Item 7. Management’s Discussion and Analysis
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
THE FOLLOWING PRESENTATION OF OUR PLAN
OF OPERATION OF SHOULD BE READ IN CONJUNCTION WITH THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION
INCLUDED HEREIN.
RECENT
DEVELOPMENTS
On January 28, 2023, the Agent for the
Investors delivered a notice to us (the “Acceleration Notice”) stating that the Agent and Investors (a) elected to
hereby cause the outstanding principal amount of the Investor Notes, plus accrued but unpaid interest, liquidated damages and other
amounts owing in respect thereof, to become immediately due and payable in cash, (b) intended to commence legal action to collect
any or all of the amounts due under the Investor Notes, and (c) sought the appointment of a receiver or trustee as a means of realizing
proceeds on their collateral.
On February 1, 2023, we entered into the
Partial Foreclosure Agreement with the Investors pursuant to which we transferred ownership of our FCC licenses and other broadcast
television assets to a third-party entity controlled by the Investors. In consideration therefor, the Investors agreed to reduce
the indebtedness under the Notes by a $11,600,000.
On September 21, 2023, the Agent delivered
a notice to us that the Agent exercised the Investors’ rights to vote the Pledged Interests and to exercise the Pledgees’
rights, powers and privileges, to pass certain resolutions and to amend our bylaws then in effect to, among other things, (i) remove
the Board of Directors and all Company officers, and (ii) reduce the number of the Board of Directors from three directors to one
director. As a result of the Agent sending such notice and exercising its rights to vote the Pledged Interests, a Change of Control
occurred.
In
addition to the defaults described above, as of the date of this Annual Report, and since the last day of the year ended December
31, 2022, we are in default under a certain loans payable for failure to pay principal and accrued interest on such loans, with
an aggregate of approximately $3.5 million and $3.0 million of principal, accrued interest and late fees, as of such date and
as of December 31, 2022, respectively. As a result of the Change of Control, we intend to strategize with the holders of such
notes to extend, modify or otherwise revisit the terms of such indebtedness in order to resolve such outstanding defaults.
On November 6, 2023, the shareholders
of the Company removed Philip Falcone and Warren Zenna as our directors and appointed Thomas Amon as the sole member of our board
of directors. Mr. Amon removed all our officers and was appointed as the Company’s President, Secretary, Treasurer, Chief
Executive Officer, Chief Financial Officer and Principal Accounting Officer.
RESULTS
OF OPERATIONS
Our consolidated financial statements included
herein have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating
to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to
continue in operation. We expect we will require additional capital to meet our long-term operating requirements. We expect to
raise additional capital through, among other things, the sale of equity or debt securities.
Years Ended December 31, 2022 and December
31, 2021
General
and administrative expenses
General and administrative expenses increased
to $629,619 for the year ended December 31, 2022, from $8,478 for the year ended December 31, 2021. The increase was primarily
the result of recruiting and hiring employees and outside talent to develop BCTV content and distribution arrangements.
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Professional Fees
Professional fees increased to $1,910,039
for the year ended December 31, 2022, from $411,447 for the year ended December 31, 2021. The increase was primarily the result
of an increase in the consulting, legal and accounting expense associated with regulatory filings for the SEC, developing the business
and fundraising efforts.
Goodwill Impairment Loss
Our goodwill impairment loss was $0 and
$4,224,962 for the years ended December 31, 2022 and 2021, respectively. Due to a sustained decline in the market capitalization
of our Common Stock during the fourth quarter of 2021, we performed an interim goodwill impairment test. Management considered
that, along with other possible factors affecting the assessment of our operations for the purposes of performing a goodwill impairment
assessment, including management’s assumptions about expected future revenue forecasts and discount rates, changes in the
overall economy, trends in the stock price, estimated control premiums, other operating conditions, and the effect of changes in
estimates and assumptions that could materially affect the determination of fair value and goodwill. As a result of the significant
decline in our market capitalization despite any of the other positive factors contemplated and relatively little change in our
ongoing business operations, the outcome of this goodwill impairment test resulted in a charge for the impairment of goodwill of
$4,224,962 recorded in the consolidated financial statements for the year ended December 31, 2021.
Loss from Impairment of Long-Lived Assets
Our loss from impairment of long-lived
assets was $197,427 and $0 for the years ended December 31, 2022 and 2021, respectively. Our intangible assets primarily consist
of our domain names and access to a third-party streaming platform for our BCTV business, which are considered indefinite-lived
intangible assets that are not amortized, but instead are tested at least annually for impairment. Based on management’s
assessment of the lack of revenue to date and the prospects for future revenues using the intangible assets, we fully impaired
the assets and recognized an impairment charge of $197,427 in the year ended December 31, 2022.
