UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2020

 

or

 

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

 

For the transition period from _________ to _________ 

 

Commission File Number 000-53461

 

SPECTRUM GLOBAL SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		26-0592672
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

 

980 N. Federal Highway, Suite 304, Boca Raton, Florida		33432		(407) 512-9102
(Address of principal executive offices)		(Zip Code)		(Registrant’s telephone number, including area code)

 

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

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.00001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐  No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐  No  ☒

 

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  ☒  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒  No  ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See 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	☒	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  ☒

 

The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2020 based on the closing sales price of the Common Stock as quoted on the OTC Pink was $459,890. For purposes of this computation, all officers, directors, and 5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.

 

As of March 26, 2021, there were 21,613,914 shares of registrant’s common stock outstanding.

 

 

 

TABLE OF CONTENTS

 

		PAGE
PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	22
Item 3.	Legal Proceedings	22
Item 4.	Mine Safety Disclosures	22
PART II		23
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 8.	Financial Statements and Supplementary Data	43
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	43
Item 9A.	Controls and Procedures	43
Item 9B.	Other Information	44
PART III		45
Item 10.	Directors, Executive Officers and Corporate Governance	45
Item 11.	Executive Compensation	48
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	51
Item 13.	Certain Relationships and Related Transactions, and Director Independence	52
Item 14.	Principal Accountant Fees and Services	52
PART IV		53
Item 15.	Exhibits, Financial Statement Schedules	53
Item 16.	Form 10-K Summary	53

 

 

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements. Forward-looking statements include all statements that do not directly or exclusively relate to historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “forecasts,” “predicts,” “potential,” or the negative of those terms, and similar expressions and comparable terminology. These include, but are not limited to, statements relating to future events or our future financial and operating results, plans, objectives, expectations and intentions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not be achieved. Forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to known and unknown risks, uncertainties and other factors outside of our control that could cause our actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Actual results may differ materially from those anticipated or implied in the forward-looking statements.

 

You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. You should also consider carefully the statements under Item 1A. Risk Factors appearing in this report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Such risks and uncertainties include:

 

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our ability to successfully execute our business strategies, including the acquisition of other businesses to grow our company and integration of recent and future acquisitions;

 

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changes in aggregate capital spending, cyclicality and other economic conditions, and domestic and international demand in the industries we serve;

 

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the ongoing COVID-19 pandemic may, directly or indirectly, adversely affect our business, results of operations, and financial condition;

 

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our ability to adopt and master new technologies and adjust certain fixed costs and expenses to adapt to our industry’s and customers’ evolving demands;

 

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our ability to obtain additional financing in sufficient amounts or on acceptable terms when required;

 

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our ability to adequately expand our sales force and attract and retain key personnel and skilled labor;

 

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shifts in geographic concentration of our customers, supplies and labor pools and seasonal fluctuations in demand for our services;

 

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our dependence on third-party subcontractors to perform some of the work on our contracts;

 

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our ability to comply with certain financial covenants of our debt obligations;

 

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the impact of new or changed laws, regulations or other industry standards that could adversely affect our ability to conduct our business; and

 

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changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural or man-made disasters.

 

These risk factors also should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, you are cautioned not to place undue reliance on any forward-looking statements and you should carefully review this report in its entirety. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

 

Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. We do 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 report or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.

 

 

PART I

 

Unless specifically set forth to the contrary, when used in this report the terms “we,” “our,” the “Company” and similar terms refer to Spectrum Global Solutions, Inc., a Nevada Corporation and its consolidated subsidiaries.

 

The information that appears on our website at www.SpectrumGlobalSolutions.com is not part of this report.

 

ITEM 1 – BUSINESS

 

Business Overview

 

On February 5, 2018, we completed our corporate jurisdiction continuation from the jurisdiction of the Province of British Columbia to the jurisdiction of the State of Nevada in accordance with the Articles of Conversion and the Articles of Incorporation filed with the Nevada Secretary of State. Our principal offices are located at 980 N. Federal Highway, Suite 304, Boca Raton, Florida 33432. Our telephone number is (407) 512-9102. On January 2, 2018, we changed our fiscal year end to December 31.

  

Our telecommunications and technology division, which was acquired on April 25, 2017, is supported by its subsidiaries: AW Solutions Puerto Rico, LLC and Tropical Communications, Inc. (collectively known as “AWS” or the “AWS Entities”) and ADEX CORP and ADEX Puerto Rico LLC (acquired February 27, 2018) and ADEX Canada (formed in September 2019), (collectively known as “ADEX” or the “ADEX Entities”). The AWS Entities provide a broad range of professional services and solutions to top tier communication carriers and Fortune 1000 enterprise customers. The telecommunication division offers carriers, service providers and enterprise customers professional contracting services, to include: infrastructure audits; site acquisition; architectural, structural and civil design and analysis; construction management; construction; installation; warehousing and logistics; maintenance services, that support the build-out and upgrade and operation of some of the most advanced networks, small cell, Wi-Fi, fiber and distributed antenna system (DAS) networks. We believe the expansion and migration of these next-generation networks, our long-term relationships supported by multiyear Master Service Agreements (MSA) and multi-year service contracts with major wireless, commercial wireline and wireless operators, DAS operators, tower companies, original equipment manufacturers (OEM’s) and prime contractor/project management organization provides us a significant opportunity as a long term leading and well respected industry leader in this marketplace. ADEX is a leading outsource provider of engineering and installation services, professional services, staffing solutions and other services which include consulting to the telecommunications and technology industry, service providers and Enterprise customers. ADEX’s managed solutions diversifies the ability to service customers domestically and internationally throughout the project lifecycle. ADEX customers include many leading wireless and wireline telecommunications providers, cable broadband MSOs and Original Equipment Manufacturers (“OEM”). On a weekly basis, we deploy hundreds of telecommunication professionals in support of its customers. We believe that our global footprint of support is a differentiating factor for national and international-based customers needing a broad range of technical expertise for management of their legacy and next generation networks. Our company seeks to assist our customers throughout the entire life cycle of a network deployment via our comprehensive suite of managed solutions that include Consulting and Professional Staffing services to service providers as well as Enterprise customers, Network Implementation, Network Installation, Network Upgrades, Rebuilds, Design, Engineering and Integration Wireless Network Support, Wireless Network Integration, Wireless and Wireline Equipment Installation & Commissioning, Wireless Site Development & Construction Management, Network Engineering, Project Management, Disaster Recovery design engineering and integration.

 

 

We provide the following categories of offerings to our customers:

 

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Telecommunications and Technology: We provide a comprehensive technology platform and array of professional services and solutions to our clients that are applicable across multiple platforms and technologies to include but not limited to: Wi-Fi , Wi-Max and wide-area networks, fiber networks (ISP/OSP), DAS networks (iDAS/oDAS), small cell distributed networks, public safety networks and enterprise networks for incumbent local exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators (MSOs), tower and network aggregators, utility entities, government and enterprise customers. Our services teams support the deployment of new networks and technologies, as well as expand, maintain and decommission existing networks.

 

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High Wire Networks, Inc. (“High Wire”), which is under a definitive agreement to merge with us, is a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. High Wire’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.

 

As of the date of this report, all but one of the closing conditions of the merger have been satisfied or waived by the parties. The lone remaining closing condition concerns a pending Paycheck Protection Program Loan Forgiveness Application submitted by one of our subsidiaries. Closing the merger after Small Business Administration (SBA) forgiveness prevents a change of control event under SBA rules that would jeopardize the forgiveness and impact our statement of operations for 2021. We submitted our forgiveness application in accordance with Paycheck Protection Program rules and expect forgiveness to be received in the second quarter of 2021.

 

Our Operating Units

 

Our company is comprised of the following:

 

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The AWS Entities. The AWS Entities are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. The AWS Entities services include network systems design, site acquisition services, asset audits, architectural and engineering services, program management, construction management and inspection, construction, installation, maintenance and other technical services. The AWS Entities provide in-field design, computer aided design and drawing services (CADD), fiber and DAS deployments for facilities and outdoor environments. In December 2020 we divested our AW Solutions, Inc subsidiary at a time when it had already begun to wind down operations.

  

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The ADEX Entities. The ADEX Entities are a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications and technology industry, service providers and enterprise customers domestically and internationally. ADEX seeks to assist its customers throughout the entire life cycle of a network deployment via its comprehensive suite of managed solutions that include consulting and professional staffing services to service providers as well as enterprise customers, network implementation, network installation, network upgrades, rebuilds, design, engineering and integration wireless network support, wireless network integration, wireless and wireline equipment installation and commissioning, wireless site development and construction management, network engineering, project management, disaster recovery design engineering and integration.

 

 

Our Industry

 

Advances in technology and communications architectures as well as the robust demand outlook of the telecommunication and technology industry is generating remarkable spending trends at top tier carriers and enterprise customers. Innovative new technologies, rising network utilization and dwindling broadband capacity are fueling the fundamental need for infrastructure expansion. The adoption of next generation technologies, quality of service and network availability will be key drivers in enabling service providers to enjoy continued subscriber growth and market competitiveness.

 

Wireless infrastructure which has been in place since the 1980’s includes towers, buildings, telephone poles and other facilities to place critical antennas and associated electronics to support a wind range of wireless protocols including WiMax, LTE and now 5G technologies. These wireless trends combined with the wireline transition from copper to fiber, and its corresponding order of magnitude change in bandwidth, are occurring to satisfy the world’s ever-increasing demand for data, which are significant long term drivers of our business model and continued success. According to iSuppli, 4G Long Term Evolution (LTE) will garner the largest share of wireless infrastructure capital spending through 2019 with 5G enhanced mobile technologies trials commencing in the United States in 2017 and deployment past 2025. This important transition will accelerate migration to the next generation standard that allows for higher capacity, lower latency, and the architecture required to support new applications. The roll-out of enhanced mobile broadband, small cell architectures, 5G services and billions of new Internet of Things (IoT) connected devices greatly increases the need to modernize networks to accommodate this new breed of connectivity. This long-term trend is a significant enduring opportunity for companies like ours. The transition from trial-based deployments of 5G to a full nationwide implementation is expected to continue beyond 2025. Necessary investments in supporting infrastructure such as fiber optic backhaul is expected by Deloitte Consulting LLP to require $130-$150 Billion over the next 5-7 years to adequately support the consumer demand for broadband and wireless densification projects in the United States alone. It is mission-critical for these providers to deliver broadband capacity, reliably, securely and cost-effectively in a solution that supports the massive for data consumption of emerging applications such as: augmented reality/virtual reality, video streaming, mobile advertising, IoT, self-driving cars, personalized health monitoring and much more. The explosion of devices harnessing distributed mobility will require, innovative approaches like small cell deployments to handle the increased demands on both the wireline and wireless delivery networks.

 

The outlook indicator and anticipated growth in the telecommunications sector is at a faster rate over the next five (5) years to 2025 than experienced in the previous five (5) year period. Industry revenue is forecasted for the next five (5) years is to grow at an annual rate between 5%-7%. As a result, major carriers and enterprises are increasingly requiring rapid deployment of broadband solutions and network infrastructure upgrades to support an evolving array of communication technologies that attempt to cope with the mounting demand for higher mobile traffic capacity and coverage.

 

INDUSTRY TRENDS AND OPPORTUNITIES

 

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5G technology trials and deployments

 

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Network densification

 

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IOT opportunities

 

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FirstNet Public Safety Deployment

 

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FCC auctioning more spectrum for wireless deployments

 

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Growth of wireless and wireline/fiber infrastructure

 

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Commercialization of alternative energy technologies

 

 

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Monetize existing technology patents

 

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International growth, developing and emerging markets

 

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Increased development of the Wi-Fi and Wi-MAX market

 

Competitors

 

We provide, professional and infrastructure services to carriers, service provider, utilities and enterprise clients on a national and international basis. Our primary business market is somewhat consolidated, and the business is characterized by several large companies, however the market servicing the telecommunications sector is fragmented with a large number of small, privately held, local competitors.

 

Our current and potential larger competitors include MasTec, Dycom Industries, Inc., Goodman Networks, Inc., Ericsson, and Black and Veatch. A significant portion of our services revenue is currently derived from MSAs and price is often an important factor in awarding such agreements. Accordingly, our competitors may underbid us if they elect to price their services aggressively to procure such business. It must be recognized that while these companies are competitors, under the right circumstance they are also our clients or potential clients. Our competitors may also develop the expertise, experience and resources to provide services that are equal or superior in both price to our services, and we may not be able to maintain or enhance our competitive position based on thresholds for margin and profitability that has been established as benchmarks within our telecommunications division. The principal competitive factors for our professional services include; agility to respond, geographic presence, breadth of service offerings, technical skills “in-house” professional licenses, price, quality of service, safety record, proven performance and industry reputation. We believe we compete favorably with our competitors on the basis of all of these factors.

 

Our Competitive Strengths

 

On the telecommunication sector we believe our market advantage is the long-term relationships, Master Service Agreements (MSAs), industry leading provider of wireless and wireline solutions and a reputations and track record of our ability to perform with agility, quality on a seamless and flawless manner for our clients is key in our success to date. Spectrum Global’s ability to provide a wide range of services in a turn-key integrated solution is critical to our clients. Our highly experienced and professional team provide such services as: RF, civil, electrical, architectural engineering and design, structural engineering, analysis and design, value engineering, network engineering services, network planning, site acquisition, land use planning, feasibility/environmental studies, lease/contract negotiations, Build-To-Suit (BTS) services, audits functions, program planning, professional services, product development, construction and installation, technical services, warehouse and logistics, network decommissioning and maintenance.

 

We believe our additional strengths described below will enable us to continue to compete effectively and to take advantage of anticipated growth in the telecommunications industry segment:

 

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Service Provider Relationships: We have established relationships with leading wireless and wireline telecommunications providers, cable broadband MSOs, Original Equipment Manufacturers (OEMs), utility companies, Project Management Organizations (PMOs), enterprise clientele and others.

 

SAMPLE CUSTOMERS

 

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Commercial Operators (Carriers): AT&T, Verizon Communications, T-Mobile/Sprint, Frontier Communications, COX, Open Mobile, Claro

 

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Aggregators: Crown Castle, SBA Wireless, Global Tower Partners (GTP), American Tower, Vertical Bridge

 

 

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OEMs: Ericsson, Nokia, Samsung

 

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PMOs: MasTec Network Solutions, Ericsson

 

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Enterprise/Government: Google, Oracle, Miami Dade County

 

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Long-Term Master Service Agreements (MSA) and Contracts: We have MSA’s and agreements with service providers, OEMs and other clients. Our relationships with our customers and existing master service agreements position us to continue to capture existing and emerging opportunities, both domestically and internationally. We believe the barriers are extremely high for new entrants to obtain master service agreements with service providers and OEMs unless there are established relationships, proven ability to execute, national coverage and licensing, spotless safety records and broad and deep insurance coverage.

 

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Global Professional Engineering Talents: Our extensive geographical reach and licensing that covers all US states and territories, majority of Canadian Provinces and select areas in the Caribbean and Pacific Rim coupled with our vast engineering experience and expertise supported by talented staff enables our customers to take advantage of our end-to-end solutions and one-stop full turn-key solution.

 

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Proven Ability to Recruit, Manage and Retain High-Quality Personnel. Our ability to recruit, manage and retain skilled labor is a critical advantage in an industry where a shortage of highly skilled and experience personal is limited. This is often a key factor in our customers selecting Spectrum Global over our competitors. We believe that our highly skilled professionals with professional licenses consisting of Professional Engineer (PE), Electrical Engineer (EE) and our General Contracting licenses (GC) in the United States, Canada and Caribbean gives us a competitive edge over our competitors as we continue to expand and meet our national and international clients needs across their entire service footprints.

 

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Expansion of our recurring revenue streams through increased professional services, software as a services (SaaS) offerings, customer CAPEX to OPEX models, high margin technology leasing models and client cost saving sharing models.

  

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Increased value creation through continued expansion of our intellectual property (IP). Drone “Optical Caliper” measuring system.

 

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Expansion of our service territory and client base through penetration into the Central and South American, European, African and Asian markets.

 

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Our highly experienced management team has deep industry knowledge and brings an average of over 180 years of combined experience across a broad range of disciplines. We believe our senior management team is a key driver of our success and is well-positioned to execute our strategy.

 

KEY ASPECTS

 

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Strong management team in place

 

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Opportunity exists for sustained growth

 

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Operational - U.S., Canada, U.S.-Virgin Islands and Puerto Rico

 

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Turnkey deployment solutions

 

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Experience in all wireless and wireline technologies

 

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Provides services direct to carriers, tower and DAS/Small Cell aggregators, OEM’s, enterprise, technology, Utility Entities and consulting companies

 

 

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Diverse customer base featuring top tier carriers

 

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Focused on high growth markets

 

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Excellent industry reputation

 

Our Growth Strategy

 

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Under the leadership of our senior management team, we intend to continue to build our operational groups, invest in our sales/account management resources and continue to market our capabilities to support our rapid growth focusing on optimizing our operating margins. While organic growth will be a continued main focus in our telecommunications division to drive our business forward, acquisitions will play a strategic role in augmenting existing product and service lines, expanding geographic reach, diversifying customers and cross-selling opportunities. We are pursuing several strategies, including:

 

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Expand Engineering and Telecom Offerings. We are building a company that can manage the existing network infrastructures of the largest domestic and international service providers, utilities, aggregators, Original Equipment Manufacturers (OEM’s) and Project Management Organizations (PMO’s) while delivering a broad range of professional services to meet accelerated demand for these services. We believe the ability to provide such solutions and services is a critical differentiator as we already have relationships for these professional services in place today. Each of our operating units within Spectrum Global intends to continue to expand into additional service offerings.

 

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Grow Revenues and Market Share through Selective Acquisitions. We plan to continue to acquire private companies that enhance our earnings and offer complementary services plus expand our geographic reach and client base. We believe such acquisitions will help us to accelerate our revenue growth, leverage our existing strengths, and capture and retain more work “in-house” from our clients, thereby contributing to our profitability. We also believe that increased scale will enable us to bid and take on larger project and contracts. We believe there are potential acquisition candidates in the somewhat fragmented professional services market and infrastructure arena which would be likely candidates for consolidation opportunities.

 

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Aggressively Expand Our Organic Growth Initiatives. Our customers include leading wireless and wireline telecommunications providers, cable broadband MSOs, OEMs, Utility Entities, technology and enterprise customers. As we have expanded the breadth of our service offerings through both organic growth and selective acquisitions, we believe we have opportunities to expand revenues with our existing clients.

 

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Expand Our Relationships with New Service Providers. We plan to capture and expand new relationships with cable broadband providers, competitive local exchange carriers (CLECs), Fortune 1000 enterprise clients, institutional clients, competitive access providers (CAPs), etc. We believe that the business model for the expansion of these relationships, leveraging our core strengths, experience and broad array of service solutions, will support our business model for organic growth.

 

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Increase Operating Margins by Leveraging Operating Efficiencies. We believe that by centralizing administrative functions, consolidating insurance coverage and eliminating redundancies across our newly acquired businesses, we will be positioned to offer more integrated end-to-end solutions and increase operating margins.

 

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Cross Selling and Marketing. We believe that through our acquisitions we will be able to effectively cross sell between business units and enhanced services offerings and gain even greater traction through coordinated and branded marketing indicatives.

 

Our Services

 

We are a leading provider of professional services and infrastructure solutions to both the telecommunications and technology industry, utility entities and enterprises sectors. Our engineering, design, construction, installation, maintenance service offerings supported by our professional teams to support the build-out, maintenance, upgrade and operation of some of the most advanced fiber optic, Ethernet, copper, wireless, wireline, utility and enterprise networks. Our breadth of comprehensive services enables our customers to selectively augment existing services or to outsource entire projects or operational functions. We divide our service offering into Infrastructure and Professional Services.

 

 

We offer a full array of operations, construction, project and program management professional required to facilitate the full turn-key completion of networks from the design and planning phase, engineer evaluation and sign off, regulatory, installation, commissioning and maintain various types of Wi-Fi and wide-area networks, DAS networks, and small cell distribution networks for incumbent local exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators (MSOs) and enterprise customers. Our services and teams support the deployment of new networks and technologies, expand and maintain existing networks, as well as decommissioning obsolete legacy networks. We also design, install and maintain hardware solutions for the leading OEMs that support voice, data and optical networks. Our consulting and professional solutions to the service-provider and enterprise market in support of all facets of telecommunications and next-generation networks, including project management, network implementation, network installation, network upgrades, rebuilds, maintenance and consulting services. Our global certified professional services organization offers consulting, design, engineering, integration, implementation and ongoing support of all solutions offered by our company. We believe our ability to respond rapidly is a differentiating factor for national and international-based customers needing a broad range of our services and solutions.

 

We seek to assist our customers throughout the entire life cycle of a network deployment via its comprehensive suite of managed solutions and Professional Staffing services. We actively maintain a Proprietary Candidate Database with profiles of more than 138,000 telecommunications professionals. The database contains domestic and international based telecommunications professionals of all levels. Our recruiters are able to search the database by any number of criteria including, but not limited to: technical skill sets, equipment types, technology experience, education, years of experience, past employment history, geographic location.

 

Customers

 

Our customers include many Fortune 1000 enterprises, wireless and wireline service providers, cable broadband MSOs and telecommunications OEMs. Our current service provider and OEM customers include leading telecommunications companies, such as Ericsson, Inc., Verizon Communications, T-Mobile/Sprint Corporation and AT&T.

  

During the year ended December 31, 2020, our top four customers, Ericsson, Inc., Frontier Communications, CBM of America, Inc., and Sullivan & Powers, Inc. accounted for approximately 66% of our total revenues. During the year ended December 31, 2019, our top four customers, Ericsson, Inc., AT&T, SAC Wireless, and Frontier Communications accounted for approximately 82% of our total revenues.

 

A substantial portion of our revenue is derived from work performed under multi-year master service agreements and multi-year service contracts. We have entered into master service agreements, or MSAs, with numerous service providers and OEMs, and generally have multiple agreements with each of our customers. MSAs are generally the contracting vehicle with work awarded primarily through a competitive bidding process based on the depth of our service offerings, experience, price, geographic coverage and capacity. MSAs generally contain customer-specified service requirements, such as discrete pricing for individual tasks, but do not require our customers to purchase a minimum amount of services. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, perform work with the customer’s own employees and use other service providers. Most of our MSAs may be cancelled by our customers upon minimum notice (typically 60 days), regardless of whether we are or are not in default. In addition, many of these contracts permit cancellation of particular purchase orders or statements of work without any prior notice but do allow for payment for services performed up to the point of hold or cancellation.

 

 

Suppliers and Vendors

 

We have supply agreements with major technology vendors and material supply houses. However, for a majority of the professional services we perform, our customers supply the necessary major equipment and materials. We expect to continue to further develop our relationships with our technology vendors and to broaden our scope of work with each of our partners. In many cases, our relationships with our partners have extended for over a decade, which we attribute to our commitment to excellence. It is our objective to selectively expand our partnerships moving forward in order to expand our service offerings.

  

Safety and Risk Management

 

We require our employees to participate in internal training and service programs from time to time relevant to their employment and to complete any training programs required by law. The telecommunications division has not had any OSHA recordable incidents, lost workdays or fatalities since inception which includes: 2006 through 2020. Our policy is to review accidents and claims from our operations, examine trends and implement changes in procedures to address safety issues. We have no Claims in our business related to: workers’ compensation claims, general liability and damage claims, or claims related to vehicle accidents, including personal injury and property damage. We insure against the risk of loss arising from our operations up to certain deductible limits in all of the states in which we operate. In addition, we retain risk of loss, up to certain limits, under our employee group health plan. We evaluate our insurance requirements on an ongoing basis to help ensure we maintain adequate levels of coverage internally and externally for our clients.

 

Our internal policy is to carefully monitor claims and actively participate with our insurers in determining claims estimates and adjustments. The estimated costs of claims are accrued as liabilities and include estimates for claims incurred but not reported. If we experience future insurance claims in excess of our umbrella coverage limit, our business could be materially and adversely affected.

 

Employees

 

As of December 31, 2020, we had 156 full-time employees and 2 part-time employees, of whom 25 were in administration and corporate management, 4 were accounting personnel, 5 were sales personnel and 124 are engaged in professional engineering, operations, project managerial and technical roles.

 

We maintain a core of professional, technical and managerial personnel and add employees as deemed appropriate to address operational and scale requirement related to growth. Additionally, we will “flex” our work force through the use of temporary or agency staff and through subcontractors.

 

Environmental Matters

 

A portion of the work related to the telecommunication division which is work associated with above ground and underground networks of our customers. As a result, we are potentially subject to material liabilities related to encountering underground objects that may cause the release of hazardous materials or substances. We are subject to federal, state and local environmental laws and regulations, including those regarding the removal and remediation of hazardous substances and waste. These laws and regulations can impose significant fines and criminal sanctions for violations. Costs associated with the discharge of hazardous substances may include clean-up costs and related damages or liabilities. These costs could be significant and could adversely affect our results of operations and cash flows.

 

Regulation

 

Our operations are subject to various federal, state, local and international laws and regulations, including licensing, permitting and inspection requirements applicable to electricians and engineers; building codes; permitting and inspection requirements applicable to construction and installation projects; regulations relating to worker safety and environmental protection; telecommunication regulations affecting our wireless, wireline and fiber optic business; labor and employment laws; laws governing advertising, and laws governing our public business.

 

 

ITEM 1A – RISK FACTORS

 

Investing in our securities involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this report before purchasing our securities. If any of the following risks occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that case, the market price of our common stock could decline, and you could lose some or all of your investment.

 

Risks Related to Our Financial Results and Financing Plans

 

We have a history of losses and may continue to incur losses in the future.

 

We have a history of losses and may continue to incur losses in the future, which could negatively impact the trading value of our common stock. We incurred losses from operations of $4,304,782 and $3,490,021 for the years ended December 31, 2020 and 2019, respectively. In addition, we incurred a net loss attributable to common stockholders of $17,710,296 and $6,322,330 for the years ended December 31, 2020 and 2019, respectively. We may continue to incur operating and net losses in future periods. These losses may increase, and we may never achieve profitability for a variety of reasons, including increased competition, decreased growth in the unified communications industry and other factors described elsewhere in this “Risk Factors” section. If we cannot achieve sustained profitability, our stockholders may lose all or a portion of their investment in our company.

 

If we are unable to grow our revenue, we may never achieve or sustain profitability.

 

To become profitable, we must, among other things, continue increase our revenues. We had experienced significant growth in recent years, primarily due to our strategic acquisitions. However, in 2020, due to the COVID-19 pandemic, we saw a decline in revenues. Our total revenues decreased from $25,496,071 in the year ended December 31, 2019 to $18,677,444 in the year ended December 31, 2020. In order to become profitable and maintain our profitability, we must, among other things, increase our revenues. We may be unable to sustain our recent revenue growth, particularly if we are unable to develop and market our telecommunications, increase our sales to existing customers or develop new customers. However, even if our revenues continue to grow, they may not be sufficient to exceed increases in our operating expenses or to enable us to achieve or sustain profitability.

 

Our substantial indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations.

 

As of December 31, 2020, we had total indebtedness of $7,488,336, consisting of $1,304,420 of convertible debentures, $3,491,380 of loans payable, $577,925 of convertible loans payable to related parties, and $1,914,611 of factor financing. $3,990,286 of this debt is due within the twelve months ending December 31, 2021. Our substantial indebtedness could have important consequences to our stockholders. For example, it could: 

 

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increase our vulnerability to and limit our flexibility in planning for, or reacting to, changes in our business;

 

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place us at a competitive disadvantage compared to our competitors that have less debt;

 

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limit our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments; and

 

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make us more vulnerable to a general economic downturn than a company that is less leveraged.

 

A high level of indebtedness would increase the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness will depend on our future performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include our ability to access the public equity and debt markets, financial market conditions, the value of our assets and our performance at the time we need capital.

 

 

Risks Related to Our Business

 

Our inability to obtain additional capital may prevent us from completing our acquisition strategy and successfully operating our business; however, additional financings may subject our existing stockholders to substantial dilution.

 

We expect to finance our anticipated future strategic acquisitions through public or private equity offerings or debt financings. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more strategic acquisitions or business plans. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. In addition, debt financing, if available, may involve restrictive covenants. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our access to the financial markets and the pricing and terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets and interest rates.

 

Our future funding requirements will depend on many factors, including, but not limited to, the costs and timing of our future acquisitions.

 

A failure to successfully execute our strategy of acquiring other businesses to grow our company could adversely affect our business, financial condition, results of operations and prospects.

 

We intend to continue pursuing growth through the acquisition of companies or assets to expand our product offerings, project skill sets and capabilities, enlarge our geographic markets, and increase critical mass to enable us to bid on larger contracts. However, we may be unable to find suitable acquisition candidates or to complete acquisitions on favorable terms, if at all. Moreover, any completed acquisition may not result in the intended benefits. For example, while the historical financial and operating performance of an acquisition target are among the criteria we evaluate in determining which acquisition targets we will pursue, there can be no assurance that any business or assets we acquire will continue to perform in accordance with past practices or will achieve financial or operating results that are consistent with or exceed past results. Any such failure could adversely affect our business, financial condition or results of operations. In addition, any completed acquisition may not result in the intended benefits for other reasons and our acquisitions will involve a number of other risks, including:

 

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We may have difficulty integrating the acquired companies;

 

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Our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises;

 

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We may not realize the anticipated cost savings or other financial benefits we anticipated;

 

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We may have difficulty retaining or hiring key personnel, customers and suppliers to maintain expanded operations;

 

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Our internal resources may not be adequate to support our operations as we expand, particularly if we are awarded a significant number of contracts in a short time period;

 

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We may have difficulty retaining and obtaining required regulatory approvals, licenses and permits;

 

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We may not be able to obtain additional equity or debt financing on terms acceptable to us or at all, and any such financing could result in dilution to our stockholders, impact our ability to service our debt within the scheduled repayment terms and include covenants or other restrictions that would impede our ability to manage our operations;

 

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We may have failed to, or be unable to, discover liabilities of the acquired companies during the course of performing our due diligence; and

 

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We may be required to record additional goodwill as a result of an acquisition, which will reduce our tangible net worth.

 

Any of these risks could prevent us from executing our acquisition growth strategy, which could adversely affect our business, financial condition, results of operations and prospects.

 

 

Our engagements can require longer implementations and other professional services engagements.

 

Our implementations can involve a longer period of delivery of telecommunication and infrastructure services and technologies. In addition, existing customers for other professional services projects often retain us for those projects sometime beyond an initial implementation. A successful implementation or other professional services project requires a close working relationship between us, the customer and often third- party consultants and systems integrators who assist in the process. These factors may increase the costs associated with completion of any given project award/sale, increase the timeline risks of collection of amounts due during implementations or other professional services projects, and increase risks of delay of such projects. Delays in the completion of an implementation or any other professional services project may require that the revenues associated with such implementation or project be recognized over a longer period than originally anticipated, or may result in disputes with customers, third-party consultants or systems integrators regarding performance as originally anticipated. Such delays in the implementation may cause material fluctuations in our operating results. In addition, customers may defer implementation projects or portions of such projects and such deferrals could have a material adverse effect on our business and results of operations.

 

Our future success is substantially dependent on third-party relationships.

 

An element of our strategy is to establish and maintain alliances with other companies, such as suppliers of products and services for construction and maintenance. These relationships enhance our status in the marketplace, which generates new business opportunities and marketing channels and, in certain cases, additional revenue and profitability. To effectively generate revenue out of these relationships, each party must coordinate and support required hence the sales and marketing efforts of the other, often including making a sizable investment in such sales and marketing activity. Our inability to establish and maintain effective alliances with other companies could impact our success in the marketplace, which could materially and adversely impact our results of operations. In addition, as we cannot control the actions of these third-party alliances, if these companies suffer business downturns or fail to meet their objectives, we may experience a resulting diminished revenue and decline in results of operations.

 

If we do not accurately estimate the overall costs when we bid on a contract that is awarded to us, we may achieve a lower than anticipated profit or incur a loss on the contract.

 

A portion of our telecommunications revenues from our engineering and professional services offerings are derived from fixed unit price contracts that require us to perform the contract for a fixed unit price irrespective of our actual costs. We bid for these contracts based on our estimates of overall costs, but cost overruns may cause us to incur losses. The costs incurred and any net profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to:

 

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onsite conditions that differ from those assumed in the original bid;

 

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delays in project starts or completion;

 

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contract modifications creating unanticipated costs not covered by change orders;

 

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development of new technologies;

 

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availability and skill level of workers in the geographic location of a project;

 

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our suppliers’ or subcontractors’ failure to perform due to various reasons, including bankruptcy;

 

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fraud or theft committed by our employees or others;

 

 

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citations or fines issued by any governmental authority;

 

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delays caused by any government authority;

 

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difficulties in obtaining required governmental permits or approvals or performance bonds;

 

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labor and material cost greater than anticipated;

 

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changes in applicable laws and regulations; and

 

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claims or demands from third parties alleging damages arising from our work or from the project of which our work is a part.

 

These factors may cause actual reduced profitability or losses on projects, which could adversely affect our business, financial condition, results of operations and prospects.

  

Our contracts may require us to perform extra or change order work, which can result in disputes and adversely affect our business, financial condition, results of operations and prospects.

 

Our contracts generally require us to perform extra or change order work as directed by the customer, even if the customer has not agreed in advance on the scope or price of the extra work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved by the customer and we are paid by the customer.

 

To the extent that actual recoveries with respect to change orders or amounts subject to contract disputes or claims are less than the estimates used in our financial statements, the amount of any shortfall will reduce our future revenues and profits, and this could adversely affect our reported working capital and results of operations. In addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.

 

We derive a significant portion of our revenue from a few customers and the loss of one of these customers, or a reduction in their demand for our services, could adversely affect our business, financial condition, results of operations and prospects.

