UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

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

For the fiscal year ended December 31, 20172019

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:000-31355001-38322

FTE NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:1-877-878-81361-800-320-1911

Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.001 per share.None

Securities registered pursuant of section 12(g) of the Act: Not Applicable.None

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

Note-Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports 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. [X][  ] Yes [  ][X] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 235.405232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] Yes [X] No

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

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

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 Act). [  ] Yes [X] No

The aggregate market value of the registrant’s outstanding common stock held by non-affiliates of the registrant computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second quarterJune 30, 2019, was approximately $30,859,273 (based on a closing price of $15.75 per share for the registrant’s common stock on the OTCQX marketplace on June 30, 2017.)$10.1 million.

As of April 10, 2018,On October 31, 2020, there were 6,281,63025,572,148 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission (“SEC”) pursuant to Regulation 14A for the 2018 annual meeting of shareholders is incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.

FTE NETWORKS, INC.

FORM 10-K

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTSPART I

Some of the statements inDEFINITIONS

In this Annual Report on Form 10-K, the words “FTE”, the “Company”, the “Registrant”, “we”, “our”, “ours” and “us” refer to FTE Networks, Inc. and, except as otherwise specified herein, to our subsidiaries.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes certain statements that may be deemed “forward-looking statements.statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, all of which are based upon various estimates and assumptions that the Company believes to be reasonable as of the date hereof. In some cases, you can identify forward-looking statements by terminology such as “may,” Forward-looking“will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “seek,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. These statements are not historical facts butinvolve risks and uncertainties that could cause the Company’s actual future outcomes to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.

Forward-looking statements can be identified by the use of terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements which are contained in this Annual Report on Form 10-K because they reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation:to:

You should understand that the foregoing, as well as other risk factors discussed in this document, including those listed in Part I, Item 1A of this report under the heading “All written and oralRisk Factors”, could cause future outcomes to differ materially from those experienced previously or those expressed in such forward-looking statements. The Company undertakes no obligation to publicly update or revise any information, including information concerning its net operating losses, borrowing availability or cash position, or any forward-looking statements madeto reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in connection with this Annual Report on Form 10-K that are attributablepursuant to us or persons acting on our behalf are expressly qualifiedthe safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in their entirety by these cautionary statements. Any forward-looking statements speak only asthe context of the date on which they are made,estimates, assumptions, uncertainties and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Annual Report on Form 10-K. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.risks described herein.

PART I

Item 1. Business.

The following historical business description should be read in conjunction with the Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Our CompanyCorporate History and Current Business

The Company was incorporated in the state of Nevada in May 2000. On March 13, 2014, following a series of mergers, acquisitions and business combinations, the Company changed its name from Beacon Enterprise Solutions Group, Inc. to FTE Networks, Inc. or

Prior to October 2019, the (“Company”, “FTE”, “we,” “our” or “us”) together with its wholly owned subsidiaries, isCompany was a leading provider of innovative, technology-oriented solutions for smart platforms, network infrastructure and buildings. The Company provides end-to-end design, construction management, build and support solutions for state-of-the-art networks, data centers, residential, and commercial properties and services at Fortune 100/500 companies. FTE has three complementary business offerings which are predicated on smart designcompanies (our “Historical Business”). The Company’s primary activities included engineering, building, installation, maintenance and consistent standards that reduce deployment costssupport solutions for state-of-the-art networks and accelerate delivery of innovative projects and services.

Our Service Offerings

Network Infrastructure Solutions

Jus-Com, Inc. (dba “FTE Network Services”) provides comprehensive telecommunications solutions incommercial properties, including the wireline andfollowing services: data-center infrastructure, fiber optics, wireless telecommunications industry. Services include the design,integration, network engineering, installation, repair and maintenance of fiber optic, copper and coaxial cable networks used for video, data and voice transmission. In the wireless space, FTE provides engineering, design, installation and upgrade of wireless communications networks, including infrastructure, antennas, switching systems, and backhaul links from wireless systems to voice, data and video networks.

Managed Network Services

CrossLayer, Inc. (“CrossLayer”) is FTE’s managed network services subsidiary connecting large-scale, state-of-the-art campuses and multi-use developments. Thisinternet service offering delivers technology solutions via a new software-driven, mobile-edge compute platform, providing owners and developers with the control that comes with an owned-and-operated system. Often referred to as “Edge Computing” technology, CrossLayer’s purpose-built platform enables commercial real estate owners and businesses to introduce and deliver innovative services quickly, increase user satisfaction and create monetization opportunities previously afforded only to network operators, while reducing capital and operating costs.

General Contracting and Construction Management

Benchmark Builders, Inc. (“Benchmark”) is a leading full-service generalprovider, construction management and general contracting firm, and the third complimentary element to FTE’s business portfolio, serving a diverse and sophisticated corporate client base in the telecommunications, retail, professional services, industrial, broadcast, technology, infrastructure, and financial services industries, primarily in New York City, NY.

Staffing

Focus Venture Partners, Inc. (“FVP Worx”) is a multifaceted employment firm offering full service staffing solutions, specializing in the telecommunications, technology and construction services.

Our Corporate History

We were organized in the state of Nevada in December 2007 as Beacon Enterprise Solutions Group, Inc. (“Beacon”). Beacon sold its operating assets in September 2012 but maintained its public company “shell” status. Then, in June 2013, Beacon’s subsidiary, Beacon Acquisition Sub, Inc., also a Nevada corporation (“Merger Sub”), merged with Focus Venture Partners, Inc. (“Focus”), a Nevada holding company operating in the telecommunications industry.

Focus, via its subsidiary, Optos Capital Partners, LLC (“Optos”), managed and operated two telecom entities: (1) Focus Fiber Solutions, LLC, a Delaware limited liability company and (2) Jus-Com, Inc., an Indiana corporation, and our current network infrastructure business component. Focus continued as the surviving corporation and became Beacon’s subsidiary (the “Beacon Merger”). Following the Beacon Merger, on March 13, 2014, Beacon changed its name to “FTE Networks, Inc.” (“FTE” or the “Company”). We are headquartered in Naples, Florida.

Recent Developments

Acquisition of Benchmark

On April 20, 2017, FTE expanded its product and service offerings with the consummation of an acquisition of Benchmark, a privately held New York corporation. Benchmark is a New York City based construction manager and general contractor with historical annual revenues in the $300 million to $400 million range. Benchmark’s business model focuses on the build-out of interior commercial space for a client base that consists of some of the world’s most distinguished companies.

Benchmark is a New York-based construction manager and general contractor serving a diverse and sophisticated client base in the telecommunications, retail, professional services, industrial, broadcast, technology, infrastructure, and financial services industries. The Company delivers unique project solutions in the complex New York marketplace. It emphasizes the ability of its experienced staff to become an integral part of a client’s project team, responding to every client need and request. Benchmark excels at technologically complex work building broadcast studios and infrastructure, as well as large projects which can range from $30 million to $100 million. Benchmark maintains its strong reputation by consistently delivering on the quality, budget, and schedule expectations of some of the world’s most demanding clients. Benchmark offers general contracting, pre-construction planning and comprehensive project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. Benchmark offers general contracting, pre-construction planning and comprehensive project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project.

Uplisting to NYSE American

On December 11, 2017, the Company announced that its common stock had been approved for listing on the NYSE American. The Company’s common stock started trading on the NYSE American exchange under its current symbol, “FTNW” on December 14, 2017.

Authorization of Series G Preferred Stockcontracting.

The BoardCompany had three operating subsidiaries (one of Directors of the Company authorized the designation of a new series of preferred stock, the Series G Convertible Preferred Stock, out of its available “blank check preferred stock” and authorized the issuance of up to 1,780 shares of the Series G Convertible Preferred Stock. A Certificate of Designation was filed with the Secretary of State of the State of Nevada on December 4, 2017. The Series G Convertible Preferred Stock has various rights, privileges and preferences, including conversion into 100 shares of Common Stock (subject to adjustments) upon the filing ofwhich is still an amendment to the Company’s Articles of Incorporation incorporating a reverse stock split and the rights are junior and subordinate to any shares of Preferred Stock issued prior to this issuance.

Reverse Split of Common Stock

The Board of Directors approved a reverse stock split of our issued and outstanding shares of Common Stock and appointed and authorized a committee (the “Committee”) to fix the exact ratio from a range predetermined by the Board of Directors. On November 2, 2017, the Committee fixed a 25-for-1 reverse stock split ratio (the “Reverse Stock Split”). The Reverse Stock Split was approved by Financial Industry Regulatory Authority (“FINRA”) and was effectuated on November 6, 2017. All shares and share information in this Form 10-K have been retroactively restated for the split.

Launch of CrossLayer

On October 26, 2017, FTE announced the launch of CrossLayer, a managed network services company with technology that introduces a new business model for connected large-scale, state-of-the-art campuses and multi-use developments. This new business base, added to FTE’s existing portfolio, leverages infrastructure and construction management expertise across a larger addressable market for expanded customer offerings and attendant growth opportunities.

Technology Services

CrossLayer’s purpose-built platform is designed to enable commercial real estate property owners and businesses to introduce and deliver innovative services quicker, while creating monetization opportunities previously available only to network operators. By providing reduced capital and operating costs for customers, CrossLayer’s managed network service solutions deliver the agility and flexibility to meet evolving technology advancements.

CrossLayer’s service platform is distinct from those of its competitors for the following reasons:subsidiary):

Infrastructure Services

Benchmark, our construction management subsidiary provides general contracting and construction management services on interior commercial space, predominately in the New York City market. New York City construction industry spending is expected to maintain a record $50 billion annual pace through 2019, an increase of 30% from 2015 levels. The general contracting and construction management industry in given geographic markets is typically very competitive at the local level and services by providers with a local presence where there is a familiarity with the client base, understanding of local laws and regulations, and relationships with the subcontractor trades as well as other professionals including architects and engineers. A significant part of our collective success in this market is attributable to strong relationships with core clients, in particular Benchmark’s long-standing reputation for quality service and industry-recognized depth of experience.

While Benchmark has the potential to expand into other industry verticals such as government or healthcare, as well as other geographic markets in the future, the corporate commercial market in New York City has seen steady growth and expansion in recent years and remains on an upward growth trajectory for the foreseeable future. This growth has been fueled by a combination of factors, including the broad economic expansion and the redevelopment of specific sites within New York City, the surrounding boroughs, and adjacent urban areas in New Jersey. Furthermore, as businesses relocate, expand, contract or consolidate within the city or to areas of redevelopment, there is potential for significant renovation opportunities as building owners and occupants look to renovate existing commercial space, inclusive of amenities, infrastructure and technology required to be competitive in attracting and retaining tenants.

Our success in these industries and markets is the result of experienced management and leadership, customer recognition in New York City, purchasing relationships and logistics, project planning, project management disciplines, training, quality control and top down commitment to customer satisfaction.

FTE provides comprehensive telecommunications solutions to Fortune 100/500 and other customers in the wireline and wireless telecommunications industry. Services performed by FTE include the design, engineering, installation, repair and maintenance of fiber optic, copper and coaxial cable networks used for video, data and voice transmission. In the wireless space, FTE provides engineering, design, installation and upgrade of wireless communications networks, including infrastructure, antennas, switching systems, and backhaul links from wireless systems to voice, data and video networks. FTE also provides emergency restoration services, including the repair of telecommunications infrastructure damaged by inclement weather. We also provide premise wiring where we install, repair, and maintain the telecommunications structure within improved structures.

FTE’s success in these technology spaces is the result of experienced management and leadership, purchasing relationships and logistics, project planning, project management disciplines, training, quality control and top down commitment to customer satisfaction.

We believe that certain provisions of the American Recovery and Reinvestment Act of 2009 (“ARRA”) will continue to create additional demand for our services. Specifically, the ARRA includes federal stimulus funding for the deployment of broadband services to underserved areas that lack sufficient bandwidth to adequately support economic development. We also expect many customers who received stimulus funds to continue to expand their networks even though stimulus funding may no longer be available.

