10-K: Digital Locations, Inc. Reports Full Year 2023 Results, Focuses on Satellite-to-Smartphone Technology

Digital Locations, Inc. reported its full year 2023 results, highlighting a shift in focus towards developing satellite-to-smartphone technology while managing existing small cell site revenues.

Summary

• Digital Locations, Inc. reported a net loss of $4,723,194 for the year ended December 31, 2023, compared to a net income of $969,014 in 2022.
• The company's operating loss increased to $3,934,387 in 2023 from $3,635,616 in 2022, primarily due to increased general and administrative expenses, including research and development costs.
• Revenues were $25,846 in 2023, slightly up from $23,068 in 2022, derived from existing small cell site operations.
• The company is now focused on developing technology to enable high-speed internet from satellites directly to smartphones, engaging Florida International University (FIU) for research.
• The global broadband market is expected to grow from $419 billion in 2022 to $875 billion by 2030, presenting a significant opportunity for the company's new technology.
• The company has a working capital deficit of $2,613,435 as of December 31, 2023, and is dependent on debt and equity financing to fund operations.
• The company's internal control over financial reporting was deemed ineffective as of December 31, 2023, due to insufficient segregation of duties and lack of a formal policy for related party transactions.

Sentiment

Score: 3

Explanation: The document presents a company with significant financial challenges, a large accumulated deficit, and ineffective internal controls. While the company is pursuing a potentially lucrative technology, the risks and current financial state outweigh the potential upside.

Positives

• The company is targeting a large and growing market with its satellite-to-smartphone technology.
• The company has engaged a reputable university, FIU, for research and development.
• The company has existing revenue streams from small cell sites, although these are not the focus of future growth.
• The company has secured additional funding through convertible notes and preferred stock issuances.

Negatives

• The company reported a significant net loss of $4,723,194 for 2023.
• The company has a substantial working capital deficit of $2,613,435.
• The company's internal controls over financial reporting were deemed ineffective.
• The company is heavily reliant on debt and equity financing to fund operations.
• The company's new technology is in early stages of development and may not become commercially viable.

Risks

• The company is in the early stages of development and has a limited operating history.
• The company has incurred significant losses and has an accumulated deficit of $54,887,744.
• The company's ability to continue as a going concern is dependent on obtaining additional financing.
• The company faces intense competition from larger companies with greater resources.
• The company's new technology may not be commercially viable.
• The company is subject to government regulations, which could increase costs or restrict operations.
• The company's intellectual property protection is uncertain.
• The company is dependent on key employees and consultants.
• The company has material weaknesses in internal control over financial reporting.
• The company's common stock is subject to penny stock rules and has a limited trading market.

Future Outlook

The company anticipates incurring operating losses in the next twelve months as revenue is not expected to exceed investment and operating costs. Future operations are dependent on the ability to secure additional financing.

Management Comments

• Management believes that funding from the issuance of convertible debt will continue and will provide the additional cash needed to meet the company's obligations.
• Management is actively involved in oversight of risk management efforts, and cybersecurity represents an important component of the company's overall approach to enterprise risk management (ERM).

Industry Context

The company is targeting the growing global broadband market, which is expected to double within the decade, driven by digital transformation across various industries. The company is competing with larger companies in the cellular and satellite communications sectors.

Comparison to Industry Standards

• The company's shift to satellite-to-smartphone technology aligns with the trend of new space companies like SpaceX and Blue Origin reducing satellite launch costs.
• The company's current financial performance is significantly weaker than established players in the telecommunications and satellite industries, such as AT&T, Verizon, SpaceX, and Viasat.
• The company's reliance on convertible debt for funding is common among early-stage technology companies, but the high level of debt and the associated derivative liabilities pose a significant risk.
• The company's lack of effective internal controls is a concern, as it is not in line with the standards expected of public companies.

Corporate Governance

Related Party Transactions

• The company has an Independent Contractor Agreement with its Chief Executive Officer, Rich Berliner, for monthly compensation of $20,000.
• The company has a consulting agreement with its President and Acting Chief Financial Officer, William E. Beifuss, Jr., for monthly compensation of $5,000.
• The company issued stock options to its officers and directors as compensation.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial losses, working capital deficit, and ineffective internal controls.
• Employees may be impacted by the company's financial instability and potential need for cost-cutting measures.
• Customers are not directly impacted at this stage as the company is in the development phase.
• Creditors face risk due to the company's reliance on debt financing and potential inability to repay obligations.
• Suppliers may be impacted by the company's financial instability and potential inability to pay for goods and services.

Next Steps

• The company will continue to develop its satellite-to-smartphone technology.
• The company will seek additional financing to fund operations and expansion.
• The company will work to improve its internal controls over financial reporting.

Key Dates

Keywords

satellite internet, smartphone technology, broadband market, small cell sites, convertible notes, preferred stock, research and development, financial reporting, internal controls, working capital