DIGITAL LOCATIONS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

The following discussion and analysis should be read together with our financial
statements and the related notes appearing elsewhere in this filing. This
discussion contains forward-looking statements reflecting our current
expectations that involve risks and uncertainties. See “Forward-Looking
Statements” for a discussion of the uncertainties, risks and assumptions
associated with these statements. Actual results and the timing of events could
differ materially from those discussed in our forward-looking statements as a
result of many factors, including those set forth under “Risk Factors” and
elsewhere in this annual report.


Cautionary Statements


This Form 10-K contains financial projections and other “forward-looking
statements,” as that term is used in federal securities laws, about our
financial condition, results of operations, and business. These statements
include, among others:


    ·   statements concerning the potential for benefits that we may experience
        from our business activities and certain transactions we contemplate or
        have completed; and





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    ·   statements of our expectations, future plans and strategies, anticipated
        developments, and other matters that are not historical facts. These
        statements may be made expressly in this Form 10-K. You can find many of
        these statements by looking for words such as "believes," "expects,"
        "anticipates," "estimates," or similar expressions used in this Form 10-K.
        These forward-looking statements are subject to numerous assumptions,
        risks, and uncertainties that may cause the Company's actual results to be
        materially different from any future results expressed or implied by the
        Company in those statements. The most important facts that could prevent
        the Company from achieving its stated goals include, but are not limited
        to, the following:




        (a) volatility or decline of the Company's stock price;

        (b) potential fluctuation in quarterly results;

        (c) failure of the Company to earn revenues or profits;

        (d) inadequate capital to continue or expand its business, and inability to
            raise additional capital or financing to implement its business plans;

        (e) failure to develop or acquire a sufficient number of cell towers;

        (f) rapid and significant changes in markets;

        (g) litigation with or legal claims and allegations by outside parties;

        (h) insufficient revenues to cover operating costs;

        (i) aspects of the Company's business are not proprietary and in general
            the Company is subject to inherent competition;

        (j) further dilution of existing shareholders' ownership in Company;

        (k) uncollectible accounts and the need to incur expenses to collect
            amounts owed to the Company;

        (l) inability to make business and asset acquisitions in the industries we
            seek due to a lack of capital or financing, purchase prices that are
            too high, terms that are too onerous, a lack of attractive candidates
            for acquisition, and strong competition for business and asset
            acquisitions from bigger, better capitalized competitors; and

        (m) failure of newly acquired business or assets to operate profitability
            or perform as expected.



There is no assurance that the Company will be profitable. The Company may not
be able to successfully develop, manage, or market its products and services.
The Company may not be able to attract or retain qualified executives and
technology personnel. The Company may not be able to obtain customers for its
products or services. The Company’s products and services may become obsolete.
Government regulation may hinder the Company’s business. Additional dilution in
outstanding stock ownership may be incurred due to the issuance of more shares,
warrants, and stock options, the exercise of outstanding warrants and stock
options, or the issuance and conversion of convertible debt.

Because the statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by the forward-looking
statements. The Company cautions you not to place undue reliance on the
statements, which speak only as of the date of this Form 10-K. The cautionary
statements contained or referred to in this section should be considered in
connection with any subsequent written or oral forward-looking statements that
the Company or persons acting on its behalf may issue. The Company does not
undertake any obligation to review or confirm analysts’ expectations or
estimates or to release publicly any revisions to any forward-looking statements
to reflect events or circumstances after the date of this Form 10-K or to
reflect the occurrence of unanticipated events.



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The following discussion should be read in conjunction with our financial
statements and notes to those statements. In addition to historical information,
the following discussion and other parts of this report contain forward-looking
information that involves risks and uncertainties.


Current Overview


On January 7, 2021, the Company, SmallCellSite.com LLC, a Virginia limited
liability company (“SCS LLC“), and SmallCellSite, Inc., a newly formed Nevada
corporation and wholly owned subsidiary of the Company ((“SCS”) entered into an
Asset Purchase Agreement (“APA”) to acquire substantially all of the assets of
SCS LLC’s wireless communications marketing and database services business in
consideration for a total purchase price of $10,000 in cash and a five-year
convertible promissory note in the amount of $1,000,000 made in favor of SCS or
its assignees (the “Note”). Pursuant to the APA, SCS LLC instructed the Company
to assign $500,000 principal amount of the Note to each of SCS’s two members.
SCS LLC is a source of more than 80,000 cell sites offered by property owners
for use by wireless network operators.

