	$	(0.00)	$	(0.00)	$	(0.01)	$	(0.01)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC		1,134,900,469		1,006,211,885		1,108,436,079		931,985,669
DILUTED		1,134,900,469		1,006,211,885		1,108,436,079		931,985,669

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

AIADVERTISING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)

	Nine Months Ended September 30, 2021

	Preferred Stock			Common Stock
	Shares		Amount	Shares		Amount		Additional Paid-in Capital		Common Stock Payable	Accumulated Deficit		Total
Balance, December 31, 2020	147,500	$	147	683,940,104	$	683,949	$	31,486,837	$	-	(36,886,978)	$	(4,716,045)

Conversion of convertible note	-		-	18,313,074		18,313		164,818			-		183,131
Stock issuances to lenders	-		-	110,000,000		110,000		12,652,143			-		12,762,143
Series A preferred stock dividend declared ($0.86 per share)	-		-	-		-		(8,604)			-		(8,604)
Series F preferred stock dividend declared ($0.67 per share)	-		-	-		-		(1,512)			-		(1,512)
Stock based compensation	-		-	-		-		238,634			-		238,634
Stock option exercises	-		-	3,528,955		3,529		(3,529)			-		-
Preferred stock conversion	(10,000)		(10)	100,000,000		100,000		(99,990)			-		-
Warrant issuance	-		-	-		-		983,571			-		983,571
Warrant exercise	-		-	8,556,034		8,556		(8,556)			-		-
Other - RegA Investor Funds	(100)		-	-		-		(2,500)			-		(2,500)
Issuance of Series H Preferred stock	1,000		1					4,999,999					5,000,000
Net Income/(Loss)	-		-	-		-		-			(10,506,321)		(10,506,321)

Balance, March 31, 2021	138,400		138	924,338,167		924,347		50,401,311			(47,393,299)		3,932,497

Series A preferred stock dividend declared ($0.86 per share)	-		-	-		-		(101)			-		(101)

Series F preferred stock dividend declared ($0.67 per share)	-		-	-		-		(2,308)			-		(2,308)

Stock based compensation	-		-	-		-		252,839			-		252,839

Stock option exercises	-		-	5,302,984		5,303		(5,303)			-		-

Preferred stock conversion	(3,979)		(4)	9,947,500		9,948		(9,944)			-		-

Warrant exercise	-		-	65,311,502		65,312		(7,455)			-		57,857

Redemption of Series F Preferred Stock	(2,353)		(2)	-		-		(58,823)			-		(58,825)

Redempion of Series H Preferred stock	(1,000)		(1)					1					-

Revaluation of Series H Preferred Stock	-		-					(4,630,404)					(4,630,404)

Net Income/(Loss)	-		-	-		-		-			3,588,880		3,588,880

Balance, June 30, 2021	131,068		131	1,004,900,153		1,004,910		45,939,813			(43,804,419)		3,140,435

Series A preferred stock dividend declared ($0.86 per share)	-		-	-		-		-			-		-

Series F preferred stock dividend declared ($0.67 per share)	-		-	-		-		-			-		-

Stock based compensation	-		-	-		-		236,797			-		236,797

Stock option exercises	-		-	1,750,688		1,751		(1,751)			-		-

Preferred stock conversion	-		-	-		-		-			-		-

Warrant exercise	-		-	1,302,632		1,303		(1,303)			-		-

Issuance of Series H Preferred stock	1,000		1					141,766					141,767

Subsequent expenses paid related to sales of common stock								(1,441,650)					(1,441,650)

Net Income/(Loss)	-		-	-		-					419,868		419,868

Balance, September 30, 2021	132,068		132	1,007,953,473		1,007,964		44,873,672			(43,384,551)		2,497,217