 

Our customer base on the telecommunication sector is highly concentrated. Due to the size and nature of our contracts, one or a few customers have represented a substantial portion of our consolidated revenues and gross profits in any one year or over a period of several consecutive years. Our top four customers accounted for approximately 66% and 82% of our revenue in the years ended December 31, 2020 and 2019, respectively. Revenues under our contracts with significant customers may continue to vary from period to period depending on the timing or volume of work that those customers order or perform with in-house service organizations. A limited number of customers may continue to comprise a substantial portion of our revenue for the foreseeable future.

 

Because we do not maintain any reserves for payment defaults, a default or delay in payment on a significant scale could adversely affect our business, financial condition, results of operations and prospects. We could lose business from a significant customer for a variety of reasons, including:

 

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the consolidation, merger or acquisition of an existing customer, resulting in a change in procurement strategies employed by the surviving entity that could reduce the amount of work we receive;

 

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our performance on individual contracts or relationships with one or more significant customers could become impaired due to another reason, which may cause us to lose future business with such customers and, as a result, our ability to generate income would be adversely impacted;

 

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key customers could slow or stop spending on initiatives related to projects we are performing for them due to increased difficulty in the markets as a result of economic downturns or other reasons.

 

 

Since many of our customer contracts allow our customers to terminate the contract without cause, our customers may terminate their contracts with us at will, which could impair our business, financial condition, results of operations and prospects.

 

Our failure to adequately expand our direct sales force will impede our growth.

 

We will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. We plan to continue to expand our account management/sales force, both domestically and internationally. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. If we are unable to hire, develop and retain talented account management/sales personnel or if the personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the intended benefits of this investment or increase our revenue.

  

If we are unable to attract and retain qualified executive officers and managers, we will be unable to operate efficiently, which could adversely affect our business, financial condition, results of operations and prospects.

 

We depend on the continued efforts and abilities of our management, as well as the senior management of our subsidiaries, to establish and maintain our customer relationships and identify strategic opportunities. The loss of any one of them could negatively affect our ability to execute our business strategy and adversely affect our business, financial condition, results of operations and prospects. Competition for managerial talent with significant industry experience is high and we may lose access to executive officers for a variety of reasons, including more attractive compensation packages offered by our competitors. Although we have entered into employment agreements with certain of our senior level management, we cannot guarantee that any of them or other key management personnel will remain employed by us for any length of time.

  

We derive a significant portion of our revenues from master service agreements that may be cancelled by customers on short notice, or which we may be unable to renew on favorable terms or at all.

 

During the years ended December 31, 2020 and 2019 we derived approximately 100% of our revenues from master service agreements and long-term contracts, none of which require our customers to purchase a minimum amount of services. The majority of these contracts may be cancelled by our customers upon minimal notice (typically 60 days), regardless of whether or not we are in default. In addition, many of these contracts permit cancellation of particular purchase orders or statements of work without any notice.

 

These agreements typically do not require our customers to assign a specific amount of work to us until a purchase order or statement of work is signed. Consequently, projected expenditures by customers are not assured until a definitive purchase order or statement of work is placed with us and the work is completed. Furthermore, our customers generally require competitive bidding of these contracts. As a result, we could be underbid by our competitors or be required to lower the prices charged under a contract being rebid. The loss of work obtained through master service agreements and long-term contracts or the reduced profitability of such work could adversely affect our business or results of operations.

  

Unanticipated delays due to adverse weather conditions, global climate change and difficult work sites and environments may slow completion of our contracts, impair our customer relationships and adversely affect our business, financial condition, results of operations and prospects.

 

Because some of our work in the telecommunication sector is performed outdoors, our business is impacted by extended periods of inclement weather and is subject to unpredictable weather conditions, which could become more frequent or severe if general climatic changes occur. Generally, inclement weather is more likely to occur during the winter season, which falls during our first and fourth fiscal quarters. Additionally, adverse weather conditions can result in project delays or cancellations, potentially causing us to incur additional unanticipated costs, reductions in revenues or the payment of liquidated damages. In addition, some of our contracts require that we assume the risk that actual site conditions vary from those expected. Significant periods of bad weather typically reduce profitability of affected contracts, both in the current period and during the future life of affected contracts, which can negatively affect our results of operations in current and future periods until the affected contracts are completed.

 

 

Some of our projects involve challenging engineering, procurement and construction phases that may occur over extended time periods, sometimes up to several years. We may encounter difficulties in engineering, delays in designs or materials provided by the customer or a third party, equipment and material delivery delays, schedule changes, delays from customer failure to timely obtain rights-of-way, weather-related delays, delays by subcontractors in completing their portion of the project and other factors, some of which are beyond our control, but which may impact our ability to complete a project within the original delivery schedule. In some cases, delays and additional costs may be substantial, and we may be required to cancel a project and/or compensate the customer for the delay. We may not be able to recover any of these costs. Any such delays, cancellations, defects, errors or other failures to meet customer expectations could result in damage claims substantially in excess of revenue associated with a project. These factors could also negatively impact our reputation or relationships with our customers, which could adversely affect our ability to secure new contracts.

 

Environmental and other regulatory matters could adversely affect our ability to conduct our business and could require expenditures that could adversely affect our business, financial condition, results of operations and prospects.

 

Our operations are subject to laws and regulations relating to workplace safety and worker health that, among other things, regulate employee exposure to hazardous substances. While immigration laws require us to take certain steps intended to confirm the legal status of our immigrant labor force, we may nonetheless unknowingly employ illegal immigrants. Violations of laws and regulations could subject us to substantial fines and penalties, cleanup costs, third- party property damage or personal injury claims. In addition, these laws and regulations have become, and enforcement practices and compliance standards are becoming, increasingly stringent. Moreover, we cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed, or how existing or future laws or regulations will be administered or interpreted, with respect to products or activities to which they have not been previously applied. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could require us to make substantial expenditures for, among other things, pollution control systems and other equipment that we do not currently possess, or the acquisition or modification of permits applicable to our activities.

 

Fines, judgments and other consequences resulting from our failure to comply with regulations or adverse outcomes in litigation proceedings could adversely affect our business, financial condition, results of operations and prospects.

 

From time to time, we may be involved in lawsuits and regulatory actions, including class action lawsuits that are brought or threatened against us in the ordinary course of business. These actions may seek, among other things, compensation for alleged personal injury, workers’ compensation, violations of the Fair Labor Standards Act and state wage and hour laws, employment discrimination, breach of contract, property damage, punitive damages, civil penalties, and consequential damages or other losses, or injunctive or declaratory relief. Any defects or errors, or failures to meet our customers’ expectations could result in large damage claims against us. Claimants may seek large damage awards and, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. Any failure to properly estimate or manage cost, or delay in the completion of projects, could subject us to penalties. 

 

The ultimate resolution of these matters through settlement, mediation or court judgment could have a material impact on our financial condition, results of operations and cash flows. Regardless of the outcome of any litigation, these proceedings could result in substantial cost and may require us to devote substantial resources to defend ourselves. When appropriate, we establish reserves for litigation and claims that we believe to be adequate in light of current information, legal advice and professional indemnity insurance coverage, and we adjust such reserves from time to time according to developments. If our reserves are inadequate or insurance coverage proves to be inadequate or unavailable, our business, financial condition, results of operations and prospects may suffer.

 

 

If we are required to reclassify independent contractors as employees, we may incur additional costs and taxes which could adversely affect our business, financial condition, results of operations and prospects.

 

We use a significant number of independent contractors in our operations for whom we do not pay or withhold any federal, state or provincial employment tax. There are a number of different tests used in determining whether an individual is an employee or an independent contractor and such tests generally take into account multiple factors. There can be no assurance that legislative, judicial or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our independent contractors. Although we believe we have properly classified our independent contractors, the U.S. Internal Revenue Service or other U.S. federal or state authorities or similar authorities of a foreign government may determine that we have misclassified our independent contractors for employment tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties. If we are required to pay employer taxes or pay backup withholding with respect to prior periods with respect to or on behalf of our independent contractors, our operating costs will increase, which could adversely impact our business, financial condition, results of operations and prospects.

 

Our dependence on subcontractors and suppliers could increase our cost and impair our ability to complete contracts on a timely basis or at all.

 

We rely on third-party subcontractors to perform some of the work on our contracts. We also rely on third-party suppliers to provide materials needed to perform our obligations under those contracts. We generally do not bid on contracts unless we have the necessary subcontractors and suppliers committed for the anticipated scope of the contract and at prices that we have included in our bid. Therefore, to the extent that we cannot engage subcontractors or suppliers, our ability to bid for contracts may be impaired. In addition, if a subcontractor or third-party supplier is unable to deliver its goods or services according to the negotiated terms for any reason, we may suffer delays and be required to purchase the services from another source at a higher price. We sometimes pay our subcontractors and suppliers before our customers pay us for the related services. If customers fail to pay us and we choose, or are required, to pay our subcontractors for work performed or pay our suppliers for goods received, we could suffer an adverse effect on our business, financial condition, results of operations and prospects.

 

Our insurance coverage may be inadequate to cover all significant risk exposures.

 

We will be exposed to liabilities that are unique to the services we provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition, results of operations and prospects.

  

A portion of our operations are subject to hazards that may cause personal injury or property damage, thereby subjecting us to liabilities and possible losses, which may not be covered by insurance.

 

Our workers are subject to hazards associated with providing construction and related services on construction sites. For example, some of the work we perform is underground. If the field location maps supplied to us are not accurate, or if objects are present in the soil that are not indicated on the field location maps, our underground work could strike objects in the soil containing pollutants that could result in a rupture and discharge of pollutants. In such a case, we may be liable for fines and damages. These operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. Even though we believe that the insurance coverage we maintain is in amounts and against the risks that we believe are consistent with industry practice, this insurance may not be adequate to cover all losses or liabilities that we may incur in our operations. To the extent that we experience a material increase in the frequency or severity of accidents or workers’ compensation claims, or unfavorable developments on existing claims, our business, financial condition, results of operations and prospects could be adversely affected.

 

The Occupational Safety and Health Act of 1970, as amended, or OSHA, establishes certain employer responsibilities, including the maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Health and Safety and Health Administration and various recordkeeping, disclosure and procedural requirements. While we have invested, and will continue to invest, substantial resources in occupational health and safety programs, serious accidents or violations of OSHA rules may subject us to substantial penalties, civil litigation or criminal prosecution, which could adversely affect our business, financial condition, results of operations and prospects. However, our record to date has had no incidents or losses and we are in full compliance with a 100% safety record.

 

 

Defects in our specialty contracting services may give rise to claims against us, increase our expenses, or harm our reputation.

 

Our specialty contracting services are complex and our final work product may contain defects. We have not historically accrued reserves for potential claims as they have been immaterial. The costs associated with such claims, including any legal proceedings, could adversely affect our business, financial condition, results of operations and prospects.

 

The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.

 

Global health concerns relating to the coronavirus outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact our workforce and operations and the operations of our customers, suppliers and business partners. These measures may remain in place for a significant period of time and they are likely to continue to adversely affect our business, results of operations and financial condition.

 

The spread of the coronavirus has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.

 

The extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the coronavirus outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

 

There are no comparable recent events which may provide guidance as to the effect of the spread of the coronavirus and a global pandemic, and, as a result, the ultimate impact of the coronavirus outbreak or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations, and we will continue to monitor the coronavirus situation closely. As of March 2021, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine distribution, supply and effectiveness will impact when the negative economic effects as a result of COVID-19 will abate or end and the timing of such recovery may affect our financial condition.

 

 

Risks Related to Our Industry

 

Our industry is highly competitive, with a variety of larger companies with greater resources competing with us, and our failure to compete effectively could reduce the number of new contracts awarded to us or adversely affect our market share and harm our financial performance.

 

The contracts on which we bid are generally awarded through a competitive bid process, with awards generally being made to the lowest bidder, but sometimes based on other factors, such as shorter contract schedules, larger scale to complete projects or prior experience with the customer. Within our markets, we compete with many national, regional, local and international service providers, including Dycom Industries, Inc., Ericsson and Frontier Communications. Price is often the principal factor in determining which service provider is selected by our customers, especially on smaller, less complex projects. As a result, any organization with adequate financial resources and access to technical expertise may become a competitor. Smaller competitors are sometimes able to win bids for these projects based on price alone because of their lower costs and financial return requirements. Additionally, our competitors may develop the expertise, experience and resources to provide services that are equal or superior in price to our services, and we may not be able to maintain or enhance our competitive position.

 

Some of our competitors have already achieved greater market penetration than we have in the markets in which we compete, and some have greater financial and other resources than we do. A number of national companies in our industry are larger than we are and, if they so desire, could establish a presence in our markets and compete with us for contracts. As a result of this competition, we may need to accept lower contract margins in order to compete against competitors that have the ability to accept awards at lower prices or have a pre-existing relationship with a customer. If we are unable to compete successfully in our markets, our business, financial condition, results of operations and prospects could be adversely affected.

 

Many of the industries we serve are subject to consolidation and rapid technological and regulatory change, and our inability or failure to adjust to our customers’ changing needs could reduce demand for our services.

 

We derive, and anticipate that we will continue to derive, a substantial portion of our revenue from customers in the telecommunications and utilities industries. The telecommunications and utilities industries are subject to rapid changes in technology and governmental regulation. Changes in technology may reduce the demand for the services we provide. For example, new or developing technologies could displace the wireline systems used for the transmission of voice, video and data, and improvements in existing technology may allow telecommunications providers to significantly improve their networks without physically upgrading them. Alternatively, our customers could perform more tasks themselves, which would cause our business to suffer. Additionally, the telecommunications and utilities industries have been characterized by a high level of consolidation that may result in the loss of one or more of our customers. Our failure to rapidly adopt and master new technologies as they are developed in any of the industries we serve or the consolidation of one or more of our significant customers could adversely affect our business, financial condition, results of operations and prospects.

 

Further, many of our telecommunications customers are regulated by the Federal Communications Commission, or the FCC, and other international regulators. The FCC and other regulators may interpret the application of their regulations in a manner that is different than the way such regulations are currently interpreted and may impose additional regulations, either of which could reduce demand for our services and adversely affect our business and results of operations.

 

Economic downturns could cause capital expenditures in the industries we serve to decrease, which may adversely affect our business, financial condition, results of operations and prospects.

 

The demand for our services has been, and will likely continue to be, cyclical in nature and vulnerable to general downturns in the United States economy. The current election cycle may cause economic uncertainty. The wireless and wireline telecommunications industry are cyclical in nature and vulnerable to general downturns in the United States and international economies. Our customers are affected by economic changes that decrease the need for or the profitability of their services. This can result in a decrease in the demand for our services and potentially result in the delay or cancellation of projects by our customers. Slow-downs in real estate, fluctuations in commodity prices and decreased demand by end-customers for services could affect our customers and their capital expenditure plans. As a result, some of our customers may opt to defer or cancel pending projects. A downturn in overall economic conditions also affects the priorities placed on various projects funded by governmental entities and federal, state and local spending levels.

 

In general, economic uncertainty makes it difficult to estimate our customers’ requirements for our services. Our plan for growth depends on expanding our company both in the United States and internationally. If economic factors in any of the regions in which we plan to expand are not favorable to the growth and development of the telecommunications industries in those countries, we may not be able to carry out our growth strategy, which could adversely affect our business, financial condition, results of operations and prospects.

 

 

Other Risks Relating to Our Company and Results of Operations

 

Our operating results may fluctuate due to factors that are difficult to forecast and not within our control.

 

Our past telecommunications operating results may not be accurate indicators of future performance, and you should not rely on such results to predict our future performance.

  

Our operating results have fluctuated and could fluctuate in the future. Factors that may contribute to fluctuations include:

 

●

changes in aggregate capital spending, cyclicality and other economic conditions, or domestic and international demand in the industries we serve;

 

●

our ability to effectively manage our working capital;

 

●

our ability to satisfy consumer demands in a timely and cost-effective manner;

 

●

pricing and availability of labor and materials;

 

●

shifts in geographic concentration of customers, supplies and labor pools; and

 

●

seasonal fluctuations in demand and our revenue

 

Actual results could differ from the estimates and assumptions that we use to prepare our financial statements.

 

To prepare financial statements in conformity with GAAP, management is required to make estimates and assumptions as of the date of the financial statements that affect the reported values of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Areas requiring significant estimates by our management include:

 

●

contract costs and profits and application of percentage-of-completion accounting and revenue recognition of contract change order claims;

 

●

provisions for uncollectible receivables and customer claims and recoveries of costs from subcontractors, suppliers and others;

 

●

valuation of assets acquired and liabilities assumed in connection with business combinations;

 

●

accruals for estimated liabilities, including litigation and insurance reserves; and

 

●

goodwill and intangible asset impairment assessment.

 

At the time the estimates and assumptions are made, we believe they are accurate based on the information available. However, our actual results could differ from, and could require adjustments to, those estimates.

 

We exercise judgment in determining our provision for taxes in the Canada, United States and Puerto Rico that are subject to tax authority audit review that could result in additional tax liability and potential penalties that would negatively affect our net income.

 

The amounts we record in intercompany transactions for services, licenses, funding and other items affects our potential tax liabilities. Our tax filings are subject to review or audit by the U.S. Internal Revenue Service and state, local and foreign taxing authorities. We exercise judgment in determining our worldwide provision for income and other taxes and, in the ordinary course of our business, there may be transactions and calculations where the ultimate tax determination is uncertain. Examinations of our tax returns could result in significant proposed adjustments and assessment of additional taxes that could adversely affect our tax provision and net income in the period or periods for which that determination is made.

 

 

Risks Related to our Common Stock

 

Our common stock price has fluctuated in recent years, and the trading price of our common stock is likely to continue to reflect changes, which could result in losses to investors and litigation.

 

In addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this “Risk Factors” section, the market price of and trading volume for our common stock may change for a variety of other reasons, not necessarily related to our actual operating performance. The capital markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition, the average daily trading volume of the securities of small companies can be very low, which may contribute to future volatility. Factors that could cause the market price of our common stock to fluctuate significantly include:

 

●

the results of operating and financial performance and prospects of other companies in our industry;

 

●

strategic actions by us or our competitors, such as acquisitions or restructurings;

 

●

announcements of innovations, increased service capabilities, new or terminated customers or new, amended or terminated contracts by our competitors;

 

●

the public’s reaction to our press releases, media coverage and other public announcements, and filings with the SEC;

 

●

market conditions for providers of services to telecommunications, utilities OEM’s and PMO’s service customers;

 

●

lack of securities analyst coverage or speculation in the press or investment community about us or opportunities in the markets in which we compete;

 

●

changes in government policies in the United States and, as our international business increases, in other foreign countries;

 

●

changes in earnings estimates or recommendations by securities or research analysts who track our common stock or failure of our actual results of operations to meet those expectations;

 

●

dilution caused by the conversion into common stock of convertible debt securities or by the exercise of outstanding warrants;

 

●

market and industry perception of our success, or lack thereof, in pursuing our growth strategy;

 

●

changes in accounting standards, policies, guidance, interpretations or principles;

 

●

any lawsuit involving us, our services or our products;

 

●

arrival and departure of key personnel;

 

●

sales of common stock by us, our investors or members of our management team; and

 

●

changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural or man-made disasters.

 

 

Any of these factors, as well as broader market and industry factors, may result in large and sudden changes in the trading volume of our common stock and could seriously harm the market price of our common stock, regardless of our operating performance. This may prevent stockholders from being able to sell their shares at or above the price they paid for shares of our common stock, if at all. In addition, following periods of volatility in the market price of a company’s securities, stockholders often institute securities class action litigation against that company. Our involvement in any class action suit or other legal proceeding, including the existing lawsuits filed against us and described elsewhere in this report, could divert our senior management’s attention and could adversely affect our business, financial condition, results of operations and prospects.

 

The sale or availability for sale of substantial amounts of our common stock could adversely affect the market price of our common stock.

 

Sales of substantial amounts of shares of our common stock, or the perception that these sales could occur, could adversely affect the market price of our common stock and could impair our future ability to raise capital through common stock offerings. As of December 31, 2020, we had 13,188,951 shares of common stock issued and 13,186,880 shares outstanding, of which 31,162 shares were restricted securities pursuant to Rule 144 promulgated by the SEC. The sale of these shares into the open market may adversely affect the market price of our common stock.

 

In addition, at December 31, 2020, we also had outstanding $1,882,345 aggregate principal and $267,706 accrued interest of convertible loans payable to related parties and convertible notes that were convertible into 47,988,047 shares of common stock on that date. However, we cannot currently determine the total number of shares of our common stock that may be issued upon the conversion or repayment of our convertible notes because the total number of shares and the conversion prices or the prices at which we can issue our common stock to pay down the principal of and interest on our convertible notes depend on a number of factors, including the prices and nature of any equity securities we may issue in the future and the market prices of our common stock in the periods leading up to any particular amortization payment date on which we elect to make amortization payments on our convertible notes in shares of our common stock. Refer to Note 8, Convertible Debentures, to the notes to our consolidated financial statements in this report. For conversions completed between January 1 and March 26, 2021, refer to Note 19, Subsequent Events, to the notes to our consolidated financial statements in this report. As of December 31, 2020, there were also outstanding warrants to purchase an aggregate of 2,401,886 shares of our common stock at a weighted-average exercise price of $79.59 per share and outstanding stock options to purchase 5,000 shares of our common stock at an exercise price of $9.00 per share, all of which warrants and stock options were exercisable as of such date. The conversion of a significant principal amount of our outstanding convertible debt securities into shares of our common stock, our repayment of a significant amount of principal, interest or other amounts payable under such debt securities in shares of our common stock or the exercise of outstanding warrants at prices below the market price of our common stock could adversely affect the market price of our common stock. The market price of our common stock also may be adversely affected by our issuance of shares of our capital stock or convertible securities in connection with future acquisitions, or in connection with other financing efforts.

 

 

If we do not meet the listing standards of a national securities exchange our investors’ ability to make transactions in our securities will be limited and we will be subject us to additional trading restrictions.

 

Our securities currently are traded over-the-counter on the OTC QB market and are not qualified to be listed on a national securities exchange, such as NASDAQ. Accordingly, we face significant material adverse consequences, including:

 

●

a limited availability of market quotations for our securities;

 

●

reduced liquidity with respect to our securities;

 

●

our shares of common stock are currently classified as “penny stock” which requires brokers trading in our shares of common stock to adhere to more stringent rules, resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;

 

●

a limited amount of news and analyst coverage for our company; and

 

●

a decreased ability to issue additional securities or obtain additional financing in the future.

 

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Since our common stock is traded on the OTC Pink, our common stock is a covered security. Although the states are preempted from regulating the sale of our securities, the federal statute allows the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer traded over-the-counter, our common stock would not be a covered security and we would be subject to regulation in each state in which we offer our securities.

 

Our shares of common stock are subject to penny stock regulations. Because our common stock is a penny stock, holders of our common stock may find it difficult or may be unable to sell their shares.

 

The SEC has adopted rules that regulate broker/dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange system). The penny stock rules require a broker/dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker/dealer, and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker/dealer must make a special written determination that a penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in any secondary market for a stock that becomes subject to the penny stock rules, and accordingly, holders of our common stock may find it difficult or may be unable to sell their shares.

 

 

We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock.

 

We have never paid cash dividends and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain any earnings to finance our operations and growth. As a result, any short-term return on your investment will depend on the market price of our common stock, and only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. The decision whether to pay dividends will be made by our board of directors in light of conditions then existing, including, but not limited to, factors such as our financial condition, results of operations, capital requirements, business conditions, and covenants under any applicable contractual arrangements. Investors seeking cash dividends should not invest in our common stock.

 

If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the market price of our common stock will likely decline.

 

The trading market for our common stock will rely in part on the research and reports that equity research analysts, over whom we have no control, publish about us and our business. We may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the market price for our common stock could decline. In the event we obtain securities or industry analyst coverage, the market price of our common stock could decline if one or more equity analysts downgrade our common stock or if those analysts issue unfavorable commentary, even if it is inaccurate, or cease publishing reports about us or our business.

 

ITEM 1B – UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2 – PROPERTIES

 

Our principal executive offices are located in Boca Raton, Florida. We are occupying our offices under a three-year lease that expires in August 2022 and has current monthly lease payments of $2,851. On September 1, 2021 the payments will increase by 3%.

 

Set forth below are the locations of the other properties leased by us, the businesses that use the properties, and the size of each such property. All of such properties are used by our company or by one of our subsidiaries principally as office facilities to house their administrative, marketing, and engineering and professional services personnel. We believe our facilities and equipment to be in good condition and reasonably suited and adequate for our current needs.

 

Location		Owned or Leased		User		Size (Sq Ft)
Puerto Rico		Leased (1)		AW Solutions Puerto Rico, LLC		1,575
Boca Raton, FL		Leased (2)		Spectrum Global Solutions, Inc.		1,282
Miami, FL		Leased (3)		Tropical Communications, Inc.		3,400
Alpharetta, GA		Leased (4)		ADEX Corporation		4,800

 

(1)	This facility is leased on a month to month basis and provides for monthly payments of $1,500.

 

(2)	This facility is leased pursuant to a three-year lease that expires in August 2022 and provides for monthly base rental payments of $2,851, with a 3% increase beginning on September 1, 2021.

 

(3)	This facility is leased on a month to month basis and provides for monthly base rental payments of $3,792.

 

(4)	This facility is leased pursuant to a four-year lease which expires in April 2023 and provides for monthly lease payments of $4,880, with 3% increases annually on June 1 beginning in 2020.

 

ITEM 3 – LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

PART II

 

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Common Stock

 

Our common stock is currently available for quotation on the OTC QB market under the symbol “SGSI”.

 

On March 26, 2021, the closing sale price of our common stock, as reported by OTC Markets, was $0.33 per share. On March 26, 2021, there were 67 holders of record of our common stock and 21,613,914 common shares outstanding. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

  

Dividends

 

We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the Board and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board deems relevant. During the year ended December 31, 2019, we modified our Series A Preferred Stock. In connection with this redemption, we recorded a deemed dividend of $488,072.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

Information regarding our equity compensation plans is set forth in Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Unregistered Sales of Equity Securities

 

In the fourth quarter of 2020, we issued securities in the following transactions, each of which was exempt from the registration requirements of the Securities Act. Except for the shares of our common stock that were issued upon the conversion of our convertible debt securities or the grants of shares of common stock under our 2012 Performance Incentive Plan, all of the below-referenced securities were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act and are deemed to be restricted securities for purposes of the Securities Act. There were no underwriters or placement agents employed in connection with any of these transactions. Use of the exemption provided in Section 4(2) for transactions not involving a public offering is based on the following facts:

 

	●	Neither we nor any person acting on our behalf solicited any offer to buy or sell securities by any form of general solicitation or advertising.
	●	The recipients were either accredited or otherwise sophisticated individuals who had such knowledge and experience in business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities.

 

 

	●	The recipients had access to business and financial information concerning our company.
	●	All securities issued were issued with a restrictive legend and may only be disposed of pursuant to an effective registration or exemption from registration in compliance with federal and state securities laws.

 

The shares of our common stock that were issued upon the conversion of our convertible debt securities were issued pursuant to the exemption from registration under Section 3(a)(9) of the Securities Act and are deemed to be restricted securities for purposes of the Securities Act.

 

On October 5, 2020, we issued 255,000 shares of our common stock to Crown Bridge Partners upon the conversion of $5,324 of principal and $1,000 of accrued interest pursuant to a convertible debenture.

 

On October 7, 2020, we issued 458,809 shares of our common stock to GS Capital Partners, LLC upon the conversion of $12,200 of principal and $1,129 of accrued interest pursuant to a convertible debenture.

 

On October 14, 2020, we issued 507,518 shares of our common stock to GS Capital Partners, LLC upon the conversion of $13,000 of principal and $1,222 of accrued interest pursuant to a convertible debenture.

 

On October 27, 2020, we issued 274,219 shares of our common stock to GS Capital Partners, LLC upon the conversion of $7,000 of principal and $678 of accrued interest pursuant to a convertible debenture.

 

On November 3, 2020, we issued 502,869 shares of our common stock to GS Capital Partners, LLC upon the conversion of $10,350 of principal and $844 of accrued interest pursuant to a convertible debenture.

 

On November 23, 2020, we issued 516,128 shares of our common stock to GS Capital Partners, LLC upon the conversion of $10,000 of principal and $859 of accrued interest pursuant to a convertible debenture.

 

On December 7, 2020, we issued 553,818 shares of our common stock to GS Capital Partners, LLC upon the conversion of $10,700 of principal and $952 of accrued interest pursuant to a convertible debenture.

 

On December 18, 2020, we issued 642,000 shares of our common stock to CCAG Investments, LLC, pursuant to the terms of a convertible debenture.

 

On December 21, 2020, we issued 565,834 shares of our common stock to GS Capital Partners, LLC upon the conversion of $16,950 of principal and $1,560 of accrued interest pursuant to a convertible debenture.

 

On December 31, 2020, we issued 551,562 shares of our common stock to GS Capital Partners, LLC upon the conversion of $20,500 of principal and $1,932 of accrued interest pursuant to a convertible debenture.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

ITEM 6 – SELECTED FINANCIAL DATA

 

Not required under Regulation S-K for “smaller reporting companies.”

 

 

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of our company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our services, fluctuations in pricing for materials, and competition.

 

Business Overview

 

Telecommunications

 

Telecommunications providers, technology and enterprise customers continue to seek and outsource solutions in order to reduce their investment in capital equipment, provide flexibility in workforce sizing and expand product offerings without large increases in incremental hiring. As a result, we believe there is significant opportunity to expand both our United States and international telecommunications solutions services and staffing services capabilities. As we continue to expand our presence in the marketplace, we will target those customers going through new network deployments and wireless service upgrades.

 

We expect to continue to increase our gross margins by leveraging our single-source end-to-end network to efficiently provide a full spectrum of end-to-end next-generation network solutions and staffing services to our customers. We believe our solutions and services offerings can alleviate some of the inefficiencies typically present in our industry, which result, in part, from the highly-fragmented nature of the telecommunications industry, limited access to skilled labor and the difficulty industry participants have in managing multiple specialty-service providers to address their needs. As a result, we believe we can provide superior service to our customers and eliminate certain redundancies and costs for them. We believe our ability to address a wide range of end-to-end solutions, network infrastructure and project-staffing service needs of our telecommunications industry clients is a key competitive advantage. Our ability to offer diverse technical capabilities (including design, engineering, construction, deployment, and installation and integration services) allows customers to turn to a single source for those specific specialty services, as well as to entrust us with the execution of entire turn-key solutions.

 

We have become a multi-faceted company with an international presence. We believe this platform will allow us to leverage our corporate and other fixed costs and capture gross margin benefits. Our platform is highly scalable. We typically hire workers to staff projects on a project-by-project basis and our other operating expenses are primarily fixed. Accordingly, we are generally able to deploy personnel to infrastructure projects in the United States and beyond without incremental increases in operating costs, allowing us to achieve greater margins. We believe this business model enables us to staff our business efficiently to meet changes in demand.

 

Finally, given the worldwide popularity of telecommunications and wireless products and services, we will selectively pursue international expansion, which we believe represents a compelling opportunity for additional long-term growth.

 

Our planned expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our growth effectively will require us to continue to enhance our operations management systems, financial and management controls and information systems and to hire, train and retain skilled telecommunications personnel. The timing and amount of investments in our expansion could affect the comparability of our results of operations in future periods.

 

Our planned acquisitions will be timed with additions to our management team of skilled professionals with deep industry knowledge and a strong track record of execution. Our senior management team brings an average of over 30 years of individual experience across a broad range of disciplines. We believe our senior management team is a key driver of our success and is well-positioned to execute our strategy.

 

We were incorporated in 2007 and functioned as a development stage company with limited activities through 2017.

 

 

Factors Affecting Our Performance

 

Changes in Demand for Data Capacity and Reliability.

 

The telecommunications industry has undergone and continues to undergo significant changes due to advances in technology, increased competition as telephone and cable companies converge, the growing consumer demand for enhanced and bundled services and increased governmental broadband stimulus funding. As a result of these factors, the networks of our customers increasingly face demands for more capacity and greater reliability. Telecommunications providers continue to outsource a significant portion of their engineering, construction and maintenance requirements in order to reduce their investment in capital equipment, provide flexibility in workforce sizing, expand product offerings without large increases in incremental hiring and focus on those competencies they consider core to their business success. These factors drive customer demand for our services.

 

The proliferation of smart phones and other wireless data devices has driven demand for mobile broadband. This demand and other advances in technology have prompted wireless carriers to upgrade their networks. Wireless carriers are actively increasing spending on their networks to respond to the explosion in wireless data traffic, upgrade network technologies to improve performance and efficiency and consolidate disparate technology platforms. These customer initiatives present long-term opportunities for us for the wireless services we provide. Further, the demand for mobile broadband has increased bandwidth requirements on the wired networks of our customers. As the demand for mobile broadband grows, the amount of cellular traffic that must be “backhauled” over customers’ fiber and coaxial networks increases and, as a result, carriers are accelerating the deployment of fiber optic cables to cellular sites. These trends are increasing the demand for the types of services we provide.

 

Our Ability to Recruit, Manage and Retain High-Quality IT and Telecommunications Personnel.

 

The shortage of skilled labor in the telecommunications industry and the difficulties in recruiting and retaining skilled personnel can frequently limit the ability of specialty contractors to bid for and complete certain contracts. We believe our access to a skilled labor pool gives us a competitive edge over our competitors as we continue to expand.

 

Our Ability to Expand Internationally

 

We believe international expansion represents a compelling opportunity for additional growth over the long-term because of the worldwide need for telecommunications infrastructure. We plan to expand our global presence either by expanding our current operations or by acquiring subsidiaries with international platforms.

 

Our Ability to Expand and Diversify Our Customer Base.

 

Our customers for specialty contracting services consist of leading telephone, wireless, cable television, utility and other companies. Historically, our revenue has been significantly concentrated in a small number of customers. Although we still operate at a net loss, we have acquired additional subsidiaries and diversified our customer base and revenue streams.