Interest Expense
Interest expense increased to $5,952,153
for the year ended December 31, 2022, from $5,260,417 for the year ended December 31, 2021. The increase resulted primarily from
accruing default interest on the $16,500,000 of principal amount of Notes issued to the Investors starting on January 1, 2022.
Gain on Debt Extinguishment
Our gain on debt extinguishment was $0
for the year ended December 31, 2022, as compared to $9,126,294 for the year ended December 31, 2021. In 2021, we recognized a
non-cash net gain when we amended the conversion price of the Notes held by the Investors and when we extinguished outstanding
notes payable by issuing shares of our Series D Preferred Stock.
Gain from Derivative That is not Designated
in a Hedging Relationship
Our gain from derivative that is not designated
in a hedging relationship was $0 and $10,065,713 for the years ended December 31, 2022 and 2021, respectively.
Discontinued Operations
Our loss from discontinued operations was
$3,671,407 and $3,418,293 for the years ended December 31, 2022 and 2021, respectively. Effective February 1, 2023, we entered
into the Partial Foreclosure Agreement with the Investors, pursuant to which we transferred our ownership of the assets associated
with the broadcast television business of Sovryn, then our subsidiary, in consideration for a $11,600,000 reduction in the indebtedness
due under the Investor Notes. As a result, the revenues, expenses, assets and liabilities of Sovryn are included as discontinued
operations for the years ended December 31, 2022. Included in the loss from discontinued operations for the year ended December
31, 2022 is a $1,144,491 loss from impairment of our long-lived assets. On November 15, 2021, we sold our subsidiary, CZJ License
Inc. and designated its operations as discontinued.
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Net
Loss
Net loss decreased to $13,139,810 for
the year ended December 31, 2022, from $14,262,579 for the year ended December 31, 2021. The decrease was primarily the result
of a one-time $4,224,962 goodwill impairment loss in 2021 that was partial offset by a $1,144,941 loss from impairment of long-lived
assets from discontinued operations and a $197,427 loss from impairment of long-lived assets from continuing operations. Net loss
on a basic and diluted basis of $0.008 per share for the year ended December 31, 2022, based on 1,599,829,313 weighted average
shares outstanding, as compared to a net loss of $0.04 per share for the year ended December 31, 2021, based on 352,843,639 weighted
average shares outstanding. The increase in weighted average shares outstanding relates primarily to issuances of 192,073,017
shares to the Investors on October 11, 2021 in connection with the Notes we issued, the 1,091,388,889 shares we issued on October
11, 2021 to holders of shares of Series E-1 Preferred Stock pursuant to an exchange agreement and the 255,555,556 shares we issued
on November 2, 2021 in exchange for shares of our Preferred Series Stock, which were outstanding for all of 2022.
Liquidity
and Capital Resources
Cash
and Working Capital
As at December 31, 2022, we had $0
in cash and a $13,860,314 working capital deficit, compared to cash of $729 and working capital deficit of $3,673,317 as at December
31, 2021. The increase in the working capital deficit primarily resulted from classifying our obligations under the Investor’s
Notes as a current liability as a result of us being in default under the Notes during the year ended December 31, 2022.
We will require additional capital to
meet our long- and short-term operating requirements. For the year ended December 31, 2022, our principal source of liquidity
was our cash that we obtained from borrowings. Our principal use of cash was to fund operations. We expect that the principal
uses of cash in the future will be for continuing operations associated with rolling out our business plan and repayment of notes
payable that are not converted into our Common Stock or renegotiated.
Net
Cash Used in Operating Activities
We used cash of $2,820,304 in operating
activities for the year ended December 31 2022, compared to cash used of $2,802,410 in operating activities during the year ended
December 31, 2021.
Net
Cash Used in Investing Activities
We used cash of $0 in investing activities
during the year ended December 31,2022, compared to cash used of $855,750 in investing activities during the year ended December
31, 2021. In the year ended December 31,2021, we used cash to make loans to Top Dog Productions Inc. to build out our website.
