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 July 31, 20202022

or

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

For the transition period from _______to _________

Commission File Number: 001-15687

DIGERATI TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada74-2849995
 (State(State or Other Jurisdiction of

Incorporation or Organization)
 (IRS(IRS Employer

Identification No.)
825 W. Bitters,8023 Vantage Dr, Suite 104

660
San Antonio, Texas
7821678230
 (Address(Address of Principal Executive Offices) (Zip(Zip Code)

Registrant’s Telephone Number, Including Area Code: (210) 775-0888614-7240

Securities registered pursuant to Section 12(b) of the Act:

Securities registered under Section 12(b) of the Exchange Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
N/AN/AN/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.001 Per Share

(Title of Class)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting companyEmerging 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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 and non-voting common equity held by non-affiliates of the issuer was $11,427,383$19,283,849 based on the closing price of $0.24$0.1380 per share on January 31, 2020,2022, as reported by the OTCQB.

There were 121,932,410144,598,039 shares of issuer’s Common Stock outstanding as of October 29, 2020.31, 2022.

 

 

TABLE OF CONTENTS

Page
PART I Page
  
Item 1.Business1
PART IItem 1A.Risk Factors8
Item 1B.Unresolved Staff Comments8
Item 2.Properties8
Item 3.Legal Proceedings8
Item 4.(Removed and Reserved)8
PART II 
Item 1.Business1
Item 1A.5.Risk Factors6
Item 1B.Unresolved Staff Comments6
Item 2.Properties6
Item 3.Legal Proceedings6
Item 4.(Removed and Reserved)6
PART II
Item 5.Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities79
Item 6.Selected Financial Data[Reserved]10
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations1011
Item 7A.Quantitative and Qualitative Disclosures about Market Risk1720
Item 8.Financial Statements and Supplementary DataF-1
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures1821
Item 9A.Controls and Procedures1821
Item 9B.Other Information1922
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections22
PART III 
PART III
Item 10.Directors, Executive Officers and Corporate Governance2023
Item 11.Executive Compensation2124
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters2730
Item 13.Certain Relationships and Related Transactions, and Director Independence2831
Item 14.Principal Accountant Fees and Services2932
PART IV
Item 15.Exhibits, Financial Statement Schedules33
   
PART IV
SIGNATURES
Item 15.Exhibits, Financial Statement Schedules30
SIGNATURES3134

i

 

PART I

ITEM 1.BUSINESS.

ITEM 1. BUSINESS.

Overview

Digerati Technologies, Inc., a Nevada corporation (including our subsidiaries, “we,” “us,” “Company” or “Digerati”), through its operating subsidiaries in Texas, Florida, and Florida,California that includes Shift8 Networks, Inc., dba, T3 Communications (“T3”) and(a Texas entity), T3 Communications, Inc. (“T3”(a Florida entity) (with both T3 in Florida and T3 in Texas being referred to herein, collectively, as “T3”), respectively,Nexogy Inc. (a Florida entity), and NextLevel Internet, Inc. (a California entity), provides cloud services specializing in Unified Communications as a Service (“UCaaS”) and broadband connectivity solutions for the business market. Our product line includes a portfolio of Internet-based telephony products and services delivered through our cloud application platform and session-based communication network and network services including Internet broadband, fiber, mobile broadband, and cloud WAN solutions (SD WAN). Our services are designed toWe provide enterprise-class, carrier-grade services to the small-to-medium-sized business (“SMB”) at cost-effective monthly rates. Our UCaaS or cloud communication services include fully hosted IP/PBX, video conferencing, mobile applications, Voice over Internet Protocol (“VoIP”) transport, SIP trunking, and customized VoIP services all delivered Only in the Cloud™. Our broadband connectivity solutions for the delivery of digital oxygen are designed for reliability, business continuity and to optimize bandwidth for businesses using the Company’s cloud communication services and other cloud-based applications.

As a provider of cloud communications solutions to the SMB, we are seeking to capitalize on the migration by businesses from the legacy telephone network to the Internet Protocol (“IP”) telecommunication network and the migration from hardware-based on-premise telephone systems to software-based communication systems in the cloud. Most SMBs are lagging in technical capabilities and advancement and seldom reach the economies of scale that their larger counterparts enjoy, due to their achievement of a critical mass and ability to deploy a single solution to a large number of workers. SMBs are typically unable to afford comprehensive enterprise solutions and, therefore, need to integrate a combination of business solutions to meet their needs. Cloud computing has revolutionized the industry and opened the door for businesses of all sizes to gain access to enterprise applications with affordable pricing. This especially holds true for cloud telephony applications, but SMBs are still a higher-touch sale that requires customer support for system integration, network installation, cabling, and troubleshooting. We have placed a significant emphasis on that “local” touch when selling, delivering, and supporting our services which we believe will differentiate us from the national providers that are experiencing high attrition rates due to a poor customer support.

The adoption of cloud communication services is being driven by the convergence of several market trends, including the increasing costs of maintaining installed legacy communications systems, the fragmentation resulting from use of multiple on-premise systems, and the proliferation of personal smartphones used in the workplace. Today, businesses are increasingly looking for an affordable path to modernizing their communications system to improve productivity, business performance and customer experience. Most recently, the COVID-19 PandemicModernization has increased demand for communication systems that support remote working environments.also led to businesses adopting other cloud-based business applications, including CRM, payroll, and accounting software, placing an even more important emphasis on reliable Internet connectivity.

Our cloud solutions offer the SMB reliable, robust, and full-featured services at affordable monthly rates that eliminates high-cost capital expenditures and provides for integration with other cloud-based systems. By providing a variety of comprehensive and scalable solutions, we can cater to businesses of different sizes on a monthly subscription basis, regardless of the stage of development for the business.

Recent Developments

In September 2019,Acquisitions

On February 4, 2022, the Company entered intoclosed on the acquisition of Next Level Internet, Inc. (“NextLevel”). NextLevel, based in San Diego, California, is engaged in the business of providing cloud communications, Unified Communications as a definitive agreementService, collaboration, contact center, managed broadband connectivity and other voice and data services to acquirethe SMB market. The acquisition of NextLevel expands the Company’s growing nationwide footprint and adds a strong West Coast presence with nearly 1,000 SMB clients in California.


On December 31, 2021, the Company closed on the acquisition of substantially all of the assets of Skynet Telecom LLC (“Skynet”), a Texas-based provider of VoIP communication services, UCaaS, and broadband connectivity services to the SMB market. Pursuant to the Asset Purchase Agreement, the Company acquired the customer base, certain equipment, certain intellectual property, inventory, contract rights, software and other licenses, and miscellaneous assets used in connection with the operation of Skynet’s telecommunications business.

On November 17, 2020, the Company closed on the acquisitions of Nexogy, Inc. (“Nexogy”), and the assets of ActiveServe, Inc., a Florida corporation that constitute the ActivePBX business (“ActivePBX”), leading provider in South Floridaproviders of cloud communication, UCaaS, and managedbroadband solutions tailored for businesses.

As a combined business, NextLevel, Skynet, Nexogy, ActivePBX, and T3, serve over 4,000 business customers and approximately 45,000 business users. The business model of the combined entities is supported by strong and predictable recurring revenue with high gross margins under contracts with business customers in various industries including banking, healthcare, financial services, offeringlegal, insurance, hotels, real estate, staffing, municipalities, food services, and education. We expect the acquisitions to have a portfoliopositive impact on the revenues and operating income of cloud-based solutionsthe Company during the fiscal year that will end on July 31, 2023, due to the high-growth SMB market.  In February 2020, after meeting the required public notice period pursuant to section 214 of the Communications Act of 1934, the Company secured FCC approval for the acquisition of Nexogy. In addition, in February 2020 the Companyanticipated cost synergies and consolidation savings.

MEOA Business Combination

On August 30, 2022, Digerati entered into a LetterBusiness Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among Digerati, Minority Equality Opportunities Acquisition Inc., a Delaware corporation (“MEOA”), and Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Intent (LOI)MEOA (“Merger Sub”).

The Business Combination Agreement and the transactions contemplated thereby were approved by the board of directors of each of MEOA and Digerati.

The Business Combination Agreement provides, among other things, that Merger Sub will merge with and into Digerati, with Digerati as the surviving company in the merger and, after giving effect to such merger, Digerati shall be a wholly-owned subsidiary of MEOA (the “Merger). In addition, MEOA will be renamed Digerati Holdings, Inc. The Merger and the other transactions contemplated by the Business Combination Agreement are hereinafter referred to as the “Business Combination”. Other capitalized terms used, but not defined, herein, shall have the respective meanings given to such terms in the Business Combination Agreement.

In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the Effective Time, among other things: (i) each share of Digerati common stock outstanding as of immediately prior to the Effective Time will be exchanged for another acquisition. We anticipate closingshares of MEOA common stock, par value $0.0001 per share (each, an “MEOA Share” and collectively, the “MEOA Shares”), based upon the exchange ratio set forth in the Business Combination Agreement (the “Exchange Ratio”); (ii) all vested and unvested stock options of Digerati will be assumed by MEOA and thereafter be settled or exercisable for MEOA Shares, as applicable, determined based on the acquisitions duringExchange Ratio; (iii) each warrant to purchase shares of Digerati common stock will be canceled in exchange for a warrant to purchase MEOA Shares determined based on the secondExchange Ratio; (iv) any shares of the Series A Preferred Stock of Digerati outstanding as of the Effective Time will thereafter be convertible into a number of MEOA Shares determined by multiplying the number of shares of Digerati common stock into which such preferred shares would have been convertible immediately prior to the Effective Time by the Exchange Ratio; (v) certain convertible notes of Digerati issued following the signing of the Business Combination Agreement and outstanding as of the Effective Time will thereafter be convertible into a number of MEOA Shares determined by multiplying the number of shares of Digerati common stock into which such convertible notes would have been convertible immediately prior to the Effective Time by the Exchange Ratio; and (vi) each share of MEOA Class A common stock, par value $0.0001 per share (the “MEOA Class A Common Stock”), and each share of MEOA Class B common stock, par value $0.0001 per share (the “MEOA Class B Common Stock”), that is issued and outstanding immediately prior to the Effective Time shall become one MEOA Share following the consummation of the Business Combination.

The Business Combination is expected to close in the first calendar quarter of Fiscal 2021. As2023, following the receipt of the daterequired approval by the stockholders of this filing,MEOA and Digerati, approval by the Company has paid $240,000 as partNasdaq Stock Market (“Nasdaq”) of multiple extension fees, uponMEOA’s initial listing application filed in connection with the Business Combination, and the fulfillment of other customary closing these amounts will be applied to the purchase price. In addition, the Company has paid $325,000 towards the financing costs.

conditions.

1


Products and Services

We provide a comprehensive suite of cloud services specializing in UCaaS solutions for the business market. Our product line includes a portfolio of Internet-based telephony products and services delivered through our cloud application platform and session-based communication network and network services to meet the global needs of businesses that are seeking simple, flexible,including Internet broadband, fiber, mobile broadband, and cost-effective communication solutions. Our Internet-based services include fully hosted IP/ Private Branch Exchange (“PBX”) services, Session Initiation Protocol (“SIP”) trunking, call center applications, auto attendant, voice and web conferencing, call recording, messaging, voicemail to email conversion, integrated mobility applications that are device and location agnostic, and other customized IP/PBX features in a hosted or cloud environment. Other services include enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, solutions. We provide enterprise-class, carrier-grade services to the SMB at cost-effective monthly rates. Our UCaaS or cloud communication services include fully hosted IP/PBX, video conferencing, mobile applications, VoIP transport, SIP trunking, and customized VoIP services all delivered Only in the Cloud™. Our broadband connectivity solutions for the delivery of digital oxygen are designed for reliability, business continuity and Ethernet over copper. We also offer remote network monitoring, data backupto optimize bandwidth for businesses using the Company’s cloud communication services and disaster recovery.other cloud-based applications.

Voice over Internet Protocol Networks

The basic technology of traditional telecommunications systems was designed for slow mechanical switches. Communications over the traditional telephone network are routed through circuits that must dedicate all circuit resources to each call from its inception until the call ends, regardless of whether anyone is actually talking on the circuit. This circuit-switching technology incurs a significant cost per call and does not efficiently support the integration of voice with data services. Data networks, however, were designed for electronic switching. They break the data stream into small, individually addressed packages of data (“packets”) that are routed independently of each other from the origin to the destination. Therefore, they do not require a fixed amount of bandwidth to be reserved between the origin and destination of each call and they do not waste bandwidth when it is not being used for actual transmission of information. This allows multiple voice or voice and data calls to be pooled, resulting in these networks being able to carry more calls with an equal amount of bandwidth. Moreover, they do not require the same complex switching methods required by traditional voice telephone networks, instead using a multiplicity of routers to direct each packet to its destination and automatically routing packets around blockages, congestion, or outages.

Packet switching can be used within a data network or across networks, including the public Internet. The Internet itself is not a single data network owned by any single entity, but rather a loose interconnection of networks belonging to many owners that communicate using the Internet Protocol. By converting voice signals to digital data and handling the voice signals as data, it can be transmitted through the more efficient switching networks designed for data transmissions and through the Internet using the Internet Protocol. The transmission of voice signals as digitalized data streams over the Internet is known as VoIP. A VoIP network has the following advantages over traditional networks:

Simplification: An integrated infrastructure that supports all forms of communication allows more standardization, a smaller equipment complement, and less equipment management.

Network Efficiency: The integration of voice and data fills up the data communication channels efficiently, thus providing bandwidth consolidation and reduction of the costs associated with idle bandwidth. This combined infrastructure can support dynamic bandwidth optimization and a fault tolerant design. The differences between the traffic patterns of voice and data offer further opportunities for significant efficiency improvements.

Co-existence with traditional communication mediums: IP telephony can be used in conjunction with existing public telephone system switches, leased and dial-up lines, PBXs and other customer premise equipment, enterprise LANs, and Internet connections. IP telephony applications can be implemented through dedicated gateways, which in turn can be based on open standards platforms for reliability and scalability.

Cost reduction: Under the VoIP network, the connection is directly to the Internet backbone and as a result the telephony access charges, and settlement fees are avoided.

The growth of voice over the Internet was limited in the past due to poor sound quality caused by technical issues such as delays in packet transmission and by bandwidth limitations related to Internet network capacity and local access constraints. However, the expansion of Internet Protocol network infrastructure, improvements in packet switching and compression technology, new software algorithms and improved hardware have substantially reduced delays in packet transmissions and resulted in superior sound quality to that of the legacy telephone network. The continued improvement and expansion of the Internet Protocol network has resulted in the use of this technology for other communication media, including video conferencing and instant messaging.


Cloud Communications

Cloud communications are Internet-based voice and data communications where telecommunications applications, switching and storage are hosted by a third-party service provider outside of the organization using the services. Services are accessed by the user over the public Internet. Cloud telephony refers specifically to voice services and more specifically the replacement of conventional business telephone equipment (such as a PBX) with VoIP service hosted by a third-party service provider and delivered over the Internet.

We operate a cloud communication network that consists of a VoIP switching system and cloud telephony application platform. Our network allows us to provide end-to-end cloud telephony solutions designed to provide significant benefits to businesses of all sizes, with single or multiple locations. The integration of our cloud communication platform and global VoIP network allows us to provide our customers with virtually any type of telephony solution, including video conferencing, on a global basis.

Our cloud communication solutions, also known as UCaaS, are designed to minimize upfront capital costs, increase the scalability and flexibility of the customer’s communications network and service environment, provide robust features and functionality to increase productivity and reduce the overall cost of communications.

Broadband Connectivity

Broadband connectivity or Internet access is the ability of individuals and organizations to connect to the Internet using computer terminals, computers, and other devices and to access services or applications hosted on the Internet or in the cloud. Internet service providers (ISPs) deliver connectivity at a wide range of data transfer rates using various networking technologies.

We operate as an ISP in California and Florida through a broadband network engineered and built to deliver broadband solutions to our customers in the regional markets served by the Company. The Company’s broadband network utilizes various network technologies, including fiber and wireless technology. Our Internet Protocol (“IP”) layer of the ISP network incorporates SD WAN (Software-defined Wide Area Network) technology for optimization of bandwidth and business continuity. The Company also deploys mobile broadband solutions to serve as a diverse network back-up for Internet connectivity.

Strategy

Our strategy is to target the small to medium-sized business market and capitalize on the wave of migration from the legacy telephone network to cloud telephony. We will continue to concentrate our sales and marketing efforts on developing vertically oriented solutions for targeted markets primarily focusing on municipalities, banking, healthcare, legal services, and real estate. In addition, we will continue to partner with our distributors and Value-Added Resellers (“VARs”) to expand our customer base. Our typical VAR, also referred to as a Partner, is an information technology services firm, traditional PBX vendor, managed service provider, or systems integrator that has established relationships with businesses in its local market. These VARs are currently providing local customer support for other IT or PBX services but lack the technology infrastructure to provide cloud communication and VoIP services to their customers. Our strategy allows these VARs to focus on their strength of providing first tier support to their customers while we provide the second and third tier technical support required to operate a cloud communication and VoIP network. In addition, we transform our VARs’ business model by introducing new cloud telephony services and adding a new and lucrative recurring revenue stream that increases the VARs’ value proposition for its current and prospective customers.

Our cloud-based technology platform enables us and our VARs to deliver enhanced voice services to their business customers. The features supported on our cloud communication platform include all standard telephone features and value-added applications such as voicemail to email, VoIP peering, teleconferencing, IVR auto attendant, and dial-by-name directory. Our system provides our customers and VARs with a migration path from a traditional PBX system to a complete cloud-based PBX solution.


Our strategic initiatives to successfully meet our long-term business objectives include:

A continued emphasis on our UCaaS/cloud communication business, which operates in a segment of the telecommunications industry that continues to experience solid growth as businesses migrate from legacy phone systems to cloud-based telephony systems and implement hybrid ‘stay at home’ teleworking environments.

Enhancements to our UCaaS solutions to include collaboration tools and integration with third-party systems that improves our business customers’ internal communication and engagement with underlying customers.

Continued enhancements to our broadband product portfolio and the delivery of “digital oxygen” to our business customers.

A disciplined approach to evaluating additional accretive acquisitions as we build on the foundation created by our acquisitions in Texas and Florida in FY2018. We will continue to target local and/or regional UCaaS/cloud telephony providers, which have excelled in their market with that “local” touch when serving their business customers. We believeThe Company will assimilate best practices from its acquisitions to optimize productivity and performance throughout the experience gained in integrating products, personnel, and customers will facilitate continued growth via acquisition.organization.

A continued focus on the U.S. market of SMBs, of which a significant portion has not yet migrated to a UCaaS or cloud communication solution.

A continued emphasis on the Company’s channel strategy that enables its agents and Partners to offer cloud and session-based communication services to the business market, primarily the SMB.

Continued enhancement of our UCaaS/cloud communication business which operates in a segment of the telecommunication industry that continues to experience significant growth as businesses migrate from legacy phoneinfrastructure and back-office systems to cloud-based telephony systems.streamline operations and automate processes for efficiency, all which support both its organic and acquisition growth model.

Enhancements to our broadband product portfolio with an emphasis on marketing leading-edge network and business continuity solutions like cloud WAN, also known as SD-WAN (Software Defined Wide-Area Network), to our customers which we anticipate will increase average revenue per customer.

Implementing a total support model (pre and post sales) for building a world-class service delivery and help desk organization.

Emphasis on our sales distribution model that enables our VARs to offer cloud and session-based communication services to the enterprise market in various regions and industries.

Continue enhancing our infrastructure and back office system to streamline operations, automate key processes, and support the scalability of our VAR distribution model.

Competitive Conditions

The cloud services industry, including the provisioning of cloud communications services, cloud connectivity, cloud storage and cloud computing, as well as carrier voice and data services, is highly competitive, rapidly evolving and subject to constant technological change and intense marketing by providers with similar products and services. We expect that new, smaller, but very agile competitors, specializing in providing service to regional and emerging markets at low margin and hence low cost, may have an impact on our market. Similarly, the business services market includes competitors who may be significantly larger and have substantially greater market presence, financial, technical, operational and marketing resources than we do, including Tier 1 carriers, cable companies and premise-based solutions providers that are implementing cloud communication services. In the event that such a competitor expends significant sales and marketing resources in one or several markets where we compete with them, we may not be able to compete successfully in those markets. Specialized cloud services providers, who focus on one or more cloud service or application, could adopt aggressive pricing and promotion practices that could impact our ability to compete. We also believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs commensurate with the price reductions of our competitors. In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide the same or similar services offered or proposed to be offered by us. If our competitors were to provide better and more cost-effective services than ours, we may not be able to increase our revenues or capture any significant market share.

The VoIP and Internet telephony market are highly competitive. Our competitors include major telecommunications carriers in the U.S., national UCaaS providers, and numerous small cloud telephony operators. We expect to face continuing competition based on price and service offerings from existing competitors and new market entrants in the future. The principal competitive factors in our market include price, coverage, customer service, technical response times, reliability, and network size/capacity. The competitive landscape is rapidly altering the number, identity, and competitiveness of the marketplace, and we are unable to determine with certainty the impact of potential consolidation in our industry.

Many of our competitors have substantially greater financial, technical, and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we have. As a result, certain of these competitors may be able to adopt more aggressive pricing policies that could hinder our ability to market our services. We believe that our key competitive advantages are our ability to deliver reliable, high quality voice service over the Internet in a cost-effective manner, superior customers service and our VAR distribution model. We cannot provide assurances, however, that these advantages will enable us to succeed against comparable service offerings from our competitors.


Government Regulation

VoIP and otherAs a provider of Internet voice communications services, like ours, have beenwe are subject to less regulation atin the U.S. by the FCC. Some of these regulatory obligations include contributing to the Federal Universal Service Fund, Telecommunications Relay Service Fund and federal programs related to number administration; providing access to E-911 services; protecting customer information; and porting phone numbers upon a valid customer request, and complying with rules to mitigate Robocalls under the federal TRACED Act, FCC’s STIR/SHAKEN protocols, and any response to Traceback requests from the FCC’s industry consortium- Industry Traceback Group. We are also required to pay state and federal levels than traditional telecommunicationslocal 911 fees and contribute to state universal service funds in those states that assess Internet voice communications services. Providers of traditional telecommunications servicesWe are a competitive local exchange carrier (CLEC) in Florida. We are subject to the highest degree ofsame FCC regulations applicable to telecommunications companies, as well as regulation while providers of VoIPby the public utility commission in these states. Specific regulations vary on a state-by-state basis, but generally include the requirement to register or seek certification to provide telephone services, to file and other information services are largely exempt from most federalupdate tariffs setting forth the terms, conditions, and state regulations governing traditional common carriers. The FCC has subjected VoIP service providers to a smaller subset of regulations that apply to traditional telecommunications service providers and has not yet classified VoIP services as either telecommunications or information. The FCC is currently examining the status of VoIP service providers and the services they provide in multiple open proceedings. In addition, many state regulatory agencies impose taxes and other surcharges on VoIPprices for our intrastate services and certain states take the position that offerings by VoIP providers are intrastate telecommunications servicesto comply with various reporting, record-keeping, surcharge collection, and therefore subject to state regulation. These states argue that if the beginning and end points of communications are known, and if some of these communications occur entirely within the boundaries of a state, the state can regulate that offering. We believe that the FCC has preempted states from regulating VoIP offerings in the same manner as providers of traditional telecommunications services. However, this issue has not been resolved definitively as a matter of law, and it remains possible that the FCC could determine that such services are not information services, or that there could be a judicial or legislative determination that the states are not preempted from regulating VoIP services as traditional telecommunications services. We cannot predict how or when these issues will be resolved or its potential future impact on our business at this time.consumer protection requirements.


The effect of any future laws, regulations, and orders on our operations, including, but not limited to, our cloud-based communications and collaboration services, cannot be determined. But as a general matter, increased regulation and the imposition of additional funding obligations increases service costs that may or may not be recoverable from our customers, which could result in making our services less competitive with traditional telecommunications services if we increase our prices or decreasing our profit margins if we attempt to absorb such costs.

Federal, state, local and foreign governmental organizations are considering other legislative and regulatory proposals that would regulate and/or tax applications running over the Internet. We cannot predict whether new taxes will be imposed on our services, and depending on the type of taxes imposed, whether and how our services would be affected thereafter. Increased regulation of the Internet may decrease its growth and hinder technological development, which may negatively impact the cost of doing business via the Internet or otherwise materially adversely affect our business, financial condition, and results of operations.

Regulation of Internet-based Telecommunication Services in the United States

We have the necessary authority under Section 214 of the Communications Act to operate as a domestic and international telecommunications carrier. We are considered a non-dominant domestic interstate carrier subject to minimal regulation by the FCC. We are not required to obtain FCC authority to initiate or expand our domestic interstate operations, but we are required to obtain FCC approval to transfer control or discontinue service and are required to file various reports and pay various fees and assessments. In addition, we must offer service on a nondiscriminatory basis at just and reasonable rates and are subject to the FCC’s complaint jurisdiction. Generally, our international voice traffic is subject to minimal regulation by state and local jurisdictions.

We areAs a competitive local exchange carrier (CLEC) in Florida.  We are subject to the same FCC regulations applicable to telecommunications companies, as well as regulation by the public utility commission in Florida. As a CLEC, we are generally required to register or seek certification to provide certain services, to file and update tariffs setting forth the terms, conditions and prices for our intrastate services and to comply with various consumer protection, reporting, record-keeping, surcharge collection requirements.

The FCC requires Internet voice communications service providers, such as our company, to provide E-911 service in all geographic areas covered by the traditional wire-line E-911 network. Under the FCC’s rules, Internet voice communications providers must transmit the caller’s phone number and registered location information to the appropriate public safety answering point, or PSAP, for the caller’s registered location. The FCC also requires interconnected VoIP service providers to make Universal Service Fund (“USF”) contributions. We believe that our services are currently compliant with all applicable requirements of the FCC, and we have made and are making the required contributions to the USF. However, should we at some time fail to meet certain requirements or fail to make required contributions, we could be subject to revocation of our authority to operate or to fines or penalties.


As a result of the FCC’s preemption of states’ ability to regulate certain aspects of VoIP service, and a trend in state legislatures to affirmatively deregulate VoIP services for most purposes, our VoIP services are subject to relatively few state regulatory requirements, aside from collection of state and local E911 fees and state Universal Service support obligations.obligations as well as some state communication service and sales taxes, when applicable. We believe that our VoIP services are currently compliant with all applicable state requirements, and we have made and are making the required contributions to E911, state USF, and other funds. The state regulatory framework for our VoIP services continues to evolve, so we, in conjunction with our professional advisors, monitor the actions of the various state regulatory agencies and endeavor to ensure that we are in compliance with applicable state law, including any new statutes or regulations that may be passed. However, there can be no assurance that we will become aware of all applicable requirements on a timely basis, or that we will always be fully compliant with applicable rules and regulations. Should we fail to be compliant with applicable state regulations, or to file required reports with state regulatory agencies, we could be subject to fines and/or penalties.

In addition to regulations addressing Internet telephony and broadband services, other regulatory issues relating to the Internet generally could affect our ability to provide our services. Congress has adopted legislation that regulates certain aspects of the Internet including online content, user privacy, taxation, liability for third-party activities and jurisdiction. In addition, a number of initiatives pending in Congress and state legislatures would prohibit or restrict advertising or sale of certain products and services on the Internet, which may have the effect of raising the cost of doing business on the Internet generally.

International Regulation

The regulatory treatment of Internet telephony outside of the U.S. varies widely from country to country. A number of countries that currently prohibit competition in the provision of voice telephony also prohibit Internet telephony. Other countries permit but regulate Internet telephony. Some countries will evaluate proposed Internet telephony service on a case-by-case basis and determine whether it should be regulated as a voice service or as another telecommunications service. In many countries, Internet telephony has not yet been addressed by legislation or regulation. Increased regulation of the Internet and/or Internet telephony providers or the prohibition of Internet telephony in one or more countries could adversely affect our business and future prospects if we decide to expand globally.

5

Federal Robocall Mitigation Efforts and Regulations 

Beginning in March 2020, the FCC began to implement rules pursuant to the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence (TRACED) Act to mitigate illegal and fraudulent robocalls to consumer subscribers. The rules apply to all IP Enabled Communication Services operating in the U.S., including interconnected VoIP services like our services. The FCC also implemented a STIR/SHAKEN caller ID authentication framework be integrated by all VoIP services which requires certain identification processes in their Internet Protocol networks no later than June 30, 2022. We took action to implement STIR/SHAKEN in advance of the FCC’s deadlines and are compliant with all applicable STIR/SHAKEN requirements and TRACED Act requirements. We have also registered and coordinated with the FCC’s delegated industry consortium for tracking of robocalls through its Industry Traceback Group and stand ready should action be required. The FCC continues to adopt rules related to illegal robocalls, and we continue to monitor the FCC efforts as they further develop in order to ensure continued compliance with robocall mitigation rules.

Customers and Suppliers

We rely on various suppliers to provide services in connection with our VoIP and UCaaS offerings. Our customers include businesses in various industries including Healthcare, Banking, Financial Services, Legal, Real Estate, and Construction. We are not dependent upon any single supplier or customer.

During the years ended July 31, 20202022, and 2019,2021, the Company did not derive a significant amountrevenues of revenue10% or more from oneany single customer.

As of the year ended July 31, 2020, the company derived 12% of total accounts receivable from one customer. During the year ended July 31, 2019, the company did not derive a significant balance on accounts receivable from one single customer.

Employees

As of July 31, 2020,2022, and 2021, the Company did not have outstanding accounts receivable of 10% or more from any single customer.

Employees

As of July 31, 2022, we had 2290 employees, all of whom performed sales, operational, technical, and administrative functions. We believe our future success will depend to a large extent on our continued ability to attract and retain highly skilled and qualified employees. We consider our employee relations to be good. None of these aforementioned employees belong to labor unions.


ITEM 1A.RISK FACTORS.

ITEM 1A. RISK FACTORS.

Not Applicable to smaller reporting companies.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not Applicable to smaller reporting companies.

ITEM 2.PROPERTIES.

ITEM 2. PROPERTIES.

We are headquartered

As of August 1, 2022, we have relocated to a new headquarter office in San Antonio Texas and leaseleased offices and facilities in a number of other locations. Below is a list of our primary leased offices and other facilities as of July 31, 2020.2022.

Location Annual Rent  Lease Expiration Date Business Use Approx. Sq. Ft. 
           
8023 Vantage Dr., Suite 660, San Antonio, Texas 78230 $49,136  Sep-27 Executive offices  2,843 
10967 Via Frontera, San Diego, CA 92127 $369,229  Mar-26 Office space  18,541 
1610 Royal Palm Avenue, Suite 300, Fort Myers, FL 33901 $83,260  Dec-25 Office space and network facilities  6,800 
2121 Ponce de Leon Blvd., Suite 200, Coral Gables FL 33134 $128,301  Dec-27 Office space & wireless internet network  4,623 
7218 McNeil Dr., FL-1, Austin, TX  78729 $21,000  Mar-24 Network facilities  25 
6606 Lyndon B. Johnson, Fwy., FL1, Suite 125, Dallas, TX 75240 $17,040  Dec-22 Network facilities  25 
9701 S. John Young Parkway, Orlando, FL 32819 $25,440  May-23 Network facilities  540 
50 NE 9th St, Miami, FL 3313 $41,300  May-23 Network facilities  25 
350 NW 215 St., Miami Gardens, FL 33169 $29,254  May-23 Wireless internet network  100 
8333 NW 53rd St, Doral, FL 33166 $14,021  Jul-25 Wireless internet network  100 
100 SE 2nd Street, Miami, FL 33131 $36,466  Jan-24 Wireless internet network  100 
9055 SW 73rd Ct, Miami, FL 33156 $8,787  Dec-23 Wireless internet network  100 
9517 Fontainebleau Blvd., Miami, FL 33172 $11,907  Aug-24 Wireless internet network  100 

Location Lease 
Expiration Date
 Annual
Rent
  Business Use Approx.
Sq. Ft.
825 W. Bitters Rd., Suite 104
San Antonio, TX 78216
 July-22 $23,654  Executive offices 1,546
2401 First Street, Suite 300, Ft.       Lease of network facilities and  
Myers, FL 34901 Nov-20 $107,534  office space 6,800
7218 McNeail Dr, Austin, TX 78729 Apr-21 $14,222  Lease of network facilities 25
6606 Lyndon B. Johnson, Fwy., FL1,
Suite 125, Dallas, TX 75240
 Apr-21 $25,161  Lease of network facilities 25
9701 S. John Young Parkway,
Orlando, FL 32819
 May-23 $30,528  Lease of network facilities 540

We believe that our leased facilities are suitable and adequate for their intended use.

ITEM 3.LEGAL PROCEEDINGS.

ITEM 3. LEGAL PROCEEDINGS.

None.

On April 16, 2021, a lawsuit was filed against T3 by Carolina Financial Securities, LLC (“CFS”), in North Carolina State Court (Forsyth County Superior Court), claiming that T3 owed CFS a placement fee of $576,000 pursuant to an engagement letter between the two companies.  The Company removed the case to the United States District Court for the Middle District of North Carolina. The Company mediated the case, and on September 21, 2021, entered into a settlement agreement that resolved all issues and claims related to the lawsuit. Pursuant to the settlement agreement, T3 agreed to pay CFS a total of $300,000, payable as follows: $100,000 by October 15, 2021, and $200,000 payable in 15 monthly installments of $13,333.33 beginning November 15, 2021. As of July 31, 2021, and 2022, the outstanding balances related to the settlement were $300,000 and $80,000 respectively.

ITEM 4.MINE SAFETY DISCLOSURES

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.

ITEM 5.

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

Market for Common Equity

Our common stock is quoted on the OTCQB under the symbol “DTGI”. Price quotations on the OTCQB reflect inter-dealer prices, without retail mark-up, markdown, or commission, and may not necessarily represent actual transactions.

Holders

As of October 27, 2020,20, 2022, there were approximately 348346 record holders of our Common Stock.

Dividends

We have not paid cash dividends on our common stock, and we do not anticipate paying a dividend in the foreseeable future.

Equity Compensation Plans

 

The following table provides information regarding securities that have been or are authorized to be issued under our equity compensation plans as of July 31, 2020.2022.

  Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights  Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights  Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans 
          
Equity Compensation plans approved by security holders  -0-   --   -0- 
             
Equity Compensation Plans not approved by security holders  5,000,000  $0.27   -0- 
             
Total  5,000,000  $    0.27   -0- 
  Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights  Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights  Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans 
          
Equity Compensation plans approved by security holders  -0-   --   -0- 
             
Equity Compensation Plans not approved by security holders  9,130,000  $0.17   -0- 
             
Total  9,130,000  $0.17   -0- 

Sales of Unregistered Securities

On August 12, 2019, the Company issued 114,123 shares of common stock for the conversion of $7,500 of the principal outstanding and $500 in administrative fees under the convertible note.

On August 20, 2019, the Company issued 191,116 shares of common stock for the conversion of $7,500 of the principal outstanding and $538 in accrued interest and administrative fees under the convertible note.

On August 26, 2019, the Company issued 250,000 shares of common stock for the conversion of $14,500 of the principal outstanding and $500 in administrative fees under a convertible note.

On August 26, 2019, the Company issued 416,666 shares of common stock for the conversion of $25,000 of the principal outstanding under a convertible note.

On September 4, 2019, the Company issued 250,620 shares of common stock for the conversion of $10,000 of the principal outstanding and $541 in administrative fees under a convertible note.

On September 10, 2019, the Company issued 277,291 shares of common stock for the conversion of $12,750 of the principal outstanding and $3,888 in accrued interest and administrative fees under a convertible note.

On September 26, 2019, the Company issued 342,466 shares of common stock for the conversion of $14,500 of the principal outstanding and $500 in administrative fees under a convertible note.

On October 7, 2019, the Company issue 400,000 shares of common stock, as part of an amendment to various promissory notes. The shares were recorded as debt discount and amortized over the remaining term of the notes.


On October 27, 2019, the Company issued 332,667 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in administrative fees under a convertible note.

On October 29, 2019, the Company issued 465,736 shares of common stock for the conversion of $13,500 of the principal outstanding and $500 in administrative fees under a convertible note.

On October 31, 2019, the Company issued 310,527 shares of common stock for the conversion of $6,500 of the principal outstanding and $2,834 in accrued interest and administrative fees under a convertible note.

On October 31, 2019, the Company issued 831,669 shares of common stock for the conversion of $25,000 of the principal outstanding under a convertible note.

On October 31, 2019, the Company issued 3,952,095 common shares to the Executive Officers for services in lieu of cash compensation. The Company recognized stock-based compensation expense of approximately $276,646 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.

On October 31, 2019, the Company issued 1,337,325 shares of common stock to the Executive Officers, with a market value at time of issuance of $93,612 the stock was issued as payment for outstanding compensation.

On November 14, 2019, the Company issued 301,697 shares of common stock for the conversion of $7,500 of the principal outstanding, $500 in fees and accrued interest of $146 under one of the convertible notes.

On November 15, 2019, the Company issued 398,247 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes.

On November 19, 2019, the Company issued 537,635 shares of common stock for the conversion of $13,000 of the principal outstanding and $500 in fees under one of the convertible notes.

On November 26, 2019, the Company issued 447,917 shares of common stock for the conversion of $8,000 of the principal outstanding, $500 in fees and accrued interest of $100 under one of the convertible notes.

In November 2019, in conjunction of various note extension agreements, the Company issued 80,000 shares of common stock with a fair market value $3,200.

In November 2019, the Company issued 282,885 shares of common stock for payment of $14,382 in accrued interest.

In November 2019, the Company issued 86,667 shares of common stock in conjunction to the conversion of 25,000 shares of the Series A Convertible Preferred stock and $1,189 in accrued dividends.

On December 10, 2019, the Company issued 400,000 shares of common stock with a fair market value of $15,240 for compensation on an agreement for professional services.

On December 16, 2019, the Company issued 520,833 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes.

On December 24, 2019, the Company issued 444,672 shares of common stock for the conversion of $8,000 of the principal outstanding, $500 in fees and accrued interest of $171 under one of the convertible notes.

On December 31, 2019, the Company issued 517,598 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes.

On January 2, 2020, the Company issued 5,012,658 common shares to the Executive Officers for services in lieu of cash compensation. The Company recognized stock-based compensation expense of approximately $198,000 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.

On January 8, 2020, the Company issued 785,760 shares of common stock for the conversion of $5,000 of the principal outstanding, $500 in fees and accrued interest of $8,408 under one of the convertible notes.

On January 9, 2020, the Company issued 200,000 shares of common stock for the conversion of $1,328 of the principal outstanding and accrued interest of $2,212 under one of the convertible notes.

On January 13, 2020, the Company issued 549,858 shares of common stock for the conversion of $8,000 of the principal outstanding, $500 in fees and accrued interest of $78 under one of the convertible notes.


On January 16, 2020, the Company issued 705,128 shares of common stock for the conversion of $10,500 of the principal outstanding and $500 in fees under one of the convertible notes.

On January 22, 2020, the Company issued 1,698,717 shares of common stock for the conversion of $25,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.

On January 28, 2020, the Company issued 474,891 shares of common stock for the conversion of $6,000 of the principal outstanding, $500 in fees and accrued interest of $25 under one of the convertible notes.

On January 28, 2020, the Company issued 956,226 shares of common stock for the conversion of $9,250 of the principal outstanding, $500 in fees and accrued interest of $3,962 under one of the convertible notes.

On February 4, 2020, the Company issued 2,054,263 shares of common stock for the conversion of $25,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.

On February 15, 2020, the Company issued 200,000 shares of common stock as a principal payment on a note for $10,000. At issuance, the Company recognized a benefit to non-cash expense of $4,600, this benefit was recognized as a result of the difference between the fair market value of the shares of common stock issued and debt settled.

On February 19, 2020, the Company issued 110,027 shares of common stock for payment of accrued interest and a fair market value of $4,401.

On February 19, 2020, in conjunction with various note extension agreements, the Company issued 260,000 shares of common stock with a fair market value of $6,890.

On February 20, 2020, in conjunction with a note extension agreement, the Company issued 40,000 shares of common stock with a fair market value of $800.

On February 24, 2020, the Company issued 11,509,022 common shares to various employees as part of the Company’s Non-Standardized profit-sharing plan contribution. The Company recognized stock-based compensation expense of approximately $233,633 equivalent to the value of the shares calculated based on the share’s closing price at the grant date.

On February 27, 2020, the Company issued 2,500,000 shares of common stock for the conversion of $15,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.

On April 2, 2020, the Company issued 3,208,955 shares of common stock for the conversion of $20,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.

On April 24, 2020, the Company issued 3,208,955 shares of common stock for the conversion of $20,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.

On April 30, 2020, the Company issued 13,582,554 shares of common stock for the settlement of debt of $370,000 and $37,476 in accrued interest. At the time of issuance, the Company recognized a gain in settlement of debt $129,034.

On April 30, 2020, the Company issued a total of 407,477 shares of Series B Preferred Stock for payment of $370,000 of the outstanding principal balance on various promissory notes and $37,476 in accrued interest.

On May 29, 2020, the Company issued 3,500,000 shares of common stock for the conversion of $30,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.

On June 12, 2020, the Company issued 4,433,760 shares of common stock for the conversion of $40,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.

On July 6, 2020, the Company issued 4,708,333 shares of common stock for the conversion of $55,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.


On July 13, 2020, the Company issued 2,073,925 shares of common stock for cash proceeds of $51,629, net of administration fees of $2,500.

On July 27, 2020,2021, the Company entered into a $275,000$75,000 promissory note, with a maturity date of August 31, 2022, and inannual interest rate of 8%. In conjunction with the promissory note, we issued 500,000150,000 shares of common stock. At the time of issuance, the Company recognized the relative fair market value of the shares of $11,626$13,635 as debt discount, and it will be amortized to interest expense during the term of the promissory note.

On JulySeptember 29, 2020, the Company issued 1,819,700 shares of common stock for cash proceeds of $42,337, net of administration fees of $2,500.

On August 1, 2020, the Company issued 2,000,000 common shares for professional services. The Company recognized as stock-based compensation expense of approximately $58,000 equivalent to the value of the shares calculated based on the share’s closing price at the time of issuance.

On August 4, 2020, the Company issued 5,000,000 shares of common stock for the conversion of $75,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.

On August 7, 2020, the Company issued 7,608,820 common shares to various employees as part of the Company’s Non-Standardized profit-sharing plan contribution. The Company recognized stock-based compensation expense of approximately $247,287 equivalent to the value of the shares calculated based on the share’s closing price at the grant date.

On August 14, 2020, the Company issued 5,000,000 shares of common stock for the conversion of $80,000 of the principal outstanding under one of the convertible notes.

On October 13, 2020,2021, the Company entered into a $330,000$75,000 promissory note, with a maturity date of September 29, 2022, and inannual interest rate of 8%. In conjunction with the promissory note, we issued 1,000,000150,000 shares of common stock. At the time of issuance, the Company recognized the relative fair market value of the shares of $36,244$10,788 as debt discount, and it will be amortized to interest expense during the term of the promissory note.