  

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based on our historical consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make certain estimates and assumptions that affect the amounts reported therein and accompanying notes. On an ongoing basis, we evaluate these estimates and assumptions, including those related to recognition of revenue for costs, the fair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, income taxes, asset lives used in computing depreciation and amortization, allowance for doubtful accounts, stock-based compensation expense, contingent consideration and accruals for contingencies, including legal matters. These estimates and assumptions require the use of judgment as to the likelihood of various future outcomes and as a result, actual results could differ materially from these estimates.

 

We have identified the accounting policies below as critical to the accounting for our business operations and the understanding of our results of operations because they involve making significant judgments and estimates that are used in the preparation of our historical consolidated financial statements. The impact of these policies affects our reported and expected financial results and are discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have discussed the development, selection and application of our critical accounting policies with the Audit Committee of our board of directors, and the Audit Committee has reviewed the disclosure relating to our critical accounting policies in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also important to understanding our historical consolidated financial statements. The notes to our consolidated financial statements in this report contain additional information related to our accounting policies, including the critical accounting policies described herein, and should be read in conjunction with this discussion.

 

Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.

 

Liquidity

 

Management believes that there is substantial doubt about our ability to continue as a going concern. Management believes that our available cash balance as of the date of this filing will not be sufficient to fund our anticipated level of operations for at least the next 12 months. Our ability to continue operations depends on our ability to sustain and grow revenue and results of operations as well as our ability to access capital markets when necessary to accomplish our strategic objectives. For the year ended December 31, 2020 we were unable to achieve positive cash flow from operations. Management expects to finance future cash needs from the results of operations and, depending on the results of operations, we may need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever.

 

During the years ended December 31, 2020 and 2019, we suffered recurring losses from operations. At December 31, 2020 and 2019, we had a stockholders’ deficit of $10,112,640 and $5,439,836, respectively. At December 31, 2020, we had a working capital deficit of $6,115,451, as compared to a working capital deficit of $9,790,032 at December 31, 2019.

 

On, or prior to March 31, 2022, we have obligations relating to the payment of indebtedness on loans payable and convertible debentures of $357,876 and $1,581,763, respectively. We anticipate meeting our cash obligations on indebtedness that is payable on or prior to March 31, 2022 from results of operations and from the proceeds of additional indebtedness or equity raises. If we are not successful in obtaining additional financing when required, we expect that we will be able to renegotiate and extend certain of our notes payable as required to enable us to meet our remaining debt obligations as they become due, although there can be no assurance that we will be able to do so.

 

 

Our future capital requirements for operations will depend on many factors, including the profitability of our businesses, the number and cash requirements of other acquisition candidates that we pursue, and the costs of operations. Management has taken several actions to ensure that we will have sufficient liquidity to meet our obligations, including the reduction of certain general and administrative expenses, consulting expenses and other professional services fees. Additionally, if our actual revenues are less than forecasted, we anticipate implementing headcount reductions to a level that more appropriately matches then-current revenue and expense levels. We are evaluating other measures to further improve our liquidity, including the sale of certain operating assets or businesses, the sale of equity or debt securities and entering into joint ventures with third parties. Lastly, we may elect to reduce certain related-party and third-party debt by converting such debt into common shares. Management believes that these actions will enable us to meet our liquidity requirements through March 31, 2022. There is no assurance that we will be successful in any capital-raising efforts that we may undertake to fund operations over the next 12 months.

 

To execute our business plan, service existing indebtedness and implement its business strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to raise additional funds through public or private equity or debt financings, a bank line of credit, borrowings from affiliates or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities may dilute our current stockholders’ ownership and could also result in a decrease in the market price of our common stock. The terms of any securities issued by us in future capital transactions may be more favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect. We also may be required to recognize non-cash expenses in connection with certain securities we issues, such as convertible notes and warrants, which may adversely impact our financial condition. Furthermore, any debt financing, if available, may subject us to restrictive covenants and significant interest costs. There can be no assurance that we will be able to raise additional capital, when needed, to continue operations in our current form.

 

Basis of Presentation/Principles of Consolidation

 

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of our company and our subsidiaries, the ADEX Entities, AWS PR, and Tropical. All subsidiaries are wholly-owned. During the year ended December 31, 2020, we sold our AWS and TNS subsidiaries. The operations of AWS and TNS (from the date of acquisition, January 4, 2019) have been included as discontinued operations in the accompanying financial statements. All inter-company balances and transactions have been eliminated.

 

Reverse Stock Split

 

On April 14, 2020, we filed a Certificate of Amendment to our Articles of Incorporation with the Secretary of State of the state of Nevada to effect a 1-for-300 reverse stock split with respect to the outstanding shares of our common stock. The Certificate of Amendment became effective on April 14, 2020 with the state of Nevada, and on April 20, 2020, Financial Industry Regulatory Authority, Inc. (FINRA) made the announcement of the reverse stock split.

 

The reverse stock split was previously approved by our board of directors and the majority of our stockholders. The reverse stock split was deemed effective at the open of business on April 21, 2020. As a result of the reverse stock split, every three hundred (300) shares of outstanding common stock of our company as of April 14, 2020 were converted into one (1) share of common stock. Fractional shares resulting from the reverse stock split were rounded up to the next whole number.

 

All common share, warrant, stock option, and per share information in the consolidated financial statements gives retroactive effect to the 1-for-300 reverse stock split. There was no change to the number of authorized shares of common stock or preferred stock of our company as a result of the reverse stock split. The par value of our common stock was unchanged at $0.00001 per share post-split.

 

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We regularly evaluate estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. 

 

Cash and Cash Equivalents

 

We consider all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

 

Accounts Receivable

 

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. We record unbilled receivables for services performed but not billed. Management reviews a customer’s credit history before extending credit. We maintain an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts at December 31, 2020 and 2019 was $38,881 and $440,486, respectively. 

 

Property and Equipment

 

Property and equipment are stated at cost. We depreciate the cost of property and equipment over their estimated useful lives at the following annual rates:

 

Automotive	3-5 years straight-line basis
Computer equipment and software	3-7 years straight-line basis
Leasehold improvements	5 years straight-line basis
Office equipment and furniture	5 years straight-line basis

 

 Goodwill

 

Goodwill was initially generated through the acquisitions of the AWS Entities in 2017, the ADEX Entities in 2018, and TNS in 2019, as the total consideration paid exceeded the fair value of the net assets acquired.

 

We perform our annual impairment test on December 31^st at the reporting unit level, which is consistent with our operating segments. Our reportable segment is infrastructure and professional services. Infrastructure and professional services comprised of the ADEX Entities, AWS PR, and Tropical. These reporting units are aggregated to form one (1) operating segment and one (1) reportable segment for financial reporting. These reporting units are three (3) reportable segments for the evaluation of goodwill for impairment. As our business evolves and the acquired entities continue to be integrated, our operating segments may change. This may require us to reassess how goodwill at our reporting units are evaluated for impairment.

 

We perform the impairment testing at least annually or at other times if we believe that it is more likely than not that there may be an impairment to the carrying value of our goodwill. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and our consolidated financial results. If it is more likely than not that goodwill impairment exists, the second step of the goodwill impairment test should be performed to measure the amount of impairment loss, if any.

 

 

We consider the results of an income approach and a market approach in determining the fair value of the reportable units. We evaluated the forecasted revenue using a discounted cash flow model for each of the reporting units. We also noted no unusual cost factors that would impact operations based on the nature of the working capital requirements of the components comprising the reportable units. Current operating results, including any losses, are evaluated by us in the assessment of goodwill. The estimates and assumptions used in assessing the fair value of the reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Key assumptions used in the income approach in evaluating goodwill are forecasts for each of the reporting unit revenue growth rates along with forecasted discounted free cash flows for each reporting unit, aggregated into each reporting segment. For the market approach, we used the guideline public company method, under which the fair value of a business is estimated by comparing the subject company to similar companies with publicly-traded ownership interests. From these “guideline” companies, valuation multiples are derived and then applied to the appropriate operating statistics of the subject company to arrive at indications of value.

 

While we use available information to prepare estimates and to perform impairment evaluations, actual results could differ significantly from these estimates or related projections, resulting in impairment related to recorded goodwill balances. Additionally, adverse conditions in the economy and future volatility in the equity and credit markets could impact the valuation of our reporting units. We can provide no assurances that, if such conditions occur, they will not trigger impairments of goodwill and other intangible assets in future periods.

 

Events that could cause the risk for impairment to increase are the loss of a major customer or group of customers, the loss of key personnel and changes to current legislation that may impact our industry or its customers’ industries. There were no impairment charges during the year ended December 31, 2019.

 

During the year ended December 31, 2020, we sold our TNS and AWS subsidiaries. In connection with the sales, the Company tested its goodwill for impairment. The Company completed a recoverability test as there were indicators of impairment and determined that the value was recoverable. As such, no impairment was recorded for the year ended December 31, 2020.

 

Intangible Assets

 

At December 31, 2020 and 2019, definite-lived intangible assets primarily consist of tradenames and customer relationships which are being amortized over their estimated useful lives ranging from 5-35 years.

 

We periodically evaluate the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. We have no intangibles with indefinite lives.

 

For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were no impairment charges during the year ended December 31, 2019.

 

During the year ended December 31, 2020, we sold our TNS and AWS subsidiaries. In connection with the sales, the Company tested its intangible assets for impairment. The Company completed a recoverability test as there were indicators of impairment and determined that the value was recoverable. As such, no impairment was recorded for the year ended December 31, 2020.

 

Long-lived Assets

 

In accordance with ASC 360, “Property, Plant and Equipment”, we test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

 

Foreign Currency Translation

 

Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.

 

Our integrated foreign subsidiaries are financially or operationally dependent on our company. We use the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting exchange gains or losses are recognized in income.

 

 

Income Taxes

 

We account for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

 

We conduct business, and file federal and state income, franchise or net worth, tax returns in Canada, the United States, in various states within the United States and the Commonwealth of Puerto Rico. We determine our filing obligations in a jurisdiction in accordance with existing statutory and case law. We may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2020. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of our company’s, or our subsidiaries’, income tax returns for the open taxation years noted above.

 

Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against our deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. We currently have significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.

 

We follow the guidance set forth within ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.

 

We received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014. The amount due as of December 31, 2020 was $156,711 plus penalties and interest of $129,967 for a total obligation due of $286,678. The amount due as of December 31, 2019 was $156,711 plus penalties and interest of $126,700 for a total obligation due of $283,411. This tax assessment is included in accrued expenses at December 31, 2020 and 2019.

 

Revenue Recognition

  

Adoption of New Accounting Guidance on Revenue Recognition

 

We recognize revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.

 

Contract Types

 

Our contracts fall under three main types: 1) unit-price, 2) fixed-price, and 3) time-and-materials. Unit-price contracts relate to services being performed and paid on a unit basis, such as per mile of construction completed. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working permanently at customer locations and materials costs incurred by those employees.

 

A significant portion of our revenues come from customers with whom we have a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.

 

 

Performance Obligations

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For our different revenue service types the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases this may be each day, or each week depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work. Contract assets include unbilled amounts for costs of services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated balance sheets. Contract liabilities include costs incurred and are included in contract liabilities on the consolidated balance sheets.

 

Revenue Service Types

 

The following is a description of our revenue service types, which include professional services and construction:

 

●

Professional services are services provided to the clients where we deliver distinct contractual deliverables and/or services. Deliverables may include but are not limited to: engineering drawings, designs, reports and specification. Services may include, but are not limited to: consulting or professional staffing to support our client’s objectives. Consulting or professional staffing services may be provided remotely or on client premises and under their direction and supervision.

 

●

Construction Services are services provided to the client where we may self-perform or subcontract services that require the physical construction of infrastructure or installation of equipment and materials.

 

Disaggregation of Revenues

 

We disaggregate our revenue from contracts with customers by service type, contract type, contract duration, and timing of transfer of goods or services. See the below tables:

 

Revenue by service type		Year Ended December 31, 2020				Year Ended December 31, 2019
Professional Services		$	17,167,905			$	19,452,318
Construction			1,509,539				6,043,753
Total		$	18,677,444			$	25,496,071

 

Revenue by contract duration		Year Ended December 31, 2020				Year Ended December 31, 2019
Short-term		$	79,279			$	8,821
Long-term			18,598,165				25,487,250
Total		$	18,677,444			$	25,496,071

 

Revenue by contract type		Year Ended December 31, 2020				Year Ended December 31, 2019
Unit-price		$	377,065			$	4,625,229
Fixed-price		$	1,132,474			$	1,418,524
Time-and-materials			17,167,905				19,452,318
Total		$	18,677,444			$	25,496,071

 

We also disaggregate our revenue by operating segment and geographic location.

 

 

Accounts Receivable

 

Accounts receivable include amounts from work completed in which we have billed. The amounts due are stated at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable.

 

Contract Assets and Liabilities

 

Contract assets include unbilled amounts for costs and services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated balance sheets. At December 31, 2020 and 2019, contract assets totaled $167,649 and $293,209, respectively.

 

Contract liabilities include payment received for incomplete performance obligations and are included in contract liabilities on the consolidated balance sheets. At December 31, 2020 and 2019, contract liabilities totaled $287,775 and $355,988, respectively.

 

Cost of Revenues

 

Cost of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.

    

Research and Development Costs

 

Research and development costs are expensed as incurred.

 

Stock-based Compensation

 

We record stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”), using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

 

We account for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.

 

We use the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by our stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.

 

 

Loss Per Share

 

We compute loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted loss per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2020 and 2019, respectively, we had 53,429,108 and 286,736 common stock equivalents outstanding.

 

Leases

  

We adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) on January 1, 2019.

 

The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent our right to use underlying assets for the lease terms and lease liabilities represent our obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As our leases do not provide an implicit rate, we uses our estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of our lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.

 

We recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. We have elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. We adopted this standard on January 1, 2020. The adoption of this standard did not materially impact our consolidated financial statements and related disclosures.

  

We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or result of operations.

 

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject our company to concentrations of credit risk consist principally of cash and accounts receivables. We maintain our cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.

 

We provide credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the year ended December 31, 2020, three customers accounted for 31%, 21%, and 10%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 34%, 20%, and 3%, respectively, of trade accounts receivable as of December 31, 2020. For the year ended December 31, 2019, four customers accounted for 37%, 19%, 14%, and 12%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 57%, 2%, 1%, and 9%, respectively, of trade accounts receivable as of December 31, 2019.

 

Our customers are primarily located within the domestic United States of America, Puerto Rico, and Canada. Revenues generated within the domestic United States of America accounted for approximately 93% of consolidated revenues for the year ended December 31, 2020. Revenues generated from customers in Puerto Rico and Canada accounted for approximately 7% of consolidated revenues for the year ended December 31, 2020. Revenues generated within the domestic United States of America accounted for approximately 94% of consolidated revenues for the year ended December 31, 2019. Revenues generated from customers in Puerto Rico and Canada accounted for approximately 6% of consolidated revenues for the year ended December 31, 2019.

  

Fair Value Measurements

 

We measure and disclose the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:

 

Level 1 – quoted prices for identical instruments in active markets;

 

Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and

 

Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the years ended December 31, 2020 and 2019. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

 

 

Our financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2020 and 2019, consisted of the following:

 

 

		Total fair value at December 31, 2020				Quoted prices in active markets (Level 1)				Quoted prices in active markets (Level 2)				Quoted prices in active markets (Level 3)
Description:
Derivative liability (1)		$	3,390,504			$	-			$	-			$	3,390,504

 

		Total fair value at December 31, 2019				Quoted prices in active markets (Level 1)				Quoted prices in active markets (Level 2)				Quoted prices in active markets (Level 3)
Description:
Derivative liability (1)		$	992,733			$	-			$	-			$	992,733

 

(1)	We have estimated the fair value of these derivatives using the Monte-Carlo model.

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

 

Derivative Liabilities

 

We account for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. We use estimates of fair value to value our derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, our policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. We categorize our fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of December 31, 2020 and 2019, we had a derivative liability of $3,390,504 and $992,733, respectively.

 

Sequencing Policy

 

Under ASC 815-40-35, we have adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to our inability to demonstrate we have sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to our employees or directors are not subject to the sequencing policy.

 

Reclassifications

 

Certain balances in previously issued consolidated financial statements have been reclassified to be consistent with the current period presentation. The reclassification had no impact on total financial position, net income, or stockholders’ equity.

 

Results of Operations

 

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

 

The following summary of our results of operations should be read in conjunction with our financial statements for the years ended December 31, 2020 and 2019.

 

 

Our operating results for the years ended December 31, 2020 and 2019 are summarized as follows:

 

		Year Ended December 31, 2020				Year Ended December 31, 2019
Statement of Operations Data:
Revenues		$	18,677,444			$	25,496,071
Operating expenses			22,982,226				28,986,092
Loss from continuing operations before taxes			(4,304,782	)			(3,490,021	)
Total other expense			(6,086,715	)			(1,266,278	)
Provision for income taxes			1,908				204,231
Loss on discontinued operations, net of tax			(7,316,891	)			(873,728	)
Net loss attributable to common stockholders			(17,710,296	)			(6,322,330	)
Net loss per share, basic and diluted			(3.92	)			(52.98	)
Weighted average common shares outstanding, basic and diluted			4,521,290				119,344

 

Our significant balances sheet accounts as of December 31, 2020 and December 31, 2019 are summarized as follows:

 

		December 31, 2020				December 31, 2019
Balance Sheet Data:
Cash		$	580,800			$	375,141
Accounts receivable, net			2,481,124				3,860,623
Total current assets			3,242,598				6,297,881
Goodwill and intangible assets, net			953,791				1,004,767
Total assets			4,327,392				12,168,819
Total current liabilities			9,358,049				16,087,913
Total long-term liabilities			3,860,050				28,324
Mezzanine equity			1,221,933				1,492,418
Stockholders' deficit		$	(10,112,640	)		$	(5,439,836	)

 

Revenue

 

Our revenue decreased from $25,496,071 for the year ended December 31, 2019 to $18,677,444 for the year ended December 31, 2020. The decrease is primarily related to a $7,641,749 decrease in sales for our ADEX subsidiary. ADEX’s three largest customers in 2019 combined for revenues of $17,822,102. These customers accounted for revenues of $10,269,128 in 2020. This decrease was partially offset by an increase for one ADEX customer of $1,539,167, with sales of $1,923,203 in 2020 compared to sales of $384,036 is 2019. We also saw the addition of new customers in 2020 that did not have revenue in 2019.

 

Additionally, our operations, as well as the operations of many of our customers, were impacted by the ongoing COVID-19 pandemic, which negatively impacted our revenues for 2020. We anticipate that as the COVID-19 restrictions are removed, revenues should begin to increase.

 

If the High Wire transaction as proposed closes, we anticipate significantly higher revenues in 2021 and beyond.

 

A significant portion of our services are performed under master service agreements and other arrangements with customers that extend for periods of one or more years. We are currently party to numerous master service agreements, and typically have multiple agreements with each of our customers. Master Service Agreements (MSAs) generally contain customer-specified service requirements, such as discreet pricing for individual tasks. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, perform work with the customer’s own employees and use other service providers when jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with written notice. The remainder of our services are provided pursuant to contracts for specific projects. Long-term contracts relate to specific projects with terms in excess of one year from the contract date. Short-term contracts for specific projects are generally three to four months in duration. The percentage of revenue from long-term contracts varies between periods depending on the mix of work performed under our contracts.

 

 

Cost of Revenues

 

Cost of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.

 

For a majority of the contract services we perform, our customers provide all required materials while we provide the necessary personnel, tools and equipment. Materials supplied by our customers, for which the customer retains financial and performance risk, are not included in our revenue or costs of revenues.

 

Our cost of revenues decreased from $22,193,114 for the year ended December 31, 2019 to $15,403,987 for the year ended December 31, 2020. The decrease was primarily related to the decrease in revenues discussed above.

 

If the High Wire transaction as proposed closes, we anticipate significantly higher cost of revenues in 2021 and beyond.

  

General and Administrative Costs

 

General and administrative costs include all of our corporate costs, as well as costs of our subsidiaries’ management personnel and administrative overhead. These costs primarily consist of employee compensation and related expenses, including legal, consulting and professional fees, information technology and development costs, provision for or recoveries of bad debt expense and other costs that are not directly related to performance of our services under customer contracts. Information technology and development costs included in general and administrative expenses are primarily incurred to support and to enhance our operating efficiency. We expect these expenses to continue to generally increase as we expand our operations, but expect that such expenses as a percentage of revenues will decrease if we succeed in increasing revenues.

 

General and administrative costs were $3,266,994 for the year ended December 31, 2020 compared to $3,172,708 for the year ended December 31, 2019. The increase in general and administrative expenses was primarily due to an increase in general and administrative costs for our ADEX subsidiary of $538,861, including factoring fees of $323,919 related to our factor financing, which is new for 2020.

 

We anticipate replacing the factor financing with traditional financing in 2021. Additionally, if the High Wire transaction as proposed closes, we anticipate higher general and administrative costs in 2021 and beyond. We expect general and administrative costs as a percentage of revenue to be lower than in 2020.

 

Salaries and Wages Expenses

 

Salaries and wages were $4,256,997 for the year ended December 31, 2020 compared to $3,567,574 for the year ended December 31, 2019. The increase during the year ended December 31, 2020 was primarily due to stock compensation expense, which increased from $622,739 to $1,897,423 in 2020 compared to $1,274,694 in 2019. Stock compensation increased due to a decision in 2020 to fully vest all unvested RSUs.

 

 

Net Income (Loss)

 

Our net loss attributable to common stockholders increased from $6,322,330 for the year ended December 31, 2019 to $17,710,296 for the year ended December 31, 2020. As of December 31, 2020, our stockholders’ deficit was $10,112,640.

 

Accounts Receivable

 

We had accounts receivable, net of allowance for doubtful accounts at December 31, 2020 and 2019 of $2,481,124 and $3,860,623, respectively. The decrease in accounts receivable was a result of decreased revenues in the final quarter of 2020 compared to the same period of 2019.

 

Capital expenditures

 

We had capital expenditures of $7,760 and $7,759 for the years ended December 31, 2020 and 2019, respectively. We expect to fund capital expenditures for the 12 months ended December 31, 2021 out of our working capital.

 

Income Taxes

 

As of December 31, 2020, we had federal net operating loss carryforwards (“NOL’s”) of $24,474,264 that will be available to reduce future taxable income, if any. These NOL’s begin to expire in 2027.

 

Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, provide for annual limitations on the utilization of net operating loss, capital loss and credit carryforwards if we were to undergo an ownership change, as defined in Section 382 of the Code. In general, an ownership change occurs whenever the percentage of the shares of a corporation owned, directly or indirectly, by 5-percent shareholders, as defined in Section 382 of the Code, increases by more than 50 percentage points over the lowest percentage of the shares of such corporation owned, directly or indirectly, by such 5-percent shareholders at any time over the preceding three years. In the event such ownership change occurs, the annual limitation may result in the expiration of net operating losses capital losses and credits prior to full utilization.

 

We have not completed a study to assess whether ownership change has occurred as a result of our acquisition of AWS and related issuance of shares. However, as a result of the issuance of common shares in 2017, we believe an ownership change under Sec. 382 may have occurred. As a result of this ownership change, certain of our net operating loss, capital loss and credit carryforwards will expire prior to full utilization. Additionally, further share issuances such as the shares issuances to InterCloud Systems, Inc. and other convertible debt transactions may result in additional ownership changes.

 

We perform an analysis each year to determine whether the expected future income will more likely than not be sufficient to realize the deferred tax assets. Our recent operating results and projections of future income weigh heavily in our overall assessment. Prior to 2017, there were no provisions (or benefits) for income taxes because we had sustained cumulative losses since the commencement of operations.

 

Our continuing practice is to recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of December 31, 2020, there was no accrued interest and penalties related to uncertain tax positions.

 

We are subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Due to our net operating loss carryforwards all years remain open to examination by the major domestic taxing jurisdictions to which we are subject. In addition, all of the net operating loss and credit carryforwards that may be used in future years are still subject to adjustment.

 

 

Liquidity and Financial Condition

 

As of December 31, 2020, our total current assets were $3,242,598 and our total current liabilities were $9,358,049, resulting in a working capital deficit of $6,115,451 compared to working capital deficit of $9,790,032 as of December 31, 2019.

 

We have suffered recurring losses from operations. The continuation of our company is dependent upon us attaining and maintaining profitable operations and raising additional capital as needed. In this regard we have historically raised additional capital through equity offerings and loan transactions.

 

Cash Flows

 

		Year Ended December 31,
		2020				2019
Net cash used in operating activities		$	(454,814	)		$	(2,275,364	)
Net cash used in investing activities		$	(986,155	)		$	(1,011,415	)
Net cash provided by financing activities		$	1,646,628			$	3,076,721
Change in cash		$	205,659			$	(210,058	)

 

The increase in cash that we experienced during the year ended December 31, 2020 as compared to the decrease in cash during the year ended December 31, 2019 was primarily a result of a decrease in cash used in operating activities in 2020 compared to 2019. This was partially offset by a decrease is cash provided by financing activities in 2020 compared to 2019. We have not been able to reach the break-even point since our inception and have had to rely on raising capital. We anticipate generating increased revenues over the next year. Over the next 12 months, we anticipate raising additional funds, and we plan to primarily concentrate on our telecommunications business and associated projects along with our anticipated merger with High Wire.

 

In order to improve our liquidity, we intend to pursue additional equity financing from private placement sales of our equity securities or shareholders’ loans. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to preserve our liquidity. 

  

Indebtedness

 

As of December 31, 2020, the outstanding balances of convertible loans payable to related parties, loans payable, convertible debentures and factor financing were $577,925, $3,452,506, $1,002,463 and $1,914,611, respectively, net of debt discounts of $0, $38,874 and $301,957, respectively.

 

The total outstanding principal balance per the loan agreements and factor financing due to our debt holders was $7,488,336 at December 31, 2020. We are currently in discussions with certain of our creditors to restructure some of these loan agreements to reduce the principal balance and extend maturity dates. However, there can be no assurance that we will be successful in reducing the principal balance or extending the maturity dates of any of our outstanding notes.

 

 

Loans Payable to Related Parties

 

At December 31, 2020 and 2019, we had outstanding the following loans payable to related parties:

 

		December 31,				December 31,
		2020				2019
Convertible promissory note issued to Keith Hayter, 10% interest, unsecured, matures August 31, 2022		$	554,031			$	-
Convertible promissory note issued to Roger Ponder, 10% interest, unsecured, matures August 31, 2022			23,894				-
Promissory note issued to Roger Ponder, 10% interest, unsecured, due on demand			-				18,858
Promissory note issued to Keith Hayter, 10% interest, unsecured, due on demand			-				130,000
Promissory note issued to Keith Hayter, 10% and 8% interest, unsecured, due on demand			-				85,000
Promissory note issued to Keith Hayter, 8% interest, unsecured, due on demand			-				80,000
Promissory note issued to Keith Hayter, 10% interest, unsecured, matures August 11, 2020			-				170,000
Loan with WaveTech GmbH, 8% interest, due on demand			-				3,000,000
Total		$	577,925			$	3,483,858

 

Additional information on our loans payable to related parties is set forth in our consolidated financial statements included in this report in Item 8, Financial Statements and Supplementary Data.

 

Loans Payable 

 

As of December 31, 2020 and 2019, loans payable consisted of the following: 

 

		December 31,				December 31,
		2020				2019
Promissory note issued to J. Thacker, non-interest bearing, unsecured and due on demand		$	41,361			$	41,361
Promissory note issued to S. Kahn, non-interest bearing, unsecured and due on demand			7,760				7,760
Promissory note issued to 0738856 BC ltd non-interest bearing, unsecured and due on demand			2,636				2,636
Promissory note issued to 0738856 BC Ltd, non-interest bearing, unsecured and due on demand			15,000				15,000
Promissory note issued to Bluekey Energy, non-interest bearing, unsecured and due on demand			7,500				7,500
Subscription amount due to T. Warkentin non-interest bearing, unsecured and due on demand			50,000				50,000
Promissory note issued to Old Main Capital LLC, 10% interest, unsecured and due on demand			12,000				12,000
Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand			217,400				217,400
Future receivables financing agreement with Pawn Funding, non-interest bearing, matures April 16, 2021, net of debt discount of $1,072 and $31,365			18,334				94,928
Future receivables financing agreement with Cedar Advance Funding, non-interest bearing, matures April 27, 2021, net of debt discount of $37,807			160,390				-
CARES Act Loans			2,920,125				-
Future receivables financing agreement with RDM Capital Funding, non-interest bearing, matures July 24, 2020, net of debt discount of $79,087			-				237,319
Loan with Heritage Bank of Commerce, interest rate of prime plus 2%, secured by all assets of the Company, matures October 20, 2020, net of debt discount of $149,180			-				2,973,458
Future receivables financing agreement with C6 Capital, non-interest bearing, matures April 15, 2020, net of debt discount of $20,272			-				136,424
Total		$	3,452,506			$	3,795,786
Less: Long-term portion of loans payable			(2,920,125	)			-
Loans payable, current portion, net of debt discount		$	532,381			$	3,795,786

 

Additional information on our loans payable is set forth in our consolidated financial statements included in this report in Item 8, Financial Statements and Supplementary Data. 

 

 

Convertible Debentures 

 

At December 31, 2020 and 2019, we had outstanding the following convertible debentures:

 

		December 31,				December 31,
		2020				2019
Convertible promissory note, Barn 11, 18% interest, unsecured, matured June 1, 2019		$	594,362			$	594,362
Convertible promissory note, SCS, LLC, 24% interest, unsecured, matured March 30, 2020, due on demand, net of debt discount of $0 and $13,005			51,788				38,025
Convertible promissory note, GS Capital Partners, LLC, 8% interest, secured. matures October 24 2020, net of debt discount of $0 and $23,986			54,500				99,014
Convertible promissory note, Crown Bridge Partners, LLC, 10% interest, unsecured, matured November 21, 2020, net of debt discount of $0 and $58,648			39,328				16,352
Convertible promissory note, Efrat Investments LLC, 10% interest, secured, matures October 5, 2021, net of debt discount of $132,000			-				-
Convertible promissory note, SCS, LLC, 12% interest, secured, matures December 30, 2021			257,442				-
Convertible promissory note, SCS, LLC, 10% interest, secured, matures December 31, 2021, net of debt discount of $169,957			5,043				-
Convertible promissory note, Dominion Capital, 12% interest, unsecured, matures October 17, 2020, net of debt discount of $0 and 105,752			-				1,461,265
Convertible promissory note, Michael Roeske, 24% interest, unsecured, due on demand, net of debt discount of $0 and $3,512			-				112,488
Convertible promissory note, Joel Raven, 24% interest, unsecured, due on demand, net of debt discount of $0 and $8,658			-				355,342
Convertible promissory note, GS Capital Partners, LLC, 8% interest, secured. matures August 2, 2020, net of debt discount of $24,819			-				98,181
Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures September 17, 2020, net of debt discount of $113,674			-				34,326
Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures January 22, 2021, net of debt discount of $53,051			-				15,449
Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures February 26, 2021, net of debt discount of $45,125			-				12,875
Total			1,002,463				2,837,679
Less: Long-term portion of convertible debentures, net of debt discount			-				(28,324	)
Convertible debentures, current portion, net of debt discount		$	1,002,463			$	2,809,355

 

Additional information on our convertible debentures is set forth in our consolidated financial statements included in this report in Item 8, Financial Statements and Supplementary Data.

   

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

 

Inflation

 

The effect of inflation on our revenue and operating results has not been significant.

 

 

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required under Regulation S-K for “smaller reporting companies.”

 

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15.

 

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

 

None.

 

ITEM 9A – CONTROLS AND PROCEDURES

 

Evaluation of disclosure controls and procedures.

 

Our management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on management’s evaluation, our Chief Executive Officer concluded that, as a result of the material weaknesses described below, as of December 31, 2020, our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:

 

a)

Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis;

 

 

b)

we do not have any formally adopted internal controls surrounding its cash and financial reporting procedures; and

 

c)

the lack of the quantity of resources to implement an appropriate level of review controls to properly evaluate the completeness and accuracy of transactions entered into by our company.

 

We are committed to improving our financial organization. In addition, we will look to increase our personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters.

 

Management’s report on internal control over financial reporting.

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2020 for the reasons discussed above.

 

Changes in internal control over financial reporting.

 

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B – OTHER INFORMATION

 

None.

 

 

PART III

 

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our bylaws state that the authorized number of directors shall be not less than one and not more than fifteen and shall be set by resolution of the board of directors. Our board of directors consists of two (2) members, all of whom are not considered “independent directors,” as defined in applicable rules of the SEC and NASDAQ. Officers are appointed and serve at the discretion of our board of directors. There are no family relationships among any of our directors or executive officers.

 

Our current directors and officers are as follows:

 

Name		Position		Age		Date First Elected or Appointed
Mark W. Porter		Chief Executive Officer		48		March 1, 2021
Roger M. Ponder		Chairman of the Board and Former Chief Executive Officer		68		June 6, 2017
Keith W. Hayter		President and Director		56		June 6, 2017

 

Our directors serve until our next annual shareholder meeting or until his successor is elected who accepts the position. Officers hold their positions at the pleasure of the board of directors. There are no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our affairs.

 

The following is information about the experience and attributes of the members of our board of directors and senior executive officers as of the date of this report. The experience and attributes of our directors discussed below provide the reasons that these individuals were selected for board membership, as well as why they continue to serve in such positions.

 

Mark W. Porter, Chief Executive Officer

 

Mr. Porter, age 48, was appointed our Chief Executive Officer on March 1, 2021. Since January 2001, Mr. Porter has been President and Chief Executive Officer of HWN, Inc. (“High Wire Networks”). With over two decades of technology industry experience, Mr. Porter is a channel veteran with extensive experience in pioneering new and more innovative ways to deliver professional and managed services. Mr. Porter does not currently hold any shares of our common stock.