Conversion of convertible note, related party				44,629,338		44,629		533,245					577,874
Stock issuances to lenders				85,000,000		85,000		8,415,493					8,500,493
Stock issuances to related party				25,000,000		25,000		2,795,000					2,820,000
Series A preferred stock dividend declared ($0.86 per share)	-		-	-		-		(8,705)			-		(8,705)
Series F preferred stock dividend declared ($0.67 per share)	-		-	-		-		(3,820)			-		(3,820)
Stock based compensation	-		-	-		-		1,247,048			-		1,247,048
Stock option exercised - cashless basis	-		-	11,107,502		11,108		(11,108)			-		-
Stock option exercised - cash basis				333,334		333		(333)					-
Preferred stock conversion	(13,979)		(14)	109,947,500		109,948		(109,934)			-		-
Warrant issuance								983,571					983,571
Warrant exercise - cashless basis	-		-	17,313,025		17,314		(17,314)			-		-
Warrant exercise - cash basis				78,285,715		78,285		907,029					985,314
Other - RegA Investor Funds	(100)							(2,500)					(2,500)
Redemption of Series F Preferred Stock	(2,353)		(2)					(58,823)					(58,825)
Redempion of Series H Preferred stock	(1,000)		(2)					2					-
Issuance of Series H Preferred stock	1,000		2					511,361					511,363
Common stock payable										564,000			564,000
Net Income/(Loss)	-		-	-		-					(8,482,771)		(8,482,771)
Balance, December 31, 2021	131,068	$	131	1,055,556,518	$	1,055,566	$	46,667,049	$	564,000	(45,369,749)	$	2,916,997

	Nine Months Ended September 30, 2022
Balance, December 31, 2021	131,068	$	131	1,055,556,518	$	1,055,566	$	46,667,049	$	564,000	(45,369,749)	$	2,916,997

Conversion of convertible note, related party													-
Proceeds from issuance of common stock				55,300,000		55,300		588,324					643,624
Stock issuances to related party													-
Stock based compensation								393,546			-		393,546
Stock option exercised - cashless basis				912,442		912		(912)			-		-
Stock option exercised - cash basis													-
Preferred stock conversion											-		-
Warrant issuance													-
Warrant exercise - cashless basis											-		-
Warrant exercise - cash basis													-
Net Loss	-		-	-		-					(2,599,355)		(2,599,355)

Balance, March 31, 2022	131,068	$	131	1,111,768,960	$	1,111,778	$	47,648,007	$	564,000	(47,969,104)	$	1,354,812

Conversion of convertible note, related party													-
Proceeds from issuance of common stock				22,120,000		22,120		274,415					296,535
Stock Issuance in exchange for services				195,086		195		3,179					3,374
Stock issuances to related party													-
Stock based compensation								500,571			-		500,571
Stock option exercised - cashless basis											-		-
Stock option exercised - cash basis													-
Preferred stock conversion											-		-
Warrant issuance													-
Warrant exercise - cashless basis											-		-
Warrant exercise - cash basis													-
Net Loss	-		-	-		-					(2,016,780)		(2,016,780)

Balance, June 30, 2022	131,068	$	131	1,134,084,046	$	1,134,093	$	48,426,172	$	564,000	(49,985,884)	$	138,512

Conversion of convertible note, related party													-
Proceeds from issuance of common stock													-
Stock Issuance in exchange for services				14,814,814		14,814		105,186					120,000
Stock issuances to related party													-
Stock based compensation								498,627			-		498,627
Stock option exercised - cashless basis											-		-
Stock option exercised - cash basis													-
Retired stock issuance				(2,940,759)		(2,940)		2,940					-
Preferred stock conversion											-		-
Warrant issuance													-
Warrant exercise - cashless basis											-		-
Warrant exercise - cash basis													-
Common Stock Payable								(2,278)		2,278			-
Net Loss	-		-	-		-					(2,023,034)		(2,023,034)

Balance, September 30, 2022	131,068	$	131	1,145,958,101	$	1,145,967	$	49,030,647	$	566,278	(52,008,918)	$	(1,265,895)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

AIADVERTISING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continued operations	$	(6,639,169)	$	(6,571,187)

Adjustment to reconcile net loss to net cash (used in) operating activities
Bad debt expense		(1,150)		(2,274)
Depreciation and amortization		27,847		32,170
Finance charge, related party		-		2,820,000
Amortization of Debt Discount		-		274,992
Gain on settlement of debt		-		(282,418)
Gain on forgiveness of PPP loan		-		-
Gain on Sale of Discontinued Operations		(25,197)		(226,769)
Non-cash compensation expense		1,392,744		728,270
Non-cash service expense		123,374		983,571
Issuance of Series H Pref to employee		-		511,363
Change in assets and liabilities:
(Increase) Decrease in:
Accounts receivable		(153,746)		(381,553)
Prepaid expenses and other assets		50,129		(129,079)
Costs in excess of billings		4,839		-
Lease deposit		861		-
Accounts payable		759,479		(646,226)
Accrued expenses		(15,466)		(244,274)
Customer Deposits		296,429		(264,336)
NET CASH (USED IN) OPERATING ACTIVITIES - continued operations		(4,179,026)		(3,397,750)
NET CASH PROVIDED BY OPERATING ACTIVITIES - discontinued operations		-		73,614
NET CASH (USED IN) OPERATING ACTIVITIES		(4,179,026)		(3,324,136)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for purchase of fixed assets		(23,209)		(75,265)
Proceeds from the sale of discontinued operations		25,197		226,769
NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES		1,988		151,504