The SCS LLC business acquisition has been accounted for as a purchase and,
effective January 7, 2021, the accounts of SCS are consolidated with those of
the Company. Consequently, the results of operations for the year ended December
31, 2021
are not comparable to the results of operations for the year ended
December 31, 2020.

Subsequent to the SCS LLC business acquisition, we intend to aggressively market
and add more potential wireless sites to our database through non-exclusive
marketing agreements with property owners. Management believes that the addition
of more sites in the database will give our customers more options to select
sites that meet their internal criteria. Once sites are selected and activated,
additional revenue per site will be recognized by the Company.

On July 20, 2021, the Company became a member of the Digital Place-based
Advertising Association (DPAA), the leading global trade marketing association
connecting out-of-home (OOH) media with the advertising community while moving
OOH to digital. We expect our membership in the DPAA to provide many business
acceleration benefits, including a wide array of products and an extensive
database of research, best practices and case studies; tools for planning,
training and forecasting; social media amplification of news; insights on
software and hardware solutions; further integration into the advertising
ecosystem as part of the video everywhere conversation and marketing campaign.

On June 29, 2021, the Company entered into an agreement with Smartify Media
(“Smartify”) to add Smartify’s locations to the Company’s small cell database.
Smartify turns any storefront or physical location into a (MXP) Media Experience
Platform for property owners which creates recurring revenue and media value
from programmatic and local media channels. This strategic agreement between the
Company and Smartify will allow Smartify to now offer incremental revenue
increases to property owners by facilitating the activation of 5G on their
properties.



Results of Operations



Year ended December 31, 2021 compared to the year ended December 31, 2020


Revenues


As discussed above, the purchase of the operating assets of SCS LLC was
effective January 7, 2021, with SCS revenues included in our consolidated
statement of operations from that date forward. Revenues were $24,029 for the
year ended December 31, 2021. Monthly payments are received by the Company from
wireless carriers, with the Company paying the property owner a percentage of
revenues ranging from 70% to 85%. The net amount is retained by the Company as
consideration for its intermediary services and recorded as revenues. We
reported no revenues for the year ended December 31, 2020.



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General and Administrative Expenses

General and administrative expenses increased to $2,625,881 in the year ended
December 31, 2021 from $460,826 in the year ended December 31, 2020. The
increase in general and administrative expenses in the current year is due
primarily to increased consulting and professional fees paid related to the APA
with SCS LLC, effective January 7, 2021, and consulting fees paid related to the
identification of new business opportunities for the Company. In addition, we
reported non-cash compensation expense from the issuance of non-qualified stock
options of $1,699,964 in the year ended December 31, 2021 compared to $108,514
in the year ended December 31, 2020. We also reported non-cash stock-based
compensation for common stock issued to consultants for services valued at
$416,200 in the year ended December 31, 2021. We had no such stock-based
compensation to consultants in year ended December 31, 2020.

Depreciation and Amortization Expense

Our property and equipment were fully depreciated as of December 31, 2020.
Depreciation and amortization expense of $2,000 in the year ended December 31,
2021
consisted of the amortization of intangible assets acquired in the SCS LLC
business acquisition. Depreciation of property and equipment was $595 in the
year ended December 30, 2020.


Impairment of Assets


The excess of the total purchase price paid over the value assigned to the
identifiable tangible assets acquired in the APA of $2,096,089 was recorded as
goodwill. The goodwill was not amortized but evaluated periodically for
impairment. As of December 31, 2021, management determined that it was more
likely than not that the recorded value of goodwill would not be recovered.
Consequently, a non-cash impairment of assets expense of $2,096,089 was recorded
for the year ended December 31, 2021. There was no impairment of assets expense
for the year ended December 31, 2020.


Other Income (Expense)


Total other expense was $8,420,586 and $2,285,774 for the years ended December
31, 2021
and 2020, respectively.

Our interest expense increased to $919,095 for the year ended December 31, 2021
from $626,685 for the year ended December 31, 2020, resulting primarily from
higher amortization of debt discount as significant debt with remaining
unamortized discount was converted to Series E Preferred Stock in April 2021
with the unamortized discount charged to interest expense. The increase or
decrease in our interest expense result primarily from the timing of
amortization of debt discount recorded on our convertible promissory notes.