 

 

Roger M. Ponder, Former Chief Executive Officer and Chairman of the Board

 

Mr. Ponder, age 68, has served as a director of our company since April 2017. On March 1, 2021, Mr. Ponder resigned from his position as Chief Executive Officer. Mr. Ponder was the President and Chief Executive Officer of Summit Capital Advisors LLC and Summit Broadband LLC, a provider of consulting services to private equity and institutional banking entities in the telecommunications, cable and media/internet sectors, since August 2009. Mr. Ponder prior served as Chief Operating Officer of InterCloud Systems, Inc. from November 2012 to March 2015. From January 2005 to August 2009, he was the President - Midwest/Kansas City Division of Time Warner Cable. Mr. Ponder was a member of the United Way Board of Trustees - Kansas City from January 2006 to January 2011. Mr. Ponder received his B.S. from Rollins College in Business Administration and Economics. Mr. Ponder brings extensive business development, strategic planning and operational experience to our company.

 

We entered into an employment agreement (the “Ponder Agreement”) with Mr. Ponder, effective as of June 1, 2018. The form of the Ponder Agreement was approved by the Board. The Ponder Agreement has a three-year term and will automatically renew for successive one-year terms unless our company or Mr. Ponder elects to terminate the agreement by giving 60 days’ notice prior to the end of the current term. Mr. Ponder will receive a base annual salary of $350,000, which may be increased (but not decreased) by the Board (or a committee thereof) in its sole discretion.

 

In addition, Mr. Ponder is entitled to receive annual incentive (bonus) compensation as the Board shall determine. His target bonus is equal to 60% of Mr. Ponder’s base salary for that fiscal year. Mr. Ponder was also granted a stock option to purchase shares of our common stock as determined by the Board under our Performance Incentive Plan, to participate in various employee benefit plans and to be reimbursed for out-of-pocket expenses. Mr. Ponder currently holds 14,062 shares of our common stock.

 

During 2020, Mr. Ponder agreed to receive less cash compensation than stated in his employment agreement. The difference was recorded in accounts payable and accrued expenses as of December 31, 2020. During March 2021, options to purchase our common stock were issued to Mr. Ponder to settle the amounts due.

 

Keith W. Hayter, President and Director

 

On June 6, 2017, the Board appointed Keith W. Hayter to serve as President of our company, effective immediately. Mr. Hayter, age 56, has served as a director of our company since April 2017. Mr. Hayter has served as the Chief Executive Officer and President of AW Solutions Inc. and AW Solutions Puerto Rico LLC since 2006. Mr. Hayter attended Platt College, the City and Guilds Institute and the City and East London College. Mr. Hayter brings extensive multi-national experience in the start-up, development and management in the telecommunication and construction industry.

 

We entered into an employment agreement (the “Hayter Agreement”) with Mr. Hayter, effective as of June 1, 2018. The Hayter Agreement has a three-year term and will automatically renew for successive one-year terms unless our company or Mr. Hayter elects to terminate the agreement by giving 60 days’ notice prior to the end of the current term. Mr. Hayter will receive a base annual salary of $340,000, which may be increased (but not decreased) by the Board (or a committee thereof) in its sole discretion.

 

In addition, Mr. Hayter is entitled to receive annual incentive (bonus) compensation as the Board shall determine. His target bonus is equal to 60% of Mr. Hayter’s base salary for that fiscal year. Mr. Hayter was also granted a stock option to purchase shares of our common stock as determined by the Board under our Performance Incentive Plan, to participate in various employee benefit plans and to be reimbursed for out-of-pocket expenses. Mr. Hayter currently holds 13,877 shares of our common stock.

 

During 2019 and 2020, Mr. Hayter agreed to receive less cash compensation than stated in his employment agreement. The difference was recorded in accounts payable and accrued expenses as of December 31, 2020. During March 2021, options to purchase our common stock were issued to Mr. Hayter to settle the amounts due.

 

Family Relationships

 

None.

 

 

Board Independence and Committees

 

We are not required to have any independent members of the Board of Directors.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

 

1.	been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
2.	had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
3.	been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

 

4.	been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

  

5.	been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
6.	been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Code of Ethics

 

We adopted a Code of Ethics applicable to all of our directors, officers, employees and consultants, which is a “code of ethics” as defined by applicable rules of the SEC. Our Code of Ethics was attached as an exhibit to our Registration Statement filed on Form S-1 filed with the SEC on February 26, 2008. If we make any amendments to our Code of Ethics other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics to our Chief Executive Officer, Chief Financial Officer, or certain other finance executives, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies in a Current Report on Form 8-K filed with the SEC.

 

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors. We will provide a copy of our Code of Business Conduct and Ethics, without charge, to any person desiring a copy, by written request to our company at 980 N. Federal Highway, Suite 304, Boca Raton, Florida, 33432.

 

Section 16(a) Beneficial Ownership Compliance Reporting

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our shares of common stock and other equity securities, on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.

  

 

ITEM 11 – EXECUTIVE COMPENSATION

 

The following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive Officer, the two highest paid executive officers and up to two other highest paid individuals whose total annual salary and bonus exceeded $100,000 for the years ended December 31, 2020 and 2019.

 

																										Changes in
																										Pension Value and
																						Non-Equity				Non-Qualified
																						Incentive				Deferred				All
														Stock				Option				Plan				Compensation				Other
Name and Principal		Fiscal				Salary				Bonus				Awards				Awards				Compensation				Earnings				Compensation				Total
Position		Year				($)				($)				($)				($)				($)				($)				($)				($)
Roger M. Ponder			2020				164,526	(a)			—				—				—				—				—				—				164,526
Former Chief Executive Officer			2019				317,500				—				79,200				—				—				—				6,000	(c)			402,700
Keith W. Hayter			2020				137,904	(b)			—				—				—				—				—				—				137,904
President			2019				327,500				—				75,600				—				—				—				6,000	(c)			409,100

 

(a)	As of December 31, 2020, there was an accrual of $185,474 related to Mr. Ponder’s 2020 salary base salary. This amount was included in accounts payable and accrued liabilities on the consolidated balance sheet.

 

(b)	As of December 31, 2020, there was an accrual of $202,096 related to Mr. Hayter’s 2020 base salary. This amount was included in accounts payable and accrued liabilities on the consolidated balance sheet.

 

(c)	This amount represents a car allowance.

 

Outstanding Equity Awards at Fiscal Year-End

 

There were no outstanding equity awards held by the named executive officers as of December 31, 2020.

  

 

Employment Contracts and Termination of Employment and Change-In-Control Arrangements

 

Roger M. Ponder employment agreement

 

On June 6, 2017, the Board of Directors (the “Board”) of our company appointed Roger M. Ponder to serve as our Chief Executive Officer, effective immediately. Mr. Ponder, age 67, has served as a director of our company since April 2017. Mr. Ponder has been the President and Chief Executive Officer of Summit Capital Advisors LLC and Summit Broadband LLC a provider of consulting services to private equity and institutional banking entities in the telecommunications, cable and media/internet sectors, since August 2009. Mr. Ponder had served as a member of the board of directors of InterCloud Systems, Inc., and served as its Chief Operating Officer from November 2012 to March 2015. From January 2005 to August 2009, he was the President - Midwest/Kansas City Division of Time Warner Cable. Mr. Ponder was a member of the United Way Board of Trustees - Kansas City from January 2006 to January 2011. Mr. Ponder received his B.S. from Rollins College in Business Administration and Economics. Mr. Ponder brings extensive business development, strategic planning and operational experience to our company. 

 

We entered into an employment agreement (the “Ponder Agreement”) with Mr. Ponder, effective as of June 1, 2018. The form of the Ponder Agreement was approved by the Board. The following is a brief summary of the material terms of the Ponder Agreement.

 

The Ponder Agreement has a three-year term and will automatically renew for successive one-year terms unless our company or Mr. Ponder elects to terminate the agreement by giving 60 days’ notice prior to the end of the current term. Mr. Ponder will receive a base annual salary of $350,000, which may be increased (but not decreased) by the Board (or a committee thereof) in its sole discretion.

 

In addition, Mr. Ponder is entitled to receive annual incentive (bonus) compensation as the Board shall determine. His target bonus is equal to 60% of Mr. Ponder’s base salary for that fiscal year. Mr. Ponder was also granted a stock option to purchase shares of our common stock as determined by the Board under our Performance Incentive Plan, to participate in various employee benefit plans and to be reimbursed for out-of-pocket expenses. Mr. Ponder currently holds 14,062 shares of our common stock.

 

In the event that Mr. Ponder’s employment is terminated without “Cause” or he terminates his employment for “Good Reason” not in connection with a “Change in Control” (as such terms are defined in the Ponder Agreement), our company shall pay to Mr. Ponder an amount equal to the sum of (x) twenty-four (24) months of his base salary at the monthly rate in effect on the date of termination, plus (y) two (2) times his target bonus for the fiscal year in which the termination occurs, an amount equal to any unpaid bonus from the previous year, and all equity-based awards shall vest. In addition, we shall pay Mr. Ponder an amount equal to the cost of continuation of group health coverage under COBRA for 12 months.

 

The Ponder Agreement contains a non-compete provision during the term of Mr. Ponder’s employment and for a period of one year thereafter. Mr. Ponder would also be prohibited from soliciting customers or clients of our company with whom he dealt during his employment and from soliciting employees of our company for the one-year period.

 

There are no family relationships between Mr. Ponder and any director or executive officer of our company, and he does not have any direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.

 

During 2020, Mr. Ponder agreed to receive less cash compensation than stated in his employment agreement. The difference was recorded in accounts payable and accrued expenses as of December 31, 2020. During March 2021, options to purchase our common stock were issued to Mr. Ponder to settle the amounts due.

 

On March 1, 2021, Mr. Ponder resigned from his position as Chief Executive Officer. Mr. Ponder remains the Chairman of our Board of Directors and the remainder of his employment agreement is unchanged.

 

 

Keith W. Hayter employment agreement

 

On June 6, 2017, the Board appointed Keith W. Hayter to serve as President of our company, effective immediately. Mr. Hayter, age 55, has served as a director of our company since April 2017. Mr. Hayter has served as the Chief Executive Officer and President of AW Solutions Inc. and AW Solutions Puerto Rico LLC since 2006. Mr. Hayter attended Platt College, the City and Guilds Institute and the City and East London College. Mr. Hayter brings extensive multi-national experience in the start-up, development and management in the telecommunication and construction industry.

 

We entered into an employment agreement (the “Hayter Agreement”) with Mr. Hayter, effective as of June 1, 2018. The form of the Hayter Agreement was approved by the Board. The following is a brief summary of the material terms of the Hayter Agreement.

 

The Hayter Agreement has a three-year term and will automatically renew for successive one-year terms unless our company or Mr. Hayter elects to terminate the agreement by giving 60 days’ notice prior to the end of the current term. Mr. Hayter will receive a base annual salary of $340,000, which may be increased (but not decreased) by the Board (or a committee thereof) in its sole discretion.

 

In addition, Mr. Hayter is entitled to receive annual incentive (bonus) compensation as the Board shall determine. His target bonus is equal to 60% of Mr. Hayter’s base salary for that fiscal year. Mr. Hayter was also granted a stock option to purchase shares of our common stock as determined by the Board under our Performance Incentive Plan, to participate in various employee benefit plans and to be reimbursed for out-of-pocket expenses. Mr. Hayter currently holds 13,877 shares of our common stock.

 

In the event that Mr. Hayter’s employment is terminated without “Cause” or he terminates his employment for “Good Reason” not in connection with a “Change in Control” (as such terms are defined in the Hayter Agreement), our company shall pay to Mr. Hayter an amount equal to the sum of (x) twenty-four (24) months of his base salary at the monthly rate in effect on the date of termination, plus (y) two (2) times his target bonus for the fiscal year in which the termination occurs, an amount equal to any unpaid bonus from the previous year, and all equity-based awards shall vest. In addition, our company shall pay Mr. Hayter an amount equal to the cost of continuation of group health coverage under COBRA for 12 months.

 

The Hayter Agreement contains a non-compete provision during the term of Mr. Hayter’s employment and for a period of one year thereafter. Mr. Hayter would also be prohibited from soliciting customers or clients of our company with whom he dealt during his employment and from soliciting employees of our company for the one-year period. 

 

There are no family relationships between Mr. Hayter and any director or executive officer of our company, and he does not have any direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.

 

During 2019 and 2020, Mr. Hayter agreed to receive less cash compensation than stated in his employment agreement. The difference was recorded in accounts payable and accrued expenses as of December 31, 2020. During March 2021, options to purchase our common stock were issued to Mr. Hayter to settle the amounts due.

  

Director Compensation

 

There was no director compensation during the years ended December 31, 2020 and 2019.

 

 

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding beneficial ownership of our common stock as of March 26, 2021:

 

●

by each person who is known by us to beneficially own more than 5% of our common stock;

 

●

by each of our officers and directors; and

 

●

by all of our officers and directors as a group.

 

Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power.

 

Name of Owner		Title of Class		Number of Shares Owned (1)				Percentage of Common Stock (2)
Roger M. Ponder		Common Stock			14,062				0.07	%
Keith W. Hayter		Common Stock			13,877				0.06	%
Officers, Directors and 5% or Greater Owners as a Group		Common Stock			27,939				0.13	%

 

(1)

Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

 

(2)	Percentage based upon 21,613,914 shares of common stock issued and outstanding as of March 26, 2021.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

On November 24, 2009, we registered a 2009 Stock Compensation Plan and a 2009 Stock Option Plan which permits our company to grant up to an aggregate of 3,500,000 options to acquire shares of common stock, to directors, officers, employees and consultants of our company.

 

Our board of directors may amend or terminate the Plans at any time, but no action will affect any outstanding awards in any manner materially adverse to participant without the consent of the participants. Plan amendments will be submitted to the stockholders for their approval as required by applicable law or any listing agency. Our plans provide additional means to attract, motivate, retain and reward employees or other eligible persons by allow them the ability to purchase additional shares of common stock.

 

 

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Except as set forth below, we have not entered into any transactions with our officers, directors, persons nominated for these positions, beneficial owners of 5% or more of our common stock, or family members of these persons wherein the amount involved in the transaction or a series of similar transactions exceeded the lesser of $120,000 or 1% of the average of our total assets for the last fiscal year:

  

Sales to WaveTech GmbH

 

 During the year ended December 31, 2020 our ADEX subsidiary made sales to WaveTech GmbH totaling $193,573.

 

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The aggregate fees billed for the years ended December 31, 2020 and 2019 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

 

		For the year ended
		December 31,
		2020				2019
Sadler, Gibb & Associates, LLC
Audit Fees		$	93,500			$	96,500
Audit-Related Fees			-				30,000
Tax Fees			-				-
All Other Fees			-				-
Total		$	93,500			$	126,500

  

Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.

 

Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.

  

 

PART IV

 

ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Financial Statements.

 

See the “Index to Consolidated Financial Statements” on page F-1 below for the list of financial statements filed as part of this report.

 

Financial Statement Schedules.

 

All schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto set forth below beginning on page F-1.

 

Exhibits.

 

See the Exhibit Index immediately following the signature page of this Report on Form 10-K. The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Report on Form 10-K.

 

ITEM 16 – FORM 10-K SUMMARY

 

None.

 

 

SPECTRUM GLOBAL SOLUTIONS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

	Page
	Number
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019	F-5
Consolidated Statements of Operations for the years ended December 31, 2020 and December 31, 2019	F-6
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2020 and December 31, 2019	F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and December 31, 2019	F-8
Notes to Consolidated Financial Statements	F-9

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of Spectrum Global Solutions Inc.:

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Spectrum Global Solutions Inc. ("the Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the years in the two-year period ended December 31, 2020 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph Regarding Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses since inception, has negative cash flows from operations, and has negative working capital, which creates substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

 

Long-Lived Asset Impairment Assessment

 

As described in Note 2 to the consolidated financial statements, the Company performs impairment testing for its long-lived assets when events or changes in circumstances indicate that its carrying amount may not be recoverable and exceeds its fair value. Due to challenging industry economic conditions, the Company tested its long-lived assets during the year ended December 31, 2020. The first step of the long-lived asset impairment review is a recoverability test based upon projected future undiscounted cash flows.

 

We identified the evaluation of the impairment analysis for long-lived assets as a critical audit matter because of the significant estimates and assumptions management used in the undiscounted cash flow analysis. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.

 

Our audit procedures related to the following:

 

●

Testing management’s process for developing the fair value estimate.

 

●

Evaluating the appropriateness of the undiscounted cash flow model used by management.

 

●

Testing the completeness and accuracy of underlying data used in the fair value estimate.

 

●

Evaluating the significant assumptions used by management related to revenues, gross margin, operating expenses, and long term growth rate to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

 

In addition, professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the undiscounted cash flow model.

 

Goodwill Impairment Assessment

 

Critical Audit Matter Description

 

As described in Note 2 to the consolidated financial statements, the Company tests goodwill for impairment annually at the reporting unit level, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Reporting units are tested for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recorded based on the difference between the fair value and carrying amount, not to exceed the associated carrying amount of goodwill. The Company’s annual impairment test occurred on December 31, 2020. The Company utilized a third-party valuation specialist to assist in the preparation of the goodwill impairment test for this reporting unit. The Company primarily used a discounted cash flow income method to estimate the fair value of the reporting unit.

 

How the Critical Audit Matter was Addressed in the Audit

 

We identified the evaluation of the impairment analysis for goodwill as a critical audit matter because of the significant estimates and assumptions management used in the discounted cash flow analysis performed by management to determine fair value of the reporting unit. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

 

 

Our audit procedures related to the following:

 

●

Testing management’s process for developing the fair value of the reporting unit.

 

●

Evaluating the appropriateness of the discounted cash flow model utilized by the Company.

 

●

Testing the completeness and accuracy of underlying data used in the fair value estimate.

 

●

Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist related to revenues, gross margin, operating expenses, income taxes, long term growth rate, and discount rate to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

 

In addition, professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the discounted cash flow model.

 

Determination and Valuation of Derivative Liabilities

 

Critical Audit Matter Description

 

As described further in Note 10 of the financial statements, during the year ended December 31, 2020 and in prior periods, the Company issued convertible notes and warrants that required management to assess whether the conversion features of the convertible notes required bifurcation and separate valuation as a derivative liability and whether the warrants required accounting as derivative liabilities. The Company determined that the conversion features of certain of its convertible notes and certain warrants issued in financing arrangements required to be accounted for as derivative liabilities due to: (1) certain conversion features did not contain an explicit limit on the number of shares to be delivered in share settlement; and (2) the fact the Company could not assert it had sufficient authorized but unissued shares available to settle certain instruments considering all other stock-based commitments. The derivative liabilities were recorded at fair value when issued and subsequently re-measured to fair value upon settlement or at the end of each reporting period. The Company utilized either Monte Carlo Simulation models or Black Scholes option pricing models to determine the fair value of the derivative liabilities depending on the features embedded in the instruments. These models use certain assumptions related to exercise price, term, expected volatility, and risk-free interest rate.

 

We identified auditing the determination and valuation of the derivative liabilities as a critical audit matter due to the significant judgements used by the Company in determining whether the embedded conversion features and warrants required derivative accounting treatment and the significant judgements used in determining the fair value of the derivative liabilities. Auditing the determination and valuation of the derivative liabilities involved a high degree of auditor judgement, and specialized skills and knowledge were needed.

 

How the Critical Audit Matter Was Addressed in the Audit

 

Our audit procedures included the following, among others:

 

●

We inspected and reviewed debt agreements, warrant agreements, conversion notices, and settlement agreements to evaluate the Company's determination of whether derivative accounting was required, including assessing and evaluating management's application of relevant accounting standards to such transactions.

 

●

We evaluated the reasonableness and appropriateness of the choice of valuation model used for each specific derivative instrument.

 

●

We tested the reasonableness of the assumptions used by the Company in the Monte Carlo and Black Scholes models, including exercise price, term, expected volatility, and risk-free interest rate.

 

●

We tested the accuracy and completeness of data used by the Company in developing the assumptions used in the valuation models.

 

●

We developed an independent expectation for comparison to the Company's estimate, which included developing our own valuation model and assumptions.

 

●

We evaluated the accuracy and completeness of the Company's presentation of these instruments in the financial statements and related disclosures in Note 10, including evaluating whether such disclosures were in accordance with relevant accounting standards.

 

Professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the Company estimate of fair value and the development of our own independent expectation.

 

/s/ Sadler, Gibb & Associates, LLC

 

We have served as the Company's auditor since 2014.

 

Draper, UT

April 1, 2021

 

 

SPECTRUM GLOBAL SOLUTIONS, INC.
Consolidated balance sheets

 

		December 31,
		2020				2019
ASSETS
Current assets:
Cash		$	580,800			$	375,141
Accounts receivable, net of allowances of $38,881 and $440,486, respectively			2,481,124				3,860,623
Contract assets			167,649				293,209
Prepaid expenses and deposits			13,025				19,130
Current assets of discontinued operations			-				1,749,778
Total current assets			3,242,598				6,297,881
Property and equipment, net of accumulated depreciation of $283,489 and $280,217, respectively			14,186				9,698
Goodwill			331,223				331,223
Customer lists, net of accumulated amortization of $89,386 and $57,838, respectively			46,614				78,162
Tradenames, net accumulated amortization of $55,046 and $35,618, respectively			575,954				595,382
Operating lease right-of-use assets			116,817				98,361
Non-current assets of discontinued operations			-				4,758,112
Total assets		$	4,327,392			$	12,168,819
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		$	2,369,477			$	2,736,739
Contract liabilities			287,775				355,988
Loans payable to related parties, current portion			-				3,483,858
Loans payable, current portion, net of debt discount of $38,874 and $280,174, respectively			532,381				3,795,786
Convertible debentures, current portion, net of discount of $301,957 and $352,055, respectively			1,002,463				2,809,355
Factor financing			1,914,611				-
Derivative liabilities, current portion			3,028,504				992,733
Warrant liability			100,000				100,000
Operating lease liabilities			122,838				100,421
Current liabilities of discontinued operations			-				1,713,033
Total current liabilities			9,358,049				16,087,913
Long-term liabilities:
Convertible loans payable to related parties			577,925				-
Loans payable, net of current portion			2,920,125				-
Derivative liabilities, net of current portion			362,000				-
Convertible debentures, net of current portion, net of debt discount of $0 and $98,176, respectively			-				28,324
Total long-term liabilities			3,860,050				28,324
Total liabilities			13,218,099				16,116,237
Commitments and contingencies			-				-
Series A preferred stock; $0.00001 par value; 8,000,000 shares authorized; 899,427 issued and 606,835 and 829,427 outstanding as of December 31, 2020 and 2019, respectively			737,403				1,007,888
Series B preferred stock; $3,500 stated value; 1,000 shares authorized; 1,000 issued and outstanding as of December 31, 2020 and 2019, respectively			484,530				484,530
Total mezzanine equity			1,221,933				1,492,418
Stockholders' deficit:
Common stock; $0.00001 par value; 750,000,000 shares authorized; 13,188,951 and 195,715 issued and 13,186,880 and 193,644 outstanding as of December 31, 2020 and 2019, respectively			132				2
Additional paid-in capital			38,292,653				25,255,291
Treasury stock, at cost			(277,436	)			(277,436	)
Common stock subscribed			74,742				74,742
Accumulated deficit			(48,202,731	)			(30,492,435	)
Total stockholders' deficit			(10,112,640	)			(5,439,836	)
Total liabilities and stockholders’ deficit		$	4,327,392			$	12,168,819

 

(The accompanying notes are an integral part of these consolidated financial statements)

 

 

SPECTRUM GLOBAL SOLUTIONS, INC.
Consolidated statements of operations

 

		For the years ended
		December 31,
		2020				2019
Revenue		$	18,677,444			$	25,496,071
Operating expenses:
Cost of revenues			15,403,987				22,193,114
Depreciation and amortization			54,248				52,696
Salaries and wages			4,256,997				3,567,574
General and administrative			3,266,994				3,172,708
Total operating expenses			22,982,226				28,986,092
Loss from operations			(4,304,782	)			(3,490,021	)
Other (expenses) income:
(Loss) gain on settlement of debt			(2,623,379	)			267,282
Amortization of discounts on convertible debentures and loans payable			(651,129	)			(1,560,657	)
Loss (gain) on change in fair value of derivatives			(662,968	)			1,843,935
Default and debt extension fees			(120,903	)			-
Foreign exchange loss			(3,991	)			(10,022	)
Loss on fair value of additional shares			(177,746	)			-
Loss on return of common stock			(194,732	)			-
Initial derivative expense			(594,803	)			(116,638	)
Interest expense			(1,057,064	)			(1,690,178	)
Total other expense			(6,086,715	)			(1,266,278	)
Loss from continuing operations before taxes			(10,391,497	)			(4,756,299	)
Provision for income taxes			1,908				204,231
Net loss from continuing operations			(10,393,405	)			(4,960,530	)
Net loss from discontinued operations, net of tax			(7,316,891	)			(873,728	)
Net loss attributable to Spectrum Global Solutions, Inc.			(17,710,296	)			(5,834,258	)
Less: deemed dividend - Series A preferred stock modification			-				(488,072	)
Net loss attributable to Spectrum Global Solutions, Inc. common shareholders		$	(17,710,296	)		$	(6,322,330	)
Loss per share attributable to Spectrum Global Solutions, Inc. common shareholders, basic and diluted:
Net loss from continuing operations		$	(2.30	)		$	(45.65	)
Net loss on discontinued operations, net of taxes		$	(1.62	)		$	(7.32	)
Net loss per share		$	(3.92	)		$	(52.98	)
Weighted average common shares outstanding, basic and diluted:			4,521,290				119,344

 

(The accompanying notes are an integral part of these consolidated financial statements)

 

 

SPECTRUM GLOBAL SOLUTIONS, INC.
Consolidated statements of stockholder’s deficit

 

		For the year ended December 31, 2020
		Common stock								Additional paid-in				Common stock				Treasury				Accumulated
		Shares				$				capital				subscribed				stock				deficit				Total
Balances, January 1, 2020			195,715			$	2			$	25,255,291			$	74,742			$	(277,436	)		$	(30,492,435	)		$	(5,439,836	)
Issuance of common stock to M2B Funding upon conversion of Series A preferred stock			171,112				2				53,465				-				-				-				53,467
Issuance of common stock to CCAG Investments upon execution of convertible debenture agreements			9,755				-				51,500				-				-				-				51,500
Issuance of common stock to FJ Vulis upon execution of convertible debenture agreements			9,755				-				51,500				-				-				-				51,500
Issuance of common stock to Dominion Capital upon conversion of Series A preferred stock			537,406				6				217,012				-				-				-				217,018
Issuance of common stock to GS Capital Partners upon conversion of a convertible debenture			5,590,167				56				1,316,592				-				-				-				1,316,648
Issuance of common stock to Power Up Lending upon conversion of convertible debentures			2,246,990				22				666,639				-				-				-				666,661
Issuance of common stock to SCS, LLC upon conversion of a convertible debenture			154,288				1				19,732				-				-				-				19,733
Issuance of common stock to Crown Bridge Partners upon conversion of a convertible debenture			980,500				10				143,291				-				-				-				143,301
Common stock issued for related party receivable from WaveTech GmbH debt assumption			1,082,731				11				8,507,546				-				-				-				8,507,557
Issuance of common stock to CCAG Investments based on terms of a convertible debenture			1,542,000				15				109,690				-				-				-				109,705
Issuance of common stock to FJ Vulis based on terms of a convertible debenture			900,000				9				68,031				-				-				-				68,040
Shares returned by GS Capital Partners and canceled			(226,800	)			(2	)			(20,002	)			-				-				-				(20,004	)
Shares returned by Raven and Roeske and canceled			(4,668	)			-				(359	)			-				-				-				(359	)
Stock-based compensation			-				-				1,852,725				-				-				-				1,852,725
Net loss for the period			-				-				-				-				-				(17,710,296	)			(17,710,296	)
Ending balance, December 31, 2020			13,188,951			$	132			$	38,292,653			$	74,742			$	(277,436	)		$	(48,202,731	)		$	(10,112,640	)

 

		For the year ended December 31, 2019
		Common stock								Additional paid-in				Common stock				Treasury				Accumulated
		Shares				$				capital				subscribed				stock				deficit				Total
Balances, January 1, 2019			25,703			$	-			$	18,681,467			$	74,742			$	(277,436	)		$	(24,170,105	)		$	(5,691,332	)
Issuance of common stock to Dominion Capital			3,104				-				36,454				-				-				-				36,454
Issuance of common stock to InterCloud Systems			121,019				2				3,381,839				-				-				-				3,381,841
Issuance of common stock to M2B Funding			4,448				-				48,608				-				-				-				48,608
Issuance of common stock to MZ Group for services			2,778				-				37,500				-				-				-				37,500
Issuance of common stock to RDW Capital			4,126				-				304,028				-				-				-				304,028
Issuance of common stock to Silverback Capital			7,700				-				207,052				-				-				-				207,052
Issuance of common stock to Virtual Capital			13,239				-				698,921				-				-				-				698,921
Issuance of common stock to employees pursuant to the conversions of convertible debt			4,667				-				308,000				-				-				-				308,000
Impact of Dominion Capital beneficial conversion feature			-				-				314,228				-				-				-				314,228
Stock-based compensation			9,565				-				1,237,194				-				-				-				1,237,194
Cancellation of shares for services			(634	)			-				-				-				-				-				-
Deemed dividend - Series A preferred stock modification			-				-				-				-				-				(488,072	)			(488,072	)
Net loss for the period			-				-				-				-				-				(5,834,258	)			(5,834,258	)
Ending balance, December 31, 2019			195,715			$	2			$	25,255,291			$	74,742			$	(277,436	)		$	(30,492,435	)		$	(5,439,836	)

 

(The accompanying notes are an integral part of these consolidated financial statements)

 

 

SPECTRUM GLOBAL SOLUTIONS, INC.

Consolidated statements of cash flows

 

		For the years ended
		December 31,
		2020				2019
Cash flows from operating activities:
Net loss		$	(17,710,296	)		$	(5,834,258	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss (gain) on change in fair value of derivative liability			662,968				(1,843,935	)
Amortization of discounts on convertible debentures and notes payable			651,129				1,560,657
Depreciation and amortization			54,248				52,696
Amortization of operating right of use assets			51,567				148,215
Amortization of operating right of use liabilities			(50,513	)			(143,248	)
Stock-based compensation			1,852,725				1,274,694
Loss (gain) on settlement of debt			2,623,379				(267,282	)
Initial derivative expense			594,803				116,638
Default and debt extension fees			120,903				-
Loss on return of shares			194,732				-
Loss on fair value of additional shares			177,746				-
Foreign exchange loss			-				10,022
Changes in operating assets and liabilities:
Accounts receivable			1,386,583				1,170,569
Contract assets			125,559				1,629,708
Prepaid expenses and deposits			6,105				5,081
Other assets			-				669,641
Accounts payable and accrued liabilities			129,099				(860,626	)
Contract liabilities			(68,213	)			84,200
Net cash used in operating activities of continuing operations			(9,197,476	)			(2,227,228	)
Net cash provided by (used in) operating activities of discontinued operations			8,742,662				(48,136	)
Net cash used in operating activities			(454,814	)			(2,275,364	)
Cash flows from investing activities:
Purchases of equipment			(7,760	)			(7,759	)
Net cash used in investing activities of continuing operations			(7,760	)			(7,759	)
Net cash used in investing activities of discontinued operations			(978,395	)			(1,003,656	)
Net cash used in investing activities			(986,155	)			(1,011,415	)
Cash flows from financing activities:
Proceeds from loans payable			6,207,315				28,656,567
Repayments of loans payable			(6,836,492	)			(28,795,279	)
Proceeds from loans payable to related parties			319,972				3,159,978
Repayments of loans payable to related parties			-				(112,724	)
Proceeds from convertible notes			611,000				534,500
Repayments of convertible notes			(1,360,836	)			(366,321	)
Proceeds from factor financing			16,563,092				-
Repayments of factor financing			(14,648,481	)			-
Net cash provided by financing activities of continuing operations			855,570				3,076,721
Net cash provided by financing activities of discontinued operations			791,058				-
Net cash provided by financing activities			1,646,628				3,076,721
Net increase (decrease) in cash			205,659				(210,058	)
Cash, beginning of period			375,141				585,199
Cash, end of period		$	580,800			$	375,141
Supplemental disclosures of cash flow information:
Cash paid for interest		$	394,830			$	374,737
Cash paid for income taxes		$	14,900			$	109,099
Non-cash investing and financing activities:
Common stock issued for conversion of convertible debentures		$	2,146,342			$	4,899,842
Original issue discounts		$	186,250			$	581,000
Original debt discount against derivative liability		$	611,000			$	-
Common stock issued for conversion of Series A preferred stock		$	270,485			$	85,061
Common stock issued for WaveTech GmbH debtholders		$	8,507,557			$	-
Addition to principal of convertible debenture due to defaults and debt extension fees		$	120,903			$	-
Issuance of common stock upon execution of convertible debenture agreements		$	103,000			$	-
Addition to derivative liability due to issuance of stock options		$	44,700			$	-
Addition to derivative liability due to issuance of warrants		$	100,803			$	-
Additional shares issued based on terms of convertible debentures		$	177,745			$	-
Shares returned and canceled		$	194,732			$	-
Net assets disposed of in TNS sale		$	5,500,268			$	-
Net liabilities disposed of in AWS sale		$	749,609			$	-
Third party payment of third-party debt		$	-			$	1,023,365
Addition to principal of convertible debenture due to Barn 11 default		$	-			$	167,093
Addition to derivative liability due to Barn 11 default		$	-			$	466,000
Deemed dividend - Series A preferred stock modification		$	-			$	488,072
Right-of-use operating lease assets obtained in exchange for operating lease liabilities		$	-			$	316,599
Accounts payable exchanged for convertible note		$	-			$	51,030
Assignment of related party debt		$	-			$	200,000

 

(The accompanying notes are an integral part of these consolidated financial statements)

 

 

SPECTRUM GLOBAL SOLUTIONS, INC.

