UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended:September 30, 20172020
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: 333-215496001-39478
Wytec International, Inc.
(Exact Name of registrant as specified in its charter)
Nevada | 46-0720717 |
(State or other jurisdiction of | (IRS Employer I.D. No.) |
incorporation) |
19206 Huebner Rd., Suite 202
San Antonio, TX 78258
(Address of principal executive offices and Zip Code)
(210) 233-8980
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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.
Yesý No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YesýNo¨
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 “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filero | Accelerated filero | |
Non-accelerated filer | Smaller reporting companyx | |
Emerging growth companyo |
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.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨ Noý
As of November 14, 2017,3, 2020, there were 2,435,059 shares5,525,291 outstanding of the registrant’s common stock.
WYTEC INTERNATIONAL, INC.
FORM 10-Q
September 30, 20172020
2 |
PART I – FINANCIAL INFORMATION
WYTEC INTERNATIONAL, INC.
(Unaudited)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 2,239,270 | $ | 2,766,775 | ||||
Accounts receivable, net | 1,064 | 1,434 | ||||||
Prepaid expenses and other current assets | 21,085 | 14,318 | ||||||
Related party receivable, CCI, net of allowance of $391,002 | – | – | ||||||
Total current assets | 2,261,419 | 2,782,527 | ||||||
Property and Equipment: | ||||||||
Telecommunication equipment and computers | 1,073,849 | 1,062,677 | ||||||
Construction in process | 377,773 | 363,779 | ||||||
Total property and equipment | 1,451,622 | 1,426,456 | ||||||
Less accumulated depreciation | (639,204 | ) | (482,889 | ) | ||||
Property and equipment, net | 812,418 | 943,567 | ||||||
Total Assets | $ | 3,073,837 | $ | 3,726,094 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 119,046 | $ | 172,558 | ||||
Deferred revenue | 1,790,000 | 1,930,000 | ||||||
Total current liabilities | 1,909,046 | 2,102,558 | ||||||
Stockholders' Equity: | ||||||||
Preferred stock 20,000,000 shares authorized: | ||||||||
Series A convertible preferred stock, par $.001, 4,100,000 shares designated, 3,260,000 and 3,360,000 issued and outstanding | 3,260 | 3,360 | ||||||
Series B convertible preferred stock, par $.001, 6,650,000 shares designated, 3,725,784 and 3,655,784 issued and outstanding | 3,726 | 3,655 | ||||||
Series C convertible preferred stock, par $.001, 1,000 shares designated, 1,000 and 1,000 issued and outstanding | 1 | 1 | ||||||
Common stock, $0.001 par value, 495,000,000 authorized, 26,509,507 and 25,195,333issued, 2,435,059 and 1,060,885 outstanding | 26,510 | 25,195 | ||||||
Additional paid-in capital | 19,271,076 | 17,160,543 | ||||||
Treasury stock, 24,134,448 and 24,134,448 shares, at cost | (5,100,218 | ) | (5,100,218 | ) | ||||
Accumulated (deficit) | (13,039,564 | ) | (10,469,000 | ) | ||||
Total stockholders' equity | 1,164,791 | 1,623,536 | ||||||
Total Liabilities and Stockholders' Equity | $ | 3,073,837 | $ | 3,726,094 |
September 30, | December 31, | |||||||
2020 | 2019 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 290,884 | $ | 619,104 | ||||
Accounts receivable | 38,214 | 93,800 | ||||||
Inventory | 1,098 | – | ||||||
Work in process | 71,378 | – | ||||||
Prepaid expenses and other current assets | 2,391 | 13,286 | ||||||
Total current assets | 403,965 | 726,190 | ||||||
Property and equipment, net | 64,504 | 80,273 | ||||||
Operating lease, right-of-use assets | 151,704 | 386,742 | ||||||
Total assets | $ | 620,173 | $ | 1,193,205 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 147,590 | $ | 68,614 | ||||
Accounts payable, related party | 103,024 | 76,280 | ||||||
Other payable | 895,000 | 895,000 | ||||||
Operating lease, right-of-use obligation, current portion | 91,368 | 150,909 | ||||||
Note payable, current portion | 140,000 | – | ||||||
Long-term debt, net of unamortized discount, current portion | 573,735 | – | ||||||
Total current liabilities | 1,950,717 | 1,190,803 | ||||||
Long-term liabilities: | ||||||||
Operating lease, right-of-use obligation, long term portion | 68,778 | 237,042 | ||||||
Note payable, long term portion | 178,158 | – | ||||||
246,936 | 237,042 | |||||||
Total liabilities | 2,197,653 | 1,427,845 | ||||||
Stockholders' deficit: | ||||||||
Preferred stock, $0.001 par value 20,000,000 shares authorized: | ||||||||
Series A convertible preferred stock, par $.001, 4,100,000 shares designated, 2,520,000 and 2,560,000 shares issued and 2,420,000 shares and 2,460,000 shares outstanding | 2,520 | 2,560 | ||||||
Series B convertible preferred stock, par $.001, 6,650,000 shares designated, 3,652,451 shares and 3,735,784 shares issued, 3,651,249 shares and 3,691,249 shares outstanding | 3,652 | 3,735 | ||||||
Series C convertible preferred stock, par $.001, 1,000 shares designated, 1,000 issued and 1,000 outstanding | 1 | 1 | ||||||
Common stock, $0.001 par value, 495,000,000 shares authorized, 29,762,702 shares and 29,564,014 shares issued, 5,504,291 shares and 5,429,566 shares outstanding | 29,762 | 29,564 | ||||||
Additional paid-in capital | 25,874,719 | 25,207,137 | ||||||
Accumulated deficit | (21,803,842 | ) | (20,118,169 | ) | ||||
Treasury stock: | ||||||||
Common stock, at cost, 24,174,448 shares and 24,134,448 shares | (5,325,042 | ) | (5,100,218 | ) | ||||
Series A convertible preferred stock, at cost, 100,000 shares and 100,000 shares | (179,368 | ) | (179,368 | ) | ||||
Series B convertible preferred stock, at cost, 84,535 shares and 44,535 shares | (179,882 | ) | (79,882 | ) | ||||
Total stockholders' deficit | (1,577,480 | ) | (234,640 | ) | ||||
Total liabilities and stockholders' deficit | $ | 620,173 | $ | 1,193,205 |
See accompanying notes to unaudited consolidated financial statements.statements
3 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales | $ | 12,149 | $ | 55,009 | $ | 36,300 | $ | 93,053 | ||||||||
Cost of goods sold | – | – | 243 | – | ||||||||||||
Gross profit | 12,149 | 55,009 | 36,057 | 93,053 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 1,167,853 | 778,788 | 2,442,481 | 2,182,178 | ||||||||||||
Research and development | 2,516 | 1,320 | 7,849 | 5,942 | ||||||||||||
Depreciation and amortization | 52,604 | 51,462 | 157,482 | 152,053 | ||||||||||||
Total operating expenses | 1,222,973 | 831,570 | 2,607,812 | 2,340,173 | ||||||||||||
Operating (loss) | (1,210,824 | ) | (776,561 | ) | (2,571,755 | ) | (2,247,120 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Gain (loss) on sale of assets | – | – | 1,049 | – | ||||||||||||
Interest income | 48 | 9 | 142 | 25 | ||||||||||||
Other expense | – | (2,256 | ) | – | (2,256 | ) | ||||||||||
Other income (expense), net | 48 | (2,247 | ) | 1,191 | (2,231 | ) | ||||||||||
(Loss) before taxes | (1,210,776 | ) | (778,808 | ) | (2,570,564 | ) | (2,249,351 | ) | ||||||||
Income tax expense | – | – | – | – | ||||||||||||
Net (Loss) | $ | (1,210,776 | ) | $ | (778,808 | ) | $ | (2,570,564 | ) | $ | (2,249,351 | ) | ||||
Weighted average number of common shares outstanding - basic and fully diluted | 2,320,766 | 298,438 | 1,863,873 | 338,377 | ||||||||||||
Net loss per share - basic and fully diluted | $ | (0.52 | ) | $ | (2.61 | ) | $ | (1.38 | ) | $ | (6.65 | ) |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue | $ | 111,625 | $ | 131,942 | $ | 444,390 | $ | 259,730 | ||||||||
Cost of sales | 50,340 | 67,708 | 361,087 | 173,674 | ||||||||||||
Gross profit (loss) | 61,285 | 64,234 | 83,303 | 86,056 | ||||||||||||
Expenses: | ||||||||||||||||
Selling, general and administrative | 472,464 | 554,491 | 1,675,332 | 1,952,049 | ||||||||||||
Research and development | 5,852 | – | 10,577 | 4,500 | ||||||||||||
Depreciation and amortization | 9,229 | 27,513 | 28,808 | 126,515 | ||||||||||||
Operating expenses, net | 487,545 | 582,004 | 1,714,717 | 2,083,064 | ||||||||||||
Net operating loss | (426,260 | ) | (517,770 | ) | (1,631,414 | ) | (1,997,008 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest income | 9 | 23 | 40 | 106 | ||||||||||||
Interest expense | (23,617 | ) | (38 | ) | (54,309 | ) | (38 | ) | ||||||||
Total other income (expense) | (23,608 | ) | (15 | ) | (54,269 | ) | 68 | |||||||||
Net loss | $ | (449,868 | ) | $ | (517,785 | ) | $ | (1,685,683 | ) | $ | (1,996,940 | ) | ||||
Weighted average number of common shares outstanding - basic and fully diluted | 5,482,206 | 5,192,045 | 5,469,502 | 5,071,058 | ||||||||||||
Net loss per share - basic and fully diluted | $ | (0.08 | ) | $ | (0.10 | ) | $ | (0.31 | ) | $ | (0.39 | ) |
See accompanying notes to unaudited consolidated financial statements.statements
4 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSSTOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Operating Activities | ||||||||
Net (loss) | $ | (2,570,564 | ) | $ | (2,249,351 | ) | ||
Adjustments to reconcile (loss) to net cash (used) by operating activities: | ||||||||
Depreciation and amortization | 157,482 | 152,053 | ||||||
Loss (Gain) on sale of assets | (1,049 | ) | 4,256 | |||||
Stock issued for services | – | 545 | ||||||
Warrants issued for services | 58,805 | 2,725 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 370 | (3,686 | ) | |||||
Prepaid expenses and other current assets | (6,765 | ) | (600 | ) | ||||
Related party receivable, CCI | – | (375,465 | ) | |||||
Accounts payable and accrued expenses | (53,511 | ) | (117,451 | ) | ||||
Deferred revenue | – | 22,500 | ||||||
Net cash (used) by operating activities | (2,415,232 | ) | (2,564,474 | ) | ||||
Investing Activities | ||||||||
Purchase of equipment | (25,284 | ) | (2,245 | ) | ||||
Net cash (used) by investing activities | (25,284 | ) | (2,245 | ) | ||||
Financing Activities | ||||||||
Proceeds from issuance of preferred stock | 120,000 | 4,386,903 | ||||||
Proceeds from issuance of common stock | 1,793,011 | 48,750 | ||||||
Net cash provided by financing activities | 1,913,011 | 4,435,653 | ||||||
Change in cash and cash equivalents | (527,505 | ) | 1,868,934 | |||||
Cash and cash equivalents at beginning of period | 2,766,775 | 1,046,774 | ||||||
Cash and Cash Equivalents at End of Period | $ | 2,239,270 | $ | 2,915,708 | ||||
Supplemental Disclosures | ||||||||
Interest paid in cash | $ | – | $ | – | ||||
Non-Cash Investing and Financing Activities | ||||||||
Issuance of preferred stock in exchange for deferred revenue obligations | $ | 140,000 | $ | 3,635,000 | ||||
Issuance of registered link and equipment for deferred revenue obligations | $ | – | $ | 70,000 | ||||
