Madison Technologies Inc. 10-K

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 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, 2023 and December 31, 2022 General and administrative expenses General and administrative expenses decreased to $426,757 for the year ended December 31, 2023, from $719,618 for the year ended December 31, 2022. The decrease was primarily because of winding down operating activities due to a lack of funds. 23 Professional Fees Professional fees decreased to $140,434 for the year ended December 31, 2023, from $1,919,179 for the year ended December 31, 2022. The decrease was primarily as a result of winding down operating activities due to a lack of funds. Bad Debt Expense Bad debt expense decreased to $Nil for the year ended December 31, 2023 from $818,279 for the year ended December 31, 2022. We transferred all accounts receivable to the Investors on February 1, 2023 and did not incur any bad debt expense in January 2023. In 2022, we wrote off $818,279 notes receivable primarily from Top Dog Productions Inc. and ZA Group Inc. as uncollectible and incurred bad debt expense. Loss from Impairment of Long-Lived Assets Our loss from impairment of long-lived assets was $Nil and $197,427 for the years ended December 31, 2023 and 2022, respectively. In 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. Amortization expense and interest expense Amortization expense and interest expense decreased to $4,724,398 for the year ended December 31, 2023, from $5,612,597 for the year ended December 31, 2022. The decrease resulted primarily from the $9,159,907 reduction in principal on the senior secured notes on February 1, 2023 pursuant to an agreement with the lender to transfer ownership of Sovryn’s net assets to the lender. Discontinued Operations Our loss from discontinued operations was $9,709 for the year ended December 31, 2023 as compared to a loss of $3,681,408 for the year ended December 31, 2022. Effective February 1, 2023, we entered into an agreement with a lender in which we exchanged our ownership of the assets associated with Sovryn’s broadcast television business in exchange for a $9,159,907 reduction in our obligation for the senior secured notes. As a result, the revenues, expenses, assets and liabilities of Sovryn are included as discontinued operations for the year ended December 31, 2023 and 2022. The 2023 loss resulted from Sovryn’s operations for the month of January 2023. 24 Net Loss Net loss decreased to $5,301,298 for the year ended December 31, 2023, from $12,909,394 for the year ended December 31, 2022. The decrease was primarily the result of decreases in professional fees, general and administrative expenses, bad debt expense and the loss from discontinued operations and interest expense. The net loss from continuing operations per basic diluted share was $0.0033 and $0.0058, respectively, with basic and diluted weighted averages shares outstanding of 1,603,095,243 and 1,599,829,313 for the respective periods. The net loss from discontinued operations per basic and diluted share was $0.0000 and $0.0023, respectively, with basic and diluted weighted averages shares outstanding of 1,603,095,243 and 1,599,829,313 for the respective periods. Liquidity and Capital Resources Cash and Working Capital As at December 31, 2023, we had $Nil in cash and a $17,585,746 working capital deficit, compared to cash of $Nil and working capital deficit of $12,372,123 as at December 31, 2022. The increase in the working capital deficit primarily resulted from the transfer of all Sovryn assets on February 1, 2023 according to the Partial Foreclosure Agreement with the lenders (Investors). We will require additional capital to meet our long- and short-term operating requirements. For the year ended December 31, 2023, 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 Continuing Operating Activities We used $323,288 in cash from continuing operating activities for the year ended December 31 2023, compared to cash used of $2,823,783 from continuing operating activities during the year ended December 31, 2022. The decrease in cash used in continuing operations resulted primarily from increases in our accounts payable and accrued liabilities because we me minimal payments in 2023 due to a lack of cash. Net Cash Used in Investing Activities We used cash of $Nil and $Nil in investing activities during the years ended December 31, 2023 and 2022, respectively. Net Cash Provided by Financing Activities Net cash provided by financing activities of $363,710 came primarily from proceeds from subordinated loans and borrowings from finance companies that we entered into during the year ended December 31, 2023, compared to $1,762,500 of cash provided by financing activities during the year ended December 31, 2022 that we generated from proceeds of subordinated notes payable and warrants that we sold to investors. Net Cash from Discontinued Operations For the year ended December 31, 2023, we used $40,422 of cash in discontinued operating activities which ceased on February 1, 2023, as compared to generating $1,075,067 of cash from discontinued operations in the year ended December 31, 2022. The decrease primarily resulted from the transfer of our ownership of Sovryn on February 1, 2023 according to the Partial Foreclosure Agreement with the Investors. We used cash of $Nil and $14,513 in discontinued investing activities during the years ended December 31, 2023 and 2022. We used cash of $Nil and $Nil in discontinued financing activities during the years ended December 31, 2023 and 2022. 25 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, 2023 and 2022: 2023 2022 Assets Current assets $ — $ 126,331 Property, equipment and right-of-use assets — 1,440,939 Intangible assets — 10,159,063 Total assets — 11,726,332 Liabilities Accounts payable and accrued liabilities — 1,118,174 Lease liability obligations — 1,464,728 Total liabilities — 2,582,902 Revenues 163,620 1,920,612 General and administrative expense (9,170 ) (572,534 ) Television operation expense — (344,260 ) Amortization expense — (323,474 ) Professional fees (163,473 ) (1,178,043 ) Finance costs (716 ) 175,696 ) Gain on partial settlement of senior secured notes 9,159,907 — Loss on disposition of subsidiary (9,159,907 ) — Impairment loss — (3,008,013 ) Loss from discontinued operations $ (9,709 ) $ (3,681,408 ) Purchase of Significant Equipment As of December 31, 2023, 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, 2023. Going Concern The independent auditors’ reports accompanying our December 31, 2023 and 2022 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. 26 Transactions with Related Parties Mr. Warren 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 $7,641, based on the $0.015282 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. The agreements expired on December 31, 2022 and were not renewed. In the year ended December 31, 2023 and 2022, we paid GreenRock LLC $35,000 and $420,000 in fees, respectively. We paid GreenRock LLC bonuses of $Nil and $505,972 for the year ended December 31, 2023 and 2022, respectively. On February 1, 2023, we entered into the Partial Foreclosure Agreement with the Investors pursuant to which we transferred ownership of our Federal Communications Commission (“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 Investors’ 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, the 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. 27 Derivative Liabilities In connection with the issuance of promissory and convertible notes, in certain instances we issued common share purchase warrants (the "Warrants") that entitle the holder to purchase shares of our Common Stock at a specified fixed exercise price at any time within a time period specified within each Warrant. We evaluated the embedded conversion feature, if any, and the warrants and concluded that they qualified as equity instruments under Accounting Standards Codification (ASC) 815, Derivatives and Hedging, and ASC 815-40, Contracts in Entity’s Own Equity. The fair value of the Warrants were separated from the promissory and convertible notes and accounted for as a reduction of the carrying amount of the note with an increase to additional paid-in capital. The fair value of the Warrants that represented a discount was amortized and included in the consolidated statements of operation over the term of each note using the effective interest method. The Series A and C convertible preferred stock (“Series A Preferred Stock” and “Series C Preferred Stock”) we issued were accounted for as mezzanine equity and the embedded conversion feature was accounted for as derivative liabilities with change in fair value at each reporting period end charged to the consolidated statements of operations in accordance with ASC 480 and ASC 815. We evaluated the embedded conversion features concluded that the conversion feature qualified as equity instruments under Accounting Standards Codification (ASC) 815, Derivatives and Hedging, and ASC 815-40, Contracts in Entity’s Own Equity. The fair values of the embedded conversion features of were separated from those convertible notes and accounted for as a reduction of the total carrying amounts of those convertible notes and an increase to additional paid-in capital. 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. 28