Notes to the consolidated financial statements

December 31, 2020

 

1.	Organization and Going Concern

 

Spectrum Global Solutions, Inc., (the “Company”) (f/k/a Mantra Venture Group Ltd.) was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, the Company reincorporated in the province of British Columbia, Canada.

 

On April 25, 2017, the Company entered into and closed on an Asset Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Asset Purchase Agreement, the Company purchased 80.1% of the assets associated with InterCloud’s AW Solutions, Inc., AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”) (collectively “AWS” or the “AWS Entities”) subsidiaries.

 

On November 15, 2017, the Company changed its name to “Spectrum Global Solutions, Inc.” and reincorporated in the state of Nevada.

 

On February 14, 2018, the Company entered into an agreement with InterCloud providing for the sale, transfer, conveyance and delivery to the Company of the remaining 19.9% of the assets associated with InterCloud’s AWS business not already purchased by the Company.

 

On February 6, 2018, the Company entered into and closed on a Stock Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Stock Purchase Agreement, the Company purchased all of the issued and outstanding capital stock and membership interests of ADEX Corporation, ADEX Puerto Rico LLC, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”). The Company completed the acquisition on February 27, 2018.

 

On May 18, 2018, the Company transferred all of its ownership interests in and to its subsidiaries Carbon Commodity Corporation, Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., Mantra Wind Inc., Climate ESCO Ltd. and Mantra Energy Alternatives Ltd. to an entity controlled by the Company’s former Chief Executive Officer, Larry Kristof. The new owner of the aforementioned entities assumed all liabilities and obligations with respect to such entities.

 

On January 4, 2019, the Company entered into a Stock Purchase Agreement with InterCloud. Pursuant to the terms of the Purchase Agreement, InterCloud agreed to sell, and the Company agreed to purchase, all of the issued and outstanding capital stock of TNS, Inc. (“TNS”), an Illinois corporation.

 

During September 2019, the Company formed ADEX Canada, which is included in the ADEX Entities.

 

On September 30, 2020, the Company sold its TNS subsidiary (refer to Note 3, Disposals of Subsidiaries, for additional detail).

 

On December 31, 2020, the Company sold its AWS subsidiary (refer to Note 3, Disposals of Subsidiaries, for additional detail).

 

As a result of the sale of AWS, the remaining subsidiaries from the Company’s former AWS Entities, AWS PR and Tropical, are now broken out separately.

 

The Company’s AWS PR and Tropical subsidiaries are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. The Company’s ADEX Entities are a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications industry, service providers and enterprise customers domestically and internationally.

 

  

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The recently acquired AWS and ADEX businesses have also incurred losses and experienced negative cash flows from operations during their most recent fiscal years. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As of December 31, 2020, the Company had an accumulated deficit of $48,202,731, and a working capital deficit of $6,115,451. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.

 

2.	Significant Accounting Policies

 

Basis of Presentation/Principles of Consolidation

 

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries, the ADEX Entities, AWS PR, and Tropical. All subsidiaries are wholly-owned.

 

During the year ended December 31, 2020, the Company sold its AWS and TNS subsidiaries (refer to Note 3, Disposals of Subsidiaries, for additional detail). The operations of AWS and TNS (from the date of acquisition, January 4, 2019) have been included as discontinued operations in the accompanying financial statements.

 

All inter-company balances and transactions have been eliminated.

   

Impact of the COVID-19 Pandemic

 

The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.

 

Global health concerns relating to the COVID-19 outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact the Company’s workforce and operations and the operations of its customers, suppliers and business partners. These measures may remain in place for a significant period of time and they are likely to continue to adversely affect the Company’s business, results of operations and financial condition.

 

The spread of COVID-19 has caused the Company to modify its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests of its employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.

 

The extent to which the COVID-19 outbreak impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may continue to experience materially adverse impacts to its business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

 

 

There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a global pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. The Company does not yet know the full extent of the impacts on its business, its operations or the global economy as a whole. However, the effects could have a material impact on the Company’s results of operations, and the Company will continue to monitor the COVID-19 situation closely. As of March 2021, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine distribution, supply and effectiveness will impact when the negative economic effects as a result of COVID-19 will abate or end and the timing of such recovery may affect the Company’s financial condition.

 

Reverse Stock Split

 

On April 14, 2020, the Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the state of Nevada to effect a 1-for-300 reverse stock split with respect to the outstanding shares of the Company’s common stock. The Certificate of Amendment became effective on April 14, 2020 with the state of Nevada, and on April 20, 2020, Financial Industry Regulatory Authority, Inc. (FINRA) made the announcement of the reverse stock split.

 

The reverse stock split was previously approved by the board of directors and the majority of stockholders of the Company. The reverse stock split was deemed effective at the open of business on April 21, 2020. As a result of the reverse stock split, every three hundred (300) shares of outstanding common stock of the Company as of April 14, 2020 were converted into one (1) share of common stock. Fractional shares resulting from the reverse stock split were rounded up to the next whole number.

 

All common share, warrant, stock option, and per share information in the consolidated financial statements gives retroactive effect to the 1-for-300 reverse stock split. There was no change to the number of authorized shares of common stock or preferred stock of the Company as a result of the reverse stock split. The par value of the Company’s common stock was unchanged at $0.00001 per share post-split.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

 

 

Accounts Receivable

 

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts at December 31, 2020 and 2019 was $38,881 and $440,486, respectively.

 

Property and Equipment

 

Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:

 

Automotive	3-5 years straight-line basis
Computer equipment and software	3-7 years straight-line basis
Leasehold improvements	5 years straight-line basis
Office equipment and furniture	5 years straight-line basis

 

Goodwill

 

Goodwill was initially generated through the acquisitions of the AWS Entities in 2017, the ADEX Entities in 2018, and TNS in 2019, as the total consideration paid exceeded the fair value of the net assets acquired.

 

The Company tests its goodwill for impairment at least annually on December 31st and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.

 

The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the year ended December 31, 2019.

 

During the year ended December 31, 2020, the Company sold its TNS and AWS subsidiaries. In connection with the sales, the Company tested its goodwill for impairment. The Company completed a recoverability test as there were indicators of impairment and determined that the value was recoverable. As such, no impairment was recorded for the year ended December 31, 2020.

 

Intangible Assets

 

At December 31, 2020 and 2019, definite-lived intangible assets primarily consist of tradenames and customer relationships which are being amortized over their estimated useful lives ranging from 5-35 years.

 

The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.

 

For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were no impairment charges during the year ended December 31, 2019.

 

 

During the year ended December 31, 2020, the Company sold its TNS and AWS subsidiaries. In connection with the sales, the Company tested its intangible assets for impairment. The Company completed a recoverability test as there were indicators of impairment and determined that the value was recoverable. As such, no impairment was recorded for the year ended December 31, 2020.

 

Long-lived Assets

 

In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were no impairment charges recorded during the years ended December 31, 2020 and 2019.

  

Foreign Currency Translation

 

Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting foreign exchange gains and losses are recognized in income.

 

The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting foreign exchange gains or losses are recognized in income.

 

Income Taxes

 

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

 

The Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines it’s filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2020. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.

 

 

Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.

 

The Company follows the guidance set forth within ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.

 

The Company received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014. The amount due as of December 31, 2020 was $156,711 plus penalties and interest of $129,967 for a total obligation due of $286,678. The amount due as of December 31, 2019 was $156,711 plus penalties and interest of $126,700 for a total obligation due of $283,411. This tax assessment was included in accrued expenses at December 31, 2020 and 2019.

 

Revenue Recognition

 

Adoption of New Accounting Guidance on Revenue Recognition

 

The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.

 

Contract Types

 

The Company’s contracts fall under three main types: 1) unit-price, 2) fixed-price, and 3) time-and-materials. Unit-price contracts relate to services being performed and paid on a unit basis, such as per mile of construction completed. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working permanently at customer locations and materials costs incurred by those employees.

 

A significant portion of the Company’s revenues come from customers with whom the Company has a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.

 

Performance Obligations

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases this may be each day, or each week depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work. Contract assets include unbilled amounts for costs of services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated balance sheets. Contract liabilities include costs incurred and are included in contract liabilities on the consolidated balance sheets.

 

 

Revenue Service Types

 

The following is a description of the Company’s revenue service types, which include professional services and construction:

 

●

Professional services are services provided to the clients where the Company delivers distinct contractual deliverables and/or services. Deliverables may include but are not limited to: engineering drawings, designs, reports and specification. Services may include, but are not limited to: consulting or professional staffing to support our client’s objectives. Consulting or professional staffing services may be provided remotely or on client premises and under their direction and supervision.

 

●

Construction Services are services provided to the client where the Company may self-perform or subcontract services that require the physical construction of infrastructure or installation of equipment and materials.

   

Disaggregation of Revenues

 

The Company disaggregates its revenue from contracts with customers by service type, contract type, contract duration, and timing of transfer of goods or services. See the below tables:

 

Revenue by service type		Year Ended December 31, 2020				Year Ended December 31, 2019
Professional Services		$	17,167,905			$	19,452,318
Construction			1,509,539				6,043,753
Total		$	18,677,444			$	25,496,071

 

Revenue by contract duration		Year Ended December 31, 2020				Year Ended December 31, 2019
Short-term		$	79,279			$	8,821
Long-term			18,598,165				25,487,250
Total		$	18,677,444			$	25,496,071

 

Revenue by contract type		Year Ended December 31, 2020				Year Ended December 31, 2019
Unit-price		$	377,065			$	4,625,229
Fixed-price		$	1,132,474			$	1,418,524
Time-and-materials			17,167,905				19,452,318
Total		$	18,677,444			$	25,496,071

 

The Company also disaggregates its revenue by operating segment and geographic location (refer to Note 16, Segment Disclosures, for additional information).

 

Accounts Receivable

 

Accounts receivable include amounts from work completed in which the Company has billed. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable.

 

Contract Assets and Liabilities

 

Contract assets include costs and services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated balance sheets. At December 31, 2020 and 2019, contract assets totaled $167,649 and $293,209, respectively.

 

Contract liabilities include payment received for incomplete performance obligations and are included in contract liabilities on the consolidated balance sheets. At December 31, 2020 and 2019, contract liabilities totaled $287,775 and $355,988, respectively.

 

Cost of Revenues

 

Cost of revenues includes all direct costs of providing services under the Company’s contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.

 

 

Research and Development Costs

 

Research and development costs are expensed as incurred.

 

Stock-based Compensation

 

The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”), using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

  

The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.

 

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.

 

Loss per Share

 

The Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted loss per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2020 and 2019, respectively, the Company had 53,429,108 and 286,736 common stock equivalents outstanding.

 

Leases

 

The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) on January 1, 2019.

 

The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the Company’s lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.

 

The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months as of January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures. The Company adopted this standard on January 1, 2020. The adoption of this standard did not materially impact the Company’s consolidated financial statements and related disclosures.

 

  

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or result of operations.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.

 

The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the year ended December 31, 2020, three customers accounted for 31%, 21%, and 10%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 34%, 20%, and 3%, respectively, of trade accounts receivable as of December 31, 2020. For the year ended December 31, 2019, four customers accounted for 37%, 19%, 14%, and 12%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 57%, 2%, 1%, and 9%, respectively, of trade accounts receivable as of December 31, 2019.

 

The Company’s customers are primarily located within the domestic United States of America, Puerto Rico, and Canada. Revenues generated within the domestic United States of America accounted for approximately 93% of consolidated revenues for the year ended December 31, 2020. Revenues generated from customers in Puerto Rico and Canada accounted for approximately 7% of consolidated revenues for the year ended December 31, 2020. Revenues generated within the domestic United States of America accounted for approximately 94% of consolidated revenues for the year ended December 31, 2019. Revenues generated from customers in Puerto Rico and Canada accounted for approximately 6% of consolidated revenues for the year ended December 31, 2019.

 

Fair Value Measurements

 

The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:

 

Level 1 – quoted prices for identical instruments in active markets;

 

Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and

 

Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the years ended December 31, 2020 and 2019. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

 

The Company’s financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2020 and 2019 consisted of the following:

 

		Total fair value at December 31, 2020				Quoted prices in active markets (Level 1)				Quoted prices in active markets (Level 2)				Quoted prices in active markets (Level 3)
Description:
Derivative liability (1)		$	3,390,504			$	-			$	-			$	3,390,504

 

		Total fair value at December 31, 2019				Quoted prices in active markets (Level 1)				Quoted prices in active markets (Level 2)				Quoted prices in active markets (Level 3)
Description:
Derivative liability (1)		$	992,733			$	-			$	-			$	992,733

 

(1)	The Company has estimated the fair value of these derivatives using the Monte-Carlo model.

 

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 9, Derivative Liabilities, for additional information.

 

Derivative Liabilities

 

The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of December 31, 2020 and 2019, the Company had a derivative liability of $3,390,504 and $992,733, respectively.

 

Sequencing Policy

 

Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.

 

Reclassifications

 

Certain balances in previously issued consolidated financial statements have been reclassified to be consistent with the current period presentation. The reclassification had no impact on total financial position, net income, or stockholders’ equity.

 

3.	Disposals of Subsidiaries

 

WaveTech GmbH Background Information

 

Prior to the Company’s sale of its interest in WaveTech GmbH (refer to the “Sale of TNS and Interest in WaveTech GmbH” section of this note for additional detail), the Company had a due from related party balance of $5,187,585. This amount was the net of WaveTech GmbH debt assumed by the Company and a loan with WaveTech GmbH.

 

In connection with the share purchase agreement with WaveTech GmbH discussed in Note 15, Commitments and Contingencies, the Company assumed $7,531,309 of WaveTech GmbH debt. The amount included both principal and accrued interest. These note holders were issued new notes which were convertible into shares of the Company’s common stock. On February 18, 2020, these notes were converted into 1,082,731 shares at a conversion price of $7.80 per share. The value of the conversion was determined using the principal and accrued interest of the new notes at the time of conversion, which was $8,507,557. The Company did not record a gain or loss on the conversion as WaveTech GmbH was considered a related party (refer to Note 6, Related Party Transactions, for additional detail).

 

Prior to the Company’s sale of its interest in WaveTech GmbH, the balance of the loan with WaveTech GmbH discussed in Note 6, Related Party Transactions, was $3,319,972, which represented the initial loan amount of $3,000,000 and an additional $319,972 received from WaveTech GmbH during the year ended December 31, 2020. In the event that the Company’s acquisition of WaveTech GmbH was terminated, the amount of this note would be used to offset amounts owed by WaveTech GmbH to the Company.

 

 

Sale of TNS and Interest in WaveTech GmbH

 

On September 30, 2020, the Company entered into a stock purchase agreement with WaveTech Group, Inc. “WaveTech Group”), a Delaware corporation. In connection with the agreement, the Company sold to WaveTech Group its TNS subsidiary. Additionally, the Company sold to WaveTech Group all shares of WaveTech GmbH common stock held in escrow for the Company. As of the date of the sale, the Company held 90% of the common stock of WaveTech GmbH.

 

The consideration for the sale is as follows:

 

●

WaveTech Group agreed to assume $570,885 of the outstanding principal of the Company’s note with Dominion Capital LLC (refer to Note 8, Convertible Debentures, for additional detail).

  

●

WaveTech Group agreed to assume $347,200 and $148,800, respectively, of the outstanding principal of the Company’s notes with Joel Raven and Michael Roeske (refer to Note 8, Convertible Debentures, for additional detail).

  

●

WaveTech Group agreed to assume the $108,658 CARES Act Loan entered into by TNS (refer to Note 7, Loans Payable, for additional detail).

 

	●	WaveTech Group and the Company agreed to eliminate all intercompany balances reflected on the financial statements of the seller and acquisition companies.
	●	In connection with the Certificate of Designation of the Company’s Series C preferred stock filed on September 29, 2020 (refer to Note 12, Preferred Stock, for additional detail), the Company agreed to provide 5,897,994 shares of WaveTech Group common stock to the shareholders of WaveTech GmbH in lieu of the Company’s Series C preferred stock.

 

●

WaveTech Group agreed to assign to the Company all shares of the Company’s common stock acquired by WaveTech Group following the closing of the transaction as a result of a tender offer. WaveTech Group offered shares of its common stock to the holders of the 1,082,731 shares of the Company’s common stock that were described in the “WaveTech GmbH Background Information” section of this note. These shareholders had the option to acquire shares in WaveTech Group in exchange for their shares of the Company’s common stock. As of the date of this report, the Company has been assigned 1,027,844 of the 1,082,731 shares (refer to Note 19, Subsequent Events, for additional detail). The Company does not know how many additional shareholders will accept the WaveTech Group offer, if any. Additionally, the offer does not have an expiration date.

 

The Company considered whether or not this transaction would cause TNS to qualify for discontinued operations treatment. The Company determined that the sale of TNS qualifies for discontinued operations treatment as of December 31, 2020 as the sale represents a strategic shift.

 

In connection with the sale of TNS, the Company tested its goodwill and intangible assets for impairment. The Company completed a recoverability test as there was an indicator of impairment and determined that the value was recoverable. As such, no impairment was recorded.

 

As a result of the sale of TNS and the Company’s interest in WaveTech GmbH, the Company recorded a loss on disposal of subsidiary of $6,478,663 for the year ended December 31, 2020. This amount is included within loss on discontinued operations, net of tax on the consolidated statement of operations.

 

 

The following table shows a breakout of the consideration received and given:

 

Liabilities disposed of
Assumption of portion of Dominion Capital LLC note		$	570,885
Assumption of Joel Raven note			347,200
Assumption of Michael Roeske note			148,800
Assumption of TNS CARES Act loan			108,658
Assumption of accounts payable and accrued expenses			1,070,288
Assumption of contract liabilities			2,488,494
Total liabilities disposed of		$	4,734,325
Assets disposed of
Cash		$	978,395
Accounts receivable, net			1,317,230
Due from related party			5,187,585
Prepaid expenses and deposits			310,958
Goodwill			1,574,599
Customer lists, net			1,672,399
Tradenames, net			171,822
Total assets disposed of		$	11,212,988
Loss on disposal of subsidiary		$	6,478,663

 

Sale of AW Solutions, Inc.

 

On December 31, 2020, the Company sold its AW Solutions, Inc. (“AWS”) subsidiary for the aggregate consideration consisting of $1 and the assumption of the liabilities of AWS. AWS was part of the Company’s AWS Entities, which also includes AW Solutions Puerto Rico, LLC (“AWS PR”) and Tropical Communications, Inc. (“Tropical”). The operations of AWS PR and Tropical have continued subsequent to the sale of AWS.

 

The Company considered whether or not this transaction would cause AWS to qualify for discontinued operations treatment. The Company determined that the sale of AWS qualifies for discontinued operations treatment as of December 31, 2020 as the sale represents a strategic shift.

 

In connection with the sale of AWS, the Company tested its goodwill and intangible assets for impairment. The Company completed a recoverability test as there was an indicator of impairment and determined that the value was recoverable. As such, no impairment was recorded.

 

As a result of the sale of AWS, the Company recorded a gain on disposal of subsidiary of $711,676 for the year ended December 31, 2020. This amount is included within loss on discontinued operations, net of tax on the consolidated statement of operations.

 

The following table shows a breakout of the consideration received and given:

 

Liabilities disposed of
Assumption of AWS CARES Act loan		$	682,400
Assumption of accounts payable and accrued expenses			1,425,265
Total liabilities disposed of		$	2,107,665
Assets disposed of
Cash		$	37,933
Accounts receivable, net			399,107
Other assets			20,754
Intangible assets			938,195
Total assets disposed of		$	1,395,989
Gain on disposal of subsidiary		$	711,676

 

 

4.	Property and Equipment

 

Property and equipment as of December 31, 2020 and 2019 consisted of the following:

 

		December 31,				December 31,
		2020				2019
Computers and office equipment		$	217,155			$	209,395
Vehicles			58,635				58,635
Leasehold improvements			21,885				21,885
Total			297,675				289,915
Less: accumulated depreciation			(283,489	)			(280,217	)
Equipment, net		$	14,186			$	9,698

 

During the years ended December 31, 2020 and 2019, the Company recorded depreciation expense of $3,272 and $1,720, respectively.

 

5.	Intangible Assets

 

Intangible assets as of December 31, 2020 and 2019 consisted of the following:

 

		Cost				Accumulated Amortization				Impairment				Net carrying value at December 31, 2020				Net carrying value at December 31, 2019
Customer relationship and lists		$	136,000			$	89,386			$	-			$	46,614			$	78,162
Trade names			631,000				55,046				-				575,954				595,382
Total intangible assets		$	767,000			$	144,432			$	-			$	622,568			$	673,544

 

During the years ended December 31, 2020 and 2019, the Company recorded amortization expense of $50,976.

 

The estimated future amortization expense for the next five years and thereafter is as follows:

 

Year ending December 31,
2021		$	50,976
2022			34,494
2023			19,428
2024			19,428
2025			19,428
Thereafter			478,814
Total		$	622,568

 

6.	Related Party Transactions

 

Exchange of Shares of Common Stock for Series B Preferred Stock

 

On April 23, 2018, each of Roger Ponder, the Company’s Chief Executive Officer, and Keith Hayter, the Company’s President, exchanged certain shares of common stock of the Company held by each of them for shares of the newly designated Series B preferred stock. Mr. Ponder exchanged 542,500 shares of common stock for an aggregate of 500 shares of Series B preferred stock, and Mr. Hayter exchanged 542,500 shares of common stock for an aggregate of 500 shares of Series B preferred stock. The Company recorded the fair value of the Series B preferred stock of $484,530 as mezzanine equity and reduced common shares and additional paid in capital an equal amount (refer to Note 12, Preferred Stock, for additional information).

 

If the High Wire Networks, Inc. (“High Wire”) transaction as proposed closes, the Series B preferred stock shares will be exchanged for 1,500 shares of Class D stock (refer to Note 19, Subsequent Events, for additional detail).

 

 

InterCloud Related Party Reclassification

 

During May 2019, as a result of shares of common stock issued to InterCloud as a result of conversions of convertible debentures, the Company determined that InterCloud was a related party. As of December 31, 2020, due to additional shares issued by the Company, the Company determined that InterCloud was no longer a related party. The effective date of the reclassification was January 1, 2019.

 

WaveTech GmbH Related Party Reclassification

 

During November 2019, as a result of the Company acquiring 60% of the outstanding shares of WaveTech GmbH (refer to Note 15, Commitments and Contingencies, for additional detail), the Company determined that WaveTech GmbH was a related party. The effective date of the reclassification was January 1, 2019. On September 30, 2020, the Company sold its interest in WaveTech GmbH (refer to Note 3, Disposals of Subsidiaries, for additional detail).

 

Sales to WaveTech GmbH

 

 During the year ended December 31, 2020 the Company’s ADEX subsidiary made sales to WaveTech GmbH totaling $193,573.

 

Loans Payable to Related Parties

 

As of December 31, 2020 and 2019, the Company had outstanding the following loans payable to related parties:

  

		December 31,				December 31,
		2020				2019
Convertible promissory note issued to Keith Hayter, 10% interest, unsecured, matures August 31, 2022		$	554,031			$	-
Convertible promissory note issued to Roger Ponder, 10% interest, unsecured, matures August 31, 2022			23,894				-
Promissory note issued to Roger Ponder, 10% interest, unsecured, due on demand			-				18,858
Promissory note issued to Keith Hayter, 10% interest, unsecured, due on demand			-				130,000
Promissory note issued to Keith Hayter, 10% and 8% interest, unsecured, due on demand			-				85,000
Promissory note issued to Keith Hayter, 8% interest, unsecured, due on demand			-				80,000
Promissory note issued to Keith Hayter, 10% interest, unsecured, matures August 11, 2020			-				170,000
Loan with WaveTech GmbH, 8% interest, due on demand			-				3,000,000
Total		$	577,925			$	3,483,858

 

The Company’s loans payable to related parties have an effective interest rate of 11.2%.

 

Promissory note issued to Roger Ponder, 10% interest, unsecured, matured on November 30, 2018 and extended to November 30, 2019

 

On November 30, 2017, the Company received $18,858 pursuant to a promissory note issued to the Chief Executive Officer of the Company. The note issued was unsecured, was due on November 30, 2018 and bore interest at a rate of 10% per annum. On November 30, 2018, the lender agreed to extend the maturity of the loan to November 30, 2019. The Company accounted for the modification in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as a modification and no gain or loss was recognized.

 

The note matured on November 30, 2019 and was due on demand.

 

On August 31, 2020, the holder of the note exchanged this note for a new note (refer to the “Convertible promissory note, Roger Ponder, 10% interest, unsecured, matures August 31, 2022” section of this note for additional detail).

 

Convertible promissory note, Roger Ponder, 10% interest, unsecured, matures August 31, 2022

 

On August 31, 2020, Roger Ponder exchanged one note into a new convertible promissory note with a principal amount of $23,894. Interest accrues on the new note at 10% per annum. All principal and accrued but unpaid interest under the note is due on August 31, 2022. The note is convertible into shares of the Company’s common stock at 80% of the lowest trading price in the 5 trading days prior to the conversion date. The conversion price has a floor of $0.01 per share.

 

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature was $16,000. The Company accounted for this assignment in accordance with ASC 470-50 “Modifications and Extinguishments.” As a result, the Company recorded a loss on settlement of debt of $16,000 to the consolidated statement of operations for the year ended December 31, 2020.

 

As of December 31, 2020, the Company owed $23,894 pursuant to this agreement.

 

On January 14, 2021, the Company entered into an agreement with the holder whereby the conversion price was updated to $0.06 per share, subject to adjustment based on the terms of the note (refer to Note 19, Subsequent Events, for additional detail).

 

Promissory note issued to Keith Hayter, 10% interest, unsecured, matured on November 30, 2018 and extended to November 30, 2019

 

On November 30, 2017, the Company received $130,000 pursuant to a promissory note issued to the President of the Company. The note issued was unsecured, due on November 30, 2018 and bore interest at a rate of 10% per annum. On November 30, 2018, the lender agreed to extend the maturity of the loan to November 30, 2019. The Company accounted for the modification in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as a modification and no gain or loss was recognized.

 

The note matured on November 30, 2019 and was due on demand.

 

On August 31, 2020, the holder of the note exchanged this note for a new note (refer to the “Convertible promissory note, Keith Hayter, 10% interest, unsecured, matures August 31, 2022” section of this note for additional detail).

 

Promissory note issued to Keith Hayter, 10% and 8% interest, unsecured, matured April 13, 2020

 

On April 13, 2018, the Company received $85,000 pursuant to a promissory note issued to the President of the Company. The note issued was unsecured, due on April 13, 2019 and bore interest at a rate of 8% per annum. At December 31, 2018, the amount of $85,000 was owed. On April 13, 2019, the note was amended to a maturity date of April 13, 2020 and an interest rate of 10%. The Company accounted for the modification in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as a modification and no gain or loss was recognized.

 

The note matured on April 13, 2020 and was due on demand.

 

On August 31, 2020, the holder of the note exchanged this note for a new note (refer to the “Convertible promissory note, Keith Hayter, 10% interest, unsecured, matures August 31, 2022” section of this note for additional detail).

 

Promissory note issued to Keith Hayter, 8% interest, unsecured, matured October 1, 2019

 

On August 21, 2018, the Company received $80,000 pursuant to a promissory note issued to the President of the Company. The note issued was unsecured, was due on August 20, 2019 and bore interest at a rate of 8% per annum. On August 20, 2019, the note was amended to a maturity date of October 1, 2019 and an interest rate of 10%. The Company accounted for the modification in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as a modification and no gain or loss was recognized.

 

  

The note matured on October 1, 2019 and was due on demand.

 

On August 31, 2020, the holder of the note exchanged this note for a new note (refer to the “Convertible promissory note, Keith Hayter, 10% interest, unsecured, matures August 31, 2022” section of this note for additional detail).

 

Promissory note issued to Keith Hayter, 10% interest, unsecured, matures August 11, 2020

 

On August 12, 2019, the Company received $170,000 pursuant to a promissory note issued to the President of the Company. The note issued was unsecured, was due on August 11, 2020 and bore interest at a rate of 10% per annum.

 

On August 31, 2020, the holder of the note exchanged this note for a new note (refer to the “Convertible promissory note, Keith Hayter, 10% interest, unsecured, matures August 31, 2022” section of this note for additional detail).

 

Convertible promissory note, Keith Hayter, 10% interest, unsecured, matures August 31, 2022

 

On August 31, 2020, Keith Hayter exchanged four notes into a new convertible promissory note with a principal amount of $554,031. Interest accrues on the new note at 10% per annum. All principal and accrued but unpaid interest under the note is due on August 31, 2022. The note is convertible into shares of the Company’s common stock at 80% of the lowest trading price in the 5 trading days prior to the conversion date. The conversion price has a floor of $0.01 per share.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature was $362,000. The Company accounted for this assignment in accordance with ASC 470-50 “Modifications and Extinguishments.” As a result, the Company recorded a loss on settlement of debt of $362,000 to the consolidated statement of operations for the year ended December 31, 2020.

 

As of December 31, 2020, the Company owed $554,031 pursuant to this agreement.

 

On January 14, 2021, the Company entered into an agreement with the holder whereby the conversion price was updated to $0.06 per share, subject to adjustment based on the terms of the note (refer to Note 19, Subsequent Events, for additional detail).

 

Convertible promissory note, InterCloud Systems, Inc, 8% interest, unsecured, matured April 27, 2018

 

On April 27, 2017, the Company issued a convertible promissory note in the aggregate principal amount of $2,000,000. The interest on the outstanding principal due under the unsecured note accrued at a rate of 8% per annum. All principal and accrued interest under the unsecured note was due one year following the issue date of the unsecured note and was convertible into shares of common stock at a conversion price equal to 75% of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion.

 

The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $1,174,000 resulted in a discount to the note payable of $943,299. On December 15, 2017, February 14, 2018, February 21, 2018, June 7, 2018, January 24, 2019, and March 15, 2019 the holder of the convertible promissory note entered into agreement to sell and assign a total of $105,000, $105,000, $105,000, $39,375, $100,000 and $100,000 of the outstanding principal, respectively to a third party. The Company approved and was bound by the assignment and sale agreement. As a result of the assignment, the conversion price for the total of $354,375 of notes assigned was equal to the lesser 70% of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion and $2,400.00. The Company accounted for this assignment in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the assignment as a debt extinguishment and adjusted the fair value of the derivative to its fair value on the assignment date.

 

 

On May 6, 2019, the remaining principal balance of $1,445,625 was converted into shares of the Company’s common stock through an automatic forced conversion.

 

Convertible promissory note, InterCloud Systems, Inc, 1% interest, unsecured, matures August 16, 2019

 

On February 16, 2018, the Company issued InterCloud a convertible note with a principal amount of $793,894 to settle a contingent liability of $793,894 owed to InterCloud as a result of the acquisition of AWS. The note was originally due on August 16, 2019 and bore interest at 1% per annum. The note was convertible into common shares of the Company at a conversion price equal to the 80% of the lowest volume-weighted average price during the 5 trading days immediately preceding the date of conversion.

 

The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging.” The initial fair value of the conversion feature of $348,000 resulted in a discount to the note payable of $348,000.

 

On August 16, 2019, the remaining principal balance of $793,894 was converted into shares of the Company’s common stock through an automatic forced conversion.

 

Convertible promissory note, InterCloud Systems, Inc, 6% interest, unsecured, matured March 27, 2019

 

On February 27, 2018, the Company issued a convertible promissory note in the aggregate principal amount of $2,000,000. The interest on the outstanding principal due under the ADEX note accrued at a rate of 6% per annum. All principal and accrued interest under the ADEX note was due one year following the issue date of the ADEX note and was convertible into shares of common stock at a conversion price equal to of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion, but in no event ever lower than $300 (the “Floor”), unless the note was in default, at which time the Floor would have terminated.

 

The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $2,455,000 resulted in a discount to the note payable of $639,000.

 

On September 26, 2018, the holder of the convertible promissory note entered into agreement to sell and assign a total of $75,000 of the outstanding principal to a third party. The Company approved and was bound by the assignment and sale agreement. As a result of the assignment, the assigned note bore interest at 5% and the conversion price for the $75,000 of notes assigned was equal to the lesser 75% of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion and $2,400.00. On December 3, 2018, the holder of the convertible promissory note entered into agreement to sell and assign a total of $50,000 of the outstanding principal to a third party. The Company accounted for the assignments in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the assignment as a debt extinguishment and adjusted the fair value of the derivative to its fair value on the assignment date.

 

During the year ended December 31, 2019, the Company repaid $55,124 of principal outstanding.

 

During the year ended December 31, 2019, the principal amount was reduced by $295,000 as a result of a working capital adjustment.

 

On May 6, 2019, the remaining principal balance of $1,452,299 was converted into shares of the Company’s common stock through an automatic forced conversion.

 

Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand

 

In connection with the acquisition of ADEX from InterCloud, $500,000 of the purchase price was retained by the Company to satisfy any outstanding liabilities of ADEX incurred prior to the closing date.

 

During the year ended December 31, 2019, the Company repaid $57,600 of this amount.

 

As of December 31, 2020, principal of $217,400 remains outstanding.

 

Loan with WaveTech GmbH., 8% interest

 

On July 15, 2019, the Company entered into a share purchase agreement with WaveTech GmbH, a German corporation (refer to Note 15, Commitments and Contingencies, for additional detail). In connection with the share purchase agreement, the Company was to receive $3,000,000 in cash at or before consummation of the transactions described in the agreement. The Company received $1,325,895 which was placed into escrow to satisfy the amounts outstanding to WaveTech Global, Inc (refer to Note 7, Loans Payable, for additional detail). The Company received an additional $1,664,083 during July 2019 to satisfy the $3,000,000 of cash per the share purchase agreement. The remaining $10,022 was recorded as a foreign exchange loss in the consolidated statement of operations for the year ended December 31, 2019. The loan bore interest at a rate of 8% per annum.