Exchange of related party receivable for treasury stock | $ | – | $ | 256,896 |
Class A | Class B | Class C | Common | |||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
Balance, December 31, 2019 | 2,560,000 | $ | 2,560 | 3,735,784 | $ | 3,735 | 1,000 | $ | 1 | 29,564,014 | $ | 29,564 | 24,134,448 | $ | (5,100,218 | ) | ||||||||||||||||||||||||
Issuance of common stock for services | – | – | – | – | – | – | 10,554 | 11 | – | – | ||||||||||||||||||||||||||||||
Issuance of common stock for cash | – | – | – | – | – | – | 20,000 | 20 | – | – | ||||||||||||||||||||||||||||||
Issuance of Warrants for Service | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Issuance of detachable warrants with Debt | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Net loss for the three months ended March 31, 2020 | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Balance, March 31, 2020 | 2,560,000 | $ | 2,560 | 3,735,784 | $ | 3,735 | 1,000 | $ | 1 | 29,594,568 | $ | 29,595 | 24,134,448 | $ | (5,100,218 | ) | ||||||||||||||||||||||||
Conversion of series A preferred stock to common stock | (40,000 | ) | (40 | ) | – | – | – | – | 40,000 | 40 | – | – | ||||||||||||||||||||||||||||
Repurchase of Series B preferred and common stock, in exchange for note payable | – | – | – | – | – | – | – | – | 40,000 | (100,000 | ) | |||||||||||||||||||||||||||||
Net loss for the three months ended June 30, 2020 | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Balance, June 30, 2020 | 2,520,000 | $ | 2,520 | 3,735,784 | $ | 3,735 | 1,000 | $ | 1 | 29,634,568 | $ | 29,635 | 24,174,448 | $ | (5,200,218 | ) | ||||||||||||||||||||||||
Issuance of common stock for services | – | – | – | – | – | – | 2,296 | 2 | – | – | ||||||||||||||||||||||||||||||
Issuance of common stock | – | – | – | – | – | – | 41,375 | 41 | – | – | ||||||||||||||||||||||||||||||
Conversion of warrants | – | – | – | – | – | – | 500 | 1 | – | – | ||||||||||||||||||||||||||||||
Conversion of series B preferred stock to common stock | – | – | (83,333 | ) | (83 | ) | – | – | 83,333 | 83 | – | – | ||||||||||||||||||||||||||||
Dissolution of subsidiaries | – | – | – | – | – | – | – | – | – | (124,824 | ) | |||||||||||||||||||||||||||||
Net loss for the three months ended September 30, 2020 | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Balance, September 30, 2020 | 2,520,000 | $ | 2,520 | 3,652,451 | $ | 3,652 | 1,000 | $ | 1 | 29,762,072 | $ | 29,762 | 24,174,448 | $ | (5,325,042 | ) | ||||||||||||||||||||||||
Balance, December 31, 2018 | 2,560,000 | $ | 2,560 | 3,735,784 | $ | 3,735 | 1,000 | $ | 1 | 29,106,868 | $ | 29,107 | 24,134,448 | $ | (5,100,218 | ) | ||||||||||||||||||||||||
Issuance of common stock | – | – | – | – | – | – | 28,140 | 28 | – | – | ||||||||||||||||||||||||||||||
Net loss for the three months ended March 31, 2019 | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Balance, March 31, 2019 | 2,560,000 | $ | 2,560 | 3,735,784 | $ | 3,735 | 1,000 | $ | 1 | 29,135,008 | $ | 29,135 | 24,134,448 | $ | (5,100,218 | ) | ||||||||||||||||||||||||
Issuance of common stock | – | – | – | – | – | – | 149,210 | 149 | – | – | ||||||||||||||||||||||||||||||
Net loss for the three months ended June 30, 2019 | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Balance, June 30, 2019 | 2,560,000 | $ | 2,560 | 3,735,784 | $ | 3,735 | 1,000 | $ | 1 | 29,284,218 | $ | 29,284 | 24,134,448 | $ | (5,100,218 | ) | ||||||||||||||||||||||||
Issuance of common stock | – | – | – | – | – | – | 86,635 | 87 | – | – | ||||||||||||||||||||||||||||||
Conversion of warrants | – | – | – | – | – | – | 13,538 | 14 | – | – | ||||||||||||||||||||||||||||||
Net loss for the three months ended September 30, 2019 | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Balance, September 30, 2019 | 2,560,000 | $ | 2,560 | 3,735,784 | $ | 3,735 | 1,000 | $ | 1 | 29,384,391 | $ | 29,385 | 24,134,448 | $ | (5,100,218 | ) |
See accompanying notes to unaudited consolidated financial statements.statements
5 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited) (Continued)
Class A Preferred | Class B Preferred | Additional | Total Stockholders’ | |||||||||||||||||||||||||
Treasury Stock | Treasury Stock | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
Balance, December 31, 2019 | 100,000 | $ | (179,368 | ) | 44,535 | $ | (79,882 | ) | $ | 25,207,137 | $ | (20,118,169 | ) | $ | (234,640 | ) | ||||||||||||
Issuance of common stock for services | – | – | – | – | 52,759 | – | 52,770 | |||||||||||||||||||||
Issuance of common stock for cash | – | – | – | – | 99,980 | – | 100,000 | |||||||||||||||||||||
Issuance of Warrants for Service | – | – | – | – | 89,155 | – | 89,155 | |||||||||||||||||||||
Issuance of detachable warrants with Debt | – | – | – | – | 80,053 | – | 80,053 | |||||||||||||||||||||
Net loss for the three months ended March 31, 2020 | – | – | – | – | – | (874,164 | ) | (874,164 | ) | |||||||||||||||||||
Balance, March 31, 2020 | 100,000 | $ | (179,368 | ) | 44,535 | $ | (79,882 | ) | $ | 25,529,084 | $ | (20,992,333 | ) | $ | (786,826 | ) | ||||||||||||
Conversion of series A preferred stock to common stock | – | – | – | – | – | – | – | |||||||||||||||||||||
Repurchase of Series B preferred and common stock, in exchange for note payable | – | – | 40,000 | (100,000 | ) | – | – | (200,000 | ) | |||||||||||||||||||
Net loss for the three months ended June 30, 2020 | – | – | – | – | – | (361,641 | ) | (361,641 | ) | |||||||||||||||||||
Balance, June 30, 2020 | 100,000 | $ | (179,368 | ) | 84,535 | $ | (179,882 | ) | $ | 25,529,084 | $ | (21,353,974 | ) | $ | (1,348,467 | ) | ||||||||||||
Issuance of common stock for services | – | – | – | – | 11,478 | 11,480 | ||||||||||||||||||||||
Issuance of common stock | – | – | – | – | 206,834 | – | 206,875 | |||||||||||||||||||||
Conversion of warrants | – | – | – | – | 2,499 | – | 2,500 | |||||||||||||||||||||
Conversion of series B preferred stock to common stock | – | – | – | – | – | – | – | |||||||||||||||||||||
Dissolution of subsidiaries | – | – | – | – | 124,824 | – | – | |||||||||||||||||||||
Net loss for the three months ended September 30, 2020 | – | – | – | – | – | (449,868 | ) | (449,868 | ) | |||||||||||||||||||
Balance, September 30, 2020 | 100,000 | $ | (179,368 | ) | 84,535 | $ | (179,882 | ) | $ | 25,874,719 | $ | (21,803,842 | ) | $ | (1,577,480 | ) | ||||||||||||
Balance, December 31, 2018 | 100,000 | $ | (179,368 | ) | 44,535 | $ | (79,882 | ) | $ | 23,131,864 | $ | (17,264,788 | ) | $ | 543,011 | |||||||||||||
Issuance of common stock | – | – | – | – | 115,023 | – | 115,051 | |||||||||||||||||||||
Net loss for the three months ended March 31, 2019 | – | – | – | – | – | (625,982 | ) | (625,982 | ) | |||||||||||||||||||
Balance, March 31, 2019 | 100,000 | $ | (179,368 | ) | 44,535 | $ | (79,882 | ) | $ | 23,246,887 | $ | (17,890,770 | ) | $ | 32,080 | |||||||||||||
Issuance of common stock | – | – | – | – | 704,618 | – | 704,767 | |||||||||||||||||||||
Net loss for the three months ended June 30, 2019 | – | – | – | – | – | (853,173 | ) | (853,173 | ) | |||||||||||||||||||
Balance, June 30, 2019 | 100,000 | $ | (179,368 | ) | 44,535 | $ | (79,882 | ) | $ | 23,951,505 | $ | (18,743,943 | ) | $ | (116,326 | ) | ||||||||||||
Issuance of common stock | – | – | – | – | 490,579 | – | 490,666 | |||||||||||||||||||||
Conversion of warrants | – | – | – | – | 67,676 | – | 67,690 | |||||||||||||||||||||
Net loss for the three months ended September 30, 2019 | – | – | – | – | – | (517,785 | ) | (517,785 | ) | |||||||||||||||||||
Balance, September 30, 2019 | 100,000 | $ | (179,368 | ) | 44,535 | $ | (79,882 | ) | $ | 24,509,760 | $ | (19,261,728 | ) | $ | (75,755 | ) |
See accompanying notes to unaudited consolidated financial statements
6 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months | ||||||||
Ended September 30, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (1,685,683 | ) | $ | (1,996,940 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 28,807 | 126,515 | ||||||
Amortization of debt discount | 28,788 | – | ||||||
Stock based compensation | 153,405 | 10,260 | ||||||
Non-cash lease expense | 100,538 | 94,350 | ||||||
Decrease (increase) in operating assets | ||||||||
Accounts receivable | 55,881 | (106,110 | ) | |||||
Inventory | (1,098 | ) | – | |||||
Work in Process | (71,378 | ) | – | |||||
Prepaid expenses and other assets | 10,606 | (47,093 | ) | |||||
Increase (decrease) in operating liabilities | ||||||||
Accounts payable and accrued expenses | 78,977 | (55,856 | ) | |||||
Accounts payable, related party | 26,744 | – | ||||||
Operating lease liability | (93,304 | ) | (95,233 | ) | ||||
Net cash used in operating activities | (1,367,717 | ) | (2,070,107 | ) | ||||
Cash flows from investing activities | ||||||||
Purchase of equipment | (13,039 | ) | – | |||||
Net cash used in investing activities | (13,039 | ) | – | |||||
Cash flows from financing activities | ||||||||
Payments on stock repurchase note payable | (60,000 | ) | – | |||||
Proceeds from issuance of debt | 803,158 | – | ||||||
Proceeds from exercise of warrants | 2,500 | 528,698 | ||||||
Proceeds from issuance of common stock | 306,878 | 555,406 | ||||||
Net cash provided by financing activities | 1,052,536 | 1,084,104 | ||||||
Net decrease in cash | (328,220 | ) | (986,003 | ) | ||||
Cash - beginning of period | 619,104 | 1,721,135 | ||||||
Cash - end of period | $ | 290,884 | $ | 735,132 | ||||
Supplemental disclosures: | ||||||||
Interest paid | $ | – | $ | 38 | ||||
Income taxes paid | $ | – | $ | – | ||||
Non-cash investing and financing activities: | ||||||||
Conversion of series A preferred stock to common stock | $ | 40 | $ | – | ||||
Conversion of series B preferred stock to common stock | $ | 83 | – | |||||
Cancellation and renegotiation of leases | $ | 134,616 | $ | – | ||||
Issuance of Stock Repurchase Note Payable | $ | 200,000 | $ | – | ||||
Issuance of detachable warrants with Debt | $ | 80,053 | $ | – | ||||
Issuance of common stock in exchange for registered link and equipment | $ | – | $ | 25,000 | ||||
Issuance of common stock in lieu of deferred revenue | $ | – | $ | 105,000 | ||||
ROU assets and operating lease obligations recognized | $ | – | $ | 408,649 |
See accompanying notes to unaudited consolidated financial statements
7 |
WYTEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:The interim consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K filed with the SEC on June 29, 2020. The results for the nine months ended September 30, 2020, are not necessarily indicative of the results to be expected for the year ended December 31, 2020. These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.