On October 22, 2021, the Company entered into a $150,000 promissory note, with a maturity date of October 22, 2022, and annual interest rate of 8%. In conjunction with the promissory note, we issued 300,000 shares of common stock. At the time of issuance, the Company recognized the relative fair market value of the shares of $13,965 as debt discount, and it will be amortized to interest expense during the term of the promissory note.


On January 21, 2022, the Company secured two promissory notes for $460,000, with a maturity date of October 21, 2022, and annual interest rate of 8%. In conjunction with the promissory notes, we issued 600,000 shares of common stock. At the time of issuance, the Company recognized the relative fair market value of the shares of $60,892 as debt discount, and it will be amortized to interest expense during the term of the promissory note.

On February 14, 2022, the Company entered into a note extension agreement, and as consideration for the extension, the Company issued 250,000 shares of common stock with a fair market value of $34,150. In addition, the Company agreed to add $75,000 to the principal amount outstanding. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. The Company recognized a loss on extinguishment of debt for both the $75,000 increase in principal and $34,150 fair value of shares issued and charged the total $109,150 to interest expense at the time of the extension.

On July 1, 2022, the Company issued a total of 1,500,000 shares of common stock for the professional services provided by a consultant. At the time of issuance, the fair market value of the common stock issued was $125,250.

On July 26, 2022, the Company entered into a note extension agreement, and as consideration for the extension, the Company issued 300,000 shares of common stock with a fair value of $30,000. In addition, the Company agreed to add $50,000 to the principal amount outstanding. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. The Company recognized a loss on extinguishment of debt for both the $50,000 increase in principal and $30,000 fair value of shares issued and charged the total $80,000 to interest expense at the time of the extension.

On July 27, 2022, the Company entered into a variable convertible promissory note with an aggregate principal amount of $165,000, annual interest rate of 8% and a maturity date of April 27, 2023. After payment of transaction-related expenses and closing fees of $19,500, net proceeds to the Company from the Note totaled $100,000. Additionally, the Company recorded $19,500 as a discount to the Note which is amortized over the term of the note. In connection with the execution of the note, the Company issued 300,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $22,093 as debt discount, and it will be amortized to interest expense during the term of the promissory note.

On various dates in August and September 2022, the Company entered into several note extension agreements and as consideration for the extensions, the Company issued a total of 1,460,000 shares with a fair value of $179,680. The Company also agreed to add a total of $242,500 to the principal amounts owed to the noteholders.

On October 21, 2022, the Company entered into several note extension agreements and as consideration for the extensions, the Company issued 600,000 shares with a fair value of $72,660. The Company agreed to add a total of $60,000 to the principal amounts owed to the noteholders.

The sales and issuances of the securities described above were made pursuant to the exemptions from registration contained into Section 4(a)(2) of the Securities Act and Regulation D under the Securities Act. Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. We requested our stock transfer agent to affix appropriate legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser was given adequate access to sufficient information about us to make an informed investment decision. Except as described in this prospectus, none of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved.

ITEM 6.SELECTED FINANCIAL DATA.

ITEM 6. [RESERVED].

Not Applicable to smaller reporting companies.


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

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

This Annual Report contains “forward-looking statements” that describe management’s beliefs and expectations about the future. We have identified forward-looking statements by using words such as “anticipate,” “believe,” “could,” “estimate,” “may,” “expect,” and “intend,” or words of similar import. Although we believe these expectations are reasonable, our operations involve a number of risks and uncertainties, and actual results may be materially different than our expectations.

The following is a discussion of the consolidated financial condition and results of operations for the fiscal years ended July 31, 20202022, and 2019,2021, and should be read in conjunction with our Consolidated Financial Statements, the Notes thereto, and the other financial information included elsewhere in this annual report on Form 10-K. For purposes of the following discussion, FY 20202022 or 20202022 refers to the year ended July 31, 20202022, and FY 20192021 or 20192021 refers to the year ended July 31, 2019.2021.

10

Recent Activity

In September 2019,Acquisitions

On February 4, 2022, the Company entered intoclosed on the acquisition of Next Level Internet, Inc. (“NextLevel”). NextLevel, based in San Diego, California, is engaged in the business of providing cloud communications, Unified Communications as a definitive agreementService (“UCaaS”), collaboration, contact center, managed broadband connectivity and other voice and data services to acquirethe SMB market. The acquisition of NextLevel expands the Company’s growing nationwide footprint and adds a strong West Coast presence with nearly 1,000 SMB clients in California.

On December 31, 2021, the Company closed on the acquisition of substantially all of the assets of Skynet Telecom LLC (“Skynet”), a Texas-based provider of Voice Over Internet Protocol (“VoIP”) communication services, UCaaS, and broadband connectivity services to the SMB market. Pursuant to the Asset Purchase Agreement, the Company acquired the customer base, certain equipment, certain intellectual property, inventory, contract rights, software and other licenses, and miscellaneous assets used in connection with the operation of Skynet’s telecommunications business.

On November 17, 2020, the Company closed on the acquisitions of Nexogy, Inc. (“Nexogy”), aand ActivePBX (“ActivePBX”), leading provider in South Floridaproviders of cloud communication, UCaaS, and managedbroadband solutions tailored for businesses.

As a combined business, NextLevel, Skynet, Nexogy, ActivePBX, and T3, will serve over 4,000 business customers and approximately 45,000 business users. The business model of the combined entities is supported by strong and predictable recurring revenue with high gross margins under contracts with business customers in various industries including banking, healthcare, financial services, offeringlegal, insurance, hotels, real estate, staffing, municipalities, food services, and education. We expect the acquisitions to have a portfoliopositive impact on the revenues and operating income of cloud-based solutionsthe Company during the fiscal year that will end on July 31, 2023, due to the high-growth SMB market.  anticipated cost synergies and consolidation savings.

MEOA Business Combination

On August 30, 2022, Digerati entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among Digerati, Minority Equality Opportunities Acquisition Inc., a Delaware corporation (“MEOA”), and Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of MEOA (“Merger Sub”).

The Business Combination Agreement and the transactions contemplated thereby were approved by the board of directors of each of MEOA and Digerati.

The Business Combination Agreement provides, among other things, that Merger Sub will merge with and into Digerati, with Digerati as the surviving company in the merger and, after giving effect to such merger, Digerati shall be a wholly-owned subsidiary of MEOA (the “Merger). In February 2020, after meetingaddition, MEOA will be renamed Digerati Holdings, Inc. The Merger and the other transactions contemplated by the Business Combination Agreement are hereinafter referred to as the “Business Combination”. Other capitalized terms used, but not defined, herein, shall have the respective meanings given to such terms in the Business Combination Agreement.


The Business Combination is expected to close in the first calendar quarter of 2023, following the receipt of the required publicapproval by the stockholders of MEOA and Digerati, approval by the Nasdaq Stock Market (“Nasdaq”) of MEOA’s initial listing application filed in connection with the Business Combination, and the fulfillment of other customary closing conditions. There can be no assurance that the Company will be able to close the Business Combination or that it will approve by Nasdaq as per the stipulated timeline. If the Company is unable to complete the Business Combination as planned, the Company could be required to explore other options, currently there’s no other consideration being explored. For further information, please refer to Note 18 to the Consolidated Financial Statements.

The Business Combination Agreement may be terminated under certain customary and limited circumstances at any time prior to the closing, including, without limitation, (i) by the mutual written consent of MEOA and Digerati; (ii) by MEOA, subject to certain exceptions, if any of the representations or warranties made by Digerati are not true and correct or if Digerati fails to perform any of its covenants or agreements under the Business Combination Agreement (including an obligation to consummate the closing) such that certain conditions to our obligations could not be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (A) thirty (30) days after written notice thereof, and (B) February 25, 2023 (the “Termination Date”); (iii) by Digerati, subject to certain exceptions, if any of the representations or warranties made by our company or Merger Sub are not true and correct or if MEOA or Merger Sub fails to perform any of its covenants or agreements under the Business Combination Agreement (including an obligation to consummate the closing) such that the condition to the obligations of Digerati could not be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (A) thirty (30) days after written notice thereof, and (B) the Termination Date; (iv) by either MEOA or Digerati, if the closing does not occur on or prior to the Termination Date, unless the breach of any covenants or obligations under the Business Combination Agreement by the party seeking to terminate proximately caused the failure to consummate the transactions contemplated by the Business Combination Agreement; (v) by either MEOA or Digerati, if (A) any governmental entity shall have issued an order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by the Business Combination Agreement and such order or other action shall have become final and non-appealable; or (B) if the Required MEOA Stockholder Consent is not obtained; (vi) by MEOA, if (A) Digerati does not deliver, or cause to be delivered to MEOA a Transaction Support Agreement duly executed by certain Digerati stockholders or (B) the Digerati stockholders meeting has been held, has concluded, the Digerati stockholders have duly voted, and Digerati stockholder approval was not obtained; (vii) by MEOA, if Digerati does not deliver, or cause to be delivered, to MEOA a duly executed copy of the PRG Resolution Agreement on or prior to October 15, 2022. The parties are currently negotiating an extension to this deadline. There can be no assurance that an agreement on this matter will be reached; (viii) by Digerati, should MEOA not have timely taken such actions as are reasonably necessary to extend the period of time to complete an initial business combination for an additional period of three months from November 30, 2022; provided, that it shall be the obligation of Digerati to timely make the deposit into the Trust Account in connection with such extension, and Digerati shall not have a right to terminate the Business Combination Agreement as a result of Digerati’s failure to make such deposit; (ix) by MEOA should Digerati not deposit into the Trust Account in a timely manner the funds necessary to extend the period for our company to complete an initial business combination for an additional period of three months from November 30, 2022, in accordance with, and as required pursuant to, section 214the Business Combination Agreement; and (x) by MEOA should: (A) Nasdaq not approve the initial listing application for the combined company with Nasdaq in connection with the Business Combination; (B) the combined company not have satisfied all applicable initial listing requirements of Nasdaq; or (C) the common stock of the combined company not have been approved for listing on Nasdaq prior to the date of the closing.

If the Business Combination Agreement is validly terminated, none of the parties to the Business Combination Agreement will have any liability or any further obligation under the Business Combination Agreement other than customary confidentiality obligations, except in the case of a willful breach of any covenant or agreement under the Business Combination Agreement or fraud, provided, that (A) if MEOA terminates the Business Combination Agreement pursuant to clauses (ii), (vi), (vii) or (viii) of the preceding paragraph, Digerati shall pay to MEOA, promptly following such termination, and in any event within not less than five business days following delivery of notice of termination, a termination fee in the amount of $2,000,000, (B) if Digerati terminates the Business Combination Agreement pursuant to clauses (iii) or (ix) of the preceding paragraph, MEOA shall pay to Digerati promptly following such termination, and in any event within not less than five business days following delivery of notice of termination, a termination fee in the amount of $2,000,000 and (C) in the event of a termination by MEOA pursuant to clauses (ix) or (x) of the preceding paragraph, Digerati shall pay to us, promptly following such termination, and in any event within not less than five business days following delivery of notice of termination, a termination fee in the amount of $1,265,000.


Forbearance Agreement

On June 13, 2022, T3 Communications, ActInc., a Nevada entity that is a majority owned subsidiary of 1934, the Company secured FCC approval(“T3 Nevada”), four operating entities (Shift8 Networks, Inc., dba, T3 Communications (a Texas entity), T3 Communications, Inc. (a Florida entity), Nexogy Inc., and NextLevel) collectively referred to as the “Guarantors” (T3 Nevada and the Guarantors, collectively, the “Loan Parties”), Post Road Administrative LLC (the “Agent”) and its affiliate Post Road Special Opportunity Fund II LLP (collectively, with the Agent, “Post Road”), entered into a Forbearance Agreement and Third Amendment to Credit Agreement (“Forbearance Agreement”).

The Forbearance Agreement was entered into because certain events of default related to both the Credit Agreement (originally entered into in November 2020 and amended in December 2021 and February 2022) and the Joinder (entered into in February 2022) have occurred. The events of default related to financial covenants were failure to maintain a Senior Leverage Ratio (as defined in the Credit Agreement) of less than 4.05 to 1.00 and failure to comply with a Credit Agreement provision whereby the Loan Parties are not allowed to make annual Capital Expenditures (as defined in the Credit Agreement) greater than $379,190.

On October 17, 2022, and the Loan Parties and Post Road agreed to amend the Forbearance Agreement dated June 13, 2022, pursuant to an Amendment to Forbearance Agreement (the “Amendment”).

The Amendment was entered into because certain events of default related to both the Credit Agreement and the Joinder that had occurred prior to the parties’ entering into the Forbearance Agreement were continuing (the “Prior Existing Defaults”), certain additional events of default related to the Credit Agreement had occurred since the date of the Forbearance Agreement (the “Additional Existing Defaults”), and the parties anticipated that additional events of default with respect to the Credit Agreement will occur (the “Anticipated Defaults”).

The Additional Existing Defaults related to financial covenants were failure to maintain a Senior Leverage Ratio (as defined in the Credit Agreement) of less than 4.06 to 1.00 for the fiscal quarter ended July 31, 2022, and failure to maintain Minimum Liquidity (as defined in the Credit Agreement) of $2.0 million for the fiscal quarter ended July 31, 2022. The Anticipated Defaults related to financial covenants are failure to maintain a Senior Leverage Ratio of less than 4.05 to 1.00 for the fiscal quarter ending October 31, 2022, and failure to maintain Minimum Liquidity of $2.0 million for the fiscal quarter ending October 31, 2022.

The Additional Existing Defaults and Anticipated Defaults unrelated to financial covenants relate to the Loan Parties’ failure to deliver a compliance certificate for the fiscal quarter ended July 31, 2022, and ending October 31, 2022, respectively and, with respect to the Additional Existing Defaults, to timely deliver an executed copy of an amendment to a lease agreement.

Pursuant to the Amendment, Post Road agreed to forbear through the Amended Forbearance Period (as defined below) from (i) exercising its rights and remedies with regard to the Prior Existing Defaults, the Additional Existing Defaults, and the Anticipated Defaults and (ii) requiring compliance with the financial covenants set forth in Section 11.12 of the Credit Agreement. The “Amended Forbearance Period” is from June 13, 2022, through the earlier of (a) November 15, 2022, (b) the date on which any other event of default not enumerated in the Amendment occurs or is deemed to have occurred, or (c) the date of any failure of any Loan Party to comply with any term, condition, or provision of the Forbearance Agreement as amended by the Amendment. The Amendment does not constitute a waiver of the defaults enumerated therein nor does it impair the ability of Post Road to exercise its rights and remedies after the expiration of the Amended Forbearance Period.

The events of default unrelated to financial covenants were the Loan Parties’ failure to: (a) deliver certain certificates, financial information and projections, lease, landlord, and control agreements, and evidence of a UCC-3 filing; (b) close or consolidate certain bank accounts; (c) provide ten (10) business days’ notice prior to the Company filing certain filings with the Securities and Exchange Commission (the “SEC”) and the Nevada Secretary of State; and (d) engage an industry consultant acceptable to the Agent to consult with the Loan Parties on integration strategy, future acquisitions, operating performance, and various business issues.


The Company anticipates implementing remedies by November 15, 2022, to resolve the financial covenants breaches and the breaches regarding delivering a compliance certificate, financial projections, and a landlord agreement along with engaging an industry consultant. The Company and Post Road have agreed to work in good faith to adjust the financial covenants set forth in Section 11.12 of the Credit Agreement to include the financial impact of the acquisition of Nexogy. In addition, in February 2020 the Company entered into a Letter of Intent (LOI) for another acquisition. The Company expects closing on the two acquisitions during the second quarter of Fiscal 2021.Skynet and Next Level. As of the date of this filing, the Company has paid $240,000 as partcannot predict the final outcome of multiple extension fees, upon closing, these amounts will be appliedthe negotiations with Post Road. For further information, please refer to Note 10 to the purchase price.Consolidated Financial Statements.

Key Performance indicators:

EBITDA from operations, as adjusted is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as corporate expenses, transactional legal expenses, stock option expense, and depreciation and amortization, which are significant components in assessing the Company’s financial performance. The Company believes that the presentation of EBITDA from operations, as adjusted provides useful information regarding the Company’s operations and other factors that affect the Company’s reported results. Specifically, the Company has paid $325,000 towardsbelieves that by excluding certain one-time or non-cash items such as transactional legal fees and depreciation and amortization, as well as potential distortions between periods caused by factors such as financing and capital structures, the financing costs.Company provides users of its consolidated financial statements with insight into both its operations as well as the factors that affect reported results between periods but which the Company believes are not representative of its operations. As a result, users of the Company’s consolidated financial statements are better able to evaluate changes in the financial consolidated results of the Company across different periods

The following tables provide information regarding certain key performance indicators for Digerati for the years ended July 31, 2022, and 2021. Management utilizes these metrics to track and forecast revenue trends and expected results from operations:

  (In thousands) 
  For the Years ended July 31, 
  2022  2021  Variances  % 
OPERATING REVENUES:            
Cloud software and service revenue $24,154  $12,416  $ 11,738   95%
Total operating revenues  24,154   12,416   11,738   95%
Cost of services (exclusive of depreciation and amortization)  9,346   5,135   4,211   82%
GROSS MARGIN  14,808   7,281   7,527   103%
GPM%  61.31%  58.64%  2.66%    
EXPENSES:                
Selling, general and administrative expense  11,158   5,230   5,928   113%
Bad debt expense  98   17   81   476%
Total expenses  11,256   5,247   6,009   115%
                 
EBITDA FROM OPERATIONS, as adjusted  3,552   2,034   1,518   75%
Reconciliation to Operating loss, as reported                
Other Expenses                
Corporate expenses & stock compensation expenses  1,609   1,783   (174)  -10%
Corporate legal, professional fees and transactional expenses  2,703   900   1,803   200%
Depreciation and amortization expense  2,916   1,749   1,167   67%
Total other expenses  7,228   4,432   2,796   63%
                 
OPERATING LOSS, as reported $(3,676) $(2,398) $ (1,278)  53%
Other Key Metrics                
Total Customers  4,023   2,655   1,368   52%

Cloud software and service revenue increased by $11,738,000, or 95% from the year ended July 31, 2021, to the year ended July 31, 2022. In addition, our gross margin increased by $7,527,000 from the year ended July 31, 2021, to the year ended July 31, 2022. The increase in revenue and gross margin between years is primarily attributed to the increase in total customers between years due to the acquisitions of Nexogy, ActivePBX, Skynet, and NextLevel.

EBITDA from operations, as adjusted increased from $1,518,000, or 75% from the year ended July 31, 2021, to the year ended July 31, 2022. The primary reason for the improvement in EBITDA from operations is due to the increase in gross margin of $7,527,000 between the year ended July 31,2021 and 2022. The improvement in gross margin was offset by the increase in total operational expenses of $6,009,000 between the years ended July 31, 2021, and 2022. EBITDA from operations, as adjusted is not intended to represent cash flows for the periods presented, nor have they been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Our total customers increased from 2,655 during the year ended July 31, 2021, to 4,023 for the year ended July 31, 2022. The increase in customers is attributed to the acquisitions and consolidation of Skynet and NextLevel during the year ended July 31, 2022. Going forward, absent further acquisitions, we expect a net increase in our number of customers of 1% to 5% each fiscal year.


Sources of revenue:

Cloud-based hosted ServicesCloud Software and Service Revenue: We provide UCaaS or cloud communication services and managed cloud-based solutions to small and medium size enterprise customers and to other resellers. Our Internet-based services include fully hosted IP/PBX services, SIP trunking, call center applications, auto attendant, voice and web conferencing, call recording, messaging, voicemail to email conversion, integrated mobility applications that are device and location agnostic, and other customized IP/PBX features in a hosted or cloud environment. Other services include enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, mobile broadband, and Ethernet over copper. We also offer remote network monitoring, data backup and disaster recovery.

 

Direct Costs:

Cloud-based hosted ServicesCloud Software and Service: We incur bandwidth and colocation charges in connection with our UCaaS or cloud communication services. The bandwidth charges are incurred as part of the connectivity between our customers to allow them access to our various services. We also incur costs from underlying providers for fiber, Internet broadband, and telecommunication circuits in connection with our data and connectivity solutions.

Results of Operations

Cloud-based hosted ServicesCloud Software and Service Revenue. Cloud-based hosted servicesCloud software and service revenue increased by $239,000,$11,738,000, or 4%95% from the year ended July 31, 20192021, to the year ended July 31, 2020.2022. The increase in revenue between periods is primarily attributed to the increase in total customers between periods.years due to the acquisitions of Nexogy, ActivePBX, Skynet and NextLevel. Our total number of customers increased from 7022,655 for the year ended July 31, 2021, to 4,023 customers for the year ended July 31, 2019 to 7282022. As part of the acquisitions, our primary emphasis is on integrating the secured customers forbase, consolidating products and services, retaining the year ended July 31, 2020.monthly recuring revenue, and providing exceptional customer support.

Cost of Services (exclusive of depreciation and amortization). The cost of services decreasedincreased by $93,000,$4,211,000, or 3%,82% from the year ended July 31, 20192021, to the year ended July 31, 2020.2022. The decreaseincrease in cost of services between periods is primarily attributed to the decrease in fixed costs and consolidation of our networks. In addition,various networks and key vendors as part of the increase in total customers between periods due to the acquisitions of Nexogy, ActivePBX, Skynet and NextLevel. Our total number of customers increased from 2,655 for the year ended July 31, 2021, to 4,023 customers for the year ended July 31, 2022. However, our consolidated gross margin increasedimproved by $332,000 or 11%,$7,527,000 from the year ended July 31, 20192021, to the year ended July 31, 2020. The increase2022. We are not aware of any events that are reasonably likely to cause a material change in gross marginthe relationship between periods is attributed to a higher concentration of enterprise customers revenue, which generate a higher margin than services provided via resellers.our costs and our revenues.

Selling, General and Administrative (SG&A) Expenses (exclusive of Stocklegal and professional fees and stock compensation expense). SG&A expenses decreasedincreased by $185,000, or 6%,$5,815,000, from the year ended July 31, 20192021, to the year ended July 31, 2020.2022. The decreaseincrease in SG&A is attributed to reductionacquisition of a few sales partners,Nexogy, ActivePBX, Skynet and NextLevel, as part of the consolidation, the Company absorbed all of the employees responsible for managing the customer care andbase, technical support, partners.sales, customer service, and administration.

Stock Compensation expense. Stock compensation expense increaseddecreased by $83,000,$400,000, or 64% from the year ended July 31, 20182021, to the year ended July 31, 2019.2022. The increasedecrease between periods is attributed to the recognition ofCompany only recognizing $97,863 in stock option expense of $377,000associated with stock options awarded to various employees and recognized $125,250 in stock issued to consultants for professional services during the year ended July 31, 2020 associated with the stock options with multiple vesting periods that were awarded to various employees during FY2018, FY2019 and FY2020. The Company also recognized $501,000 in stock compensation for stock issued in lieu of cash payments to the Management team2022. In comparison, during the year ended July 31, 2020. The2021, the Company also recognized $233,633stock option expense of $135,000 associated with stock options awarded to various employees, recognized $247,000 in stock compensation expense associated with the funding of the 401(K)-profit sharing plan, and recognized $15,000$18,000 in stock compensation expensefor stock issued in lieu of cash payments to professionalsa former employee, and recognized $223,000 in stock issued to consultants for the year ended July 31, 2020.professional services.


Legal and professional fees. Legal and professional fees increased by $252,000,$2,142,000, or 65%,240% from the year ended July 31, 20192021, to the year ended July 31, 2020.2022. The increase between periods is attributed to the recognition during FY 2020 of $132,400 on professional fees related to mediation with two former employees and $202,000 in legal fees associated to the acquisitions.

Bad debt. Bad debt was a benefit of $5,000 for the year ended July 31, 2020; this was recognized2022, of $1,850,000 in legal and professional fees related to due diligence, audits for the acquisitions, purchase price allocation, legal fees paid to counsel for Post Road, and investor relations.

Bad debt. Bad debt increased between the periods by $81,000. The increase is attributed to the recognition of $98,000 in bad debt during the year ended July 31, 2022, for accounts that were previously deemed uncollectable. During the year ended July 31, 2021, the Company recognized $17,000 in bad debt.


Depreciation and amortization. Depreciation and amortization decreasedincreased by $56,000,$1,167,000, from the year ended July 31, 20192021, to the year ended July 31, 2020, mainly due2022. The increase is primarily attributed to decrease inthe acquisitions and related amortization of $2,414,000 for intangible assets, and the additional depreciation expense related to the depreciation for the assets that reached their expected useful life.acquired from Nexogy, ActivePBX, Skynet and NextLevel.

Operating loss.loss. The Company reported an operating loss of $2,112,000$3,676,000 for the fiscal periodyear ended July 31, 20202022, compared to an operating loss of $2,361,000$2,398,000 for the fiscal periodyear ended July 31, 2019.2021. The improvementincrease in operating loss between periods is primarily due to the increase of $332,000 in gross margin, decreaseSG&A of $185,000 in SG&A, decrease$5,815,000, legal fees of $11,000 in$2,142,000, bad debt of $81,000, and depreciation expense and the decrease of $56,000 in depreciation and amortization expense. The positive improvements$1,167,000. These increases were slightly offset by the increase in margin of $83,000$7,527,000 and the decrease in stock compensation expense and the increase of $252,000 in legal and professional fees.$400,000.

Gain (loss) on derivative instruments. Gain (loss)Loss on derivative instruments improveddecreased by $337,000$16,121,000 from the year ended July 31, 20192021, to the year ended July 31, 2020.2022. We are required to re-measure all derivative instruments at the end of each reporting period and adjust those instruments to market, as a result of the re- measurementre-measurement of all derivative instruments we recognized an improvementincrease between periods.

Gain (loss) on settlement of debt. GainLoss on settlement of debt improvedincreased by $129,000$6,041,000 from the year ended July 31, 20192021, to the year ended July 31, 2020. During the year ended July 31, 20202022. On December 20, 2021, the Company issued 13,582,554 shares of common stock forand our lender entered into an amendment to a Credit Agreement, as described in Note 10, in connection with the conversion of $370,000 on the outstanding principal balance on various promissory notes and $37,476 in accrued interest. At the time of issuance,amendment, the Company recognized $129,000a loss on extinguishment of debt for the amendment fee of $1,419,000 and the debt discount associated with the note of $4,061,000 was also recognized as a gain in settlementloss on extinguishment of debt.

Income tax benefit (expense). During the year ended July 31, 2020, the Company recognized an income tax benefit of $33,000. During the year ended July 31, 2019,2022, the Company recognized an income tax expense of $47,000.$419,000. During the year ended July 31, 2021, the Company recognized an income tax expense of $183,000.

Interest expense.Other income (expense). InterestOther expense decreased by $313,000$320,000 or 109% in the year ended July 31, 2022, compared to the year ended July 31, 2021.

Interest Income (expense). Interest income (expense) increased by $1,225,000 from the year ended July 31, 20192021, to the year ended July 31, 2020. The2022. During the year ended July 31, 2022, the Company recognized non-cash interest / accretion expenseamortization of $1,228,000debt discount of $2,064,000 related to the adjustment to the present value of various convertible notes and debentures.debt. Additionally, the Company recognized $547,000$2,400,000 in interest expense for cash payments to Post Road, $75,000 in interest cash payments on various promissory notes, $93,000accrual of $147,000 for interest paid in stockexpense for various promissory notes.

Other income. Other income increased by $116,000 from the year ended July 31, 2019notes and $64,000 fair value of shares issued as well as $1,195,000 added to the year ended July 31, 2020. Duringprincipal balance of various promissory notes, all charged to interest expense as consideration for extension of the year ended July 31, 2020 the Company recognized as other income $100,000 for a settlement with one of our vendors, in addition the Company recognized $16,000 in interest income during the year ended July 31, 2020.maturity dates.

Net income (loss)loss including noncontrolling interest. Net loss including noncontrolling interest for the year ended July 31, 20202022, was $3,424,000$9,354,000, a decrease in net loss of $7,661,000, as compared to a net loss for the year ended July 31, 20192021, of $4,648,000.$17,015,000. The improvementdecrease in net loss including noncontrolling interest between periods is primarily due to the decreaseimprovement in gain on derivative instruments of $185,000$16,121,000, increase in SG&A,margin of $7,527,000, the decrease in stock compensation expense of $56,000 in depreciation expense, the improvement of $975,000$400,000 and increase in other income and expenses and the improvement in gross margin of $332,000. The$320,000. These improvements were slightly offset by the increase in SG&A of $83,000$5,815,000, the increase in stock compensation expenselegal fees of $2,142,000, increase in bad debt of $81,000, and the increase in depreciation and amortization of $252,000$1,167,000. In addition to the increase in legalinterest expense of $1,225,000, increase of income tax expense of $236,000, and professional fees.the loss on gain on settlement of debt of $6,041,000.

Net loss attributable to the noncontrolling interest. Net loss attributable toDuring the noncontrolling interest for the yearyears ended July 31, 2020 was $47,000 compared to $128,000 for2022, and 2021, the year ended July 31, 2019.consolidated entity recognized net loss in noncontrolling interest of $1,341,000 and $332,000, respectively. The noncontrolling interest is presented as a separate line item in the Company’s stockholders’ equity section of the balance sheet.

Net income (loss)loss attributable to Digerati’s shareholders. Net loss for the year ended July 31, 20202022, was $3,377,000$8,013,000 compared to a net loss for the year ended July 31, 20192021, of $4,520,000.$16,683,000.

 

12

Deemed dividend on Series A Convertible Preferred Stock Net income (loss).Stock. Dividend declared on convertible preferred stock for the year ended July 31, 20202022, was $19,000 compared to a Deemeddeemed dividend on convertible preferred stock for the year ended July 31, 20192021, of $29,000.$20,000.

Net income (loss)loss attributable to Digerati’s common shareholders. Net loss for the year ended July 31, 20202022, was $3,397,000$8,032,000 compared to a net loss for the year ended July 31, 2019 was $4,549,000.2021, of $16,703,000.


Liquidity and Capital Resources

Cash Position: We had a consolidated cash balance of $685,000$1,509,000 as of July 31, 2020.2022. Net cash providedconsumed by operating activities during the year ended July 31, 20202022, was approximately $54,000,$1,960,000, primarily as a result of operating expenses, that included $1,127,000$98,000 in stock compensation and warrant expense, stock issued for services of $126,000, bad debt expense of $78,000, amortization of debt discount of $1,228,000,$2,064,000, gain on derivative liability of $263,000,$6,186,000, depreciation and amortization expense of $613,000.$2,916,000, accrued expense of $566,000, accounts receivable of $484,000 and deferred revenue of $911,000. Additionally, we had an increase of $235,000 in accounts payable increase in accrued expenses of $646,000, decrease in deferred income of $6,000, increase in accounts receivables of $60,000, a decrease in$860,000, prepaid expenses and other current assets of $23,000 and$20,000, other assets of $131,000, inventory of $18,000, a gainloss on settlement of debt of $134,000.$5,481,000, the recognition of $225,000 debt extension fee charged to interest expense, gain on ActivePBX contingent earnout recognized in other income of $24,000 and stock issued for debt extension of $65,000.

Cash used in investing activities during the year ended July 31, 20202022, was $212,000 ,$12,885,000, which included $85,000$272,000 for the purchase of equipment, and the cash paid of $127,000$12,791,000, net of cash received, for escrow deposits related tothe acquisitions of VoIP assets from Skynet and NextLevel and the Company received $178,000 from Nexogy as an adjustment consideration for payables from the acquisition.

Cash provided by financing activities during the year ended July 31, 20202022, was $437,000.$14,865,000. The Company secured $99,000 from the sale of common stock and $435,000$806,000 from convertible notes, net of issuance costs and discounts. TheIn addition, the Company also secured $70,000$15,530,000 from borrowing from a related party, and $556,000 from borrowings from third party promissory notes.notes, net of issuance costs. (See Note 10) The Company made principal payments of $443,000$250,000 on related partyvarious notes, principal payments of $140,000$425,000 on convertible notes $65,000 inand principal payments of 816,000 on equipment financing, and payments of $75,000 on debt financing costs.related party notes. Overall, our net operating, investing, and financing activities during the year ended July 31, 2020 provided2022, contributed approximately $279,000 to$20,000 of our available cash.

Digerati’s consolidated financial statements for the year ended July 31, 2022, have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. Since the Company’s inception in 1993, Digerati has incurred net losses and accumulated a deficit of approximately $113,393,000 and a working capital deficit of approximately $29,323,000 which raises substantial doubt about Digerati’s ability to continue as a going concern.

We are currently taking initiatives to reduce our overall cash deficiencies on a monthly basis. During fiscal 20212023 we anticipate reducing fixed costs and general expenses, in addition, certain members of our management team have takento take a significant portion of their compensation in common stock to reduce the depletion of our available cash. To strengthen our business, we intend to adopt best practices from or recent acquisitions and invest in a new marketing and sales strategy to grow our monthly recurring revenue; we anticipate utilizing our value-added resellers and channel partners to tap into new sources of revenue streams, we have also secured various agent agreements to accelerate revenue growth. In addition, we will continue to focus on selling a greater number of comprehensive services to our existing customer base. Further, in an effort to increase our revenues, we will continue to evaluate the acquisition of various assets with emphasis in VoIP Services and Cloud Communication Services. As a result, during the due diligence process we anticipate incurring significant legal and professional fees.

Our cash requirements to meet our interest payments to Post Road, capital expenditure needs, and operational cash flow needs over the next 18 months are estimated to be approximability $3,500,000. The Company anticipates issuing additional equity or entered into additional Convertible Notes to secure the funding required meet these cash needs. There can be no assurance that the Company will be able to raise additional funds or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, the Company may not be able to meet its interest payments, capital expenditures and operational needs. As a result, the Company will be required to negotiate with its lender the terms of the current financing agreements, in addition to postponing the timing of deployment of its capital expenditures and extending the timing of the operational cash needs.

The Credit Agreement with Post Road contains affirmative and negative covenants with respect to operation of the business and properties of T3 Nevada as well as financial performance. Below are key covenants requirements, (measured quarterly):

1. Maximum Allowed - Senior Leverage Ratio of 4.06 to 1.00

2. Minimum Allowed - EBITDA of $3,719,589

3. Minimum Allowed - Liquidity of $2,000,000

4. Maximum Allowed - Capital Expenditures of $94,798 (Quarterly)

5. Minimum Allowed - Fixed Charge Coverage Ratio of 1.5 to 1.00

6. Maximum Allowed - Churn of 3.00% at any time

While Digerati, the parent company of T3 Nevada, is not subject to these financial covenants, they have had and will continue to have a material impact on T3 Nevada’s expenditures and ability to raise funds.


In addition, our Term Loan C Note with Post Road with a maturity date of August 4, 2023, requires a full principal payment (currently $10,000,000) and accrued interest by the maturity date. We will work with our equity partners to secure additional financings to meet this obligation by the maturity date. In addition, we will work with our lender on the current terms to the Term Loan C Note, to extend the maturity date or restructure the terms of the note. There can be no assurance that the Company will be able to raise additional funds or raise them on acceptable terms to meet the cash payment requirements on the Term Loan C Note. In addition, there can be no assurance that we will be able to restructure the terms or extend the maturity date of the Term Loan C Note with Post Road. If the Company is not able to restructure the financing or repay the Term Loan C Note by the August 4th maturity date and Post Road declares an event of default, it would have a material adverse effect on our business and financial condition, including the possibility of Post Road foreclosing on some or all of our assets.

Management believes that current available resources as of July 31, 2022, will not be sufficient to fund the Company’s operations, debt service and corporate expenses over the next 12 months. The Company’s ability to continue to meet its obligations and to achieve its business objectives is dependent upon, amongand other things, raising additional capital, issuing stock-based compensation to certain members of the executive management team in lieu of cash, or generating sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company will seek to secure such best-efforts funding from various possible sources, including equity or debt financing, sales of assets, or collaborative arrangements. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences, or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain technologies. There can be no assurance that the Company will be able to raise additional funds or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, it may be unable to execute its business plan, the Company could be required to curtail its operations, and the Company may not be able to pay off its obligations, if and when they come due.

Our current cash expenses are expected to be approximately $95,000$1,300,000 per month, including wages, rent, utilities, corporate expenses, and corporatelegal professional fees.fees associated with potential acquisitions. As described elsewhere herein, we are not generating sufficient cash from operations to pay for our corporate and ongoing operating expenses, or to pay our current liabilities. As of July 31, 2020,2022, our total liabilities were approximately $6,963,000,$67,503,000, which included $606,000$10,588,000 in derivative liabilities. We will continue to use our available cash on hand to cover our deficiencies in operating expenses.


We estimate that we need approximately $500,000 of additional workinghave been successful in raising debt capital and equity capital in the past and as described in Notes 10, 11, and 12 to fund our ongoing operations during Fiscal 2021. We used proceeds secured from convertible promissory notes to pay for operating expenses and we anticipate raising additional debt financing to meet our working capital needs.

Digerati’s consolidated financial statements for the year ending July 31, 2020statements. We have been prepared on a going concern basis, which contemplates the realization of assetsfinancing efforts in place to continue to raise cash through debt and the settlement of liabilitiesequity offerings. Although we have successfully completed financings and reduced expenses in the normal course of business. Sincepast, we cannot assure you that our plans to address these matters in the Company’s inception in 1993, Digerati has incurred net losses and accumulated a deficit of approximately $88,697,000 and a working capital deficit of approximately $5,316,000 which raises doubt about Digerati’s ability to continue as a going concern.future will be successful.

Critical Accounting Policies

 

Revenue Recognition.On August 1, 2018, we adopted TopicThe Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, using the modified retrospective method applied to those contracts which were not completed as of August 1, 2018. Results for reporting periods beginning after August 1, 2018 are presented under Topic 606. There was no impact to the opening balance of accumulated deficit or revenues for the year ended July 31, 2019 as a result of applying Topic 606.Revenues from Contracts with Customers (ASC 606).

The Company recognizes cloud-based hosted services revenue, mainly from subscription services for its cloud telephony applications that includes hosted IP/PBX services, SIP trunking, call center applications, auto attendant, voice and web conferencing, call recording, messaging, voicemail to email conversion, integrated mobility applications that are device and location agnostic, and other customized applications. Other services include enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper. We also offer remote network monitoring, data backup and disaster recovery services. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially all of the Company’s revenue is recognized at the time control of the products transfers to the customer.


Service Revenue

Service revenue from subscriptions to the Company’s cloud-based technology platform is recognized over time on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer. Payments received in advance of subscription services being rendered are recorded as a deferred revenue. Usage fees, either bundled or not bundled, are recognized when the Company has a right to invoice. Professional services for configuration, system integration, optimization, customer training and/or education are primarily billed on a fixed-fee basis and are performed by the Company directly. Alternatively, customers may choose to perform these services themselves or engage their own third-party service providers. Professional services revenue is recognized over time, generally as services are activated for the customer.customer

Product Revenue

The Company recognizes product revenue for telephony equipment at a point in time, when transfer of control has occurred, which is generally upon delivery. Sales returns are recorded as a reduction to revenue estimated based on historical experience.


Disaggregation of Cloud software and service revenue

 

Summary of disaggregated revenue is as follows (in thousands):

  For the Years ended July 31, 
  2020  2019 
       
Cloud software and service revenue $6,212  $5,847 
Product revenue  67   193 
         
Total operating revenues $6,279  $6,040 

Contract Assets

Contract assets are recorded for those parts of the contract consideration not yet invoiced but for which the performance obligations are completed. The revenue is recognized when the customer receives services or equipment for a reduced consideration at the onset of an arrangement; for example, when the initial month’s services or equipment are discounted. Contract assets are included in prepaid and other current assets in the consolidated balance sheets, depending on if their reduction is recognized during the succeeding 12-month period or beyond. Contract assets as of July 31, 2020 and July 31, 2019, were $5,980 and $22,967, respectively.

Deferred Income

Deferred income represents billings or payment received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual plan subscription services, for services not yet provided as of the balance sheet date. Deferred revenues that will be recognized during the succeeding 12-month period are recorded as current deferred revenues in the consolidated balance sheets, with the remainder recorded as other noncurrent liabilities in the consolidated balance sheets. Deferred income as of July 31, 2020 and July 31, 2019, were $148,000 and $153,000, respectively.

Costs to Obtain a Customer Contract

Sales commissions are paid upon collections of related revenue and are expensed during the same period. Sales commissions for the year ended July 31, 2020 and the year ended July 31, 2019, were $38,976 and $52,613, respectively.

Goodwill, Intangible Assets, and Long-Lived Assets. Goodwill is carried at cost and is not amortized. The Company tests goodwill for impairment on an annual basis at the end of each fiscal year, relying on a number of factors including operating results, business plans, economic projections, anticipated future cash flows and marketplace data. Company management uses its judgment in assessing whether goodwill has become impaired between annual impairment tests according to specifications set forth in ASC 350. The Company completed an evaluation of goodwill at July 31, 2020 and 20192022 and determined that there was no impairment.

 

The fair value of the Company’s reporting unit is dependent upon the Company’s estimate of future cash flows and other factors. The Company’s estimates of future cash flows include assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. Estimated future cash flows are adjusted by an appropriate discount rate derived from the Company’s market capitalization plus a suitable control premium at date of the evaluation.

 

The financial and credit market volatility directly impacts the Company’s fair value measurement through the Company’s weighted average cost of capital that the Company uses to determine its discount rate and through the Company’s stock price that the Company uses to determine its market capitalization. Therefore, changes in the stock price may also affect the amount of impairment recorded.

 

The Company recognizes an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their useful lives. Impairment losses are recognized if the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value.


The Company reviews its long-lived assets, including property and equipment, identifiable intangibles, and goodwill annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets.

Intangible Assets. Our intangible assets consist of customer relationships, developed technologies, trademarks and trade name. The Company recognizes an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset, or liability. The intangible assets are amortized following the patterns in which the economic benefits are consumed or straight-line over the estimated useful life. We periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The determination of impairment is based on estimates of future undiscounted cash flows. If an intangible asset is considered to be impaired, the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset.

  

Long-Lived Assets. The Company reviews its long-lived assets, including property and equipment and identifiable intangibles annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets.

Impairment of Long-Lived Assets. Digerati reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the value of an asset may no longer be appropriate. Digerati assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value.

Business combinations.combinations. Each investment in a business is being measured and determined whether the investment should be accounted for as a cost-basis investment, an equity investment, a business combination, or a common control transaction. An investment in which the Company do not have a controlling interest and which the Company is not the primary beneficiary but where the Company has the ability to exert significant influence is accounted for under the equity method of accounting. For those investments that we account for in accordance ASC 805, Business Combinations, the Company records the assets acquired and liabilities assumed at the management’s estimate of their fair values on the date of the business combination. The assessment of the estimated fair value of each of these can have a material effect on the reported results as intangible assets are amortized over various lives. Furthermore, according to ASC 805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially measure the recognized assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer.