The combination of a growing North American wireless subscriber base, greater use of wireless data for consumer and enterprise applications and services, and the development of innovative consumer wireless data products has led to a significant increase in the amount of wireless data traffic on wireless networks. As a result, the traditional backhaul infrastructure that has historically linked wireless cell sites to broader voice, data and video networks is reaching capacity. To handle current and future wireless data traffic demands and to improve wireless network quality and reliability, wireless carriers are implementing plans to replace their legacy backhaul networks based on T-1 lines and circuit switching applications with fiber optic networks, typically referred to as “fiber to the cell site” initiatives. We believe these initiatives will continue several more years before the backhaul system upgrade is completed, resulting in additional opportunities to assist our wireless customers in their fiber to the cell site initiatives.

We anticipate increased long-term opportunities arising from plans by a number of wireless companies to deploy and implement 5G and LTE (Long Term Evolution) and XLTE (Extended Long Term Evolution) technology and networks throughout North America. These technologies are being deployed in the United States using a new spectrum, which effectively requires an entirely new network to be built. As a result, we expect significant capital expenditures will be made over a relatively long period of time as wireless carriers build out their 5G and LTE networks and then augment and optimize their networks for reliability and network quality. We believe wireless carriers are in the very early stages of their 5G and LTE network deployment plans.

Fiber to the X (“FTTx”) comprises the many variants of fiber optic access infrastructure. These include fiber to the home (“FTTH”), fiber to the premise (“FTTP”), fiber to the building (“FTTB”), fiber to the node (“FTTN”), and fiber to the curb or cabinet (“FTTC”). GIA announces the release of a comprehensive global report on Fiber Optic Components market. Global market for Fiber Optic Components is projected to reach US$42 billion by the year 2017. Growth will be driven by the continuously growing demand for bandwidth and the ensuing need for fiber-based broadband, robust growth in mobile internet, and stronger FTTx related deployments.

Outside Plant Operations

Outside Plant Operations (OSP) includes all forms and methods of connecting the nation’s telecommunications infrastructure. Historically this work has been with copper and then coax. Today, it is predominately aerial and buried fiber. FTE builds outside plant for large corporate customers, government entities and private investors.

FTE Network Services has scaled to approximately 200+ concurrent crews in multiple geographies representing multiple customers and multiple projects. FTE Network Services’ success is based on several factors:

Inside Plant Operations

Inside Plant Operations (ISP) are services provided toOn December 30, 2019, the Company, through its subsidiary US Home Rentals LLC, (“US Home Rental”) acquired a portfolio of approximately 3,200 rental home properties across the United States, and became a major telecommunications services providersowner, operator and investor of affordable rental housing in their switchingtier 3 and processing facilities. The scope of services includes the following:

Each major telecommunications client has their own build and quality standards. FTE trains its technicians in each specific protocol and has quality standards that it maintains on each and every project. FTE has the capability to engineer, build, turn up, test and manage every component in a client’s facility. The facilities that we work in performing ISP work are secure, highly available and mission critical to the countries telecommunications infrastructure. The client facilities that FTE works inside of touches everything from Wall Street trading floors to the video, telephone and data services used every day by the typical family and individual. This critical infrastructure connects corporate land-based services, mobile data services, on-demand video, TV and cable broadcast, internet, public networks, private networks and telephone. The quality of the work product from engineering to construction in this work is critical.

Our clients engage us with confidence as is shown by our solid, standing relationships and repeat business opportunities that have been tested and forged over time.

Project Estimating and Feasibility Studies

Our subsidiaries share an estimating department that provides all cost needs, both internal and external, as a value-added service to telecommunications clients. For extremely difficult builds, we use a “boots on the ground” approach, ready with someone to look at the project up close, typically within 24 hours. For the bid process, the following steps are followed:

Customer Concentration

Our revenues earned from sale of services for the year ended December 31, 2017 include 21% and 14% from two customers. These two customers accounted for approximately 66% of our total accounts receivable at December 31, 2017. At December 31, 2017, one customer accounted for 47% of our accounts receivable. Our revenues earned from sale of products and services for the year ended December 31, 2016 included 52%, 32% and 14% from three customers. At December 31, 2016, one customer accounted for an aggregate of 66% of our total accounts receivable. The majority of our revenues are non-recurring, project-based revenues, it is not unusual for there to be significant period-to-period shifts in customer concentrations. Generally, our customers do not have an obligation to make purchases from us and may stop ordering our products and services or may terminate existing orders or contracts at any time with little or no financial penalty. The loss of any of our significant customers, any substantial decline in sales to these customers, or any significant change in the timing or volume of purchases by our customers, could result in lower revenues and could harm our business, financial condition or results of operations.

Our current customers include, in part, multiple Fortune 500 telecommunications and technology providers and integrators. We also provide telecommunications engineering, construction, installation and maintenance services to a number of cable television multiple system operators. Premise wiring services are provided to various corporations and state and local governments. The Company’s strategy for the future includes customer and service diversification reducing the customer revenue concentration to less than 15% for any single customer.

Competition4 markets.

The markets in which we operate are highly competitive. We compete with other contractors in most of the geographic markets in which we operate, and several of our competitors are large companies that have significant financial, technical and marketing resources. In addition, there are relatively few barriersCompany seeks to entry into some of the industries in which we operate and, as a result, any organization that has adequate financial resources and access to technical expertise may become a competitor. A significant portionleading provider of our revenues is currently derived from unit price or fixed price agreements,affordable rental housing nationwide and price is often an important factor in the award of such agreements. Accordingly, we could be underbid by our competitors in an effort by them to procure such business. Economic conditions have increased the impacts of competitive pricing in certain of the markets that we serve. We believe that customers consider other factors in choosingwith a service provider, including technical expertisefocus on renovating its existing rental home portfolio and experience, financial and operational resources, nationwide presence, industry reputation and dependability,operating high quality single-family homes, which we expect will attract a strong resident base and yield long-term demand. The Company is continuing to benefit larger contractors suchevaluate real estate acquisitions with a view towards maximum portfolio optimization. The Company is headquartered in New York, New York.

RECENT DEVELOPMENTS

2019 Internal Investigation

During 2019, the Company launched an internal investigation into (among other things) the acts of certain members of former management who caused the issuance of approximately $22,700,000 in convertible notes and 5,186,306 shares of common stock to investors without the approval of the Company’s Board of Directors (the “Board”), as us. In addition, competition may lessenwell as industry resources, suchwhether the Company properly accounted for and disclosed: (i) certain related party transactions, (ii) expenses by and compensation to members of prior management, and (iii) interactions with the Company’s former audit firm. Information about the scope of this investigation, including the findings of the investigation and the Company’s remedial actions, are more fully described in the Company’s Form 10-K for the fiscal year ended 2018 filed with the Securities and Exchange Commission (the “SEC”) on May 11, 2020. As of the date of this filing, the Company is continuing to cooperate with the SEC, the New York County District Attorney’s Office (“NYCDA”), and the U.S. Attorney’s Office for the Southern District of New York (“SDNY”) in their respective investigations into these matters.

Departure and Appointment of Executive Officers

Throughout 2019, the Company had a series of officer departures and interim appointments, including the resignation of its former Chief Financial Officer (“CFO”), David Lethem, on March 11, 2019 and the termination of its former Chief Executive Officer (“CEO”), Michael Palleschi, on May 13, 2019. There were several interim CEO appointments in 2019, culminating in the appointment of Michael P. Beys as labor supplies, approach capacity. Thereinterim CEO on December 11, 2019. Additionally, Ernest Scheidemann was appointed as the Company’s interim CFO on May 5, 2020. A complete list of the departures and interim officer appointments can be no assurance, however, that our competitors will not developfound in Item 10. “Directors, Executive Officers and Corporate Governance” of this Form 10-K.

On September 25, 2020, the expertise, experience and resourcesCompany entered into an executive employment agreement with Munish Bansal to provide services that are superior in both price and quality to our services, or that we will be able to maintain or enhance our competitive position. We also face competition fromserve as the in-house service organizations of our existing or prospective customers, including telecommunications and engineering companies, which employ personnel who perform someChief Executive Officer of the same typesCompany’s wholly-owned subsidiary, US Home Rentals, effective September 28, 2020 (the “Employment Agreement”). Pursuant to the Employment Agreement, Mr. Bansal will transition to the role of servicesChief Executive Officer of the Company following the resumption of trading of the Company’s common stock on an over-the-counter market. Michael P. Beys will continue to serve as those provided by us. Although a significant portion of these servicesthe Company’s interim Chief Executive Officer until such time. There is currently outsourced by many of our customers,no trading market for the Company’s common stock and there can be no assurance that our existing or prospective customers will continue to outsource servicestrading in the future.Company’s common stock will resume.

Departure and Appointment of Board Members

The composition of the Company’s Board of Directors (the “Board”) also underwent several changes in 2019. Luisa Ingargiola, Christopher Ferguson, Patrick O’Hare, and Brad Mitchell resigned on May 29, 2019. Fred Sacramone remained on the Board at that time and was joined by James E. Shiah, Jeanne Kingsley, Stephen Berini, Irving Rothman, and Richard Omanoff between April 2019 and June 2019. All of these Board members subsequently resigned in October 2019 and were replaced with the Company’s current Board, which, as of the date of this filing consists of Michael P. Beys, Joseph F. Cunningham, Jr., Richard de Silva, and Peter Ghishan.

Restatement of Previously Issued Financial Statements

The Company issued two announcements on April 2, 2019 and June 11, 2019 in which it disclosed that the Audit Committee (the “Audit Committee”), following a communication with Marcum, LLP, its former registered independent public accounting firm, concluded that the Company’s previously issued audited financial statements as of and for the years ended December 31, 2017 and 2016 and completed interim reviews for the periods ended March 31, June 30, and September 30, 2018, 2017 and 2016 should no longer be relied upon.

The Company completed its restatement of the subject financial statements and filed its restatement as part of its annual report for the fiscal year ended December 31, 2018 with the SEC on May 11, 2020.

Amendment and Cancelation of Senior Credit Facility

Amendment No. 4 to Lateral Credit Agreement

On February 12, 2019, the Company entered into Amendment No. 4 (the “Fourth Amendment”) to the credit agreement dated October 28, 2015, by and among Jus-Com, Inc., certain other Company subsidiaries, Lateral Juscom Feeder LLC (“Lateral”) and several lenders party thereto (together with Lateral, the “Lenders”) (as amended, the “Credit Agreement”). The Fourth Amendment provided for, among other things, $12,632,000 in delayed draw loans (the “Delayed Draw Term Loans”). The Delayed Draw Term Loans had a maturity date of March 31, 2019, and an interest rate of 12% payable quarterly in arrears according to the terms of the Credit Agreement and 4% of paid in kind interest. In addition, the Company and the Lenders agreed to enter into a restructuring services agreement. Lateral is controlled by Richard de Silva, who joined the Company’s Board of Directors on October 18, 2019.

The Fourth Amendment also provided for (i) amendments to the employment agreements between Benchmark, our former principal operating subsidiary, and Fred Sacramone and Brian McMahon, the principals of Benchmark who sold Benchmark to the Company in April of 2017 (the “Benchmark Sellers”); (ii) the issuance of a promissory note to Fred Sacramone for cash received in the principal amount of $1,000,000 (the “Sacramone Bridge Note”), which note originally matured on March 31, 2019, and was subsequently amended and restated on July 2, 2019 to extend the maturity date to September 30, 2020, and for which Mr. Sacramone was issued 356,513 shares of the Company’s common stock; (iii) the appointment of a finance transformation officer (who was acting in the capacity of Chief Financial Officer from January 23, 2019 through July 15, 2019); and (iv) the issuance of an aggregate of 1,698,580 shares of the Company’s common stock to the Lenders. During 2019, Mr. Sacramone served as Interim Chief Executive Officer and as a director of the Company.