Description of Business and Principles of Consolidation:Business: Wytec International, Inc. (“Wytec”Wytec,” “we,” “our,” “us,” or the “Company”), a Nevada corporation, designs, manufactures, and installs carrier-class Wi-Fi Solutions in the 70 and 80 gigahertz licensed frequency program to local government, Mobile Service Operations, National Telecommunications Operators, and corporate enterprises. The accompanying Consolidated Financial Statements includeWytec is also involved in the accountssale of Wytecwired and its subsidiaries, after elimination of all material intercompany accounts, transactions,wireless services, including products, wireless data cards, back office platform and profits. Consolidated subsidiaries of Wytec include:
Wylink Inc. (Wylink), a Texas corporationrate plans to their commercial and wholly owned subsidiary,enterprise clients and has been engaged in the sale of Federal Communications Commission (“FCC”) registered links participating in the 70 and 80 gigahertz licensed frequency program (the “Program”). The Program allows qualified individuals to own a segment of the “backhaul” infrastructure of Wytec’s city-wide business deployment.
Wytec, LLC,On or about August 20, 2020, Capaciti Networks, Inc., our former subsidiary, was dissolved and on or about September 22, 2020, Wylink, Inc., our former subsidiary, was dissolved. No consideration was exchanged in either transaction. As a Delaware limited liability company, formed September 7, 2012result of the dissolutions, we acquired the net assets and previously managed by General Patent Corporation (“GPC”), holds a partial ownership in patents focused on high capacity millimeter wave technology. On September 20, 2016, General Patent Corporation, the then Managing Partnerliabilities of Wytec, LLC, assigned its partial ownership in the patents to Wytec, thereby terminating its role as Managing Partner.
both Wylink, Inc, and Capaciti Networks, Inc. (“Capaciti”), a Texas corporation, has been engaged inand their operations continue as part of the sale of wired and wireless services, including products, wireless data cards, back office platform and rate plans to their commercial and enterprise clients. In November 2016, Capaciti was purchased by Wytec from Competitive Companies, Inc. (“CCI”), a related party entity through common control. Wytec accounted for the acquisition as a common control transaction and change in reporting entity. The financial results for Wytec International, Inc. have been retrospectively adjusted to include the financial results of Capaciti in the current and prior periods as though the transaction occurred at the beginning of each period presented. The Capaciti transaction proceeds are reflected as an equity transaction during the period the transaction occurred, which was in the period ended December 31, 2016. Refer to Note F for additional detail of this transaction.
Collectively, Wytec and subsidiaries, are referred to as “Company.”Company.
Basis of Accounting: The accompanying financial statements have been prepared by the Company’s management in accordance with U. S. generally accepted accounting principles (“GAAP”) and applied on a consistent basis.
Revenue Recognition:and Cost Recognition. Revenue on sales of FCC register links is recognized onceby applying the link has been registered on behalf offollowing five steps: 1) identify the customer andcontract with a customer; 2) identify the necessary equipment has been installed and is ready for use. Revenue is not recognized onperformance obligations in the link sales untilcontract; 3) determine the link construction is completed andtransaction price; 4) allocate the link has been placed in service. Amounts collected prior to completion of all obligationstransaction price to the customer are recorded as deferred revenue. Commission expense isperformance obligations; and 5) recognize revenue when (or as) we satisfy a period costperformance obligation.
The Company earns revenues from contracts with customers for (i) sales and is recorded in the period in which the commissioninstallation of cellular enhancement equipment and (ii) support agreements. Revenue from the sale and installation of cellular enhancement equipment is recognized either when the installation is completed or as the company installs the cellular enhancement equipment, depending on the complexity of the system, such as the degree of customization of the equipment being installed, and the agreement with the customer. The less complex systems installed by the Company where management believes the installed equipment has been earned and paid, even thoughan alternative use, due to the standard nature of the equipment sourced from our vendors that can be used in other projects, revenue from such contacts is recognized for completed installations upon customer acceptance. This assessment, at contract inception, is a management judgment based on the sale maycombination of equipment ordered, the services performed and whether or not be recognized until a future period. Commissions are payable at collection of funds from link sale and are not dependent upon successful installation and operationmaterial effort, within the context of the link. Revenues fromcontract, would be required to rework the saleequipment for another project, and the term and terms of wiredthe contract with the customer. For example, such contracts are usually completed within 30-45 days. In larger more complex projects where the Company is creating an asset for the customer with no alternative use and wireless internet services is recognized inhas an enforceable right to payment for performance prior to contract completion, we recognize revenue utilizing the month in which services are provided.
Cash and Cash Equivalents: The Companypercentage of completion method. This method measures completion based on management’s estimate of total costs to complete each contract because management considers all bank deposits and short-term securities with a maturity of three months or lesstotal costs to be cash equivalents.
the best available measure of progress on the contract.
NOTE A – SIGNIFICANT ACCOUNTING POLICIES – continuedSupport agreements entered into with customers are generally for a period of one year, during which the Company stands ready to provide service and support for installed systems at the customer site. Support agreement amounts are billed in advance to the customer, as agreed in the contract, and recorded as a contract liability. During the period, the Company provides unspecified firmware upgrades to installed client equipment as they are available. Management estimates that straight line recognition of revenue over the period of the support agreement contract is a faithful representation of the pattern of delivery on the Company’s obligation under these agreements.
Sales tax is recorded on a net basis and excluded from revenue.
Allowance for Doubtful Accounts: The allowance for doubtful accounts is evaluated on a regular basis through periodic reviews of the collectability of the receivables in light of historical experience, adverse situations that may affect our customers' ability to repay, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accounts receivable are determined to be past due based on how recently payments have been received and those considered uncollectible are charged against the allowance account in the period they are deemed uncollectible. No allowance for trade accounts receivable was determined to be necessary at September 30, 20172020 and December 31, 2016. The related party receivable from CCI has been fully reserved as of September 30, 2017.
Construction in Process:The cost of equipment and materials purchased, and contract labor incurred, for the construction of network, plant property and equipment, and the installation of registered links on behalf of customers are held in construction in process until construction is completed. No depreciation or amortization is applied to construction in process. Once construction is complete and network element is placed in service, the costs are either capitalized or expensed as cost of goods sold as appropriate.2019.
PropertyOperating Leases Right-of-use Assets and Equipment:Operating Lease Obligations: PropertyIn February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)." This update requires that a lessee recognize in the statement of financial position a liability to make lease obligations and equipmenta right-of-use asset representing its right to use the underlying asset for the lease term. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease obligations. Similar to current guidance, the update continues to differentiate between finance leases and operating leases, however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. The guidance became effective for us on January 1, 2019.
We adopted obligations on these provisions on January 1, 2019 using the optional transition method that permits us to apply the new disclosure requirements in 2019 and continue to present comparative period information as required under FASB ASC Topic 840, "Leases." We did not have a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to exclude leases with an initial term of 12 months or less from the right-of-use assets and obligations. Adoption of the standards had no impact on results of operations or liquidity.
If we determine that an arrangement is or contains a lease, we recognize a right-of-use (“ROU”) asset and lease obligation at the commencement date of the lease. ROU assets represent our right to use an underlying asset for the lease term and lease obligations represent our lease payments arising from the lease. Operating lease ROU assets and obligations are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Inventories: Inventories are stated at cost. Depreciation is computed using the estimated useful liveslower of cost (determined on the related assets, generally ranging from five to ten years. Expendituresfirst-in, first-out basis) or market. Inventory consists of equipment held for repairsinstallation and maintenance are charged towork in process. Work in process contains both equipment costs and expensed as incurred, while expendituresdirect labor charges. Inventories are reviewed periodically to determine impairment and identify excess and obsolete equipment. A valuation allowance is provided for renewalobsolete and betterments are capitalized. Leasehold improvements are amortized over the remaining term of the lease. Upon retirement or replacement, theslow-moving inventory to write cost of capitalized assetsdown to net realizable value (market), if necessary. No allowance was determined to be necessary at September 30, 2020 and the related accumulated depreciation and amortization is eliminated with the resulting gain or loss recognized.December 31, 2019.
Depreciable assets are evaluated for impairment on at least an annual basis or upon significant change in the operating or macro-economic environment. In these circumstances, if an evaluation of the undiscounted cash flows indicate impairment, the asset is written down to its estimated fair value, which is generally based on discounted future cash flows. Useful lives are periodically evaluated to determine whether events or circumstances have occurred which indicate the need to revise the useful lives. No impairment charges were incurred for the nine-month periods ended September 30, 2017 and 2016.
Deferred Revenue: Deferred revenue consists of amounts billed and collected before services have been completed. Such amounts are deferred until the revenue recognition requirements have been met.
Income Taxes: The Company files an income tax return in the U.S. federal jurisdiction as part of the consolidated group of its controlling shareholder, CCI. The Company is also subject to state income taxes (including franchise, margin and business entity taxes) in several states and such taxes are reflected in income taxes on the Consolidated Statements of Operations. Management is not aware of any uncertain tax positions the Company has taken. The Company is subject to routine examinations by taxing authorities; however, there are currently no examinations for any tax periods in progress and its tax returns for the last four years remain open to examination by its significant taxing jurisdictions.