We reported a gain on change in derivative liabilities of $8,979,516 in the year
ended December 31, 2021 and a loss on change in derivative liabilities of
$1,659,089 in the year ended December 31, 2020. A significant portion of the
gain in the current fiscal year is due to the reduction of derivative
liabilities associated with our Series B Preferred Stock. We estimate the fair
value of the derivatives associated with our convertible notes and stock using a
multinomial lattice model based on projections of various potential future
outcomes. These estimates are based on multiple inputs, including the market
price of our stock, interest rates, our stock price volatility, variable
conversion prices based on market prices as defined in the respective
agreements, and probabilities of certain outcomes based on management
projections. These inputs are subject to significant changes from period to
period and to management’s judgment; therefore, the estimated fair value of the
derivative liabilities will fluctuate from period to period, and the fluctuation
may be material.

We reported a loss on extinguishment of debt of $16,490,508 in the year ended
December 31, 2021 resulting from the issuance of Series E Preferred Stock in
consideration for the conversion of convertible notes payable, accrued interest
payable and fees. The Series E Preferred Stock was recorded at fair value of
$23,393,601 as estimated by an independent valuation firm, resulting in a loss
of $16,490,508 after recording the reduction of debt, accrued interest payable
and derivative liabilities. There was no gain or loss on extinguishment of debt
recorded in the year ended December 31, 2020.



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In the year ended December 31, 2021, we received notice from the Internal
Revenue Service that our PPP loan of $9,501 had been forgiven. Accordingly, we
recorded a gain on forgiveness of PPP loan of $9,501 in the year ended December
31, 2021
. There was no such gain recorded in the year ended December 31, 2020.


Net Income (Loss)


As a result of the activity discussed above, we reported net losses of
$13,120,527 and $2,747,195 in the years ended December 31, 2021 and 2020,
respectively.

Liquidity and Capital Resources

As of December 31, 2021, we had total current assets of $68,366, comprised of
cash, and total current liabilities of $6,335,768, resulting in a working
capital deficit of $6,267,402. Included in our current liabilities as of
December 31, 2021 are derivative liabilities totaling $5,925,214, which we do
not anticipate will require cash payments to settle.

Our liquidity was substantially improved with the issuance of shares of Series E
Preferred Stock on April 2, 2021, where $2,617,690 of principal of convertible
notes payable, $826,566 of accrued interest payable, and $45,740 of fees were
converted to shares of Series E Preferred Stock. The Series E Preferred Stock is
recorded as Mezzanine in our consolidated balance sheets.

We have funded our operations primarily from the proceeds of convertible notes
payable. During the years ended December 31, 2021 and 2020, we received net
proceeds from convertible notes payable of $587,000 and $216,500, respectively.
Also, during the year ended December 31, 2021, we received $50,000 from the
issuance of Series E Preferred Stock.


Recent Financings


Effective January 6, 2022, the Company entered into a 12% convertible note with
an institutional investor in the principal amount of $38,750 with a maturity
date of January 6, 2023. The Company received net proceeds of $35,000 after
payment of $3,750 in legal fees and fees to the lender. The lender, at its
option after 180 days from the issuance of the note, may convert the unpaid
principal balance of, and accrued interest on, the note into shares of the
Company’s common stock at a 45% discount from the lowest trading price during
the 20 trading days prior to conversion. The Company may prepay the note during
the 180 days from the issuance of the note at a redemption premium of 150%.
After the expiration of 180 days after issuance, the Company has no right of
prepayment.

Effective March 1, 2022, the Company entered into a 12% convertible note with an
institutional investor in the principal amount of $43,750 with a maturity date
of March 1, 2023. The Company received net proceeds of $40,000 after payment of
$3,750 in legal fees and fees to the lender. The lender, at its option after 180
days from the issuance of the note, may convert the unpaid principal balance of,
and accrued interest on, the note into shares of the Company’s common stock at a
45% discount from the lowest trading price during the 20 trading days prior to
conversion. The Company may prepay the note during the 180 days from the
issuance of the note at a redemption premium of 150%. After the expiration of
180 days after issuance, the Company has no right of prepayment.


Sources and Uses of Cash


During the year ended December 31, 2021, we used net cash of $577,239 in
operating activities as a result of our net loss of $13,120,527, non-cash gains
totaling $8,989,017 and decreases in accounts payable of $41,879 and accounts
payable – related party of $50,000, partially offset by non-cash expenses
totaling $21,479,671, and increases in accrued expenses and other current
liabilities of $328 and accrued interest – notes payable of $144,185.