MaterialsRestructuring of Lateral Credit Agreement and SuppliesDesignation of Series H Preferred Stock

On July 2, 2019, the Company completed the debt restructuring contemplated under the Fourth Amendment by entering into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”) among the Company, Lateral and several Lenders. The materialsCompany also amended and supplies that are necessary forrestated the operation of our businesses are available from a variety of sources. We are not dependent on any particular supplier or group of affiliated suppliers for our equipment needs.Series A convertible notes (as amended, the “Series A Notes”) and the Series B promissory notes (as amended, the “Series B Notes”) issued to the Benchmark Sellers, and the Sacramone Bridge Note (together with the Series A Notes and the Series B Notes, the “Benchmark Notes”).

RegulationAmended and Restated Credit Agreement Summary

Our operations arePursuant to the Amended and Restated Credit Agreement, the Delayed Draw Term Loans, which were continued as super senior term loans with an aggregate outstanding balance of $12,900,000 (the “Super Senior Term Loans”) were amended to: (i) extend the maturity to September 30, 2020; (ii) amend the interest rate to 12% per annum payable in cash; (iii) add a 4% extension fee to the principal amount (subject to reduction); and (iv) provide for monthly amortization payments based on available cash flow. In addition, the existing term loans under the Credit Agreement, with an aggregate balance of approximately $37,900,000 (“Lateral’s Existing Term Loans”) were amended to: (i) extend the maturity to April 30, 2021; (ii) amend the interest rate to 12% per annum payable in cash; (iii) add a 4% extension fee to the principal amount thereof (subject to reduction); and (iv) include monthly amortization payments based on available cash flow.

As consideration for the Amended and Restated Credit Amendment, the Company issued to the Lenders 1,500,000 shares of the Company’s common stock and warrants (the “Warrants”) exercisable to purchase 3,173,731 shares of the Company’s common stock (collectively, the “Lender Securities”) with an initial exercise price of $3.00 per share. Pursuant to the terms of the Warrants, in the event the Super Senior Term Loans were not paid and satisfied by October 31, 2019, the exercise per share of half of the Warrants would be automatically reset to $0.01 and in the event the Super Senior Term Loans were not paid by December 31, 2019, the exercise per share of the other half of the Warrants would be automatically reset to $0.01. The Company also agreed that on December 31, 2019, the aggregate number of shares of the Company’s common stock issuable upon exercise of the Warrants would be automatically adjusted on December 31, 2019 such that Lateral and its affiliates would beneficially own, in the aggregate, inclusive of all shares of the Company’s common stock previously issued, 25% of the outstanding shares of the Company’s common stock on a fully-diluted basis as of December 31, 2019, subject to various federal, state, local and international laws and regulations including:certain exceptions.

As additional consideration for the Amended and Restated Credit Agreement, the Company and Lateral entered into a registration rights agreement (the “Registration Rights Agreement”) whereby the Company agreed to register the Company’s common stock issued to Lateral. The Company and Lateral also entered into an investor rights agreement (the “Investor Rights Agreement”) whereby the Company agreed that within sixty days of its execution, the Company would set the number of directors on its Board of Directors at seven and Lateral would be entitled to nominate one of such seven directors.

Series A Notes and Series B Notes and Designation of Series H Preferred Stock

We believeIn July 2019, the Series A Notes and Series B Notes were also amended to extend the maturity date to July 30, 2021 and to amend the interest rate to 8% per annum to be paid in kind until the borrowings under the Amended and Restated Credit Agreement were repaid in full. At the same time the Sacramone Bridge Note was amended to extend the maturity date to September 30, 2020, to capitalize the accrued interest as of July 2, 2019 and to provide for monthly cash interest payments. Additionally, all of the foregoing notes were amended to provide for monthly amortization payments based on available cash flow.

As consideration for amending and restating the Benchmark Notes, the Company entered into subscription agreements (the “Subscription Agreements”) pursuant to which it issued to the Benchmark Sellers an aggregate of 1,951 shares of the Company’s Series A Preferred Stock and 296 shares of the Company’s Series A-1 Preferred Stock (collectively, the “Series A Preferred”), which the Benchmark Sellers immediately exchanged, pursuant to exchange agreements (the “Exchange Agreements”), for an aggregate of 100 shares of a new series of preferred stock (the “Series H Preferred,” and together with the Series A Preferred, the “Preferred Stock”). The Series H Preferred had no dividend rights, no liquidation preference, was not convertible and had perpetual voting rights equivalent to 51% of the total number of votes that we havecould be cast by all outstanding shares of capital stock of the licensesCompany.

Foreclosure by Senior Secured Lenders

During July 2019, the Company was notified that judgments had been entered against the Company in favor of six holders of the Company’s convertible notes in the state of New York. Certain of these convertible noteholders sought to levy against the bank account of the Company’s former subsidiary, Benchmark, and filed an order directing the Company to turn over all of the Company’s assets. The Company’s failure to satisfy, vacate or stay these judgments constituted an event of default under the Credit Agreement.

As a result, on October 10, 2019, the Company consented to a Proposal for Surrender of Collateral and Strict Foreclosure (the “Foreclosure Proposal”), from Lateral, Lateral Builders LLC (“Lateral Builders”) and Benchmark Holdings, LLC (“Benchmark Holdings” and together with Lateral Recovery LLC (“Lateral Recovery”), the (“Foreclosing Lenders”)), pursuant to which the Foreclosing Lenders took possession and ownership of the Subject Collateral (see below) by means of a strict foreclosure by the Foreclosing Lenders (the “Benchmark Foreclosure”).

Pursuant to the Foreclosure Proposal, the Company transferred; (i) to Benchmark Holdings all of its (a) equity interests in Benchmark, the Company’s principal operating subsidiary, and (b) cash on hand in excess of levels specified in the Foreclosure Proposal; and (ii) to Lateral Recovery, all of the Credit Parties’ interests in certain commercial tort litigation claims, fraud claims, and insurance claims as specified in the Foreclosure Proposal (collectively, the “Subject Collateral”).

Also pursuant to the Foreclosure Proposal, Benchmark transferred $3,000,000 of cash to the Company. Additionally, Benchmark agreed to make a monthly cash payment to the Company, in the amount of $300,000 per month (the “Working Capital Cash Payments”), for purposes of funding certain of the Company’s remaining obligations related to accounts payable, indebtedness for borrowed money, convertible note obligations and other matters specified in the Foreclosure Proposal (the “Remainder Obligations”). Working Capital Cash Payments were to continue until the earlier of (i) October 10, 2021, (ii) the repayment in full of the Remainder Obligations or (iii) the occurrence of a Working Capital Termination Event (as defined in the Foreclosure Proposal). The cash infusion and Working Capital Cash Payments provided the opportunity for the Company to receive total cash payments of up to $10,200,000 over the next 24 months. Benchmark made a total of two Working Capital Cash Payments to the Company—one in each of the months of November and December of 2019—for aggregate Working Capital Cash Payments of $600,000.

Benchmark Holdings, as the holder of the following of the Company’s obligations, absolutely and unconditionally released and forever discharged the Company and the other Credit Parties from certain indebtedness previously held by Niagara Nominee L.P. totaling $4,900,000, Lateral’s Existing Term Loans totaling $42,300,000 and the Super Senior Term Loans totaling $13,500,000 as each such term is defined in the Credit Agreement. Accordingly, Lateral’s Existing Term Loans and the Super Senior Term Loans were deemed fully paid and satisfied.

Additionally, pursuant to an Agreement Regarding Debt and Series H Preferred Stock (the “Debt and Series H Agreement”), entered into October 10, 2019, between the Company and Fred Sacramone and Brian McMahon, Messrs. Sacramone and McMahon released the Company and its affiliates from (i) all obligations represented by the Sacramone Bridge Note per the Credit Agreement, which had an outstanding amount equal to approximately $1,030,000 and (ii) indebtedness represented by the Series B Notes in the amount of $18,982,640. As a result, the total amount remaining outstanding under the Series A Notes and Series B Notes was $28,895,711 (the “Remaining Indebtedness”) with a due date of December 31, 2019.

The total debt relief provided pursuant to the Foreclosure Proposal and the related agreements and arrangements equaled an aggregate of $81,065,348.

In accordance with the Debt and Series H Agreement, the Remaining Indebtedness was to be automatically released and discharged as of December 31, 2019 unless (i) on or before November 10, 2019, the Company entered into a business combination transaction that enabled the Company’s common stock to remain listed on the NYSE American Exchange or any other U.S. national securities exchange and (ii) such business combination transaction was consummated on or before December 31, 2019 (such transaction, a “Qualified Business Combination”). Additionally, the Debt and Series H Agreement also required Messrs. Sacramone and McMahon to conduct our operationssell their shares of Series H Preferred Stock to the Company for a nominal price in the event an agreement for a Qualified Business Combination was entered into on or before November 10, 2019, and such Qualified Business Combination was consummated on or before December 31, 2019.

On November 8, 2019, the Company and Messrs. Sacramone and McMahon entered into an amendment to the Debt and Series H Agreement, extending the date by which an agreement for a Qualified Business Combination must be entered into from November 10, 2019 to December 31, 2019 and extending the date by which a Qualified Business Combination must close from December 31, 2019 to February 28, 2020.

On December 23, 2019, the Company entered into separate agreements with Messrs. Sacramone and McMahon pursuant to which the Company repurchased all outstanding shares of Series H Preferred Stock from Messrs. Sacramone and McMahon for a payment of $1.00 per share, as a result of which no shares of Series H Preferred Stock remain outstanding.

In January 2020, in order to facilitate the continued inflow of additional cash infusions from Benchmark pertaining to the Remaining Indebtedness (as further explained below), the Board determined that, weas result of the completion of the Rental Home Portfolio Asset Purchase, Benchmark would no longer be obligated to continue making Working Capital Cash Payments to the Company. On January 10, 2020, Benchmark loaned $300,000 to the Company with a maturity date of October 1, 2020 and an annual interest rate of 10%. Shortly thereafter, on January 27, 2020, the Company issued two senior promissory notes to Benchmark, one in the principal amount of $4,129,000 and the other in the principal amount of $600,000 (collectively, the “Senior Notes”), each such note is secured by all of the Company’s non-real estate assets. The $4,129,000 note was issued in consideration of an additional $6,000,000 reduction to the $28,895,711 Remaining Indebtedness, provided for a maturity date of December 1, 2020, bore interest at an annual rate of 10% and obligated the Company to repay all monies previously paid or transferred to the Company pursuant to the Foreclosure Proposal, including (i) $3,000,000 in cash; (ii) two Working Capital Cash Payments totaling $600,000; and (iii) approximately $529,000 in cash remaining in a Benchmark bank account. The $600,000 note, which matures on December 1, 2020 and has an interest rate of 10%, was issued to evidence the loan received by Benchmark on January 10, 2020 in the principal amount of $300,000 and an additional $300,000 loan from Benchmark received on January 27, 2020. In summary, the Company issued promissory notes to Benchmark totaling $4,729,000 and released Benchmark from the obligation to make an additional $6,600,000 in Working Capital Cash Payments in exchange for a $6,000,000 reduction in the Remaining Indebtedness.

On May 1, 2020, the parties entered into a second amendment to the Debt and Series H Agreement (the “Second Amendment”) pursuant to which Messrs. Sacramone and McMahon agreed to release and forever discharge the Remaining Indebtedness on the date on which the NYSE American Exchange files a Form 25 with the Securities and Exchange Commission (the “SEC”), delisting the Company’s common stock (the “Termination Date”), provided that in no event shall the Termination Date be any sooner than July 1, 2020 or any later than October 1, 2020. The NYSE American Exchange filed a Form 25 with the SEC delisting the Company’s common stock on May 21, 2020. Accordingly, the Remaining Indebtedness was released and discharged effective as of July 1, 2020.