Fair Value of Financial Instruments: The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The recorded values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values based on their short-term nature.
Concentrations of Credit Risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company maintains cash deposits with financial institutions and limits the amount of credit exposure to any one financial institution. Deposits with financial institutions may on occasion exceed the federally insured limits. The Company periodically assesses the financial institutions and believes the risk of any loss is minimal.
Government Regulations: The Company is subject to federal, state and local provisions regulating the discharge of materials into the environment. Management believes that its current practices and procedures for the control and disposition of such wastes comply with applicable federal, state and local requirements.
Subsequent Events: Subsequent events have been evaluated by management through the inclusion of this financial statement in the filing of Form 10-Q with the Securities and Exchange Commission (“SEC”). Material subsequent events, if any, are disclosed in a separate footnote to these financial statements.
NOTE A – SIGNIFICANT ACCOUNTING POLICIES – continued
New Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 entitled Revenue from Contracts with Customers (Topic 606). The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective with financial statements issued for the year ending December 31, 2018, and the quarterly periods during that year. The effect of the new standard is not expected to materially influence the Company’s financial statements.
In February 2016, FASB issued ASU No. 2016-02, Leases, requiring entities that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. For leases which meet the criteria of short-term, lessees may elect an accounting policy to not recognize lease assets and liabilities and expense lease payments on a straight-line basis. A short-term lease is one in which the lease term is 12 months or less and there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Under current GAAP, lessees apply a classification test to determine the accounting for the lease arrangements as either capital leases, whereby the lease assets and liabilities would be recognized on the balance sheet, or operating leases, whereby the lessees would not recognize lease assets and liabilities. This ASU will be effective for the Company for the year ending December 31, 2019, and for interim periods therein. The Company is currently evaluating the effects the adoption of this guidance will have on its consolidated financial statements.
Use of Estimates: The preparation of the consolidated financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE B – GOING CONCERN
TheOur consolidated financial statements are prepared using U.S.accounting principles generally accepted accounting principlesin the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. The Company hasWe have incurred continuous losses from operations, hashave an accumulated deficit of $13,039,564$21,803,842 at September 30, 2017,2020, and have reported negative cash used by operations of $2,415,232 f or the nine months ended September 30, 2017.flows from operations. In addition, we do not currently have the Company expectscash resources to have ongoing requirementsmeet our operating commitments for capital investment to implement its business plan. Finally, the next twelve months. The Company’s ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive environmentnature in which it operates.we operate. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
Since inception,Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations have primarily been funded through privateto meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, there can be no assurance that we will be successful in our efforts to raise additional debt or equity financing.capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time. Management expects to continue to seek additional funding through private or public equity sources and will seek debt financing. The Company’s ability to continue as a going concern is ultimately dependent on its ability to generate sufficient cash from operations to meet cash needs and/or to raise funds to finance ongoing operations and repay debt. There can be no assurance that the Company will be successful in these efforts. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary should it be unable to continue as a going concern.
NOTE C – REVENUE AND ACCOUNTS RECEIVABLE
The Company recognizes revenue in accordance with its accounting policy. The Company invoices customers and recognizes accounts receivable in an amount equivalent to which it has an unconditional right and expects to receive aligned with the agreement with the customer. The Company has contracted payment terms with its customer of net 15 days. The Company recognized revenue from performance obligations satisfied as of a point in time and over time as disaggregated in the table below.
Timing of Revenue Recognition
For the Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2020 | 2019 | |||||||
Point in Time | $ | 444,322 | $ | 259,730 | ||||
Over Time | 68 | – | ||||||
$ | 444,390 | $ | 259,730 |
Due to the Company billing service agreements in advance and recognizing revenue for service agreements over time as more fully described in its accounting policy the Company carries a contract liability balance proportional to the time remaining on each customer agreement. The Company issues invoices to customers for completed work as performance obligations satisfied as of a point in time are fulfilled and does not carry a contract asset balance for these performance obligations.
Contract Assets and Liabilities
September 30, | December 31, | |||||||
2020 | 2019 | |||||||
Contract Liability | $ | (751 | ) | $ | – | |||
$ | (751 | ) | $ | – |
The Company’s contracts for support services are typically for terms of one year or less. The aggregate amount of contract performance obligation as of September 30, 2020 and December 31, 2019 that the Company expects to recognize over the next year is $751 and $0, respectively.
The Company is under no obligation and is not in the practice of providing customers with returns, rebates, discounts, or refunds and has not in an amount material to the financial statements. The Company, accordingly, does not recognize these obligations at the time of revenue recognition. The Company may receive consideration from customers who enter into support agreements in the future for incremental services provided to such customers. Those services are delivered as of a point in time when the customer requests the service. Future consideration as described is excluded from the transaction price calculated for support agreement performance obligations.
The Company has applied the practical expedient that permits the Company to recognize revenue without regard to significant financing components based on the Company’s expectations about the transfer of services and the receipt of payment from customers. The effect of this practical expedient is not material to the Company’s financial statements.
10 |
NOTE D – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Property and Equipment
September 30, | December 31, | |||||||
2020 | 2019 | |||||||
Telecommunication equipment and computers | $ | 1,105,939 | $ | 1,092,901 | ||||
Less: accumulated depreciation | (1,041,435 | ) | (1,012,628 | ) | ||||
$ | 64,504 | $ | 80,273 |
Depreciation expense for the nine months ended September 30, 2020 and 2019 was $28,808 and $126,515, respectively.
NOTE E – DEBT
As of September 30, 2020, the Company’s debt consists of the following:
$200,000 of 0% unsecured notes payable due March 2021 | $ | 140,000 | ||
$625,000 of 7% unsecured notes payable due August 2021, net of unamortized discount of $51,265 | 573,735 | |||
$178,158 of 1% unsecured notes payable due April 2022 | 178,158 | |||
$ | 891,893 |
In February 2020, we issued a note in the amount of $625,000 bearing simple interest at a rate of 7% per annum to one investor due August 2021. The note contains a feature that allows the Company to extend the maturity date up to six months, twice, in the Company’s sole discretion. This note was issued along with 62,500 common stock purchase warrants that were determined to have a fair market value of $80,053 on the issuance date, which was recorded as a debt discount and amortized over the term of the notes, with $28,788 amortized in the nine months ended September 2020 and reported in the statement of operations as interest expense.
In April 2020, we entered into a Repurchase and General Release Agreement with one shareholder pursuant to which we issued a note payable in the amount of $200,000 bearing no interest and due on September 30, 2020. The note is payable in $10,000 monthly installments with the balance payable on the maturity date. The note contains a feature that allows the Company to extend the maturity date of the note to March 31, 2021 in the Company’s sole discretion, and if the Company exercises this option, the $10,000 monthly installments will continue until the extended maturity date on which date the balance of the note will be due. During the quarter, the Company extended the maturity date of the note under the terms of the note to March 2021. The Company made payments in the amount of $60,000 on the note during the period and the balance as of September 30, 2020 is $140,000.
In April 2020, we received a loan pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the amount of $178,158. The loan bears interest at a fixed rate of 1% per annum after a six-month deferral period. The loan contains a feature pursuant to which the Small Business Administration (“SBA”) will forgive the balance of the loan under statutory authority and conditions set forth in the CARES Act. We anticipate forgiveness of 100% of the loan balance, but any portion not forgiven will be due in April 2022.
11 |
The following is a summary of principal maturities during the next five years:
2020 (three months remaining) | $ | 30,000 | ||
2021 | 735,000 | |||
2022 | 178,158 | |||
$ | 943,158 |
NOTE F – LEASES
The Company leases facilities and office equipment under various operating leases, which generally are expected to be renewed or replaced by other leases. For the nine-month periods ended September 30, 2020 and 2019, operating lease expense totaled $115,363 and $130,443, respectively. For the three-month periods ended September 30, 2020 and 2019, operating lease expense totaled $24,474 and $35,599, respectively.
The weighted average remaining lease term is 2.57 years and weighted average discount rate is 5.5% as of September 30, 2020.
Future minimum lease payments as of September 30, 2020 are as follows:
2020 (three months remaining) | $ | 25,194 | ||
2021 | 85,695 | |||
2022 | 24,695 | |||
2023 | 23,536 | |||
2024 | 6,930 | |||
Thereafter | 7,200 | |||
Total minimum lease payments | 173,250 | |||
Less: imputed interest | (13,104 | ) | ||
Present value of minimum lease payments | 160,146 | |||
Less: current portion of least obligation | (91,368 | ) | ||
Long-term lease obligation | $ | 68,778 |
NOTE G – WARRANTS
The Company has common stock purchase warrants outstanding at September 30, 20172020 to purchase 6,033,1062,409,675 shares of common stock exercisable onuntil various dates through June 30, 2018.December 31, 2022. The warrants are exercisable at the following amounts and rates: 1,731,1042,000,000 of which are exercisable at an exercise price of $1.00 per share and 155,000 of which are exercisable at an exercise price of $5.00 per share; 163,727share, and 254,675 of which are exercisable at an exercise price of $3.00the greater of $5.00 per share; 2,939,775share or (ii) 85% of which are exercisable at an exercisethe average closing price of $1.50 per share; 75,000our common stock, as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately prior to the date of which are exercisableexercise.
To calculate the fair value of stock warrants at an exercise pricethe date of $1.45 per share;grant, we use the Black-Scholes option pricing model. The volatility used is based on historical volatilities of selected peer group companies. Management estimates the average volatility considering current and 373,500future expected market conditions. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at $1.25 per share;the time of grant. Each issuance is individually valued according to this procedure as of the date of issue with maturity dates between December 31, 2021 and 750,000 of which are exercisable at an exercise price of $1.00 per share.December 31, 2022, volatility estimates between 35% to 44% and risk-free rates 0.38% to 1.44% in the period.
NOTE C – WARRANTS – continuedOn February 25, 2020, we issued a note in the amount of $625,000 bearing simple interest at a rate of 7% per annum to one shareholder. This note was issued along with 62,500 common stock purchase warrants that were determined to have a fair market value of $80,053 on the issuance date, which was recorded as a debt discount and amortized over the term of the notes, with $12,680 amortized in the current quarter, and $28,788 in the nine months ended September 30, 2020.
On March 3, 2020, we issued 92,500 warrants for services rendered with a fair market value on the issuance date of $89,155 recorded as an expense in the period.
On March 13, 2020, we issued 20,000 common stock purchase warrants to two investors as part of our offering of units, each unit consisting of one share of our common stock and one common stock purchase warrant.
There were no warrants issued in the second quarter of 2020.
During the third quarter we issued 41,375 common stock purchase warrants to six investors as part of our offering of units, each unit consisting of one share of our common stock and one common stock purchase warrant.