 

On November 14, 2019, the Company acquired 60% of the outstanding shares of WaveTech GmbH (refer to Note 15, Commitments and Contingencies, for additional detail). As a result, the $1,325,895 in escrow was returned to the Company. As of December 31, 2019, principal of $3,000,000 was outstanding.

 

 

During the year ended December 31, 2020, in connection with amounts owed to the Company from WaveTech GmbH, the loan with WaveTech GmbH was being netted against amounts due from WaveTech GmbH (refer to Note 3, Disposals of Subsidiaries, for additional detail).

 

7.	Loans Payable

 

As of December 31, 2020 and 2019, the Company had outstanding the following loans payable:

 

		December 31,				December 31,
		2020				2019
Promissory note issued to J. Thacker, non-interest bearing, unsecured and due on demand		$	41,361			$	41,361
Promissory note issued to S. Kahn, non-interest bearing, unsecured and due on demand			7,760				7,760
Promissory note issued to 0738856 BC ltd non-interest bearing, unsecured and due on demand			2,636				2,636
Promissory note issued to 0738856 BC Ltd, non-interest bearing, unsecured and due on demand			15,000				15,000
Promissory note issued to Bluekey Energy, non-interest bearing, unsecured and due on demand			7,500				7,500
Subscription amount due to T. Warkentin non-interest bearing, unsecured and due on demand			50,000				50,000
Promissory note issued to Old Main Capital LLC, 10% interest, unsecured and due on demand			12,000				12,000
Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand*			217,400				217,400
Future receivables financing agreement with Pawn Funding, non-interest bearing, matures April 16, 2021, net of debt discount of $1,072 and $31,365			18,334				94,928
Future receivables financing agreement with Cedar Advance Funding, non-interest bearing, matures April 27, 2021, net of debt discount of $37,807			160,390				-
CARES Act Loans			2,920,125				-
Future receivables financing agreement with RDM Capital Funding, non-interest bearing, matures July 24, 2020, net of debt discount of $79,087			-				237,319
Loan with Heritage Bank of Commerce, interest rate of prime plus 2%, secured by all assets of the Company, matures October 20, 2020, net of debt discount of $149,180			-				2,973,458
Future receivables financing agreement with C6 Capital, non-interest bearing, matures April 15, 2020, net of debt discount of $20,272			-				136,424
Total		$	3,452,506			$	3,795,786
Less: Long-term portion of loans payable			(2,920,125	)			-
Loans payable, current portion, net of debt discount		$	532,381			$	3,795,786

 

*

During May 2019, as a result of shares of common stock issued to InterCloud as a result of conversions of convertible debentures, the Company determined that InterCloud was a related party. As of December 31, 2020, due to additional shares issued by the Company, the Company determined that InterCloud was no longer a related party. The effective date of the reclassification was January 1, 2019.

 

Promissory note issued to J. Thacker, non-interest bearing, unsecured and due on demand

 

The Company owed $41,361 ($53,300 Canadian dollars) to a non-related party as of December 31, 2020 and 2019. This promissory note is non-interest bearing, unsecured, and due on demand.

 

Promissory note issued to S. Kahn, non-interest bearing, unsecured and due on demand

 

The Company owed $7,760 ($10,000 Canadian dollars) to a non-related party as of December 31, 2020 and 2019. This promissory note is non-interest bearing, unsecured, and due on demand.

 

Promissory note issued to 0738856 BC ltd non-interest bearing, unsecured and due on demand

 

The Company owed $2,636 ($3,400 Canadian dollars) to a non-related party as of December 31, 2020 and 2019. This promissory note is non-interest bearing, unsecured, and due on demand.

 

Promissory note issued to 0738856 BC Ltd, non-interest bearing, unsecured and due on demand

 

The Company owed $15,000 to a non-related party as of December 31, 2020 and 2019. This promissory note is non-interest bearing, unsecured, and due on demand.

 

Promissory note issued to Bluekey Energy, non-interest bearing, unsecured and due on demand

 

The Company owed $7,500 to a non-related party as of December 31, 2020 and 2019. This promissory note is non-interest bearing, unsecured, and due on demand.

 

 

Subscription amount due to T. Warkentin non-interest bearing, unsecured and due on demand

 

In March 2012, the Company received $50,000 for the subscription of 167 shares of the Company’s common stock. During the year ended May 31, 2013, the Company and the subscriber agreed that the shares would not be issued and that the subscription would be returned. The subscription has been reclassified as a non-interest bearing demand loan until the funds are refunded to the subscriber. The Company owed $50,000 as of December 31, 2020 and 2019.

 

Promissory note issued to Old Main Capital LLC, 10% interest, unsecured and due on demand

 

On April 12, 2017, received $12,000 pursuant to a promissory note. The note issued is unsecured, due on demand and bears interest at a rate of 10% per annum. The Company owed $12,000 as of December 31, 2020 and 2019.

 

Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand

 

In connection with the acquisition of ADEX from InterCloud, $500,000 of the purchase price was retained by the Company to satisfy any outstanding liabilities of ADEX incurred prior to the closing date.

 

During the year ended December 31, 2019, the Company repaid $57,600 of this amount.

 

As of December 31, 2020, principal of $217,400 remains outstanding.

 

Loan with Heritage Bank of Commerce, interest rate of prime plus 2%, secured by all assets of the Company, matures October 20, 2020

 

On October 10, 2018, the Company’s wholly-owned subsidiary, ADEX (the “Borrower”), entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Heritage Bank of Commerce (the “Lender”). Under the Loan and Security Agreement, the Borrower may borrow an aggregate outstanding amount not to exceed the lesser of up to (i) $5,000,000 or (ii) the Borrowing Base (as defined in the Loan and Security Agreement) through one or more advances through October 10, 2020 (the “Maturity Date”), subject to the Lender’s satisfactory annual review of the Borrower which is currently ongoing. On the Maturity Date, all advances must be repaid. The Lender may, in its sole discretion and upon the Borrower’s request, make advances to the Borrower after the Maturity Date subject to the terms and conditions under the Loan and Security Agreement. Part of the proceeds of the initial credit extension of the Loan and Security Agreement were used to pay off borrowings owed to Prestige Capital Corporation described in Note 8, Convertible Debentures.

 

Interest is payable under the Loan and Security Agreement at a per annum rate equal to the Prime Rate (as defined in the Loan and Security Agreement) plus 2%. The Borrower’s obligations under the Loan and Security Agreement are secured by all assets of the Company. In addition, the Company issued a warrant (the “Warrant”) to the Lender to purchase an amount of shares of the Company’s common stock equal to $150,000 divided by the Warrant Price (as defined in the Warrant) at a price per share equal to 125% of the prior day’s closing price.

  

The Loan and Security Agreement provides that upon the occurrence of an event of default, among other things, all outstanding amounts under the Loan and Security Agreement or any portion thereof becomes immediately due and payable. Events of default under the Loan and Security Agreement include, among other items, the Borrower’s failure to comply with certain affirmative and negative covenants relating to the Company, its securities and its financial condition.

 

In connection with the financing, on October 10, 2018, the Company also issued a warrant to purchase 380 shares of the Company’s common stock at $375.00 per share for three years. The fair value of the warrants of $87,410 and $190,000 of debt issuance costs resulted in a discount to the note payable of $277,410. At December 31, 2018, the Company owed $3,483,015 pursuant to this agreement and will record accretion equal to the debt discount of $257,194 over the remaining term of the note.

 

During the year ended December 31, 2019, the Company received an aggregate of $26,772,037 and repaid an aggregate of $27,132,642, for a net repaid amount of $360,605. At December 31, 2019, the Company owed $3,122,638 pursuant to this agreement and was to record accretion equal to the debt discount of $149,180 over the remaining term of the note.

 

During the year ended December 31, 2020, the Company received an aggregate of $6,167,328 and repaid an aggregate of $3,142,796.

 

On February 11, 2020, pursuant to an assignment and consent agreement, Heritage sold, transferred and assigned to Bay View Funding all of Heritage’s right, title, and interest in the loan and security agreement (refer to Note 9, Factor Financing, for additional detail). As a result of the assignment, the Company recorded a loss on settlement of debt of $149,180 related to the remaining accretion of debt discount in the consolidated statement of operations for the year ended December 31, 2020.

 

 

Loan with Libertas Funding LLC

 

On January 4, 2019, the Company, together with its subsidiaries, (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Libertas Funding LLC, a Connecticut limited liability company (“Libertas”). Under the Financing Agreement, the Financing Parties sold to Libertas future receivables in an aggregate amount equal to $1,460,000 for a purchase price of $1,000,000.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Libertas $31,602 each week based upon an anticipated 20% of its future receivables until such time as $1,460,000 had been paid, a period Libertas and the Financing Parties estimated to be approximately eleven months. In the event that the Financing Agreement was paid off earlier than eleven months, there was to be a discount to the sum owed. The Financing Agreement also contained customary affirmative and negative covenants, representations and warranties, and default and termination provisions. The Company used the proceeds of the Financing Agreement for the acquisition of TNS.

 

On February 1, 2019, the Company fully repaid the Financing Agreement. As a result, the amount owed at December 31, 2019 was $0.

 

Loan with WaveTech Global, Inc., matured April 28, 2019

 

On February 4, 2019, the Company entered into a share purchase agreement with WaveTech Global. This agreement included a promissory note in the principal amount of $1,325,895, which matured on April 28, 2019. On July 9, 2019, the share purchase agreement was terminated. As a result, the Company placed the amount due to WaveTech Global into escrow using cash received from the WaveTech GmbH share purchase agreement (refer to Note 15, Commitments and Contingencies for additional detail). In connection with the WaveTech GmbH transaction dated November 14, 2019, the escrow amount was returned to the Company.

 

Loan with C6 Capital

 

On August 16, 2019, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with C6 Capital. Under the Financing Agreement, the Financing Parties sold to C6 Capital future receivables in an aggregate amount equal to $337,500 for a purchase price of $250,000. The Company received cash of $242,500 and recorded a debt discount of $95,000.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay C6 Capital $10,045 each week based upon an anticipated 20% of its future receivables until such time as $337,500 had been paid, a period C6 Capital and the Financing Parties estimated to be approximately eight months. In the event that the Financing Agreement was paid off earlier than eight months, there was to be a discount to the sum owed. The Financing Agreement also contained customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

 

During the year ended December 31, 2019, the Company paid $180,804 of the original balance under the agreement. During the year ended December 31, 2020, the Company paid $156,696 of the original balance under the agreement. As a result, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $1,490 to the consolidated statement of operations for the year ended December 31, 2020.

 

Loan with Pawn Funding

 

On December 10, 2019, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Pawn Funding. Under the Financing Agreement, the Financing Parties sold to Pawn Funding future receivables in an aggregate amount equal to $135,000 for a purchase price of $100,000. The Company received cash of $97,000 and recorded a debt discount of $38,000.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Pawn Funding $4,219 each week based upon an anticipated 15% of its future receivables until such time as $135,000 has been paid, a period Pawn Funding and the Financing Parties estimate to be approximately eight months. In the event that the Financing Agreement is paid off earlier than eight months, there is to be a discount to the sum owed. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

 

 

On April 10, 2020, the weekly payment amount was reduced from $4,219 to $1,266. The final payment is now estimated to be due on April 16, 2021.

 

On July 14, 2020, in connection with the reduction of the weekly payment amount, the Company issued to Pawn Funding a warrant to purchase up to 200,000 shares of the Company’s common stock at an exercise price of $0.18 per share. The warrant expires on July 1, 2021.

 

During the year ended December 31, 2019, the Company paid $8,437 of the original balance under the agreement. During the year ended December 31, 2020, the Company paid $107,156 of the original balance under the agreement.

 

At December 31, 2020, the Company owed $19,407 pursuant to this agreement and will record accretion equal to the debt discount of $1,072 over the remaining term of the note.

 

Loan with RDM Capital Funding

 

On December 10, 2019, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with RDM Capital Funding. Under the Financing Agreement, the Financing Parties sold to RDM Capital Funding future receivables in an aggregate amount equal to $337,500 for a purchase price of $250,000. The Company received cash of $242,500 and recorded a debt discount of $95,000.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay RDM Capital Funding $10,574 each week based upon an anticipated 3% of its future receivables until such time as $337,500 had been paid, a period RDM Capital Funding and the Financing Parties estimated to be approximately eight months. In the event that the Financing Agreement was paid off earlier than eight months, there was to be a discount to the sum owed. The Financing Agreement also contained customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

 

During the year ended December 31, 2019, the Company paid $21,094 of the original balance under the agreement.

 

During the year ended December 31, 2020, the Company repaid the balance in full. Total cash payments during this period were $253,754, with a discount of $62,652 due to the Company paying the note off in under eight months from issuance. As a result of these payments, the amount owed at December 31, 2020 was $0. The Company recorded a gain on settlement of debt of $34,503 to the consolidated statement of operations for the year ended December 31, 2020.

 

Loan with C6 Capital

 

On August 16, 2019, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with C6 Capital. Under the Financing Agreement, the Financing Parties sold to C6 Capital future receivables in an aggregate amount equal to $337,500 for a purchase price of $250,000. The Company received cash of $242,500 and recorded a debt discount of $95,000.

 

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay C6 Capital $10,045 each week based upon an anticipated 20% of its future receivables until such time as $337,500 had been paid, a period C6 Capital and the Financing Parties estimated to be approximately eight months. In the event that the Financing Agreement was paid off earlier than eight months, there was to be a discount to the sum owed. The Financing Agreement also contained customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

 

During the year ended December 31, 2019, the Company paid $180,804 of the original balance under the agreement. During the year ended December 31, 2020, the Company paid $156,696 of the original balance under the agreement. As a result, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $1,490 to the consolidated statement of operations for the year ended December 31, 2020.

 

Loan with Cedar Advance LLC

 

On September 29, 2020, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing Parties sold to Cedar Advance future receivables in an aggregate amount equal to $349,750 for a purchase price of $250,000. The Company received cash of $242,500 and recorded a debt discount of $107,250.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Cedar Advance $11,658 each week based upon an anticipated 25% of its future receivables until such time as $349,750 has been paid, a period Cedar Advance and the Financing Parties estimate to be approximately seven months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

 

During the year ended December 31, 2020, the Company paid $151,558 of the original balance under the agreement.

 

At December 31, 2020, the Company owed $198,192 pursuant to this agreement and will record accretion equal to the debt discount of $37,801 over the remaining term of the note.

 

During the period of January 1, 2021 through March 26, 2021, the Company repaid the outstanding principal of the note (refer to Note 19, Subsequent Events, for additional detail).

 

CARES Act Loans

 

On April 27, 2020 and October 14, 2020, the Company’s ADEX subsidiary received $2,692,125 and $150,000 respectively (the “PPP Funds”). On May 12, 2020, the Company’s AWS PR subsidiary received $78,000 in PPP Funds. ADEX entered into loan agreements with Heritage Bank of Commerce and AWS PR entered into a loan agreement with Banco Popular de Puerto Rico.

 

Additionally, on April 21, 2020 and May 14, 2020, the Company’s former AWS and TNS subsidiaries received $682,400 and $108,658, respectively, in PPP Funds. AWS entered into a loan agreement with Iberia Bank and TNS entered into a loan agreement with TCF National Bank. In connection with the sales of these subsidiaries discussed in Note 3, Disposals of Subsidiaries, these CARES Act Loans were assumed by the purchasers.

 

These loan agreements were pursuant to the CARES Act. The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act is eligible to be forgiven provided that (a) the Company uses the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. The amount of loan forgiveness will be reduced if, among other reasons, the Company does not maintain staffing or payroll levels. Principal and interest payments on any unforgiven portion of the PPP Funds (the “PPP Loan”) will be deferred for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan.

 

As of December 31, 2020, the aggregate balance of these loans is $2,920,125 and is included in loans payable on the consolidated balance sheets.

 

As of the date of this report, ADEX and AWS PR have applied to have their CARES Act Loans forgiven and are awaiting a decision from the SBA.

 

 

8.	Convertible Debentures

 

As of December 31, 2020 and 2019, the Company had outstanding the following convertible debentures:

 

		December 31,				December 31,
		2020				2019
Convertible promissory note, Barn 11, 18% interest, unsecured, matured June 1, 2019		$	594,362			$	594,362
Convertible promissory note, SCS, LLC, 24% interest, unsecured, matured March 30, 2020, due on demand, net of debt discount of $0 and $13,005			51,788				38,025
Convertible promissory note, GS Capital Partners, LLC, 8% interest, secured. matures October 24 2020, net of debt discount of $0 and $23,986			54,500				99,014
Convertible promissory note, Crown Bridge Partners, LLC, 10% interest, unsecured, matured November 21, 2020, net of debt discount of $0 and $58,648			39,328				16,352
Convertible promissory note, Efrat Investments LLC, 10% interest, secured, matures October 5, 2021, net of debt discount of $132,000			-				-
Convertible promissory note, SCS, LLC, 12% interest, secured, matures December 30, 2021			257,442				-
Convertible promissory note, SCS, LLC, 10% interest, secured, matures December 31, 2021, net of debt discount of $169,957			5,043				-
Convertible promissory note, Dominion Capital, 12% interest, unsecured, matures October 17, 2020, net of debt discount of $0 and 105,752			-				1,461,265
Convertible promissory note, Michael Roeske, 24% interest, unsecured, due on demand, net of debt discount of $0 and $3,512			-				112,488
Convertible promissory note, Joel Raven, 24% interest, unsecured, due on demand, net of debt discount of $0 and $8,658			-				355,342
Convertible promissory note, GS Capital Partners, LLC, 8% interest, secured. matures August 2, 2020, net of debt discount of $24,819			-				98,181
Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures September 17, 2020, net of debt discount of $113,674			-				34,326
Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures January 22, 2021, net of debt discount of $53,051			-				15,449
Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures February 26, 2021, net of debt discount of $45,125			-				12,875
Total			1,002,463				2,837,679
Less: Long-term portion of convertible debentures, net of debt discount			-				(28,324	)
Convertible debentures, current portion, net of debt discount		$	1,002,463			$	2,809,355

 

The Company’s convertible debentures have an effective interest rate range of 12.8% to 129.9%.

 

Convertible promissory note, Barn 11, 6% interest, unsecured, matured June 1, 2019

 

On February 21, 2018, the Company issued a convertible note with a principal amount of $500,000 and a warrant with a term of three years to purchase up to 417 shares of common stock of the Company at an exercise price of $480.00 per share to Barn 11. The exercise price of the warrant was to reduce to 85% of the closing price of the Company’s common stock if the closing price of the Company’s common stock was less than $480.00 on July 31, 2018. The note was due on January 15, 2019, and in February 2019, the maturity date was extended to June 1, 2019, and bears interest at 6% per annum. The note is convertible into common shares of the Company at a conversion price equal to the lower of 80% of the lowest volume-weighted average price during the 5 trading days immediately preceding the date of conversion and $300.00 (the “Floor”), unless the note is in default, at which time the Floor terminates.

 

 

The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $571,079 and the warrant of $158,772 resulted in a discount to the note payable of $500,000 and an initial derivative expense of $229,851.

    

On June 1, 2019, the Company was in default on the note. As a result of the default, a 15% premium was added to the balance owed, including all accrued interest. Subsequent to the default, the new principal balance of the note was $619,362, with interest accruing at 18% per annum. Additionally, $466,000 was added to the derivative liability balance in connection with the default.

 

During the year ended December 31, 2019, the Company paid $25,000 of principal. The Company owed $594,362 as of December 31, 2020.

 

On January 27, 2021, Barn 11 assigned the note to Cobra Equities SPV, LLC (refer to Note 19, Subsequent Events, for additional detail).

  

Convertible promissory note, Dominion Capital, 12% interest, unsecured, matures October 17, 2020

 

On April 17, 2019, Dominion Capital exchanged two notes into a new note (the “Exchange Note”) with a principal amount of $1,571,134. Interest accrues on the new note at 12% per annum. All principal and accrued interest under the Exchange Note is due on October 17, 2020 and is convertible into shares of the Company’s common stock. The conversion price in effect on the date such conversion is effected shall be equal to (i) initially, $30.00 or (ii) on or after the date of the closing of the next public or private offering of equity or equity-linked securities of the Company in which the Company receives gross proceeds in an amount greater than $100,000, one hundred and five percent (105%) of the price of the common stock issuable in the offering. While during the first six months that the Exchange Note is outstanding, only interest payments are due to the holder, beginning in October 2019, and on each monthly anniversary thereafter until maturity, amortization payments are due for principal and interest due under the Exchange Note. The Exchange Note includes customary events of default, including non-payment of the principal or accrued interest due on the Exchange Note. Upon an event of default, all obligations under the Exchange Note will become immediately due and payable. The Holder was granted a right to participate in future financing transactions of the Company while the Exchange Note remains outstanding.

 

As a result of the beneficial conversion feature associated with the Dominion notes, $314,228 was added to additional paid-in capital during the year ended December 31, 2019. In connection with the exchange, the Company recorded a loss on settlement of debt of $904,469 on the consolidated statement of operations for the year ended December 31, 2019.

 

The Company was to begin making principal payments in equal installments beginning on October 1, 2019. On October 22, 2019, the Company reached an agreement with Dominion Capital to postpone the principal payments. In exchange for the extension, the Company will pay to Dominion Capital an extension fee equal to 14% of the postponed payments. As a result of this agreement, the Company added $47,731 of principal to the note during the year ended December 31, 2019 and $108,146 of principal to the note during the year ended December 31, 2020. These amounts are included in default and debt extension fees in the consolidated statement of operations for the years ended December 31, 2020 and 2019.

 

 

On April 2, 2020 the Company paid a $20,000 modification fee in order to avoid an event of default under the note and receive payment forbearance for a period of 30 days.

 

On September 30, 2020, in connection with the stock purchase agreement described in Note 3, Disposals of Subsidiaries, the Company entered into an amendment with Dominion and WaveTech Group, Inc. The parties agreed that as of the date of the amendment the outstanding principal and accrued interest was $1,141,769. The Company and WaveTech Group Inc. each agreed that the final payment of $1,141,769 due on October 1, 2020 be amended so that the Company and WaveTech Group Inc. be required to make payments of $570,885 on or before each of October 1, 2020 and November 1, 2020. As a result of this amendment, the amount owed by the Company to Dominion was reduced by the $570,885 of payments that WaveTech Group Inc. is responsible for. On September 30, 2020, the Company made the first payment of $285,442 under the terms of the amendment. On October 30, 2020, Dominion agreed to accept a payment of $35,000 from the Company and postpone the final payment until December 1, 2020.

 

During the year ended December 31, 2019 the Company paid $51,848 of principal. During the year ended December 31, 2020 the Company paid $853,537 of principal.

 

On December 1, 2020, the holder of the note assigned the full outstanding amount to a third party, SCS, LLC (refer to the “Convertible promissory note, SCS, LLC, 12% interest, secured, matures December 30, 2021” section of this note for further detail).

 

In connection with the assignment, the Company recorded a loss on settlement of debt of $399,306 to the consolidated statement of operations for the year ended December 31, 2020.

 

Convertible promissory note issued in connection with the acquisition of TNS, Inc.

 

On January 4, 2019, as part of the TNS acquisition, the Company issued to InterCloud a convertible promissory note in the aggregate principal amount of $620,000 (the “Note”). The interest on the outstanding principal due under the Note accrued at a rate of 6% per annum. All principal and accrued interest under the Note was due January 30, 2020, and was convertible, at any time at InterCloud’s election, into shares of common stock of the Company at a conversion price equal to the greater of 75% of the lowest volume-weighted average price during the 10 trading days immediately preceding the date of conversion and $30.00.

 

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $189,000 resulted in a discount to the note payable of $144,000.

 

On January 28, 2019, the holder of the convertible promissory note entered into agreement to sell and assign a total of $620,000 of the $620,000 outstanding principal to two third parties, with $186,000 and $434,000 of principal assigned to each party (refer to the “Convertible promissory note, Michael Roeske, 6% interest, unsecured, matures, January 30, 2020” and “Convertible promissory note, Joel Raven, 6% interest, unsecured, matures January 30, 2020” sections of this note for further detail). The Company approved and is bound by the assignment and sale agreement.

 

Convertible promissory note, Michael Roeske, 6% interest, unsecured, matures December 31, 2020

 

On January 28, 2019, InterCloud assigned $186,000 of the note issued in connection with the acquisition of TNS to Michael Roeske. The note accrues interest at a rate of 6% per annum and had a maturity date of January 30, 2020.

 

During the year ended December 31, 2019, Mr. Roeske converted $70,000 of principal of the note into shares of the Company’s common stock.

  

 

On February 14, 2020, the Company and Mr. Roeske entered into an amendment which revised the maturity date to December 31, 2020. Additional, per the amendment, as cash deposits were received by TNS in the ordinary course of business, a portion of such cash deposits could have been directed to Mr. Roeske. These payments would reduce the outstanding obligations of the Company to Mr. Roeske.

 

During the year ended December 31, 2020, the Company remitted $37,200 to Mr. Roeske in accordance with the amendment.

 

On September 8, 2020, Mr. Roeske returned the shares issued in 2019. These shares were then canceled and $70,000 was added back to the outstanding principal of the note. The Company recorded a loss on return of common stock of $69,820 to the consolidated statement of operations for the year ended December 31, 2020.

 

On September 30, 2020, the Company entered into a stock purchase agreement (refer to Note 3, Disposals of Subsidiaries, for further detail). The outstanding balance of $148,800 was assigned to the purchaser.

 

Convertible promissory note, Joel Raven, 6% interest, unsecured, matures December 31, 2020

 

On January 28, 2019, InterCloud assigned $434,000 of the note issued in connection with the acquisition of TNS to Joel Raven. The note accrued interest at a rate of 6% per annum and had a maturity date of January 30, 2020.

 

During the year ended December 31, 2019, Mr. Raven converted $70,000 of principal of the note into shares of the Company’s common stock.

  

On February 14, 2020, the Company and Mr. Raven entered into an amendment which revised the maturity date to December 31, 2020. Additional, per the amendment, as cash deposits were received by TNS in the ordinary course of business, a portion of such cash deposits could have been directed to Mr. Raven. These payments would reduce the outstanding obligations of the Company to Mr. Raven.

 

During the year ended December 31, 2020, the Company remitted $86,800 to Mr. Raven in accordance with the amendment.

 

On September 8, 2020, Mr. Raven returned the shares issued in 2019. These shares were then canceled and $70,000 was added back to the outstanding principal of the note. The Company recorded a loss on return of common stock of $69,821 to the consolidated statement of operations for the year ended December 31, 2020.

 

On September 30, 2020, the Company entered into a stock purchase agreement (refer to Note 3, Disposals of Subsidiaries, for further detail). The outstanding balance of $347,200 was assigned to the purchaser.

 

Convertible promissory note, GS Capital Partners, LLC, 8% interest, secured, matures August 2, 2020

 

On August 2, 2019, the Company entered into and closed on a Securities Purchase Agreement with GS Capital Partners, LLC, pursuant to which the Company issued to GS Capital Partners, LLC a senior secured convertible promissory note in the aggregate principal amount of $123,000 for an aggregate purchase price of $112,000.

 

The interest on the outstanding principal due under the secured note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the secured note was originally due on August 2, 2020. The secured note was convertible into shares of the Company’s common stock at 71% of the average of the three lowest VWAPs in the 12 trading days prior to and including the conversion date. The conversion price had a floor of $3.00 per share that was removed as a result of the Company’s common stock closing below $3.90 per share.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $28,000 resulted in an additional discount to the note payable of $28,000, for a total debt discount of $39,000.

 

 

On July 28, 2020, GS Capital Partners, LLC returned 226,800 shares of common stock related to prior conversions to the Company. These shares were then cancelled. As a result of these shares being returned, $75,096 of principal was added back to the note. Additionally, the maturity date of the note was extended.

 

During the year ended December 31, 2020, the holder of the note converted $123,000 of principal and $13,429 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $948,292 to the consolidated statement of operations for the year ended December 31, 2020.

 

Convertible promissory note, GS Capital Partners, LLC, 8% interest, unsecured, matures October 24, 2020

 

On October 24, 2019, the Company entered into and closed on a Securities Purchase Agreement with GS Capital Partners, LLC, pursuant to which the Company issued to GS Capital Partners, LLC a convertible promissory note in the aggregate principal amount of $123,000 for an aggregate purchase price of $112,000.

 

The interest on the outstanding principal due under the note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the note was due on October 24, 2020. The note was convertible into shares of the Company’s common stock at 71% of the average of the three lowest VWAPs in the 12 trading days prior to and including the conversion date. The conversion price had a floor of $3.00 per share that was removed as a result of the Company’s common stock closing below $3.90 per share.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $20,000 resulted in an additional discount to the note payable of $20,000, for a total debt discount of $31,000.

 

During the year ended December 31, 2020, the holder of the note converted $68,500 of principal and $6,148 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the Company recorded a loss on settlement of debt of $82,185 to the consolidated statement of operations for the year ended December 31, 2020.

  

At December 31, 2020, the Company owed $54,500 pursuant to this agreement.

 

In the period of January 1, 2021 through March 26, 2021, the holder of the note converted the remaining principal amount into shares of the Company’s common stock (refer to Note 19, Subsequent Events, for additional detail).

 

Convertible promissory note, SCS, LLC, 8% interest, unsecured, matured March 30, 2020

 

On September 1, 2019, the Company entered into and closed on a Securities Purchase Agreement with SCS, LLC, pursuant to which the Company issued to SCS, LLC an unsecured convertible promissory note in the aggregate principal amount of $51,030 in exchange for rent.

 

The interest on the outstanding principal due under the unsecured note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the secured note was originally due on March 30, 2020. The secured note was convertible into shares of the Company’s common stock at 75% of the lowest average VWAP in the 15 trading days prior to the conversion date.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $29,000 resulted in a discount to the note payable of $29,000.

 

The note matured on March 30, 2020 and was in default. As a result of the default, the note balance was increased by 25% of outstanding principal, resulting in additional principal of $12,758. The interest also increased from 8% per annum to 24% per annum.

 

During the year ended December 31, 2020, the holder of the note converted $12,000 of principal and $720 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the Company recorded a loss on settlement of debt of $7,013 to the consolidated statement of operations for the year ended December 31, 2020.

 

At December 31, 2020, the Company owed $51,788 pursuant to this agreement.

 

In the period of January 1, 2021 through March 26, 2021, the holder of the note converted the remaining principal amount into shares of the Company’s common stock (refer to Note 19, Subsequent Events, for additional detail). In connection with the conversions, the holder of the note forgave the $12,758 of principal that had been added to the note after the default.

 

 

Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures September 17, 2020

 

On September 17, 2019, the Company entered into and closed on a Securities Purchase Agreement with Power Up Lending Group LTD. (“Power Up Lending”), pursuant to which the Company issued to Power Up Lending a convertible promissory note in the aggregate principal amount of $148,000 for an aggregate purchase price of $135,000. The Company received the cash on October 1, 2019.

 

The interest on the outstanding principal due under the note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the note was originally due on September 17, 2020. The note was convertible into shares of the Company’s common stock at 70% of the average of the three lowest VWAPs in the 15 trading days prior to and including the conversion date.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $159,000 resulted in an additional discount to the note payable of $135,000, for a total debt discount of $148,000. The remaining $24,000 of the initial fair value of the conversion feature was recorded as initial derivative expense on the consolidated statement of operations for the year ended December 31, 2019.

 

During the year ended December 31, 2020, the holder of the note converted $148,000 of principal and $5,520 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $262,732 to the consolidated statement of operations for the year ended December 31, 2020.

 

Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures January 22, 2021

 

On October 22, 2019, the Company entered into and closed on a Securities Purchase Agreement with Power Up Lending Group LTD. (“Power Up Lending”), pursuant to which the Company issued to Power Up Lending a convertible promissory note in the aggregate principal amount of $68,500 for an aggregate purchase price of $60,000.

 

The interest on the outstanding principal due under the note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the note was originally due on January 22, 2021. The note was convertible into shares of the Company’s common stock at 70% of the average of the three lowest VWAPs in the 15 trading days prior to and including the conversion date.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $56,000 resulted in an additional discount to the note payable of $56,000, for a total debt discount of $64,500.

 

During the year ended December 31, 2020, the holder of the note converted $68,500 of principal and $2,540 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $42,342 to the consolidated statement of operations for the year ended December 31, 2020.

 

Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures February 26, 2021

 

On November 27, 2019, the Company entered into and closed on a Securities Purchase Agreement with Power Up Lending Group LTD. (“Power Up Lending”), pursuant to which the Company issued to Power Up Lending a convertible promissory note in the aggregate principal amount of $58,000 for an aggregate purchase price of $50,000.

  

The interest on the outstanding principal due under the note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the note was due on February 26, 2021. The note was convertible into shares of the Company’s common stock at 70% of the average of the three lowest VWAPs in the 15 trading days prior to and including the conversion date.

 

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $43,000 resulted in an additional discount to the note payable of $43,000, for a total debt discount of $51,000.

  

During the year ended December 31, 2020, the holder of the note converted $58,000 of principal and $3,656 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $69,438 to the consolidated statement of operations for the year ended December 31, 2020.

 

Convertible promissory note, Crown Bridge Partners, LLC, 10% interest, unsecured, matured November 21, 2020

 

On November 12, 2019, the Company entered into and closed on a Securities Purchase Agreement with Crown Bridge Partners, LLC, pursuant to which the Company issued to Crown Bridge Partners, LLC a convertible promissory note in the aggregate principal amount of $225,000 for an aggregate purchase price of $202,500. The Company received the first tranche of $75,000 on November 21, 2019 for an aggregate purchase price of $65,500. The Company also issued a warrant equal to the face amount of the note with a term of three years to purchase 2,500 shares of common stock at an exercise price of $30.00 per share.

 

The interest on the outstanding principal due under the first tranche of the note accrues at a rate of 10% per annum. All principal and accrued but unpaid interest under the first tranche of the note is due on November 21, 2020. The first tranche of the note is convertible into shares of the Company’s common stock at 60% of the average of the three lowest VWAPs in the 20 trading days prior to and including the conversion date.