Acquisition of Rental Home Portfolio

On December 20, 2019, the Company entered into a purchase agreement (the “Rental Home Portfolio Asset Purchase Agreement”) with (i) US Home Rentals, (ii) the holders (the “Equity Sellers”) of 100% of the equity interests in entities owned by the Equity Sellers that collectively hold a real estate asset portfolio consisting of approximately 3,200 rental homes located across the United States (the “Entities”), (iii) Vision Property Management, LLC, a South Carolina limited liability company (“Vision” and together with the Equity Sellers, the “Rental Home Portfolio Sellers”), and (iv) Alexander Szkaradek, in his capacity as the representative of the Rental Home Portfolio Sellers (the “Sellers’ Representative”). On December 30, 2019, the parties amended the Rental Home Portfolio Asset Purchase Agreement (the “Amendment”) in order to address certain changes to the Rental Home Portfolio Asset Purchase Agreement, including, among other things, to allow the $9,750,000 balance of the cash portion of the purchase price to be paid in short-term promissory notes(resulting in the issuance of a $4,875,000 note to Alex Szkaradek and a $4,875,000 note to Antoni Szkaradek (collectively, the “Szkaradek Notes”) , and to reduce the Rental Home Portfolio Sellers’ indemnification deductible to $100,000. On December 30, 2019, the Company completed the acquisition of the Entities pursuant to the Rental Home Portfolio Asset Purchase Agreement, as amended.

Pursuant to the Rental Home Portfolio Asset Purchase Agreement, as amended, US Homes Rentals LLC purchased (a) all of the equity interests in the Entities and (b) all of Vision’s assets that are related to its business, including certain assumed contracts and assumed intellectual property, excluding certain specified assets, for aggregate consideration of $350,000,000, consisting of (i) $250,000 of cash; (ii) $9,750,000 in substantial compliancepromissory notes, payable on or before January 31, 2020, which date was extended to March 31, 2020 pursuant to a 60-day forbearance that was included in the promissory notes; (iii) the amount of outstanding indebtedness of the Entities, which was calculated at approximately $80,000,000; (iv) 4,222,474 shares of the Company’s common stock, par value $0.001, which the parties valued at $32,000,000; and (v) shares of a newly designated Series I Non-Convertible Preferred Stock having an aggregate stated value equal to 228,000,000, which is subject to adjustment. See Part II Item 8, Financial Statements and Supplementary Data, Note 3 “Asset Acquisition”

Divestiture of CrossLayer, Inc.

On January 16, 2020, the Company entered into an asset purchase agreement (the “CrossLayer Purchase Agreement”) with applicable regulatory requirements. OurCBFA Corporation, pursuant to which CBFA acquired the customer agreements which were of nominal value and largely cancelable without penalty, in exchange for agreeing to perform all of CrossLayer’s obligations under those agreements plus the assumption of approximately $73,000 in accounts payable and approximately $100,000 in long-term supplier contracts.

Delisting of Common Stock from the NYSE American Exchange

During 2019, the Company received a series of letters from the NYSE American concerning the Company’s failure to comply with applicable regulations couldvarious continued listing requirements under the NYSE American Company Guide. On December 17, 2019, as a result of a calculation error resulting in substantial fines or revocationthe issuance of our operating licenses, as well as give risemore than 20% of the Company’s outstanding common stock without the requisite shareholder approval, the staff of NYSE Regulation (the “Staff”) notified the Company of its determination to termination or cancellation rights under our contracts or disqualify usinitiate proceedings to delist the Company’s common stock from future bidding opportunities.the Exchange and suspended trading of the Company’s common stock on the same day, citing public interest reasons.

SafetyThe Company challenged the Staff’s decision as unfairly punitive in relation to the Company’s mistake, especially given that the Company took prompt and Risk Managementeffective remedial actions to undo the issuance, rescinded the underlying agreement, and established new controls around the issuance of stock. Despite the Company’s efforts and repeated requests for reconsideration, and after exhausting multiple levels of appeal, on May 21, 2020, the Staff filed a Form 25 with the SEC to remove the Company’s common stock from listing and registration on the Exchange. The delisting became effective 10 days following the date of the Staff’s filing.

As of the date of the filing, the Company’s common stock is not quoted or trading on any stock market. The Company solicited the assistance of a prospective market maker who has expressed interest in sponsoring the Company’s Form 211 application with FINRA (subject to completing their due diligence) which would enable the Company’s common stock to resume trading on a trading platform operated by OTC Markets Group.

Notice of Default from Inmost Partners LLC

On July 1, 2020, the Company received a written notice of default (the “Notice of Default”) from Inmost Partners LLC in its capacity as Noteholder Agent (“Inmost”) to issuer noteholders who, collectively, hold approximately $51,564,000 in secured notes that the Company assumed from the Rental Home Portfolio Sellers in connection with the Rental Home Portfolio Asset Purchase Agreement. Inmost asserted that certain events of default had occurred with respect to certain Note Issuance and Purchase Agreements each dated as of July 10, 2017 by and among, inter alia, certain Entities acquired by the Company, Inmost, and issuer noteholders named therein (the “Note Purchase Agreements”). Specifically, Inmost claimed that the Company (i) failed to satisfy the loan-to-value test (the “LTV Test”) as defined in the Note Purchase Agreements and (ii) failed to obtain consent from the Noteholder Agent before transferring the equity interests of certain Entities to US Home Rentals LLC (the “Equity Interest Transfer”) pursuant to the Rental Home Portfolio Asset Purchase Agreement. The Notice of Default also included certain demands by Inmost for additional capital contributions by the Company and Alex and Antoni Szkaradek (the “Guarantors”). 

As of the date of this filing, the Company has cured the defaults associated with the LTV Test. Additionally, on November 3, 2020, Inmost granted its consent to the Equity Interest Transfer and rescinded the Default Notice in exchange for (i) a new guaranty agreement under which FTE Networks, Inc. and US Home Rentals LLC will jointly and severally guarantee the obligations of certain Entities under the Note Purchase Agreements, (ii) amendments to the Limited Liability Company Agreements for each of the subject Entities to provide for the appointment of a second manager of Noteholder Agent’s choosing, and (iii) amendments to the Note Purchase Agreements.

DLP Financing

WeOn August 26, 2020, certain wholly-owned subsidiaries (collectively, the “Borrowers”) of US Home Rentals entered into seven separate loan agreements as part of a tranche of financing with DLP Lending Fund, LLC (the “Lender”) (each a “Loan Agreement” and collectively, the Loan Agreements”). The Lender had previously loaned an aggregate of $21,184,906 to the Equity Sellers. Pursuant to the Loan Agreements, the Borrowers issued promissory notes in the aggregate principal amount of approximately $23,453,699 (the “DLP Tranche”). Proceeds from the DLP Tranche were used to refinance certain of the Borrower’s properties, pay outstanding property taxes, and other costs and expenses incurred in connection with the Loan Agreements. The Company did not receive any proceeds from the financing.

The Borrowers’ obligations to pay principal, interest and other amounts under the DLP Tranche are committedevidenced by promissory notes executed by the Borrowers as of August 26, 2020 (each a “Note” and collectively, the “Notes”). Each Note is secured by a first priority lien mortgage on certain of the Borrowers’ properties (the “Mortgaged Properties”) and confessions of judgment. Each Note will mature on August 31, 2021, subject to ensuring that our employees perform their work safelyone-year extensions at the Borrowers’ option and we regularly communicate with our employeesother conditions. The Borrowers may prepay the outstanding loan amount in whole or in part by written notice of such prepayment to reinforce that commitment and instill safe work habits. We review accidents and claims for our operations, examine trends and implement changes in procedures to address safety issues. Claims arising in our business generally include workers’ compensation claims, various general liability and damage claims, and claims related to vehicle accidents, including personal injury and property damage. We insure against the risk of loss arising from our operations upLender, subject to certain deductible limitsconditions. The Company also executed certain Environmental Indemnity Agreements and certain Guaranty Agreements in substantially allconnection with each Loan Agreement in favor of the states inLenders pursuant to which we operate. In addition, we retain risk of loss, upthe Company and Guarantors agreed to indemnify the Lenders for certain limits,environmental risks and guaranty the Borrowers’ obligations under our employee group health plan.

We carefully monitor claims and actively participate with our insurers in determining claims estimates and adjustments. The estimated costs of claims are accrued as liabilities, including estimates for claims incurred but not reported. Due to fluctuations in our loss experience from year to year, insurance accruals have varied and can affect the consistency of operating margins. If we experience insurance claims in excess of our umbrella coverage limit, our business could be materially and adversely affected.

SeasonalityLoan Agreements.

Our revenues are affected by seasonality as a significant portion of the work we perform is outdoors. Consequently, our operations are impacted by extended periods of inclement weather. Generally, inclement weather is more likely to occur during the winter season, which falls during our first and fourth fiscal quarters. Also, a disproportionate percentage of total paid holidays fall within our fourth quarter, which decreases the number of available workdays. Additionally, our customer premise equipment installation activities for cable providers historically decrease around calendar year-end holidays as their customers generally require less activity during this period. As a result, we may experience reduced revenue in the first or fourth quarters of our fiscal years.

Environmental Matters

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

Employees

As of April 5, 2018, we,October 31, 2020, the Company, together with ourits subsidiaries, employ 223has 66 full-time employees and 1contractor staff and no part-time employee. 47 of our employees are represented by local collective bargaining units.employees. The number of our employees and job-site contractors varies according to the level of ourthe Company’s work in progress. We maintainThe Company maintains a nucleus of technical and managerial personnel to supervise all projects and addadds employees and job-site contractors as needed to complete specific projects.

Intellectual Property

We haveThe Company has trademarks, trade names and licenses that we believeit believes are necessary for the operation of ourits business as weit is currently conduct it. We doconducted. The Company does not consider ourits trademarks, trade names or licenses to be material to the operation of ourthe business. On October 31, 2017 the Company announced that it filed a provisional patent application with the United States Patent and Trademark Office (USPTO) for CrossLayer technology covering the decentralized provision of internet and cloud services.

With respect to our acquisition strategy, FTE intends to pursue a clearly defined telecommunications niche, but may, in its discretion, pursue acquisitions outside of this niche, although this will not be our focus. We selectively pursue acquisitions when we believe doing so is operationally and financially beneficial to our existing operations, although we do not rely solely on acquisitions for growth. In particular, we may pursue those acquisitions that we believe will provide us with incremental revenue and geographic diversification while complementing our existing operations. We generally target companies for acquisition that have defensible leadership positions in their market niches, are EBITDA positive, which meet or exceed industry averages, and have proven operating histories, sound management, and certain clearly identifiable cost synergies.

Executive Officers of the Registrant

The names and ages of all our executive officers and the positions held by them as of March 1, 2018, are as follows:

Our executive officers are appointed annually and serve at the discretion of our Board of Directors. Mr. Palleschi, Chief Executive Officer; Mr. Lethem, Chief Financial Officer and Mr. Martin, Chief Operating Officer have written employment contracts. There are no familial relationships between any director and executive officers.

Mr. Michael Palleschi currently serves as the Chief Executive Officer and Chairman of the Board of Directors of FTE Networks since being appointed in January 2014. Mr. Palleschi joined FTE Networks in October 2010 where he served as COO of Focus Venture Partners, which featured investments in growing telecom companies including Focus Fiber Solutions, Jus-Com and Townsend Careers. Prior to Focus Venture Partners, from June 2007 until 2010, he was the Director of Infrastructure Services for South Florida facilities-based Telecommunications Company start up. From 2000 to 2007, he held several Senior Management roles at Level 3 Communications in New York and Georgia. Mr. Palleschi has also held several Sr. Management/Executive roles at major telecommunications companies such as Qwest Communications and MCI. Mr. Palleschi holds a degree in Engineering and Business Management. Mr. Palleschi also holds several professional and technical certifications.

Mr. David Lethem currently serves as the Chief Financial Officer of FTE Networks since being appointed in June 2014. Mr. Lethem joined FTE Networks in April 2014 as Vice President of Corporate Compliance. Prior to joining FTE, Mr. Lethem was the Director of Finance and Audit for Audit Management Solutions, Incorporated since November of 2007. He was directly responsible for the financial, operational, and audit management of both public and private companies during that time, working the banking, telecommunications, mobile marketing, manufacturing, and finance sectors. Additionally, his experience during that time involved reverse mergers, SEC compliance, international operations, and technical accounting matters. Mr. Lethem earned his Bachelor of Arts at the University of Dubuque and MBA from California Coast University. His also holds the following certifications, CIA and CRMA.