The following is a summary of activity and outstanding common stock warrants:
# of Warrants | ||||
Balance, December 31, | ||||
Warrants granted | ||||
Warrants exercised | ( | ) | ||
Warrants expired | ( | ) | ||
Exercisable, September 30, |
NOTE DH – STOCKHOLDERS’ EQUITY (DEFICIT)
Holders of common stock are entitled to one vote per share. The common stock does not have cumulative voting rights in the election of directors. Accordingly, the holders of a majority of the outstanding shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferential rights with respect to any series of preferred stock that may be issued, holders of the common stock are entitled to receive ratably such dividends as may be declared by the board of directors on the common stock out of funds legally available therefore and, in the event of liquidation, dissolution or winding-up of affairs, are entitled to share equally and ratably in all the remaining assets and funds.
Series A preferred stock is nonvoting capital stock but may be converted into voting common stock. Each share of series A preferred stock is convertible at the option of the holder at any time after the issuance into one share of common stock, subject to adjustment from time to time in the event (i) the Company subdivides or combines its outstanding common stock into a greater or smaller number of shares, including stock splits and stock dividends; or (ii) of a reorganization or reclassification of common stock, the consolidation or merger with or into another company, the sale, conveyance or other transfer of substantially all of the Company assets to another corporation or other similar event, whereby securities or other assets are issuable or distributable to the holders of the outstanding common stock upon the occurrence of any such event; or (iii) of the issuance to the holders of Company common stock of securities convertible into, or exchangeable for, such shares of common stock.
13 |
Each outstanding share of series A preferred stock will automatically convert into one share of common stock (a) if the common stock commences public trading on the NASDAQ capital market or better, (b) if the series A preferred stockholder receives distributions from the net profits pool equal to the original purchase price paid for their registered links, or (c) five years after the date of issuance of the series A preferred stock. The Company does not have any other right to require a conversion of the series A preferred stock into common stock. The Company does not have the option to redeem outstanding shares of series A preferred stock. A holder of the series A preferred stock has no preemptive rights to subscribe for any additional shares of any class of stock or for any issue of bonds, notes or other securities convertible into any class of stock. In the event of a liquidation, dissolution or winding-up whether voluntary or otherwise, after payment of debts and other liabilities, the holders of the series A preferred stock will be entitled to receive from the remaining net assets, before any distribution to the holders of the common stock, the amount of $1.50 per share. After payment of the liquidation preference to the holders of series A preferred stock and payment of any other distributions that may be required with respect to any other series of preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock and the holders of the series A preferred stock on an as-if converted basis.
NOTE D – STOCKHOLDERS’ EQUITY (DEFICIT) – continued
The series B preferred stock is voting capital stock. The holders of the series B preferred stock will vote on an as-converted basis with the common stock on all matters submitted to a vote of the shareholders. The holders of the series B preferred stock are not entitled to any dividends unless and until the series B preferred stock is converted into common stock. Each share of series B preferred stock is convertible at the option of the holder at any time after issuance into one share of common stock, subject to adjustment from time to time in the event (i) the Company subdivides or combines into outstanding common stock into a greater or smaller number of shares, including stock splits and stock dividends; or (ii) of a reorganization or reclassification of common stock, the consolidation or merger with or into another company, the sale, conveyance or other transfer of substantially all of the Company assets to another corporation or other similar event, whereby securities or other assets are issuable or distributable to the holders of the outstanding common stock upon the occurrence of any such event; or (iii) of the issuance by us to the holders of common stock of securities convertible into, or exchangeable for, such shares of common stock.
Each outstanding share of series B preferred stock will automatically convert into one share of common stock at a conversion rate equal to the lesser of $3.00 per share or 75% of the average closing price of the Company’s common stock as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately after the first day of public trading of common stock if common stock commences public trading on the NASDAQ capital market or better, but in any event no less than $2.50 per share or at $3.00 per share five years after the date of issuance of the series B preferred stock. In the event of a liquidation, dissolution or winding-up whether voluntary or otherwise, after payment of debts and other liabilities, the holders of the series B preferred stock will be entitled to receive from the remaining net assets, before any distribution to the holders of the common stock, and pari pasu with the payment of a liquidation preference of $1.50 per share to the holders of the series A preferred stock, the amount of $3.00 per share. After payment of the liquidation preference to the holders of the series A preferred stock and the series B preferred stock, and payment of any other distribution that may be required with respect to any other series of preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock, the holders of the series A preferred stock, and the holders of the series B preferred stock on an as-if converted basis.
The series C preferred stock is voting capital stock. For so long as any shares of the series C preferred stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right, on or after July 20, 2016, to vote in an amount equal to 51% of the total vote (representing a super majority voting power) with respect to all matters submitted to a vote of the shareholders of Wytec. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of series C preferred stock. For example, if there are 10,000 shares of our common stock issued and outstanding at the time of such shareholder vote, the holders of the series C preferred stock, voting separately as a class, will have the right to vote an aggregate of 10,408 shares, out of a total number of 20,408 shares voting.
Additionally, the Company is prohibited from adopting any amendments to the Company’s bylaws or articles of incorporation, as amended, making any changes to the certificate of designation establishing the series C preferred stock, or effecting any reclassification of the series C preferred stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of series C preferred stock. The Company may, however, by any means authorized by law and without any vote of the holders of shares of series C preferred stock, make technical, corrective, administrative or similar changes to such certificate of designation that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of series C preferred stock.
14 |
The holders of the series C preferred stock are not entitled to any dividends. Holders of the series C preferred stock have no conversion rights. The shares of the series C preferred stock shall be automatically redeemed by us at their par value on the first to occur of the following: (i) on the date that Mr. Gray ceases, for any reason, to serve as officer, director or consultant of Wytec, or (ii) on the date that our shares of common stock first trade on any national securities exchange provided that the listing rules of any such exchange prohibit preferential voting rights of a class of securities of Wytec, or listing on any such national securities exchange is conditioned upon the elimination of the preferential voting rights of the series C preferred stock set forth in the certificate of designation. A holder of the series C preferred stock has no preemptive rights to subscribe for any additional shares of any class of stock of Wytec or for any issue of bonds, notes or other securities convertible into any class of stock of Wytec. The holders of the Series C Preferred Stock are not entitled to any liquidation preference.
In January 2020, the Company issued 554 shares of common stock to one vendor for services rendered at fair value of $2,770.
NOTE D – STOCKHOLDERS’ EQUITY (DEFICIT) – continuedIn March 2020, the Company issued 20,000 shares of common stock to two investors for cash at $5.00 per share as part of the Company’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.
During 2014 through September 30, 2017, WytecIn February 2020, the Company issued 10,000 shares of itscommon stock at fair value of $50,000 to one employee pursuant to a severance agreement.
In April 2020, the Company issued 40,000 shares of common stock in consideration for the conversion of 40,000 shares of Series A Preferred Stock by one shareholder.
In April 2020, the Company entered into a Repurchase and Series B Preferred Stock, alongGeneral Release Agreement with warrantsone investor to purchase Wytecrepurchase 40,000 shares of common stock to outside investors in consideration for the repurchase of registered links from third party owners who had previously purchased them from a subsidiary of Wytec. During year 2014, Wytec issued a total of 3,360,000and 40,000 shares of its Series A Preferred Stockseries B preferred stock at $2.50 per share in exchange for a totalnote payable in the amount of 168 registered links held by third party owners. Twenty-thousand (20,000) shares were issued for each$200,000 bearing no interest and due on March 31, 2021 as extended under the terms of the 168 registered links exchanged, resultingnote. No portion of the agreement with the investor was treated as an expense. The shares are held in an effective valuetreasury stock until cancelled or reissued by the Company.
In July 2020, the Company issued 12,000 shares of common stock to two investors for cash at $5.00 per share as part of approximately $1.41 since the registered links were originally sold for an average priceCompany’s offering of approximately $28,150 per link. Settingunits, each unit consisting of one share of the exchange price at 20,000 shares was a discretionary decision which established the initial basis for capitalization. During year 2016, Wytec issued 1,215,000 shares and 1,215,000 warrants to purchase WytecCompany’s common stock in exchange for a total of 121.5 registered links held by third party owners. During year 2017, Wytec issued 40,000 shares and 40,000 warrants to purchase Wytecone common stock in exchangepurchase warrant.
In August 2020, the Company issued 25,000 shares of common stock to four investors for a total of 4 registered links held by third party owners. Ten-thousand (10,000) shares were issued for eachcash at $5.00 per share as part of the 125.5 registered links exchanged, resultingCompany’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.
In September 2020, the Company issued 4,375 shares of common stock to one investor in lieu of making an effectiveaccrued interest payment in cash at $5.00 per share valueas part of approximately $3.48 since the registered links were originally sold for an average price of approximately $34,806 per link. This effective per share value is approximately equal to the Series B Preferred Stock private placementCompany’s offering of years 2015units, each unit consisting of one share of the Company’s common stock and 2016,one common stock purchase warrant.
In September 2020, one investor exercised 500 common stock purchase warrants for which the Company issued 500 shares of common stock for cash at $3.00$5.00 per share.
In each of these exchangesDuring the quarter, the Company issued preferred2,296 shares of common stock and in some cases Wytec warrants, to the registered link holders in considerationone vendor for which the Company either acquired an installed and operational register link or satisfied a deferred revenue obligation associated with the registered Link.services rendered at fair value of $11,484.
NOTE EJ – INCOME TAXESRELATED PARTY TRANSACTIONS
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at September 30, 2017:
Income Taxes
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carry forwards | $ | 3,787,283 | $ | 3,046,393 | ||||
Less: Valuation allowance | (3,787,283 | ) | (3,046,393 | ) | ||||
Net deferred tax assets | $ | – | $ | – |
The Company has net operating loss carryforwards for tax purposes of approximately $11.34 million that beginan accounts payable balance owed to expireRichardson & Associates in the year 2032. Management has reviewed its net deferred asset position, and due to the historyamount of operating losses has determined that the application of a full valuation allowance against its net deferred tax asset at September 30, 2017 and December 31, 2016 is warranted. As$103,024 as of September 30, 2017, the Company had not accrued any interest or penalties related to uncertain tax positions.
2020, and $76,280 as of December 31, 2019. The Company does not have a liability for state taxes at eitherincurred expense of $47,285 and $79,934 with Richardson & Associates as of the nine months ended September 30, 2017 or December 31, 2016.2020 and September 30, 2019, respectively. Mark Richardson is the owner of Richardson & Associates and he was appointed as a director of Wytec International, Inc. in September 2019.
The federal income tax benefit expected by the application of the corporate income tax rates to pre-tax net loss differs from the actual benefit recognized due to the valuation allowance recorded for 2017 and 2016.