Top Dog Productions, Inc. is a Los Angeles based TV production company that assisted us with developing BCTV content and production
of short segments as prototypes. On September 9, 2021, we issued a secured promissory note with Top Dog Productions, Inc. in the
aggregate principal sum of up to $2,000,000. accruing interest at a rate of 5% per annum. As of December 31, 2022, we advanced
$527,624 and accrued $26,510 in interest receivable. Based on management’s assessment of the collectability of the principal
and interest, we recognized an allowance for the entire amount and included the charge in bad debt expense for the year ended December
31, 2022.
Net Cash Provided by Financing Activities
Net cash provided by financing activities
of $1,752,000 came primarily from proceeds from subordinated loans entered into during the year ended December 31, 2022, compared
to $20,982,000 of cash provided by financing activities during the year ended December 31, 2021, which consisted primarily of the
proceeds from the Arena financing in February 2021, share subscriptions received, but not issued, for our Series G convertible
Preferred Stock, par value $0.001 per share (the “Series G Preferred Stock”), and proceeds from subordinated loans.
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Discontinued Operations
In the fourth quarter of 2022, management at that time determined
that Sovryn’s television broadcast business was not an efficient use of our resources to develop and launch BCTV, our core
business, and sought to exit Sovryn’s business and reduce Madison’s senior debt it incurred in connection with acquiring
Sovryn’s assets and creating its business. As a result, Sovryn is recognized as a discontinued operation in the accompanying
consolidated financial statements. The previous year’s assets, liabilities and expenses have been similarly classified for
comparative purposes. The following is a summary of Sovryn for the years ended December 31, 2022 and 2021:
2022
2021
Assets
Current assets
$
126,331
$
942,713
Property, equipment and right-of-use assets
1,440,937
2,887,328
Intangible assets
10,159,063
12,029,646
11,726,331
15,859,687
Liabilities
Accounts payable and accrued liabilities
1,118,174
508,779
Lease liability obligations
1,464,728
1,468,495
2,582,902
21,977,274
Revenues
1,920,612
1,243,655
Selling, general and administrative
(509,867
)
(531,899
)
Television operation
(344,260
)
(267,193
)
Amortization
(323,484
)
(180,210
)
Professional fees
(1,178,043
)
(1,652,095
)
Interest expense
175,695
(292,704
)
Loss on asset disposals
(52,668
)
(1,737,847
)
Impairment loss
(3,008,013
)
—
Loss from discontinued operations
$
(3,671,407
)
$
(3,418,293
)
Purchase
of Significant Equipment
As of December 31, 2022, we had no intention
to purchase any significant equipment during the next twelve months.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk
support and credit risk support or other benefits.
Material
Commitments for Capital Expenditures
We
had no contingencies or long-term commitments at December 31, 2022.
Going
Concern
The independent auditors’ reports
accompanying our December 31, 2022 and 2021 consolidated financial statements in this Annual Report contain an explanatory paragraph
expressing substantial doubt about our ability to continue as a going concern. Such consolidated financial statements have been
prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our
liabilities and commitments in the ordinary course of business.
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Transactions with Related Parties
In March 2021, we entered into a consulting
agreement with Zenna Consulting Group, Inc. (“Zenna Consulting”), a corporation affiliated with Warren Zenna, who served
as a Board member at such time, to provide oversight of marketing and communications services, which ended on July 31, 2021. We
paid Zenna Consulting $0 and $57,000 fees in the years ended December 31, 2022 and 2021, respectively. Mr. Zenna was a member of
our Board of Directors until November 6, 2023. On March 1, 2022, we granted a warrant to Mr. Zenna to purchase up to 500,000 shares
of our Common Stock at $0.025 per share at any time beginning September 1, 2022 and ending September 1, 2026. We estimate the value
such warrant to be approximately $9,000, based on the $0.018 market price per share of our Common Stock on March 1, 2022.
On April 7, 2021, we issued 1,500,000 shares
of our Common Stock valued at $1,500 to Mr. Canouse in exchange for transferring his 100 shares of our Series B Preferred Stock
to FFO1, an entity controlled by Mr. Falcone, then our Chief Executive Officer and Chairman of our Board of Directors. The 100
shares of Series B Preferred Stock provide the holder thereof the right to vote 51% of the voting power of each class of outstanding
voting shares of capital stock. FFO1 also held 461,000 shares of Series E-1 Preferred Stock and FFO2 held 461,000 shares of Series
E-1 Preferred Stock. Lisa Falcone, wife of Mr. Falcone, is the trustee of FFO2 and Ms. Falcone has shared voting and dispositive
power. Such shares of preferred stock held by FFO1 and FFO2 are included in the Pledged Assets.