Stock-based compensation.compensation In June 2018 FASB adopted the Accounting Standards Update No. 2018-07, . The Company accounts for its share-based awards under ASC 718, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting. This update simplifiesCompensation. Employee and non-employee stock-based compensation is measured at the accounting for non-employee share-based payment transactions by expandinggrant date, based on the scopefair value of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goodsthe award, and services from non-employees. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within that reportingrecognized as an expense over the requisite service period. The Company adopted the updated standard as of May 1, 2018, adopting this guidance did not have a material effect on its consolidated financial statements. During FY 20202022 and 2019,2021, the Company issued 21,811,1001,500,000 common shares and 1,827,9277,858,820 common shares, respectively, to professionals for exchange of services and various employees as part of our profit sharing-plan contribution and stock in lieu of cash. At the time of issuance duringDuring FY 20202022 and 20192021 we recognized stock-based compensation expense of approximately $801,891$125,250 and $312,328,$264,712, respectively, equivalent to the market value of the shares issued calculated based on the share’s closing price at the grant dates. During FY 2022 we recognized stock-based compensation expense of $97,863 related to stock options previously issued to various employees.

Treasury Shares. As a result of entering into various convertible debt instruments which contained a variable conversion feature with no floor, warrants with fixed exercise price, and convertible notes with fixed conversion price or with a conversion price floor, we reserved 30,000,000 treasury shares for consideration for future conversions and exercise of warrants. The Company will evaluate the reserved treasury shares on a quarterly basis, and if necessary, reserve additional treasury shares. As of July 31, 2022, we believe that the treasury shares reserved are sufficient for any future conversions of these instruments. As a result, these debt instruments and warrants are excluded from derivative consideration.

Derivative financial instruments. Digerati does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. However, Digerati analyzes its convertible instruments and free-standing instruments such as warrants for derivative liability accounting.

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date. Any changes in fair value is recorded as non-operating, non-cash income or expense for each reporting period. For derivative notes payable conversion options Digerati uses the Black-Scholes option-pricing model to value the derivative instruments.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is probable within the next 12 months from the balance sheet date.

Treasury Shares. As a result of entering into various convertible debt instruments which contained a variable conversion feature with no floor, warrants with fixed exercise price, and convertible notes with fixed conversion price or with a conversion price floor, we reserved 9,000,000 treasury shares for consideration for future conversions and exercise of warrants. The Company will evaluate the reserved treasury shares on a quarterly basis, and if necessary, reserve additional treasury shares. As of July 31, 2020, we believe that the treasury share reserved are sufficient for any future conversions of these instruments. As a result, these debt instruments and warrants are excluded from derivative consideration.


Fair Value of Financial Instruments. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy based on the three levels of inputs that may be used to measure fair value are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

For certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to the short maturity of these instruments. The carrying value of our long-term debt approximates its fair value based on the quoted market prices for the same or similar issues or the current rates offered to us for debt of the same remaining maturities.

 

Our derivative liabilities asCritical Accounting Estimates

Valuation of July 31, 2020Goodwill and 2019Intangible Assets. Goodwill and other intangible assets include the cost of $606,000 and $927,000, respectively.

The following table providesthe acquired business in excess of the fair value of the derivative financial instruments measured at fairtangible net assets recorded in connection with an acquisition. Other intangible assets include customer relationships, non-compete agreements, and trademarks.  The Company uses a third-party specialty valuation firm to value using significant unobservable inputs:its intangible assets acquired in its business combination and asset acquisitions.   

 

     Fair value measurements at reporting date using: 
     Quoted prices in  Significant    
     active markets  other   Significant 
     for identical  observable  unobservable 
     liabilities  inputs  inputs 
Description Fair Value  (Level 1)  (Level 2)  (Level 3) 
Convertible promissory notes derivative liability at July 31, 2019 $927,171          -         -  $927,171 
Convertible promissory notes derivative liability at July 31, 2020 $606,123   -   -  $606,123 

The fair market value of all derivatives duringDuring the year ended July 31, 2020 was determined using2022, the Black-Scholes option pricing model which usedCompany acquired Skynet Telecom LLC and Next Level Internet, Inc. the following assumptions:

Expected dividend yield0.00%
Expected stock price volatility83.28% - 268.02%
Risk-free interest rate0.09% -2.67%
Expected term0.01 - 1.00 years

Level 3 inputs.

The following table provides a summaryacquisitions were accounted for under the purchase method of accounting, with the changes in fair valueCompany identified as the accounting acquirer. Accordingly, the purchase prices of the derivative financial instruments measuredacquired tangible and intangible assets and liabilities were recorded and allocated at fair value on a recurringrelative basis using significant unobservable inputs:as of acquisition dates. The Company based its estimates on historical experience, discounted cash flows and on various other assumptions that are believed to be reasonable in the circumstances at the time of acquisition, the results of which form the basis for making judgments about the fair value of the intangible assets acquired that are not readily apparent from other sources. The actual results from these acquisitions may differ from these estimates. 

Balance at July 31, 2019 $927,171 
Derivative from new convertible promissory notes recorded as debt discount  814,180 
Derivative liability resolved to additional paid in capital due to debt conversion  (872,914)
Derivative gain  (262,314)
Balance at July 31, 2020 $606,123 

OFF BALANCE SHEET ARRANGEMENTS

As of July 31, 2022, we do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable to smaller reporting companies.

17


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
Consolidated Financial Statements of Digerati Technologies, Inc., and Subsidiaries
Report of Independent Registered Public Accounting Firm (PCAOB ID 206)F-2
Consolidated Balance Sheets as of July 31, 20202022, and 20192021F-3
Consolidated Statements of Operations for the Years Ended July 31, 20202022, and 20192021F-4
Consolidated Statements of Stockholders’ Deficit for the Years Ended July 31, 20192022, and 20202021F-5
Consolidated Statements of Cash Flows for the Years Ended July 31, 20202022, and 20192021F-6
Notes to Consolidated Financial StatementsF-7

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors and Stockholdersof

Digerati Technologies, Inc.

San Antonio, Texas

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Digerati Technologies, Inc., and its subsidiaries (collectively, the “Company”) as of July 31, 20202022, and July 31, 2019,2021, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 20202022, and July 31, 2019,2021, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. 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 audit.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 auditsaudit 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

Critical audit matters 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) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ MaloneBailey, LLP

www.malonebailey.com

Houston, Texas

We have served as the Company’s auditor since 20182018.

Houston, Texas

October 29, 202031, 2022


PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

  July 31,  July 31, 
  2020  2019 
       
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $685  $406 
Accounts receivable, net  208   262 
Prepaid and other current assets  361   107 
Total current assets  1,254   775 
         
LONG-TERM ASSETS:        
Intangible assets, net  1,451   1,832 
Goodwill, net  810   810 
Property and equipment, net  431   579 
Other assets  43   58 
Investment in Itellum  185   185 
Right-of-use asset  176   - 
Total assets $4,350  $4,239 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES:        
Accounts payable $1,487  $1,264 
Accrued liabilities  1,840   1,493 
Equipment financing  62   65 
Convertible note payable, current, net $295 and $547, respectively  548   1,005 
Note payable, current, related party, net of $0 and $7, respectively  78   383 
Note payable, current, net $0 and $0, respectively  1,571   1,218 
Deferred income  279   285 
Derivative liability  606   927 
Operating lease liability, current  99   - 
Total current liabilities  6,570   6,640 
         
LONG-TERM LIABILITIES:        
Convertible debenture, net $0 and $29, respectively  -   21 
Notes payable, related party, net $6 and $17, respectively  85   136 
Note payable, net $0 and $0, respectively  193   - 
Equipment financing  38   100 
Operating lease liability  77   - 
Total long-term liabilities  393   257 
         
Total liabilities  6,963   6,897 
         
Commitments and contingencies        
         
STOCKHOLDERS’ DEFICIT:        
Preferred stock, $0.001, 50,000,000 shares authorized        
Convertible Series A Preferred stock, $0.001, 1,500,000 shares designated, 225,000 and 225,000 issued and outstanding, respectively  -   - 
Convertible Series B Preferred stock, $0.001, 1,000,000 shares designated, 407,477 and 0 issued and outstanding, respectively  -   - 
Convertible Series C Preferred stock, $0.001, 1,000,000 shares designated, 0 and 0 issued and outstanding, respectively  -   - 
Series F Super Voting Preferred stock, $0.001, 100 shares designated, 100 and 0 issued and outstanding, respectively  -   - 
Common stock, $0.001, 150,000,000 shares authorized, 101,323,590 and 23,740,406 issued and outstanding, respectively (9,000,000 reserved in Treasury)  101   24 
Additional paid in capital  86,364   82,972 
Accumulated deficit  (88,697)  (85,320)
Other comprehensive income  1   1 
Total Digerati’s stockholders’ deficit  (2,231)  (2,323)
Noncontrolling interest  (382)  (335)
Total stockholders’ deficit  (2,613)  (2,658)
Total liabilities and stockholders’ deficit $4,350  $4,239 
  July 31,  July 31, 
  2022  2021 
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $1,509  $1,489 
Accounts receivable, net  622   617 
Prepaid and other current assets  383   232 
Total current assets  2,514   2,338 
LONG-TERM ASSETS:        
Intangible assets, net  15,188   8,527 
Goodwill  19,380   3,931 
Property and equipment, net  1,647   529 
Other assets  273   76 
Investment in Itellum  185   185 
Right-of-use asset  2,498   934 
Total assets $41,685  $16,520 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES:        
Accounts payable $3,222   1,653 
Accrued liabilities  9,627   2,570 
Equipment financing  21   37 
Convertible note payable, current, net of debt discount of $120 and $340, respectively  3,948   1,049 
Note payable, current, related party, net of debt discount of $40 and $0, respectively  833   998 
Note payable, current, net of debt discount of $181 and $714, respectively  870   2,963 
Acquisition payable  1,000   - 
Deferred income  931   20 
Derivative liability  10,588   16,773 
Operating lease liability, current  797   503 
Total current liabilities  31,837   26,566 
LONG-TERM LIABILITIES:        
Notes payable, related party, net of debt discount $0 and $0, respectively  -   136 
Note payable, net of debt discount $313 and $4,641 respectively  33,335   6,241 
Convertible note payable, net of debt discount of $0 and $0, respectively  500   - 
Equipment financing  43   - 
Operating lease liability, net of current portion  1,788   431 
Total long-term liabilities  35,666   6,808 
Total liabilities  67,503   33,374 
Commitments and contingencies        
STOCKHOLDERS’ DEFICIT:        
Preferred stock, $0.001, 50,000,000 shares authorized        
Convertible Series A Preferred stock, $0.001, 1,500,000 shares designated, 225,000 and 225,000 issued and outstanding, respectively  -   - 
Convertible Series B Preferred stock, $0.001, 1,000,000 shares designated, 425,442 and 425,442 issued and outstanding, respectively  -   - 
Convertible Series C Preferred stock, $0.001, 1,000,000 shares designated, 55,400 and 55,400 issued and outstanding, respectively  -   - 
Series F Super Voting Preferred stock, $0.001, 100 shares designated, 100 and 100 issued and outstanding, respectively  -   - 
Common stock, $0.001, 500,000,000 shares authorized, 142,088,039 and 138,538,039 issued and outstanding, respectively (30,000,000 reserved in Treasury)  142   139 
Additional paid in capital  89,487   89,100 
Accumulated deficit  (113,393)  (105,380)
Other comprehensive income  1   1 
Total Digerati’s stockholders’ deficit  (23,763)  (16,140)
Noncontrolling interest  (2,055)  (714)
Total stockholders’ deficit  (25,818)  (16,854)
Total liabilities and stockholders’ deficit $41,685  $16,520 

See accompanying notes to consolidated financial statements


DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

  For the Years ended
July 31,
 
  2020  2019 
OPERATING REVENUES:      
Cloud software and service revenue $6,279  $6,040 
         
Total operating revenues  6,279   6,040 
         
OPERATING EXPENSES:        
Cost of services (exclusive of depreciation and amortization)  3,035   3,128 
Selling, general and administrative expense  4,106   4,208 
Legal and professional fees  642   390 
Bad debt  (5)  6 
Depreciation and amortization expense  613   669 
Total operating expenses  8,391   8,401 
         
OPERATING LOSS  (2,112)  (2,361)
         
OTHER INCOME (EXPENSE):        
Gain (loss) on derivative instruments  263   (74)
Gain on settlement of debt  129   - 
Income tax benefit (expense)  33   (47)
Other income  116   - 
Interest expense  (1,853)  (2,166)
Total other income (expense)  (1,312)  (2,287)
         
NET LOSS INCLUDING NONCONTROLLING INTEREST  (3,424)  (4,648)
         
Less: Net loss attributable to the noncontrolling interests  47   128 
         
NET LOSS ATTRIBUTABLE TO DIGERATI’S SHAREHOLDERS  (3,377)  (4,520)
         
Deemed dividend on Series A Convertible preferred stock  (19  (29)
         
NET LOSS ATTRIBUTABLE TO DIGERATI’S COMMON SHAREHOLDERS $(3,396 $(4,549)
         
LOSS PER COMMON SHARE - BASIC $(0.06) $(0.27)
         
LOSS PER COMMON SHARE - DILUTED $(0.06) $(0.27)
         
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC  53,883,966   16,650,507 
         
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED  53,883,966   16,650,507 
  For the Years ended
July 31,
 
  2022  2021 
OPERATING REVENUES:      
Cloud software and service revenue $24,154  $12,416 
Total operating revenues  24,154   12,416 
         

OPERATING EXPENSES:

        
Cost of services (exclusive of depreciation and amortization)  9,346   5,135 
Selling, general and administrative expense  12,434   7,019 
Legal and professional fees  3,036   894 
Bad debt expense  98   17 
Depreciation and amortization expense  2,916   1,749 
Total operating expenses  27,830   14,814 

OPERATING LOSS

  (3,676)  (2,398)
         

OTHER INCOME (EXPENSE):

        
Gain (loss) on derivative instruments  6,186   (9,935)
Gain (loss) on settlement of debt  (5,481)  560 
Income tax benefit (expense)  (419)  (183)
Other income (expense)  26   (294)
Interest expense  (5,990)  (4,765)
Total other income (expense)  (5,678)  (14,617)
         

NET LOSS INCLUDING NONCONTROLLING INTEREST

  (9,354)  (17,015)
Less: Net loss attributable to the noncontrolling interests  1,341   332 
NET LOSS ATTRIBUTABLE TO DIGERATI’S SHAREHOLDERS  (8,013)  (16,683)
Deemed dividend on Series A Convertible preferred stock  (19)  (20)

NET LOSS ATTRIBUTABLE TO DIGERATI’S COMMON SHAREHOLDERS

 $(8,032) $(16,703)

LOSS PER COMMON SHARE - BASIC

 $(0.05) $(0.13)

LOSS PER COMMON SHARE - DILUTED

 $(0.05) $(0.13)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC

  139,594,358   129,411,947 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED

  139,594,358   129,411,947 

See accompanying notes to consolidated financial statements


DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

YEARS ENDED JULY 31, 20192021 AND 20202022

(In thousands, except for share amounts)

  Equity Digerati’s Shareholders          
  Preferred        Additional     Other          
  Convertible        Common  Paid-in  Accumulated  Comprehensive  Stockholders  Noncontrolling    
  Series A Shares  Par  Series B Shares  Par  Series F Shares  Par  Shares  Par  Capital  Deficit  Income  Equity  Interest  Totals 
BALANCE, July 31, 2018  -   -   -   -   -   -   12,775,143  $13  $79,993  $(80,800) $1  $(793) $(207) $(1,000)
Amortization of employee stock options  -       -       -       -   -   419   -   -   419   -   419 
Common stock issued for services, to employees  -   -   -   -   -   -   1,827,926   2   310   -   -   312   -   312 
Common stock issued for services  -   -   -   -   -   -   925,000   1   248   -   -   249   -   249 
Common stock issued for settlement of accounts payable  -   -   -   -   -   -   138,714   -   37   -   -   37   -   37 
Common stock and warrants issued for cash  -   -   -   -   -   -   938,621   1   264   -   -   265   -   265 
Common stock issued for investment in Itellum  -   -   -   -   -   -   500,000   1   84   -   -   85   -   85 
Common stock issued for debt  -   -   -   -   -   -   288,000   -   43   -   -   43   -   43 
Common Stock issued for debt conversion  -   -   -   -   -   -   4,592,002   5   311   -   -   316   -   316 
Common stock issued concurrent with convertible debt                          1,050,000   1   (1)  -   -   -   -   - 
Common stock issued for debt extension  -   -   -   -   -   -   255,000   -   54   -   -   54   -   54 
Common Stock issued for accrued interest payments on debt  -   -   -   -   -   -   375,000   -   60   -   -   60   -   60 
Common stock issued, exercise of warrants  -   -   -   -   -   -   75,000   -   7   -   -   7   -   7 
Convertible Series A Preferred stock issued for cash  225,000   -   -   -   -   -   -   -   225   -   -   225   -   225 
Derivative liability resolved to APIC due to note conversion  -   -   -   -   -   -   -   -   823   -   -   823   -   823 
Debt discount from warrants issued with debt  -   -   -   -   -   -   -   -   31   -   -   31   -   31 
Warrants expense amortization  -   -   -   -   -   -   -   -   64   -   -   64   -   64 
Beneficial conversion feature on Convertible Series A Preferred stock  -   -   -   -   -   -   -   -   29   -   -   29   -   29 
Deemed dividend from beneficial conversion feature on Convertible Series A Preferred stock  -   -   -   -   -   -   -   -   (29)  -   -   (29)  -   (29)
Net Ioss  -   -   -   -   -   -   -   -   -   (4,520)  -   (4,520)  (128)  (4,648)
BALANCE, July 31, 2019  225,000   -   -   -   -   -   23,740,406  $24  $82,972  $(85,320) $1  $(2,323) $(335) $(2,658)
Amortization of employee stock options  -   -   -   -   -   -   -   -   377   -   -   377   -   377 
Common stock issued for services, to employees  -   -   -   -   -   -   21,811,100   22   780   -   -   802   -   802 
Common stock issued for services  -   -   -   -   -   -   400,000   1   15   -   -   16   -   16 
Common stock issued for cash  -   -   -   -   -   -   3,893,625   4   95   -   -   99   -   99 
Common stock issued for accrued interest payments on debt  -   -   -   -   -   -   392,912   -   19   -   -   19   -   19 
Common stock issued, settlement of debt  -   -   -   -   -   -   200,000   -   5   -   -   5   -   5 
Common stock issued, extension of debt  -   -   -   -   -   -   780,000   -   50   -   -   50   -   50 
Common stock issued for debt conversion  -   -   -   -   -   -   35,936,326   36   489   -   -   525   -   525 
Common stock issued concurrent with convertible debt  -   -   -   -   -   -   500,000   -   12   -   -   12   -   12 
Convertible Series B Preferred stock and common stock issued for debt settlement  -   -   407,477   -   -   -   13,582,554   14   672   -   -   686   -   686 
Common stock issued for conversion of Convertible Series A Preferred stock  (25,000)  -   -   -   -   -   86,667   -   -   -   -   -   -   - 
Derivative liability resolved to APIC due to note conversion  -   -   -   -   -   -   -   -   872   -   -   872   -   872 
Convertible Series A Preferred stock and warrants issued for AP settlement  25,000   -   -   -   -   -   -   -   25   -   -   25   -   25 
Super Voting Preferred Stock Series F  -   -   -   -   100   -   -   -   -   -   -   -   -   - 
Dividends declared  -   -   -   -   -   -   -   -   (19)  -   -   (19)  -   (19)
Net Ioss  -   -   -   -   -   -   -   -   -   (3,377)  -   (3,377)  (47)  (3,424)
BALANCE, July 31, 2020  225,000   -   407,477   -   100   -   101,323,590  $101  $86,364  $(88,697) $1  $(2,231) $(382) $(2,613)

  Equity Digerati’s Shareholders 
  Preferred Convertible     Additional     Other          
  Series A     Series B     Series C     Series F     Common  Paid-in  Accumulated  Comprehensive  Stockholders  Noncontrolling    
  Shares  Par  Shares  Par  Shares  Par  Shares  Par  Shares  Par  Capital  Deficit  Income  Equity  Interest  Totals 
BALANCE, July 31, 2020  225,000         -   407,477         -   -         -   -         -   101,323,590   101  $86,364  $(88,697) $1  $(2,231) $(382) $(2,613)
Amortization of employee stock options  -   -   -   -   -   -   -   -   -   -   135   -   -   135   -   135 
Common stock issued for services, to employees  -   -   -   -   -   -   -   -   7,858,820   8   257   -   -   265   -   265 
Common stock issued for services  -   -   -   -   -   -   -   -   4,250,000   4   219   -   -   223   -   223 
Common stock issued for debt conversion and settlement  -   -   -   -   -   -   -   -   21,275,629   21   407   -   -   428   -   428 
Common stock issued concurrent with convertible debt  -   -   -   -   -   -   -   -   2,100,000   2   145   -   -   147   -   147 
Beneficial conversion feature on convertible debt  -   -   -   -   -   -   -   -   -   -   282   -   -   282   -   282 
Common stock issued for settlement of accounts payable  -   -   -   -   -   -   -   -   1,000,000   1   59   -   -   60   -   60 
Common stock issued for exercise of warrants  -   -   -   -   -   -   -   -   330,000   1   33   -   -   34   -   34 
Common stock issued, extension of debt  -   -   -   -   -   -   -   -   400,000   1   59   -   -   60   -   60 
Convertible Series B Preferred stock issued for debt settlement  -   -   17,965   -   -   -   -   -   -   -   18   -   -   18   -   18 
Convertible Series C Preferred stock issued for AP settlement  -   -   -   -   55,400   -   -   -   -   -   554   -   -   554   -   554 
Super Voting Preferred Stock Series F  -   -   -   -   -   -   100   -   -   -   -   -   -   -   -   - 
Derivative liability resolved to APIC due to note conversion  -   -   -   -   -   -   -   -   -   -   588   -   -   588   -   588 
Dividends declared  -   -   -   -   -   -   -   -   -   -   (20)  -   -   (20)  -   (20)
Net Ioss  -   -   -   -   -   -   -   -   -   -   -   (16,683)  -   (16,683)  (332)  (17,015)
BALANCE, July 31, 2021  225,000   -   425,442   -   55,400   -   100   -   138,538,039   139  $89,100  $(105,380) $1  $(16,140) $(714) $(16,854)
Amortization of employee stock options  -   -   -   -   -   -   -   -   -   -   98   -   -   98   -   98 
Common stock issued for services  -   -   -   -   -   -   -   -   1,500,000   1   125   -   -   126   -   126 
Common stock issued for debt extension  -   -   -   -   -   -   -   -   550,000   1   64   -   -   65   -   65 
Common stock issued concurrent with convertible debt  -   -   -   -   -   -   -   -   1,500,000   1   119   -   -   120   -   120 
Dividends declared  -   -   -   -   -   -   -   -   -   -   (19)  -   -   (19)  -   (19)
Net Ioss  -   -   -   -   -   -   -   -   -   -   -   (8,013)              -   (8,013)  (1,341)  (9,354)
BALANCE, July 31, 2022  225,000   -   425,442   -   55,400   -   100   -   142,088,039   142  $89,487  $(113,393) $1  $(23,763) $(2,055) $(25,818)

See accompanying notes to consolidated financial statements


DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

  For the Years ended
July 31,
 
  2020  2019 
       
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $(3,424) $(4,648)
Adjustments to reconcile net loss to cash used in by operating activities:        
Depreciation and amortization  613   669 
Stock compensation and warrant expense  1,127   1,044 
Bad debt expense (recovery)  (5)  6 
Loss on AP settled with stock  -   5 
Interest expense from stock issued for debt extension  -   24 
Amortization of ROU asset - operating  140   - 
Amortization of debt discount  1,228   1,466 
Loss (Gain) on derivative liabilities  (263)  74 
Gain settlement of debt  (134)  - 
Changes in operating assets and liabilities:        
Accounts receivable  60   (40)
Prepaid expenses and other current assets  (23)  18 
Right of use operating lease liability  (140)  - 
Accounts payable  235   171 
Accrued expenses  646   661 
Deferred income  (6)  23 
Net cash provided by (used in) operating activities  54   (527)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Cash paid in acquisition of equipment  (85)  (52)
Cash paid for escrow deposit related to acquisition  (127)  (83)
Net cash used in investing activities  (212)  (135)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from sale of stock and warrants  99   473 
Borrowings from convertible debt, net of original issuance cost and discounts  435   1,044 
Borrowings from related party note, net  70   25 
Borrowings from third party promissory notes, net  556   100 
Principal payments on convertible notes, net  (140)  (651)
Principal payments on related party notes, net  (443)  (153)
Principal payments on third party promissory notes, net  -   (125)
Principal payment on equipment financing  (65)  (33)
Payment of debt financing cost  (75)  - 
Net cash provided by financing activities  437   680 
         
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  279   18 
CASH AND CASH EQUIVALENTS, beginning of period  406   388 
         
CASH AND CASH EQUIVALENTS, end of period $685  $406 
         
SUPPLEMENTAL DISCLOSURES:        
Cash paid for interest $547  $541 
Income tax paid $-  $- 
         
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES        
Debt discount from warrants issued with debt $-  $31 
Debt discount from common stock issued with debt $12  $43 
Debt discount from derivative liabilities $814  $1,044 
Debt from assignment of accrued interest $113  $- 
Capitalization of ROU assets and liabilities - operating $316  $- 
Preferred Stock Series A and warrants issued for AP settlement $25  $- 
Preferred Stock Series B issued for debt conversion and settlement $408  $- 
Common Stock issued for debt conversion $525  $316 
Common Stock issued for interest payment $18  $60 
Common Stock issued for debt extension $50  $29 
Deemed dividend on Series A Convertible preferred stock $-  $29 
Dividend declared $19  $- 
Derivative liability resolved to APIC due to debt conversion $872  $823 
Capitalized expense related to debt financing cost $13     
Equipment Financing on purchased assets $-  $104 
Stock issued for investment in Itellum $-  $85 
Note payable issued for investment in Itellum $-  $18 
  For the Years ended
July 31,
 
  2022  2021 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $(9,354) $(17,015)
Adjustments to reconcile net loss to cash used in operating activities:        
Depreciation and amortization expense  2,916   1,707 
Stock compensation and warrant expense  98   624 
Stock issued for services  126   - 
Bad debt expense  78   17 
Amortization of ROU Asset - operating  626   328 
Amortization of debt discount  2,064   2,809 
Loss (gain) on derivative liabilities  (6,186)  9,935 
Loss (gain) on settlement of debt  5,481   (560)
Accrued interest added to principal  -   510 
Debt extension fee charged to interest expense  225   - 
Gain on contingent earnout  (24)  - 
Preferred stock C issued for settlement of AP from current year  -   333 
Stock issued for debt extension  65   59 
Changes in operating assets and liabilities:        
Accounts receivable  484   (69)
Prepaid expenses and other current assets  (20)  46 
Other assets  (131)  - 
Inventory  (18)  (27)
Right of use operating lease liability  (727)  (328)
Accounts payable  860   99 
Accrued expenses  566   1,083 
Deferred income  911   (259)
Net cash used in operating activities  (1,960)  (708)
CASH FLOWS FROM INVESTING ACTIVITIES:        
Cash paid in acquisition of equipment  (272)  (410)
Proceeds from Nexogy  178   - 
Acquisitions of VoIP assets, net of cash received  (12,791)  (10,390)
Net cash used in investing activities  (12,885)  (10,800)
CASH FLOWS FROM FINANCING ACTIVITIES:        
Borrowings from convertible debt, net of original issuance cost and discounts  806   1,078 
Proceeds from sale of stock and warrants  -   34 
Borrowings from debt, net of original issuance cost and discounts  15,530   13,036 
Principal payments on debt, net  (250)  (1,338)
Principal payments on convertible notes, net  (425)  (266)
Principal payments on related party notes, net  (816)  (169)
Principal payment on equipment financing  20   (63)
Net cash provided by financing activities  14,865   12,312 
NET INCREASE IN CASH AND CASH EQUIVALENTS  20   804 
CASH AND CASH EQUIVALENTS, beginning of period  1,489   685 
CASH AND CASH EQUIVALENTS, end of period $1,509  $1,489 
SUPPLEMENTAL DISCLOSURES:        
Cash paid for interest $2,508  $1,111 
Income tax paid $-  $- 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES        
Accrued interest rolled into principal $970  $- 
Beneficial conversion feature on convertible debt $-  $282 
Incentive earnout adjustment on Active PBX acquisition $120  $- 
Debt discount from common stock issued with debt $120  $147 
Debt discount from derivative liabilities $-  $358 
Debt discount from PRG warrant derivative $-  $6,462 
Promissory note reclassed to convertible debt $-  $15 
Capitalization of ROU assets and liabilities - operating $940  $440 
Preferred Stock Series B issued for debt conversion and settlement $-  $18 
Preferred Stock Series C issued for AP settlement $-  $221 
Common Stock issued for debt conversion $-  $429 
Common Stock issued for accounts payable $-  $60 
Dividend declared $19  $20 
Derivative liability resolved to APIC due to debt conversion $-  $588 

See accompanying notes to consolidated financial statements


DIGERATI TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business.

Digerati Technologies, Inc. (“we”, “our”,a Nevada corporation (including our subsidiaries, “we,” “us,” “Company” or “Digerati”) was incorporated in the state of Nevada on May 24, 2004. Digerati is a diversified holding company that has no independent operations apart from, through its subsidiaries. Through our operating subsidiaries in Texas, Florida, and Florida, T3 Communications, Inc., andCalifornia that includes Shift8 Networks, Inc., dba, T3 Communications, we provideT3 Communications, Inc. (both referred to herein as “T3”), Nexogy Inc., and NextLevel Internet, Inc., provides cloud services specializing in Unified Communications as a Service (“UCaaS”) and broadband connectivity solutions for the business market. Our product line includes a portfolio of Internet-based telephony products and services delivered through our cloud application platform and session-based communication network and network services including Internet broadband, fiber, mobile broadband, and cloud WAN solutions (SD WAN) solutions. Our services are designed to. We provide enterprise-class, carrier-grade services to the small-to-medium-sized business (“SMB”) at cost-effective monthly rates. Our UCaaS or cloud communication services include fully hosted IP/PBX, video conferencing, mobile applications, Voice over Internet Protocol (“VoIP”) transport, SIP trunking, and customized VoIP services all delivered Only in the Cloud™.

 

Principles of Consolidation.

The consolidated financial statements include the accounts of Digerati, and its subsidiaries, which are majority owned by Digerati Inin accordance with ASC 810-10-05. All significant inter-company transactions and balances have been eliminated.

Cost Method Investment.

On June 14, 2019, the Company, entered into a Stock Purchase Agreement (the “Agreement”) to acquire a 12% minority interest in Itellum Comunicacions Costa Rica, S.R.L. The Company paid $100,000 in cash, issued 500,000 shares of common stock with a market value of $85,000. As result, the Company holds a minority interest in Itellum.Itellum for an investment of $185,000. The Company has no influence over the operating and financial policies of Itellum. The Company has no controlling interest, is not the primary beneficiary and does not have the ability to exert significant influence. As a result, we accounted for this investment using the measurement alternative, defined as cost, method of accounting.

Prepaid Acquisition costs & debt financing costs. The Company entered into a definitive agreement to acquire a service provider in South Florida of UCaaS and managed services, offering a portfolio of cloud-based solutions to the high-growth SMB market.  In addition, the Company entered into a Letter of Intent (LOI)less impairment, plus or minus changes resulting from observable price changes for an acquisition. The Company expects closing on the two acquisitions during the quarter ending October 31, 2020. During the year ending July 31, 2020, the Company advanced $127,000 towards acquisition costs and $75,000 as financing costs. In addition, the Company capitalized $13,000 legal costs incurred during the year as financing costs. As of July 31, 2020, these advances are reflected as prepaids in the Company’s balance sheet. Asidentical or similar investments of the date of this filing, the Company has advanced $240,000 as part of multiple extension fees, upon closing, these amounts will be applied to the purchase price. In addition, the Company advanced $325,000 towards the financing costs.

Gain on settlement of debt. During the year ended July 31, 2020 the Company recognized as other income $100,000 for a settlement with one of our vendors.

same issuer. 

Reclassifications. Certain amounts in the consolidated financial statements of the prior year have been reclassified to conform to the presentation of the current year for comparative purposes.

Use of Estimates.

In preparing financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenue and expenses in the statement of operations. Actual results could differ from those estimates.

Beneficial conversion features.

The Company evaluates the conversion feature for whether it was beneficial as described in ASC 470-30. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion.


Related parties.

The Company accounts for related party transactions in accordance with ASC 850 (“Related Party Disclosures”). A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

Concentration of Credit Risk.

Financial instruments that potentially subject Digerati to concentration of credit risk consist primarily of trade receivables. In the normal course of business, Digerati provides credit terms to its customers. Accordingly, Digerati performs ongoing credit evaluations of its customers and maintains allowances for possible losses, which, when realized, have been within the range of management’s expectations. Digerati maintains cash in bank deposit accounts, which, at times, may exceed federally insured limits. Digerati has not experienced any losses in such accounts and Digerati does not believe it is exposed to any significant credit risk on cash and cash equivalents.

 

Revenue Recognition. On August 1, 2018, we adopted Topic

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, using the modified retrospective method applied to those contracts which were not completed as of August 1, 2018. Results for reporting periods beginning after August 1, 2018 are presented under Topic 606. There was no impact to the opening balance of accumulated deficit or revenues for the year ended July 31, 2019 as a result of applying Topic 606.Revenues from Contracts with Customers (ASC 606).

Sources of revenue:

Cloud-based hosted Services. The Company recognizes cloud-based hosted services revenue, mainly from subscription services for its cloud telephony applications that includes hosted IP/PBX services, SIP trunking, call center applications, auto attendant, voice, and web conferencing, call recording, messaging, voicemail to email conversion, integrated mobility applications that are device and location agnostic, and other customized applications. Other services include enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper. We also offer remote network monitoring, data backup and disaster recovery services. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially all of the Company’s revenue is recognized at the time control of the products transfers to the customer.

Service RevenueRevenue.

Service revenue from subscriptions to the Company’s cloud-based technology platform is recognized over time on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer. Payments received in advance of subscription services being rendered are recorded as a deferred revenue. Usage fees, either bundled or not bundled, are recognized when the Company has a right to invoice. Professional services for configuration, system integration, optimization, customer training and/or education are primarily billed on a fixed-fee basis and are performed by the Company directly. Alternatively, customers may choose to perform these services themselves or engage their own third-party service providers. Professional services revenue is recognized over time, generally as services are activated for the customer.

Product RevenueRevenue.

The Company recognizes product revenue for telephony equipment at a point in time, when transfer of control has occurred, which is generally upon delivery. Sales returns are recorded as a reduction to revenue estimated based on historical experience.


Disaggregation of Cloud-based hosted revenuesrevenues.

Summary of disaggregated revenue is as follows (in thousands):

  For the Years ended July 31, 
  2020  2019 
       
Cloud software and service revenue $6,212  $5,847 
Product revenue  67   193 
         
Total operating revenues $6,279  $6,040 
  For the Years ended
July 31,
 
  2022  2021 
Cloud software and service revenue $23,871  $12,153 
Product revenue  283   263 
Total operating revenues $24,154  $12,416 

Contract Assets.

Contract Assets

Contract assets are recorded for those parts of the contract consideration not yet invoiced but for which the performance obligations are completed. The revenue is recognized when the customer receives services or equipment for a reduced consideration at the onset of an arrangement; for example, when the initial month’s services or equipment are discounted. Contract assets are included in prepaid and other current assets in the consolidated balance sheets, depending on if their reduction is recognized during the succeeding 12-month period or beyond. Contract assets as of July 31, 20202022, and July 31, 2019,2021, were $5,980$6,701 and $22,967,$17,661, respectively.

Deferred Income.

Deferred Income

Deferred income represents billings or payment received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual plan subscription services, for services not yet provided as of the balance sheet date. Deferred revenues that will be recognized during the succeeding 12-month period are recorded as current deferred revenues in the consolidated balance sheets, with the remainder recorded as other noncurrent liabilities in the consolidated balance sheets. Deferred income as of July 31, 20202022, and July 31, 2019,2021, were $148,000$66,167 and $153,000,$19,984, respectively.

Customer deposits.

The Company in some instances requires customers to make deposits for the last month of services, equipment, installation charges and training. As equipment is installed and training takes places the deposits are then applied to revenue. The deposit for the last month of services is applied to any outstanding balances if services are cancelled. If the customer’s account is paid in full, the Company will refund the full deposit in the month following service termination. As of July 31, 2020,2022, and 2019,July 31, 2021, Digerati’s customer deposits balance was $131,000$864,345 and $132,000,$0, respectively. The customer deposit balance is included as part of deferred income on the consolidated balance sheets.

Costs to Obtain a Customer ContractContract.

Direct incremental costs of obtaining a contract, consisting of sales commissions, are deferred, and amortized over the estimated life of the customer, which currently averages 36 months. The Company calculates the estimated life of the customer on an annual basis. The Company classifies deferred commissions as prepaid expenses or other noncurrent assets based on the timing of when it expects to recognize the expense. As of July 31, 2022, the Company has $184,808 in deferred commissions/contract costs. Sales commissions are paid upon collections of related revenue and are expensed during the same period. Sales commissions for the year ended July 31, 20202022, and the year ended July 31, 2019,2021, were $38,976$2,262,129 and $52,613,$871,561, respectively.The cost to obtain customer contract balance is included as part of prepaid expenses on the consolidated balance sheets.

 

Direct Costs - Cloud-based hosted ServicesServices.

We incur bandwidth and colocation charges in connection with our UCaaS or cloud communication services. The bandwidth charges are incurred as part of the connectivity between our customers to allow them access to our various services. We also incur costs from underlying providers for fiber, Internetinternet broadband, and telecommunication circuits in connection with our data and connectivity solutions.


Cash and cash equivalents.

The Company considers all bank deposits and highly liquid investments with original maturities of three months or less to be cash and cash equivalents.

 

Allowance for Doubtful Accounts.

Bad debt expense is recognized based on management’s estimate of likely losses each year based on past experience and an estimate of current year uncollectible amounts. As of July 31, 2020,2022, and 2019,2021, Digerati’s allowance for doubtful accounts balance was $124,000$74,628 and $115,000,$29,000, respectively.

Property and equipment.

Property and equipment are recorded at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are one (1) to seven (7) years.


Goodwill, Intangible Assets, and Long-Lived AssetsGoodwill.

Goodwill is carried at cost and is not amortized. The Company tests goodwill for impairment on an annual basis at the end of each fiscal year, relying on a number of factors including operating results, business plans, economic projections, anticipated future cash flows and marketplace data. Company management uses its judgment in assessing whether goodwill has become impaired between annual impairment tests according to specifications set forth in ASC 350. The Company completed an evaluation of goodwill at July 31, 20202022 and 2021 and determined that there was no impairment.

The fair value of the Company’s reporting unit is dependent upon the Company’s estimate of future cash flows and other factors. The Company’s estimates of future cash flows include assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. Estimated future cash flows are adjusted by an appropriate discount rate derived from the Company’s market capitalization plus a suitable control premium at date of the evaluation.

The financial and credit market volatility directly impacts the Company’s fair value measurement through the Company’s weighted average cost of capital that the Company uses to determine its discount rate and through the Company’s stock price that the Company uses to determine its market capitalization. Therefore, changes in the stock price may also affect the amount of impairment recorded.

Intangible Assets.

Our intangible assets consist of customer relationships, developed technologies, trademarks and trade name. The Company recognizes an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset, or liability. Such intangiblesThe intangible assets are amortized following the patterns in which the economic benefits are consumed or straight-line over theirthe estimated useful lives. Impairment losses are recognized iflife. We periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying amountvalue of the assets may not be recoverable. The determination of impairment is based on estimates of future undiscounted cash flows. If an intangible asset subjectis considered to amortization is not recoverable from expected futurebe impaired, the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset.

Valuation of Goodwill and Intangible Assets.

Goodwill and other intangible assets include the cost of the acquired business in excess of the fair value of the tangible net assets recorded in connection with an acquisition. Other intangible assets include customer relationships, non-compete agreements, and trademarks.  The Company uses a third-party specialty valuation firm to value its intangible assets acquired in its business combination and asset acquisitions.   

During the year ended July 31, 2022, the Company acquired Skynet Telecom LLC and Next Level Internet, Inc. the acquisitions were accounted for under the purchase method of accounting, with the Company identified as the accounting acquirer. Accordingly, the purchase prices of acquired tangible and intangible assets and liabilities were recorded and allocated at fair value on a relative basis as of acquisition dates. The Company based its estimates on historical experience, discounted cash flows and its carrying amount exceeds itson various other assumptions that are believed to be reasonable in the circumstances at the time of acquisition, the results of which form the basis for making judgments about the fair value.value of the intangible assets acquired that are not readily apparent from other sources. The actual results from these acquisitions may differ from these estimates. 

Long-Lived Assets.

The Company reviews its long-lived assets, including property and equipment and identifiable intangibles and goodwill annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets.

Impairment of Long-Lived Assets.

Digerati reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the value of an asset may no longer be appropriate. Digerati assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value.


 

Business combinations.

Each investment in a business is being measured and determined whether the investment should be accounted for as a cost-basis investment, an equity investment, a business combination, or a common control transaction. An investment in which the Company dodoes not have a controlling interest and which the Company is not the primary beneficiary but where the Company has the ability to exert significant influence is accounted for under the equity method of accounting. For those investments that we account for in accordance ASC 805, Business Combinations, the Company records the assets acquired and liabilities assumed at the management’s estimate of their fair values on the date of the business combination. The assessment of the estimated fair value of each of these can have a material effect on the reported results as intangible assets are amortized over various lives. Furthermore, according to ASC 805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or the equity interests shall initially measure the recognized assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer.

Treasury Shares.

As a result of entering into various convertible debt instruments which contained a variable conversion feature with no floor, warrants with fixed exercise price, and convertible notes with fixed conversion price or with a conversion price floor, we reserved 30,000,000 treasury shares for consideration for future conversions and exercise of warrants. The Company will evaluate the reserved treasury shares on a quarterly basis, and if necessary, reserve additional treasury shares. As of July 31, 2022, we believe that the treasury share reserved are sufficient for any future conversions of these instruments. As a result, these debt instruments and warrants are excluded from derivative consideration.

 

Derivative financial instruments.

Digerati does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. However, Digerati analyzes its convertible instruments and free-standing instruments such as warrants for derivative liability accounting.


For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, anydate. Any changes in fair value isare recorded as non-operating, non-cash income or expense for each reporting period. For option-based derivative financial instruments, warrants and notes payable conversion options and warrants Digerati uses the Black-Scholes option-pricing model to value the derivative instruments.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is probable within the next 12 months from the balance sheet date.

Notes payable conversion options are recorded as debt discounts and are amortized as interest expense over the term of the related debt instrument.

Treasury Shares. As a result of entering into various convertible debt instruments, warrants with fixed exercise price, and convertible notes with fixed conversion price or with a conversion price floor, we reserved 9,000,000 treasury shares for consideration for future conversions and exercise of warrants. The Company will evaluate the reserved treasury shares on a quarterly basis, and if necessary, reserve additional treasury shares. As of July 31, 2020, we believe that the treasury share reserved are sufficient for any future conversions of these instruments. As a result, these debt instruments and warrants are excluded from derivative consideration.

Fair Value of Financial Instruments.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy based on the three levels of inputs that may be used to measure fair value are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.


For certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to the short maturity of these instruments. The carrying value of our long-term debt approximates its fair value based on the quoted market prices for the same or similar issues or the current rates offered to us for debt of the same remaining maturities.

Our derivative liabilities as of July 31, 20202022, and 20192021 of $606,000$10,588,000 and $927,000,$16,773,000, respectively.

The following table provides the fair value of the derivative financial instruments measured at fair value using significant unobservable inputs:

     Fair value measurements at reporting date using: 
     Quoted prices in active markets
for identical
liabilities
  Significant other
Observable
inputs
  Significant
Unobservable
inputs
 
Description Fair Value  (Level 1)  (Level 2)  (Level 3) 
             
Convertible promissory notes derivative liability at July 31, 2019 $927,171      -        -  $927,171 
Convertible promissory notes derivative liability at July 31, 2020 $606,123   -   -  $606,123 

     Fair value measurements at reporting date using:
Description Fair Value  Quoted prices in
active markets
for identical
liabilities
(Level 1)
  Significant
other
observable
inputs
(Level 2)
  Significant
unobservable inputs
(Level 3)
 
Convertible promissory notes derivative liability at July 31, 2021 $16,773,383            -            -  $16,773,383 
Convertible promissory notes derivative liability at July 31, 2022 $10,587,717   -   -  $10,587,717 

The fair market value of all derivatives during the year ended July 31, 20202022, was determined using the Black-Scholes option pricing model which used the following assumptions:

Expected dividend yield0.00%0.00%
Expected stock price volatility83.28%63.32% - 268.02%250.19%
Risk-free interest rate0.09% -2.67%0.03% - 2.98%
Expected term0.010.051.009.50 years

Level 3 inputs.The fair market value of all derivatives during the year ended July 31, 2021, was determined using the Black-Scholes option pricing model which used the following assumptions:

Expected dividend yield0.00%
Expected stock price volatility125.60% - 283.01%
Risk-free interest rate0.05% - 1.65%
Expected term0.03 - 10.00 years

The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:

     
Balance at July 31, 2020 $606,123 
Derivative from new convertible promissory notes and warrants recorded as debt discount  6,820,108 
Derivative liability resolved to additional paid in capital due to debt conversion  (588,097)
Derivative loss  9,935,249 
Balance at July 31, 2021 $16,773,383 
Derivative gain  (6,185,666)
Balance at July 31, 2022 $10,587,717 

Balance at July 31, 2018 $632,268 
Derivative from new convertible promissory notes recorded as debt discount  1,043,834 
Derivative liability resolved to additional paid in capital due to debt conversion  (822,922)
Derivative loss  73,991 
Balance at July 31, 2019 $927,171 
Derivative from new convertible promissory notes recorded as debt discount  814,180 
Derivative liability resolved to additional paid in capital due to debt conversion  (872,914)
Derivative loss  (262,314)
Balance at July 31, 2020 $606,123 

Income taxes.

Digerati recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basesbasis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. Digerati provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

Since January 1, 2007, Digerati accounts for uncertain tax positions in accordance with the authoritative guidance issued by the Financial Accounting Standards Board on income taxes which addresses how an entity should recognize, measure and present in the financial statements uncertain tax positions that have been taken or are expected to be taken in a tax return. Pursuant to this guidance, Digerati recognizes a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that is greater than 50% likely of being realized upon settlement. As of July 31, 2020,2022, we have no liability for unrecognized tax benefits.


Stock-based compensation. In June 2018 FASB adopted the Accounting Standards Update No. 2018-07, 

Stock-based compensation. The Company accounts for its share-based awards under ASC 718, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting. This update simplifiesCompensation. Employee and non-employee stock-based compensation is measured at the accounting for non-employee share-based payment transactions by expandinggrant date, based on the scopefair value of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goodsthe award, and services from non-employees. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within that reportingrecognized as an expense over the requisite service period. The Company adopted the updated standard as of May 1, 2018, adopting this guidance did not have a material effect on its consolidated financial statements. During FY 20202022 and 2019,2021, the Company issued 21,811,1001,500,000 common shares and 1,827,9277,858,820 common shares, respectively to professionals for exchange of services and various employees as part of our profit sharing-plan contribution and stock in lieu of cash. At the time of issuance duringDuring FY 20202022 and 20192021 we recognized stock-based compensation expense of approximately $1,127,000$125,250 and $1,044,000,$264,712, respectively equivalent to the market value of the shares issued calculated based on the share’s closing price at the grant dates. During FY 2022 we recognized stock-based compensation expense of $97,863 related to stock options previously issued to various employees.

 

Basic and diluted net income (loss) per share.

The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended July 31, 20202022, and 2019,2021, potential dilutive securities including options and warrants were not included in the calculation of diluted net (loss)loss per common share.share as their effect would be anti-dilutive due to the Company’s net loss. Potential dilutive securities, which are not included in dilutive weighted average shares are as follows:

  7/31/2020  7/31/2019 
Options to purchase common stock  5,000,000   4,940,000 
Warrants to purchase common stock  2,240,000   2,700,000 
Convertible debt  37,304,080   13,113,643 
Total:  44,544,080   20,753,643 
  7/31/2022  7/31/2021 
Options to purchase common stock  9,130,000   9,230,000 
Warrants to purchase common stock  108,841,179   109,506,179 
Convertible debt  43,628,667   20,506,684 
Convertible Series A Preferred stock  750,000   750,000 
Convertible Series B Preferred stock  25,575,847   24,936,847 
Convertible Series C Preferred stock  31,259,369   30,478,369 
Total:  219,185,062   195,408,079 

Noncontrolling interest.

 

F-12

Noncontrolling interest. The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance.

The net income (loss) attributed to the NCI is separately designated in the accompanying consolidated statements of operations and other comprehensive income (loss).

On May 1, 2018, T3 Communications, Inc. (“T3”), a Nevada Corporation, entered into a Stock Purchase Agreement (‘SPA”), whereby in an exchange for $250,000, T3 agreed to sell to the buyers 199,900 shares of common stock equivalent to 19.99% of the issued and outstanding common share of T3 Communications, Inc. The $250,000 of the cash received under this transaction was recognized as an adjustment to the carrying amount of the noncontrolling interest and as an increase in additional paid-in capital in T3. At the option of the Company, and for a period of five years following the date of the SPA, the 199,900 shares of common stock in T3 may be converted into Common Stock of Digerati at a ratio of 3.4 shares of DTGI Common stock for everyone (1) share of T3 at any time after the DTGI Common Stock has a current market price of $1.50 or more per share for 20 consecutive trading days.


For the yearyears ended July 31, 20202022, and 2019,2021, the Company recognizedaccounted for a noncontrolling deficitsinterest of $47,000$1,341,000 and $128,000,$332,000, respectively. Additionally, one of the buyers serves as a Board Member of T3 Communications, Inc., a Florida Corporation, one of our operating subsidiaries.

Recently issued accounting pronouncements.

In the fourth quarter of fiscal year 2022, the Company early adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which generally required an acquirer, in a business combination, to recognize and measure the acquired contract assets and liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. We applied the provisions of ASU 2021-08 to the acquisitions of Next Level Internet, Inc. and Skynet Telecom LLC.

Recent accounting pronouncements, other than below, issued by the Financial Accounting Standards Board (“FASB”)FASB (including its Emerging Issues Task Force), the AICPA and the SEC did not, or are not, believed by management to have a material effect on the Company’s present or future financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments under this pronouncement will change the way all leases with a duration of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or Operating lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases are under current accounting, as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. This update is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2018.  In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provided additional implementation guidance on the previously issued ASU. The Company adopted the new guidance on August 1, 2019, using modified retrospective transition approach and recorded $316,411 as right-of-use assets and operating lease liabilities on day 1.

In August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently evaluating the potential impact of this ASU on its financial statements.

NOTE 2 – GOING CONCERN

Financial Condition

 

Digerati’sThe Company’s consolidated financial statements for the year ending July 31, 2020 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. DigeratiSince the Company’s inception in 1993, the Company has incurred net losses and accumulated a deficit of approximately $88,697,000$113,393,000 and a working capital deficit of approximately $5,316,000$29,323,000 which raises substantial doubt about Digerati’s ability to continue as a going concern.


Management Plans to Continue as a Going Concern

 

Management believes that current available resources as of July 31, 2022, will not be sufficient to fund the Company’s operations and corporate expenses over the next 12 months. The Company’s ability to continue to meet its obligations and to achieve its business objectives is dependent upon, amongand other things, raising additional capital, issuing stock-based compensation to certain members of the executive management team in lieu of cash, or generating sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company will seek to secure such additionalbest-efforts funding from various possible sources, including the public equity market, private financings,or debt financing, sales of assets, or collaborative arrangements, and debt.arrangements. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences, or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain technologies. There can be no assurance that the Company will be able to raise additional funds or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, it may be unable to execute its business plan, the Company could be required to delay or reduce the scope ofcurtail its operations, and the Company may not be able to pay off its obligations, if and when they come due.

We are currently taking initiatives to reduce our overall cash deficiencies on a monthly basis. During fiscal 2022 certain members of our executive management team have taken a significant portion of their compensation in common stock to reduce the depletion of our available cash. To strengthen our business, we intend to adopt best practices from our recent acquisitions and invest in a marketing and sales strategy to grow our monthly recurring revenue; we anticipate utilizing our value-added resellers and channel partners to tap into new sources of revenue streams; and we have also secured numerous agent agreements through our recent acquisitions that we anticipate will accelerate revenue growth. In addition, we will continue to focus on selling a greater number of comprehensive services to our existing customer base. Further, in an effort to increase our revenues, we will continue to evaluate the acquisition of various assets with emphasis in VoIP Services and Cloud Communication Services. As a result, during the due diligence process we anticipate incurring significant legal and professional fees.

We have been successful in raising debt and equity capital in the past and as described in Notes 10, 11 and 12. We have financing efforts in place to continue to raise cash through debt and equity offerings. Although we have successfully completed financings and reduced expenses in the past, we cannot assure you that our plans to address these matters in the future will be successful.


The current Credit Agreement with Post Road will allow the Company to continue acquiring UCaaS service providers that meet the Company’s acquisition criteria. Management anticipates that future acquisitions will provide additional operating revenues to the Company as it continues to execute on its consolidation strategy. There can be no guarantee that the planned acquisitions will close or that they will produce the anticipated revenues on the schedule anticipated by management.

The Company will continue to work with various funding sources to secure additional debt and equity financings. However, Digerati cannot offer any assurance that it will be successful in executing the aforementioned plans to continue as a going concern.

Digerati’s consolidated financial statements as of July 31, 20202022, do not include any adjustments that might result from the inability to implement or execute Digerati’s plans to improve our ability to continue as a going concern.

NOTE 3 – INTANGIBLE ASSETS

During FY 2008, Digerati made a loan of $150,000 to NetSapiens Inc. The note receivable had a maturity date of June 26, 2008 with interest at 8% per year. The note was secured by NetSapiens’ proprietary Starter Platform License and SNAPsolution modules. On June 26, 2008 Digerati converted the outstanding interest and principal balance into a lifetime and perpetual NetSapiens’ License. The License provides Digerati with the ability to offer Hosted PBX (Private Branch eXchange), IP Centrex application, prepaid calling, call center, conferencing, messaging and other innovative telephony functionality necessary to offer standard and/or custom services to enterprise markets. The NetSapiens’ License, in the amount of $150,000, is being amortized equally over a period of 10 years. For the years ended July 31, 2020 and 2019, amortization totaled approximately $0 and $0, respectively. As of July 31, 2020, the NetSapiens’ License is fully amortized.

On December 1, 2017, Shift8 and Synergy Telecom, Inc., a Delaware corporation (“Synergy”), closed a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy. The total purchase price was $425,000, the acquisition was accounted for under the purchase method of accounting, with Digerati identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by Digerati was allocated to customer contracts acquired, software licenses, and goodwill based on their fair values as of December 1, 2017.

The following information summarizes the allocation of the fair values assigned to the assets. The allocation of fair values is based on an extensive analysis and is subject toBelow are summarized changes in the future during the measurement period.

  Synergy  Useful life
(years)
Customer relationship $40,000  5
License - software  105,000  3
Goodwill  280,000  -
       
Total Purchase price $425,000   

For the years ended July 31, 2020 and 2019, amortization expense for the acquired intangible was $25,504 and $60,500, respectively.

On May 2, 2018, the Company closed on the Merger Agreement with T3 Communications, Inc. to increase its customer base and obtain higher efficiency of its existing infrastructure.

The total purchase price was $3,211,945 paid in cash at closing. The acquisition was accounted for under the purchase method of accounting, with the Company identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by the Company was allocated to cash, customer contracts acquired, current assets, property plant and equipment and assumed payables based on their estimated fair values as of May 2, 2018.


The following information summarizes the allocation of the purchase price assigned to intangible assets. The allocation of fair values is based on an extensive analysis and is subject to changes in the future during the measurement period.

  T3  Useful life
(years)
Customer relationships $1,480,000  7
Marketing & Non-compete  800,000  5
Goodwill  530,353  -
       
Total $2,810,353   

For the years ended July 31, 2020 and 2019, amortization expense for the acquired assets totaled approximately $371,000 and $371,000, respectively.

Intangible assets at July 31, 20202022, and 2019 are summarized in the tables below:July 31, 2021:

July 31, 2020 Gross
Carrying
Value
  Accumulated
Amortization
  Net Carrying
Amount
 
NetSapiens - license, 10 years $150,000  $(150,000) $- 
Customer relationships, 5 years  40,000   (20,672)  19,328 
Customer relationships, 7 years  1,480,000   (487,505)  992,495 
Marketing & Non-compete, 5 years  800,000   (360,000)  440,000 
Total Define-lived Assets  2,470,000   (1,018,177)  1,451,823 
Goodwill, Indefinite  810,353   -   810,353 
Balance, July 31, 2020 $3,280,353  $(1,018,177) $2,262,176 

July 31, 2019 Gross
Carrying
Value
  Accumulated
Amortization
  Net Carrying
Amount
 
NetSapiens - license, 10 years $150,000  $(150,000) $- 
Customer relationships, 5 years  40,000   (12,672)  27,328 
Customer relationships, 7 years  1,480,000   (276,077)  1,203,923 
Marketing & Non-compete, 5 years  800,000   (200,000)  600,000 
Total Define-lived Assets  2,470,000   (638,749)  1,831,251 
Goodwill, Indefinite  810,353   -   810,353 
Balance, July 31, 2019 $3,280,353  $(638,749) $2,641,604 
July 31, 2022 Gross Carrying
Value
  Accumulated
Amortization
  Net Carrying
Amount
 
NetSapiens - license, 10 years $150,000  $(150,000) $- 
Customer relationships, 5 years  40,000   (36,684)  3,316 
Customer relationships, 7 years  10,947,262   (2,573,052)  8,374,210 
Trademarks, 7 & 10 years  7,148,000   (993,806)  6,154,194 
Non-compete, 2 & 3 years  931,000   (394,583)  536,417 
Marketing & Non-compete, 5 years  800,263   (679,980)  120,283 
Total Definite-lived Intangible Assets  20,016,525   (4,828,105)  15,188,420 
Goodwill  19,380,080   -   19,380,080 
Balance, July 31, 2022 $39,396,605  $(4,828,105) $
34,568,500
 

July 31, 2021 Gross Carrying
Value
  Accumulated Amortization  Net Carrying
Amount
 
NetSapiens - license, 10 years $150,000  $(150,000) $- 
Customer relationships, 5 years  40,000   (28,672)  11,328 
Customer relationships 7 years  6,790,000   (1,310,720)  5,479,280 
Trademarks, 7 years  2,870,000   (307,500)  2,562,500 
Non-compete, 2 & 3 years  291,000   (97,500)  193,500 
Marketing & Non-compete, 5 years  800,000   (520,000)  280,000 
Total Definite-lived Intangible Assets  10,941,000   (2,414,392)  8,526,608 
Goodwill  3,931,298   -   3,931,298 
Balance, July 31, 2021 $14,872,298  $(2,414,392) $
12,457,906
 

Total amortization expense for the periodsyear ended July 31, 20202022, and 20192021 was approximately $379,000$2,448,274 and $379,000,$1,396,214, respectively.


NOTE 4 - PROPERTY AND EQUIPMENT

Following is a summary of Digerati’s property and equipment at July 31, 20202022 and 20192021 (in thousands):

  Useful lives 2020  2019 
Telecom equipment & software 1-5 years $1,064  $978 
Less: accumulated depreciation    (633)  (399)
Net–property and equipment   $431  $579 

The Company uses straight-line depreciation, for the years ended July 31, 2020 and 2019, depreciation totaled approximately $234,000 and $289,000, respectively.


  Useful lives 2022  2021 
Telecom equipment & software 1-7 years $2,878  $1,345 
Less: accumulated depreciation    (1,231)  (816)
Net–property and equipment   $1,647  $529 

NOTE 5 – INCOME TAXES

Digerati files a consolidated tax return. The current tax year is subject to examination by the Internal Revenue Service and certain state taxing authorities. As of July 31, 2020,2022, Digerati had net operating loss carryforwards of approximately $8,157,234$26,356,740 to reduce future federal income tax liabilities; net loss from 2018 and on will be carryforward indefinitely, the net loss carryforwards will startprior to expire2018 started expiring in 2020.2021. Under the recently enacted Tax Cuts and Jobs Act (TCJA), the new effective Corporate flat tax rate is 21% (effective for tax years beginning after December 31, 2017). Income tax benefit (provision) for the years ended July 31, 20202022, and 20192021 are as follows:

The effective tax rate for Digerati is reconciled to statutory rates as follows:

  2020  2019 
Expected Federal benefit (provision), at statutory rate  21.0%  21.0%
Change in valuation allowance  (21.0)%  (21.0)%
   0.0%  0.0%
  2022  2021 
Expected Federal benefit (provision), at statutory rate  21.0%  21.0%
Change in valuation allowance  (21.0)%  (21.0)%
   0.0%  0.0%

Deferred tax assets are comprised of the following as of July 31, 20202022 and 2019:2021:

  2020  2019 
Net operating loss carryover $1,713,019  $1,805,310 
Valuation allowance  (1,713,019)  (1,805,310)
Total deferred tax asset, net $-  $- 
  2022  2021 
Net operating loss carryover $5,534,915  $3,242,773 
Valuation allowance  (5,534,915)  (3,242,773)
Total deferred tax asset, net $-  $- 

At July 31, 2020, realization of Digerati’s deferred tax assets was not considered likely to be realized. The change in the valuation allowance for 2020 was2022 resulted in a decreasean increase of approximately $92,291.$2,292,142. Management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in Digerati’s combinedconsolidated financial statements. The current year remains open to examination by the major taxing jurisdictions in which Digerati is subject to tax. The Company files a calendar year return, and the net operating loss was adjusted for the fiscal year ended July 31, 2020.2022.

During the year ended July 31, 2020 the Company issued 77,583,184 common shares,The federal and under our initial assessment this will likely result in a change of control and the net operation loss (NOL’s) becamestate NOLs may be subject to certain limitations under Section 382 of the separate return limitation year. We will evaluate duringInternal Revenue Code, which could significantly restrict the tax year and considerCompany’s ability to use the limitations.NOLs to offset taxable income in subsequent years.

We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluate on new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.


NOTE 6 – STOCK-BASED COMPENSATION

In November 2015, Digeratithe Company adopted the Digerati Technologies, Inc. 2015 Equity Compensation Plan (the “Plan”). The Plan authorizes the grant of up to 7.5 million stock options, restricted common shares, non-restricted common shares and other awards to employees, directors, and certain other persons. The Plan is intended to permit Digeratithe Company to retain and attract qualified individuals who will contribute to the overall success of Digerati. Digerati’sthe Company. The Company’s Board of Directors determines the terms of any grants under the Plan. Exercise prices of all stock options and other awards vary based on the market price of the shares of common stock as of the date of grant. The stock options, restricted common stock, non-restricted common stock, and other awards vest based on the terms of the individual grant.

During the year ended July 31, 2019,2022, the Company extended the expiration date on 1,150,000 previously issued stock options to various employees until July 31, 2025, and the exercise price of these options was set at $0.11 per share. The modification of these stock options created a nominal expense to the Company.

During the year ended July 31, 2021, we issued:

635,1567,858,820 shares of common sharesstock to various employees for services in lieu of cash compensation and as part of the Company’s Non-Standardized profit-sharing plan contribution.plan. The Company recognized stock-based compensation expense of approximately $114,000$264,712 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.

100,0004,230,000 options to purchase common shares to a member of the Board of Directorsvarious employees with an exercise price of $0.18ranging from $0.042 to $0.1475 per share and a term of 5 years. TheAt issuance, 200,000 of the options vested, 400,000 of the options will vest equally over a period of one year.two years, and 3,630,000 of the options will vest equally over a period of three years. At the time of issuance the stock options had a fair market value of $11,406.$267,343.

1,725,000 options to purchase common shares to members of the Management team with an exercise price of $0.19 per share and a term of 5 years. The options vest equally over a period of one year. At the time of issuance the options had a fair market value of $217,263.


250,000 options to purchase common shares to an employee with an exercise price of $0.25 per share and a term of 5 years. The options vest equally over a period of two years. At the time of issuance, the options had a fair market value of $39,175.

1,192,770 common shares to members of the Management team for services in lieu of cash compensation. The Company recognized stock-based compensation expense of approximately $198,000 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.

1,350,000 shares of common stock to the Executive Officers, with a market value at time of issuance of $256,500, the Stock Grant will vest upon the earlier of the Company achieving $15 million in annualized revenue or listing on a primary stock exchange (e.g. NASDAQ or NYSE American) and will be subject to adjustment for any forward or reverse split of the Company’s stock. The Company recognized approximately $85,500 in stock-based compensation expense related to this issuance during the year ended July 31, 2019. Unamortized compensation cost totaled $171,000 at July 31, 2019.

During the year ended July 31, 2019 we issued the following to non-employee professionals:

In November 2018, the Company issued an aggregate of 200,000 shares of common stock with a market value at time of issuance of $69,600. The shares were issued for consulting services.

In February 2019, the Company issued an aggregate of 325,000 shares of common stock with a market value at time of issuance of $78,000. The shares were issued for consulting services.

In February 2019, the Company issued an aggregate of 400,000 shares of common stock with a market value at time of issuance of $100,000. The shares were issued for consulting services.

The fair market value of all options issued wasduring the year ended July 31, 2021, were determined using the Black-Scholes option pricing model which used the following assumptions:

Expected dividend yield0.00%0.00%
Expected stock price volatility178.79%197.71% - 260.07%198.82%
Risk-free interest rate1.84%0.22% - 2.73%0.34%
Expected term1.02.0 - 2.0 years3.0 years.

During the year ended July 31, 2020, we issued:

On August 26, 2019, the Company issued 60,000 options to purchase common shares to an employee with an exercise price of $0.12 per share and a term of 5 years. The options vest equally over a period of three years. At the time of issuance, the options had a fair market value of $7,158.

October 31, 2019, the Company issued 3,952,095 common shares to the Executive Officers for services in lieu of cash compensation. The Company recognized stock-based compensation expense of approximately $276,646 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.

On October 31, 2019, the Company issued 1,337,325 shares of common stock to the Executive Officers, with a market value at time of issuance of $93,612 the stock was issued as payment for $26,612 of outstanding compensation expense and released of accrued liability of $67,000.

On January 2, 2020, the Company issued 5,012,658 common shares to the Executive Officers for services in lieu of cash compensation. The Company recognized stock-based compensation expense of approximately $198,000 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.

On February 24, 2020, the Company issued 11,509,022 common shares to various employees as part of the Company’s Non-Standardized profit-sharing plan contribution. The Company recognized stock-based compensation expense of approximately $233,633 equivalent to the value of the shares calculated based on the share’s closing price at the grant date.

During the year ended July 31, 2020 we issued the following to non-employee professionals:

In December 2019, the Company issued 400,000 shares of common stock with a market value at time of issuance of $15,240. The shares were issued for consulting services.

The fair market value of all options issued was determined using the Black-Scholes option pricing model which used the following assumptions:

Expected dividend yield0.00%
Expected stock price volatility317.52%
Risk-free interest rate1.47%
Expected term3.0 year

Digerati recognized approximately $1,112,000$98,000 and $733,000$399,500 in stock-based compensation expense to employees during the years ended July 31, 20202022, and 2019,2021, respectively. Unamortized compensation cost totaled $63,203$97,972 and $433,608$195,835 at July 31, 20202022, and July 31, 2019,2021, respectively.


A summary of the stock options as of July 31, 20202022, and July 31, 20192021, and the changes during the years ended July 31, 20202022, and July 31,2019:31, 2021:

  Options  Weighted-average
exercise price
  Weighted-average
remaining contractual
term (years)
 
          
Outstanding at July 31, 2018  3,415,000�� $0.33   4.58 
Granted  2,075,000  $0.20   4.58 
Exercised  -   -   - 
Forfeited and cancelled  (550,000) $0.36   3.39 
Outstanding at July 31, 2019  4,940,000  $0.27   3.65 
Granted  60,000  $0.12   4.07 
Exercised  -   -   - 
Forfeited and cancelled  -   -   - 
Outstanding at July 31, 2020  5,000,000  $0.27   2.66 
Exercisable at July 31, 2020  4,717,699  $0.26   2.62 
  Options  Weighted-
average exercise price
  Weighted-
average remaining contractual term (years)
 
          
Outstanding at July 31, 2020  5,000,000  $0.27   2.66 
Granted  4,230,000  $0.05   4.39 
Exercised  -   -   - 
Forfeited and cancelled  -   -   - 
Outstanding at July 31, 2021  9,230,000  $0.17   2.93 
Granted  -   -   - 
Exercised  -   -   - 
Forfeited and cancelled  (100,000) $0.25   - 
Outstanding at July 31, 2022  9,130,000  $0.17   2.39 
Exercisable at July 31, 2022  7,551,179  $0.20   2.11 

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) of the 5,000,0009,130,000 and 4,940,0009,230,000 stock options outstanding at July 31, 20202022 and July 31, 20192021 was $0$191,722 and $0,$392,891, respectively.

The aggregate intrinsic value of 4,717,699the 7,551,179 and 3,452,4056,091,863 stock options exercisable at July 31, 20202022 and July 31, 20192021 was $0$110,380 and $0,$91,978, respectively.

NOTE 7 – WARRANTS

During the year ended July 31, 2019,2022, the Company issued the following warrants:

In August 2018, Digerati secured $40,000 from an accredited investor under a private placement and issued 80,000 shares of its common stock at a price of $0.50 per share and warrants to purchase an additional 15,000 shares of its common stock at an exercise price of $0.50 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.issue any warrants.

In October 2018, Digerati issued 200,000 warrants under an extension of payments to existing promissory notes, with a combined current principal balance of $75,000, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $31,000 and was recognized as a discount on the promissory note, the company amortized the fair market value as interest expense over 3 months.

In January 2019, Digerati cancelled 260,000 warrants with an exercise price of $0.15. Additionally, the Company issued 260,000 common shares to replace these warrants, in conjunction with two promissory notes with a principal balance of $50,000, in addition at the time of issuance we recognized a discount of $36,000 for the common stock issued in replacement of warrants.


In February 2019, the Company received $1,500 for the exercise of 15,000 warrants, with an exercise price of $0.10 per warrant.

In March 2019, the Company received $6,000 for the exercise of 60,000 warrants, with an exercise price of $0.10 per warrant.

In April 2019, the Company secured $50,000 from accredited investors under a private placement and issued 50,000 shares of Series A Convertible Preferred Stock at a conversion price of $0.30 per share and warrants to purchase an additional 100,000 shares of its common stock at an exercise price of $0.20 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.

In May 2019, the Company secured $175,000 from accredited investors under a private placement and issued 175,000 shares of Series A Convertible Preferred Stock at a conversion price of $0.30 per share and warrants to purchase an additional 350,000 shares of its common stock at an exercise price of $0.20 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.

The fair market value of all warrants issued was determined using the Black-Scholes option pricing model which used the following assumptions:

Expected dividend yield0.00%
Expected stock price volatility153.99% - 330.94%
Risk-free interest rate2.00% -2.93%
Expected term3.0 years

During the year ended July 31, 2020,2021, we issued the following warrants.

In MarchOn November 17, 2020, the Company received $25,000 in professional services and issued 25,000 shares of Series A Convertible Preferred Stock at an conversion price of $0.30 per share and warrants107,701,179 Warrants to Post Road Special Opportunity Fund II LP (the “Warrant”) to purchase, an additional 50,000initially, twenty-five percent (25%) of the Company’s total shares (the “Warrant”), calculated on a fully-diluted basis as of its common stock atthe date of issuance (the “Warrant Shares”) and subject to a reduction to fifteen percent (15%) as described below.

The number of Warrant Shares is adjustable to allow the holder to maintain, subject to certain share issuances that are exceptions, the right to purchase twenty-five percent (25%) of the Company’s total shares, calculated on a fully-diluted basis. The Warrant has an exercise price of $0.20$0.01 per share. We determinedshare and the Warrant expires on November 17, 2030. Seventy-five percent (75%) of the Warrant Shares are immediately fully vested and not subject to forfeiture at any time for any reason. The remaining twenty-five percent (25%) of the Warrant Shares are subject to forfeiture based on the Company achieving certain performance targets which, if achieved, would result in twenty percent (20%) warrant coverage. If the minority shareholders of T3 Nevada convert their T3 Nevada shares into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), the Warrant Shares percentage shall also be lowered such that when combined with the achievement of the performance targets, the warrant coverage could be reduced to fifteen percent (15%).

In connection with the issuance of the Warrant, the three executives of the Company, Art Smith, Antonio Estrada, and Craig Clement entered into a Tag-Along Agreement (the “Tag-Along Agreement”) whereby they agreed that the warrants issuedholder of the Warrant or Warrant Share will have the right to participate or “tag-along” in any agreements to sell any shares of their Common Stock that such executives enter into. The Company also agreed, in connection with the services received were equity instrumentsissuance of the Warrant and did not representpursuant to a Board Observer Agreement (the “Board Observer Agreement”), to grant Post Road the right to appoint a representative to each of the boards of directors of the Company and each of its subsidiaries, to attend all board meeting in a non-voting observer capacity. In addition, at issuance the Company recognized $6,462,050 in derivative instruments. The Company adopted a sequencing policy and determined that the warrantsliability associated with fixed exercise price were excluded from derivative consideration.these warrants.


A summary of the warrants as of July 31, 20202022, and 20192021, and the changes during the years ended July 31, 20202022, and 20192021 are presented below:

 

        Weighted-average 
     Weighted-average  remaining contractual 
  Warrants  exercise price  term (years) 
          
Outstanding at July 31, 2018  2,370,000  $0.28   2.90 
Granted  665,000  $0.18   2.61 
Exercised  (75,000) $0.10   2.15 
Forfeited and cancelled  (260,000) $0.15   3.75 
Outstanding at July 31, 2019  2,700,000  $0.32   2.19 
Granted  50,000  $0.20   2.25 
Exercised  -   -   - 
Expired  (510,000) $0.29   - 
Outstanding at July 31, 2020  2,240,000  $0.33   1.61 
Exercisable at July 31, 2020  1,940,000  $0.22   1.49 
  Warrants  Weighted-
average exercise price
  Weighted-
average remaining contractual term (years)
 
          
Outstanding at July 31, 2020  2,540,000  $0.33   1.61 
Granted  107,701,179  $0.01   9.50 
Exercised  (330,000) $0.10   - 
Expired  (405,000) $0.50   - 
Outstanding at July 31, 2021  109,506,179  $0.01   9.17 
Exercised  -  -   - 
Expired  (665,000) $0.18   - 
Outstanding at July 31, 2022  108,841,179  $0.01   8.21 
Exercisable at July 31, 2022  81,615,885  $0.01   8.22 


The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money warrants) of the 2,240,000108,841,179 and 2,700,000109,506,179 warrants outstanding at July 31, 20202022 and July 31, 20192021 was $6,160$9,002,606 and $63,602,$14,795,002, respectively.

The aggregate intrinsic value of 1,940,000the 81,615,885 and 2,400,00082,280,885 warrants exercisable at July 31, 20202022 and July 31, 20192021 was $6,160$6,757,037 and $63,602,$11,108,930, respectively.

Warrant expense for the years ended July 31, 2020 and 2019 was $0 and $64,000, respectively. Unamortized warrant expense totaled $0 and $0 respectively as of July 31, 2020 and July 31, 2019.

In January 2020, 300,000 warrants expired with an exercise price pf $0.136. These warrants were issued in January 2015.

In July 2020, 210,000 warrants expired with an exercise price pf $0.50. These warrants were issued in July 2017.

In December 2017, the Company issued 100,000 warrants to a consultant for services, the warrants vested at time of issuance. The warrants have a term of 5 years, with an exercise price of $0.50. Under a Black-Scholes valuation the fair market value of the warrants at time of issuance was approximately $49,000, the Company amortized the fair market value as warrant expense over 12 months. Additionally, the Company committed to issue 100,000 warrants if the Company’s stock price traded at $0.75 per share for 10 consecutive days, to issue 100,000 warrants if the Company’s stock price traded at $1.00 per share for 10 consecutive days, and to issue 100,000 warrants if the Company’s stock price traded at $1.25 per share for 10 consecutive days. Under a Black-Scholes valuation the fair market value of the warrants at time of issuance was approximately $143,000, and the Company amortized the expense during FY2018. The 300,000 commitment warrants have not vested and have not been issued since the requirements were not achieved during the year ended July 31, 2020.

NOTE 8 – NON-STANDARDIZED PROFIT-SHARING PLAN

We currently provide a Non-Standardized Profit-Sharing Plan, adopted September 15, 2006. Under the plan our employees qualify to participate in the plan after one year of employment. Contributions under the plan are based on 25% of the annual base salary of each eligible employee up to $54,000 per year. Contributions under the plan are fully vested upon funding.

During the years ended July 31, 20202022, and July 31, 2019,2021, the Company issued 11,509,0220 and 635,1567,608,820 respectively, common shares to various employees as part of the Company’s profit-sharing plan contribution.

The Company recognized stock-based compensation expense for July 31, 20202022, and July 31, 20192021, of $233,633$0 and $114,000,$247,287, respectively, equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.

NOTE 9 – SIGNIFICANT CUSTOMERS

During the years ended July 31, 20202022, and 2019,2021, the Company did not derive a significant amountrevenues of revenue10% or more from oneany single customer.

As of the year ended July 31, 2020,2022, and 2021, the company derived 12% of totalCompany did not have outstanding accounts receivable of 10% or more from one customer. During the year ended July 31, 2019, the company did not derive a significant balance on accounts receivable from oneany single customer.

NOTE 10 – NOTES PAYABLE NON-CONVERTIBLE

On April 30, 2018, T3 Communications, Inc., a Nevada corporation (“T3”), our majority owned subsidiary, entered into a secured promissory note for $650,000 with an effective annual interest rate of 0% and a maturity date of May 14, 2018, provided, however, the Maturity Date will automatically be extended by one (1) additional period of thirty (30) days, until June 14, 2018. In addition, T3 entered into a Security Agreement, whereby T3 agreed to pledge one third of the outstanding shares of its Florida operations, T3 Communications, Inc., the secured interest will continue until the principal balance is paid in full. Furthermore, a late fee of $3,000 per calendar week was accessed beginning on May 15, 2018 and will continue until the principal balance is paid in full. On May 6, 2020, the Company received an additional $50,000 from the lender and increased the principal of the promissory note to $700,000. On October 14, 2020, the lender agreed to extend the maturity date until October 31, 2020, we are currently paying a $3,250 per week late fee. As of July 31, 2020, and July 31, 2019, the outstanding principal balance were $700,000 and $650,000, respectively.


On April 30, 2018, T3 entered into a credit facility under a secured promissory note of $500,000, interest payment for the first twenty-three months with a balloon payment on the twenty-fourth month and a maturity date of April 30, 2020. Collateralized by T3’s accounts receivables and with an effective annual interest rate of prime plus 5.25%, adjusted quarterly on the first day of each calendar quarter. However, the rate will never be less than 9.50% per annum. In the event of default, the interest rate will be the maximum non-usurious rate of interest per annum permitted by whichever of applicable United States federal law or Louisiana law permits the higher interest rate. T3 agreed to pay the lender a commitment fee of 1.00% upon payment of the first interest payment under the credit facility and 1.00% on the first anniversary of the credit facility. In addition, T3 agreed to pay a monitoring fee of 0.33% of the credit facility, payable in arrears monthly. T3 also agreed to pay an over-advance fee of 3.00% of the amount advanced in excess of the borrowing base or maximum amount of the credit facility, payable in arrears monthly. As of July 31, 2020, the Lender agreed to waive the following financial covenants: 1) A consolidated debt service coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, 2) A fixed charge coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, and 3) A tangible net worth, at all times of at least $100,000. On April 10, 2020, the Company increased the credit facility to $600,000 and the lender agreed to extend the maturity date until April 10, 2022. In addition, the Company agreed to a revised effective annual interest rate of prime plus 5.75%, adjusted quarterly on the first day of each calendar quarter. However, the rate will never be less than 11.00% per annum. During the year ended July 31, 2020, the Company received an additional $100,000 from the lender. As of July 31, 2020, and July 31, 2019, the outstanding principal balance were $600,000 and $500,000, respectively.

On October 22, 2018, the Company issued a secured promissory note for $50,000, bearing interest at a rate of 8% per annum, with maturity date of December 31, 2018. In February 2020, theThe maturity date was extended multiple times and subsequently on September 8, 2022, the lender agreed to Decemberextend the maturity until January 31, 2020. In conjunction with the extension, the Company issued 40,000 shares of common stock. At issuance, the fair market value of the shares was recorded as interest expense of $800.2023. The promissory note is secured by a Pledge and Escrow Agreement, whereby the Company agreed to pledge rights to a collateral due under certain Agreement. The principal outstanding balance as of July 31, 20202022, and July 31, 20192021, was $50,000.

Credit Agreement and Notes

On June 14, 2019,November 17, 2020, T3 Nevada (a majority owned subsidiary of the Company,Company) and T3 Nevada’s subsidiaries (T3 Nevada and its subsidiaries, collectively, “the T3 Nevada Parties”) entered into a Stock Purchasecredit agreement (the “Credit Agreement”) with Post Road Administrative LLC (the “Agent”) and its affiliate Post Road Special Opportunity Fund II LLP (collectively, “Post Road”). The Company is a party to certain sections of the Credit Agreement. Pursuant to the Credit Agreement, (the “Agreement”)Post Road will provide T3 Nevada with a secured loan of up to acquire$20,000,000, with initial loans of $10,500,000 pursuant to the issuance of a 12% minorityTerm Loan A Note and $3,500,000 pursuant to the issuance of a Term Loan B Note, each funded on November 17, 2020, and an additional $6,000,000 on loans, in increments of $1,000,000 as requested by T3 Nevada before the 18 month anniversary of the initial funding date to be lent pursuant to the issuance of a Delayed Draw Term Note. After payment of transaction-related expenses and closing fees of $964,000, net proceeds to the Company from the Note totaled $13,036,000. The Company recorded these discounts and cost of $964,000 as a discount to the Notes and will be amortized as interest in Itellum Comunicacions Costa Rica, S.R.L. In conjunctionexpense over the term of the notes.


During the year ended July 31, 2022, the Company amortized $1,294,201 of the total debt discount as interest expense for the Term Loan A Note and the Term Loan B Note. The total debt discount outstanding on the notes as of July31, 2022, and July 31, 2021, were $0 and $5,355,322, respectively.

Term Loan A Note with this transaction, we entered into a non-recourse promissory note for $17,500 withmaturity date of November 17, 2024, and an effective annual interest rate of 8%LIBOR (with a minimum rate of 1.5%) plus twelve percent (12%). Term Loan A is non-amortized (interest only payments) through the maturity date and contains an initialoption for the Company to pay interest in kind (PIK) for up to five percent (5%) of the interest rate in year one, four percent (4%) in year two and three percent (3%) in year three.

Term Loan B had a maturity date of September 14, 2019. On February 15, 2020,December 31, 2021, and an interest rate of LIBOR (with a minimum rate of 1.5%) plus twelve percent (12%). Term Loan B is non-amortized (interest only payments) through the maturity date and contains an option for the Company to pay interest in kind (PIK) for up to five percent (5%) of the interest rate in year one, four percent (4%) in year two and three percent (3%) in year three. The Term Loan B was extendedrecapitalized under the revised A&R Term Loan A Note as indicated below.

On December 20, 2021, T3 Nevada and Post Road entered into an amendment to the Credit Agreement (the “Amendment”) in connection with which T3 Nevada issued an Amended and Restated Term Loan A Note (the “A&R Term Loan A Note”) in replacement of the Term Loan A Note. Under the First Amendment, the Term Loan B Note principal of $3,500,000, accrued interest of $187,442, and amendment fee of $1,418,744 were recapitalized under the revised A&R Term Loan A Note.

Pursuant to the First Amendment, the additional proceeds of $6,000,000 were used to fund the acquisition of Skynet Telecom LLC’s assets and for general corporate and working capital purposes as well as professional fees and other fees and expenses with respect to the transactions contemplated by the Amendment. The Company evaluated the amendment and the recapitalization of the notes and accounted for these changes as an extinguishment of debt and recognized a loss on extinguishment of debt of $5,479,865, the loss is composed of the full amortization debt discount of $4,061,121, and the amendment fees of $1,418,744.

The A&R Term Loan A Note has maturity dates of November 17, 2024, and an interest rate of LIBOR (with a minimum rate of 1.5%) plus twelve percent (12%). The principal balance and accrued PIK interest outstanding on the A&R Term Loan A Note were $22,168,515 and $530,672, respectively as of July 31, 2020. In addition,2022.

On February 4, 2022, the holderT3 Nevada Parties and Post Road agreed that Post Road would provide T3 Nevada with a secured loan of $10,000,000 pursuant to accept 200,000 sharesa Term Loan C Note. The proceeds of common stock$10,000,000 were used to fund the acquisition of Next Level and for general corporate and working capital purposes as awell as professional fees and other fees and expenses with respect to the transactions contemplated by the Amendment. At issuance the company recognized $250,000 in OID and $220,000 in debt issuance cost which will be amortized over the term of the note. The total unamortized debt discount was $313,334. The principal paymentbalance and accrued PIK interest outstanding on the note for $10,000,Term Loan C Note were $10,000,000 and $199,413, respectively as of July 31, 2022.

The Term Loan C Note has a maturity date of August 4, 2023, and an interest rate of LIBOR (with a minimum rate of 1.5%) plus twelve percent (12%).

The Credit Agreement contains customary representations, warranties, and indemnification provisions. The Credit Agreement also contains affirmative and negative covenants with respect to operation of the business and properties of the loan parties as well as financial performance. Below are key covenants requirements, (measured quarterly):

1. Maximum Allowed - Senior Leverage Ratio of 4.06 to 1.00

2. Minimum Allowed - EBITDA of $3,719,589

3. Minimum Allowed - Liquidity of $2,000,000

4. Maximum Allowed - Capital Expenditures of $94,798 (Quarterly)

5. Minimum Allowed - Fixed Charge Coverage Ratio of 1.5 to 1.00

6. Maximum Allowed - Churn of 3.00% at theany time of issuance the Company recognized $5,400 as a gain on settlement of debt.