NOTE FK – RELATED PARTY TRANSACTIONS
Shared Services: The Company has shared services agreements with an entity under common control, CCI, which requires either party to pay for its allocated share of employment and overhead costs. Wytec International, Inc. was charged a net administrative expense of ($319,622) for the nine months ending September 30, 2017 and $988,388 for the nine months ending September 30, 2016. These allocated costs are reflected in selling, general and administrative on the Consolidated Statement of Operations. Quarterly the Company runs a profit and loss statement for Wytec and CCI to determine if there are any expenses that either of the Wytec or CCI is paying that partially includes the expense for the other company such as rent, payroll, office supplies, etc. Depending on the expense, the Company determines on an individual account basis the estimated percentage of the expense that actually belongs to Wytec or CCI. The Company then prepare an analysis to identify all the expenses and the percentage to be allocated to the each company. A journal entry is entered on each set of books to recognize the expense or transfer the expense to the applicable company.
Related Party Receivable/Payable: From time to time the Company has transactions with CCI which may result in an outstanding receivable/payable. At September 30, 2017, the gross receivable from CCI totaled $391,002 and a full allowance has been recorded for this balance.
Purchase of Capaciti: Effective November 17, 2016, the Company acquired 100% of the interest in Capaciti by releasing 609,603 shares of the Company’s common stock held in treasury to CCI. Because the Company and CCI are under common control, the Company’s income statement has been retrospectively adjusted to include the financial results of Capaciti in the current and prior periods as though the transaction occurred at the beginning of each period presented.
The proceeds are reflected as an equity transaction for the year ended December 31, 2016. The following adjustments reflect changes made to the financial statements as a result of this transaction as of September 30, 2017 and September 30 2016.
Related Party Transactions - Capaciti
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Revenue | $ | 21,824 | $ | 22,882 | ||||
Operating loss | (110,999 | ) | (32,029 | ) | ||||
Net loss | (110,999 | ) | (32,029 | ) | ||||
Other comprehensive income | – | – | ||||||
Basic and diluted earnings per share | – | – |
NOTE G – TREASURY STOCKCONCENTRATIONS
The Company through negotiations with CCI, entered into an agreement to purchase back sharesderived $365,692, 82%, and $0, 0%, of stock held by CCIrevenue in exchange for the amount of outstanding receivables from CCI. During 2016, the Company purchased 214,662 shares of its common stock for $256,895.
On November 17, 2016, the Company acquired 100% of the outstanding equity in Capaciti Networks, Inc. in consideration for the issuance of 609,603 shares of the Company’s common stock to CCI.
NOTE H – LEASES
The Company has entered into multiple rooftop lease agreements for the placement of equipment used in the build out of the Company’s millimeter wave network. The monthly lease payments range from $100 to $575 per month and the leases expire from 2018 to 2024. Rent expense for these leases totaled approximately $55,899 for the nine months ended September 30, 2017.2020 and September 2019, respectively, from a single customer. The Company derived $0, 0%, and $70,585, 28%, and $0, 0%, and $61,781, 24%, and $0, 0%, and $40,864, 16%, of revenue in the nine months ended September 2020 and September 2019, respectively, from three additional customers. We continue to endeavor to diversify our customer base and make efforts to mitigate the risk associated with excess concentration of sales from a limited number of customers.
NOTE L – SUBSEQUENT EVENTS
During the fourth quarter of 2020, Wytec issued 21,000 shares of common stock and 21,000 common stock purchase warrants to seven investors for which Wytec has received $105,000 pursuant to Wytec’s offering of units under Rule 506(c) of Regulation D of the Securities Act, as amended, each unit consisting of one share of common stock and one common stock purchase warrant at a purchase price of $5.00 per unit. These warrants are exercisable for cash until December 31, 2021 at an exercise price equal to the greater of (i) $5.00 or (ii) 85% of the average closing price of our common stock as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately prior to the date of exercise.
NOTE I – SUBSEQUENT EVENTS
In October 2017, Wytec issued 60,000 shares of Wytec common stock to 4 investors pursuant to the exercise of warrants.
In October and November 2017, Wytec loaned $10,500 to the Company in the form of an unsecured non-interest bearing advance.
In November 2017, the Company formalized its interest bearing revolving line of credit with CCI (“the “LOC”) and transferred related party unsecured non-interest loans totaling $401,502, including the $10,500 that Wytec loaned to the CCI in October 2017, to the LOC.
In November, 2017 Wytec issued 15,000 warrants for services rendered to 3 consultants.
In November, 2017, Wytec issued 12,500 of Wytec common stock to 2 investors pursuant to the exercise of warrants.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and related notes appearing at the end of this prospectus. This discussionreport contains forward-looking statements reflecting ourthat are based on current expectations, estimates, forecasts and projections about Wytec International, Inc. (hereinafter, with its subsidiary, “Wytec,” “Company,” “us,” “we” or “our”), the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that involveare not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” and variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Actualuncertainties that may cause the Company’s actual results andto be materially different from any future results expressed or implied by the timing of events may differ materiallyCompany in those statements. The most important factors that could prevent the Company from those contained in these forward-looking statements dueachieving its stated goals include, but are not limited to, a number of factors, including those discussed in the section entitled “Risk Factors” beginning on page 12 and elsewhere in this prospectus.following:
Overview
(a) | volatility or decline of our stock price; |
On October 25, 2016, the board of directors of Competitive Companies, Inc., a Nevada corporation (“CCI”) authorized management to pursue a plan to spin-off to its stockholders of common stock and warrants of a majority-owned subsidiary, Wytec (the “Spin-Off”). In the Spin-Off, record holders of each share of CCI common stock will receive approximately 0.0026 shares of Wytec’s common stock (“Common Stock”), rounded-up to the nearest whole share, and two Common Stock purchase warrants (“Warrants”) for every share of Common Stock issuable to the holder. Following the Spin-Off, CCI will not own any equity interest in us, and we will operate independently from CCI. The record date for the Spin-Off is November 10, 2017 and the distribution date is November 20, 2017.
(b) | potential fluctuation in quarterly results; |
Our consolidated financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of CCI. Our consolidated financial statements reflect our financial position, results of operations and cash flows as we were historically managed, in conformity with GAAP. Our financial statements include certain assets and liabilities that have historically been held at the CCI corporate level but are specifically identifiable or otherwise attributable to us.
(c) | failure to earn revenues or profits; |
All intercompany transactions between us and CCI have been included in our financial statements and are considered to be settled in our consolidated financial statements at the time the Spin-Off becomes effective. The total net effect of the settlement of these intercompany transactions is reflected in our consolidated statements of cash flow as a financing activity and in our consolidated balance sheets.
(d) | inadequate capital to continue our business; |
The historical costs and expenses reflected in our financial statements include an allocation for certain corporate shared service functions historically provided by CCI including executive oversight, accounting, treasury, tax, legal, human resources, occupancy, procurement, information technology and other shared services. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis based on sales, headcount, tangible assets or other measures considered to be a reasonable reflection of the historical utilization levels of these services.
(e) | insufficient revenues to cover operating costs; |
We are involved in providing next generation fixed and mobile wireless broadband internet services nationally and eventually internationally to business customers, with a focus on the small and medium size businesses known as the “SMB” market. Wytec had originally intended to enter into 30 fixed wireless markets by year-end 2015. After further analysis and guidance given to us by Signals Analytics in its recent Valuation Report of Wytec, management has modified its business strategy to reduce market entry costs and enhance marketing capabilities with its WyQuote online platform. WyQuote is designed to be used by commissioned telecom agents, telemarketing agents and for direct sales to customers. Included in our market entry schedule are new products and services for the small and medium business (“SMB”) market including our expansion strategies enabled by our patent pending LPN-16 microcell technology. Wytec’s LPN-16 microcell technology incorporates the ability to utilize multiple spectrums without incurring frequency interference. It is potentially deployable on thousands of utility poles located in virtually every city in America at a modest monthly rental fee.
(f) | barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; |
Our current business strategy incorporates the use of millimeter wave technology using wireless frequencies from 5GHz to 80GHz spectrum. We have used these spectrums in three (3) markets including San Antonio, Texas, Columbus, Ohio, and Denver, Colorado, and commercialized a broadband internet access service for the SMB customer in two of three markets. The initial focus of service is targeted to highly concentrated areas such as the Central Business District (“CBD”) of each market with the ability to expand the service to high-density business zones outside of the CBD utilizing the LPN-16.
(g) | dilution experienced by our shareholders in their ownership of the Company because of the issuance of additional securities by us, or the exercise of warrants or conversion of outstanding convertible securities; |
(h) | inability to complete research and development of our technology with little or no current revenue; |
Numerous studies including those by the Federal Communications Commission (“FCC”) have now been published indicating that the use of millimeter wave spectrum is a key component in the development of a 5G network and ultimately the development of a “Smart City.” Smart Cities are designed to incorporate multiple mobile communications technologies to facilitate public safety, first responder, education, health care, machine to machine, and carrier offload services.
(i) | lack of demand for our products and services; |
(j) | loss of customers; |
(k) | rapid and significant changes in markets; |
(l) | technological innovations causing our technology to become obsolete; |
(m) | increased competition from existing competitors and new entrants in the market; |
��
(n) | litigation with or legal claims and allegations by outside parties; |
Currently our network design is capable of delivering bandwidth services of up
(o) | inability to start or acquire new businesses, or lack of success of new businesses started or acquired by us, if any; |
(p) | inability to effectively develop or commercialize our technology; and |
(q) | inability to obtain patent or other protection for our proprietary intellectual property. |
Because the statements are subject to 1.5 gigabits per secondrisks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to a wide range of customers including small, midsize and large corporate operations located in Tier One, Tier Two and Tier Three cities (the term “Tier” definesplace undue reliance on the population sizestatements, which speak only as of the Link location). Our millimeter wave networks are designeddate of this Form 10-Q. The cautionary statements contained or referred to serve as the core infrastructure for supportingin this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our planned commercial broadband internet access services.behalf may issue.
On December 18, 2015, we performed an outside beta testWe do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our LPN-16 working prototypeunaudited consolidated financial statements and produced performance speeds in excessnotes to those statements. In addition to historical information, the following discussion and other parts of 375 Mbps to a smart phonethis annual report contain forward-looking statements and 600 Mbps to a laptop computer. Earlier speed testsinformation that involves risks and network demonstrations enabled us to consummate our first services agreement with the City of Columbus on July 7, 2014 and we have now substantially completed our footprint coverage of the CBD of Columbus, Ohio and San Antonio, Texas in preparation for our new marketing and sales strategy.uncertainties.
Overview of Current Operations
Our current operations have most recently begun to focus on developing and implementing our marketing platformWytec International, Inc., a Nevada corporation (“Wytec,” the “Company.” “we,” “us,” or “our”) is the developer of a technology called the “LPN-16,” consisting of three primary services. They are:chipsets, software, hardware designs and antennas that enable strengthened Wi-Fi and cellular transmission within a concentrated coverage area of approximately 500 feet in circumference. The hardware consists of a chassis or framework approximately 32 inches in height with a radius of approximately 12 inches. It is designed to be installed on a utility pole to private dense network coverage. The unit, referred to as an outdoor “small cell”, is designed to increase Wi-Fi and cellular capacity and signal strength by placing a large number of them in densely populated areas as compared to the traditional macro site cellular towers covering a much larger area of approximately two (2) miles. The growth of small cells is in response to delivering substantially greater speeds to smartphones and other smart devices in preparation for the next generation of cellular technology now referred to as 5G.