Mr. Lynn Martin currently serves as the Chief Operating Officer of FTE Networks since being appointed in September 2016. Prior to joining FTE, Mr. Martin was Senior Vice President of the communications, software, and technology division of Nexius where he was responsible for growing the business by delivering end-to-end network solutions for emerging technologies, such as Open Source/NFV/SDN and infrastructure services that provided relevant value to customers and helped them to optimize their businesses. Mr. Martin also served as Executive Director of Telcordia Technologies, where he ran the company’s next generation software product line, was a senior strategist in Accenture’s Network Practice, and spent over a decade at Level 3 Communications as Vice President of Operational Integration and Process Management.

Available Information

We areThe Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the Exchange Act). Accordingly, we filethe Company files periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC).SEC. These reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding FTE Networks and other issuers that file electronically.

We makeThe Company makes available, free of charge on ourits website, ourthe Company’s Annual Report on Form 10-K, Quarterly Reports on FormForms 10-Q, Current Reports on FormForms 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as practicable after we electronically file these documents with, or furnish them to, the SEC. These documents may be accessed through ourthe Company’s website atwww.ftenetwork.comwww.ftenetworks.com under “Investor Relations.” The information posted or linked on ourthe website is not part of this report. WeThe Company also make ourmakes its Annual Report available in printed form upon request at no charge. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding FTE Networks and other issuers that file electronically with the SEC.

WeThe Company also makemakes available on ourits website, as noted above, or in printed form upon request, free of charge ourupon request, the Company’s Code of Ethics and the charters for the Audit, Compensation, and Nominating and Corporate Governance committees of the Board of Directors.

ITEM 1A. RISK FACTORS.

NotThe following discussion identifies the most significant risks or uncertainties that could (i) materially and adversely affect our business, financial condition, results of operations, liquidity or prospects or (ii) cause our actual results to differ materially from our anticipated results or other expectations. The following information should be read in conjunction with the other portions of this report, including “Special Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. Please note that the following discussion is not intended to comprehensively list all risks or uncertainties faced by us. Our operations or actual results could also be similarly impacted by additional risks and uncertainties that are not currently known to us, that we currently deem to be immaterial, that may arise in the future or that are not specific to us, such as general economic conditions. If any of the events or circumstances described in the following risks occurs, our business, financial condition or results of operations could be materially adversely affected.

Risks Related to Our Financial Results, Financing Plans and Indebtedness

We have limited capital resources , and we will need additional funds in order to continue as a viable enterprise. There is no guarantee that we will be able to generate those funds from our business operations.

As of December 31, 2019, the Company had $93,561,120, in negative working capital and $789,390 in cash and cash equivalents. The Company has limited capital resources following a strict foreclosure of the Company’s equity interests in Benchmark (among other assets), our former primary operating subsidiary, by the Company’s senior lenders (See “Recent Developments – “Foreclosure by Senior Secured Lenders”). As a result, the Company currently conducts operations through two subsidiaries, US Home Rentals and Jus-Com, Inc. .

As of October 31, 2020, the Company had $73,870 in cash and cash equivalents. As of the date of this filing, our cash and cash equivalents are insufficient to sustain operations in the near term. We have substantial cash requirements, which consist of payment obligations under existing indebtedness, settlement agreements for indebtedness to third parties incurred by former management, promissory notes issued as part of the purchase consideration for the Rental Home Portfolio Asset Purchase, indebtedness secured by the real estate properties we acquired in the Rental Home Portfolio Asset Purchase, payroll, and other corporate expenses.

Our ability to conduct equity financings has been hampered by, among other things, our delinquent Exchange Act reports, leaving us with very limited financing options. Currently, our primary sources of cash have been from short-term bridge loans and debt financings. The uncertainty as to the severity and duration of the COVID-19 pandemic (which has led to disruption and volatility in the financial and real estate markets) has also weakened our short-term financing prospects. We are continuing to negotiate extensions and/or forbearances with debt holders and critical vendors with significant outstanding payables; however, there is no assurance that these efforts will be met with success or that we will obtain financing to support our daily operations in the near term.

We applied for loans under the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loan program (“EIDL”) pursuant to the CARES Act through the U.S. Small Business Association programs and received net proceeds of $979,316 in May 2020 under the PPP and $150,000 in June of 2020 under the EIDL program. We are also continuing to explore and pursue various types of financing alternatives, including financings that leverage unencumbered properties in our real estate portfolio. We believe our debt and equity financing prospects will improve once we are current in our Exchange Act filings and we are able to resume trading on a national stock exchange or on an over-the-counter market, although no assurances can be provided in that regard either. And while we believe in the viability of our strategy to increase revenues and raise additional funds, we are unable to predict the continued impact of COVID-19 on our operations and liquidity, and depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material.

If we are required to repay our outstanding notes and settlement agreements, we would need to raise additional funds. Failure to repay our notes could subject us to legal action, including, but not limited to, judgments being entered against us.

We entered into settlement agreements with certain holders of convertible notes, whose notes were deemed to have been issued without the requisite corporate authorization following the findings of the independent investigation announced on June 13, 2019 (See Item 1 Business, Recent Development “Internal Investigation”). Of the noteholders with whom we were unable to reach settlement terms, six filed purported confessions of judgment. We have since entered into settlement agreements with all holders of judgments previously entered against us, which require us to make monthly payments in accordance with respective payout schedules. Throughout 2019, we were successful in negotiating several forbearances/deferrals on certain of the monthly payments owed in connection with these settlement agreements. As a result of our persistent liquidity constraints, we have not secured additional forbearances for approximately $1,294,262 past due and owing payments under these settlement agreements. As of the date of this filing, there is an aggregate balance owing of approximately $5,135,142 to these noteholders . The noteholders of the obligations currently past due, or those that become past due as a result of our inability to resume our payout schedules or secure the necessary forbearances, could commence legal action against us to recover the amounts due, including filing confessions of judgment and attaching them to our bank accounts. Any such action would restrict our ability to conduct business and would have an adverse effect on our financial condition and results of operations.

Additionally, we issued $9,750,000 of promissory notes payable to the Szkaradeks’ as part of the purchase consideration for the Rental Home Portfolio Asset Purchase , which were payable in full on March 31, 2020. As of the date of this filing, we have made some payments for the account of the Szkaradeks’ which could result in decreasing the outstanding balance of the Szkaradek Notes; however, we have been unable to repay the Szkaradek Notes in full by their stated maturity date. We have subsequently received forbearance agreements for the Szkaradek Notes extending the maturity date through January 1, 2021. We are actively pursuing multiple potential sources of additional debt and equity capital to fund repayment of the Szkaradek Notes. There is, however, no assurance that we will be successful in securing suitable financing. The Szkaradeks’ may seek to enforce their rights under the Szkaradek Notes through the judicial process, which would have a material adverse effect on our results of operations and financial condition.

Our current insurance coverage may not be adequate: insurance premiums for such coverage have increased and may continue to increase and we may not be able to obtain insurance at acceptable rates, or at all.

In light of substantial increases in premiums payable for Directors and Officers insurance coverage, we have chosen to reduce coverage limits. These insurance policies may not be adequate to protect us from liabilities that we incur in our business. In addition, in the future our insurance premiums may increase, and we may not be able to obtain similar levels of insurance on reasonable terms, or at all. Any such inadequacy of, or inability to obtain insurance coverage could have a material adverse effect on our business, financial condition and results of operations.

Our failure to successfully implement our growth plan may adversely affect our financial performance.

We are prone to all of the risks inherent in growing a business. You should consider the likelihood of our future success to be highly speculative in light of the limited resources, problems, expenses, risks and complications frequently encountered by entities at our current stage of development. As our growth plan is pursued, we may encounter difficulties expanding and improving our operating and financial systems to maintain pace with the increased complexity of the expanded operations and management responsibilities.

To address these risks, we must, among other things:

We may not be successful in addressing these risks and if we do not, our business prospects, financial condition and results of operations would be materially adversely affected.

Debt financing agreements we enter may contain a number of restrictive covenants which will limit our ability to finance future operations, acquisitions or capital needs or engage in other business activities that may be in our interest.

If Company needs additional liquidity through debt financing; however, any related credit arrangements and indentures may contain a number of significant covenants that could impose operating and other restrictions on us and our subsidiaries. Such restrictions could affect, and in many respects could limit or prohibit, among other things, our ability and the ability of some of our subsidiaries to:

These restrictions could limit our ability to plan for or react to market or economic conditions or meet capital needs or otherwise restrict our activities or business plans, and could adversely affect our ability to finance our operations, acquisitions, investments or strategic alliances or other capital needs or to engage in other business activities that would be in our interest.

Our litigation can be time-consuming, costly, and we cannot anticipate the results.

We have spent a significant amount of our financial and management resources defending litigation against third parties. We believe this litigation, and other litigation matters that we may in the future determine to pursue, will continue to consume management and financial resource for long periods of time. There can be no assurance that our current or future litigation matters will ultimately result in a favorable outcome for us or that our financial resources will not be exhausted before achieving a favorable outcome. In addition, even if we obtain favorable interim rulings or verdicts in particular litigation matters, they may not be predictive of the ultimate resolution of the matter. Unfavorable outcomes could result in exhaustion of our financial resources and could have a material adverse impact on our financial condition, results of operations, cash flows, and business prospects. See Item 3 Legal Proceedings.

Risks Related to Ownership of Our Common Stock

Our common stock was delisted from the NYSE American and quotation of our common stock has not resumed on an over-the-counter market. As a result, there is currently no active public trading market for our common stock and there can be no assurances that any established market will develop or that our common stock will be quoted for trading.

During 2019, we received a series of letters from the NYSE American concerning our failure to comply with various continued listing requirements under the NYSE American Company Guide. On December 17, 2019, as a result of a calculation error resulting in the issuance of more than 20% of the Company’s outstanding common stock, the staff of NYSE Regulation (the “Staff”) notified the Company of its determination to initiate proceedings to delist the Company’s common stock from the Exchange and suspended trading of the Company’s common stock on the same day, citing public interest reasons.

We challenged the Staff’s decision as unfairly punitive in relation to the Company’s mistake, especially given we took prompt and effective remedial actions to undo the issuance, rescind the underlying agreement, and establish new controls around the issuance of stock. Despite these efforts and repeated requests for reconsideration, and after exhausting multiple levels of appeal, on May 21, 2020, the Staff filed a Form 25 with the SEC to remove the Company’s common stock from listing and registration on the Exchange. The delisting became effective 10 days following the date of the Staff’s filing.

As of the date of the filing, our common stock is not quoted or trading on any stock market.

Because our common stock did not automatically resume trading on the over-the-counter market, we solicited the assistance of a market maker who has agreed to sponsor our Form 211 application with the Financial Industry National Regulatory Authority (“FINRA”) in order to apply for the inclusion of our common stock in one of the over-the-counter price-quotation platforms maintained by the OTC Markets Group (subject to completing their due diligence). No estimate may be given as to the time that this application process will require. Moreover, our efforts may not be successful, and our shares may never be approved for quotation and owners of our common stock may not have a market in which to sell the shares.

Even if our common stock is quoted and granted a listing, a market for our common shares may not develop, resulting in major fluctuations and volatility in the price of our common stock.

The market for purchases and sales of our common stock may be so limited that the sale of a relatively small number of shares could cause the price of our common stock to fall sharply. Accordingly, it may be difficult to sell shares quickly without significantly depressing the value of our common stock. Unless we are successful in developing and maintaining investor interest in our common stock, sales of our common stock could result in major fluctuations in the price of our common stock. Additionally, if our revenues do not grow or grow more slowly than we anticipate, or, if operating or capital expenditures exceed our expectations and cannot be adjusted accordingly, or if some other event adversely affects us, the market price of our common stock could decline. Fluctuations in our stock price may be influenced by, among other things, general economic and market conditions, conditions or trends in our industry, changes in the market valuations of other residential real estate rental companies announcements by us or our competitors of significant acquisitions, strategic partnerships or other strategic initiatives, and trading volumes. Many of these factors are beyond our control but may cause the market price of our common stock to decline, regardless of our operating performance. Moreover, if the stock market in general experiences a loss in investor confidence or otherwise fails, the market price of our common stock could fall for reasons unrelated to our business, results of operations and financial condition. The market price of our common stock also might decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.