On August 1, 2020,June 13, 2022, the lender agreed to extendforbear the maturity datefinancial covenants that were not complied with during the quarter ended April 30, 2022. Subsequentially, on October 17, 2022, the lender agreed to October 31, 2020. The outstanding balance as offorbear the financial covenants that were not complied with during the year and quarter ended July 31, 2022.

T3 Nevada’s obligations under the Credit Agreement are secured by a first-priority security interest in all of the assets of T3 Nevada and guaranteed by the other subsidiaries of the Company pursuant to the Guaranty and Collateral Agreement, dated November 17, 2020, subsequently amended on December 31, 2021, and July 31, 2019, were $7,500February 4, 2022, by and $17,500, respectively.among T3 Nevada, T3’s Nevada’s subsidiaries, and the Agent (the “Guaranty and Collateral Agreement”). In addition, T3 Nevada’s obligations under the Credit Agreement are, pursuant to a Pledge Agreement (the “Pledge Agreement”), secured by a pledge of a first priority security interest in T3 Nevada’s 100% equity ownership of each of T3 Nevada’s operating companies.

Promissory Notes – Next Level Internet Acquisition

On February 26, 2020, the Company entered into a secured promissory note for $30,000 with an effective annual interest rate of 12% and a maturity date of May 1, 2020. Subsequently, the note holder agreed to extend the maturity date until August 31, 2020. As of the date of this filing, the Company is working with the lender to extend the maturity date. The proceeds from this note were used to extend the closing date of4, 2022, as per the acquisition of Nexogy, the funds are for the benefit of owners of Nexogy, and the funds will be credited to the purchase price at Closing of the acquisition. The Company included the prepaid amounts in other current assets as of July 31, 2020. The promissory note is secured by the Company’s receivables. The outstanding balance as of July 31, 2020 and 2019, were $30,000 and $0, respectively.

On April 22, 2020,Next Level Internet, Inc. (“Next Level” or “NLI”), the Company entered into two unsecured promissory notes (the “Notes”“Unsecured Adjustable Promissory Notes”) for $62,500$1,800,000 and $86,000 made to the Company under the Paycheck Protection Program (the “PPP”). In addition, on May 4, 2020, the Company, entered into a third unsecured promissory note (the “Note”) for $213,100 made to the Company under the Paycheck Protection Program (the “PPP”).$200,000, respectively. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”). The loans to the Company was made through The Bank of San Antonio (the “Lender”).

The Notes provide for an interest rate of 1.00% per year and matures two years after the issuance date. Beginning on the seventh month following the date of the Notes, the Company is required to make 18 monthly payments of principal and interestnotes are payable in eight equal quarterly installments in the aggregate amount of $8,316$250,000 each commencing on June 4, 2022, through and $11,933, respectively. The Notes may be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that were incurred before February 15, 2020. The Notes contain events of default and other conditions customary forincluding March 7, 2024, with a Note of this type.


Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the SBA may adopt. While the Company currently believes that its use of the Note proceeds will meet the conditions for forgiveness under the PPP, no assurance is provided that the Company will obtain forgiveness of the Notes in whole or in part.

On July 2, 2020, the Company entered into an unsecured promissory note for $15,000 with an effectivebase annual interest rate of 10%0% and a maturity datedefault annual interest rate of October18%. The amount owed is subject to change based on certain revenue milestones required to be achieved by Next Level. At issuance, the Company fair valued the notes and recognized a debt discount of $241,000 which is amortized over the term of the notes. The Company amortized $60,250 to interest expense during the year ended July 31, 2020. As2022. Total unamortized debt discount on the notes as of July 31, 2020, and 2019,2022, was $180,750. During the year ended July 31, 2022, the Company made a principal payment of $250,000. The total principal balance outstanding were $15,000 and $0, respectively.as of July 31, 2022, on the Unsecured Adjustable Promissory Notes was $1,750,000.

NOTE 11 – RELATED PARTY TRANSACTIONS

On April 30, 2018, T3 entered intoDuring the years ended July 31, 2022, and 2021, the Company provided VoIP Hosted and fiber services to a convertible secured promissory note for $525,000 with an effective annual interest rate of 8% and a maturity date of April 30, 2020. With a principal payment of $100,000 due on June 1, 2018 and a principal payment of $280,823 due on April 30, 2020. Payment are based on a 60-month repayment schedule. At any time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under the Note or the Pledge and Escrow Agreement; or (ii) mutual agreement between the Borrower and the Holder, the Holder may convert all or any portioncompany owned by one of the outstanding principal, accrued and unpaid interest, Premium, if applicable, and any other sums due and payable hereunder (such total amount, the “Conversion Amount”) into sharesBoard members of Common Stock (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount (the numerator); divided by (ii) a conversion price of $1.50 per share of Common Stock, which price shall be indicated in the conversion notice (the denominator) (the “Conversion Price”). The Holder shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered. The promissory note is secured by a Pledge and Escrow Agreement, whereby T3 agreed to pledge 51% of the securities owned in its Florida operations, T3 Communications, Inc., untila Florida corporation, for $194,547 and $175,606, respectively. In addition, the Company also leases a Colo facility from a company owned by a board member of T3 Communications Inc. For the years ended July 31, 2022, and 2021, the Company paid $157,935 and $88,143, respectively.

On November 17, 2020, as a result of the of the acquisition of ActiveServe’s asset, the two sellers became related parties as they continued to be involved as consultants to manage the customer relationship, the Company paid on an annual basis $90,000 to each of the consultants. These agreements expired as of January 17, 2022, and the parties agreed not to extend. As of July 31, 2022, there’s no balance outstanding under the consulting agreements. In addition, part of the Purchase Price is payable in 8 equal quarterly payments to the sellers. During the year ended July 31, 2022, the Company paid $716,181 of the principal payment is paidbalance outstanding. On January 7, 2022, the Company recognized a reduction of $120,621 on the note balance due to the sellers not achieving certain requirement under the “Customer renewal Value”. As a result, the Company recognized a reduction of $120,621 in full. In conjunctionGoodwill associated with the promissory note,ActiveServe asset acquisition. On July 31, 2022, the Company issued 3-year warrantsrecognized a reduction of $24,989 on the note balance due to purchase 75,000 shares of common stock at an exercise price of $0.50 per share. Underthe sellers not achieving certain requirement under the monthly recurring revenue target. As a Black-Scholes valuationresult, the relative fair market valueCompany recognized $24,989 in the Other Income/Expense section of the warrants at timeStatement of issuance was $19,267Operations. The total principal outstanding on the notes as of July 31, 2022, and was recognizedJuly 31, 2021, were $272,500 and $1,134,291, respectively.

On December 31, 2021, as a result of the of the acquisition of Skynet Telecom LLC’s assets, the two sellers became related parties as they continued to be involved as consultants for 12 months to manage the customer relationship, the Company will pay on an annual basis $100,000 to each of the consultants. As of July 31, 2022, there no outstanding balance owed to the consultants. Part of the Purchase Price of $600,000 (the “Earn-out Amount”) was retained by the Company at the closing and will be paid to the sellers in 6 equal quarterly payments. An additional $100,000 (the “Holdback Amount”) was retained by the Company at the closing and will be paid to the sellers in accordance with the Skynet Telecom LLC asset purchase agreement. During the year ended July 31, 2022, the Company paid $100,000 of the principal balance outstanding. The Earn-out Amounts were fair valued at the acquisition date and the Company recognized a debt discount on the promissory note.of $62,417. The Company amortized $22,731 of debt discount as interest expense during the year ended July 31, 2020 and July 31, 2019, $7,297 and $6,395, respectively.2022. The total unamortized debt discount as of July 31, 2020 and July 31, 2019 were $0 and $7,297, respectively. In addition, during the year ended July 31, 2020, the Company paid in full the2022, was $39,686. The total outstanding balance of $332,985. In May 2020, the Company executed a Settlement Agreement and Mutual release, whereby the lender released the Company of any pledged collateral and any other obligation under the promissory note. One of the note holders also serves as a Board Member of T3 Communications, Inc., a Florida Corporation, one of our operating subsidiaries.

On May 1, 2018, T3 entered into a secured promissory note for $275,000 with an effective annual interest rate of 8.08% with an interest and principal payment of $6,000 per month and shall continue perpetuity until the entire principal amount is paid in full. The promissory note is guaranteed to the lender by 15% of the stock owned by T3 in its Florida operations, T3 Communications, Inc., the secured interest will continue until the principal balance is paid in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 100,000 shares of common stock at an exercise price of $0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $26,543 and was recognized as a discountoutstanding on the promissory note. The company amortized as interest expense during the year ended July 31, 2020 and July 31, 2019, $10,386 and $7,738, respectively. The total unamortized discountEarn-out Amounts as of July 31, 2022, was $600,000.

On November 17, 2020, and July 31, 2019 were $6,300 and $16,686, respectively. DuringDigerati’s Board of Directors approved the year ended July 31, 2020,issuance of the following shares of Series F Super Voting Preferred Stock to officer:

Arthur L. Smith - 34 shares of Series F Super Voting Preferred Stock

Antonio Estrada - 33 shares of Series F Super Voting Preferred Stock

Craig Clement - 33 shares of Series F Super Voting Preferred Stock


Acquisition Payable – Skynet

As part of the acquisition of Skynet Telecom LLC’s assets, the Company paid $57,098,will pay to the Sellers $1,000,000 (the “Share Payment”) by issuance of restricted shares of the principal balance.Company’s common stock to the Owners. On September 1, 2022, the Company and Sellers amended the Asset Purchase Agreement. In accordance with the amended agreement, the Share Payment will be made via the issuance of shares on the earlier of (i) the effective date of that certain Registration Statement on Form S-1 filed by the Company with the Securities and Exchange Commission on August 11, 2021 (in which case the stock will be valued at the price set forth in the prospectus that is a part of such Registration Statement, without underwriter discounts) and (ii) April 30, 2023 (in which case the stock will be valued at the average of the last transaction price on the OTCQB for each of the 10 trading days immediately preceding such issuance date). The total principal balance outstanding on the acquisitions payable as of July 31, 2020 and July 31, 2019 were $152,634 and $209,732, respectively. The note holder also serves as Board Member of T3 Communications, Inc., a Florida Corporation, one of our operating subsidiaries.

On February 27, 2020, the Company entered into an unsecured promissory note for $70,000 with an effective annual interest rate of 12% and a maturity date of May 1, 2020. Subsequently, the note holder agreed to extend the maturity date until August 31, 2020. In addition, the Company agreed to pay the lender in services provided by the Company, and any unpaid principal and accrued interest will be paid in cash. During the years ended July 31, 2020 and July 31, 2019, the Company provided VoIP Hosted and fiber services of $161,264  and $82,128, respectively. The proceeds from this note were used to extend the closing date of the Nexogy acquisition, the funds are an advance to the purchase price for the benefit of Nexogy owners , the funds will be credited to the purchase price at Closing of the Acquisition. The Company included the prepaid amounts in other current assets as of July 31, 2020. The total principal outstanding as of July 31, 20202022, was $16,298. On August 3, 2020, the promissory note was paid in full. The note holder also serves as a Board Member of T3 Communications, Inc., a Florida Corporation, one of our operating subsidiaries.

$1,000,000.


NOTE 12 – CONVERTIBLE NOTES PAYABLE

AtAs of July 31, 20202022, and 2019,July 31, 2021, convertible notes payable consisted of the following:

  July, 31  July 31, 
CONVERTIBLE NOTES PAYABLE NON-DERIVATIVE 2022  2021 
       
On October 13, 2020, the Company entered into a variable convertible promissory note with an aggregate principal amount of $330,000, annual interest rate of 8% and an original maturity date of October 13, 2021, the maturity date was extended until December 15, 2021, and subsequently the maturity date was extended until July 31, 2022. After payment of transaction-related expenses and closing fees of $32,000, net proceeds to the Company from the Note totaled $298,000. The Company recorded $32,000 as a discount to the Note and amortized over the term of the note. In connection with the execution of the note, the Company issued 1,000,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $45,003 as debt discount, and it will be amortized to interest expense during the term of the promissory note. Additionally, the Company recognized $134,423 as debt discount for the intrinsic value of the conversion feature, and it will be amortized to interest expense during the term of the promissory note. The Company analyzed the Note for derivative accounting consideration and determined that since the note has a fix conversion price at issuance, it does not require to be accounted as a derivative instrument. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument. On September 28, 2022, the lender agreed to extend the maturity date until February 28, 2023. The Company amortized $17,620 as interest expense during the year ended July 31, 2022. The total unamortized discount on the Note as of July 31, 2022, and July 31, 2021, were $0 and $17,620, respectively. The total principal balance outstanding as of July 31, 2022, and July 31, 2021, was $165,000. (See below variable conversion terms No.1) $165,000  $165,000 
         
On January 27, 2021, the Company entered into a variable convertible promissory note with an aggregate principal amount of $250,000, annual interest rate of 8% and a maturity date of January 27, 2022. In connection with the execution of the note, the Company issued 500,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $24,368 as debt discount, and it will be amortized to interest expense during the term of the promissory note. Additionally, the Company recognized $44,368 as debt discount for the intrinsic value of the conversion feature, and it will be amortized to interest expense during the term of the promissory note. The Holder may elect to convert up to 100% of the principal amount outstanding and any accrued interest on the Note into Common Stock at any time after 180 days of funding the Note. The Conversion Price shall be the greater of $0.05 or 75% of the lowest daily volume weighted average price (“VWAP”) for the ten (10) trading day period immediately preceding the conversion date. The Holder shall, in its sole discretion, be able to convert any amounts due hereunder at a twenty-five percent (25%) discount to the per share price of the Qualified Uplisting Financing. The Company analyzed the Note for derivative accounting consideration and determined that since the note has a conversion price floor, it does not require to be accounted as a derivative instrument. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument. On January 27, 2022, the lender agreed to extend the maturity date until July 31, 2022. In connection with the extension of the maturity date on the note, the Company agreed to increase the principal balance by $25,000. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. As of amendment date, the total unamortized discount on the Note was $0. The Company recognized a loss on extinguishment of debt of $25,000 and charged to interest expense at the time of the extension. On August 1, 2022, the lender agreed to extend the maturity date until January 31, 2023. As consideration for the extension on the note, the Company agreed to add $50,000 to the principal amount outstanding and charged the total to interest expense, in addition, the Company issued 300,000 shares of common stock with a market value of $28,740 and charged the total to interest expense. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. As of the amendment date, the total unamortized discount on the Note was $0. The Company amortized $34,368 as interest expense during the year ended July 31, 2022. The total unamortized discount on the Note as of July 31, 2022, and July 31, 2021, were $0 and $34,368, respectively. The total principal balance outstanding as of July 31, 2022, and July 31, 2021, were $275,000 and $250,000, respectively.  275,000   250,000 

  July 31, 
CONVERTIBLE NOTES PAYABLE NON-DERIVATIVE 2020  2019 
Two (2) Convertible Notes payable for $250,000 each issued in March 2018, bearing interest at a rate of 12% per annum and a maturity date of September 15, 2018, subsequently extended until December 14, 2018.   In conjunction with the notes, the Company issued 300,000 warrants, the warrants vested at time of issuance. The warrants had a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $126,538 and was recognized as a discount on the promissory notes. The company amortized $84,433 as a non-cash interest during the years ended July 31, 2019. The total unamortized discount as of July 31, 2019 was $0. The Conversion Price shall be the greater of: (i) the Variable Conversion Price or (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall be equal to the average closing price for Digerati’s Common Stock (the “Shares”) for the ten (10) Trading Day period immediately preceding the Conversion Date. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. The “Fixed Conversion Price” shall mean $0.50. On December 27, 2018, the noteholders agreed to extend the maturity date on the notes until September 14, 2019. In addition, as part of the amendment, the Company agreed to modify the “Fixed Conversion Price” to $0.35. In November 2019, the Company issued 110,830 shares of common stock for payment of $7,500 in accrued interest. On October 7, 2019, the holders agreed to extend the maturity date until March 30, 2020. As part of the amendments, the Company agreed to issue 400,000 shares of common stock. Under a Black-Scholes valuation the relative fair market value of the shares of common at time of issuance was approximately $40,000 and was recognized as a discount on the promissory notes over the extended period. The Company amortized the total discount of $40,000 during the year ended July 31, 2020. The total unamortized discount as of July 31, 2020 and July 31, 2019 were $0 and $0, respectively. On April 30, 2020, the Company settled the total debt of $500,000 and accrued interest of $37,500 and issued 8,958,334 shares of common stock and 268,750 shares of Convertible Series B preferred stock for the settlement. At the time of issuance, the Company recognized a gain in settlement of debt $85,104. $-  $500,000 
         

Convertible promissory notes for $272,000 issued on June 19, 2018, bearing interest at a rate of 10% per annum, with an initial maturity date of April 10, 2019. In conjunction with the Notes, the Company issued 255,000 warrants under the promissory notes, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $118,400 and was recognized as a discount on the promissory notes. The Company amortized $109,552 as a non-cash interest during the year ended July 31, 2019. On March 29, 2019, the Company entered into a First Amendment to the Promissory Notes, under the amendments the note holders agreed to extend the maturity date until June 30, 2019. In addition, as part of the amendments, the Company agreed to issue 85,000 shares of common stock. The shares were recorded as debt discount of $17,425 and amortized over the remaining term of the notes. The Company amortized $17,425 as a non-cash interest during the years ended July 31, 2019. The holders may elect to convert up to 50% of the principal amount outstanding on the Notes into Common Stock of Digerati at any time after 90 days of funding the Notes. The Conversion Price shall be the greater of: (i) the Variable Conversion Price or (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall be equal to the average closing price for Digerati’s Common Stock (the “Shares”) for the ten (10) Trading Day period immediately preceding the Conversion Date. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. The “Fixed Conversion Price” shall mean $0.50. On June 30, 2019, the Company entered into a Second Amendment to the Promissory Notes, under the amendments the note holders agreed to extend the maturity date until November 30, 2019. In addition, as part of the amendments, the Company agreed to issue 85,000 shares of common stock. The shares were recorded as debt discount of $14,450 and amortized over the remaining term of the notes. The Company amortized $11,560 and $2,890 as a non-cash interest during the year ended July 31, 2020 and July 31, 2019, respectively. The total unamortized discount as July 31, 2020 and July 31, 2019 for the issuance of the second amendment shares were $0 and $11,560, respectively. In addition, in November 2019, the Company issued 172,055 shares of common stock for payment of $6,882 in accrued interest On February 19, 2020, the Company issued 110,027 shares of common stock for payment of accrued interest and a fair market value of $4,401.

 

      
Also, in November 2019 and February 2020, the holders agreed to extend the maturity date of the notes until April 30, 2020. As part of the amendments, the Company agreed to issue 340,000 shares of common stock. The shares were recorded as debt discount of $10,090 and amortized during the note extension agreement. On April 30, 2020, the Company and the debtholder agreed to settle $240,000 of the debt and $37,454 of accrued interest, as a result the Company issued 4,624,220 shares of common stock and 138,727 shares of Convertible Series B Preferred Stock for  the settlement. At the time of issuance, the Company recognized a gain in settlement of debt $43,930. The gain on settlement was generated from the difference between principal and accrued interest settled and fair value of the common stock on settlement date. In June 2020, one of the note holders for $32,000 agreed to extend the maturity date until August 31, 2020.  32,000   272,000 


On July 27, 2020, the Company entered into a variable convertible promissory note with an aggregate principal amount of $275,000, annual interest rate of 8% and a maturity date of March 27, 2021.  After payment of transaction-related expenses and closing fees of $35,000, net proceeds to the Company from the Note totaled $240,000. The Company recorded these discounts and cost of $35,000 as a discount to the Note and amortized over the term of the note. In connection with the execution of the note, the Company issued 500,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $11,626 as debt discount, and it will be amortized to interest expense during the term of the promissory note. Until the earlier of 6 months or the Company listing on Nasdaq or NYSE American, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of Common Stock The Note Conversion Price shall equal the greater of $0.05 (five) cents or 25% discount to up-listing price or offering/underwriting price concurrent with the Company listing on Nasdaq or NYSE American., subject to adjustment as provided in this Note. If an Event of Default occurs, the Conversion Price shall be the lesser of (a). $0.05 (five) cents or (b). 75% of the lowest traded price in the prior fifteen trading days immediately preceding the Notice of Conversion. The Company analyzed the Note for derivative accounting consideration and determined that since the note has a fix conversion price at issuance, it does not require to be accounted as a derivative instrument. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument. The total unamortized discount on the Note as of July 31, 2020 was $46,626. The total principal balance outstanding as of July 31, 2020 was $275,000.   275,000   - 
         
Total convertible notes payables non-derivative:  307,000   772,000 
         
CONVERTIBLE NOTES PAYABLE - DERIVATIVE        
         
On January 16, 2019, the Company entered into various Securities Purchase Agreements (the SPAs”) with four (4) different investors (each an “Investor”, and together the “Investors”) pursuant to which each Investor purchased a 10% unsecured convertible promissory note (each a “Note”, and together the “Notes”) from the Company.  Three of the notes are in the aggregate principal amount of $140,000 each and a maturity date of October 16, 2019. One of the notes is in the aggregate principal amount of $57,750 and a maturity date of January 24, 2020. The purchase price of $140,000 of each of three Notes were paid in cash on January 16, 2019. After payment of transaction-related expenses of $51,000, net proceeds to the Company from the three Notes totaled $369,000. The purchase price of $57,750 Note was paid in cash on January 24, 2019. After payment of transaction-related expenses of $7,750, net proceeds to the Company from Note totaled $50,000. The Company recorded these discounts and cost of $58,750 as a discount to the Notes and fully amortized as interest expense during the period.  In connection with the execution of the Notes, we issued 500,000 shares of our common stock to the Note holders, the shares were recorded with a relative fair value of $0 as the notes were fully discounted by derivative liability.  The Company analyzed the Notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price.  As a result, at the time of issuance, the Company recognized derivative liability for the four (4) new convertible notes of $655,345, of which $419,000 was recorded as debt discount and will be amortized during the term of the Notes, and $236,345 was recorded as day 1 derivative loss. On July 12, 2019, the Company redeemed the full outstanding principal balance on two of the convertible notes for $280,000, at a redemption price of $382,726. The Company recognized the difference between the redemption price and principal balance paid as interest expense of $102,726. On July 12, 2019, the Company redeemed $70,000 of the principal outstanding on one of the convertible notes, at a redemption price of $91,000. The Company recognized the difference between the redemption price and principal balance paid as interest expense of $21,000. On July 19, 2019, the Company issued 156,202 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes. On July 25, 2019, the Company issued 312,500 shares of common stock. The shares were issued in conjunction with a conversion of $20,000 of the principal outstanding under a convertible debenture. On August 6, 2019, the Company entered into an Assignment Agreement whereby Jefferson Street Capital LLC (the “Assignor”) assigned a principal amount of $25,000, representing a portion of a Convertible Promissory Note dated January 24, 2019 to Armada Investment Fund LLC (the “Assignee”).  The note is in the aggregate principal amount of $25,000 and a maturity date of January 24, 2020. During the year ended July 31, 2020, the Company issued 2,658,888 shares of common stock for the conversion of $73,250 of the principal outstanding and $14,796 in accrued interest and fees.  The total unamortized discount on the Notes as of July 31, 2020 and July 31, 2019 were $0 and $29,765, respectively. The total principal balance outstanding as of July 31, 2020 and July 31, 2019, were $0 and $98,250. During the years ended July 31, 2020 and 2019, the Company amortized $29,765 and $389,235, respectively, of debt discount as interest expense. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below Variable Conversion terms No.1)    -   98,250 

On April 14, 2021, the Company entered into a variable convertible promissory note with an aggregate principal amount of $250,000, annual interest rate of 8% and a maturity date of April 14, 2022. In connection with the execution of the note, the Company issued 500,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $63,433 as debt discount, and it will be amortized to interest expense during the term of the promissory note. Additionally, the Company recognized $96,766 as debt discount for the intrinsic value of the conversion feature, and it will be amortized to interest expense during the term of the promissory note. The Holder may elect to convert up to 100% of the principal amount outstanding and any accrued interest on the Note into Common Stock at any time after 180 days of funding the Note. The Conversion Price shall be the greater of $0.15 or 75% of the lowest daily volume weighted average price (“VWAP”) for the ten (10) trading day period immediately preceding the conversion date. The Company analyzed the Note for derivative accounting consideration and determined that since the note has a conversion price floor, it does not require to be accounted as a derivative instrument. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument. On April 14, 2022, the lender agreed to extend the maturity date until October 14, 2022. In connection with the extension of the maturity date on the note, the Company agreed to increase the principal balance by $25,000. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. As of amendment date, the total unamortized discount on the Note was $0. The Company recognized a loss on extinguishment of debt of $25,000 and charged to interest expense at the time of the extension. On September 16, 2022, the lender agreed to extend the maturity date until April 14, 2023. As consideration for the extension on the note, the Company agreed to add $50,000 to the principal amount outstanding and charged the total to interest expense, in addition, the Company issued 300,000 shares of common stock with a market value of $35,400 and charged the total to interest expense. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. As of the amendment date, the total unamortized discount on the Note was $0. The Company amortized $106,799 as interest expense during the year ended July 31, 2022. The total unamortized discount on the Note as of July 31, 2022, and July 31, 2021, were $0 and $106,799, respectively. The total principal balance outstanding as of July 31, 2022, and July 31, 2021, were $275,000 and $250,000, respectively.  275,000   250,000 
         
On August 31, 2021, the Company entered into a variable convertible promissory note with an aggregate principal amount of $75,000, annual interest rate of 8% and a default interest rate of 20%, and a maturity date of August 31, 2022. In connection with the execution of the note, the Company issued 150,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $13,635 as debt discount, and it will be amortized to interest expense during the term of the promissory note. The Holder may elect to convert up to 100% of the principal amount outstanding and any accrued interest on the Note into Common Stock at any time after 180 days of funding the Note. The Conversion Price shall be the greater of $0.15 or 75% of the lowest daily volume weighted average price (“VWAP”) for the ten (10) trading day period immediately preceding the conversion date. The holder may elect to convert up to 100% of the principal plus accrued interest into the common stock into a qualified uplist financing at a 25% discount. The Company analyzed the Note for derivative accounting consideration and determined that since the note has a conversion price floor, it does not require to be accounted as a derivative instrument. On September 14, 2022, the lender agreed to extend the maturity date until February 28, 2023. As consideration for the extension on the note, the Company agreed to add $15,000 to the principal amount outstanding and charged the total to interest expense, in addition, the Company issued 90,000 shares of common stock with a market value of $10,800 and charged the total to interest expense. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. As of the amendment date, the total unamortized discount on the Note was $0.  The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument. The Company amortized $12,499 as interest expense during the year ended July 31, 2022. The total unamortized discount on the Note as of July 31, 2022, was $1,136. The total principal balance outstanding as of July 31, 2022, was $75,000.  75,000   - 


On February 22, 2019,September 29, 2021, the Company entered into a variable convertible promissory note for $57,750 with net proceedsan aggregate principal amount of $50,000,$75,000, annual interest rate of 8% and a default interest rate of 20%, and a maturity date of February 22, 2020September 29, 2022. In connection with the execution of the note, the Company issued 150,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $10,788 as debt discount, and effective interest rate of 10%. The Company recorded a discount of $7,750 andit will be amortized asto interest expense during the periodterm of the promissory note. The Holder may elect to convert up to 100% of the principal amount outstanding and any accrued interest on the Note into Common Stock at any time after 180 days of funding the Note. The Conversion Price shall be the greater of $0.15 or 75% of the lowest daily volume weighted average price (“VWAP”) for the ten (10) trading day period immediately preceding the conversion date. The holder may elect to convert up to 100% of the principal plus accrued interest into the common stock into a qualified uplist financing at a 25% discount. The Company analyzed the Note for derivative accounting consideration and determined that since the embeddednote has a conversion option qualifiedprice floor, it does not require to be accounted as a derivative instrument, dueinstrument. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument. On September 29, 2022, the lender agreed to extend the maturity date until March 29, 2023. As consideration for the extension on the note, the Company agreed to add $15,000 to the variable conversion price.  As a result, atprincipal amount outstanding and charged the time of issuance,total to interest expense, in addition, the Company recognized derivative liabilityissued 90,000 shares of common stock with a market value of $13,500 and charged the total to interest expense. The Company evaluated the amendment and accounted for the convertible notethese changes as an extinguishment of $79,729, of which $50,000 was recorded as debt discount and amortized during the termdebt. As of the amendment date, the total unamortized discount on the Note and $29,729 was recorded$0.  The Company amortized $8,990 as day 1 derivative loss. Duringinterest expense during the year ended July 31, 2020, the Company issued 3,430,700 shares of common stock for the conversion of $57,750 of the principal outstanding and $6,962 in accrued interest and fees.2022. The total unamortized discount on the NotesNote as of July 31, 2020 and July 31, 2019 were $0 and $29,166, respectively.2022, was $1,798. The total principal balance outstanding as of July 31, 2020 and July 31, 2019, were $0 and $57,750. During the years ended July 31, 2020 and 2019, the Company amortized $29,166 and $20,834, respectively, of debt discount as interest expense. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1)2022, was $75,000.-75,00057,750-
On April 20, 2019,October 22, 2021, the Company entered into a variable convertible promissory note for $44,000, with net proceedsan aggregate principal amount of $40,000,$150,000, annual interest rate of 8% and a default interest rate of 20%, and a maturity date of January 19,2020 and effective interest rate of 10%.  The Company recorded $4,000 as a discount and amortized as interest expense during the period of the note.October 22, 2022. In connection with the execution of the Note, wenote, the Company issued 50,000300,000 shares of our common stock to the Notenote holder, at the time of issuance, the Company recognized the relative fair market value of the shares were recorded withof $13,965 as debt discount, and it will be amortized to interest expense during the term of the promissory note. The Holder may elect to convert up to 100% of the principal amount outstanding and any accrued interest on the Note into Common Stock at any time after 180 days of funding the Note. The Conversion Price shall be the greater of $0.15 or 75% of the lowest daily volume weighted average price (“VWAP”) for the ten (10) trading day period immediately preceding the conversion date. The holder may elect to convert up to 100% of the principal plus accrued interest into the common stock into a relative fair value of $0 as the notes were fully discounted by derivative liability.qualified uplist financing at a 25% discount. The Company analyzed the Note for derivative accounting consideration and determined that since the embeddednote has a conversion option qualifiedprice floor, it does not require to be accounted as a derivative instrument, dueinstrument. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument. On September 16, 2022, the lender agreed to extend the maturity date until April 29, 2023. As consideration for the extension on the note, the Company agreed to add $30,000 to the variable conversion price. As a result, atprincipal amount outstanding and charged the time of issuance,total to interest expense, in addition, the Company recognized derivative liabilityissued 180,000 shares of common stock with a market value of $21,240 and charged the total to interest expense. The Company evaluated the amendment and accounted for the convertible notethese changes as an extinguishment of $55,592, of which $40,000 was recorded as debt discount and will be amortized during the termdebt. As of the amendment date, the total unamortized discount on the Note and $15,592 was recorded$0. The Company amortized $10,474 as day 1 derivative loss.  Duringinterest expense during the year ended July 31, 2020, the Company issued 2,529,562 shares of common stock for the conversion of $44,000 of the principal outstanding and $5,854 in accrued interest and fees.2022. The total unamortized discount on the NotesNote as of July 31, 2020 and July 31, 2019 were $0 and $26,668, respectively.2022, was $3,491. The total principal balance outstanding as of July 31, 2020 and July 31, 2019, were $0 and $44,000. During2022, was $150,000.150,000-


On February 4, 2022, as part the years ended July 31, 2020 and 2019, the Company amortized $26,668 and $13,332, respectively,acquisition of debt discount as interest expense. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1)-44,000
In July 2019,Next Level Internet (“NLI”), the Company entered into multiple variabletwo unsecured convertible promissory notes (the “Unsecured Convertible Promissory Notes”) for $1,800,000 and $200,000, respectively. The notes are payable in eight equal quarterly installments in the aggregate amount of $250,000 each commencing on April 30, 2022, through and including January 31, 2024 with four (4) different investors. Threea base annual interest rate of 0% and a default annual interest rate of 18%. The Sellers have a onetime right to convert all or a portion of the Convertible Notes commencing on the six-month anniversary of the notes arebeing issued and ending 30 days after such six-month anniversary. The conversion price means an amount equal to the volume weighted average price per share of Stock on the Nasdaq Stock Market for the ten (10) consecutive trading days on which the conversion notice is received by the Company; provided, however, that if the stock is not then listed for trading on the Nasdaq Stock Market, the Conversion Price shall be the volume weighted average transaction price per share reported by the OTC Reporting Facility for the ten (10) consecutive trading days immediately preceding the date on which such Conversion Notice is received by the Company. Within five Business Days after receipt of a Conversion Notice in accordance with the agreement, the Company shall (A) cause to be issued in the aggregate principal amountname of $146,625 each, 3% interest rate and a maturity datethe holder, the number of April 11, 2020. After paymentshares of transaction-related expenses of $57,375, net proceedsStock equal to the Company from the three Notes totaled $382,500. The Company also secured an additional variable convertible note in the aggregate principal amount of $140,000, interest rate of 10% and a maturity date of April 10, 2020. After payment of transaction-related expenses of $17,000, net proceedsquotient (rounded down to the Company fromnearest whole share of Stock) obtained by dividing (1) the Note totaled $123,000. The Company recorded these discountsConversion Amount by (2) the Conversion Price in effect on the date that Maker received such Conversion Notice, and cost of $74,375 as a discount(B) pay to Payee an amount in cash equal to the Notesproduct (rounded up to the nearest whole $.01) obtained by multiplying (1) five hundred thousand and fully amortized as interest expense duringNO/100 ($500,000) by (2) a fraction, the period.  In connection withnumerator of which is the executionConversion Amount and the denominator of which is two million and NO/100 ($2,000,000). Assuming the holder elects to convert the note, the economic value of the Notes, we issued 450,000 shares of our common stock to the Note holders, the shares were recorded with a relative fair value of $0 as the notes were fully discounted by derivative liability.note at inception was $2,500,000. The Company analyzed the Notes for derivative accounting consideration and determined that since the embedded conversion option qualifiednotes are convertible on the six-month anniversary from issuance and ending 30 days after such six-month anniversary, it does not require to be accounted as a derivative instrument, dueinstrument. The Company will evaluate every reporting period and identify if any of the provisions for conversion are met and if the notes need to be classified as a derivative instrument. At inception of the variable conversion price.  As a result, at the time of issuance,notes, the Company recognized derivative liability for the four (4) new convertiblefair market value of the conversion on the notes of $959,180, of which $505,500 was recorded as$2,382,736, and a recognized $117,264 in debt discount, andwhich will be amortized during the term of the Notes, and $453,680 was recorded as day 1 derivative loss. On January 9, 2020, the Company issued 200,000 shares of common stock forover the conversion of $1,328 of the principal outstanding and accrued interest of $2,212 under one of the convertible notes. On January 10, 2020, the Company assigned a convertible note with a $145,297 principal and accrued interest of $13,500 and a second convertible note with a $35,750 principal balance and accrued interest of $15,453 for $210,000. On January 22, 2020, the Company assigned two promissory notes with a $293,250 principal balance outstanding and accrued interest of $66,750.period. The total assignment was for $360,000. On July 30, 2020, the Company paid the total principal outstanding in one of the notes for $140,000, plus a redemption interest of $46,000. The total unamortized discount on the Notes as of July 31, 2020 and July 31, 2019 were $0 and $449,332, respectively. The total principal balance outstanding as of July 31, 2020 and July 31, 2019 were $0 and $579,875, respectively. During the years ended July 31, 2020 and 2019, the Company amortized $449,332 and $56,168, respectively, of debt discount$83,350 as interest expense. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1)-579,875


On August 6, 2019, the Company entered into an Assignment Agreement whereby Jefferson Street Capital LLC assigned a principal amount of $25,000, representing a portion of a Convertible Promissory Note dated January 24, 2019 to Armada Investment Fund LLC. The note is in the aggregate principal amount of $25,000, bearing interest at a rate of 10%  and a maturity date of January 24, 2020.The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Duringexpense during the year ended July 31, 2020, the Company issued 555,859 shares of common stock for the conversion of $25,000 principal balance and accrued interest and administrative fees of $1,579.2022. The total unamortized discount on the Note as of July 31, 20202022, was $0.$33,914. The total principal balance outstanding on the Unsecured Convertible Promissory Notes as of July 31, 20202022, was $0. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1)   $2,250,000.-2,250,000-
On August 30, 2019,January 21, 2022, the Company entered into a variable convertible promissory note for $93,500, bearingwith an aggregate principal amount of $230,000, annual interest at a rate of 10% per annum8% and a maturity date of May 30, 2020. On August 10, 2020, the noteholder agreed to extend the maturity date until October 31, 2020.21, 2022. After payment of transaction-related expenses and closing fees of $8,500,$26,300, net proceeds to the Company from the Note totaled $85,000. The$203,700. Additionally, the Company recorded these discounts and cost of $8,500$26,300 as a discount to the Note and amortized over the term of the note. In connection with the execution of the note, the Company issued 300,000 shares of our common stock to the note holder and recorded $30,446 as debt discount and amortized over the term of the note. Until the earlier of 6 months or the Company listing on Nasdaq or NYSE American, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully amortizedpaid and nonassessable shares of Common Stock. The Note Conversion Price shall equal the greater of $0.15 (fifteen) cents or 25% discount to up-listing price or offering/underwriting price concurrent with the Company listing on Nasdaq or NYSE American., subject to adjustment as interest expense duringprovided in the period.Note. Outstanding Balance shall immediately increase to 125% of the Outstanding Balance immediately prior to the occurrence of the Event of Default and a daily penalty of $500 will accrue until the default is remedied. The Company analyzed the Note for derivative accounting consideration and determined that since the embeddednote has a conversion option qualifiedprice floor, it does not require to be accounted as a derivative instrument, dueinstrument. On October 21, 2022, the holder agreed to extend the variable conversion price.maturity date until January 31, 2023. In connection with the extension of the maturity date on the note, the Company agreed to increase the principal balance by $30,000 and issued 300,000 shares of common stock with a fair market value of $36,330. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. As of amendment date, the total unamortized discount on the Note was $0. The Company recognized a result,loss on extinguishment of debt for both the $30,000 increase in principal and $36,330 fair value of shares issued and charged the total $66,330 to interest expense at the time of issuance, the extension. The Company recognizedwill evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative liability for the convertible note of $100,978, of which $85,000 was recorded as debt discount and will be amortized during the term of the Note, and $15,978 was recorded as day 1 derivative loss.instrument.  The total unamortized discount on the Note as of July 31, 20202022, was $0. The total principal balance outstanding as of July 31, 2020 was $93,500.$18,916. The Company amortized $93,500 of debt discount as interest expense during the year ending July 31, 2020. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1)    93,500-
In October 2019, the Company entered into two variable convertible notes are in the aggregate principal amount of $71,500, bearing interest at a rate of 8% and a maturity date of July 18, 2020. After payment of transaction-related expenses of $6,500, net proceeds to the Company from the notes totaled $65,000. The Company recorded these discounts and cost of $6,500 as a discount to the notes and fully amortized as interest expense during the period. The Company analyzed the notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the convertible notes of $82,462 of which $65,000 was recorded as debt discount and will be amortized during the term of the notes, and $17,462 was recorded as day 1 derivative loss. On January 10, 2020, the Company entered into an Assignment Agreement whereby Armada Investment Fund LLC assigned the principal amount of $35,750 and accrued interest of $627, representing the balance outstanding on the Convertible Promissory Note dated October 2019 to Platinum Point Capital LLC. The total assignment for note was for $36,377. On July 28, 2020, the Company entered into an Assignment Agreement whereby Jefferson Street Capital LLC assigned the principal amount of $35,750 and accrued interest and penalty of $17,081, representing the balance outstanding on the Convertible Promissory Note dated October 2019 to Platinum Point Capital LLC. The total assignment for note was for $52,831. The total unamortized discount on the Notes as of July 31, 2020 was $0. The total principal balance outstanding as of July 31, 2020 was $0. The Company amortized $71,500 of debt discount as interest expense during the year ending July 31, 2020. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1) --


On January 10, 2020, the Company entered into an Assignment Agreement whereby Armada Investment Fund LLC (the “Assignor”) assigned to Platinum Point Capital LLC (the “Assignee”) a principal amount of $145,297 and $35,750, representing the outstanding  principal balance on the Convertible Promissory Notes dated July 11, 2019 and October 18, 2019, respectively, plus accrued interest of  $28,953. The new notes are is in the aggregate principal amount of $210,000, annual interest rate of 3% and a maturity date of January 10, 2021. On January 22, 2020, the Company entered into an Assignment Agreement whereby BHP Capital NY Inc. (the “Assignor”) assigned to Platinum Point Capital LLC (the “Assignee”) a principal amount of $146,625, representing the outstanding  principal balance on the Convertible Promissory Note dated July 11, 2019, plus accrued interest of $33,375. The new note is in the aggregate principal amount of $180,000, annual interest rate of 3% and a maturity date of January 22, 2021. On January 22, 2020, the Company entered into an Assignment Agreement whereby Jefferson Street Capital LLC (the “Assignor”) assigned to Platinum Point Capital LLC (the “Assignee”) a principal amount of $146,625, representing the outstanding  principal balance on the Convertible Promissory Note dated July 11, 2019, plus accrued interest of $33,375. The new note is in the aggregate principal amount of $180,000, annual interest rate of 3% and a maturity date of January 22, 2021. The Company analyzed the notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price.  As a result, at the time of the assignment, the Company recognized derivative liability for the new convertible notes of $784,565, of which $570,000 was recorded as debt discount and amortized over the term of the notes, and $214,565 was recorded as day 1 derivative loss. During the year ended July 31, 2020, the Company issued 25,312,983 shares of common stock for the conversion of $230,000 of the principal outstanding and $12,000 in accrued interest and fees. The total unamortized discount on the Notes as of July 31, 2020 was $172,611, and the total principal balance outstanding as of July 31, 2020 was $340,000. The Company amortized $397,389$37,830 of debt discount as interest expense during the year ended July 31, 2020. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1)    340,000-
On February 13, 2020, the Company entered into a variable convertible note. The note is in the aggregate principal amount of $33,500, annual interest rate of 10% and a maturity date of February 13, 2021.  After payment of transaction-related expenses of $3,500, net proceeds to the Company from the note totaled $30,000. The Company recorded these discounts and cost of $3,500 as a discount to the note and fully amortized as interest expense during the period. The Company analyzed the note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the convertible note of $42,976, of which $30,000 was recorded as debt discount and will be amortized during the term of the Note, and $12,976 was recorded as day 1 derivative loss. The total unamortized discount on the Note as of July 31, 2020 was $15,000.2022. The total principal balance outstanding as of July 31, 20202022, was $33,500. The Company amortized $18,500 of debt discount as interest expense during the year ended July 31, 2020. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1)$230,000.33,500230,000-
On April 28, 2020, the Company entered into a variable convertible note. The note is in the principal amount of $15,000, annual interest rate of 10% and a maturity date of April 28, 2021. The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the convertible note of $26,629, of which $15,000 was recorded as debt discount and will be amortized during the term of the Note, and $11,629 was recorded as day 1 derivative loss. The total unamortized discount on the Note as of July 31, 2020 was $11,250. The total principal balance outstanding as of July 31, 2020 was $15,000. The Company amortized $3,750 of debt discount as interest expense during the year ended July 31, 2020. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1)15,000-