During the year ended December 31, 2020, we used net cash of $215,671 in
operating activities as a result of our net loss of $2,747,195 partially offset
by total non-cash expenses of $2,128,063, decrease in prepaid expenses of $2,808
and increases in accounts payable of $122,468, accrued expenses and other
current assets of $11,365, and accrued interest – notes payable of $266,820.



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During the year ended December 31, 2021, we used net cash of $10,000 in
investing activities, comprised of the payment made in the SCS business
acquisition. We had no net cash provided by or used in investing activities in
the year ended December 31, 2020.

Net cash provided by financing activities was $637,000 in the year ended
December 31, 2021, comprised of proceeds from convertible notes payable of
$587,000 and proceeds from the issuance of Series E Preferred Stock of $50,000.
Net cash provided by financing activities was $226,001 in the year ended
December 31, 2020, comprised of proceeds from convertible notes payable of
$216,500 and proceeds from PPP loan of $9,501.

Historically, proceeds received from the issuance of debt have been sufficient
to fund our current operating expenses. We estimate that we will need to raise
substantial capital or financing over the next twelve months in order to explore
business expansion opportunities and provide the necessary capital to meet our
other general and administrative expenses. We anticipate that we will incur
operating losses in the next twelve months. Our revenue is not expected to
exceed our investment and operating costs in the next twelve months. Therefore,
our future operations are dependent on our ability to secure additional
financing. Our recent funding opportunities have been limited due to downturns
in U.S. equity and debt markets resulting from the world-wide Covid-19 pandemic.
Future financing transactions, if available, may include the issuance of equity
or debt securities, obtaining credit facilities, or other financing mechanisms.
However, the trading price of our common stock and continued downturn in the
U.S. equity and debt markets could make it more difficult to obtain financing
through the issuance of equity or debt securities.

Even if we are able to raise the funds required, it is possible that we could
incur unexpected costs and expenses or experience unexpected cash requirements
that would force us to seek alternative financing. Furthermore, if we issue
additional equity or debt securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences, or
privileges senior to those of existing holders of our common stock. The
inability to obtain additional capital may restrict our ability to grow and may
reduce our ability to continue to conduct business operations. If we are unable
to obtain additional financing, we may have to curtail our marketing and
development plans and possibly cease our operations.

Our prospects must be considered in light of the risks, expenses, and
difficulties frequently encountered by companies in their early stage of
operations. To address these risks, we must, among other things, seek growth
opportunities through investment and acquisitions, implement and successfully
execute our business strategy, respond to competitive developments, and attract,
retain and motivate qualified personnel. We cannot assure that we will be
successful in addressing such risks, and the failure to do so could have a
material adverse effect on our business prospects, financial condition and
results of operations.



Future Impact of Covid-19



The negative impact of the Covid-19 pandemic on companies continues and we are
currently unable to assess with certainty the broad effects of Covid-19 on our
future business. As of December 31, 2021, the Company had no material assets
that would be subject to impairment or change in valuation due to Covid-19.
However as of December 31, 2021, the reported values of the Company’s material
convertible debt and derivative liabilities are based on multiple factors,
including the market price of our stock, interest rates, our stock price
volatility, variable conversion prices based on market prices as defined in the
respective agreements and probabilities of certain outcomes based on management
projections. We believe these inputs will be subject to even more significant
changes due to the impact on capital markets of Covid-19, and the future
estimated fair value of these liabilities may fluctuate materially from period
to period.

With a limited source of revenue, we are currently dependent on debt or equity
financing to fund our operations and execute our business plan. We believe that
the impact on capital markets of Covid-19 may make it more costly and more
difficult for us to access these sources of funding.



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Critical Accounting Policies


Our significant accounting policies are disclosed in Note 2 to our consolidated
financial statements. The following is a summary of those accounting policies
that involve significant estimates and judgment of management.


Use of Estimates


The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the accompanying financial statements.
Significant estimates made in preparing these financial statements include the
estimate of useful lives of property and equipment and intangible assets,
operating lease obligations, impairment of assets, the deferred tax valuation
allowance, the fair value of stock options and derivative liabilities. Actual
results could differ from those estimates.