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividend		-		(408,805)
Proceeds of issuance of common stock, net		940,159		8,558,350
Proceeds (payments) on line of credit, net		-		(366,012)
Proceeds (payments) of preferred stock		-		(61,325)
Principal payments on debt, third party		-		(750,000)
Proceeds from PPP loan		-		780,680
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES		940,159		7,752,888

NET INCREASE / (DECREASE) IN CASH		(3,236,879)		4,580,256

CASH, BEGINNING OF PERIOD		3,431,455		10,538

CASH, END OF PERIOD	$	194,576	$	4,590,794

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	-	$	285,293
Taxes paid	$	-	$	-

Non-cash financing activities:
Conversion of notes payable to common stock, related party	$	-	$	181,131
Right of use assets exchange for lease liability	$	186,706	$	77,895
Change in right of use asset	$	(70,608)	$	-
Retired Stock Issuance	$	2,940	$	-
Conversion of preferred to common stock	$	-	$	109,948
Exercise of stock options	$	3,190	$	10,583
Exercise of warrants	$	-	$	17,314

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

AiADVERSTISING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

SEPTEMBER 30, 2022

1. BASIS OF PRESENTATION

The accompanying unaudited Consolidated Financial Statements of AiAdvertising, Inc. (“AiAdvertising,” “we,” “us,” “our,” or the “Company”) and its wholly-owned subsidiaries, have been prepared in accordance with the instructions to interim financial reporting as prescribed by the Securities and Exchange Commission (the “SEC”). The results for the interim periods are not necessarily indicative of results for the entire year. These interim financial statements do not include all disclosures required by generally accepted accounting principles (“GAAP”) and should be read in conjunction with our consolidated financial statements and footnotes in the Company's annual report on Form 10-K filed with the SEC on April 14, 2022. In the opinion of management, the unaudited Consolidated Financial Statements contained in this report include all known accruals and adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods reported herein. Any such adjustments are of a normal recurring nature.

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries which the Company does not expect to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

Going Concern

The accompanying 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. The accompanying Consolidated Financial Statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. As of September 30, 2022, management reassessed going concern and found the Company will have sufficient liquidity for the next 12 months such that there is no substantial doubt about its ability to continue as a going concern. During the year ended December 31, 2021 the Company raised capital from investors through sales of securities and normal course of business operations, which allowed the company to improve cash flow and pay down obligations. As of September 30, 2022, the Company had negative working capital of $1,431,950. We have historically reported net losses, and negative cash flows from operations, which raised substantial doubt about the Company’s ability to continue as a going concern in previous years. The appropriateness of using the going concern basis is dependent upon, among other things, raising additional capital. Historically, the Company has obtained funds from investors since its inception through sales of our securities. The Company will also seek to generate additional working capital from increasing sales from its Ai Platform, creative, website development and digital advertising service offerings, and continue to pursue its business plan and purposes.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of AiAdvertising is presented to assist in understanding the Company’s Consolidated Financial Statements. The Consolidated Financial Statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the Consolidated Financial Statements.

The Consolidated Financial Statements include the Company and its wholly owned subsidiaries CLWD Operations, Inc a Delaware corporation (“CLWD Operations”), Parscale Digital, Inc., a Nevada corporation (“Parscale Digital”), WebTegrity, Inc., a Nevada corporation (“WebTegrity”), Data Propria, Inc., a Nevada corporation (“Data Propria”), and Giles Design Bureau, Inc., a Nevada corporation (“Giles Design Bureau). All significant inter-company transactions are eliminated in the consolidation of the financial statements.

As of September 30, 2022 the Company dissolved Parscale Digital, Inc., Data Propria, Inc., and WebTegrity, Inc.