On July 28, 2020, the Company entered into an Assignment Agreement whereby one of the variable noteholders assigned a principal amount of $35,750 and accrued interest and penalties of $17,081. The new variable convertible note is for $52,831, annual interest rate of 10% and a maturity date of July 28, 2021. The Company analyzed the assignment of the note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the convertible note of $70,888, of which $49,180 was recorded as debt discount and will be amortized during the term of the Note, and $21,708 was recorded as day 1 derivative loss. The total unamortized discount on the Note as of July 31, 2020 was $49,180. The total principal balance outstanding as of July 31, 2020 was $52,831. The notes are immediately convertible into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock. (See below variable conversion terms No.1)     52,831   - 
         
Convertible debenture issued on July 31, 2018 in the principal amount of $220,000 for a purchase price of $198,000 and 0% percent stated interest rate. At issuance, the Company incurred $5,000 in legal and compliance fees, these fees were deducted from the proceeds at time of issuance. The Company recorded these discounts and cost of $22,000 as a discount to the debenture and amortized to interest expense. The Company analyzed the Debenture for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, the Company recognized derivative liability of $189,171. In connection with the execution of the Debenture, we issued 130,000 shares of our common stock, the shares were recorded with a relative fair value of $3,627 and $192,798 was recorded as debt discount and amortized during the term of the note. During the year ending July 31, 2019, the Company issued 2,615,309 shares of common stock for the conversion of $170,000 of the principal outstanding under the convertible debenture. During the year ending July 31, 2020, the Company issued 1,248,335 shares of common stock for the conversion of $50,000 of the principal outstanding under the convertible debenture. During the years ended July 31, 2020 and 2019, the Company amortized $29,214 and $163,584, respectively of the debt discount as interest expense. The total unamortized discount as July 31, 2020 and July 31, 2019, were $0 and $29,214, respectively. The total principal outstanding balance as of July 31, 2020 and July 31, 2019 were $0 and $50,000, respectively.  -   50,000 
         
Total convertible notes payable - derivative: $534,831  $829,875 
         
Total convertible notes payable derivative and non-derivative  841,831   1,601,875 
Less: discount on convertible notes payable  (294,667)  (575,681)
Total convertible notes payable, net of discount  547,164   1,026,194 
Less: current portion of convertible notes payable  (547,164)  (1,005,408)
Long-term portion of convertible notes payable $-  $20,786 

Variable Conversion

On January 21, 2022, the Company entered into a variable convertible promissory note with an aggregate principal amount of $230,000, annual interest rate of 8% and a maturity date of October 21, 2022. After payment of transaction-related expenses and closing fees of $26,300, net proceeds to the Company from the Note totaled $203,700. Additionally, the Company recorded $26,300 as a discount to the Note and amortized over the term of the note. In connection with the execution of the note, the Company issued 300,000 shares of our common stock to the note holder and recorded $30,446 as debt discount and amortized over the term of the note. Until the earlier of 6 months or the Company listing on Nasdaq or NYSE American, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of Common Stock. The Note Conversion Price shall equal the greater of $0.15 (fifteen) cents or 25% discount to up-listing price or offering/underwriting price concurrent with the Company listing on Nasdaq or NYSE American., subject to adjustment as provided in the Note. Outstanding Balance shall immediately increase to 125% of the Outstanding Balance immediately prior to the occurrence of the Event of Default and a daily penalty of $500 will accrue until the default is remedied. The Company analyzed the Note for derivative accounting consideration and determined that since the note has a conversion price floor, it does not require to be accounted as a derivative instrument. On October 21, 2022, the holder agreed to extend the maturity date until January 31, 2023. In connection with the extension of the maturity date on the note, the Company agreed to increase the principal balance by $30,000 and issued 300,000 shares of common stock with a fair market value of $36,330. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. As of amendment date, the total unamortized discount on the Note was $0. The Company recognized a loss on extinguishment of debt for both the $30,000 increase in principal and $36,330 fair value of shares issued and charged the total $66,330 to interest expense at the time of the extension. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument. The total unamortized discount on the Note as of July 31, 2022, was $18,916. The Company amortized $37,830 of debt discount as interest expense during the year ended July 31, 2022. The total principal balance outstanding as of July 31, 2022, was $230,000.  230,000   - 
         
On July 27, 2022, the Company entered into a variable convertible promissory note with an aggregate principal amount of $165,000, annual interest rate of 8% and a maturity date of April 27, 2023. After payment of transaction-related expenses and closing fees of $19,500, net proceeds to the Company from the note totaled $100,000. Subsequently, the Company received $45,500 for the additional principal amount of the note. Additionally, the Company issued 300,000 shares of our common stock to the note holder. The Company recorded the $19,500 and the relative fair market value of the shares of $22,093 as debt discount and amortized to interest expense over the term of the note. Until the earlier of 6 months or the Company listing on Nasdaq or NYSE American, the note holder shall be entitled to convert any portion of the outstanding and unpaid conversion amount into fully paid and nonassessable shares of Common Stock. The note conversion price shall equal the greater of $0.10 (ten) cents or 25% discount to up-listing price or offering/underwriting price concurrent with the Company listing on Nasdaq or NYSE American., subject to adjustment as provided in the note. Outstanding balance shall immediately increase to 125% of the outstanding balance immediately prior to the occurrence of an event of default and a daily penalty of $500 will accrue until the default is remedied. The Company analyzed the note for derivative accounting consideration and determined that since the note has a conversion price floor, it does not require to be accounted as a derivative instrument. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument. The total unamortized discount on the Note as of July 31, 2022, was $41,593. The Company amortized $0 of debt discount as interest expense during the year ended July 31, 2022. The total principal balance outstanding as of July 31, 2022, was $119,500.  119,500   - 
         
Total convertible notes payables non-derivative: $3,844,500  $665,000 


CONVERTIBLE NOTES PAYABLE - DERIVATIVE        
On July 27, 2020, the Company entered into a variable convertible promissory note with an aggregate principal amount of $275,000, annual interest rate of 8% and a maturity date of March 27, 2021. After payment of transaction-related expenses and closing fees of $35,000, net proceeds to the Company from the Note totaled $240,000. The Company recorded these discounts and cost of $35,000 as a discount to the Note and amortized over the term of the note. In connection with the execution of the note, the Company issued 500,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $11,626 as debt discount, and it will be amortized to interest expense during the term of the promissory note. Until the earlier of 6 months or the Company listing on Nasdaq or NYSE American, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of Common Stock the Note Conversion Price shall equal the greater of $0.05 (five) cents or 25% discount to up-listing price or offering/underwriting price concurrent with the Company listing on Nasdaq or NYSE American., subject to adjustment as provided in this Note. If an Event of Default occurs, the Conversion Price shall be the lesser of (a). $0.05 (five) cents or (b). 75% of the lowest traded price in the prior fifteen trading days immediately preceding the Notice of Conversion. The Company analyzed the note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. The Company recognized $61,678 of derivative liability and directly amortized all associated debt discount of $61,678 as interest expense. On July 31, 2021, the holder agreed to extend the maturity date until January 31, 2022. On February 14, 2022, the holder agreed to extend the maturity date until July 31, 2022. In connection with the extension of the maturity date on the note, the Company agreed to increase the principal balance by $75,000 and issued 250,000 shares of common stock with a market value of $34,150. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. The Company recognized a loss on extinguishment of debt for both the $75,000 increase in principal and $34,150 fair value of shares issued and charged the total $109,150 to interest expense at the time of the extension. On July 26, 2022, the holder agreed to extend the maturity date until December 31, 2022. In connection with the extension of the maturity date on the note, the Company agreed to increase the principal balance by $50,000 and issued 300,000 shares of common stock with a fair market value of $30,000. The Company evaluated the amendment and accounted for these changes as an extinguishment of debt. As of amendment date, the total unamortized discount on the Note was $0. The Company recognized a loss on extinguishment of debt for both the $50,000 increase in principal and $30,000 fair value of shares issued and charged the total $80,000 to interest expense at the time of the extension. The total principal balance outstanding as of July 31, 2022, and July 31, 2021, were $480,000 and $355,000, respectively.  480,000   355,000 
         
On January 31, 2021, the Company entered into a variable convertible promissory note with an aggregate principal amount of $80,235, annual interest rate of 8% and a maturity date of February 17, 2022. On March 7, 2022, the holder agreed to extend the maturity date until July 31, 2022. Until the earlier of 6 months or the Company listing on Nasdaq or NYSE American, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of Common Stock the Note Conversion Price shall equal the greater of $0.05 (five) cents or seventy-five percent (75%) of the lowest daily volume weighted average price (“VWAP”) over the ten (10) consecutive trading day period ending on the trading day immediately prior to the applicable conversion date (the “Variable Conversion Price”); provided, however, that the Holder shall, in its sole discretion, be able to convert any amounts due hereunder at a twenty-five percent (25%) discount to the per share price of the Qualified Uplisting Financing of over $4MM. If, no later than December 31, 2021, the Borrower shall fail to uplist to any tier of the NASDAQ Stock Market, the New York Stock Exchange or the NYSE MKT, the conversion price under the Note (and the Exchange Note) will be adjusted to equal the lesser of (i) $0.05 per share; or (ii) seventy-five percent (75%) of the lowest VWAP (as defined in the Note and Exchange Note) in the preceding twenty (20) consecutive Trading Days. The Company analyzed the note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, the Company recognized derivative liability for the convertible note of $59,413. The Company amortized $27,840 of debt discount as interest expense during the year ended July 31, 2022. The total unamortized discount on the Note as of July 31, 2022, and July 31, 2021, were $0 and $27,840, respectively. The total principal balance outstanding as of July 31, 2022, and July 31, 2021, was $80,235. Subsequently, On September 28, 2022, the holder agreed to extend the maturity date until February 28, 2023. In connection with the extension of the maturity date on the note, the Company agreed to increase the principal balance by $62,500 and charged the total to interest expense, in addition, the Company issued 500,000 shares of common stock with a market value of $70,000 and charged the total to interest expense.  80,235   80,235 


On February 17, 2021, the Company entered into a variable convertible promissory note with an aggregate principal amount of $175,000, annual interest rate of 8% and a maturity date of February 17, 2022. After payment of transaction-related expenses and closing fees of $5,000, net proceeds to the Company from the Note totaled $170,000. Additionally, the Company recorded $5,000 as a discount to the Note and amortized over the term of the note. Until the earlier of 6 months or the Company listing on Nasdaq or NYSE American, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of Common Stock the Note Conversion Price shall equal the greater of $0.05 (five) cents or seventy-five percent (75%) of the lowest daily volume weighted average price (“VWAP”) over the ten (10) consecutive trading day period ending on the trading day immediately prior to the applicable conversion date (the “Variable Conversion Price”); provided, however, that the Holder shall, in its sole discretion, be able to convert any amounts due hereunder at a twenty-five percent (25%) discount to the per share price of the Qualified Uplisting Financing of over $4MM. If, no later than December 31, 2021, the Borrower shall fail to uplist to any tier of the NASDAQ Stock Market, the New York Stock Exchange or the NYSE MKT, the conversion price under the Note (and the Exchange Note) will be adjusted to equal the lesser of (i) $0.05 per share; or (ii) seventy-five percent (75%) of the lowest VWAP (as defined in the Note and Exchange Note) in the preceding twenty (20) consecutive Trading Days. The Company analyzed the note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, the Company recognized derivative liability for the convertible note of $346,091, of which $170,000 was recorded as debt discount and amortized over the term of the note, and $176,091 was recorded as day 1 derivative loss. The total unamortized discount on the Note as of July 31, 2022, and July 31, 2021, were $0 and $102,083, respectively. The Company amortized $102,083 of debt discount as interest expense during the year ended July 31, 2022. On March 7, 2022, the Company paid in full the total principal balance outstanding of $175,000 and accrued interest and prepayment penalty of $30,000. The total principal balance outstanding as of July 31, 2022, and July 31, 2021, were $0 and $175,000, respectively.  -   175,000 
         
On April 15, 2021, the Company entered into a variable convertible promissory note with an aggregate principal amount of $113,000, annual interest rate of 8% and a maturity date of January 15, 2022. After payment of transaction-related expenses and closing fees of $13,000, net proceeds to the Company from the Note totaled $100,000. Additionally, the Company recorded $13,000 as a discount to the Note and amortized over the term of the note. In connection with the execution of the note, the Company issued 100,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $14,138 as debt discount, and it will be amortized to interest expense during the term of the promissory note. Until the earlier of 6 months or the Company listing on Nasdaq or NYSE American, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of Common Stock. The Note Conversion Price shall equal the greater of $0.15 (fifteen) cents or 25% discount to up-listing price or offering/underwriting price concurrent with the Company listing on Nasdaq or NYSE American., subject to adjustment as provided in the Note. If an Event of Default occurs, the Conversion Price shall be the lesser of (a). $0.15 (fifteen) cents or (b). seventy-five percent (75%) of the lowest traded price in the prior fifteen (15) consecutive trading day period ending on the trading day immediately prior to the applicable conversion date (the “Variable Conversion Price”). Outstanding Balance shall immediately increase to 125% of the Outstanding Balance immediately prior to the occurrence of the Event of Default and a daily penalty of $500 will accrue until the default is remedied. The Company analyzed the note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, the Company recognized derivative liability for the convertible note of $64,561, of which $42,822 was recorded as debt discount and amortized over the term of the note. On January 15, 2022, the lender agreed to extend the maturity date until March 31, 2022. As consideration for the extension on the note, the Company agreed to add 15,000 to the principal amount outstanding. On March 18, 2022, the lender agreed to extend the maturity date until July 31, 2022. As consideration for the extension on the note, the Company agreed to add $15,000 to the principal amount outstanding. The Company evaluated the amendments and accounted for these changes as an extinguishment of debt. As of both amendment date, the total unamortized discount on the Note was $0. The Company recognized a loss on extinguishment of debt for both $15,000 increase in principal and charged the total $30,000 to interest expense at the time of the extension. On June 28, 2022, the lender agreed to extend the maturity date until September 30, 2022. As consideration for the extension on the note, the Company agreed to add $20,000 to the principal amount outstanding and charged the total to interest expense. The agreement of June 28, 2022 provides the Company the option extends the maturity date for an additional 90 days for an additional $20,000 to be added to the principal amount. On September 30, 2022, the Company extended the maturity date of the note until December 30, 2022 and charged to interest expense the total $20,000 added to principal balance. The Company evaluated the amendments and accounted for these changes as an extinguishment of debt. As of both amendment date, the total unamortized discount on the Note was $0. The total unamortized discount on the Note as of July 31, 2022, and July 31, 2021, were $0 and $50,945, respectively. The Company amortized $50,945 of debt discount as interest expense during the year ended July 31, 2022. The total principal balance outstanding as of July 31, 2022, and July 31, 2021, were, $163,000 and $113,000, respectively.  163,000   113,000 
         
Total convertible notes payable - derivative: $723,235  $723,235 
Total convertible notes payable derivative and non-derivative  4,567,735   1,388,235 
Less: debt discount  (119,764)  (339,654)
Total convertible notes payable, net of discount  4,447,971   1,048,581 
Less: current portion of convertible notes payable  (3,947,971)  (1,048,581)
Long-term portion of convertible notes payable $500,000  $- 


Additional terms No.1: The notes are immediately convertible into shares ofHolder shall have the Company’s Common Stock,right at any time at a conversion price for each shareon or after six (6) months from the Issue Date to convert any portion of the outstanding and unpaid principal balance into fully paid and nonassessable shares of Common StockStock. The Note Conversion Price shall equal (1) $0.05 (five) cents provided however that in the event the Borrower fails to (i)complete the lowest trading priceacquisition of Nexogy, Inc., the Conversion Price shall equal (2) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Common Stock (as defined in the Note) as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding the issuance date of each Note; or (ii) 60%Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean eighty-five percent (85%) multiplied by the Market Price (as defined herein) (representing a discount rate of fifteen percent (15%)). “Market Price” means the lowest traded price ofTrading Price for the Common Stock during the twenty (20) consecutiveten (10) Trading Day period immediately precedingending on the latest complete Trading Day that the Company receives a notice of conversion (the “Variable Conversion Price”). The Variable Conversion Price may further be adjusted in connection with the terms of the Notes.at a discount of 35%prior to the average of the three lowest trading closing prices of the stock for ten days prior to conversion.Conversion Date.

The total unamortized discount on the convertible notes as of July 31, 20202022, and 2019July 31, 2021, were $294,667$119,764 and $575,681, respectively, and the$339,654, respectively. The total principal balance outstanding as of July 31, 20202022, and 2019,July 31, 2021, were $841,831$4,567,735 and $1,601,875,$1,388,235, respectively. During the yearsyear ended July 31, 20202022, and 2019,July 31, 2021, the Company amortized $1,228,000$530,628 and $1,466,000,$797,144, respectively, of debt discount as interest expense.


Fair Value of Financial Instruments. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy based on the three levels of inputs that may be used to measure fair value are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

For certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to the short maturity of these instruments. The carrying value of our long-term debt approximates its fair value based on the quoted market prices for the same or similar issues or the current rates offered to us for debt of the same remaining maturities.

Our derivative liabilities as of July 31, 2020 and 2019 of $606,000 and $927,000, respectively.

The following table provides the fair value of the derivative financial instruments measured at fair value using significant unobservable inputs:

     Fair value measurements at reporting date using: 
     Quoted prices in  Significant    
     active markets  other    
     for identical  observable  Significant 
     liabilities  inputs  unobservable inputs 
Description Fair Value  (Level 1)  (Level 2)  (Level 3) 
Convertible promissory notes derivative liability at July 31, 2019 $927,171   -   -  $927,171 
Convertible promissory notes derivative liability at July 31, 2020 $606,123   -   -  $606,123 

The fair market value of all derivatives during the year ended July 31, 2020 was determined using the Black-Scholes option pricing model which used the following assumptions:

Expected dividend yield0.00%
Expected stock price volatility83.28% - 268.02%
Risk-free interest rate0.09% -2.67%
Expected term0.01 - 1.00 years

Level 3 inputs.

The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:

Balance at July 31, 2018 $632,268 
Derivative from new convertible promissory notes recorded as debt discount  1,043,834 
Derivative liability resolved to additional paid in capital due to debt conversion  (822,922)
Derivative loss  73,991 
Balance at July 31, 2019 $927,171 
Derivative from new convertible promissory notes recorded as debt discount  814,180 
Derivative liability resolved to additional paid in capital due to debt conversion  (872,914)
Derivative loss  (262,314)
Balance at July 31, 2020 $606,123 

The future principal payments for the Company’s convertible debt isare as follows:

FY Payments 
2021 $2,501,809 
2022  251,957 
2023  23,596 
2024  - 
Total principal payments $2,777,362 

Future Principal Payments

Year ended July 31, Amount 
    
2023 $4,067,735 
2024  500,000 
2025 and thereafter  - 
     
Total future payments: $4,567,735 


NOTE 13 – LEASES

The Company’s leased properties have remaining lease terms ranging from twelve to sixty-five months as of August 1, 2022 (beginning on the current fiscal year). At the option of the Company, it can elect to extend the term of the leases. See table below:

Location Annual Rent  Lease Expiration Date Business Use Approx. Sq. Ft. 
8023 Vantage Dr., Suite 660, San Antonio, Texas 78230 $49,136  Sep-27 Executive offices  2,843 
10967 Via Frontera, San Diego, CA 92127 $369,229  Mar-26 Office space  18,541 
1610 Royal Palm Avenue, Suite 300, Fort Myers, FL 33901 $83,260  Dec-25 Office space and network facilities  6,800 
2121 Ponce de Leon Blvd., Suite 200, Coral Gables FL 33134 $128,301  Dec-27 Office space & wireless internet network  4,623 
7218 McNeil Dr., FL-1, Austin, TX  78729 $21,000  Mar-24 Network facilities  25 
6606 Lyndon B. Johnson, Fwy., FL1, Suite 125, Dallas, TX 75240 $17,040  Dec-22 Network facilities  25 
9701 S. John Young Parkway, Orlando, FL 32819 $25,440  May-23 Network facilities  540 
50 NE 9th St, Miami, FL 3313 $41,300  May-23 Network facilities  25 
350 NW 215 St., Miami Gardens, FL 33169 $29,254  May-23 Wireless internet network  100 
8333 NW 53rd St, Doral, FL 33166 $14,021  Jul-25 Wireless internet network  100 
100 SE 2nd Street, Miami, FL 33131 $36,466  Jan-24 Wireless internet network  100 
9055 SW 73rd Ct, Miami, FL 33156 $8,787  Dec-23 Wireless internet network  100 
9517 Fontainebleau Blvd., Miami, FL 33172 $11,907  Aug-24 Wireless internet network  100 

The Company has not entered into any sale and leaseback transactions during the year ended July 31, 2022.

In February 2022, as part of the acquisition of NLI, the Company secured an office lease, with a monthly base lease payment of $30,222. The lease expires in March 2026. At the option of the Company, the lease can be extended for two additional five-year terms, with a base rent at the prevailing market rate at the time of the renewal. The Company is not reasonably certain that it will exercise the renewal option.

In December 2021, as part of the acquisition of Skynet Telecom LLC’s assets, the Company assumed an office lease in San Antonio, Texas. In May 2022, the lease was extended until September 2027, and at the option of the Company, the lease can be extended for a period of five years, with a base rent at the prevailing market rate at the time of the renewal. The Company accounted for the extension as a lease modification.

On May 17, 2022, the Company extended the office and wireless internet network leases in Coral Gable Florida. The Company accounted for the extension as a lease modification. The Company used the discount rate of 4% and recognized $482,865 as a day one ROU asset and liability. These leases are identified in the table above. The leases expire in December 2027, and at the option of the Company, the leases can be extended for various periods ranging from one to five years, with a base rent at the prevailing market rate at the time of the renewal.


Amounts recognized on July 31, 2021, and July 31, 2022, for operating leases are as follows:

       
ROU Asset July 31, 2021 $934,260 
Amortization   $(524,688)
Addition - Asset   $2,026,463 
ROU Asset July 31, 2022 $2,436,035 
       
Lease Liability July 31, 2021  $934,260 
Amortization   $(530,047)
Addition - Liability   $2,180,652 
Lease Liability July 31, 2022 $2,584,865 
       
Lease Liability Short term $796,714 
Lease Liability Long term $1,788,151 
Lease Liability Total: $2,584,865 

 

Operating lease cost: $720,383 
     
Cash paid for amounts included in the measurement of lease labilities    
     
Operating cashflow from operating leases: $720,383 
     
Weighted-average remain lease term-operating lease:  4.2 years 
     
Weighted-average discount rate  5.0%

The future minimum lease payment under the operating leases are as follows:

Period Ending Lease 
July 31, Payments 
2023  777,464 
2024  650,734 
2025  603,439 
2026  431,377 
2027  176,771 
Total: $2,639,785 


NOTE 1314 – EQUIPMENT FINANCING

The Company entered into threea financing agreementsagreement for equipment purchased. Under the termsterm of these transactions,the agreement, assets with a cost of approximately $37,255, $60,408, and $103,509,$62,263, were financed under three separatea financing agreementsagreement as of the May 2018, June 2018, and July 2019, respectively.2022. The equipment financing is net of costs associated with the assets such as maintenance, insurance and property taxes are for the account of the Company. The equipment financing agreements areagreement is for 3638 months, with the first payments starting June 20, 2018, July 20, 2018, and July 12, 2019, respectively1, 2022, and monthly principal and interest payments of $1,176, $1,856, and $3,172, respectively.$1,820. The interest rate under the financing agreements range from 6.50% to 8.50%agreement is at 5.0% per annum. During the years ended July 31, 2020 and 2019, the Company made total principal payments of $65,465 and $32,943, respectively.

The future payments under the equipment financing agreements are as follows:

Year Amount 
2021  70,233 
2022  34,897 
     
Total future payments: $105,130 
     
Less: amounts representing interest  5,635 
     
Present value of net minimum equipment financing payments $99,495 
     
Less current maturities  61,850 
     
Long-term equipment financing obligation $37,645 
     
Lease cost:    
Amortization of ROU assets $65,465 
Interest on lease liabilities  9,201 
     
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cashflow from financing leases: $9,201 
Financing cashflows from finance leases  65,465 
     
Weighted-average remaining lease term - finance lease:  1.52 years 
     
Weighted-average discount rate:  6.76%


Year Amount 
2023 $21,566 
2024  21,835 
2025  21,835 
2026  1,820 
Total future payments: $67,056 
Less: amounts representing interest  4,793 
Present value of net minimum equipment financing payments $62,263 
Less current maturities  20,638 
Long-term equipment financing obligation $41,625 
Lease cost:    
Amortization of ROU assets $19,920 
Interest on lease liabilities  2,599 
Cash paid for amounts included in the measurement of lease liabilities:    
Operating cashflow from equipment financing: $2,599 
Financing cashflow from equipment financing:  19,920 
Weighted-average remaining lease term - equipment financing:  3.1 years 
Weighted-average discount rate  5.0%

NOTE 1415LEASESBUSINESS ACQUISITIONS

Skynet Asset Purchase Agreement

Digerati leases its corporate facilities, sales office

On December 31, 2021, our indirect, wholly owned subsidiary, Shift8 Networks, Inc., a Texas corporation (“Shift8”), executed and network facilitiesclosed on an Asset Purchase Agreement (the “Purchase Agreement”) with Skynet Telecom LLC, a Texas limited liability company (“Seller” “Skynet”), and Paul Golibart and Jerry Ou, each an individual resident in the State of Texas (each, an “Owner” and Florida. collectively, the “Owners”).

Pursuant to the Purchase Agreement, Shift8 acquired the customer base, certain equipment, certain intellectual property, inventory, contract rights, software and other licenses and miscellaneous assets used in connection with the operation of Seller’s communications business, including but not limited to subscriber-based Interconnected Voice Over Internet Protocol communication services (“I-VoIP”), Unified Cloud Communications Services (“UCCS”), and IPPBX based systems of telephony (collectively, the “Purchased Assets”).

The annual rent expense underaggregate purchase price for the operating leasesPurchased Assets was $160,574$5,800,000, subject to adjustment as provided in the Purchase Agreement (the “Purchase Price”), after all adjustments, the net Purchase Price was $5,700,000. An amount of $4,100,000 in cash, subject to a Net Working Capital Adjustment as defined in the Purchase Agreement, was paid by Shift8 on the Closing Date. Included within the $4.1 million cash payment were amounts paid by Shift8 directly to creditors of the Seller as set forth in payoff letters. An additional $600,000 (the “Earn-out Amount”) was retained by Shift8 at the Closing and $141,546, for 2020will be paid to Seller in accordance with the Purchase Agreement. An additional $100,000 (the “Holdback Amount”) was retained by Shift8 at the Closing and 2019, respectively. Belowwill be paid to Seller in accordance with the Purchase Agreement. Finally, $1,000,000 (the “Share Payment”) will be paid by Shift8 to Seller by issuance of restricted shares of the Company’s common stock to the Owners. On September 1, 2022, the Company and Sellers amended the Asset Purchase Agreement. In accordance with the amended agreement, the Share Payment will be made via the issuance of shares on the earlier of (i) the effective date of that certain Registration Statement on Form S-1 filed by the Company with the Securities and Exchange Commission on August 11, 2021 (in which case the stock will be valued at the price set forth in the prospectus that is a listpart of our primary operating leases:

Location Lease
Expiration Date
 Annual
Rent
  Business Use Approx. Sq. Ft.
825 W. Bitters, Suite 104,
San Antonio, TX 78216
 Jul-22 $23,654  Executive offices 1,546
2401 First Street, Suite 300, Ft.       Lease of network facilities and  
Myers, FL 34901 Nov-20 $107,534  office space 6,800
7218 McNeail Dr, Austin, TX 78729 Apr-21 $14,222  Lease of network facilities 25
6606 Lyndon B. Johnson, Fwy., FL1, Suite 125, Dallas, TX 75240 Apr-21 $25,161  Lease of network facilities 25
9701 S. John Young Parkway,
Orlando, FL 32819
 May-23 $30,528  Lease of network facilities 540

Effective August 1, 2019,such Registration Statement, without underwriter discounts) and (ii) April 30, 2023 (in which case the stock will be valued at the average of the last transaction price on the OTCQB for each of the 10 trading days immediately preceding such issuance date). At closing, the Company adopted ASC 842, “Leases” (“ASC 842”) on a modified retrospective basis. Accordingly, information presented for periods prior to FY2019 have not been recast. recorded $1,000,000 as an acquisition payable.


In addition, the Company electedincurred approximately $276,000 in costs associated with the optional practical expedient permitted underSkynet Asset acquisition. These included legal, regulatory and accounting costs which were expensed during the transition guidance which allowsyear ended July 31, 2022.

As part of the acquisitions of Skynet’s assets, the Company secured an office lease, with monthly base lease payment of $3,909 from July 1, 2021, through June 30, 2022, and a monthly base lease payment of $4,027 from July 1, 2022, through September 30, 2022. The lease expires in September 2022, and at the option of the Company, the lease can be extended for a period of five years, with a base rent at the prevailing market rate at the time of the renewal. In May 2022, the lease was modified; refer to carry forwardNote 13 of the historical accounting treatment for existing lease upon adoption. No impact was recordedConsolidated Financial Statements.

Next Level Internet Equity Purchase Agreement

On February 4, 2022, the Company, T3 Communications, Inc., a controlled subsidiary of the Company (“T3”) and the two owners of NLI (the “Sellers”), entered into and closed on an Equity Purchase Agreement (the “Purchase Agreement”). Pursuant to the income statement or beginning retained earnings for Topic 842.Purchase Agreement, T3 bought all of the equity interests in NLI from the Sellers. NLI is engaged in the business of providing cloud based Unified Communications as a Service, collaboration, contact center, managed connectivity and other voice and data services to small, medium, and large enterprises.

The leased propertiesaggregate purchase price was $13.042 million consisting of: (i) $8.9 million in cash which includes payoff of certain indebtedness held at closing by Next Level and certain transaction expenses; (ii) unsecured promissory notes in the aggregate principal amount of $2 million issued by T3 to the Sellers (the “Unsecured Notes”) with such notes payable in eight equal quarterly installments in the aggregate amount of $250,000 each starting on June 15, 2022 through and including March 16, 2024. With a base annual interest rate of 0% and a default annual interest rate of 18%. The amount owed is subject to change based on certain revenue milestones needing to be met by NLI; and (iii) unsecured convertible promissory notes (the “Convertible Notes”) in the aggregate principal amount of $2 million issued by T3 to the Sellers with such notes payable in eight equal quarterly installments in the aggregate amount of $250,000 each starting on July 31, 2022 through and including January 31, 2024 with a base annual interest rate of 0% and a default annual interest rate of 18%. The Sellers have a remaining lease termone-time right to convert all or a portion of sixteenthe Convertible Notes commencing on the six-month anniversary of the notes being issued and ending 30 days after such six-month anniversary. If the Sellers elect to forty-six monthsconvert the notes, T3 is required to make an additional payment of $500,000. The Sellers’ right to convert the notes has expired as of August 1, 2019.the date of this report. The conversion price is the volume weighted average price per share for the ten (10) consecutive trading days immediately preceding the date on which a conversion notice is received by T3.

T3 paid $8.69 million in cash to the Sellers on the closing date of February 4, 2022.

In addition, 120 days after the closing of the transaction, T3 will pay the Sellers the amount by which net working capital deficit is better than $2.16 million or the Sellers will pay T3 the amount by which net working capital deficit is worse than $2.36 million. As of July 31, 2022, the Company and the sellers agreed that there’s no purchase price adjustment required.

In addition, the Company incurred approximately $845,000 in costs associated with the Next Level Internet Acquisition. These included legal, regulatory, and accounting, cost which were expensed during the year ended July 31, 2022.

As part of the acquisition of NLI, the Company secured an office lease, with a monthly base lease payment of $30,222. The lease expires on March 11, 2026. At the option of the Company, itthe lease can elect to extendbe extended for two additional five-year terms, with a base rent at the termprevailing market rate at the time of the leases. Asrenewal.

The total purchase price for Skynet and Next Level Internet were $5,700,000 and $13,042,000, respectively. The acquisitions were accounted for under the purchase method of accounting, with Digerati identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by Digerati was allocated to customer contracts acquired and other intangible assets based on their estimated fair values as of acquisition dates. Allocation of the date of this filing, the Companypurchase price is working on finalizing a new office lease agreement. The new lease will commence on January 1, 2021, the initial term will of 5 years, at an annual base rent of $57,000. The Company will have the option to renew the lease for an additional 5 years. The Company is working with the landlordbased on the final buildoutassessment by management.


The following table summarizes the breakdown of the office space. From October 1, 2020 through December 31, 2020, the Company entered into a Sublease Agreementintangible assets acquired in connection with the current tenant,acquisitions.

  Skynet  Next Level Internet  Total 
      (in thousands)     
Cash $-  $171  $171 
Accounts receivable, net  98   469   567 
Current Assets  44   69   113 
Intangible assets and Goodwill  5,744   19,079   24,823 
Property and Equipment, net  16   2,549   2,565 
Total other current assets  50   16   66 
Total identifiable assets $5,952  $22,353  $28,305 
Less: Liabilities assumed  252   9,311   9,563 
Total Purchase price, net $5,700  $13,042  $18,742 

The following table summarizes the cost of intangible assets related to the acquisition:

  Skynet  Next Level Internet  Total  Useful Life 
     (in thousands)     (in Years) 
Trade Names and Trademarks $820  $2,050  $2,870   7 - 10 
Customer Relationships  2,228   3,337   5,565   7 - 10 
Non-Compete Agreement  170   470   640   2 
Goodwill  2,526   13,222   15,748   - 
Total intangible assets $5,744  $19,079  $24,823     

Proforma

The following are the unaudited proforma consolidated results of operations for a monthly rate of $4,791.

Beginning August 1, 2019, operating ROU assets and operating lease liabilities are recognized based onboth acquisitions for the present value of lease payments, including annual rent increases, over the lease term at commencement date. Operating leases in effect prior to August 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of August 1, 2019. Because none of our leases included an implicit rate of return, we used our incremental secured borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. The incremental borrowing rate on the leases is 8.0%.

The Company has not entered into any sale and leaseback transactions during the yearyears ended July 31, 2020.

The impact of ASU No. 2016-02 (“Leases (Topic 842)” on our consolidated balance sheet beginning August 1, 2019 was through2022, and 2021 as if the recognition of ROU assets and lease liabilities for operating leases. Amounts recognizedacquisitions occurred on August 1, 20192020. The proforma results of operations are presented for informational purposes only and July 31, 2020 for operating leases are as follows:

ROU AssetAugust 1, 2019 $316,411 
Amortization  $(140,314)
ROU AssetJuly 31, 2020 $176,097 
      
Lease LiabilityAugust 1, 2019 $316,411 
Amortization  $(140,314)
Lease LiabilityJuly 31, 2020 $176,097 
      
Lease LiabilityShort term $99,443 
Lease LiabilityLong term   $76,654 
Lease LiabilityTotal: $176,097 
      
Operating lease cost:  $160,574 
      
Cash paid for amounts included in the measurement of lease labilities    
      
Operating cashflow from operating leases: $160,574 
     
Weighted-average remain lease term-operating lease:  1.88 years 
      
Weighted-average discount rate   8%


For the year ended July 31, 2020 amortization of operating ROU assets was $140,314.

For the year ended July 31, 2020 amortization of operating lease liabilities was $140,314.

The future minimum lease payment under the operating leases are as follows:

Years Ending July 31, Lease
Payments
 
2021  108,409 
2022  57,057 
2023  25,440 
Total: $190,906 

NOTE 15 – NONCONTROLLING INTEREST

On May 1, 2018, T3 Communications, Inc. (“T3”), a Nevada Corporation, entered into a Stock Purchase Agreement (“SPA”), whereby in an exchange for $250,000, T3 agreed to sell to the buyers 199,900 shares of common stock equivalent to 19.99%not indicative of the issued and outstanding common shareresults of T3 Communications, Inc. The $250,000operations that would have been achieved if the acquisitions had taken place on August 1, 2020, or of results that may occur in the cash received under this transaction was recognized as an adjustment to the carrying amount of the noncontrolling interest and as an increase in additional paid-in capital in T3. At the option of the Company, and for a period of five years following the date of the SPA, the 199,900 shares of common stock in T3 may be converted into Common Stock of Digerati at a ratio of 3.4 shares of DTGI Common stock for every one (1) share of Shift8 at any time after the DTGI Common Stock has a current market price of $1.50 or more per share for 20 consecutive trading days.future.

  (In thousands) 
  For the Years ended July 31, 
  2022  2021 
  Reported  Proforma  Reported  Proforma 
Revenue $24,154  $33,028  $12,416  $28,747 
Income (loss) from operations  (3,676)  (3,070)  (2,398)  (2,062)
Net income (loss) $(8,032) $(7,441) $(16,703) $(16,121)
Earnings (loss) per common share-Basic and Diluted $(0.05) $(0.05) $(0.13) $(0.12)

For the years ending July 31, 2020 and 2019, the Company accounted for a noncontrolling interest of $47,000 and $128,000, respectively. Additionally, one of the buyers serves as a Board Member of T3 Communications, Inc., a Florida Corporation, one of our operating subsidiaries.


NOTE 16 – INVESTMENT IN ITELLUM–PREFERRED STOCK

On June 14, 2019, the Company, entered into a Stock Purchase Agreement (the “Agreement”) to acquire a 12% minority interest in Itellum Comunicacions Costa Rica, S.R.L. The Company paid $82,500 upon execution of the agreement, issued 500,000 shares of common stock with a market value of $85,000, and entered into a promissory note for $17,500 with an effective annual interest rate of 8% and an initial maturity date of September 14, 2019, subsequentially the maturity date was extended until October 31, 2020. The outstanding balance as of July 31, 2020 was $7,500.

The minority interest in Itellum was accounted for as a cost-basis investment, and based on the agreed cash and stock issued, the Company accounted for an initial investment value of $185,000.

F-32

NOTE 17 –SERIES A CONVERTIBLE PREFERRED STOCK

CONVERTIBLE SERIES A PREFERRED STOCK

In March 2019, the Company’s Board of Directors designated and authorized the issuance up to 1,500,000 shares of the Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock has a par value of $0.001 per share and a stated value equal to one dollar ($1.00) (the “Stated Value”) and are entitled to a dividend at an annual rate of eight percent (8%) per share. The Company had 225,000 shares of the Convertible Series A Convertible Preferred Stock outstanding as of July 31, 2020.2022. During the year endingended in July 31, 20202022, the Company declared a dividend of $19,000.$19,000 and had $55,934 as accumulated dividends as of July 31, 2022.

The terms of our Series A Preferred Stock allow for:

Voting Rights. Unless otherwise required by the Nevada Revised Statutes, the shares of Series A Preferred Stock shall not be entitled to vote on any matter presented at any annual or special meeting of stockholders of the Corporation, or through written consent.

Optional Conversion. Each holder of shares of Series A Preferred Stock may, at holder’s option and commencing on April 30, 2020, convert any or all such shares, on the terms and conditions set forth herein, into fully paid and non-assessable shares of the Corporation’s Common Stock. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted shall be determined by dividing the Original Issue Price of each share of Series A Preferred Stock, plus accrued and unpaid dividends through the Conversion Date, to be converted by the Conversion Price (as defined below) in effect at the time of conversion. The “Conversion Price” at which shares of Common Stock shall be issuable upon conversion of any shares of Series A Convertible Preferred Stock shall initially be $0.30 per share.

On May 24, 2022, the greaterCompany filed a Certificate of (i) $0.40 per share, (ii) a 30% discountCorrection with the Nevada Secretary of State with regard to the offeringCompany’s Series A Convertible Preferred Stock Certificate of Designation originally filed in August 2020.

The Certificate of Correction was filed to correct, among other provisions, certain dates, to correct the Series A Convertible Preferred Stock’s initial conversion price (it is $0.30, and the conversion price is not related to any offering), the date that dividends commenced being paid, to correct the mandatory conversion provisions (with such provision not related to a listing of the Common Stock (or Common Stock equivalent) in a $10 million or greater equity financing that closes concurrently with an up-listing of the Company Common Stock on the NYSE American or Nasdaq, in the event of such up-listing, and (iii) a 30% discount to the average closing price per share of the Common Stock for the 5 consecutive trading days commencing upon the date the Common Stock is up-listed on either the NYSE American or Nasdaq in which there is no concurrent $10 million equity financing, in the event of such up-listing, subject to adjustment as provided below.

Mandatory Conversion. Each share of Series A Preferred Stock shall automatically convert into shares of Common Stock, as described in paragraph 2a, at the then applicable Conversion Price, upon the earlier of (i) the closing of a public or private offering (or series of offerings within a 90-day period) of Corporation equity or equity equivalent securities placed by a registered broker-dealer resulting in minimum gross proceeds to the Corporation of $10 million, (ii) commencing on April 30, 2020, if the Common Stock shall close (or the last trade shall be) at or above 150% of the Conversion Price per share for 20 out of 30 consecutive trading days, and (iii) the uplisting of the Corporation’s Common Stock to a national securities exchange orexchange).

During the Nasdaq stock market ((i), (ii)year ended July 31, 2022, the Company evaluated Series A Convertible Preferred Stock and (iii) are collectively referred to as “Mandatory Conversion Event”). The Corporation will provide notice to holder within 20 daysconcluded that none of the occurrence of a Mandatory Conversion Event (failure of the Corporation to timely give such notice does not void the mandatory conversion). Holder shall surrender to the Corporation, within 10 days of receiving such notice, the certificate(s) representing the shares of Series A Preferred Stock to be converted into Common Stock. In the event holder does not surrender such certificate(s) within 10 days of receiving such notice, the Corporation shall deem such certificate(s) cancelled and void. As soon as practicable, after the certificate(s) are either surrendered by the holder or cancelled by the Corporation, as the case may be, the Corporation will issue and deliver to holder a new certificate for the number of full shares of Common Stock issuable upon such mandatory conversion in accordance withevents occurred during the provisions hereofperiod and cashdetermined that the convertible shares were classified as provided in paragraph 2(c) in respect of any fraction of a share of Common Stock otherwise issuable upon such mandatory conversion, unless fractional shares are rounded up to the next whole share. Holder will be deemed a Common Stockholder of record as of the date of the occurrence of a Mandatory Conversion Event.equity instruments.