 

The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion option feature of $138,000 and warrant feature of $20,138 resulted in an additional discount to the note payable of $65,500, for a total debt discount of $75,000. The remaining $92,638 of the initial fair value of the conversion feature was recorded as initial derivative expense on the consolidated statement of operations for the year ended December 31, 2019.

 

The first tranche of the note matured on November 21, 2020. The holder of the note accepted guaranteed interest of 15% in lieu of a default.

 

During the year ended December 31, 2020, the holder of the note converted $35,672 of principal and $6,000 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the Company recorded a loss on settlement of debt of $101,629 to the consolidated statement of operations for the year ended December 31, 2020.

 

At December 31, 2020, the Company owed $39,328 pursuant to the first tranche of this agreement.

 

On January 29, 2021, the Company repaid the outstanding principal and accrued interest related to the first tranche of the note (refer to Note 19, Subsequent Events, for additional detail).

 

Convertible promissory note, Efrat Investments LLC, 10% interest, secured, matures October 5, 2021

 

On September 14, 2020 the Company issued to Efrat Investments LLC a secured convertible promissory note in the aggregate principal amount of $165,000 for an aggregate purchase price of $146,000. The Company received the funds on October 5, 2020. The Company also issued a warrant equal to the face amount of the note with a term of two years to purchase 1,650,000 shares of common stock at an exercise price of $0.10 per share.

 

 

The interest on the outstanding principal due under the note accrues at a rate of 10% per annum. All principal and accrued but unpaid interest under the note is due on October 5, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.05 per share.

 

The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion option feature of $325,000 and warrant feature of $81,923 resulted in an additional discount to the note payable of $146,000, for a total debt discount of $165,000. The remaining $260,923 of the initial fair value of the conversion feature and warrant were recorded as initial derivative expense on the consolidated statement of operations for the year ended December 31, 2020.

 

The terms of the note dictated that principal payments of $16,500 be made monthly on the 1^st of the month beginning on November 1, 2020. During the year ended December 31, 2020 the Company paid $33,000 of principal.

 

At December 31, 2020, the Company owed $132,000 pursuant to this agreement and will record accretion equal to the debt discount of $132,000 over the remaining term of the note.

 

Subsequent to December 31, 2020, in lieu of the $16,500 monthly payments, the holder began converting principal of the note into shares of the Company’s common stock (refer to Note 19, Subsequent Events, for additional detail).

 

Convertible promissory note, SCS, LLC, 12% interest, secured, matures December 30, 2021

 

On December 1, 2020, Dominion Capital LLC assigned the note described in the “Convertible promissory note, Dominion Capital, 12% interest, unsecured, matures October 17, 2020” section of this note to SCS, LLC. The Company issued to SCS, LLC a new secured convertible promissory note in the principal amount of $257,442.

 

The interest on the outstanding principal due under the note accrues at a rate of 12% per annum. All principal and accrued but unpaid interest under the note is due on December 30, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.0275 per share. On or after the date of the closing of a subsequent offering, the fixed conversion price shall be 105% of the price of the common stock issued in the subsequent offering.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature was $425,300. This amount was included in the loss on settlement of debt recorded as a result of the assignment.

  

At December 31, 2020, the Company owed $257,442 pursuant to this agreement.

 

Convertible promissory note, SCS, LLC, 10% interest, secured, matures December 31, 2021

 

On December 29, 2020, the Company issued to SCS, LLC a secured convertible promissory note in the principal amount of $175,000 for a purchase price of $150,000, resulting in an original issue discount of $25,000.

 

The interest on the outstanding principal due under the note accrues at a rate of 10% per annum. All principal and accrued but unpaid interest under the note is due on December 31, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.04 per share.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $465,000 resulted in an additional discount to the note payable of $150,000, for a total debt discount of $175,000. Additionally, the Company recorded an initial derivative expense of $315,000 to the consolidated statement of operations for the year ended December 31, 2020. 

  

At December 31, 2020, the Company owed $175,000 pursuant to this agreement and will record accretion equal to the debt discount of $169,957 over the remaining term of the note.

 

 

Convertible promissory note, CCAG Investments, LLC, 20% interest, secured, matures June 30, 2020

 

On February 7, 2020, the Company entered into and closed on a Securities Purchase Agreement with CCAG Investments, LLC, pursuant to which the Company issued to CCAG Investments, LLC a secured convertible redeemable note in the aggregate principal amount of $175,000 for an aggregate purchase price of $157,500, resulting in an original issue discount of $17,500. The Company also issued a warrant equal to 50% of the face amount of the note with a term of three years to purchase 9,723 shares of common stock at an initial exercise price of $9.00 per share.

 

The interest on the outstanding principal due under the note accrued at a rate of 20% per annum. All principal and accrued but unpaid under the secured note was originally due on June 30, 2020. The note was convertible into shares of the Company’s common stock at 70% of the average of the three lowest VWAPs in the 12 trading days prior to and including the conversion date.

 

In connection with the issuance of the note, the Company also issued to CCAG Investments, LLC 9,755 shares of common stock (refer to Note 11, Common Stock, for additional detail).

 

The embedded conversion option and warrants issued qualified for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature and warrants issued was $42,000 and $64,000, resulting in an additional discount to the note payable of $106,000. The shares issued with the note were valued at $51,500, for a total debt discount of $175,000.

 

The Company had the option of repaying 120% of the principal balance if paid within 90 days of issuance, or 125% of the principal if paid greater than 90 days after issuance.

 

During the year ended December 31, 2020, the Company repaid 120% of the principal balance. The total payment was $218,534, which included accrued interest of $8,534. The Company recorded a loss on settlement of debt of $127,654 to the consolidated statement of operations for the year ended December 31, 2020.

 

Under the terms of the agreement, if the shares issued upon execution of the note are no longer worth $87,500 at the time of the shares becoming eligible for resale pursuant to Rule 144, the Company shall issue additional shares to the holder in an amount holding a market value to equal the difference between the value of these shares and $87,500. The 9,755 shares became eligible for resale pursuant to Rule 144 during August 2020 and the value was less than $87,500. As a result, the Company began issuing additional shares to the holder (refer to Note 11, Common Stock, for additional detail). During the year ended December 31, 2020, the Company issued an aggregate of 1,542,000 shares to the holder and recorded a loss on fair value of additional shares of $109,706 to the consolidated statement of operations for the year ended December 31, 2020.

 

Convertible promissory note, FJ Vulis and Associates, LLC, 20% interest, secured, matures June 30, 2020

 

On February 7, 2020, the Company entered into and closed on a Securities Purchase Agreement with FJ Vulis and Associates, LLC, pursuant to which the Company issued to FJ Vulis and Associates, LLC a secured convertible redeemable note in the aggregate principal amount of $175,000 for an aggregate purchase price of $157,500, resulting in an original issue discount of $17,500. The Company also issued a warrant equal to 50% of the face amount of the note with a term of three years to purchase 9,723 shares of common stock at an initial exercise price of $9.00 per share.

 

The interest on the outstanding principal due under the note accrued at a rate of 20% per annum. All principal and accrued but unpaid under the secured note was originally due on June 30, 2020. The note was convertible into shares of the Company’s common stock at 70% of the average of the three lowest VWAPs in the 12 trading days prior to and including the conversion date.

 

In connection with the issuance of the note, the Company also issued to FJ Vulis and Associates, LLC 9,755 shares of common stock (refer to Note 11, Common Stock, for additional detail).

 

 

The embedded conversion option and warrants issued qualified for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature and warrants issued was $42,000 and $64,000, resulting in an additional discount to the note payable of $106,000. The shares issued with the note were valued at $51,500, for a total debt discount of $175,000.

 

The Company had the option of repaying 120% of the principal balance if paid within 90 days of issuance, or 125% of the principal if paid greater than 90 days after issuance.

 

During the year ended December 31, 2020, the Company repaid 120% of the principal balance. The total payment was $218,247, which included accrued interest of $8,247. The Company recorded a loss on settlement of debt of $127,654 to the consolidated statement of operations for the year ended December 31, 2020.

 

Under the terms of the agreement, if the shares issued upon execution of the note are no longer worth $87,500 at the time of the shares becoming eligible for resale pursuant to Rule 144, the Company shall issue additional shares to the holder in an amount holding a market value to equal the difference between the value of these shares and $87,500. The 9,755 shares became eligible for resale pursuant to Rule 144 during August 2020 and the value was less than $87,500. As a result, the Company began issuing additional shares to the holder (refer to Note 11, Common Stock, for additional detail). During the year ended December 31, 2020, the Company issued an aggregate of 900,000 shares to the holder and recorded a loss on fair value of additional shares of $68,040 to the consolidated statement of operations for the year ended December 31, 2020.

 

On January 18, 2021, the Company issued an additional 642,000 shares to the holder (refer to Note 19, Subsequent Events, for additional detail).

 

9.	Factor Financing

 

On February 11, 2020, pursuant to an assignment and consent agreement, Bay View Funding purchased and received all of Heritage’s right, title, and interest in the loan and security agreement with the Company’s wholly-owned subsidiary, ADEX, discussed in Note 7, Loans Payable. In connection with the agreement, the Company received $3,024,532 from Bay View Funding. This money was used to pay off the amounts owed to Heritage at the time of the assignment and consent agreement. The initial term of the factoring agreement is twelve months from the initial funding date.

 

Under the factoring agreement, the Company’s ADEX subsidiary may borrow up to the lesser of $5,000,000 or an amount equal to the sum of all undisputed purchased receivables multiplied by the advance percentage, less any funds in reserve. ADEX will pay to Bay View Funding a factoring fee upon purchase of receivables by Bay View Funding equal to 0.75% of the gross face value of the purchased receivable for the first 30 day period from the date said purchased receivable is first purchased by Bay View Funding, and a factoring fee of 0.35% per 15 days thereafter until the date said purchased receivable is paid in full or otherwise repurchased by ADEX or otherwise written off by Bay View Funding within the write off period. ADEX will also pay a finance fee to Bay View Funding on the outstanding advances under the agreement at a floating rate per annum equal to the Prime Rate plus 3%. The finance rate will increase or decrease monthly, on the first day of each month, by the amount of any increase or decrease in the Prime Rate, but at no time will the finance fee be less than 7.75%.

 

During the year ended December 31, 2020, the Company paid $323,919 in factoring fees. These amounts are included within general and administrative expenses on the consolidated statement of operations. In addition, during the year ended December 31, 2020, the Company incurred finance charges of $123,606, of which $83,606 was paid in cash and $40,000 was included in accounts payable and accrued liabilities as of December 31, 2020. Finance charges are included within interest expense on the consolidated statement of operations.

 

During the year ended December 31, 2020, the Company received an aggregate of $16,563,092, including the initial proceeds of $3,024,532, and repaid an aggregate of $14,648,481. The Company owed $1,914,611 under the agreement as of December 31, 2020.

 

On February 11, 2021, the initial term of the factor financing expired. The agreement has been extended on a month to month basis.

 

 

10.	Derivative Liabilities

 

The embedded conversion options of the convertible debentures described in Note 8, Convertible Debentures, contain conversion features that qualify for embedded derivative classification. The fair value of the liability is re-measured at the end of every reporting period and the change in fair value is reported in the statement of operations as a gain or loss on change in fair value of derivatives. Derivative liabilities also include the fair value of the Company’s share purchase warrants and stock options discussed in Note 13, Share Purchase Warrants and Stock Options. As of December 31, 2020, the derivative liability balance of $3,390,504 was comprised of $3,252,000 of derivatives related to the Company’s convertible debentures, and $138,504 of derivatives related to the Company’s share purchase warrants and stock options. As of December 31, 2019, the derivative liability balance of $992,733 was comprised of $801,000 of derivatives related to the Company’s convertible debentures, and $191,732 of derivatives related to the Company’s share purchase warrants and stock options.

  

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the years ended December 31, 2020 and 2019:

 

		December 31,				December 31,
		2020				2019
Balance at the beginning of the period		$	992,733			$	3,166,886
Change in fair value of embedded conversion option			662,968				(1,843,935	)
Conversion of derivative liability			(180,000	)			(1,281,888	)
Repayment of convertible note			(36,000	)			(164,468	)
Impact of note extinguishment			803,300				(32,000	)
Original discount limited to proceeds of notes			380,000				376,500
Fair value of derivative liabilities in excess of notes proceeds received			494,000				116,638
Fair value of warrant derivatives at issuance			228,803				-
Fair value of option derivatives at issuance			44,700				-
Derivative issued as part of acquisition			-				189,000
Addition to derivative due to default penalty			-				466,000
Balance at the end of the period		$	3,390,504			$	992,733

 

The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using Monte-Carlo model based on various assumptions.

 

Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:

 

		Expected volatility				Risk-free interest rate				Expected dividend yield				Expected life (in years)
At December 31, 2019			230 - 304	%			1.55 - 1.75	%			0	%			0.25 - 1.16
At December 31, 2020			249 - 325	%			0.09 - 0.13	%			0	%			0.25 - 2.76

 

 

11.	Common Stock

 

Authorized Shares

 

On November 15, 2017, the Company revised its authorized share capital to increase the number of authorized common shares from 275,000,000 common shares with a par value of $0.00001, to 750,000,000 common shares with a par value of $0.00001. The reverse stock split discussed in Note 2, Significant Accounting Policies, did not change the number of authorized shares of the Company’s common stock.

  

Treasury Stock

 

The Company holds 2,071 common shares in treasury at a cost of $277,436.

 

Issuance of Shares Pursuant to Conversion of Series A Preferred Stock

   

On August 26, 2019, the Company issued 880 shares of common stock to Dominion Capital upon the conversion of 10,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On August 30, 2019, the Company issued 1,112 shares of common stock to Dominion Capital upon the conversion of 10,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On September 18, 2019, the Company issued 1,112 shares of common stock to M2B Funding upon the conversion of 10,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On September 27, 2019, the Company issued 1,112 shares of common stock to M2B Funding upon the conversion of 10,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On October 15, 2019, the Company issued 1,112 shares of common stock to M2B Funding upon the conversion of 10,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On October 21, 2019, the Company issued 1,112 shares of common stock to Dominion Capital upon the conversion of 10,000 shares of Series A preferred stock with a stated value of $1 per share.

 

 

On October 24, 2019, the Company issued 1,112 shares of common stock to M2B Funding upon the conversion of 10,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On January 7, 2020, the Company issued 1,112 shares of common stock to M2B Funding upon the conversion of 10,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On February 11, 2020, the Company issued 2,778 shares of common stock to Dominion Capital upon the conversion of 25,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On April 9, 2020, the Company issued 8,334 shares of common stock to Dominion Capital upon the conversion of 25,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On April 29, 2020, the Company issued 8,334 shares of common stock to Dominion Capital upon the conversion of 25,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On June 22, 2020, the Company issued 85,000 shares of common stock to M2B Funding upon the conversion of 17,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On June 25, 2020, the Company issued 75,000 shares of common stock to Dominion Capital upon the conversion of 15,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On June 26, 2020, the Company issued 75,000 shares of common stock to Dominion Capital upon the conversion of 15,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On July 13, 2020, the Company issued 75,000 shares of common stock to Dominion Capital upon the conversion of 15,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On August 27, 2020, the Company issued 85,000 shares of common stock to M2B Funding upon the conversion of 17,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On September 1, 2020, the Company issued 150,000 shares of common stock to Dominion Capital upon the conversion of 30,000 shares of Series A preferred stock with a stated value of $1 per share.

 

On September 10, 2020, the Company issued 142,960 shares of common stock to Dominion Capital upon the conversion of 28,592 shares of Series A preferred stock with a stated value of $1 per share.

 

Issuance of Shares Pursuant to the Execution of New Convertible Debentures

 

On February 7, 2020, the Company issued 9,755 shares of common stock to CCAG Investments, LLC upon the execution of a new convertible note described in Note 8, Convertible Debentures.

 

On February 7, 2020, the Company issued 9,755 shares of common stock to FJ Vulis and Associates, LLC upon the execution of a new convertible note described in Note 8, Convertible Debentures.

 

Issuance of Shares Pursuant to GS Capital Partners, LLC Convertible Debentures

 

On February 12, 2020, the Company issued 1,647 shares of common stock to GS Capital Partners, LLC upon the conversion of $8,000 of principal and $323 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On March 13, 2020, the Company issued 11,212 shares of common stock to GS Capital Partners, LLC upon the conversion of $15,000 of principal and $703 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

 

On April 30, 2020, the Company issued 302,121 shares of common stock to GS Capital Partners, LLC upon the conversion of $100,000 of principal and $5,742 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 17, 2020, the Company issued 204,447 shares of common stock to GS Capital Partners, LLC upon the conversion of $6,296 of principal and $512 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 24, 2020, the Company issued 236,602 shares of common stock to GS Capital Partners, LLC upon the conversion of $7,000 of principal and $580 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 27, 2020, the Company issued 253,656 shares of common stock to GS Capital Partners, LLC upon the conversion of $7,500 of principal and $626 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On September 3, 2020, the Company issued 316,672 shares of common stock to GS Capital Partners, LLC upon the conversion of $9,350 of principal and $795 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On September 15, 2020, the Company issued 333,053 shares of common stock to GS Capital Partners, LLC upon the conversion of $12,750 of principal and $1,118 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On October 7, 2020, the Company issued 458,809 shares of common stock to GS Capital Partners, LLC upon the conversion of $12,200 of principal and $1,129 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On October 14, 2020, the Company issued 507,518 shares of common stock to GS Capital Partners, LLC upon the conversion of $13,000 of principal and $1,222 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On October 27, 2020, the Company issued 274,219 shares of common stock to GS Capital Partners, LLC upon the conversion of $7,000 of principal and $678 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On November 3, 2020, the Company issued 502,869 shares of common stock to GS Capital Partners, LLC upon the conversion of $10,350 of principal and $844 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On November 23, 2020, the Company issued 516,128 shares of common stock to GS Capital Partners, LLC upon the conversion of $10,000 of principal and $859 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On December 7, 2020, the Company issued 553,818 shares of common stock to GS Capital Partners, LLC upon the conversion of $10,700 of principal and $952 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On December 21, 2020, the Company issued 565,834 shares of common stock to GS Capital Partners, LLC upon the conversion of $16,950 of principal and $1,560 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On December 31, 2020, the Company issued 551,562 shares of common stock to GS Capital Partners, LLC upon the conversion of $20,500 of principal and $1,932 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

 

Issuance of Shares Pursuant to WaveTech GmbH Post-Closing Notes

 

On February 18, 2020, the Company issued 1,082,731 shares of common stock to holders of WaveTech GmbH post-closing notes upon the conversion of $8,507,557 of principal and accrued interest pursuant to the post-closing notes described in Note 3, Due From Related Party.

 

Issuance of Shares Pursuant to Power Up Lending Group LTD. Convertible Debentures

 

On April 1, 2020, the Company issued 5,715 shares of common stock to Power Up Lending Group LTD. upon the conversion of $12,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On April 13, 2020, the Company issued 9,196 shares of common stock to Power Up Lending Group LTD. upon the conversion of $16,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On April 16, 2020, the Company issued 8,621 shares of common stock to Power Up Lending Group LTD. upon the conversion of $15,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On April 16, 2020, the Company issued 8,621 shares of common stock to Power Up Lending Group LTD. upon the conversion of $15,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On April 20, 2020, the Company issued 12,122 shares of common stock to Power Up Lending Group LTD. upon the conversion of $20,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On April 30, 2020, the Company issued 58,434 shares of common stock to Power Up Lending Group LTD. upon the conversion of $15,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On May 12, 2020, the Company issued 38,956 shares of common stock to Power Up Lending Group LTD. upon the conversion of $10,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On May 13, 2020, the Company issued 77,912 shares of common stock to Power Up Lending Group LTD. upon the conversion of $20,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On May 20, 2020, the Company issued 113,379 shares of common stock to Power Up Lending Group LTD. upon the conversion of $20,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On June 9, 2020, the Company issued 62,359 shares of common stock to Power Up Lending Group LTD. upon the conversion of $5,000 of principal and $5,520 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

  

On June 9, 2020, the Company issued 71,132 shares of common stock to Power Up Lending Group LTD. upon the conversion of $12,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On June 12, 2020, the Company issued 118,554 shares of common stock to Power Up Lending Group LTD. upon the conversion of $20,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

 

On June 16, 2020, the Company issued 118,554 shares of common stock to Power Up Lending Group LTD. upon the conversion of $20,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On June 26, 2020, the Company issued 118,777 shares of common stock to Power Up Lending Group LTD. upon the conversion of $16,500 of principal and $2,540 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On July 8, 2020, the Company issued 119,403 shares of common stock to Power Up Lending Group LTD. upon the conversion of $12,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On July 20, 2020, the Company issued 130,037 shares of common stock to Power Up Lending Group LTD. upon the conversion of $7,100 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On July 27, 2020, the Company issued 154,639 shares of common stock to Power Up Lending Group LTD. upon the conversion of $6,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 4, 2020, the Company issued 153,631 shares of common stock to Power Up Lending Group LTD. upon the conversion of $5,500 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 11, 2020, the Company issued 153,203 shares of common stock to Power Up Lending Group LTD. upon the conversion of $5,500 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 13, 2020, the Company issued 159,218 shares of common stock to Power Up Lending Group LTD. upon the conversion of $5,700 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 17, 2020, the Company issued 158,055 shares of common stock to Power Up Lending Group LTD. upon the conversion of $5,200 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 20, 2020, the Company issued 159,509 shares of common stock to Power Up Lending Group LTD. upon the conversion of $5,200 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 24, 2020, the Company issued 236,963 shares of common stock to Power Up Lending Group LTD. upon the conversion of $5,800 of principal and $1,925 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

Issuance of Shares Pursuant to an SCS, LLC Convertible Debenture

 

On June 19, 2020, the Company issued 23,555 shares of common stock to SCS, LLC upon the conversion of $4,000 of principal and $240 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On July 13, 2020, the Company issued 42,400 shares of common stock to SCS, LLC upon the conversion of $4,000 of principal and $240 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

 

On July 29, 2020, the Company issued 88,333 shares of common stock to SCS, LLC upon the conversion of $4,000 of principal and $240 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

Issuance of Shares Pursuant to a Crown Bridge Partners Convertible Debenture

 

On May 21, 2020, the Company issued 50,000 shares of common stock to Crown Bridge Partners upon the conversion of $6,512 of principal and $1,000 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On June 8, 2020, the Company issued 85,000 shares of common stock to Crown Bridge Partners upon the conversion of $11,288 of principal and $1,000 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 24, 2020, the Company issued 170,000 shares of common stock to Crown Bridge Partners upon the conversion of $3,590 of principal and $1,000 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 26, 2020, the Company issued 170,500 shares of common stock to Crown Bridge Partners upon the conversion of $3,604 of principal and $1,000 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On September 11, 2020, the Company issued 250,000 shares of common stock to Crown Bridge Partners upon the conversion of $5,355 of principal and $1,000 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On October 5, 2020, the Company issued 255,000 shares of common stock to Crown Bridge Partners upon the conversion of $5,324 of principal and $1,000 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

Additional Shares Issued Pursuant to Convertible Debentures

 

On August 11, 2020, the Company issued 300,000 shares of common stock to CCAG Investments, LLC, pursuant to the terms of a convertible debenture described in Note 8, Convertible Debentures.

 

On August 11, 2020, the Company issued 300,000 shares of common stock to FJ Vulis and Associates, LLC, pursuant to the terms of a convertible debenture described in Note 8, Convertible Debentures.

 

On September 21, 2020, the Company issued 300,000 shares of common stock to CCAG Investments, LLC, pursuant to the terms of a convertible debenture described in Note 8, Convertible Debentures.

 

On September 21, 2020, the Company issued 300,000 shares of common stock to FJ Vulis and Associates, LLC, pursuant to the terms of a convertible debenture described in Note 8, Convertible Debentures.

 

On September 23, 2020, the Company issued 300,000 shares of common stock to CCAG Investments, LLC, pursuant to the terms of a convertible debenture described in Note 8, Convertible Debentures.

 

On September 23, 2020, the Company issued 300,000 shares of common stock to FJ Vulis and Associates, LLC, pursuant to the terms of a convertible debenture described in Note 8, Convertible Debentures.

 

On December 18, 2020, the Company issued 642,000 shares of common stock to CCAG Investments, LLC, pursuant to the terms of a convertible debenture described in Note 8, Convertible Debentures.

 

 

Issuance of Shares Pursuant to RDW Capital LLC Convertible Debentures

 

On January 14, 2019, the Company issued 370 shares of common stock to RDW Capital LLC upon the conversion of $10,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On February 7, 2019, the Company issued 575 shares of common stock to RDW Capital LLC upon the conversion of $12,500 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On February 12, 2019, the Company issued 1,000 shares of common stock to RDW Capital LLC upon the conversion of $21,750 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On March 7, 2019, the Company issued 1,922 shares of common stock to RDW Capital LLC upon the conversion of $39,375 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On May 21, 2019, the Company issued 259 shares of common stock to RDW Capital LLC upon the conversion of $5,750 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

Issuance of Shares Pursuant to Silverback Capital Convertible Debentures

  

On January 14, 2019, the Company issued 334 shares of common stock to Silverback Capital upon the conversion of $9,746 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On January 28, 2019, the Company issued 667 shares of common stock to Silverback Capital upon the conversion of $15,552 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On February 11, 2019, the Company issued 1,059 shares of common stock to Silverback Capital upon the conversion of $24,697 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On May 17, 2019, the Company issued 667 shares of common stock to Silverback Capital upon the conversion of $13,000 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On July 2, 2019, the Company issued 1,000 shares of common stock to Silverback Capital upon the conversion of $8,500 of principal and $290 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On August 29, 2019, the Company issued 2,167 shares of common stock to Silverback Capital upon the conversion of $6,000 of principal and $338 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On October 21, 2019, the Company issued 1,806 shares of common stock to Silverback Capital upon the conversion of $627 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

  

Issuance of Shares Pursuant to Virtual Capital Convertible Debentures

 

On February 7, 2019, the Company issued 3,572 shares of common stock to Virtual Capital upon the conversion of $75,000 of principal and $7,499 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On April 1, 2019, the Company issued 4,667 shares of common stock to Virtual Capital upon the conversion of $70,000 of principal and $6,930 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On April 25, 2019, the Company issued 5,000 shares of common stock to Virtual Capital upon the conversion of $55,000 of principal and $19,998 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

 

Issuance of Shares Pursuant to InterCloud Convertible Debentures

 

On May 6, 2019, the Company issued 52,358 shares of common stock to InterCloud upon the conversion of $2,897,924 of principal and $429,135 of accrued interest pursuant to the convertible debentures described in Note 6, Related Party Transactions.

 

On August 16, 2019, the Company issued 68,661 shares of common stock to InterCloud upon the conversion of $793,894 of principal and $12,063 of accrued interest pursuant to the convertible debentures described in Note 6, Related Party Transactions.

 

Issuance of Shares Pursuant to Employee Convertible Debentures

 

On February 14, 2019, the Company issued 4,667 shares of common stock to employees of the Company upon the conversion of $140,000 principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

   

Issuance of Shares for Services

  

On February 1, 2019, the Company issued 9,565 shares of common stock to employees and directors of the Company in exchange for services for the Company.

 

On July 18, 2019, the Company issued 2,778 shares of common stock to MZ Group in exchange for services for the Company.

 

As of December 31, 2020, there was no unvested stock compensation expense.

 

Cancellation of Shares for Services

 

On April 12, 2019, the Company cancelled 300 shares of common stock issued to former employees for services.

 

On May 22, 2019, the Company cancelled 100 shares of common stock issued to former employees for services.

 

On June 18, 2019, the Company cancelled 67 shares of common stock issued to former employees for services.

 

On December 4, 2019, the Company cancelled 167 shares of common stock issued to a former employee for services.

 

Shares Returned and Canceled

 

On July 28, 2020, GS Capital Partners returned 226,800 shares of common stock to the Company. These shares were canceled.

 

On September 8, 2020, Joel Raven and Mike Roeske returned an aggregate of 4,668 shares of common stock to the Company. These shares were canceled.

 

12.	Preferred Stock

 

Series A

  

On November 15, 2017, the Company created one series of the 20,000,000 preferred shares it is authorized to issue, consisting of 8,000,000 shares, to be designated as Series A preferred stock.

  

On October 29, 2018, the Company made the first amendment to the Certificate of Designation of its Series A convertible preferred stock. This amendment updated the conversion price to be equal to the greater of 75% of the lowest VWAP during the ten trading day period immediately preceding the date a conversion notice is delivered or $120.00, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock.

 

 

On August 16, 2019, the Company made the second amendment to the Certificate of Designation of its Series A convertible preferred stock. As a result of this amendment, the Company recorded a deemed dividend of $488,072 for the year ended December 31, 2019 in accordance with ASC 260-10-599-2.

 

On April 8, 2020, the Company made the third amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price and the conversion price floor to $3.00 per share.

 

On June 18, 2020, the Company made the fourth amendment to the Certificate of Designation of its Series A preferred stock, which lowered the fixed conversion price to $0.20 per share and the conversion price floor to $0.01 per share.

 

On January 27, 2021, the Company made the fifth amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price to $0.0975 per share (refer to Note 17, Subsequent Events, for additional detail).

 

Subsequent to the fourth amendment, the principal terms of the Series A preferred stock shares were as follows:

 

Voting rights – The Series A preferred stock shares do not have voting rights.

 

Dividend rights – The holders of the Series A preferred stock shares shall not be entitled to receive any dividends. No dividends (other than those payable solely in common stock) shall be paid on the common stock or any class or series of capital stock ranking junior, as to dividends, to the Series A preferred stock shares during any fiscal year of the Company until there shall have been paid or declared and set apart during that fiscal year for the holders of the Series A preferred stock shares a dividend in an amount per share equal to (i) the number of shares of common stock issuable upon conversion of the Series A preferred stock times (ii) the amount per share of the dividend to be paid on the common stock.

 

Conversion rights – The holders of the Series A preferred stock shares have the right to convert each Series A preferred stock share and all accrued and unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance of such share into fully paid and nonassessable shares of common stock of the Company. The number of shares of common stock into which each share of the Series A preferred stock shares may be converted shall be determined by dividing the sum of the stated value of the Series A preferred stock shares ($1.00 per share) being converted and any accrued and unpaid dividends by the conversion price in effect at the time of the conversion. The Series A preferred stock shares may be converted at a fixed conversion price of $0.0975, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock. The conversion price has a floor of $0.01 per share.

 

Liquidation rights – Upon the occurrence of any liquidation, each holder of Series A preferred stock shares then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, before any payment shall be made in respect of the common stock, or other series of preferred stock then in existence that is outstanding and junior to the Series A preferred stock shares upon liquidation, an amount per share of Series A preferred stock shares equal to the amount that would be receivable if the Series A preferred stock shares had been converted into common stock immediately prior to such liquidation distribution, plus, accrued and unpaid dividends.

 

In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series A preferred stock shares as temporary equity or “mezzanine.”

 

Holders of Series A preferred stock shares began converting into shares of common stock during May 2018 (refer to Note 11, Common Stock, for additional detail).

  

 

Series B

 

On April 16, 2018, the Company designated 1,000 shares of Series B preferred stock of the Company with a stated value of $3,500 per share. The Series B preferred stock is neither redeemable nor convertible into common stock. The principal terms of the Series B preferred stock shares are as follows:

 

Issue Price - The stated price for the Series B preferred stock shares shall be $3,500 per share.

 

Redemption - The Series B preferred stock shares are not redeemable.

 

Dividends - The holders of the Series B preferred stock shares shall not be entitled to receive any dividends.

  

Preference of Liquidation - The Corporation’s Series A preferred stock (the “Senior Preferred Stock) shall have a liquidation preference senior to the Series B preferred stock. Upon any fundamental transaction, liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of the Series B preferred stock shares shall be entitled, after any distribution or payment is made upon any shares of capital stock of the Company having a liquidation preference senior to the Series B preferred stock shares, including the Senior Preferred Stock, but before any distribution or payment is made upon any shares of common stock or other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shares, to be paid in cash the sum of $3,500 per share. If upon such liquidation, dissolution or winding up, the assets to be distributed among the Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock shall be insufficient to permit payment to said holders of such amounts, then all of the assets of the Company then remaining shall be distributed ratably among the Series B preferred stock holders and such other capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after provision is made for Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any, then-outstanding as provided above, the holders of common stock and other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shall be entitled to receive ratably all remaining assets of the Company to be distributed.

 

Voting - The holders of shares of Series B preferred stock shall be voted together with the shares of common stock such that the aggregate voting power of the Series B preferred stock is equal to 51% of the total voting power of the Company.

 

Conversion - There are no conversion rights.

 

In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series B preferred stock shares as temporary equity or “mezzanine.”

 

If the High Wire transaction as proposed closes, the Series B preferred stock shares will be exchanged for 1,500 shares of Class D stock (refer to Note 19, Subsequent Events, for additional detail).

 

Series C

 

On November 14, 2019, the Company designated 9,000,000 shares of Series C preferred stock of the Company with a stated value of $0.00001 per share. The principal terms of the Series C preferred stock shares subsequent to Amendment Number 1 of the share purchase agreement with WaveTech GmbH were as follows:

 

Issue Price - The stated price for the Series C preferred stock shall be $0.00001 per share.

 

Redemption - The Series C preferred stock shares are not redeemable.

 

Dividends - The holders of the Series C preferred stock shares shall not be entitled to receive any dividends.

 

 

Preference of Liquidation - Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the Series C preferred stock shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to $0.00001 for each share of Series C preferred stock before any distribution or payment shall be made to the holders of any junior securities and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Series C preferred stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to common stock which amounts shall be paid pari passu with all holders of common stock.