Reclassifications

During the quarter ended September 30, 2022 we recognized cost of revenue in the statement of operations. Certain prior periods have been reclassified to reflect current period presentation.

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 contractual 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 September 30, 2022 and December 31, 2021 are $5,619 and $4,469 respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions by management in determining the reported amounts of assets and liabilities, disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are primarily used in our revenue recognition, the allowance for doubtful account receivable, fair value assumptions in accounting for business combinations and analyzing goodwill, intangible assets and long-lived asset impairments and adjustments, the deferred tax valuation allowance, and the fair value of stock options and warrants.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of September 30, 2022, the Company held cash and cash equivalents in the amount of $194,576, which was held in the Company’s operating bank accounts. This amount is held in a bank account exceeding the FDIC insured limit of $250,000.

Property and Equipment

Property and equipment are stated at cost, and are depreciated or amortized using the straight-line method over the following estimated useful lives:


Furniture, fixtures & equipment		7 Years
Computer equipment		5 Years
Commerce server		5 Years
Computer software		3 - 5 Years
Leasehold improvements		Length of the lease

Depreciation expenses were $27,847 and $31,653 for the nine months ended September 30, 2022 and 2021, respectively

Revenue Recognition

The Company recognizes income when the service is provided or when product is delivered. We present revenue, net of customer incentives. Most of our income is generated from professional services and site development fees. We provide online marketing services that we purchase from third parties. The gross revenue presented in our statement of operations includes digital advertising revenue. We also offer professional services such as development services. The fees for development services with multiple deliverables constitute a separate unit of accounting in accordance with ASC 606, which are recognized as the work is performed. Upfront fees for development services or other customer services are deferred until certain implementation or contractual milestones have been achieved. If we have performed work for our clients, but have not invoiced clients for that work, then we record the value of the work on the balance sheet as costs in excess of billings. The terms of services contracts generally are for periods of less than one year. The deferred revenue and customer deposits as of September 30, 2022, and December 31, 2021 were $788,064 and $491,635, respectively. The costs in excess of billings as of September 30, 2022 and December 31, 2021 was $22,940 and $27,779, respectively.

We always strive to satisfy our customers by providing superior quality and service. Since we typically bill based on a Time and Materials basis, there are no returns for work delivered. When discrepancies or disagreements arise, we do our best to reconcile them by assessing the situation on a case-by-case basis and determining if any discounts can be given. Historically, we have not granted any significant discounts.

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 revenue, due to the following factors:

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The Company is primarily in control of the inputs of the project and responsible for the completion of the client contract;

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We have discretion in establishing price; and

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We have discretion in supplier selection.

Research and Development

Research and development costs are expensed as incurred. Total research and development costs were $588,705 and zero for the nine months ended September 30, 2022 and 2021, respectively.

Advertising Costs

The Company expenses the cost of advertising and promotional materials when incurred. Total advertising costs were $159,775 and $89,162 for the nine months ended September 30, 2022 and 2021, respectively.

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 September 30, 2022 and December 31, 2021, the Company’s notes payable have stated borrowing rates that are consistent with those currently available to the Company and, accordingly, the Company believes the carrying value of these debt instruments approximates their fair value.

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.

ASC Topic 820 established a nine-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

·	Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

·	Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

·	Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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. 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. 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.

The impairment test conducted by the Company includes a two-step approach to determine whether it is more likely than not that impairment exists. If it is determined, after step one, that it is not more likely than not, that impairment exists, then no further analysis is conducted. The steps are as follows:

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:

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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.

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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 revenue declines, instead of increases or flat levels, then such condition may adversely affect the future cash flows of the Company or reporting units.

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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.

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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.

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Industry or market considerations, such as competition, changes in the market, changes in customer dependence on our service offerings, 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 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.

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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 worsening in economic conditions, which lead to reductions in revenue then such conditions may adversely affect the Company.

Compare the carrying amount of the intangible asset to the fair value.

If the carrying amount is greater than the fair value, then the carrying amount is reduced to reflect fair value.

Goodwill and Intangible assets are comprised of the following, presented as net of amortization:

September 30, 2022

		AiAdvertising		Total
Domain name		20,202		20,202
Total	$	20,202	$	20,202

December 31, 2021

		AiAdvertising		Total
Domain name		20,202		20,202
Total	$	20,202	$	20,202

Business Combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair value, at the acquisition date, of assets received, liabilities incurred or assumed, and equity instrum