CONVERTIBLE SERIES B CONVERTIBLE PREFERRED STOCK

In April 2020, the Company’s Board of Directors designated and authorized the issuance up to 1,000,000 shares of the Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock is only issuable to the Company’s debt holders as of March 25, 2020 (“Existing Debt Holders”) who may purchase shares of Series B Convertible Preferred Stock at the Stated Value by converting all or part of the debt owed to them by the Corporation as of March 25, 2020. Each share of Series B Convertible Preferred Stock has a par value of $0.001 per share and a stated value equal to one dollar ($1.00) (the “Stated Value”). In April 2020, the Company issued a total of 407,477 shares of Series B Convertible Preferred Stock for settlement of debt of $370,000 on various promissory notes and $37,477 in accrued interest. In March 2021, the Company issued a total of 17,965 shares of Series B Convertible Preferred Stock for settlement of debt of $16,000 on a promissory note and $1,965 in accrued interest.

The Company had 425,442 shares of Series B Convertible Preferred Stock outstanding as of July 31, 2022, and 2021. No dividends are payable on the Series B Convertible Preferred Stock.

The terms of our Series B Convertible Preferred Stock allow for:

Voting Rights. Except as otherwise provided by the Nevada Revised Statutes, other applicable law or as provided in this Certificate of Designation, the Series B Preferred Stock shall have no voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend this Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (c) increase the number of authorized shares of Series B Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

Mandatory Conversion. Upon (i) an up-listing of the Corporation’s Common Stock to Nasdaq or a US national securities exchange, (ii)an underwriting involving the sale of $5,000,000 or more of the Corporation’s Common Stock or Common Stock Equivalents (a “Material Underwriting”), (iii) the Corporation ceases to be a public corporation as the result of a going private transaction, (iv) the Corporation, directly or indirectly, effects any sale, lease, exclusive license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions (including a transaction involving the Corporation’s spin-off of its operating subsidiary, T3 Communications, Inc.), (v) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (vi) the Corporation, directly or indirectly, in one or more related transactions, effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (vii) the Corporation, directly or indirectly, in one or more related transactions, consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person, other than an officer or director of the Company, whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), all shares of Series B Convertible Preferred Stock shall be automatically converted, without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, into the number of fully paid and nonassessable shares of Common Stock in an amount equal, following conversion, ,toto 18% of the Corporation’s issued and outstanding shares of Common Stock .Stock. Each of (i)-(vii) above shall be hereafter referred to as a “Conversion Event” and the date of a Conversion Event shall be hereafter referred to as a “Conversion Date”. Upon any such mandatory conversion and the issuance of Conversion Shares further thereto, the shares of Series B Convertible Preferred Stock shall be deemed cancelled and of no further force or effect. A mandatory conversion is the only means by which Series B Convertible Preferred Stock is convertible as the shares of Series B Convertible Preferred Stock are not convertible at the option of the Holder. For purposes of the foregoing Conversion Events, conversion will be deemed to have taken place immediately prior to the Conversion Event. By way of example, if the Corporation engages in a Material Underwriting, the Series B Convertible Preferred Stock will be treated as having been converted immediately prior to the issuance of the securities in the Material Underwriting.

Redemption. At any time on or after the second anniversary of the date of issuance of shares of Series B Preferred Stock to the Holder, the Corporation, in its sole discretion ,may elect, by delivering written notice to the Holder no less than 10 days or more than 20 prior to the redemption date set forth in such notice (the “Redemption Date”), to redeem all or any portion of the Series B Preferred Stock held by such Holder at a price per share (the “Redemption Price”) equal to 120% of the Stated Value per share being redeemed . The Corporation shall, unless otherwise prevented by law, redeem from such holder on the Redemption Date the number of shares of Series B Preferred Stock identified in such notice of redemption. During the period ended July 31, 2020, the Company evaluated Series B Convertible Preferred Stock and concluded that none of the mandatory conversion events occurred during the period and determined that the convertible shares were classified as equity instruments. The Company will evaluate the convertible shares at each reporting balance sheet date and determine if a re-classification is required.


F-34

CONVERTIBLE SERIES C CONVERTIBLE PREFERRED STOCK

In July 2020, the Company’s Board of Directors designated and authorized the issuance up to 1,000,000 shares of the Series C Convertible Preferred Stock. Each share of Series C Convertible Preferred Stock has a par value of $0.001 per share and a stated value equal to ten dollars ($10.00) (the “Stated Value”). As

On February 25, 2021, Digerati’s Board of July 31, 2020,Directors approved the Company has not issued anyissuance of the following shares of Series C Convertible Preferred Stock to officers:

Arthur L. Smith – 28,928 shares of Series C Convertible Preferred Stock

Antonio Estrada – 19,399 shares of Series C Convertible Preferred Stock

Craig Clement – 7,073 shares of Series C Convertible Preferred Stock

The Series C Convertible Preferred Stock were issued for accrued compensation to the management team of $554,000.

The Company had 55,400 shares of Convertible Series C Convertible Preferred Stock outstanding as of July 31, 2022, and 2021. No dividends are payable on the Convertible Series C Convertible Preferred Stock.

The terms of our Series C Convertible Preferred Stock allow for:

Designation, Amount and Par Value; Eligible Recipients. The series of preferred stock shall be designated as its Series C Convertible Preferred Stock (the “Series C Preferred Stock”) and the number of shares so designated shall be up to one million (1,000,000) (which shall not be subject to increase without the written consent of the holders of a majority of the outstanding Series C Preferred Stock (each, a “Holder” and collectively, the “Holders”). Series C Preferred Stock shall only be issuable to the Company’s officers and directors as of July 1, 2020 who may from time to time purchase shares of Series C Preferred Stock at the Stated Value by converting all or part of the compensation owed to them by the Corporation. Each share of Series C Preferred Stock shall have a par value of $0.001 per share and a stated value equal to Ten Dollars ($10.00) (the “Stated Value”).

Dividends. No dividends are payable on the shares of Series C Preferred Stock.

Voting Rights. Except as otherwise provided by the Nevada Revised Statutes, other applicable law or as provided in this Certificate of Designation, the Series C Preferred Stock shall have no voting rights. However, as long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series C Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series C Preferred Stock or alter or amend this Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (c) increase the number of authorized shares of Series C Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

Automatic Conversion. Upon (i) an up-listing of the Corporation’s Common Stock to Nasdaq or a US national securities exchange, (ii) a financing or offering involving the sale of $5,000,000 or more of the Corporation’s Common Stock or Common Stock Equivalents (a “Material Financing”), (iii) the Corporation ceases to be a public corporation as the result of a going private transaction, (iv) the Corporation, directly or indirectly, effects any sale, lease, exclusive license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions (including a transaction involving the Corporation’s spin-off of its Nevada subsidiary, T3 Communications, Inc.), (v) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (vi) the Corporation, directly or indirectly, in one or more related transactions, effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (vii) the Corporation, directly or indirectly, in one or more related transactions, consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person, other than an officer or director of the Company, whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), all issued shares of Series C Convertible Preferred Stock shall be automatically converted, without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, into the number of fully paid and nonassessable shares of Common Stock in an amount equal, following conversion, to 22% of the Corporation’s issued and outstanding shares of Common Stock. Each of (i)-(vii) above shall be hereafter referred to as a “Conversion Event” and the date of a Conversion Event shall be hereafter referred to as a “Conversion Date”. Upon any such mandatory conversion and the issuance of Conversion Shares further thereto, the shares of Series C Convertible Preferred Stock shall be deemed cancelled and of no further force or effect. A mandatory conversion is the only means by which Series C Convertible Preferred Stock is convertible as the shares of Series C Convertible Preferred Stock are not convertible at the option of the Holder. For purposes of the foregoing Conversion Events, conversion will be deemed to have taken place immediately prior to the Conversion Event. By way of example, if the Corporation engages in a Material Financing, the Series C Convertible Preferred Stock will be treated as having been converted immediately prior to the issuance of the securities in the Material Underwriting.


Redemption. At any time on or after the second anniversary of the date of issuance of shares of Series C Preferred Stock to the Holder, the Corporation, in its sole discretion ,may elect, by delivering written notice to the Holder no less than 10 days or more than 20 prior to the redemption date set forth in such notice (the “Redemption Date”), to redeem all or any portion of the Series C Preferred Stock held by such Holder at a price per share (the “Redemption Price”) equal to 120% of the Stated Value per share being redeemed . The Corporation shall, unless otherwise prevented by law, redeem from such holder on the Redemption Date the number of shares of Series C Preferred Stock identified in such notice of redemption.

SERIES F SUPER VOTING PREFERRED STOCK

In July 2020, the Company’s Board of Directors designated and authorized the issuance up to 100 shares of the Series F Super Voting Preferred Stock. Each share of Series F Super Voting Preferred Stock has a par value of $0.001 per share and a stated value equal to one cent ($0.01) (the “Stated Value”). As

On November 17, 2020, Digerati’s Board of July 31, 2020,Directors approved the issuance of the following shares of Series F Super Voting Preferred Stock to officers:

Arthur L. Smith - 34 shares of Series F Super Voting Preferred Stock

Antonio Estrada - 33 shares of Series F Super Voting Preferred Stock

Craig Clement - 33 shares of Series F Super Voting Preferred Stock

The Company hashad 100 and 100 shares outstanding of the Series F Super Voting Preferred Stock outstanding as of July 31, 2022, and 2021. No dividends are payable on the Series F Super Voting Preferred Stock.

The terms of our Series F Super Voting Preferred Stock allow for:

Designation, Amount and Par Value; Eligible Recipients. The series of preferred stock shall be designated as its Series F Preferred Stock (the “Series F Preferred Stock”) and the number of shares so designated shall be up to one hundred (100) (which shall not be subject to increase without the written consent of the holders of a majority of the outstanding Series F Preferred Stock (each, a “Holder” and collectively, the “Holders”). Series F Preferred Stock shall only be issuable to members of the Corporation’s Board of Directors, as joint tenants, who may purchase shares of Series F Preferred Stock at the Stated Value per share. Each share of Series F Preferred Stock shall have a par value of $0.001 per share and a stated value equal to one cent ($0.01) (the “Stated Value”).

Voting Rights. As long as any shares of Series F Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series F Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series F Preferred Stock or alter or amend this Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (c) increase the number of authorized shares of Series F Preferred Stock, (d) sell or otherwise dispose of any assets of the Corporation not in the ordinary course of business, (e) sell or otherwise effect or undergo any change of control of the corporation, (f) effect a reverse split of its Common Stock, or (g) enter into any agreement with respect to any of the foregoing.

Holder of the Series F Preferred Stock shall be entitled to vote on all matters subject to a vote or written consent of the holders of the Corporation’s Common Stock, and on all such matters, the shares of Series F Preferred Stock shall be entitled to that number of votes equal to the number of votes that all issued and outstanding shares of Common Stock and all other securities of the Corporation are entitled to, as of any such date of determination, on a fully diluted basis, plus one million (1,000,000) votes, it being the intention that the Holders of the Series F Preferred Stock shall have effective voting control of the Corporation. The Holders of the Series F Preferred Stock shall vote together with the holders of Common Stock as a single class on all matters requiring approval of the holders of the Corporation’s Common Stock and separately on matters not requiring the approval of holders of the Corporation’s Common Stock.

Conversion.No conversion rights apply to the Series F Preferred Stock.

Redemption. At any time while share of Series F Preferred Stock are issued and outstanding, the Corporation, in its sole discretion, may elect to redeem the shares of Series F Preferred Stock.

NOTE 1817 – EQUITY

During the year ended July 31, 2019,2022, the Company issued the following shares of common stock that are not disclosed in other footnotes:stock:

On August 31, 2021, the Company entered into a $75,000 promissory note, with a maturity date of August 31, 2022, and annual interest rate of 8%. In conjunction with the promissory note, we issued 150,000 shares of common stock. At the time of issuance, the Company recognized the relative fair market value of the shares of $13,635 as debt discount, and it will be amortized to interest expense during the term of the promissory note.


On September 28, 2018,29, 2021, the Company entered into a $75,000 promissory note, with a maturity date of September 29, 2022, and annual interest rate of 8%. In conjunction with the promissory note, we issued 150,000 shares of common stock. At the time of issuance, the Company recognized the relative fair market value of the shares of $10,788 as debt discount, and it will be amortized to interest expense during the term of the promissory note.

On October 22, 2021, the Company entered into a $150,000 promissory note, with a maturity date of October 22, 2022, and annual interest rate of 8%. In conjunction with the promissory note, we issued 300,000 shares of common stock. At the time of issuance, the Company recognized the relative fair market value of the shares of $13,965 as debt discount, and it will be amortized to interest expense during the term of the promissory note.

On January 21, 2022, the Company secured two promissory notes for $460,000, with a maturity date of October 21, 2022, and annual interest rate of 8%. In conjunction with the promissory notes, we issued 600,000 shares of common stock. At the time of issuance, the Company recognized $60,892 as debt discount, and it will be amortized to interest expense during the term of the promissory notes.

On February 14, 2022, the Company entered into a note extension agreement, and as consideration for the extension, the Company issued an aggregate of 21,672250,000 shares of common stock with a marketfair value at time of issuance$34,150. In addition, the Company agreed to add $75,000 to the principal amount outstanding. The Company evaluated the amendment and accounted for these changes as an extinguishment of $5,794.debt. The shares were issued to settle accounts payables of $5,287 to a professional, the Company recognized a loss on extinguishment of $507 upon issuancedebt for both the $75,000 increase in principal and $34,150 fair value of shares issued and charged the total $109,150 to interest expense at the time of the shares.extension.


On November 5, 2018,July 1, 2022, the Company issued an aggregatea total of 16,8831,500,000 shares of common stock for the professional services provided by a consultant. At the time of issuance, the fair market value of the common stock issued was $125,250.

On July 26, 2022, the Company entered into a note extension agreement, and as consideration for the extension, the Company issued 300,000 shares of common stock with a marketfair value at time of issuance$30,000. In addition, the Company agreed to add $50,000 to the principal amount outstanding. The Company evaluated the amendment and accounted for these changes as an extinguishment of $5,875.debt. The shares were issued to settle accounts payables of $5,287 to a professional, the Company recognized a loss on extinguishment of $588 upon issuancedebt for both the $50,000 increase in principal and $30,000 fair value of the shares.

On November 14, 2018, the Company secured $75,000 from an accredited investor under a Securities Purchase Agreementshares issued and issued 258,621 shares of its common stock at a price of $0.29.

On November 29, 2018, the Company issued an aggregate of 39,444 shares of common stock with a market value at time of issuance of $11,833. The shares were issued to settle accounts payables of $10,545 to a professional, the Company recognized a loss of $1,288 upon issuance of the shares.

On February 5, 2019, the Company issued an aggregate of 60,715 shares of common stock with a market value at time of issuance of $13,357. The shares were issued to settle accounts payables of $10,382 to a professional, the Company recognized a loss of $2,975 upon issuance of the shares.

On February 8, 2019, the Company secured $150,000 from an accredited investor under a Securities Purchase Agreement and issued 600,000 shares of its common stock at a price of $0.25.

On February 8, 2019, the Company issued an aggregate of 400,000 shares of common stock with a market value at time of issuance of $100,000 and recognizedcharged the total fair market value as stock-based compensation$80,000 to interest expense at the time of issuance. Thethe extension.

On July 27, 2022, the Company entered into a variable convertible promissory note with an aggregate principal amount of $165,000, annual interest rate of 8% and a maturity date of April 27, 2023. After payment of transaction-related expenses and closing fees of $19,500, net proceeds to the Company from the Note totaled $100,000. Additionally, the Company recorded $19,500 as a discount to the Note which is amortized over the term of the note. In connection with the execution of the note, the Company issued 300,000 shares were issued for consulting services.of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $22,093 as debt discount, and it will be amortized to interest expense during the term of the promissory note.

During the year endingended July 31, 2020,2021, the Company issued the following shares of common stock that are not disclosed in other footnotes:stock:

In November 2019,During the Companyyear ended July 31, 2021, we issued 86,667 shares of common stock in conjunction to the conversion of 25,000 shares of the Series A Convertible Preferred stock and $1,189 in accrued dividends.

On July 13, 2020, the Company issued 2,073,92521,275,629 shares of common stock for cash proceedsdebt conversion and settlement of $51,629, net of administration fees of $2,500.debt $428,375.

OnDuring the year ended July 29, 2020, the Company31, 2021, we issued 1,819,7004,250,000 shares of common stock for professional services with a fair market value of $222,950.

During the year ended July 31, 2021, we issued 1,000,000 shares of common stock for settlement of accounts payable with a fair market value of $60,500.

During the year ended July 31, 2021, we issued 7,858,820 shares to various employees as part of the Company’s Non-Standardized profit-sharing plan contribution and shares issued in lieu of cash compensation with a fair market value of $264,712.

During the year ended July 31, 2021, we issued 2,100,000 shares in conjunction with various promissory notes with a fair market value of $146,942.


During the year ended July 31, 2021, we issued 400,000 shares in conjunction with various extension agreements for promissory notes with a fair market value of $58,760.

During the year ended July 31, 2021, we received $33,000 in proceeds from the exercise of $42,337, net330,000 warrants, with an exercise price of administration fees$0.10 per warrant, as a result we issued 330,000 shares of $2,500.common stock.

During the year ended July 31, 2021, we issued 55,400 shares of the Series C Convertible Preferred Stock to various members of the Management team. The Series C Convertible Preferred Stock were issued for settlement of accrued compensation to the management team of $554,010. There was no gain or loss recorded on the transaction.

During the year ended July 31, 2021, we issued 17,965 shares of Series B Convertible Preferred Stock for payment of debt of $17,965.

NOTE 1918 – SUBSEQUENT EVENTS

MEOA Business Combination

On August 30, 2022, Digerati entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among Digerati, Minority Equality Opportunities Acquisition Inc., a Delaware corporation (“MEOA”), and Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of MEOA (“Merger Sub”).

The Business Combination Agreement and the transactions contemplated thereby were approved by the board of directors of each of MEOA and Digerati.

The Business Combination Agreement provides, among other things, that Merger Sub will merge with and into Digerati, with Digerati as the surviving company in the merger and, after giving effect to such merger, Digerati shall be a wholly-owned subsidiary of MEOA (the “Merger). In addition, MEOA will be renamed Digerati Holdings, Inc. The Merger and the other transactions contemplated by the Business Combination Agreement are hereinafter referred to as the “Business Combination”. Other capitalized terms used, but not defined, herein, shall have the respective meanings given to such terms in the Business Combination Agreement.

In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the Effective Time, among other things: (i) each share of Digerati common stock outstanding as of immediately prior to the Effective Time will be exchanged for shares of MEOA common stock, par value $0.0001 per share (each, an “MEOA Share” and collectively, the “MEOA Shares”), based upon the exchange ratio set forth in the Business Combination Agreement (the “Exchange Ratio”); (ii) all vested and unvested stock options of Digerati will be assumed by MEOA and thereafter be settled or exercisable for MEOA Shares, as applicable, determined based on the Exchange Ratio; (iii) each warrant to purchase shares of Digerati common stock will be canceled in exchange for a warrant to purchase MEOA Shares determined based on the Exchange Ratio; (iv) any shares of the Series A Preferred Stock of Digerati outstanding as of the Effective Time will thereafter be convertible into a number of MEOA Shares determined by multiplying the number of shares of Digerati common stock into which such preferred shares would have been convertible immediately prior to the Effective Time by the Exchange Ratio; (v) certain convertible notes of Digerati issued following the signing of the Business Combination Agreement and outstanding as of the Effective Time will thereafter be convertible into a number of MEOA Shares determined by multiplying the number of shares of Digerati common stock into which such convertible notes would have been convertible immediately prior to the Effective Time by the Exchange Ratio; and (vi) each share of MEOA Class A common stock, par value $0.0001 per share (the “MEOA Class A Common Stock”), and each share of MEOA Class B common stock, par value $0.0001 per share (the “MEOA Class B Common Stock”), that is issued and outstanding immediately prior to the effective time shall become one MEOA Share following the consummation of the Business Combination.

The Business Combination is expected to close in the first calendar quarter of 2023, following the receipt of the required approval by the stockholders of MEOA and Digerati, approval by Nasdaq of MEOA’s initial listing application filed in connection with the Business Combination, and the fulfillment of other customary closing conditions.


The Business Combination Agreement may be terminated under certain customary and limited circumstances at any time prior to the closing, including, without limitation, (i) by the mutual written consent of MEOA and Digerati; (ii) by MEOA, subject to certain exceptions, if any of the representations or warranties made by Digerati are not true and correct or if Digerati fails to perform any of its covenants or agreements under the Business Combination Agreement (including an obligation to consummate the closing) such that certain conditions to our obligations could not be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (A) thirty (30) days after written notice thereof, and (B) February 25, 2023 (the “Termination Date”); (iii) by Digerati, subject to certain exceptions, if any of the representations or warranties made by our company or Merger Sub are not true and correct or if MEOA or Merger Sub fails to perform any of its covenants or agreements under the Business Combination Agreement (including an obligation to consummate the closing) such that the condition to the obligations of Digerati could not be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (A) thirty (30) days after written notice thereof, and (B) the Termination Date; (iv) by either MEOA or Digerati, if the closing does not occur on or prior to the Termination Date, unless the breach of any covenants or obligations under the Business Combination Agreement by the party seeking to terminate proximately caused the failure to consummate the transactions contemplated by the Business Combination Agreement; (v) by either MEOA or Digerati, if (A) any governmental entity shall have issued an order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by the Business Combination Agreement and such order or other action shall have become final and non-appealable; or (B) if the Required MEOA Stockholder Consent is not obtained; (vi) by MEOA, if (A) Digerati does not deliver, or cause to be delivered to MEOA a Transaction Support Agreement duly executed by certain Digerati stockholders or (B) the Digerati stockholders meeting has been held, has concluded, the Digerati stockholders have duly voted, and Digerati stockholder approval was not obtained; (vii) by MEOA, if Digerati does not deliver, or cause to be delivered, to MEOA a duly executed copy of the PRG Resolution Agreement on or prior to October 15, 2022. The parties are currently negotiating an extension to this deadline. There can be no assurance that an agreement on this matter will be reached; (viii) by Digerati, should MEOA not have timely taken such actions as are reasonably necessary to extend the period of time to complete an initial business combination for an additional period of three months from November 30, 2022; provided, that it shall be the obligation of Digerati to timely make the deposit into the Trust Account in connection with such extension, and Digerati shall not have a right to terminate the Business Combination Agreement as a result of Digerati’s failure to make such deposit; (ix) by MEOA should Digerati not deposit into the Trust Account in a timely manner the funds necessary to extend the period for our company to complete an initial business combination for an additional period of three months from November 30, 2022, in accordance with, and as required pursuant to, the Business Combination Agreement; and (x) by MEOA should: (A) Nasdaq not approve the initial listing application for the combined company with Nasdaq in connection with the Business Combination; (B) the combined company not have satisfied all applicable initial listing requirements of Nasdaq; or (C) the common stock of the combined company not have been approved for listing on Nasdaq prior to the date of the closing.

If the Business Combination Agreement is validly terminated, none of the parties to the Business Combination Agreement will have any liability or any further obligation under the Business Combination Agreement other than customary confidentiality obligations, except in the case of a willful breach of any covenant or agreement under the Business Combination Agreement or fraud, provided, that (A) if MEOA terminates the Business Combination Agreement pursuant to clauses (ii), (vi), (vii) or (viii) of the preceding paragraph, Digerati shall pay to MEOA, promptly following such termination, and in any event within not less than five business days following delivery of notice of termination, a termination fee in the amount of $2,000,000, (B) if Digerati terminates the Business Combination Agreement pursuant to clauses (iii) or (ix) of the preceding paragraph, MEOA shall pay to Digerati promptly following such termination, and in any event within not less than five business days following delivery of notice of termination, a termination fee in the amount of $2,000,000 and (C) in the event of a termination by MEOA pursuant to clauses (ix) or (x) of the preceding paragraph, Digerati shall pay to MEOA, promptly following such termination, and in any event within not less than five business days following delivery of notice of termination, a termination fee in the amount of $1,265,000.

Convertible Notes Extensions

 

Equity Issuance

On various dates in August, 1, 2020,September and October 2022, the Company entered into several note extension agreements and as consideration for the extensions, the Company issued 2,000,000 commona total of 2,060,000 shares for professional services.with a fair value of $252,340. The Company recognized as stock-based compensation expensealso agreed to add a total of approximately $58,000 equivalent$302,500 to the value ofprincipal amounts owed to the shares calculated based on the share’s closing price at the time of issuance.noteholders.

 


Unsecured Convertible Promissory Notes payment

On August 4, 2020,September 5, 2022, the Company made a quarterly principal payment of $250,000 towards the NLI Unsecured Convertible Promissory Notes.

Convertible Promissory Notes & Equity Issuance

On various dates in September and October 2022, the Company entered into 2 convertible promissory notes with principal balances totaling $350,000 which are subject to annual interest of 8% and mature over a period ranging from 6 months to 1 year. The Company issued 5,000,000150,000 shares of common stock for the conversion of $75,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.

On August 7, 2020, the Company issued 7,608,820 common shares to various employees as part of the Company’s Non-Standardized profit-sharing plan contribution. The Company recognized stock-based compensation expense of approximately $247,287 equivalent to thewith a fair market value of the shares calculated based on the share’s closing price at the grant date.

On August 14, 2020, the Company issued 5,000,000$20,145. The notes are convertible into shares of common stock forat a conversion price equal to the conversiongreater of $80,000(i) $0.15 per share (the “Fixed Conversion Price”), or (ii) seventy-five percent (75%) of the principal outstanding under onelowest daily volume weighted average price (“VWAP”) over the ten (10) consecutive trading day period ending on the trading day immediately prior to the applicable conversion date (the “Variable Conversion Price”).

One of the convertible notes.

On October 13, 2020,promissory notes provided, that the Holder shall, in its sole discretion, be able to convert any amounts due hereunder at a twenty-five percent (25%) discount to the per share price of the qualified uplisting financing of over $4MM. If, no later than July 31, 2023, the Company entered into a $330,000 promissory note, in conjunction with the promissory note, we issued 1,000,000 shares of common stock. At the time of issuance, the Company recognized the relative fair market valueshall fail to uplist to any tier of the shares of $36,244 as debt discount, and itNASDAQ Stock Market, the New York Stock Exchange or the NYSE MKT, the conversion price under the note will be amortizedadjusted to interest expense duringequal the termlesser of (i) $0.10 per share; or (ii) seventy-five percent (75%) of the promissory note.lowest VWAP in the preceding twenty (20) consecutive trading days.

 


Convertible Promissory Notes

OnIn October 13, 2020,2022, the Company entered into a convertible promissory note with an aggregate principal amount of $330,000,balances totaling $165,000 which is subject to annual interest rate of 8% and mature over a period of 9 months. The Company issued 300,000 shares of common stock with a fair market value of $45,000. The note is convertible at a conversion price equal to the greater of $0.10 or 25% discount to up-listing price of offering/underwriting price concurrent with the Company listing on Nasdaq or NYSE American.

Promissory Note Extension

On September 8, 2022, the holder of a promissory note for $50,000, originally secured on October 22, 2018, agreed to extend the maturity date until January 31, 2023, all other terms remained the same.

Promissory Note – related party

On October 4, 2022, the Company entered into a $150,000 promissory note, with the Company’s president, Derek Gietzen, with a maturity date of October 31, 2021. After payment of transaction-related expenses15, 2022, and legal fees of $32,000, net proceeds to the Company from the Note totaled $298,000. The Company recorded these discounts and cost of $32,000 as a discount to the note and will amortize over the term of the note. In connection with the execution of the note, we issued 1,000,000 shares of our common stock to the note holder, at the time of issuance, the Company recognized the relative fair market value of the shares of $36,244 as debt discount, and it will be amortized to interest expense during the term of the promissory note. The Company analyzed the Note for derivative accounting consideration and determined that since the note has a fix conversion price at issuance, it does not require to be accounted as a derivative instrument. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument.

On October 15, 2020, the Company entered into a convertible promissory note with an aggregate principal amount of $27,500, annual interest rate of 8%11%. On October 17, 2022, the Company paid the total principal outstanding of $150,000, plus accrued interest.

Amendment to Forbearance Agreement

On October 17, 2022, T3 Nevada, and a maturityPost Road Group, agreed to Amend the Forbearance Agreement dated June 13, 2022, pursuant to an Amendment to Forbearance Agreement (the “Amendment”).

The Amendment was entered into because certain events of default related to both the Credit Agreement and the Joinder that had occurred prior to the parties’ entering into the Forbearance Agreement were continuing (the “Prior Existing Defaults”), certain additional events of default related to the Credit Agreement had occurred since the date of the Forbearance Agreement (the “Additional Existing Defaults”), and the parties anticipated that additional events of default with respect to the Credit Agreement will occur (the “Anticipated Defaults”).


The Additional Existing Defaults related to financial covenants were failure to maintain a Senior Leverage Ratio (as defined in the Credit Agreement) of less than 4.06 to 1.00 for the fiscal quarter ended July 31, 2022, and failure to maintain Minimum Liquidity (as defined in the Credit Agreement) of $2.0 million for the fiscal quarter ended July 31, 2022. The Anticipated Defaults related to financial covenants are failure to maintain a Senior Leverage Ratio of less than 4.05 to 1.00 for the fiscal quarter ending October 31, 2021. On July 2, 2020, the Company received a $15,000 advance on this note. The Company accounted2022, and failure to maintain Minimum Liquidity of $2.0 million for the advance asfiscal quarter ending October 31, 2022.

The Additional Existing Defaults and Anticipated Defaults unrelated to financial covenants relate to the Loan Parties’ failure to deliver a current note payable as ofcompliance certificate for the fiscal quarter ended July 31, 2020. On August 12, 2020, the Company received an additional advance of $10,000. After payment of transaction-related expenses2022, and legal fees of $2,500, net proceedsending October 31, 2022, respectively and, with respect to the Company from the Note totaled $25,000. The Company recorded these discounts and costAdditional Existing Defaults, to timely deliver an executed copy of $2,500 asan amendment to a discountlease agreement.

Pursuant to the note and will amortize overAmendment, Post Road agreed to forbear through the term of the note. The Company analyzed the Note for derivative accounting consideration and determined that since the note has a fix conversion price at issuance, it does not require to be accounted as a derivative instrument. The Company will evaluate every reporting period and identify if any default provisions and other requirements triggered a variable conversion price and if the note needs to be classified as a derivative instrument.

Other Terms October 2020 Convertible Notes

Notes shall bear interest at a rate of eight percent (8%) per annum (the “Interest Rate”), which interest shall be paid by the Company to the Investor in shares of Common Stock at any time the Investor sends a notice of conversion to the Company. The Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the Note into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock shall equal (1) $0.05; provided however that in the event the Borrower fails to close on the acquisition of Nexogy Inc., for any reason, or none at all, by February 11, 2021, the Conversion Price shall equal (2) the Variable Conversion Price (as defined herein). The “Variable Conversion Price” shall mean eighty-five percent (85%) multiplied by the Market Price (as defined herein) (representing a discount rate of fifteen percent (15%)). “Market Price” means the lowest Trading PriceAmended Forbearance Period (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day priorfrom (i) exercising its rights and remedies with regard to the Conversion Date. “Trading Price” means, forPrior Existing Defaults, the Additional Existing Defaults, and the Anticipated Defaults and (ii) requiring compliance with the financial covenants set forth in Section 11.12 of the Credit Agreement. The “Amended Forbearance Period” is from June 13, 2022, through the earlier of (a) November 15, 2022, (b) the date on which any security asother event of default not enumerated in the Amendment occurs or is deemed to have occurred, or (c) the date of any date,failure of any Loan Party to comply with any term, condition, or provision of the lesser of: (i) the lowest trade price on the OTC Pink, OTCQB or applicable trading marketForbearance Agreement as reported by a reliable reporting service (“Reporting Service”) designatedamended by the Holder or, if the OTC Pink isAmendment. The Amendment does not the principal trading market for such security, the trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no trading price of such security is available in anyconstitute a waiver of the foregoing manners,defaults enumerated therein nor does it impair the averageability of Post Road to exercise its rights and remedies after the expiration of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc., or (ii) the closing bid price on the OTC Pink, OTCQB or applicable trading market as reported by a Reporting Service designated by the Holder or, if the OTC Pink is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. Amended Forbearance Period.

At any time, the Company shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note, to prepay up to fifty percent (50%) of the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to one hundred twenty (120%) multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest, if any. Subject to the terms of this Note, the Company may prepay the amounts outstanding, less any amounts paid under the Company’s right to prepay up to the fifty percent (50%), hereunder at any time, subject to the consent of the Holder. Such consent by the Holder may be withheld for any reason in its discretion, or for no reason at all.

Pay-off of Convertible Notes

On October 15, 2020, the Company paid in full the Convertible Note with Platinum Point Capital LLC with a principal balance outstanding of $52,831and accrued interest and penalty of $13,639.

On October 15, 2020, the Company paid in full the Convertible Note with Platinum Point Capital LLC with a principal balance outstanding of $50,000 and accrued interest and penalty of $22,530.


ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None

ITEM 9A.CONTROLS AND PROCEDURES.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of July 31, 2020.2022.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.


 


As of July 31, 2020,2022, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, during the period covered by this report; such internal controls and procedures were not effective based on the COSO criteria. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that our management considered to be material weaknesses were:

1.We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. We lack multiple levels of review over financial reporting. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and concluded that the controls deficiency and lack of multiple levels of review over financial reporting represented a material weakness.

The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the review of our internal statements as of July 31, 2020.2022.

Management’s Remediation Initiatives

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to initiate the following:

1.(1)We plan to create a position to segregate duties consistent with controls objectives and to increase our personnel resources and technical accounting expertise within the accounting function. In addition, we intend to improve the supervision and training of our accounting personnel.

We are continuing our efforts to improve and strengthen our control processes and procedures to fully remedy these deficiencies. Our management and directors will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and effective.

The Company is not required by current SEC rules to include and does not include an auditor’s attestation report. The Company’s registered public accounting firm has not attested to management’s reports on the Company’s internal control over financial reporting.

ITEM 9B.OTHER INFORMATION.

ITEM 9B. OTHER INFORMATION.

None

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

None


 

None


PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following table contains the name, age of our Directors and executive officers as of July 31, 2020.2022.

Name Age Position Held Held Office Since
Arthur L. Smith 55 President, Chief Executive Officer & Director 2003
Craig K. Clement 62 Executive Chairman of the Board 2014
Maxwell A. Polinsky 62 Director 2014
Antonio Estrada Jr. 45 Chief Financial Officer 2007
Name Age Position Held Held Office Since
Arthur L. Smith 57 President, Chief Executive Officer & Director 2003
Craig K. Clement   64 Executive Chairman of the Board 2014
Maxwell A. Polinsky 64 Director 2014
Antonio Estrada Jr. 47 Chief Financial Officer 2007

Arthur L. Smith (55)(57) is our Chief Executive Officer and a Director. Mr. Smith resigned as the Company’s President and Director.on October 3, 2022. Mr. Smith has over 25 years of specialized experience in the telecommunications, technology, and oil and gas industries.  As the founder of Digerati, formerly known as ATSI Communications, Inc. (“ATSI”), he led the Company’s start-up operation focused on the USA – Mexico telecommunications corridor to over US$65 million in annual revenue and a listing on the American Stock Exchange that resulted in a market value of over US$450 million. Between 1999 and 2009, ATSI was a three-time recipient of Deloitte and Touche’s Fast 500 Award for recognition as one of the 500 fastest growing technology companies in North America.  As CEO of ATSI, Mr. Smith also co-founded the Company’s highly successful Internet software subsidiary, GlobalSCAPE, Inc., in 1996. As Chairman of the Board of GlobalSCAPE, he led the Company’s strategic and business development efforts from inception through its growth strategy that resulted in a listing on a public stock exchange and the subsequent sale of ATSI’s ownership to private investors in June 2002.2002.  Mr. Smith is currently President and CEO of the Company’s cloud communications subsidiary, T3 Communications, Inc. (a Nevada corporation).

Craig K. Clement (62)(64) is the Executive Chairman of Digerati Technologies. Craig has over thirty-five years of executive and director experience with Technology (telecom, Internet software) and Oil Exploration and Production (E&P) entities where he has been responsible for asset management, acquisitions and divestitures, strategic and tactical planning, financial operations, corporate finance, legal, transaction structuring, business development, and investor relations. He assisted in the growth of a San Antonio-based telecom provider from 10 employees to 500, achieving a public market valuation of US$500 million. Craig was the founding CEO of GlobalSCAPE, Inc., and was the former COO of XPEL, Inc. Craig was also the former Chairman of the South Texas Regional Center for Innovation and Commercialization, which screened and supported entrepreneurs through the Texas Emerging Technology Fund managed by the Texas Governor’s office, which invested more than $350 million in Texas-based technology start-ups.

Maxwell A. Polinsky (62)(64) is a Director. Mr. Polinsky is currently the President, CFO and a Director of Winston Gold Corp, a Canadian-based mineral exploration company that is traded on the CSE Exchange,, and a principal in Venbanc Investment and Management Group Inc., an investment and merchant bank he co-founded in 1994. From 2009 to 2011, Mr. Polinsky was the Chief Financial Officer and a director of RX Exploration Inc., a company that successfully re opened the previous old historic Drumlummon gold mine in Montana. Mr. Polinsky also served as a director of Nerium Biotechnology from 2006 to 2010, XPEL, Inc. from 2003 to 2009, and Nighthawk Systems from 2001 to 2007 and Cougar Minerals from 2012 to 2014. Mr. Polinsky holds a Bachelor of Commerce degree from the University of Manitoba.

Antonio Estrada Jr. (45)(47) is our Chief Financial Officer and Treasurer. Mr. Estrada is a seasoned financial executive with over 2023 years of experience in the telecommunications and oil and gas industries. Mr. Estrada’s vast experience includes financial reporting and modeling, strategic planning, grant writing, and cash management. Mr. Estrada served as the Sr. VP of Finance and Corporate Controller of Digerati, formerly known as ATSI Communications, Inc., from 2008 to 2013. From 1999 to 2008, Mr. Estrada served in various roles within ATSI, including International Accounting Manager, Treasurer, Internal Auditor, and Controller. Mr. Estrada graduated from the University of Texas at San Antonio, with a Bachelor of Business Administration, with a concentration in Accounting.

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors and executive officers and persons who own more than 10% of a registered class of our equity securities to file various reports with the Securities and Exchange Commission concerning their holdings of, and transactions in, securities we issued. Each such person is required to provide us with copies of the reports filed. Based on a review of the copies of such forms furnished to us and other information we believe that none of our officers, Directors, or owners of 10% of any class of our securities failed to report transactions in our securities or reported transactions in our securities late, with the following exceptions. 


 

Due to an administrative oversight, the following equity awards were not reported on Form 4 filings during the fiscal year ended July 31, 2020, (i) Mr. Smith, Mr. Estrada and Mr. Clement each did not file a report covering the issuances of common stock to each in October 2019, January 2020 and February 2020.

 

Code of Ethics

We adopted an Executive Code of Ethics that applies to the Chief Executive Officer, Chief Financial Officer, President, Controller, and other members of our management team. The Executive Code of Ethics may be viewed on our Website, www.digerati-inc.com. A copy of the Executive Code of Ethics will be provided without charge upon written request to Digerati Technologies, Inc., 825 W. Bitters,8023 Vantage Dr., Suite 104,660, San Antonio, Texas 78216.

78230.

20

Nominating Committee and Nomination of Directors

We do not have a nominating committee because the size of our Board of Directors is too small to establish separate standing committees. Our Directors perform the function of a nominating committee.

The Directors consider candidates recommended by other members of the Board of Directors, by executive officers and by one or more substantial, long-term stockholders. In addition, the Board of Directors may seek candidates through a third-party recruiter. Generally, stockholders who individually or as a group have held 5% of our shares for over one year will be considered substantial, long-term stockholders. In considering candidates, the Directors take into consideration the needs of the Board of Directors and the qualifications of the candidate. The Board of Directors has not established a set of criteria or minimum qualifications for candidacy and each candidate is considered based on the demonstrated competence and knowledge of the individual. To have a candidate considered by the Directors, a stockholder must submit the recommendation in writing and must include the following information:

The name of the stockholder and evidence of ownership of our shares, including the number of shares owned and the length of time of ownership; and

The name of the candidate, the candidate’s resume or a listing of her or his qualifications to be one of our Directors and the person’s consent to be named as a Director if nominated by the Directors.

The stockholder’s recommendation and information described above must be sent to us at 825 W. Bitters,8023 Vantage Dr., Suite 104,660, San Antonio, Texas 78216.78230.

Audit Committee and Audit Committee Financial Expert

We do not have an audit or other committee of our Board of Directors that performs equivalent functions. Our Board of Directors performs all functions of the audit committee. Mr. Maxwell A. Polinsky served as the Audit Committee Financial Expert during the year ended July 31, 2020.2022.

ITEM 11.EXECUTIVE COMPENSATION.

ITEM 11. EXECUTIVE COMPENSATION.

The compensation programs presently in effect with respect to the Chief Executive Officer, Chief Financial Officer and Chairman of the Board were established by the Board of Directors.

Arthur L. Smith serves as our President and Chief Executive Officer. On February 14, 2019, the Company entered into an employment agreement with Mr. Smith, the annual salary was approved by the Board of Directors to be set at $200,000. In addition, the Board of Directors during FY 2015 approved the reimbursement of monthly expenses up to $1,667. During FY 2020 the Board of Directors approved the issuance of common stock in lieu of cash compensation equivalents up to 50% of Mr. Smith’s annual salary. Below are other compensation and benefits for Mr. Smith in accordance with the employment agreement:

(1) Stock Grant. In fiscal year 2019, Employee shall receivereceived at the execution of thisthe employment Agreement 450,000 shares of common stock. The Stock Grant shall vestvested during FY 2022 upon the earlier of the Company achieving $15 million in annualized revenue or listing on a primary stock exchange (e.g. NASDAQ or NYSE American) and will be subject to adjustment for any forward or reverse split of the Company’s stock.revenue.

(2) Stipend. Employee shall receive a 2% stipend on revenue from acquisition transactions approved by the Board of Directors and closed by the Company. Acquisition revenue will be calculated based on the trailing twelve months (TIM) revenue of the company or assets (stock or asset purchase) acquired by the Company. The stipend for acquisitions will be capped at 200% of the annual base salary for the employee. The Employee may elect to receive common stock in the Company in lieu of a cash payment for the acquisition stipend or apply the stipend towards the exercise of vested stock options in a cashless transaction. The stipend shall be considered fully earned at the closing of each acquisition and paid within 10 business days from such event. For acquisition transactions closed prior to the signing of this Agreement, the stipend shall be paid within 6 months of the signing of this Agreement or under terms mutually agreed upon between Employee and Employer. The stipend for acquisitions is subject to review and approval by the Board of Directors of the Company on an annual basis commencing August 1, 2019. The Company accrued for a stipend of $60,000 during the year ended July 31, 2020 associated with the acquisitions of two additional Companies.


 


(3) Stipend. Employee shall receive a one-time payment of $75,000 upon the Company listing on a primary stock exchange (e.g. NASDAQ or NYSE American). The Employee may elect to receive common stock in the Company in lieu of a cash payment for this up-listing stipend or apply the stipend towards the exercise of vested Stock options in a cash-less transaction. The stipend shall be considered fully earned upon initial listing in a primary stock exchange and paid within 10 business days from such event.