AllWhen Wytec was first founded, we obtained five (5) United States patents (the “Patents”) related to Local Multipoint Distribution Service (“LMDS”) originally designed for digital television transmission, and later discovered to be useful in wireless broadband technology. Today Wytec utilizes Millimeter and Microwave spectrum as a wireless point to point backhaul for transmitting to its LPN-16 technology. This configuration is in place today and has become the center piece of theseWytec’s private LTE initiatives requested by large commercial buildings, school districts and municipalities. Wytec’s ultimate configuration includes the extension of its private LTE design into the offering of its Mobile Virtual Network Operator (MVNO) wholesale services will be soldto both cable and marketed through Wytec’s newly formed business divisions, utilizing Wytec’s proprietary online full service platform, “WyQuote”, and now available to over 100,000 (estimated) direct telecom agentsWireless Internet Service Providers (“WISPs”) throughout the United States. The Company believes that its MVNO services will become the foundation for supporting true 5G services in the U.S. as defined by the International Telecommunications Union (“ITU”), the standard for all previous mobile generations from 1G to 4G.
Our LPN-16The 5G network is our proprietary intellectual property for which management applied for U.S. patent protectionexpected to have a transformative impact as it connects people with devices, data, transport systems and cities in a smart networked communications environment. The 5G network will rely substantially on small cell technology to achieve its goals. To facilitate this, operators need reliable connections with strong signal integrity, significant bandwidth and low latency. Small cells bring improved connectivity (speeds, reliability, and low latency) to the second quarteredge of 2014, and is a significant part of our Intelligent Community Wi-Fi Network. We have filed an international patent application for this technology. Design and engineering of the LPN-16 have been completed with development of the first units being tested in an outdoor environment in San Antonio, Texas.
On June 9, 2012, we formed a wholly owned subsidiary, Wylink, Inc., a Texas corporation,existing macro networks, serving all morphologies from urban to market and sell millimeter wave spectrum in the licensed 60 & 90 Gigahertz frequency channels. The FCC has developed a unique application program giving the ability for qualified applicants to own millimeter spectrum under a program known as the Registered Link Program. We sold point-to-point registered links (“Registered Links”) as part of our backhaul solution in support of our 4G/5G Wi-Fi network. The cash received from the sale of our Registered Links is recorded as “deferred revenue” and will be recorded as revenue once the telecommunication equipment is installed for the link owners. Management closed the Wylink application program in January 2016.rural markets.
Management now focuses its primaryWe believe the LPN-16 small cell can solve many of the long-term challenges faced by operators deploying small cells who need access to backhaul, lower total cost of ownership and easier site acquisition and access. It can also assist cities wrestling with the on-going technology upgrades, network growth demands, political hurdles and new business models needed to realize the benefits of a 5G network. In addition to aligning with technical and governmental issues, the LPN-16 is designed to meet the standards for 5G deployment and, for operator needs, adheres to the Federal Communications Commission (“FCC”) policy initiatives addressing public safety and First Responder initiatives. Specifically, the FCC’s Report and Order 14-153, Acceleration of Broadband Deployment by Improving Wireless Facilities Siting Policies, adopts rules to help spur wireless broadband deployment by facilitating the sharing of wireless transmission equipment using “neutral host” functionality to simultaneously support multiple providers. The LPN-16 was specifically designed to support neutral host features and performance. The FCC’s goal of “shared used” and “neutral host” seeks to expand coverage and capacity more quickly, reduce costs and promote access to infrastructure which reduces barriers to deployment and incentivize the sharing of resources, rather than relying on new builds for every stakeholder, thereby safeguarding environmental, aesthetic, historic and local land-use values.
We have implemented an aggressive intellectual property strategy and continue to pursue patent protection for new innovations. In addition to the LPN-16 invention covered by our current patent, we have identified additional upgrades and additions to the LPN-16 which further tie it to the goals and timelines of Wytec’s 5G development business model, FCC policy initiatives and customer business usage which we believe could lead to additional patentable property. We intend to file for patent protection on these developments. Our strategy is to continually monitor the costs and benefits of Smart City broadband networks utilizing 5G fixed wirelessour patent applications and Wi-Fi technologies capablepursue those that will best protect our business and expand the core value of delivering speedsthe Company.
We have recruited and hired a seasoned management team with both private and public company experience and relevant technical and industry experience to develop and execute our operating plan. In addition, we have identified key engineering resources for intellectual property development, antenna development, hardware, software, and firmware engineering, as well as integration and testing that are many times faster than current cellular networks,will allow us to continue to expand our technology and which can be utilized for a range of services for carriers, governmental and business applications.intellectual property.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the estimated recoverable amounts of trade accounts receivable, impairment of long-lived assets, revenue recognition and deferred tax assets. We believe the following critical accounting policies require more significant judgment and estimates used in the preparation of the financial statements.
We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the uncollectabilitycollectability of our trade accounts receivable balances. If we determine that the financial conditions of any of our customers deteriorated, whether due to customer specific or general economic issues, increases in the allowance may be made. Accounts receivable are written off when all collection attempts have failed.
Effective January 1, 2018, Wytec International, Inc. adopted the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation. We followimplemented this standard using the modified retrospective method. While adoption of this standard required additional disclosures, adoption did not have a material impact on our consolidated financial statements and no adjustments were made to prior periods.
19 |
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)." This update requires that a lessee recognize in the statement of financial position a liability to make lease obligations and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease obligations. Similar to current guidance, the update continues to differentiate between finance leases and operating leases, however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. The guidance became effective for us on January 1, 2019. As a lessee, this standard primarily impacted our accounting for leased facilities and office equipment, for which we recognized right-of-use assets of $151,704 and a corresponding lease obligation of $160,146 on our consolidated balance sheet as of September 30, 2020.
We adopted obligations on these provisions on January 1, 2019 using the optional transition method that permits us to apply the new disclosure requirements in 2019 and continue to present comparative period information as required under FASB ASC Topic 840, "Leases." We did not have a cumulative-effect adjustment to the opening balance of Staff Accounting Bulletin (“SAB”) 101, “Revenue Recognition in Financial Statements” for revenue recognitionretained earnings at the date of adoption. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to exclude leases with an initial term of 12 months or less from the right-of-use assets and SAB 104. Under Staff Accounting Bulletin 101, four conditions must be met before revenue can be recognized: (i) there is persuasive evidenceobligations. Adoption of the standards had no impact on results of operations or liquidity.
If we determine that an arrangement exists, (ii) delivery has occurredis or service has been rendered, (iii)contains a lease, we recognize a right-of-use (“ROU”) asset and lease obligation at the price is fixedcommencement date of the lease. ROU assets represent our right to use an underlying asset for the lease term and lease obligations represent our lease payments arising from the lease. Operating lease ROU assets and obligations are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or determinable, and (iv) collectionterminate the lease when it is reasonably assured.certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Income taxes are accounted for under the asset and liability method. Under this method, to the extent that we believe that the deferred tax asset is not likely to be recovered, a valuation allowance is provided. In making this determination, we consider estimated future taxable income and taxable timing differences expected in the future. Actual results may differ from those estimates.
Results of Operations for the Nine Months Ended September 30, 20172020 and 20162019 and Three Months Ended September 30, 2020 and 2019
Revenue for the nine months ended September 30, 20172020 and 2019 was $36,300, as compared to$444,390 and $259,730, respectively. This increase in revenue of $93,053$184,660 or 71% was primarily due to increases in revenue from our Cel-fi systems. Revenue for the ninethree months ended September 30, 2016.2020 and 2019 was $111,625 and $131,942, respectively. This decrease in revenue of $56,753$20,317, or 61%15%, was primarily due to decreases in revenue from our network buildout services and other related engineering services. We estimate that approximately 100% of the decrease in revenue was attributable to a decrease in the volume of sales and none to a decrease in the price charged for our services.Cel-fi systems.
Cost of sales for the nine months ended September 30, 20172020 and 2019 was $243, an$361,007 and $173,674, respectively. This increase of $243,$187,333, or 100%108%, from $0was due to the increase in costs incurred related to the sales of our Cel-fi systems. Cost of sales for the three months ended September 30, 2020 and 2019 was $50,259 and $67,708, respectively. This decrease of $17,449, or 26%, was due to the decrease in costs incurred related to the sales of our Cel-fi systems.
General and administrative expenses were $1,675,332 for the nine months ended September 30, 2020, as compared to $1,952,049 for the nine months ended September 30, 2019, this resulted in a decrease of $276,717 or 14% compared to the same period in 2019. Contributing factors to the decrease include a decrease in G&A expense allocation of $194,225, or 778%, a decrease in consulting expense of $135,052, or 3,624%, a decrease in payroll taxes of $65,658, a decrease in outside services of $65,293, or 45%, in the nine months ended September 30, 2016. Our cost of sales increased to a de minimis extent and is not related to any trend.
General and administrative expenses were $2,442,481 for the nine months ended September 30, 2017, as compared to $2,182,178 for the nine months ended September 30, 2016. This resulted in a increase of $260,303 or 12%2020 compared to the same period in 2016. The increase in our general2019. General and administrative expenses was largely a result of increased referral fees incurred duringwere $472,464 for the ninethree months ended September 30, 2017.
Research and development costs were $7,8492020, as compared to $554,491 for the ninethree months ended September 30, 2017, as2019. This resulted in a decrease of $82,027 or 15% compared to $5,942the same period in 2019. Contributing factors to the decrease include a decrease in G&A expense allocation of $153,879, or 617%, and a reduction in outside services of $165,567 or 102% for the ninethree months ended September 30, 2016. The increase of $1,907 or 32% was due to an increase in expenses related2020 as compared to the development of Wytec’s LPN-16same period in 2019.Where a percentage is not listed, the comparison period expense category is $0 and related patent application.the calculation is not meaningful.
Liquidity and Capital Resources
While we have raised capital to meet our working capital and financing needs in the past, additional financing will be required in order to meet our current and projected cash requirements for operations. As of September 30, 2017, we had working capital of $743.375. As of September 30, 2017, $1,790,000 of our current liabilities is deferred revenue on Link sales that have been funded by customers, for which obligations to the customers have not yet been completely performed, or the Link has not yet been repurchased by the Company.
As of December 31, 2016, all our outstanding convertible notes had been retired.
On November 6, 2017, Wytec and CCI entered into a Revolving Line of Credit Note (the “LOC”) pursuant to which Wytec may in its discretion advance up to $800,000 to CCI. The outstanding principal will bear simple interest at the rate of five percent (5%) per annum, computed on the basis of the actual number of days elapsed in a year of 365 days, with all principal and accrued but unpaid interest due and payable in full on demand. Upon the occurrence of an Event of Default, as that term is defined in the LOC, all unpaid obligations under the LOC will bear interest at the default rate of twelve percent (12%) per annum. We intend to fund the LOC from capital raised by us in our planned private placements of securities in the future. Our commitment to advance funds to CCI under the LOC is discretionary and, if we do not have adequate capital to fund an advance, we will not make it.