Our insiders and affiliated parties beneficially own a significant portion of the aggregate voting power of our capital stock.

As of the date of hereof, our executive officers, directors, their affiliated parties and holders of 10% or more of our common stock beneficially own approximately 33.5% of our common stock. As a result, our officers, directors, their affiliated parties and holders of 10% or more of our common stock will have a controlling interest and the ability to:

Affiliated party stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempt to obtain control of us, which in turn could reduce the price of our common stock or prevent our stockholders from realizing any gains from our common stock. In addition, any sale of a significant amount of our common stock held by our directors, executive officers, and affiliated parties, or the possibility of such sales, could adversely affect the market price of our common stock.

Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock.

We may need to issue additional authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of common stock may have rights, preferences, and privileged more favorable than those of our common stock and may create downward pressure on the trading price of the common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts. As a result, holders of our common stock will bear the risk that our future capital raising efforts will reduce the market price of our common stock and dilute the value of their stockholdings.

Stockholders who hold unregistered shares of our common stock may be subject to resale restrictions pursuant to Rule 144, due to the fact that we are deemed to be a former “shell company.”

Pursuant to Rule 144 of the Securities Act (“Rule 144”), a “shell company” is defined as a company that has no or nominal operations and either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets. While we do not believe that we are currently a “shell company,” we were previously a “shell company” and are deemed to be a former “shell company” pursuant to Rule 144, and as such, sales of our securities pursuant to Rule 144 may not be able to be made unless we continue to be subject to Section 13 or 15(d) of the Exchange Act, and have filed all of our required periodic reports for at least the previous one year period prior to any sale pursuant to Rule 144. As a result, it may be harder for us to fund our operations and pay our consultants with our securities instead of cash. Our status as a former “shell company” could prevent us from raising additional funds, engaging consultants, and using our securities to pay for any acquisitions.

Any market that develops in shares of our common stock will be subject to the “penny stock” rules of the SEC and the trading market in our securities may become limited, which will make transactions in our stock cumbersome and may reduce the value of an investment in the stock.

If we are able to resume trading in the short-term, it will be on one of the over-the-counter price-quotation platforms maintained by the OTC Markets Group. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations as to the price of our common stock. Additionally, our common stock will be subject to regulation as a “penny stock” under Rule 15g-9 under the Exchange Act. That rule establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that is no longer trading on a national exchange and has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

Any trading market that may develop may be restricted by virtue of state securities “Blue Sky” laws that prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible to raise capital in those states.

Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether securities will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our common stock. Registering or qualifying shares with states can be time consuming. Compliance and regulatory costs may vary from state to state and may adversely affect future financings and our ability to raise capital.

We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our common stock.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends on our shares of common stock in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements or other debt instruments that we may be a party to at the time. To the extent we do not pay dividends, our shares of common stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as the only way to realize their investment, and if the price of our common stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not purchase our common stock.

Risks Related to Our Industry and Business

The current pandemic of the novel coronavirus, or COVID-19, and the future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

Certain states and cities, including where we own rental homes, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly. We expect that a significant number of our tenants will suffer economic dislocation, such as through job furloughs or job loss, which will adversely impact their ability to pay rent to the Company. Some of our tenants have already requested rent deferral or rent abatement during this pandemic. Many experts predict that the outbreak will trigger, or even has already triggered, a period of global economic slowdown or a global recession, which would further adversely impact the ability of our tenants to pay rent to the Company. Moreover, the weekly $600 federal unemployment benefit as part of the CARES ACT COVID-19 relief package has ended. On August 8, 2020, there was an extension of federal benefits by executive order through the Lost Wages Assistance program which provided an additional $300 weekly supplement to unemployment benefits, this program expired. This reduction or termination of benefits may limit our tenants’ ability to pay rent to us (to the extent they were relying on this benefit as a primary source of income).The COVID-19 pandemic, or a future pandemic, could have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:

The extent to which the COVID-19 pandemic impacts our operations and the financial health of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions (both at a state and federal level) taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. The inability of our tenants to pay rent to us, and early terminations by our tenants of their leases, could continue to reduce our cash flows, which could have a material adverse impact on our performance, financial condition, results of operations, cash flows and performance. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our performance, financial condition, results of operations, cash flows and performance.

Our results of operations will likely be diminished as a result of the foreclosure on the equity of Benchmark Builders, Inc., down-sizing of Jus-Com and divestiture of CrossLayer as well as our reliance on other operating subsidiaries. We may not be able to effectively manage the transition of our business.

As discussed above, our lenders previously foreclosed on the equity in Benchmark, previously our primary operating subsidiary, as well as other assets. Additionally, the Company restructured and down-sized the Jus-Com businesses in 2019, completed the acquisition of entities that collectively hold a real estate asset portfolio consisting of approximately 3,200 rental homes located across the United States (the “Rental Home Portfolio Properties”), and completed the divestiture of CrossLayer in January 2020. Due to the Benchmark foreclosure, the down-sizing of the Jus-Com businesses and the divestiture of CrossLayer, the Company is now reliant on the businesses of our remaining operating subsidiaries, primarily the U.S. Home Rental properties.

Moreover, whereas our Historical Business operated in the construction management and general contracting industry and telecommunications industry, our primary current business operates in the single-family residential property industry. As we are transitioning our business to focus primarily on single-family residential properties, this business model transition may lead to fluctuations in revenue that will make it more difficult to accurately project our operating results or plan for future growth. If we are unable to effectively manage these changes, our growth and ability to achieve long-term projections may be negatively impacted, and our business and operating results will be adversely affected.

Our integration of the operations of Rental Home Portfolio Properties into our operations may be more difficult, costly or time-consuming than expected, and the anticipated benefits and cost savings of these acquisitions by the Company may not be realized.

Our acquisition of the Rental Home Portfolio Properties in December 2019 represented the Company’s pivot to owning and managing a portfolio of single-family residential properties. The success of the acquisition, including anticipated benefits, will depend, in part, on the Company’s ability to successfully combine and integrate the businesses within the Company’s projected timeframe in a manner that permits growth opportunities. A number of factors could affect the Company’s ability to successfully combine its business with acquired businesses, including the following:

We have encountered a number of integration challenges, all of which have caused us to incur varying levels of costs, including costs associated with assimilating and integrating personnel, financial systems and procedures, and unique operation and reporting structures. We have also experienced significant delays in establishing internal controls over the financial reporting on a consolidated basis, which in turn has limited our ability to manage risks, reduce costs, and improve overall operational performance. If the Company continues to encounter these and other significant difficulties in the integration process, the anticipated benefits of the acquisition may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve the anticipated benefits of the acquisition in the timeframe projected by the Company could result in increased costs and decreased revenues. This could have a dilutive effect on the Company’s earnings per share. If the Company is unable to successfully integrate the business it acquired, the Company’s business, financial condition and results of operations may be materially adversely affected.

Liabilities and obligations assumed in connection with our acquisition of Rental Home Portfolio Properties may result in a material adverse effect to our business and financial condition.

Risk of Default under Entities’ Indebtedness. The Entities that we acquired in the Rental Home Portfolio Asset Purchase, which own all of the properties that were subject to the acquisition, are subject to approximately $80,284,086 of indebtedness (the “Entities’ Indebtedness”), which was assumed by the Company as described in “Item 1. Business – Recent Developments – Acquisition of Rental Home Portfolio Property Assets.” The Entities’ Indebtedness is subject to certain conditions and covenants, including the requirement that the Entities obtain the consent of the lender before taking certain actions. Failure to comply with the conditions and covenants in the financing agreements governing the Entities’ Indebtedness that is not consented to or waived by the lenders or otherwise cured could lead to a termination of such debt facilities, acceleration of all amounts due under such debt facilities, or other actions by the lenders. On July 1, 2020, we received a written notice of default (the “Notice of Default”) from Inmost, in its capacity as Noteholder Agent to issuer noteholders of the Entities’ Indebtedness. Inmost asserted that certain events of default had occurred with respect to certain Note Issuance and Purchase Agreements each dated as of July 10, 2017 by and among, inter alia, certain Entities acquired by the Company, Inmost, and issuer noteholders named therein (the “Note Purchase Agreements”). Specifically, Inmost claimed that the Company (i) failed to satisfy the loan-to-value test (the “LTV Test”) as defined in the Note Purchase Agreements and (ii) failed to obtain consent from the Noteholder Agent before transferring the equity interests of certain Entities to US Home Rentals LLC (the “Equity Interest Transfer”) pursuant to the Rental Home Portfolio Asset Purchase Agreement. The Notice of Default also included certain demands by Inmost for additional capital contributions by the Company and Guarantors. 

As of the date of this filing, the Company has cured the defaults associated with the LTV Test. Additionally, on November 3, 2020, Inmost granted its consent to the Equity Interest Transfer and rescinded the Default Notice in exchange for (i) a new guaranty agreement under which FTE Networks, Inc. and US Home Rentals LLC will jointly and severally guarantee the obligations of certain Entities under the Note Purchase Agreements, (ii) amendments to the Limited Liability Company Agreements for each of the subject Entities to provide for the appointment of a second manager of Noteholder Agent’s choosing, and (iii) amendments to the Note Purchase Agreements.

We could be harmed by security breaches or other significant disruptions or failures of networks, information technology infrastructure or related systems owned or installed by us.

We are materially reliant upon our networks, information technology infrastructure and related technology systems (including our billing and provisioning systems) to manage our operations and affairs. We face the risk, as does any company, of a security breach or significant disruption of our information technology infrastructure and related systems. Moreover, in connection with processing and storing sensitive and confidential data on our networks, we face a risk that a security breach or disruption could result in unauthorized access to our customers’ or their customers’ proprietary information.

We strive to maintain the security and integrity of information and systems under our control and maintain contingency plans in the event of security breaches or other system disruptions. Nonetheless, we cannot assure you that our security efforts and measures will prevent unauthorized access to our systems, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service, computer viruses, malware, ransomware, distributed denial-of-service attacks, or other forms of cyber-attacks or similar events. These threats may derive from human error, hardware or software vulnerabilities, aging equipment or accidental technological failure. These threats may also stem from fraud, malice or sabotage on the part of employees, third parties or foreign nations, including attempts by outside parties to fraudulently induce our employees or customers to disclose or grant access to our data or our customers’ data, potentially including information subject to stringent domestic and foreign data protection laws governing personally identifiable information, protected health information or other similar types of sensitive data. These threats may also arise from failure or breaches of systems owned, operated or controlled by other unaffiliated operators to the extent we rely on such other systems to deliver services to our customers. Each of these risks could further intensify to the extent we maintain information in digital form stored on servers connected to the Internet.

Additional risks to our network, infrastructure and related systems include, among others:

Due to these factors, from time to time in the ordinary course of our business we experience disruptions in our service and could experience more significant disruptions in the future.

Disruptions, security breaches and other significant failures of the above-described networks and systems could:

Any or all of the foregoing developments could have a negative impact on our business, results of operations, financial condition and cash flows.

We may experience interruptions to its business operations arising out of events beyond our control, and insurance may not cover the full extent of damages.

A catastrophic event beyond our control, such as a natural disaster, health pandemic, cyber-attack, adverse weather event or act of terrorism, that results in the destruction or disruption of any of our critical business systems or operations could harm our ability to conduct normal business operations and, in turn our operating results.

While we maintain business continuity plans that are intended to allow us to continue operations or mitigate the effects of events that could disrupt our business, we cannot provide assurances that our plans would fully protect us from all such events. In addition, insurance maintained by us to protect against property damage, loss of business and other related consequences resulting from catastrophic events is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of our damages or damages to others in the event of a catastrophe. In addition, insurance related to these types of risks may not be available now or, if available, may not be available in the future at commercially reasonable rates.

Due to our size, we depend on key personnel and other skilled employees.

Our employees are key to the growth and success of our business and our continued success depends to a large extent on our ability to recruit, train, and retain skilled employees, particularly executive management and technical employees. If we are unable to attract and retain key personnel, our operating results could be adversely affected.