  

Voting - Except as otherwise provided herein or as required by law, the Series C preferred stock shall be voted together with the shares of common stock, par value $0.00001 per share of the Company and any other series of preferred stock then outstanding, and not as a separate class, at any annual or special meeting of stockholders of the Company, with respect to any question or matter upon which the holders of common stock have the right to vote, such that the voting power of each share of Series C preferred stock is equal to the voting power of the shares of common stock that each such share of Series C preferred stock is convertible into pursuant hereto. The Series C preferred stock shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Company, and may act by written consent in the same manner as the holders of common stock of the Company.

 

Conversion - on the second business day following the earlier of (i) the reverse split of the Company’s common stock, (ii) the listing of the Company on a national securities exchange and (iii) the six-month anniversary of the closing date (as defined below) (the “Series C Conversion Date”), without any further action, all outstanding shares of Series C shall automatically convert into an aggregate number of shares of the Company’s common stock equal to the greater of (i) $90,000,000 (the “Aggregate Value”)/Strike Price (as defined below), or (ii) the Aggregate Value/$9.75 (as adjusted for any reverse stock split or similar adjustment that may occur prior to the Series C Conversion Date). Provided, however, if a Triggering Event (as defined below) occurs, the Aggregate Value shall be reduced by the amount of any Losses (as defined below).

 

For purposes hereof, a “Triggering Event” shall include any liability arising from a breach of the representations or warranties of WaveTech GmbH (as defined below) contained in the share purchase agreement dated July 15, 2019 and all amendments thereto (as amended, the “SPA”), by and between the Company and WaveTech GmbH, a corporation organized under the laws of the Republic of Germany. “Closing Date” shall have the meaning ascribed to the term in the SPA. “Strike Price” shall mean the closing price per share of the Company’s common stock on the trading day immediately preceding the Series C Conversion Date.

 

On April 14, 2020, the Company entered into Amendment Number 2 of the share purchase agreement with WaveTech GmbH. Amendment Number 2 replaced the conversion terms of the Series C preferred stock included with Amendment Number 1 with the following:

 

Conversion. On the second business day following the earlier of (i) the later of (A) April 30, 2020, or such later date as may be determined by the Board, and (B) a reverse split of the common stock. (ii) the listing of the Company on a national securities exchange and (iii) the six-month anniversary of the issuance of shares of Series C to such holder (such earliest date. the “Series C Conversion Date”), without any further action, all outstanding shares of Series C shall automatically convert into an aggregate number of shares of common stock equal to $90,000,000 (the “Aggregate Value”)/Strike Price (as defined below). Provided, however, if a Triggering Event (as defined below) occurs, the Aggregate Value shall be reduced by the amount of any losses (as defined below). “Strike Price” shall mean the closing price per share of the Company’s common stock on the trading day immediately preceding the Series C Conversion Date.

 

For purposes hereof, a “Triggering Event” shall include any liability arising from a breach by WaveTech GmbH, a corporation organized under the laws of the Republic of Germany, of any of its representations or warranties contained in that certain Share Purchase Agreement (the “SPA”), by and between the Corporation and WaveTech GmbH. “Losses” shall have the meaning set forth in the SPA.

 

 

Additionally, Amendment Number 2 adjusted the amount of common stock issued on the Series C Conversion Date as follows:

 

If on the earlier of (a) the tenth (l0th) business day prior to the listing of the Company on a national securities exchange (“Uplisting”), or (b) December 15, 2020, the aggregate value of the shares of common stock issued upon conversion of the Series C (the “Conversion Shares”) is less than 95% of the aggregate value of the Conversion Shares on the Series C Conversion Date (such difference in value, the “First Value Differential”), then the Company shall make a pro-rata issuance of additional shares of common stock to each holder in an aggregate amount equal to the First Value Differential (such additional shares, the “First True-Up Shares”). In the event (i) an Uplisting does not occur until sometime in 2021, and (ii) on such date in 2021 as the Board may determine, but in no event later than the tenth (10th) business day prior to the Uplisting (the “Second True-Up Date”), the aggregate value of the Conversion Shares as of the Second True-Up Date is less than 95% of the aggregate value of the Conversion Shares as of December 15, 2020 (such difference in value, the “Second Value Differential”), the Company shall, at the Board’s discretion, make a pro-rata issuance of additional shares of common stock to each holder in an aggregate amount equal to the Second Value Differential (such additional shares, the “Second True-Up Shares”). To the extent any shares of Series C are issued after the Series C Conversion Date, then the holder(s) of such shares shall receive the same number of Conversion Shares such holder(s) would have received had they held the Series C on the Series C Conversion Date.

 

On September 29, 2020, the Company amended the Series C preferred stock certificate of designation. In connection with the amendment, the designated shares amount was reduced to 8,888,888 shares.

 

On September 30, 2020, the Company sold its interest in WaveTech GmbH (refer to Note 3, Disposals of Subsidiaries, for additional detail). As a result of the sale, the Series C shares will not be issued.

 

13.	Share Purchase Warrants and Stock Options

 

From time to time, the Company issues share purchase warrants and stock options, which are classified as liabilities. The total fair value of the Company’s share purchase warrants and stock options was $138,504 and $191,732 as of December 31, 2020 and 2019, respectively. This amount is included in derivative liabilities on the consolidated balance sheets. The valuation methodology, including the assumptions used in the valuation, are discussed in Note 10, Derivative Liabilities. The weighted-average remaining life on the share purchase warrants as of December 31, 2020 and 2019 was 2.0 years and 1.3 years, respectively. The stock options outstanding at December 31, 2020 and 2019 were not subject to any vesting terms.

 

The following table summarizes the activity of share purchase warrants for the year ended December 31, 2020:

 

		Number of warrants				Weighted average exercise price
Balance at December 31, 2019			14,075			$	331.46
Issued			2,389,104				78.46
Expired			(1,293	)			736.64
Balance at December 31, 2020			2,401,886			$	79.59

 

 

As of December 31, 2020, the following share purchase warrants were outstanding:

 

Number of warrants				Exercise price				Issuance date		Expiry date		Remaining life
	527,476	*			360.00			2/14/2018		2/13/2021			0.12
	417				480.00			2/21/2018		2/21/2021			0.14
	1,667				300.00			5/17/2018		5/17/2021			0.38
	380				324.00			10/10/2018		10/10/2021			0.78
	2,500				30.00			11/21/2019		11/21/2022			1.89
	9,723				9.00			2/7/2020		2/7/2023			2.10
	9,723				9.00			2/7/2020		2/7/2023			2.10
	200,000				0.18			7/14/2020		7/1/2021			0.50
	1,650,000				0.10			10/5/2020		10/5/2023			2.76
	2,401,886

 

*

This warrant is convertible into 4% of the number of common shares of the Company outstanding. At December 31, 2020, it is 4% of the 13,186,880 shares outstanding as of that date.

 

The following table summarizes the activity of stock options for the year ended December 31, 2020:

 

		Number of stock options				Weighted average exercise price
Balance at December 31, 2019			5,000			$	9.00
Issued			-				-
Expired			-				-
Balance at December 31, 2020			5,000			$	9.00

 

As of December 31, 2020, the following stock options were outstanding:

 

Number of stock options				Exercise price				Issuance Date		Expiry date
	5,000				9.00			11/25/2019		11/25/2021

 

 

14.

Leases

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, which introduced a lessee model that requires the majority of leases to be recognized on the balance sheet. On January 1, 2019, the Company adopted the ASU using the modified retrospective transition approach and elected the transition option to recognize the adjustment in the period of adoption rather than in the earliest period presented. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $269,341 as of January 1, 2019. During the year ended December 31, 2019, non-cash right of use assets recorded in exchange for non-cash operating lease liabilities was $316,600. The Company leases certain office space and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

 

The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The Company used the incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.

  

The following table sets forth the operating lease right of use (“ROU”) assets and liabilities as of December 31, 2020 and 2019:

 

		December 31,				December 31,
		2020				2019
Operating lease assets		$	116,817			$	98,361
Operating lease liabilities:
Current operating lease liabilities			122,838				100,421
Total operating lease liabilities		$	122,838			$	100,421

 

Expense related to leases is recorded on a straight-line basis over the lease term, including rent holidays.

 

During the years ended December 31, 2020 and 2019, the Company recognized operating lease expense of $123,056 and $234,315, respectively. Operating lease costs are included within selling, administrative and other expenses on the consolidated statements of operations. During the years ended December 31, 2020 and 2019, short-term lease costs were $180,449 and $246,380, respectively.

 

Cash paid for amounts included in the measurement of operating lease liabilities was $122,001 and $229,348, respectively, for the years ended December 31, 2020 and 2019, and this amount is included in operating activities in the consolidated statements of cash flows. During the years ended December 31, 2020 and 2019, the Company reduced its operating lease liabilities by $50,513 and $143,249, respectively, for cash paid.

 

 

The operating lease liabilities as of December 31, 2020 reflect a weighted average discount rate of 51%. The weighted average remaining term of the leases is 2.11 years. Remaining lease payments as of December 31, 2020 are as follows: 

 

Year ending December 31,
2021			95,914
2022			86,681
2023			21,330
Total lease payments			203,925
Less: imputed interest			(81,087	)
Total		$	122,838

 

15.	Commitments and Contingencies

 

Leases

 

The Company leases certain of its properties under leases that expire on various dates through 2023. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years. Leases with an initial term of 12 months or less and immaterial leases are not recorded on the balance sheet (refer to Note 14, Leases, for amounts expensed during the year ended December 31, 2020 and 2019).

   

WaveTech GmbH Share Purchase Agreement

 

On July 15, 2019, the Company entered into a share purchase agreement with WaveTech GmbH, a German corporation.

 

The merger of WaveTech GmbH into the Company was to be effected through a sale and exchange of shares and cash. Pursuant to the share purchase agreement, the Company was to acquire all right, title and interest in all of the issued and outstanding shares of stock of WaveTech GmbH in exchange for the issuance of the Company’s Series C preferred stock as well as the assumption by the Company of $8,507,557 of WaveTech GmbH debt (refer to Note 3, Disposals of Subsidiaries, for additional detail). The Company was to receive $3,000,000 in cash at or before consummation of the transactions contemplated by the share purchase agreement (the “Transactions”). Upon consummation of the Transactions, the current WaveTech GmbH shareholders would have beneficially owned a majority of the outstanding shares of the Company.

 

 

The consummation of the Transactions was also subject to the satisfaction or waiver (if permitted by law) of certain closing conditions, including, among other things, (i) the accuracy of the representations and warranties of the parties in all material respects and (ii) the performance of and compliance with the covenants of the parties in all material respects.

 

The parties were required to use commercially reasonable efforts to cause to be taken and to do or cause to be done all actions and things as are necessary under the terms of the share purchase agreement or under applicable law, in order to consummate the Transactions. The parties were also required to, among other things, cooperate in all respects with each other in connection with any filing or submission to any governmental authority in connection with the Transactions.

  

The share purchase agreement also contained certain termination rights for both the Company and WaveTech GmbH, including that the Company or WaveTech GmbH could have terminated the share purchase agreement if WaveTech GmbH had not obtained executed assignment agreements from its shareholders holding an aggregate of (i) fifty one percent (51%) of the issued and outstanding shares of WaveTech GmbH by the date that was ninety (90) days following the date of the share purchase agreement and (ii) ninety percent (90%) of the issued and outstanding shares of WaveTech GmbH by March 31, 2020.

 

On November 14, 2019, the Company entered into Amendment Number 1 of the share purchase agreement and acquired approximately 60% of the outstanding shares of WaveTech GmbH. In connection with the Company acquiring these shares, the Company’s board appointed Dag Valand to be a director of the Company and appointed Silas Poel to be the Company’s Chief Operating Officer and director. Mr. Valand is the CEO and co-founder of WaveTech GmbH and Mr. Poel is the Chief Operating Officer of WaveTech GmbH. Additionally, on February 19, 2020, the Company’s board appointed Brynjar Meling to be a director of the Company. Mr. Meling previously served as a director of WaveTech GmbH.

 

As of December 31, 2019, the Company had received $2,989,978 in cash from WaveTech GmbH. Additionally, the Company recorded a foreign exchange loss of $10,022 in the consolidated statement of operations for the year ended December 31, 2019. During the year ended December 31, 2020, the Company received an additional $319,972 in cash from WaveTech GmbH.

 

On April 14, 2020, the Company entered into Amendment Number 2 of the share purchase agreement. This amendment primarily related to conversion terms for the Company’s Series C preferred stock (refer to Note 12, Preferred Stock, for additional detail).

 

During the year ended December 31, 2020, the Company obtained additional executed assignment agreements from shareholders holding an aggregate of 30% of the issued and outstanding shares of WaveTech GmbH. As a result, the Company had obtained executed assignment agreements from shareholders holding an aggregate of 90% of the issued and outstanding shares of WaveTech GmbH. 

 

On September 30, 2020, the Company sold its interest in WaveTech GmbH (refer to Note 3, Disposals of Subsidiaries, for additional detail). Prior to the sale, The Company determined that the acquisition had not been completed for accounting purposes because the Series C preferred stock shares were never issued. Additionally, Mr. Poel resigned from his position as Chief Operating Officer and Mr. Valand, Mr. Poel, and Mr. Meling resigned their positions as members of the Board of Directors.

 

Oasis Capital, LLC Equity Purchase Agreement and Registration Rights Agreement

 

On August 29, 2019, the Company entered into an equity purchase agreement and registration rights agreement with Oasis Capital, LLC, a Puerto Rico limited liability Company. Under the terms of the equity purchase agreement, Oasis Capital agreed to purchase from the Company up to $2,500,000 of the Company’s common stock upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the SEC and subject to certain limitations and conditions set forth in the equity purchase agreement.

 

 

Following effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the equity purchase agreement, the Company shall have the discretion to deliver put notices to Oasis Capital and Oasis Capital will be obligated to purchase shares of the Company’s common stock, par value $0.00001 per share based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to Oasis Capital in each put notice shall not exceed the lesser of $250,000 or two hundred percent (200%) of the average daily trading volume of the Company’s common stock during the ten (10) trading days preceding the put. Pursuant to the equity purchase agreement, Oasis Capital and its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s common stock to Oasis Capital that would result in Oasis Capital’s beneficial ownership of the Company’s outstanding common stock exceeding 9.99%. The price of each put share shall be equal to eighty five percent (85%) of the market price (as defined in the equity purchase agreement). Puts may be delivered by the Company to Oasis Capital until the earlier of (i) the date on which Oasis Capital has purchased an aggregate of $2,500,000 worth of common stock under the terms of the equity purchase agreement, (ii) August 29, 2022, or (iii) written notice of termination delivered by the Company to Oasis Capital, subject to certain equity conditions set forth in the equity purchase agreement.

 

As of February 19, 2021, the Company had not received the funds described in the equity purchase agreement and has not filed the Registration Statement with the SEC.

 

On February 19, 2021, the Company entered into a new agreement with Oasis Capital which terminated the obligations of the August 29, 2019 agreement (refer to Note 19, Subsequent Events, for additional detail).

 

16.	Segment Disclosures

 

During the year ended December 31, 2020, the Company had two operating segments including:

 

●

ADEX/AWS PR/TROP, which is comprised of the ADEX Entities, AWS PR, and Tropical.

 

●

Spectrum Global Solutions (SGS), which consists of the rest of the Company’s operations.

 

During the year ended December 31, 2019, the Company had two operating segments including:

 

●

AWS/ADEX, which was comprised of the AWS Entities and the ADEX Entities.

 

●

Spectrum Global Solutions (SGS), which consists of the rest of the Company’s operations.

 

Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates the SGS reporting segment in one geographical area (the United States) and the ADEX/AWS PR/TROP operating segment in three geographical areas (the United States, Puerto Rico and Canada).

 

 

Financial statement information by operating segment for the year ended December 31, 2020 is presented below:

 

		Year Ended December 31, 2020
		Spectrum Global				ADEX/AWS PR/TROP				Total
Net sales		$	-			$	18,677,444			$	18,677,444
Operating loss			(3,815,443	)			(489,339	)			(4,304,782	)
Interest expense			878,050				179,014				1,057,064
Depreciation and amortization			-				54,248				54,248
Total assets as of December 31, 2020			63,667				4,263,725				4,327,392

 

Geographic information as of and for the year ended December 31, 2020 is presented below:

 

		Revenues For The Year Ended December 31, 2020				Long-lived Assets as of December 31, 2020
Puerto Rico and Canada		$	1,257,230			$	14,186
United States			17,420,214				1,070,608
Consolidated total			18,677,444				1,084,794

 

Financial statement information by operating segment for the year ended December 31, 2019 is presented below:

 

		Year Ended December 31, 2019
		Spectrum Global				ADEX/AWS				Total
Net sales		$	-			$	25,496,071			$	25,496,071
Operating (loss) income			(3,768,757	)			278,736				(3,490,021	)
Interest expense			1,208,441				481,737				1,690,178
Depreciation and amortization			-				52,696				52,696
Total assets as of December 31, 2019			11,783				5,649,146				5,660,929

 

Geographic information as of and for the year ended December 31, 2019 is presented below:

 

		Revenues For The Year Ended December 31, 2019				Long-lived Assets as of December 31, 2019
Puerto Rico and Canada		$	1,629,319			$	9,698
United States			23,866,752				1,103,128
Consolidated total			25,496,071				1,112,826

 

 

17.

Income Taxes

 

The Company’s pre-tax loss for the years ended December 31, 2020 and 2019 consisted of the following:

 

		Years Ended December 31,
		2020				2019
Domestic		$	(10,405,983	)		$	(4,738,282	)
Foreign			14,486				(18,017	)
Pre-tax Loss		$	(10,391,497	)		$	(4,756,299	)

 

The provision for income taxes for the years ended December 31, 2020 and 2019 was as follows:

 

		Years Ended December 31,
		2020				2019
Federal		$	-			$	-
State			-				49,038
Foreign			1,908				155,193
Total current		$	1,908			$	204,231
Deferred:
Federal		$	-			$	-
State			-				-
Total deferred			-				-
Total provision for income taxes		$	1,908			$	204,231

  

The Company’s income taxes were calculated on the basis of foreign pre-tax income and domestic pre-tax loss of $14,486 and $10,405,983, respectively, for the year ended December 31, 2020. The Company’s income taxes were calculated on the basis of foreign and domestic pre-tax loss of $18,017 and $4,738,282, respectively, for the year ended December 31, 2019.

 

The Company’s effective tax rate for the years ended December 31, 2020 and 2019 differed from the U.S. federal statutory rate as follows:

 

		Years Ended December 31,
		2020				2019
		%				%
Federal tax benefit at statutory rate			(21.0	)			(21.0	)
Permanent differences			(6.3	)			(22.2	)
State tax benefit, net of Federal benefits			-				4.5
Other			-				-
Effect of foreign income taxed in rates other than the U.S. Federal statutory rate			-				14.1
Net change in valuation allowance			27.3				43.2
Provision			-				18.6

 

 

The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities were as follows:

 

		Years Ended December 31,
		2020				2019
Net operating loss carryforwards		$	25,074,591			$	17,212,941
Depreciation			9,163				10,935
Total assets			25,083,754				17,223,876
Total liabilities			-				-
Less: Valuation allowance			(25,083,754	)			(17,223,876	)
Net deferred tax liabilities		$	-			$	-

 

As of December 31, 2020 and 2019, the Company had federal net operating loss carryforwards (“NOL’s”) of $25,083,754 and $17,212,941, respectively that will be available to reduce future taxable income, if any. These NOL’s begin to expire in 2027.

 

Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, provide for annual limitations on the utilization of net operating loss, capital loss and credit carryforwards if the Company were to undergo an ownership change, as defined in Section 382 of the Code. In general, an ownership change occurs whenever the percentage of the shares of a corporation owned, directly or indirectly, by 5-percent shareholders, as defined in Section 382 of the Code, increases by more than 50 percentage points over the lowest percentage of the shares of such corporation owned, directly or indirectly, by such 5-percent shareholders at any time over the preceding three years. In the event such ownership change occurs, the annual limitation may result in the expiration of net operating losses capital losses and credits prior to full utilization.

 

The Company has not completed a study to assess whether ownership change occurred as a result of the Company’s acquisition of AWS and related issuance of shares. However, as a result of the issuance of common shares in 2017, the Company believes an ownership change under Sec. 382 may have occurred. As a result of this ownership change certain of the Company’s net operating loss, capital loss and credit carryforwards will expire prior to full utilization. Additionally, further share issuances, such as the share issuances for debt conversions or acquisitions, may cause a change in ownership.

 

The Company performs an analysis each year to determine whether the expected future income will more likely than not be sufficient to realize the deferred tax assets. The Company’s recent operating results and projections of future income weighed heavily in the Company’s overall assessment. Prior to 2017, there were no provisions (or benefits) for income taxes because the Company had sustained cumulative losses since the commencement of operations.

  

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of December 31, 2020 and 2019, there was no accrued interest and penalties related to uncertain tax positions.

 

The Company is subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Due to the Company’s net operating loss carryforwards all years remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. In addition, all of the net operating loss and credit carryforwards that may be used in future years are still subject to adjustment.

 

 

18.	Discontinued Operations

 

During the year ended December 31, 2020, the Company disposed of its TNS and AWS subsidiaries (refer to Note 3, Disposals of Subsidiaries, for additional detail). The Company determined that both sales qualified for discontinued operations treatment.

 

As a result of the sales of TNS and AWS, the Company recorded a loss and gain on disposal of subsidiary of $6,478,663 and $711,676, respectively. These amounts are included within loss on discontinued operations, net of tax, on the statement of operations for the year ended December 31, 2020.

 

The assets and liabilities of TNS and AWS as of December 31, 2019 have been included within the consolidated balance sheet as current assets of discontinued operations, long-term assets of discontinued operations, and current liabilities of discontinued operations.

 

The results of operations of TNS and AWS have been included within loss on discontinued operations, net of tax on the statements of operations for the years ended December 31, 2020 and 2019.

 

The following table shows the balance sheet of the Company’s discontinued operations as of December 31, 2019.

 

		December 31, 2019
Current assets:
Cash		$	93,678
Accounts receivable, net of allowance of $64,299			1,306,638
Contract assets			168,473
Prepaid expenses and deposits			180,989
Current assets of discontinued operations		$	1,749,778
Long-term assets:
Property and equipment, net of accumulated depreciation of $862,377		$	83,369
Goodwill			1,574,599
Customer lists, net of accumulated amortization of $382,967			2,411,862
Tradenames, net accumulated amortization of $176,608			592,513
Operating lease right-of-use assets			70,023
Other assets			25,746
Long-term assets of discontinued operations		$	4,758,112
Current liabilities:
Accounts payable and accrued liabilities		$	1,291,547
Contract liabilities			348,556
Operating lease liabilities			72,930
Current liabilities of discontinued operations		$	1,713,033

 

 

The following table shows the statement of operations for the Company’s discontinued operations for the years ended December 31, 2020 and 2019.

 

		For the years ended
		December 31,
		2020				2019
Revenue		$	4,131,545			$	8,514,526
Operating expenses:
Cost of revenues			4,230,943				6,996,991
Depreciation and amortization			251,473				332,239
Salaries and wages			685,629				1,102,791
General and administrative			484,751				947,098
Total operating expenses			5,652,796				9,379,119
Loss from operations			(1,521,251	)			(864,593	)
Other (expenses) income:
Interest expense			(4,588	)			(9,135	)
Loss on disposal of subsidiary			(5,766,987	)			-
Loss on disposal of assets			(24,065	)			-
Total other expense			(5,795,640	)			(9,135	)
Pre-tax loss from operations			(7,316,891	)			(873,728	)
Provision for income taxes			-				-
Loss on discontinued operations, net of tax		$	(7,316,891	)		$	(873,728	)

  

 

19.	Subsequent Events

 

Issuance of shares pursuant to a GS Capital Partners, LLC convertible debenture

 

On January 11, 2021, the Company issued 668,787 shares of common stock to GS Capital Partners, LLC upon the conversion of $29,000 of principal and $2,803 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

On January 25, 2021, the Company issued 694,707 shares of common stock to GS Capital Partners, LLC upon the conversion of $25,500 of principal and $2,543 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

Amendments to convertible promissory notes

 

On January 14, 2021, the Company entered into agreements with Roger Ponder and Keith Hayter whereby the conversion price of their convertible promissory notes discussed in Note 6, Related Party Transactions was updated to $0.06 per share, subject to adjustment based on the terms of the note.

 

Additional shares issued to FJ Vulis and Associates, LLC

 

Under the terms of the agreement described in Note 8, Convertible Debentures, the Company needed to issue additional shares of common stock to FJ Vulis and Associates, LLC in connection with the shares issued upon execution of the convertible promissory note.

 

On January 18, 2021, the Company issued an additional 642,000 shares to the holder in satisfaction of the remaining obligation.

 

Fifth Amendment to the Certificate of Designation of the Company’s Series A Preferred Stock

 

On January 27, 2021, the Company made the fifth amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price to $0.0975 per share, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of its common stock.

 

Convertible promissory note, IQ Financial Inc., 12% interest, secured, matures January 27, 2022

 

On January 27, 2021, the Company entered into and closed on a convertible note purchase agreement with IQ Financial Inc., pursuant to which the Company issued to IQ Financial Inc. a secured convertible promissory note in the aggregate principal amount of $631,579 for an aggregate purchase price of $600,000. The Company received the funds in two disbursements – $275,000 on January 28, 2021 and $325,000 on March 1, 2021.

 

The interest on the outstanding principal due under the secured note accrues at a rate of 12% per annum. All principal and accrued but unpaid interest under the secured note is due on January 27, 2022. The holder may begin converting the note into shares of the Company’s common stock six months after issuance when it is Rule 144 eligible. The conversion price is fixed at $0.05 per share.

 

Assignment of convertible promissory note

 

On January 27, 2021, Barn 11 assigned its convertible promissory note to Cobra Equities SPV, LLC, who then obtained Barn 11’s right, title, and interest in the convertible promissory note, including the accrued interest owed on the note.

 

Proposed merger with High Wire

 

On January 27, 2021, the Company, HW Merger Sub, Inc., High Wire Networks, Inc. (“High Wire”) and the stockholders of High Wire (the “Stockholders”) entered into an Agreement and Plan of Merger (the “Agreement”) whereby the Stockholders agreed to sell to the Company all of the capital stock of High Wire. The closing of the transaction contemplated by the Agreement is subject to certain closing conditions, as set forth in the Agreement. Following such closing, HW will be a wholly-owned subsidiary of the Company.

 

In connection with the Company’s purchase of the capital stock of High Wire, the Company will issue to the Stockholders shares of a newly established Series D Preferred Stock of the Company, and a convertible note in the aggregate principal amount of $350,000.

 

The newly established Series D Preferred Stock will not be redeemable, will vote on an as-converted basis with the Company’s common stock, will have a liquidation preference of $10,000 per share, and be convertible beginning ninety (90) days from the date of issuance, at the greater of the Fixed Price and the Average Price. On the earlier of the (i) two hundred (200) day anniversary of the date of issuance and (ii) the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series D Conversion Date”), all remaining outstanding shares of Series D shall automatically convert into an aggregate number of shares of Common Stock equal to $15,900,000 divided by the greater of the Fixed Price and the Average Price. “Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series D. “Average Price” shall mean the average closing price of the Company’s common stock for the ten trading days immediately preceding, but not including, the conversion date.

 

As of the date of this report, all but one of the closing conditions of the merger have been satisfied or waived by the parties. The lone remaining closing condition concerns a pending Paycheck Protection Program Loan Forgiveness Application submitted by one of the Company’s subsidiaries. Closing the merger after Small Business Administration (SBA) forgiveness prevents a change of control event under SBA rules that would jeopardize the forgiveness and impact the Company’s statement of operations for 2021. The Company submitted its forgiveness application in accordance with Paycheck Protection Program rules and expects forgiveness to be received in the second quarter of 2021.

 

 

Repayment of loan with Cedar Advance LLC

 

During January 2021, the Company made four weekly payments of $11,658 on the note described in Note 7, Loans Payable. On January 28, 2021, the Company made a final payment of $119,308 in full settlement of the note. Total cash payments during this period were $165,942, with a discount of $32,250 as a result of the Company paying the note off early.

 

Repayment of Crown Bridge Partners, LLC convertible promissory note

 

On January 29, 2021, the Company repaid the outstanding principal and accrued interest on the first tranche of the note with Crown Bridge Partners, LLC described in Note 8, Convertible Debentures. The total payment amount of $47,561 consisted of $39,328 of principal and $8,233 of accrued interest.

 

Issuance of shares pursuant to an SCS, LLC convertible debenture

 

On February 1, 2021, the Company issued 919,356 shares of common stock to SCS, LLC upon the conversion of $39,030 of principal and $2,341 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

Issuance of shares pursuant to an Efrat Investments LLC convertible debenture

 

On February 2, 2021, the Company issued 750,000 shares of common stock to Efrat Investments LLC upon the conversion of $37,500 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures.

 

Issuance of Shares Pursuant to Conversion of Series A Preferred Stock

 

On February 2, 2021, the Company issued 397,272 shares of common stock to M2B Funding upon the conversion of 38,734 shares of Series A preferred stock with a stated value of $1 per share.

 

On February 9, 2021, the Company issued 738,462 shares of common stock to M2B Funding upon the conversion of 72,000 shares of Series A preferred stock with a stated value of $1 per share.

 

Issuance of shares pursuant to a Cobra Equities SPV, LLC convertible debenture

 

On February 1, 2021, the Company issued 760,234 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $26,000 of accrued interest pursuant to a convertible debenture.

 

On February 19, 2021, the Company issued 809,524 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $136,000 of accrued interest pursuant to a convertible debenture.

 

On March 15, 2021, the Company issued 819,444 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $104,000 of principal and $73,000 of accrued interest pursuant to a convertible debenture.

 

Issuance of shares pursuant to a CCAG Investments, LLC warrant

 

On February 3, 2021, the Company issued 1,015,505 shares of common stock to CCAG Investments, LLC upon the cashless exercise of a warrant described in Note 8, Convertible Debentures.

 

Issuance of shares pursuant to a FJ Vulis and Associates, LLC warrant

 

On February 9, 2021, the Company issued 989,587 shares of common stock to FJ Vulis and Associates, LLC upon the cashless exercise of a warrant described in Note 8, Convertible Debentures.

 

Exchange agreement with Oasis Capital, LLC

 

On February 19, 2021, the Company entered into an exchange agreement with Oasis Capital, LLC which terminated the obligations of the August 29, 2019 agreement discussed in Note 15, Commitments and Contingencies.

 

In exchange for 250,000 shares of the Company’s common stock, which were issued on February 22, 2021, Oasis Capital LLC surrendered the note and all other documents and agreements, including any warrants, contained in the original agreement.

 

Stock option awards

 

On February 23, 2021, the Company granted 961,329 non-qualified stock options to Roger M. Ponder, Keith W. Hayter, and two consultants. Mr. Ponder and Mr. Hayter received grants 323,763 and 482,393 stock options, respectively. The consultants each received grants of 77,587 stock options. The stock options were issued in settlement of amounts owed as of December 31, 2020. The stock options have an exercise price of $0.58 per share and vest immediately.

 

Assignment of shares by WaveTech Group to the Company

 

As of the date of this report, WaveTech Group has assigned to the Company 1,027,844 of the 1,082,731 shares of its common stock originally issued in the transaction described in Note 3, Disposals of Subsidiaries. The assigned shares were then cancelled by the Company.

 

 

SIGNATURES

  

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	SPECTRUM GLOBAL SOLUTIONS, INC.
Date: April 1, 2021	By:	/s/ Mark W. Porter
		Mark W. Porter
		Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name		Position		Date
/s/ Mark W. Porter		Chief Executive Officer		April 1, 2021
Mark W. Porter
/s/ Roger M. Ponder		Chairman of the Board of Directors		April 1, 2021
Roger M. Ponder		(Principal Financial Officer and Principal Accounting Officer)
/s/ Keith W. Hayter		Director		April 1, 2021
Keith W. Hayter

 

   

Exhibit Index

 

Exhibit #		Exhibit Description
2.1		Plan of Conversion of Mantra Venture Group Ltd. from a Nevada Corporation into a British Columbia Corporation dated October 29, 2008. (incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 4, 2008)
3.1		Articles of Conversion of Mantra Venture Group Ltd. dated October 28, 2008 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 4, 2008)
3.2		British Columbia Table 1 Articles adopted on December 4, 2008 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 12, 2008)
3.3		British Columbia Notice of Articles (incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 12, 2008)
10.1		Revolving Line of Credit Agreement with Larry Kristof dated October 15, 2008 (incorporated by reference to our Quarterly Report on Form 10-Q filed on January 14, 2009)
10.2		2009 Stock Compensation Plan and 2009 Stock Option Plan (incorporated by reference to our Registration Statement on Form S-8 filed on November 24, 2009)
10.2		Convertible Promissory Note dated March 10, 2016 (Securities Purchase Agreement dated March 10, 2016 (incorporated by reference to our Quarterly Report on Form 10-Q filed May 16, 2016).
10.21		Asset Purchase Agreement dated April 25, 2017 (incorporated by reference to our Form 8-K filed May 1, 2017)
10.22		Convertible Promissory Note dated April 25, 2017 (incorporated by reference to our Form 8-K filed May 1, 2017)
10.23		Securities Purchase Agreement dated April 28, 2017, for senior secured convertible promissory note and security agreement dated April 27, 2017 (incorporated by reference to our Form 8-K filed May 1, 2017)
14.1		Code of Ethics and Business Conduct (incorporated by reference to our Registration Statement on Form S- 1 filed on February 26, 2008)
21.1		List of Subsidiaries
31*		Certification of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32*		Certifications of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 SCH		XBRL Taxonomy Extension Schema Document
101 CAL		XBRL Taxonomy Calculation Linkbase Document
101 LAB		XBRL Taxonomy Labels Linkbase Document
101 PRE		XBRL Taxonomy Presentation Linkbase Document
101 DEF		XBRL Taxonomy Extension Definition Linkbase Document

 

*

Filed herewith.

 

 

55