Effective January 1, 2022, we entered into
a management consulting agreement with GreenRock LLC, a company controlled by Mr. Falcone, for a period of one year ending December
31, 2022, pursuant to which we provided monthly remuneration of $35,000, plus expenses in connection with his duties, responsibilities
and performance as our chief executive officer. In February 2021, Sovryn entered into a consulting agreement with GreenRock LLC
to provide us with chief executive officer services. In the years ended December 31, 2022 and 2021, we paid GreenRock LLC $420,000
and $315,000 in fees, respectively. Mr. Falcone is the managing member of GreenRock LLC and is our former Chief Executive Officer.
We paid GreenRock LLC bonuses of $505,972 for the year ended December 31, 2022.
On February 1, 2023, we entered into the
Partial Foreclosure Agreement with the Investors pursuant to which we transferred ownership of our FCC licenses and other broadcast
television assets to a third-party entity controlled by the Investors. In consideration therefor, the Investors agreed to reduce
the indebtedness under the Notes by $11,600,000. On September 21, 2023, the Agent for the Investors delivered to us a notice that
the Agent has exercised the Investors’ rights to vote the Pledged Interests, including the 100 shares of our Series B Preferred
Stock, and to exercise the Pledgees’ rights, powers and privileges to pass certain resolutions and to amend our bylaws then
in effect to, among other things, (i) remove the Board of Directors and all Company officers, and (ii) reduce the number of the
Board of Directors from three directors to one director. As a result of the Agent sending such notice and exercising its rights
to vote the Pledged Interests, a Change of Control occurred.
On November 6, 2023, the shareholders of
the Company removed Philip Falcone and Warren Zenna as our directors and appointed Thomas Amon as the sole member of our board
of directors. Mr. Amon removed all our officers and appointed himself as the Company’s President, Secretary, Treasurer, Chief
Executive Officer, Chief Financial Officer and Principal Accounting Officer.
Recent Accounting Pronouncements
New pronouncements issued for future implementation
are discussed in Note 3, Summary of Significant Accounting Policies – Recently Issued Accounting Pronouncements, in our Notes
to the consolidated financial statements included in this Annual Report.
Critical Accounting Policies
We follow certain significant accounting
policies when preparing our consolidated financial statements. A complete summary of these policies is included in Note 1 of the
Notes to the consolidated financial statements included in this Annual Report. Certain of the policies require management to make
significant and subjective estimates or assumptions that may deviate from actual results. In particular, management makes estimates
regarding the useful life of long-lived assets related to depreciation and amortization expense, estimates regarding fair value
of our reporting units and future cash flows with respect to assessing potential impairment of both long-lived assets and goodwill
and estimates of expense related to our debt and equity instruments. Each of these estimates is discussed in greater detail in
the following discussion.
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Long-Lived
Assets, Depreciation and Amortization Expense and Valuation
We review the carrying value of long-lived
assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset, or related asset group,
may not be recoverable from estimated future undiscounted cash flows. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated
by the asset or asset group. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. For the year ended December
31, 2022, we recognized that we would not complete the acquisition of the TV station assets of W27EB and KPHE TV and we wrote off
$1,150,000 in deposits paid to sellers of those assets.
For the year ended December 31, 2022,
our intangible assets primarily consisted of our domain names and access to a third party streaming platform for our BCTV business,
which are considered indefinite-lived intangible assets that are not amortized, but instead are tested at least annually for impairment.
Based on management’s assessment of the lack of revenue to date and the prospects for future revenues using the intangible
assets, we fully impaired the assets and recognized an impairment charge of $197,427 in the year ended December 31, 2022.
Goodwill
Valuation
Management
performed the annual goodwill impairment assessment as of December 31, 2021 and concluded that our goodwill for the Sovryn acquisition
was impaired as of that date. Goodwill is tested annually or more frequently if events or changes in circumstances indicate that
the asset might be impaired. We follow a two-step process for testing impairment. First, the fair value of each reporting unit
is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the
fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value of its assets and liabilities
(including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount
of impairment for goodwill is measured as the excess of its carrying value over its implied fair value. For the year ended December
31, 2022, we had no goodwill.
Derivative
Liabilities
We
have certain financial instruments that are derivatives or contain embedded derivatives. We evaluate all of our financial instruments
to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately
accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any
derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair
value is recorded as a liability, as is the case with us, the change in the fair value during the period is recorded as either
other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at
the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as
part of gain or loss on extinguishment.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as
defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
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