Additionally, the Company’s ability to retain skilled workforce and its success in attracting and hiring new skilled employees will be a critical factor in determining whether the Company will be successful in the future. The Company faces competition for qualified individuals and may be unable to attract and retain suitably qualified individuals. The Company’s failure to do so could have an adverse effect on its ability to implement the business plan.

Future litigation may impair our reputation or lead us to incur significant costs, and the costs of such litigation may exceed our insurance coverage.

We are currently party to several lawsuits and may become party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to contracts, third party contract manufacturers, intellectual property, product recalls, product liability, false or deceptive advertising, employment matters, environmental matters or other aspects of our business. Negative publicity resulting from allegations made in lawsuits or claims asserted against us, whether or not valid, may adversely affect our reputation. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, which could have a material adverse effect on our financial condition, results of operations and cash flows. The outcome of litigation is often difficult to predict, and the outcome of pending or future litigation may have a material adverse effect on our business, financial condition, results of operations and cash flows.

We maintain general and excess liability, cyber security, workers’ compensation and medical insurance, all in amounts consistent with industry practice and as part of our overall risk management strategy. Further, our policies are held with financially stable coverage providers, often in a layered or quota share arrangement which reduces the likelihood of an interruption or impact to operations. Although we have various insurance programs in place, the potential liabilities associated with potential litigation matters, or those that could arise in the future, could be excluded from coverage or, if covered, could exceed the coverage provided by such programs. In addition, insurance carriers may seek to rescind or deny coverage with respect to pending or future claims or lawsuits. If we do not have sufficient coverage under our policies, or if coverage is denied, we may be required to make material payments to settle litigation or satisfy any judgment. Any of these consequences could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The rent-to-own business model has been the subject of increased regulatory scrutiny, and, as we begin to move away from this business model to a standard rental business model, we may encounter problems which might make it difficult to predict our future performance, may limit our ability to conduct business and adversely affect our ability to execute on our long-term strategy.

The rent-to-own industry has been the subject of increased regulatory scrutiny over the last decade. Vision Property Management, our predecessor in interest, has faced (and is continuing to face) allegations of violations of consumer protection laws and other lending regulations arising out of this business model. Most of these legacy matters involve lawsuits brought by attorneys general from states where our properties are located and have either been settled or are in advanced settlement discussions. See Part 1 - Item 3. Legal Proceedings. We are in the process of transitioning away from the rent-to-own model; however, there is no assurance that we will be able to fully transition to a strictly rental property business financial model and we may not be able to sustain the growth of our assets and results from operations that we seek.

Our failure to effectively perform property management functions or to effectively manage our portfolio and operations could materially and adversely affect us.

We have direct responsibility for the management of the properties in our single family residential (“SFR”) portfolio, including, without limitation, renovations, maintenance and certain matters related to leasing, such as marketing and selection of tenants. If our internal property manager is unable to effectively perform property management services at the level and/or the cost that we expect or if we fail to allocate sufficient resources to meet our property management needs, it may adversely affect our performance and we may need to outsource property management functions at a higher cost. In addition, we will be responsible for ensuring the compliance of our internal property manager with governmental laws, regulations and covenants that are applicable to our homes, our tenants and our prospective tenants, including, without limitation, permitting, licensing and zoning requirements and tenant relief laws, such as laws regulating evictions, rent control laws and other regulations that limit our ability to increase rental rates.

Our ability to perform the property management services will be affected by various factors, including, among other things, our ability to maintain sufficient personnel and retain key personnel and the number of our SFR properties that we manage. No assurance can be made that we will continue to be successful in attracting and retaining skilled personnel or in integrating any new personnel into our organization.

Our future success will depend, in part, upon our ability to successfully monitor our operations, costs, regulatory compliance and service quality and maintain other necessary internal controls. Our inability to effectively perform the property management services on the properties managed by us, or to effectively manage our portfolio and operations could materially adversely affect our business, financial results and share price.

We may incur significant costs in renovating our properties or turning vacant properties, and we may underestimate the costs or amount of time necessary to complete restorations or unit turns.

While a substantial portion of the SFR properties we have acquired to date meet our rental specifications at the time of acquisition, properties frequently require additional renovations prior to renting. Beyond customary repairs, we may undertake improvements designed to optimize the overall property appeal and increase the value of the property. Though we endeavor to conduct property inspections and due diligence prior to acquiring new SFR portfolios, we expect that nearly all of our rental properties will require some level of renovation immediately upon their acquisition or in the future following expiration of a lease or otherwise. We may acquire properties that we plan to extensively renovate and restore. In addition, in order to reposition properties in the rental market, we will be required to make ongoing capital improvements and may need to perform significant renovations and repairs from time to time. Consequently, we are exposed to the risks inherent in property renovation, including potential cost overruns, increases in labor and materials costs, delays by contractors in completing work, delays in the timing of receiving necessary work permits and certificates of occupancy and poor workmanship. If our assumptions regarding the cost or timing of renovations across our properties prove to be materially inaccurate, it may be more costly or take significantly more time than anticipated to develop and grow our SFR portfolio, which could materially and adversely affect us.

We may incur significant costs in preparing newly vacant homes for occupancy as we do not collect security or damage deposits on our rental homes.

While we anticipate a minimum level of effort will be required to prepare a newly vacant property to be made ready for occupancy by a new tenant, we may find that the newly vacant property may require extensive repairs and/or improvements which costs may be solely borne by us, given we do not collect security or damage deposits from tenants at the time the rental property is leased. Accordingly, the cost of maintaining and preparing rental properties may be higher than originally anticipated. Additionally, we are exposed to risks of cost overruns, increases in costs of materials or labor, delays in the completion of work and other factors. If we are unable to perform unit turns efficiently or in a timely manner, we would experience decreased revenue, increased expenses or both.

The availability of portfolios of single-family residential properties for purchase on favorable terms may decline as market conditions change, our industry matures and/or additional purchasers for such portfolios emerge, and the prices for such portfolios may increase, any of which could materially and adversely affect us.

In recent years, there has been an increase in supply of SFR property portfolios available for sale. Because we operate in an emerging industry, market conditions may be volatile, and the prices at which portfolios of SFR properties can be acquired may increase from time to time, or permanently, due to new market participants seeking such portfolios, a decrease in the supply of desirable portfolios or other adverse changes in the geographic areas that we may target from time to time. For these reasons, the supply of SFR properties that we may acquire may decline over time, which could materially and adversely affect us and our growth prospects.

Portfolios of properties that we have acquired or may acquire may include properties that do not fit our investment criteria, and divestiture of such properties may be costly or time consuming or both, which may adversely affect our operating results.

We have acquired, and expect to continue to acquire, portfolios of SFR properties, many of which are, or will be, subject to existing leases. We may be subject to a variety of risks, including risks relating to the condition of the properties, the credit quality and employment stability of the tenants and compliance with applicable laws, among others. In addition, financial and other information provided to us regarding such portfolios during our due diligence may be inaccurate, and we may not be able to obtain relief under contractual remedies, if any. Currently, approximately 1/3 of our SFR portfolio is comprised of properties that may not fit our target investment criteria and/or may require extensive renovations and repairs. If we conclude that certain properties acquired as part of a portfolio do not fit our investment criteria or that the scope of renovation and repair exceeds our cost estimates, we may decide to sell such properties and may be required to renovate the properties prior to sale, to hold the properties for an extended marketing period and/or sell the property at an unfavorable price, any of which could materially and adversely affect us.

Competition in identifying and acquiring residential rental assets could adversely affect our ability to implement our business strategy, which could materially and adversely affect us.

We face competition from various sources for investment opportunities, including REITs, hedge funds, private equity funds, partnerships, developers and others. Some third-party competitors have substantially greater financial resources and access to capital than we do and may be able to accept more risk than we can. Competition from these companies may reduce the number of attractive investment opportunities available to us or increase the bargaining power of asset owners seeking to sell, which would increase the prices of assets. If such events occur, our ability to implement our business strategy could be adversely affected, which could materially and adversely affect us. Given the existing competition, complexity of the market and requisite time needed to make such investments, no assurance can be given that we will be successful in acquiring investments that generate attractive risk-adjusted returns. Furthermore, there is no assurance that such investments, once acquired, will perform as expected.

We may be materially and adversely affected by risks affecting the single-family rental properties in which our investments may be concentrated at any given time as well as from unfavorable changes in the related geographic regions.

Our assets are not subject to any geographic diversification requirements or concentration limitations, and, as a result, circumstances or events that impact a geographic region in which we have a significant concentration of properties, including a downturn in regional economic conditions or natural disasters, could materially and adversely affect us. Entities that sell residential rental portfolios may group the portfolios by location or other metrics that could result in a concentration of our portfolio by geography, SFR property characteristics and/or tenant demographics. Such concentration could increase the risk of loss to us if the particular concentration in our portfolio is subject to greater risks or undergoing adverse developments. In addition, adverse conditions in the areas where our properties or tenants are located (including business layoffs or downsizing, industry slowdowns, changing demographics, oversupply, reduced demand and other factors) may have an adverse effect on the value of our investments. A material decline in the demand for single-family housing or rentals in the areas where we own assets may materially and adversely affect us. Lack of diversification can increase the correlation of non-performance and foreclosure risks among our investments.

Short-term leases of residential property expose us more quickly to the effects of declining market rents.

The majority of our leases to tenants of SFR properties will be for a smaller reporting company.term of one year. As these leases permit the residents to leave at the end of the lease term without penalty, we anticipate our rental revenues will be affected by declines in market rents more quickly than if our leases were for longer terms. Short-term leases may result in high turnover, resulting in additional cost to renovate and maintain the property and lower occupancy levels. Because we have a limited operating history, our tenant turnover rate and related cost estimates may be less accurate than if we had more operating data upon which to base these estimates.

We may be unable to secure funds for property restoration or other capital improvements, which could limit our ability to attract, retain or replace tenants.

When we acquire or otherwise take title to single-family properties or when tenants fail to renew their leases or otherwise vacate their space, we may be required to expend funds for property restoration and leasing commissions in order to lease the property. If we have not collected or maintained tenant damage deposits or established reserves or set aside sufficient funds for such expenditures, we may have to obtain financing from other sources, as to which no assurance can be given. We may also have future financing needs for other capital improvements to restore our properties. If we need to secure financing for capital improvements in the future but are unable to secure such financing on favorable terms or at all, we may be unable or unwilling to make capital improvements or may choose to defer such improvements. If this happens, our properties may suffer from a greater risk of obsolescence or decreased marketability, a decline in value or decreased cash flow as a result of fewer potential tenants being attracted to the property or existing tenants not renewing their leases. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, and our properties’ ability to generate revenue may be significantly impaired.

Our revenue and expenses are not directly correlated, and, because a large percentage of our costs and expenses are fixed and some variable expenses may not decrease or may increase over time, we may not be able to adapt our cost structure to offset any declines in our revenue.

Many of the expenses associated with our business, such as acquisition costs, restoration and maintenance costs, Home Owners Association (“HOA”) fees, personal and real property taxes, insurance, compensation and other general expenses are fixed and would not necessarily decrease proportionally with any decrease in revenue. Our assets also will likely require a significant amount of ongoing capital expenditure. Our expenses, including capital expenditures, will be affected by, among other things, any inflationary increases, and cost increases may exceed the rate of inflation in any given period. Certain expenses, such as HOA fees, taxes, insurance and maintenance costs are recurring in nature and may not decrease on a per-unit basis as our portfolio grows through additional property acquisitions. By contrast, our revenue is affected by many factors beyond our control, such as the availability and price of alternative rental housing and economic conditions in our markets. As a result, we may not be able to fully, or even partially, offset any increase in our expenses with a corresponding increase in our revenues. In addition, state and local regulations may require us to maintain our properties, even if the cost of maintenance is greater than the potential benefit.

Competition could limit our ability to lease single-family rental properties or increase or maintain rents.