(4) Signing Bonus Stock Options. In fiscal year 2019, Employee shall receivereceived 585,000 stock options as of the effective date of this agreement.the Employment Agreement. The stock options will vest equally over a period of 12 months from the issuance date.have already vested.

(5) Additional Compensation. In the event of a Spin-Off (as defined below), Employee shall be entitled to receive 3% of the consideration payable to, and/or received by, the Company or its shareholders in a Spin-Off (calculated and paid from the total shares or cash to be distributed), which payment shall be made to Employee on the closing of the Spin-Off date. A “Spin-Off’ means the sale of a subsidiary or distribution of shares of capital stock to the shareholders of the Company that the Company owns in a subsidiary, whether it is 100% of the ownership or a lesser amount.

Antonio Estrada Jr. serves as our Chief Financial Officer. On February 14, 2019, the Company entered into an employment agreement with Mr. Estrada, the annual salary was approved by the Board of Directors to be set at $185,000. In addition, the Board of Directors during FY 2015 approved the reimbursement of monthly expenses up to $1,667. During FY 2020 the Board of Directors approved the issuance of common stock in lieu of cash compensation equivalents up to 50% of Mr. Estrada’s annual salary. Below are other compensation and benefits for Mr. Estrada in accordance with the employment agreement:

(1) Stock Grant. In fiscal year 2019, Employee shall receivereceived at the execution of thisthe Employment Agreement 350,000 shares of common stock. The Stock Grant shall vestvested during FY2022 upon the earlier of the Company achieving $15 million in annualized revenue or listing on a primary stock exchange (e.g. NASDAQ or NYSE American) and will be subject to adjustment for any forward or reverse split of the Company’s stock.revenue.

(2) Stipend. Employee shall receive a 1 %1% stipend on revenue from acquisition transactions approved by the Board of Directors and closed by the Company. Acquisition revenue will be calculated based on the trailing twelve months (TTM) revenue of the company or assets (stock or asset purchase) acquired by the Company. The stipend for acquisitions will be capped at 200% of the annual base salary for the employee. The Employee may elect to receive common stock in the Company in lieu of a cash payment for the acquisition stipend or apply the stipend towards the exercise of vested stock options in a cashless transaction. The stipend shall be considered fully earned at the closing of each acquisition and paid within 10 business days from such event. For acquisition transactions closed prior to the signing of this Agreement, the stipend shall be paid within 6 months of the signing of this Agreement or under terms mutually agreed upon between Employee and Employer. The stipend for acquisitions is subject to review and approval by the Board of Directors of the Company on an annual basis commencing August 1, 2019. The Company accrued for a stipend of $60,000 during the year ended July 31, 2020 associated with the acquisitions of two additional Companies.

(3) Stipend. Employee shall receive a one-time payment of $60,000 upon the Company listing on a primary stock exchange (e.g. NASDAQ or NYSE American). The Employee may elect to receive common stock in the Company in lieu of a cash payment for this up-listing stipend or apply the stipend towards the exercise of vested stock options in a cash-less transaction. The stipend shall be considered fully earned upon initial listing in a primary stock exchange and paid within 10 business days from such event.

(4) Signing Bonus Stock Options. In fiscal year 2019, Employee shall receivereceived 520,000 stock options as of the effective date of this agreement.Employment Agreement. The stock options will vest equally over a period of 12 months from the issuance date.have already vested.

(5) Additional Compensation. In the event of a Spin-Off (as defined below), Employee shall be entitled to receive 1.25% of the consideration payable to, and/or received by, the Company or its shareholders in a Spin-Off (calculated and paid from the total shares or cash to be distributed), which payment shall be made to Employee on the closing of the Spin-Off date. A “Spin-Off’ means the sale of a subsidiary or distribution of shares of capital stock to the shareholders of the Company that the Company owns in a subsidiary, whether it is 100% of the ownership or a lesser amount.


 


Craig K. Clement serves as our Executive Chairman of the Board. On February 14, 2019, the Company entered into an employment agreement with Mr. Clement, the annual salary was approved by the Board of Directors to be set at $210,000. During FY 2020 the Board of Directors approved the issuance of common stock in lieu of cash compensation equivalents up to 50% of Mr. Clement’s annual salary. No other cash compensation is presently being paid to Mr. Clement.

Below are other compensation and benefits for Mr. Clement in accordance with the employment agreement:

(1) Stock Grant. In fiscal year 2019, Employee shall receivereceived at the execution of thisthe Employment Agreement 550,000 shares of common stock. The Stock Grant shall vestvested during FY 2022 upon the earlier of the Company achieving $15 million in annualized revenue or listing on a primary stock exchange (e.g. NASDAQ or NYSE American) and will be subject to adjustment for any forward or reverse split of the Company’s stock.revenue.

(2) The Employee will receive a one-time cash bonus of $100,000 upon the Company’s common shares reaching a $4.00 trading price per share for l 0l0 consecutive trading days. The $4.00 trading price per share will be adjusted for any forward or reverse split of the Company’s stock. The Employee may elect to receive common stock in the Company in lieu of a cash payment for the share price bonus or apply the bonus towards the exercise of vested stock options in a cash-less transaction.

(3) Stipend. Employee shall receive a one-time payment of $35,000 upon the Company listing on a primary stock exchange (e.g. NASDAQ or NYSE American). The Employee may elect to receive common stock in the Company in lieu of a cash payment for this up-listing stipend or apply the stipend towards the exercise of vested stock options in a cash-less transaction. The stipend shall be considered fully earned upon initial listing in a primary stock exchange and paid within 10 business days from such event.

(4) Signing Bonus Stock Options.Employee shall receive In fiscal year 2019, employee received 620,000 stock options as of the effective date of this agreement.the Employment Agreement. The stock options will vest equally over a period of 12 months from the issuance date.have already vested.

(5) Additional Compensation. In the event of a Spin-Off (as defined below), Employee shall be entitled to receive 0.75% of the consideration payable to, and/or received by, the Company or its shareholders in a Spin-Off (calculated and paid from the total shares or cash to be distributed), which payment shall be made to Employee on the closing of the Spin-Off date. A “Spin-Off’ means the sale of a subsidiary or distribution of shares of capital stock to the shareholders of the Company that the Company owns in a subsidiary, whether it is 100% of the ownership or a lesser amount.

Compensation Discussion and Analysis

 

Our compensation programs are designed to meet the following objectives:

Offer compensation opportunities that attract highly qualified executives, reward outstanding initiative and achievement, and retain the leadership and skills necessary to build long-term stockholder value;

Emphasize pay-for-performance by maintaining a portion of executives’ total compensation at risk, tied to both our annual and long-term financial performance and the creation of stockholder value; and

Further our short and long-term strategic goals and values by aligning executive officer compensation with business objectives and individual performance.


Our Board of Directors believes that an executive’s compensation should be tied to the performance of the individual and the performance of the complete executive team against both financial and non-financial goals, some of which are subjective and within the discretion of the Board of Directors.

 

Our executive compensation program is intended to be simple and clear, and consists of the following elements (depending on individual performance):

Base salary;

Annual performance-based cash bonus;

Long-term incentives in the form of stock options; and

Benefits that are offered to executives on the same basis as our non-executive employees.


 

Role of Management in Determining Compensation Decisions

At the request of our Board of Directors, our management makes recommendations to our Board of Directors relating to executive compensation program design, specific compensation amounts, bonus targets, incentive plan structure and other executive compensation related matters for each of our executive officers, including our Chief Executive Officer. Our Board of Directors maintains decision-making authority with respect to these executive compensation matters.

Our Board of Directors reviews the recommendations of our management with respect to total executive compensation and each element of compensation when making pay decisions. In allocating compensation among compensation elements, we emphasize incentive, not fixed compensation to ensure that executives only receive superior pay for superior results. We equally value short- and long-term compensation because both short- and long-term results are critical to our success. In addition, our compensation program includes various benefits provided to all employees, including life insurance, health insurance and other customary benefits. The objectives and details of why each element of compensation is paid are described below.

Base Salary. Our objective for paying base salaries to executives is to reward them for performing the core responsibilities of their positions and to provide a level of security with respect to a portion of their compensation. We consider a number of factors when setting base salaries for executives, including:

Existing salary levels;

Competitive pay practices;

Individual and corporate performance; and

Internal equity among our executives, taking into consideration their relative contributions to our success.

 

Long-term Incentive Awards. We award long-term incentive compensation to focus our executives on our long-term growth and stockholder return, as well as to encourage our executives to remain with us for the long-term. Long-term incentive awards are primarily in the form of grants of stock options and/or stock award pursuant to our 2015 Equity Compensation Plan (the “Plan”). We selected this form because of the favorable accounting and tax treatment and the expectation of key employees in our industry that they would receive stock options and/or stock grants. We do not have pre-established target award amounts for long-term incentive grants. In determining long-term incentive awards for the Named Executive Officers, our Board of Directors relies on recommendations from our Chief Executive Officer, who considers the individual performance of the executives, the relation of the award to base salary and annual incentive compensation and associated accounting expense. The terms of and amount of awards are made by our Board of Directors in accordance with the Stock Option Plan.


 


Executive Compensation

 

The following table sets forth the compensation paid to each of our principal executive officers (the “Named Executive Officers”) during the last two completed fiscal years:

SUMMARY COMPENSATION TABLE

 

Name and Principal Position Year Salary
($) (1)
  Bonus
($) (2)
  Stock Awards
($) (3)
  Option Awards
($) (4)
  All Other Compensation ($)  Total
($)
 
                     
Arthur L. Smith 2022 $221,641  $352,154  $-0-  $-0-  $-0-  $573,795 
President (through October 3, 2022), Chief Executive Officer & Director 2021 $460,435  $60,000  $56,033  $51,922  $-0-  $628,390 
                           
Antonio Estrada Jr. 2022 $206,641  $176,077  $-0-  $-0-  $-0-  $382,718 
Chief Financial Officer 2021 $350,177  $60,000  $56,033  $46,153  $-0-  $512,363 
                           
Craig K. Clement 2022 $193,238  $-0-  $-0-  $-0-  $-0-  $193,238 
Chairman of the Board 2021 $235,219  $-0-  $56,033  $-0-  $-0-  $291,252 

Name and Principal Position Year 

Salary

($)

  Bonus
($)
  Stock Awards
($) (1)
  Option Awards
($) (2)
  All Other Compensation ($)  

Total

($)

 
                     
Arthur L. Smith 2020 $133,866  $-0-  $284,000  $-0-  $-0-  $

417,866

 
President, Chief Executive Officer & Director 2019 $113,410  $-0-  $151,500  $73,680  $-0-  $338,590 
Antonio Estrada Jr. 2020 $

118,866

  $-0-  $238,000  $-0-  $-0-  $356,866 
Chief Financial Officer 2019 $106,517  $-0-  $132,500  $65,494  $-0-  $304,511 
Craig K. Clement 2020 $132,000  $-0-  $214,000  $-0-  $-0-  $346,000 
Chairman of the Board 2019 $

123,875

  $-0-  $170,500  $78,089  $-0-  $372,464 

(1)(1)During the year ended July 31, 20202021, Digerati issued Convertible Preferred Series C Shares in lieu of cash compensation to Mr. Smith and 2019,Mr. Estrada with a value of $164,618 and $82,309, respectively, as a stipend for completing the acquisitions in November 2020. In addition, during the year ended July 31, 2021, the Company issued Convertible Preferred Series C shares in lieu of cash compensation for accrued wages to Mr. Smith, Mr. Estrada and Mr. Clement with a value of $124,666, $111,683 and $70,734, respectively.

(2)During the year ended July 31, 2022, the Company accrued compensation to Mr. Smith and Mr. Estrada with a value of $352,154 and $176,077, respectively, as a stipend for completing the acquisitions in December 2021 and February 2022. The Company anticipates paying for this incentive compensation during FY2023. During the year ended July 31, 2021, the Board of Directors approved the pay-out of a stipend of $60,000 each to Mr. Smith and Mr. Estrada.

(3)During the year ended July 31, 2021, Digerati issued common shares to its Executive Officers as part of the Company’s profit-sharing plan contribution. In addition, during the year ended July 31, 2020 and July 31, 2019, Digerati issued common stock in lieu of cash compensation to its Executive Officers.

(2)(4)During the year ended July 31, 2020, Digerati did not issue any options to its Executive Officers. During the year ended July 31, 2019,2021, Digerati issued 1,725,0001,700,000 options to its Executive Officers to acquire common shares at an exercise price of $0.19 and a$0.062. The fair value at the time of issuance of $217,263.the common shares issued to Mr. Smith and Mr. Estrada were $51,922 and $46,153, respectively. The options vest ratably on a monthly basis through February 14, 2020.November 17, 2023. During the year ended July 31, 2022, Digerati did not issue any options to its Executive Officers.

Our Board of Directors adopted the 2015 Equity Compensation Plan (the “Plan”). Under the Plan the Board of Directors may grant up to 7.5 million shares of our common stock to our officers, Directors, employees, and consultants. Grants may be in the form of incentive stock options, non-statutory stock options, restricted stock awards, and/or unrestricted stock awards. The number and terms of each award is determined by the Board of Directors, subject to the limitation that the exercise price of any option may not be less than the fair market value of the common stock on the date of grant.

We currently provide a Non-Standardized Profit-Sharing Plan (the “Profit-Sharing Plan”). The Board of Directors approved the Profit-Sharing Plan on September 15, 2006. Under the Profit-Sharing Plan our employees qualified to participate in the Profit-Sharing Plan after one year of employment. Contribution under the Profit-Sharing Plan by us is based on 25% of the annual base salary of each eligible employee up to $54,000 per year. Contributions under the Profit-Sharing Plan are fully vested upon funding.


 


OUTSTANDING EQUITY AWARDS AS OF JULY 31, 20202022

  Option Awards Stock Awards 
Name 

Number of Securities Underlying Unexercised Options

(#)

Exercisable (1)

  

Number of Securities Underlying Unexercised Options

(#)

Unexercisable (2)

  

Option Exercise Price

($)

  Option Expiration Date 

Number of Shares or Units of Stock That Have Not Vested

(#) (3)

  

Market Value of Shares or Units of Stock That Have Not Vested

($)

 
                  
Arthur L. Smith  350,000   550,000  $0.042  11/17/2025  -   - 
   300,000   -  $0.240  11/21/2021  -   - 
   300,000   -  $0.350  12/01/2022  -   - 
   585,000   -  $0.190  02/14/2024  450,000  $85,500 
                       
Antonio Estrada Jr.  311,111   488,889  $0.042  11/17/2025  -   - 
   300,000   -  $0.240  11/21/2021  -   - 
   300,000   -  $0.350  12/01/2022  -   - 
   520,000   -  $0.190  02/14/2024  350,000  $66,500 
                       
Craig K. Clement  300,000   -  $0.240  11/21/2021  -   - 
   300,000   -  $0.350  12/01/2022  -   - 
   620,000   -  $0.190  02/14/2024  550,000  $104,500 

  Option Awards Stock Awards 
Name 

Number of Securities Underlying Unexercised Options

(#)

Exercisable (1)

  

Number of Securities Underlying Unexercised Options

(#)

Unexercisable

  

Option Exercise Price

($)

  Option Expiration Date 

Number of Shares or Units of Stock That Have Not Vested

(#) (2)

  

Market Value of Shares or Units of Stock That Have Not Vested

($)

 
                  
Arthur L. Smith  300,000        -  $0.24  11/21/2021  -   - 
   300,000   -  $0.35  12/01/2022  -   - 
   585,000   -  $0.19  02/14/2024  450,000  $85,500 
Antonio Estrada Jr.  300,000   -  $0.24  11/21/2021  -   - 
   300,000   -  $0.35  12/01/2022  -   - 
   520,000   -  $0.19  02/14/2024  350,000  $66,500 
Craig K. Clement  300,000   -  $0.24  11/21/2021  -   - 
   300,000   -  $0.35  12/01/2022  -   - 
   620,000   -  $0.19  02/14/2024  550,000  $104,500 

 

(1)(1)During the year ended July 31, 2020,2022, Digerati did not issue any options to its Executive Officers.

(2)During the yearyears ended July 31, 2019, Digerati issued 1,725,000 options to its Executive Officers to acquire common shares at an exercise price of $0.192022, and a fair value at the time issuance of $217,263. The options vest ratably on a monthly basis through February 14, 2020. During the year ended July 31, 2018, Digerati issued 900,000 options to its Officers to acquire common shares at an exercise price of $0.35 and a fair value at the time issuance of $192,000. The options vested ratably on a monthly basis through December 1, 2018. During the year ended July 31, 2017, Digerati issued 900,000 options to its Officers to acquire common shares at an exercise price of $0.24 and a fair value at the time issuance of $169,000. The options vested ratably on a monthly basis through November 21, 2017.

(2)During the year ended July 31, 2020,2021, Digerati did not issue any Stock Grantsstock grants to its Executive Officers. During the year ended July 31, 2019, Digerati issued a Stock Grantstock grant of 1,350,000 shares of common stock to the Executive Officers, with a market value at time of issuance of $256,500, the Stock Grant will vest$256,500. The stock grant vested during FY 2022 upon the earlier of the Company achieving $15 million in annualized revenue or listingrevenue.

(3)During the year ended July 31, 2021, Digerati issued 1,700,000 options to its Executive Officers to acquire common shares at an exercise price of $0.042 and a fair value at the time issuance of $98,075. The options vest ratably on a primary stock exchange (e.g. NASDAQ or NYSE American) and will be subjectmonthly basis through November 17, 2023. During the year ended July 31, 2020, Digerati did not issue any options to adjustment for any forward or reverse split of the Company’s stock.its Executive Officers.

 

Compensation of Directors

 

Each Director that is not an officer is reimbursed the reasonable out-of-pocket expenses in connection with their travel to attend meetings of the Board of Directors. Each Director that is not an officer was paid $1,000 per month.

Compensation Committee Interlocks and Insider Participation

We do not have a compensation committee of our Board of Directors or other committee that performs the same functions. Mr. Arthur L. Smith is presently our Chief Executive Officer and participates in deliberations concerning executive compensation.

Compensation Committee Report

Our Board of Directors reviewed and discussed the Compensation Discussion and Analysis with management and, based on such discussion, included the Compensation Discussion and Analysis in this Annual Report on Form 10-K.


 


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

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

Information regarding securities authorized to be issued under equity compensation plans is set forth under Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The following sets forth information as of October 25, 2020,20, 2022, regarding the number of shares of our Common Stock beneficially owned by (i) each person that we know beneficially owns more than 5% of our outstanding Common Stock, (ii) each of our directors and named executive officer and (iii) all of our directors and named executive officers as a group.

The amounts and percentagesnumber of shares of our Commoncommon stock and our Series F Super Voting Preferred Stock beneficially owned are reported onby each person and entity identified below is determined under the basisrules of the SEC rules governingand the determinationinformation is not necessarily indicative of beneficial ownership of securities.for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person or entity has sole or shared voting power or dispositive power and also any shares over which the SEC rules, a person is deemed to be a “beneficial owner” of a security if that person hasindividual or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that personentity has the right to acquire beneficial ownershipsole or shared voting or dispositive power within 60 days after the Record Date, including through the exercise of any stock option, warrant or other right, and the conversion of preferred stock. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.right. Unless otherwise indicated, each of the shareholders named in the tableperson and entity identified below or his or her family members, has sole voting and investmentdispositive power (or, in the case of individuals, shares such power with his or her spouse) with respect to suchthe shares set forth in the following table. The inclusion herein of our Common Stock. Except as otherwise indicated, the addressany shares deemed beneficially owned does not constitute an admission of eachbeneficial ownership of the shareholders listed below is: c/o Digerati Technologies, Inc., 825 W. Bitters, Suite 104 San Antonio, Texas 78216.those shares.

     Vested  Total    
  Shares  Warrants  Beneficial  % Of 
Name of Beneficial Owner Owned  and Options  Ownership  Class (1) 
             

INDIVIDUAL OFFICERS,
DIRECTORS AND NOMINEES

            
Arthur L. Smith  11,453,804   1,185,000   12,638,804   10.27%
President, Chief Executive Officer Director                
                 
Antonio Estrada Jr.  10,087,936   1,120,000   11,207,936   9.11%
Chief Financial Officer                
                 
Craig k. Clement  9,735,794   1,220,000   10,955,794   8.90%
Chairman of the Board                
                 
Maxwell A. Polinsky  81,594   325,000   406,594   0.33%
Director                
                 
ALL OFFICERS AND DIRECTORS AS A GROUP  31,359,128   3,850,000   35,209,128   27.99%
Name of Beneficial Owner Common
Shares
Owned Votes
  Vested
Warrants and
Options (1)
  Total
Beneficial
Ownership
  % Of
Class (2)
  Held via
Warrant (3)
  Shares of
Series F
Super Voting
Preferred
Stock (4)
  Votes from Series F
Super Voting
Preferred
Stock (4)
  Total
Votes (5)
  % Of
Total
Votes
 
5% HOLDERS                                    
Post Road Special Opportunity Fund II LP  -   -   -   -   34,778,273   -   -   -   0.00%
Post Road Special Opportunity Fund II Offshore LP  -   -   -   -   11,174,485   -   -   -   0.00%
INDIVIDUAL OFFICERS AND DIRECTORS                                    
Arthur L. Smith  11,453,804   1,735,000   13,188,804   9.04%  -   34   49,334,914   60,788,718   21.02%
President, Chief Executive Officer                                    
Director                                    
Antonio Estrada Jr.  10,087,936   1,608,889   11,696,825   8.03%  -   33   47,883,887   57,971,823   20.05%
Chief Financial Officer                                    
Craig k. Clement  9,735,794   1,220,000   10,955,794   7.54%  -   33   47,883,887   57,619,681   19.92%
Chairman of the Board                                    
Maxwell A. Polinsky  81,594   755,555   837,149   *   -   -   -   81,594   * 
Director                                    
                                    
ALL OFFICERS, DIRECTORS AND BENEFICIAL OWNERS AS A GROUP  31,359,128   5,319,444   36,678,572   24.61%  -   100   145,102,688   176,461,816   60.99%

(1)*Less than 1%

(1)Based on 121,932,4095,211,111 vested stock options as of the Record Date for all officers, directors, and beneficial owners.

(2)Based on 144,102,687 shares of common stockCommon Stock outstanding as of October 25, 202020,2022, and 3,850,0005,211,111 vested stock options as of October 28, 2020.20, 2022, for all officers, directors, and beneficial owners.


(2)The shares owned includes a Stock Grant of 1,350,000 shares of common stock to the Executive Officers, with a market value at time of issuance of $256,500, the Stock Grant will vest upon the earlier of the Company achieving $15 million in annualized revenue or listing on a primary stock exchange (e.g. NASDAQ or NYSE American) and will be subject to adjustment for any forward or reverse split(3)Represents twenty-five percent (25%) of the Company’s stock.shares that are currently outstanding including the shares issuable to Post Road Special Opportunity Fund II LP (the “PRG Fund”) and Post Road Special Opportunity Fund II Offshore LP (the “PRF Offshore Fund”) pursuant to the exercise of the warrant first issued to the PRG Fund on November 17, 2020. The 107,701,179 warrant shares that PRG Fund reported it owned in the Schedule 13D it filed on November 27, 2020 (as amended on March 17, 2021 to reflect a transfer of 24.32% of the warrant to the PRF Offshore Fund as a result of which a new warrant was issued (the “New Warrant”) for the other 75.68% of the original warrant and as amended on July 13, 2021 to reflect a transfer of 13.19% of the New Warrant to the PRF Offshore Fund. The PRG Fund owns a warrant for 65.7% of the original amount and the PRF Offshore Fund owns a warrant for 34.3% of the original amount) represents twenty-five percent (25%) of the total shares of Common Stock, calculated on a fully diluted basis, which assumes future share issuances that are not certain or not yet contractually obligated to be issued. In addition, twenty-five percent (25%) of the 107,701,179 warrant shares are not yet vested and subject to forfeiture if the Company achieves certain performance targets which, if achieved, would result in the warrant being exercisable into twenty percent (20%) of the Common Stock, calculated on a fully-diluted basis as described above. If the minority stockholders of T3 Nevada convert their T3 Nevada shares into shares of the Common Stock, the number of shares into which the warrant may be exercised would also be decreased such that, if the Company also achieves certain performance targets, the warrant would be exercisable into fifteen percent (15%) of the Common Stock, calculated on a fully-diluted basis as described above. T3 Nevada’s minority stockholders have an obligation to (and may not otherwise) convert their T3 Nevada shares into shares of the Common Stock upon being asked to do so by the Company at any time after our Common Stock has a current market price of $1.50 or more per share for 20 consecutive trading days.


(4)Holder of the Series F Preferred Stock shall be entitled to vote on all matters subject to a vote or written consent of the holders of the Corporation’s Common Stock, and on all such matters, the shares of Series F Preferred Stock shall be entitled to that number of votes equal to the number of votes that all issued and outstanding shares of Common Stock and all other securities of the Corporation are entitled to, as of any such date of determination, on a fully diluted basis, plus one million (1,000,000) votes.

(5)Total Votes excludes 5,211,111 vested stock options as of October 20, 2022, for all officers, directors, and beneficial owners.

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

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

For a director to be considered independent according to the standards set forth in Section 303A.02 of the New York Stock Exchange Listed Company Manual (the “NYSE Manual”), the Board of Directors must affirmatively determine that the director has no material relationship with Digerati, either directly or as a partner, shareholder or officer of an organization that has a relationship with Digerati. In addition, the NYSE Manual provides that a director will not be considered independent if, within the preceding three years, the director or an immediate family member (i) was an employee of Digerati, (ii) received more than $120,000 per year in direct compensation from Digerati, (iii) is affiliated with or employed by a present or former internal or external auditor of Digerati, (iv) employed as an executive officer of another company for which an executive officer of Digerati serves on the compensation committee or (v) is an executive officer or employee that makes payments to or receives payments from Digerati of more than $1,000,000 or two percent of such other company’s gross revenues.

The Board has determined that Mr. Maxwell A. Polinsky satisfies the independence requirements in the NYSE Manual.

On April 30, 2018, T3 entered intoDuring the years ended July 31, 2022, and 2021, the Company provided VoIP Hosted and fiber services to a convertible secured promissory note for $525,000 with an effective annual interest rate of 8% and a maturity date of April 30, 2020. With a principal payment of $100,000 due on June 1, 2018 and a principal payment of $280,823 due on April 30, 2020. Payment are based on a 60-month repayment schedule. At any time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under the Note or the Pledge and Escrow Agreement; or (ii) mutual agreement between the Borrower and the Holder, the Holder may convert all or any portioncompany owned by one of the outstanding principal, accrued and unpaid interest, Premium, if applicable, and any other sums due and payable hereunder (such total amount, the “Conversion Amount”) into sharesBoard members of Common Stock (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount (the numerator); divided by (ii) a conversion price of $1.50 per share of Common Stock, which price shall be indicated in the conversion notice (the denominator) (the “Conversion Price”). The Holder shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered. The promissory note is secured by a Pledge and Escrow Agreement, whereby T3 agreed to pledge 51% of the securities owned in its Florida operations, T3 Communications, Inc., untila Florida corporation, for $194,547 and $175,606, respectively. In addition, the Company also leases a Colocation facility from a company owned by a board member of T3 Communications Inc. For the years ended July 31, 2022, and 2021, the Company paid $157,935 and $88,143, respectively.

On November 17, 2020, as a result of the of the acquisition of ActiveServe’s asset, the two sellers became related parties as they continued to be involved as consultants to manage the customer relationship, the Company paid on an annual basis $90,000 to each of the consultants. These agreements expired as of January 17, 2022, and the parties agreed not to extend. As of July 31, 2022, there’s no balance outstanding under the consulting agreements. In addition, part of the Purchase Price is payable in 8 equal quarterly payments to the sellers. During the year ended July 31, 2022, the Company paid $716,181 of the principal payment is paidbalance outstanding. On January 7, 2022, the Company recognized a reduction of $120,621 on the note balance due to the sellers not achieving certain requirement under the “Customer renewal Value”. As a result, the Company recognized a reduction of $120,621 in full. In conjunctionGoodwill associated with the promissory note,ActiveServe asset acquisition. On July 31, 2022, the Company issued 3-year warrantsrecognized a reduction of $24,989 on the note balance due to purchase 75,000 shares of common stock at an exercise price of $0.50 per share. Underthe sellers not achieving certain requirement under the monthly recurring revenue target. As a Black-Scholes valuationresult, the relative fair market valueCompany recognized $24,989 in the Other Income/Expense section of the warrants at timeConsolidated Statement of issuance was $19,267Operations. The total principal outstanding on the notes as of July 31, 2022, and was recognizedJuly 31, 2021, were $272,500 and $1,134,291, respectively.


On December 31, 2021, as a discountresult of the of the acquisition of Skynet Telecom LLC’s assets, the two sellers became related parties as they continued to be involved as consultants for 12 months to manage the customer relationship, the Company will pay on an annual basis $100,000 to each of the promissory note.consultants. Part of the Purchase Price of $600,000 (the “Earn-out Amount”) was retained by the Company at the Closing and will be paid to Seller in 6 equal quarterly payments. An additional $100,000 (the “Holdback Amount”) was retained by the Company at the Closing and will be paid to Seller in accordance with the Skynet Telecom LLC asset purchase agreement. During the year ended July 31, 2022, the Company paid $100,000 of the principal balance outstanding. The Company amortized $7,297$16,307 of debt discount as interest expense during the year ended July 31, 2020.2022. The total unamortized discountprincipal outstanding on the notes as of July 31, 2022, was $560,314.

In November 2020, and July 31, 2019 were $0 and $7,297, respectively. In addition, duringas a result of the year ended July 31, 2020,of the acquisition of ActiveServe’s asset (see note 11), the two sellers became related parties as they continued to be involved as consultants to manage the customer relationship, the Company paid in fullwill pay on an annual basis $90,000 to each the total outstanding balance of $332,985. In May 2020, the Company executed a Settlement Agreement and Mutual release, whereby the lender released the Company of any pledged collateral and any other obligation under the promissory note. One of the note holders also serves as a Board Member of T3 Communications, Inc., a Florida Corporation, one of our operating subsidiaries.

On May 1, 2018, T3 entered into a secured promissory note for $275,000 with an effective annual interest rate of 8.08% with an interest and principal payment of $6,000 per month and shall continue perpetuity until the entire principal amount is paid in full. The promissory note is guaranteed to the lender by 15% of the stock owned by T3 in its Florida operations, T3 Communications, Inc., the secured interest will continue until the principal balance is paid in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 100,000 shares of common stock at an exercise price of $0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $26,543 and was recognized as a discount on the promissory note, the company amortized $10,386 as interest expense during the year ended July 31, 2020. The total unamortized discount asconsultants. As of July 31, 2020 and July 31, 2019 were $6,300 and $16,686, respectively.2021, there’s no balance outstanding under the consulting agreements. In addition, part of the Purchase Price is payable in 8 equal quarterly payments to the sellers. During the year ended July 31, 2020,2021, the Company paid $57,098,made two of the quarterly principal balance. Thepayments for a total of $269,709, and a payment of $11,000 towards the Holdback amount, the total principal outstanding on the notes as of July 31, 2021, was $1,134,291.

On November 17, 2020, and July 31, 2019 were $152,634and $209,732, respectively. The note holder also serves asDigerati’s Board Member of T3 Communications, Inc., a Florida Corporation, one of our operating subsidiaries.

On February 27, 2020,Directors approved the Company entered into an unsecured promissory note for $70,000 with an effective annual interest rate of 12% and a maturity date of May 1, 2020. Subsequently, the note holder agreed to extend the maturity date until August 31, 2020. In addition, the Company agreed to pay the lender in services provided by the Company, and any unpaid principal and accrued interest will be paid in cash. During the years ended July 31, 2020 and July 31, 2019, the Company provided VoIP Hosted and fiber services of $161,264 and $82,128, respectively. The proceeds from this note were used to extend the closing dateissuance of the Nexogy acquisition, the funds are an advancefollowing shares of Series F Super Voting Preferred Stock to the purchase price for the benefit of Nexogy owners , the funds will be credited to the purchase price at Closing of the Acquisition. The Company included the prepaid amounts in other current assets as of July 31, 2020. The total principal outstanding as of July 31, 2020 was $16,298. On August 3, 2020, the promissory note was paid in full. The note holder also serves as a Board Member of T3 Communications, Inc., a Florida Corporation, one of our operating subsidiaries.

officers:


Arthur L. Smith - 34 shares of Series F Super Voting Preferred Stock

Antonio Estrada - 33 shares of Series F Super Voting Preferred Stock

Craig Clement - 33 shares of Series F Super Voting Preferred Stock

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table sets forth the aggregate fees paid to MaloneBailey, LLP during 20202022 and 20192021 for audit services rendered in connection with the audits and reviews of our consolidated financial statements.

Description of Fees 2022  2021 
       
Audit Fees $300,000  $203,500 
Audit-Related Fees  18,000   145,440 
Tax fees  -0-   -0- 
All Other Fees  -0-   -0- 


 

Description of Fees 2020  2019 
       
Audit Fees $50,000  $48,000 
Review Fees  24,000   -0- 
Tax fees  -0-   -0- 
All Other Fees  -0-   -0- 

During the years ended July 31, 2020 and 2019, the Company paid $7,500 and $7,500, respectively to MiddletonRainesZapata, LLP for tax work related to the consolidated tax returns.

Pre-Approval of Audit and Non-Audit Services

The Board of Directors considered whether the non-audit services provided by MaloneBailey, LLP are compatible with maintaining their independence. Prior to engagement of an independent accounting firm for the next year’s audit, the Board of Directors is asked to pre-approve the engagement of the independent accounting firm, and the projected fees for audit services and audit-related services that we will incur. The fee amounts approved for the audit and audit-related services are updated to the extent necessary at meetings of the Board of Directors during the year. In the 2020 fiscal year, there were no fees paid to MaloneBailey, LLP under a de minimis exception to the rules that waives pre-approval for certain non-audit services.


PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following documents are exhibits to this report.

NumberDescription
3.1Second Amended and Restated Articles of Incorporation. (filed(filed as Exhibit 3.1 to Form 8-K filed on April 11, 2014)29, 2021)
3.2Amended and Restated Bylaws. (filed as Exhibit 3.2 to Form 8-KA filed on April 25, 2014)
3.3Second Amended and Restated Bylaws, effective as of January 13, 2015 (filed(filed as Exhibit 3.1 to Form 8-K filed on January 21, 2015 (File No. 001-15687))2015).
3.4*3.3Certificate of Designation of Series A Convertible Preferred Stock (filed as Exhibit 3.4 to Form 10-K filed on October 29, 2020).
3.5*3.4 

Certificate of Correction to the Series A Convertible Preferred Stock Certificate of Designation (filed as Exhibit 3.1 to the Form 10-Q filed with the SEC on June 21, 2022).

3.5Certificate of Designation of Series B Convertible Preferred Stock (filed as Exhibit 3.5 to Form 10-K filed on October 29, 2020).
3.6*3.6Certificate of Designation of Series C Convertible Preferred Stock (filed as Exhibit 3.6 to Form 10-K filed on October 29, 2020).
3.7*3.7Certificate of Designation of Series F Super Voting Preferred Stock (filed as Exhibit 3.7 to Form 10-K filed on October 29, 2020).
4.1*Convertible Promissory Note for $165,000 with Lucas Ventures, LLC dated July 27, 2022.
4.2*Convertible Promissory Note for $75,000 with Tysadco Partners, LLC dated September 12, 2022.
4.3*Convertible Promissory Note for $165,000 with Lucas Ventures, LLC dated October 3, 2022.
4.4*Promissory Note for $150,000 with Derek and Thalia Gietzen dated October 4, 2022.
4.5*Convertible Promissory Note for $275,000 with LGH Investments, LLC dated July 27, 2020.
4.2*Convertible Promissory Note and Assignment Agreement for $52,831 between Jefferson Street Capital LLC and Platinum Point Capital LLC., dated July 28, 2020.
4.3*Convertible Promissory Note for $330,000 with Platinum Point Capital, LLC dated October 13, 2020.10, 2022.
4.4*4.6*Description of Securities
4.7 

Warrant to Purchase Shares of Common Stock Issued to Post Road Administrative LLC, dated November 17, 2020. (filed as Exhibit 4.4 to Form 8-K filed with the SEC on November 23, 2020).

4.8

Amended and Restated Term Loan A Note, dated December 20, 2021 (filed as Exhibit 4.6 to the Form 10-Q filed with the SEC on March 17, 2022).

4.9

Term Loan C Note for $10,000,000 issued by T3 Communications, Inc. to Post Road Special Opportunity Fund II LP, dated February 4, 2022. (Filed as Exhibit 4.3 to the Form 8-K filed with the SEC on February 10, 2022).

4.10

Form of Unsecured Promissory Note for a Total of $2,000,000 issued by T3 Communications, Inc. to the Next Level Sellers, dated February 4,2022. (Filed as Exhibit 4.1 to the Form 8-K filed with the SEC on February 10, 2022).

4.11

Form of Unsecured Convertible Promissory Note for $27,500a Total of $2,000,000 by T3 Communications, Inc. to the Next Level Sellers, dated February 4, 2022. (Filed as Exhibit 4.2 to the Form 8-K filed with Platinum Point Capital LLC dated October 15, 2020.the SEC on February 10, 2022).

4.5*10.1+Payoff Letter dated October 15, 2020, by and between Digerati Technologies, Inc., and Platinum Point Capital LLC.
4.6*Description of Securities
10.1+Form of stock award agreement under the Company’s 2015 Stock Compensation Plan for grants to qualifying employees’ 401K Retirement Accounts (filed(filed as Exhibit 10.7 to Form 8-K filed on January 21, 2015 (File No. 001-15687)).
10.2+Employment Agreement between the Registrant and Craig K. Clement, dated as of February 14, 2019. (filed(filed as Exhibit 10.1 to Form 10-Q filed with the SEC on March 18, 2019).
10.3+Employment Agreement between the Registrant and Arthur L. Smith, dated as of February 14, 2019. (filed(filed as Exhibit 10.2 to Form 10-Q filed with the SEC on March 18, 2019).
10.4+Employment Agreement between the Registrant and Antonio Estrada Jr., dated as of February 14, 2019. (filed(filed as Exhibit 10.3 to Form 10-Q filed with the SEC on March 18, 2019).
10.5*Securities Purchase Agreement for $165,000 with LGH Investments,Lucas Ventures, LLC dated July 27, 2020.2022
10.6*Securities Purchase Agreement for $330,000$165,000 with Lucas Ventures, LLC dated October 3, 2022
10.7*Securities Purchase Agreement for $275,000 with Platinum Point Capital, LLC dated October 13, 2020.10, 2022
10.7*10.8

Credit Agreement by and among T3 Communications, Inc., the Subsidiaries of T3 Communications, Post Road Administrative LLC, and Post Road Special Opportunity Fund II LP, dated November 17, 2020 (filed as Exhibit 10.2 to Form 8-K filed with the SEC on November 23, 2020).

10.9 Securities PurchaseGuaranty and Collateral Agreement for $27,500 with Platinum Point Capitalby and among T3 Communications, Inc., the Subsidiaries of T3 Communications, And Post Road Administrative LLC, dated October 15,November 17, 2020 (filed as Exhibit 10.3 to Form 8-K filed with the SEC on November 23, 2020).
21.1*10.10 Subsidiary ListPledge Agreement made by T3 Communications, Inc. in favor of Post Road Administrative LLC, dated November 17, 2020 (filed as Exhibit 10.4 to Form 8-K filed with the SEC on November 23, 2020).
23.1*10.11 Tag-Along Agreement by and among the Company’s Executives and Post Road, dated November 17, 2020 (filed as Exhibit 10.5 to Form 8-K filed with the SEC on November 23, 2020)
10.12Board Observer Agreement by and between the Company and Post Road, dated November 17, 2020 (filed as Exhibit 10.6 to Form 8-K filed with the SEC on November 23, 2020)
10.13First Amendment to Credit Agreement by and among T3 Communications, Inc., the Subsidiaries of T3 Communications, Post Road Administrative LLC, and Post Road Special Opportunity Fund II LP, dated December 20, 2021 (filed as Exhibit 4.5 to the Form 10-Q filed with the SEC on March 17, 2022).
10.14Joinder and Second Amendment to Credit Agreement by and among T3 Communications, Inc., the Subsidiaries of T3 Communications (including Next Level Internet, Inc.), Post Road Administrative LLC, and Post Road Special Opportunity Fund II LP, dated February 4, 2022. (Filed as Exhibit 10.2 to the Form 8-K filed with the SEC on February 10, 2022).
10.15Forbearance Agreement and Third Amendment to Credit Agreement by and among T3 Communications, Inc., the Subsidiaries of T3 Communications (including Next Level Internet, Inc.), Post Road Administrative LLC, and Post Road Special Opportunity Fund II LP, dated June 13, 2022 (filed as Exhibit 10.3 to the Form 10-Q filed with the SEC on June 21, 2022).
10.16Asset Purchase Agreement, dated December 31, 2021, by and between Skynet Telecom LLC, Shift8 Networks, Inc., Digerati Technologies, Inc, Paul Golibart, and Jerry Ou (filed as Exhibit 10.1 to the Form 8-K filed with the SEC on January 6, 2022).
10.17Employment Agreement dated December 31, 2021, by and between Shift8 Networks, Inc. and Paul Golibart (filed as Exhibit 10.2 to the Form 8-K filed with the SEC on January 6, 2022).
10.18Employment Agreement, dated December 31, 2021, by and between Shift8 Networks, Inc. and Jerry Ou (filed as Exhibit 10.3 to the Form 8-K filed with the SEC on January 6, 2022).
10.19Equity Purchase Agreement by and among the Company, T3 Communications, Inc., and the Sellers of Next Level Internet, Inc. (Filed as Exhibit 10.1 to the Form 8-K filed with the SEC on February 10, 2022).
21.1*Subsidiary List
23.1*Consent of Independent Registered Public Accounting Firm
31.1*Certification of our President and Chief Executive Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*Certification of our Chief Financial Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**Certification of our President and Chief Executive Officer, under Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**Certification of our Chief Financial Officer, under Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSInline XBRL Instance Document.
101.INS*101.SCHXBRL Instance Document
101.SCH*Inline XBRL Taxonomy Extension Schema DocumentDocument.
101.CAL
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase DocumentDocument.
101.DEF
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase DocumentDocument.
101.LAB
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase DocumentDocument.
101.PRE
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
Document.

*

**

104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith

**Furnished herewith

++Management compensatory plan, contract, or arrangement


 


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DIGERATI TECHNOLOGIES, INC.
Date: October 29, 202031, 2022By:
By:/s/ Arthur L. Smith
Arthur L. Smith
President and 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 capacity and on the dates indicated.

SignatureTitleDate
/s/ Arthur L. SmithPrincipal Executive OfficerOctober 29, 202031, 2022
Arthur L. Smith
/s/ Antonio Estrada Jr.Principal Accounting OfficerOctober 29, 202031, 2022
Antonio Estrada Jr.Principal Finance Officer
/s/ Craig K. ClementDirectorOctober 29, 202031, 2022
Craig K. Clement
/s/ Maxwell A. PolinskyDirectorOctober 29, 202031, 2022
Maxwell A. Polinsky

31

34

 

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