The current non-interest bearing debt, as of September 30, 2017, owed by CCI to the Company is $391,002. This debt was transferred into the LOC effective as of November 6, 2017 and is being treated as a single draw on the LOC on that date. The debt was incurred by CCI since December 31, 2016 to fund the following requirements: The repayment of a Small Business Administration (“SBA”) loan for the benefit of Discovernet, Inc., a prior subsidiary of CCI, and personally guaranteed by the president of CCI. The board of directors of CCI determined to assist the president of CCI with repayment of the loan including principal, interest and penalties. CCI recorded the loan repayment as a bonus to Mr. Gray and grossed up the amount to cover the taxes. The loan repayment, grossed up to cover taxes, and the related payroll expenses totaled $258,878. The balance of the loan proceeds was used to enable CCI to repurchase common stock held by two employees of CCI totaling $20,187, and for operating expenses of CCI totaling $111,937.
We estimate that we will need approximately $3,000,000 of capital or financing over the next 12twelve months to fund our planned operations, which we plan to satisfy as described below under “Satisfaction of our Cash Needs for the Next 12 Months.”
We anticipate that we will incur operating losses in the next twelve months. Our revenue is not expected to exceed our investment and operating costs in the next twelve months. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in, addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.
Cash Flow from Operating Activities
Cash flows used in operating activities during the nine months ended September 30, 20172020 were $2,415,332$1,367,717 compared to $2,564,474$2,070,107 during the nine months ended September 30, 2016.2019. This decrease of $149,242$702,390 was primarily due to a reductionchanges in the related party receivable fromnet loss during the nine months ended September 30, 20162020 to the same period in 2017, and the smaller net operating loss for the nine months ended September 30, 2017, as compared to the same period in 2016.2019.
Cash Flow from Investing Activities
Our investing activities consist principally of revenue and expenses related to our Link program (Link sales ended in January 2016, but Link program costs continue), and the LPN-16.
Cash flows used by investing activities during the nine months ended September 30, 20172020 were $25,284$13,039 compared to the cash flows used by investing activities of $2,245$0 during the nine months ended September 30, 2016. The increase in cash flows used in investing activities2019. Capital expenditures totaled $13,039 and $0 during the nine months ended September 30, 2017 as compared to the same period in 2016 reflects the purchase of equipment in 2017. Capital expenditures totaled $0 and $11,290 during the nine months ended September 30, 20162020 and September 30, 2017,2019, respectively. Additionally, $13,994 was expended for construction-in-process during the nine months ended September 30, 2017.
Cash Flow from Financing Activities
Cash flows provided fromby financing activities during the nine months ended September 30, 20172020 were $1,913,011$1,052,536 compared to $4,435,653$1,084,104 during the nine months ended September 30, 2016.2019. These receipts represent proceeds from the sale of the Company’s common stock and preferred stock.from the issuance of debt.
Satisfaction of Our Cash Obligations for the Next 12 Months.
As of September 30, 2017,2020, our cash balance was $2,239,270.$290,884. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, private placements of our capital stock, third party financing, and/or traditional bank financing. We anticipate sales-generated income during that same period of time, but do not anticipate generating sufficient revenue to meet our working capital requirements. Consequently, we intend to attempt to find sources of additional capital in the future to fund our growth and expansion through additional equity or debt financing or credit facilities. There is no assurance that we will be able to meet our working capital requirements through the private placement of equity or debt or from any other source.
Impact of Distribution by CCI on our Financial StatementsOther Payable
Following the Spin-Off, we may incur additional costs associated with being an independent company in connection with establishing, expanding and maintaining our own stand-alone corporate functions, including finance, human resources, information technology, facilities, accounting and legal for which we have received expense allocations from CCI. These allocations are included in operating expenses and totaled ($319,622) and $988,388 for the nine months ended September 30, 2017 and September 30, 2016, respectively. See Note F to our consolidated financial statements for further details related to corporate allocations.
Management considers the expense allocation methodology and results to be reasonable for all periods presented. Our financial statements do not, however, necessarily include allOther Payable of the expenses that would have been incurred had we been a separate, stand-alone entity and may not necessarily reflect our results of operations, financial position and cash flows had we been a stand-alone company during the periods presented. Furthermore, we may also incur additional costs associated with being a stand-alone publicly listed company that were not included in the expense allocations and, therefore, would result in additional costs that are not reflected in our historical results of operations, financial position and cash flows. Nevertheless, we believe that cash flow from operations and investments will be sufficient to fund the anticipated increases in corporate expenses.
Deferred Revenue
Deferred revenue$895,000 consists of amounts billed and collected before services related to registered links previously sold by the Company (“Registered Links”) have been completed. If Wytec, at its sole discretion, were to the refund the purchase price of Registered Links before the Links were installed, the cost to satisfyDuring 2019, deferred revenue as of September 30, 2017 would be $1,790,000. Wytec would incur estimated additional costs of $609,000was reclassified to activate these Registered Links, complete the transaction and earn the $1,790,000 of revenue. If Wytec repurchased the remaining outstanding Links under the current Series B Preferred Stock and warrant buy-back exchange offer, deferred revenue would be satisfied, no revenue would be earned, and shareholder equity would increaseOther Payable due by $1,790,000.
Repurchase of Registered Links
In October 2016, the Company refundedwhich has exited the purchase pricebusiness of twoinstalling Registered LinksLinks. The Company intends to settle the liability through a combination of exchanges for a total cash payment of $70,000 for the return of those two Linkscommon and the elimination of related obligations. Wytec, at its sole discretion, has at times refunded the purchase price of Links before the Links were installedpreferred stock and absent the acceptance of repurchase under the Link buy-back offering of Series B Preferred Stock and warrants. This action resulted in a corresponding reduction of unearned revenue.cash.
Purchase of Capaciti Networks, Inc.
In November 2016, the Company issued 609,603 shares of its common stock to the Company’s parent, Competitive Companies, Inc., in consideration for all of the outstanding shares of Capaciti Networks, Inc. (“Capaciti”). When Wytec acquired Capaciti, Capaciti had net unsecured noninterest bearing accounts payable to CCI on its balance sheet in the amount of $124,421, payable on demand. As of December 31, 2016, the outstanding balance of this account payable was $0.
Going Concern
Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $21,803,842 at September 30, 2020, and have reported negative cash flows from operations. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive nature in which we operate.
Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, there can be no assurance that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Recently Issued Accounting Standards
We have reviewed the standards issued by the Financial Accounting Standards Board (“FASB”) through September 30, 20172020 and which are not yet effective. None of the standards will have a material impact on our financial statements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Our chief executive officer and principalchief financial officer William Gray, hashave evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our chief executive officer and principalchief financial officer hashave concluded that our disclosure controls and procedures were not effective as of September 30, 2017.2020. Specifically, our disclosure controls and procedures were not effective in timely alerting our management to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings and ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure, for the following reasons:
· | ||
· | ||
· | We do not have an independent body to oversee our internal controls over financial reporting and | |
· | Inadequate closing process to ensure all material misstatements are corrected in the financial statements |
22 |
We have begun to rectify these weaknesses by hiring additional accounting personnel and will create an independent board of directors once we have additional resources to do so. We have also begun the interview process and the acceptance of bids for the implementation and monitoring of the required SOX guidelines.
Internal Control Over Financial Reporting
Our chief executive officer and principalchief financial officer isare responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internalInternal control over financial reporting is a process designedintended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Due to the matter identified above, we have identified the design and effectiveness of our internal control over financial reporting to not be effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company may be involved in legal actions and claims arising in the ordinary course of business from time to time. As of the date of the report, there are no legal matters of which management is aware.
While we attempt to identify, manage, and mitigate risks and uncertainties associated withDuring the quarter ended September 30, 2020, there have been no material changes from the risk factors previously in “Item 1A. Risk Factors” of our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Our Registration StatementAnnual Report on Form S-1, dated October 5, 2017, and final Prospectus, dated October 10, 2017, describe some of10-K for the risks and uncertainties associated with our business that have the potential to materially affect our business, financial condition or results of operations.year ended December 31, 2019.
Item 2. Unregistered Sales of Equity Securities.
During
In July 2020, the three months ending September 30, 2017, weCompany issued a total of 12,000 shares of common stock and 12,000 common stock purchase warrants to two investors pursuant to the following securities that were not registered underCompany’s private placement of units (“Units”), each Unit consisting of one share of common stock and one common stock purchase warrant, in accordance with Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”):..
In July 2017,August 2020, the Company issued 17,500a total of 25,000 shares of Wytec common stock and 25,000 common stock purchase warrants to four investors pursuant to the Company’s private placement of Units in accordance with Rule 506(c) of the Securities Act.
In September 2020, the Company issued 4,375 shares of common stock and 4,375 common stock purchase warrants to one investor pursuant to a warrant exercise atthe Company’s private placement of Units in lieu of making an exercise priceaccrued interest payment in cash in accordance with Rule 506(c) of $1.50 per share.Regulation D of the Securities Act.
In July 2017, the Company issued 20,000 shares of Wytec Series B Preferred Stock and 20,000September 2020, one investor exercised 500 common stock purchase warrants in exchange for two registered links that were included in deferred revenue.
In August 2017,which the Company issued 20,000500 shares of Wyteccommon stock in accordance with Rule 506 (b) of Regulation D of the Securities Act.
During the quarter, the Company issued a total of 2,296 shares of common stock to two investors pursuant to warrant exercises at an exercise priceone vendor for services rendered in accordance with Rule 506 (b) of 1.25 and1.50 per share.
In September 2017,Regulation D of the Company issued 40,000 shares of Wytec common stock to two investors pursuant to warrant exercises at an exercise price of $1.50 per share.Securities Act.
In September 2017, the Company issued 10,000 shares of Wytec Series B Preferred Stock and 10,000 common stock purchase warrants in exchange for one registered links that was included in deferred revenue.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
None.
24 |
(1) | Incorporated by reference from the Company’s Registration Statement on Form S-1 and its amendments, originally filed on January 10, 2017. |
(2) | Incorporated by reference from the filing of Amendment No. 2 to the Registration Statement on Form S-1 on August 7, 2017. |
(3) | Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated January 18, 2018. |
(4) Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated May 2, 2018.
(5) Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated September 21, 2018.
* | Filed herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WYTEC INTERNATIONAL, INC.
By:/S/s/ William H. Gray
William H. Gray, Chairman, Chief Executive Officer,
and President (Principal Executive Officer)
By: /s/ Donna Ward
Donna Ward, Director and Chief Financial Officer (Principal
Executive Officer/(Principal Accounting Officer)
Date: November 14, 2017
9, 2020