Goodwill


The excess of the total purchase price paid over the value assigned to the
identifiable intangible assets acquired in the APA has been recorded as
goodwill. The goodwill is not amortized but evaluated periodically for
impairment. Management of the Company determined that, as of December 31, 2021,
it was more likely than not that the recorded amount of goodwill of $2,096,089
would not be recovered; therefore, an impairment of assets expense for this
amount was recorded in the statement of operations for the year ended December
31, 2021
.



Derivative Liabilities



We have identified the conversion features of our convertible notes payable and
certain stock options as derivatives. Where the number of common shares to be
issued under these agreements is indeterminate, the Company has concluded that
the equity environment is tainted, and all additional options, warrants and
convertible debt and equity are included in the value of the derivatives. We
estimate the fair value of the derivatives using the Black-Scholes pricing model
and a multinomial lattice model based on projections of various potential future
outcomes. We estimate the fair value of the derivative liabilities at the
inception of the financial instruments, at the date of conversions to equity and
at each reporting date, recording a derivative liability, debt discount,
additional paid-in capital and a gain or loss on change in derivative
liabilities as applicable. These estimates are based on multiple inputs,
including the market price of our stock, interest rates, our stock price
volatility, variable conversion prices based on market prices as defined in the
respective agreements and probabilities of certain outcomes based on management
projections. These inputs are subject to significant changes from period to
period and to management’s judgment; therefore, the estimated fair value of the
derivative liabilities will fluctuate from period to period, and the fluctuation
may be material.

Fair Value of Financial Instruments

Disclosures about fair value of financial instruments require disclosure of the
fair value information, whether or not recognized in the balance sheet, where it
is practicable to estimate that value. As of December 31, 2021 and 2020, we
believe the amounts reported for cash, accounts payable, accounts payable –
related party, accrued expenses and other current liabilities, accrued interest,
notes payable and convertible notes payable approximate fair value because of
their short maturities.

Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date. ASC Topic 820 established a three-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.





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We measure certain financial instruments at fair value on a recurring basis.
Liabilities measured at fair value on a recurring basis are as follows at
December 31, 2021 and 2020:



                                  Total           Level 1          Level 2          Level 3
December 31, 2021:
Derivative liabilities         $  5,925,214     $          -     $          -     $  5,925,214

Total liabilities measured
at fair value                  $  5,925,214     $          -     $          -     $  5,925,214

December 31, 2020:
Derivative liabilities         $ 11,282,091     $          -     $          -     $ 11,282,091

Total liabilities measured
at fair value                  $ 11,282,091     $          -     $          -     $ 11,282,091




Revenue Recognition


We have adopted Accounting Standards Update No. 2014-09, “Revenue from Contracts
with Customers” (Topic 606) pursuant to which revenue is recognized when control
of the promised goods or services is transferred to our customers, in an amount
that reflects the consideration we expect to be entitled to in exchange for
those goods or services.

We determine revenue recognition through the following steps:


    ·   identification of the contract, or contracts, with a customer;

    ·   identification of the performance obligations in the contract;

    ·   determination of the transaction price;

    ·   allocation of the transaction price to the performance obligations in the
        contract; and

    ·   recognition of revenue when, or as, we satisfy a performance obligation.



Through its wholly owned subsidiary and effective January 7, 2021 (see Note 3),
the Company acts as an intermediary or agent to facilitate a platform through
which property owners market real estate, physical assets and billboards to
wireless telephone carriers for placement of wireless communications network
equipment. Contracts have been signed among the Company, the property owner, and
the wireless telephone operator. Monthly payments are received by the Company
from the wireless carriers, with the Company paying the property owner a
percentage of revenues ranging from 70% to 85%. The net amount is retained by
the Company as consideration for its intermediary services and recorded as
revenues in the accompanying statements of operations.


Income Taxes


We account for income taxes using the asset and liability method. Under the
asset and liability method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.



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Stock-Based Compensation


Stock-based compensation is measured at the grant date based on the value of the
award granted using either the Black-Scholes option pricing model or a
multinomial lattice model based on projections of various potential future
outcomes and recognized over the period in which the award vests. For stock
awards no longer expected to vest, any previously recognized stock compensation
expense is reversed in the period of termination. The stock-based compensation
expense is included in general and administrative expenses.

Recently Issued Accounting Pronouncements

Although there are several new accounting pronouncements issued or proposed by
the FASB, which the Company has adopted or will adopt, as applicable, the
Company does not believe any of these accounting pronouncements has had or will
have a material impact on its financial position or results of operations.

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