Our SFR properties compete with other housing alternatives to attract residents, including rental apartments, condominiums and other single- family homes available for rent as well as new and existing condominiums and single-family homes for sale. Our competitors’ properties may be of better quality, in a more desirable location or have leasing terms more favorable than we can provide. In addition, our ability to compete and generate favorable returns depends upon, among other factors, trends of the national and local economies, the financial condition and liquidity of current and prospective renters, availability and cost of capital, taxes and governmental regulations. Given significant competition, we cannot assure you that we will be successful in acquiring or managing SFR properties that generate favorable returns.

If rents in our markets do not increase sufficiently to keep pace with potential rising costs of operations, our operating results and cash available for distribution will decline.

The success of our business model will substantially depend on conditions in the SFR property market in our geographic markets. Our asset acquisitions are premised on assumptions about, among other things, occupancy and rent levels. If those assumptions prove to be inaccurate, our operating results and cash available for distribution will be lower than expected, potentially materially. Rental rates and occupancy levels have benefited in recent periods from macroeconomic trends affecting the U.S. economy and residential real estate and mortgage markets in particular, including a tightening of credit and increases in interest rates that has made it more difficult to finance a home purchase, combined with efforts by consumers generally to reduce their exposure to credit. A decrease in rental rates would have a material adverse effect on the performance of our SFR portfolio or could cause a default of our obligations under one or more financing agreements, and our business, results of operations and financial condition would therefore be materially harmed.

If the current trend favoring renting rather than homeownership reverses, the single-family rental market could decline.

The SFR market is currently significantly larger than in historical periods. We do not expect the favorable trends in the SFR market to continue indefinitely. Eventually, continued strengthening of the U.S. economy and job growth, together with the large supply of foreclosed SFR properties, the current availability of low residential mortgage rates and government sponsored programs promoting home ownership, may contribute to a stabilization or reversal of the current trend that favors renting rather than homeownership. In addition, we expect that as investors increasingly seek to capitalize on opportunities to purchase undervalued housing properties and convert them to productive uses, the supply of SFR properties will decrease and the competition for tenants will intensify. A softening of the rental property market in our markets would adversely affect our operating results and cash available for distribution, potentially materially.

Suboptimal tenant underwriting and defaults by our tenants may materially and adversely affect us.

Our success depends, in large part, upon our ability to attract and retain qualified tenants for our properties. This depends, in turn, upon our ability to screen applicants, identify good tenants and avoid tenants who may default. We may make mistakes in our selection of tenants, and we may rent to tenants whose default on our leases or failure to comply with the terms of the lease or HOA regulations could materially and adversely affect us. For example, tenants may default on payment of rent; make unreasonable and repeated demands for service or improvements; make unsupported or unjustified complaints to regulatory or political authorities; make use of our properties for illegal purposes; damage or make unauthorized structural changes to our properties that may not be fully covered by security deposits; refuse to leave the property when the lease is terminated; engage in domestic violence or similar disturbances; disturb nearby residents with noise, trash, odors or eyesores; fail to comply with HOA regulations; sub-let to less desirable individuals in violation of our leases or permit unauthorized persons to live with them. The process of evicting a defaulting tenant from a family residence can be adversarial, protracted and costly. Furthermore, some tenants facing eviction may damage or destroy the property. Damage to our properties may significantly delay re-leasing after eviction, necessitate expensive repairs, reduce the rental revenue generated by the property or impair its value. In addition, we will incur turnover costs associated with re-leasing the properties, such as marketing expenses and brokerage commissions, and will not collect revenue while the property is vacant. Although we will attempt to work with tenants to prevent such damage or destruction, there can be no assurance that we will be successful in all or most cases. Such tenants will not only cause us not to achieve our financial objectives for the properties in which they live, but may subject us to liability and may damage our reputation with our other tenants and in the communities where we do business.

A significant uninsured property or liability loss could have a material adverse effect on us.

We carry commercial general liability insurance and property insurance with respect to our SFR properties on terms we considered commercially reasonable. However, many of the policies covering casualty losses are subject to substantial deductibles and exclusions, and we will be self-insured up to the amount of the deductibles and exclusions. For example, we may not always be fully insured against losses arising from floods, windstorms, fires, earthquakes, acts of war or terrorism or civil unrest because they are either uninsurable or the cost of insurance makes it economically impractical. If an uninsured property loss or a property loss in excess of insured limits were to occur, we could lose our capital invested in a property or group of properties as well as the anticipated future revenues from affected SFR properties or groups of properties. Further, inflation, changes in building codes and ordinances, environmental considerations and other factors might also prevent us from using insurance proceeds to replace or renovate a property after it has been damaged or destroyed.

In the event that we incur a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss, and we could experience a significant loss of capital invested and potential revenues in these properties and could potentially remain obligated under any recourse debt associated with the property. Further, if an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement with or court ordered damages to that third party. A significant uninsured property or liability loss could adversely affect our financial condition, operating results, cash flows and ability to make distributions on our common stock.

We rely on information supplied by prospective tenants in managing our business.

We rely on information supplied to us by prospective tenants in their rental applications as part of our due diligence process to make leasing decisions, and we cannot be certain that this information is accurate. In particular, we rely on information submitted by prospective tenants regarding household income, tenure at current job, number of children and size of household. Moreover, these applications are submitted to us at the time we evaluate a prospective tenant, and we do not require tenants to provide us with updated information during the terms of their leases, notwithstanding the fact that this information can, and frequently does, change over time. Even though this information is not updated, we will use it to evaluate the overall average credit characteristics of our portfolio over time. If tenant-supplied information is inaccurate or our tenants’ creditworthiness declines over time, we may make poor leasing decisions, and our portfolio may contain more credit risk than we believe.

Our single-family residential properties are not liquid assets, which could limit our ability to vary our portfolio or to realize the value at which such assets are carried if we are required to dispose of them.

Our SFR properties are not liquid assets, which could limit our ability to vary our portfolio or to realize the value at which such assets are carried if we are required to dispose of them. Our inability to sell individual or portfolios of SFR properties on acceptable terms and/or in accordance with our anticipated timing could materially and adversely affect our financial condition.

Changes in global economic and capital market conditions, including periods of generally deteriorating occupancy and real estate industry fundamentals, may materially and adversely affect us.

There are risks to the ownership of real estate and real estate related assets, including decreases in residential property values, changes in global, national, regional or local economic, demographic and real estate market conditions as well as other factors particular to the locations of our investments. A prolonged recession and a slow recovery could materially and adversely affect us as a result of, among other items, the following:

These conditions could also adversely impact the financial condition and liquidity of the renters that will occupy our real estate properties and, as a result, their ability to pay rent to us.

Residential properties that are subject to eviction are subject to risks of theft, vandalism or other damage that could impair their value.

When a residential property is subject to an eviction, it is possible that the tenant may cease to maintain the property adequately or that the property may be abandoned by the tenant and become susceptible to theft or vandalism. Lack of maintenance, theft and vandalism can substantially impair the value of the property. To the extent we initiate eviction proceedings, some of our properties could be impaired.

Contingent or unknown liabilities associated with respect to our prior acquisitions of portfolios of properties could expose us to material litigation and unanticipated costs, which could adversely affect our financial condition, cash flows and operating results.

Assets and entities that we have acquired in connection with prior SFR portfolio or operating entity acquisitions may be subject to unknown or contingent liabilities for which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might include liabilities for or with respect to liens attached to properties; unpaid real estate tax, utilities or HOA charges for which a subsequent owner remains liable; clean-up or remediation of environmental conditions or code violations; claims of customers, vendors or other persons dealing with the acquired entities; or tax liabilities. Purchases of single-family properties in portfolio purchases typically involve limited representations or warranties with respect to the properties and may allow us limited or no recourse against the sellers. Such properties also often have unpaid tax, utility and HOA liabilities for which we may be obligated but fail to anticipate. As a result, the total amount of costs and expenses that we may incur with respect to liabilities associated with prior SFR property or entity acquisitions may exceed our expectations, which may adversely affect our operating results and financial condition. Additionally, such prior SFR property acquisitions may be subject to covenants, conditions or restrictions that restrict the use or ownership of such properties, including prohibitions on leasing. We may not have discovered such restrictions during the acquisition process, and such restrictions (including undisclosed or contingent liabilities) may subject us to material litigation and cause us to experience significant losses, which could materially adversely affect our business, results of operations and financial condition and may adversely affect our ability to operate such properties as we intend.

The costs and amount of time necessary to secure possession and control of certain properties may exceed our assumptions, which would delay our receipt of revenue from, and return on, the property.

A majority of the SFR properties we have acquired have had an existing tenant at the time of acquisition. However, certain SFR properties require us to secure possession. In certain circumstances, we may have to evict occupants who are in unlawful possession before we can secure possession and control of the property. The holdover occupants may be the former owners or tenants of a property, or they may be squatters or others who are illegally in possession. Securing control and possession from these occupants can be both costly and time consuming. If these costs and delays exceed our expectations, our financial performance may suffer because of the increased expenses incurred or the unexpected delays in turning the properties into revenue-producing rental properties.

Eminent domain could lead to material losses on our investments.

It is possible that governmental authorities may exercise eminent domain to acquire land on which our properties are built in order to build roads or other infrastructure. Any such exercise of eminent domain would allow us to recover only the fair value of the affected properties, which we believe may be interpreted to be substantially less than the actual value of the property. Several cities are also exploring proposals to use eminent domain to acquire residential loans to assist borrowers to remain in their homes, potentially reducing the supply of single-family properties for sale in our markets. Any of these events can cause a material loss to us.

We likely will incur costs due to litigation, including but not limited to, class actions, tenant rights claims and consumer demands, which could directly limit and constrain our operations and may result in significant litigation expenses and reputational harm.

There are numerous tenants’ rights and consumer rights organizations throughout the country. As we grow in scale, we may attract attention from some of these organizations and become a target of legal demands or litigation. Many such consumer organizations have become more active and better funded in connection with mortgage foreclosure-related issues and displaced home ownership. Some of these organizations may shift their litigation, lobbying, fundraising and grass roots organizing activities to focus on landlord-tenant issues as more entities engage in the SFR property market. Additional actions that may be targeted at us include eviction proceedings and other landlord-tenant disputes, challenges to title and ownership rights (including actions brought by prior owners alleging wrongful foreclosure by their lender or servicer) and issues with local housing officials arising from the condition or maintenance of an SFR property. While we intend to conduct our rental business lawfully and in compliance with applicable landlord-tenant and consumer laws, such organizations might work in conjunction with trial and pro bono lawyers in one state or multiple states to attempt to bring claims against us on a class action basis for damages or injunctive relief. We cannot anticipate what form such legal actions might take or what remedies they may seek. Any of such claims may result in a finding of liability that may materially and adversely affect us. We were named as a successor defendant in a class action lawsuit filed in Michigan federal court arising out of alleged actions that occurred prior to the Rental Home Portfolio Asset Purchase. We intend to vigorously defend our interests in this lawsuit and believe we have valid defenses. However, because litigation is inherently uncertain, there are no assurances that we will prevail, and any judgment or injunctive relief entered against us or any adverse settlement could adversely impact our business, financial condition, and operating results (See Item 3 - Legal Proceedings).

Additionally, these organizations may lobby local county and municipal attorneys or state attorneys general to pursue enforcement or litigation against us or may lobby state and local legislatures to pass new laws and regulations to constrain our business operations. If they are successful in any such endeavors, they could directly limit and constrain our business operations and impose on us significant litigation expenses, including settlements to avoid continued litigation or judgments for damages or injunctions. Any of the above-described occurrences may materially and adversely affect us.

ITEM 1B. Unresolved Staff Comments.

None.

ITEM 2. Properties.

OurOn April 4, 2019, we moved our corporate headquarters are located at 999 Vanderbilt Beach Road,to 237 W. 35^th St., Suite 601, Naples, Florida, 34108.806, New York, NY 10001. Our current lease expires November 30, 2022on October 31, 2021 and has 5,3774,340 square feet.feet which it subleases from Benchmark Builders, LLC under the terms of the Transition Support Agreement which was entered into and disclosed as part of the Strict Foreclosure. Our subsidiaries leaseleased five additional office/warehouse facilities throughout the United States, which is summarized below.