As filed with the U.S. Securities and Exchange Commission on January 11, 2000
September 16, 2019
Registration NumberNo. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

AMERICAN TELESOURCE INTERNATIONAL,
DIGERATI TECHNOLOGIES, INC.
(Exact
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

74-2849995
(I.R.S. Employer Identification Number)

12500 Network Boulevard,
Nevada 4813 74-2849995
(State of Incorporation) (Primary Standard Industrial
Classification Number) (IRS Employer
Identification Number)
825 W. Bitters, Suite 407, 104
San Antonio, Texas 78249
78216
(210) 558-6090
(Address,614-7240
(Address, including zip code, and telephone number, including area code,
of registrant'sregistrant’s principal executive offices)

Arthur L. Smith, Chief Executive Officer
12500 Network Boulevard, Suite 407, San Antonio, Texas 78249
(210) 558-6090
(Name, address,
Please send copies of all communications to:
Lucosky Brookman LLP
101 Wood Avenue South, 5^thFloor
Woodbridge, NJ 08830
Tel. No.: (732) 395-4400
Fax No.: (732) 395-4401
(Address, including zip code, and telephone, number,
including area code, of agent for service)

code)
Approximate date of commencement of proposed sale to the public:From time to time after the effective date of this Registration Statement.

If only the securities being registered on this Form are being offered pursuant
to a dividend or interest reinvestment plans, please check the following box.
/_/

registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuoscontinuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/

☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. /_/

☐
If this Form is a post-effective amendment filed pursuant to Rulerule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. /_/

☐
If delivery of the prospectusthis Form is expected to be madea post-effective amendment filed pursuant to Rule 434,
please462(d) under the Securities Act, check the following box. /_/

box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of Each Class of securities to be registered
Number of shares of
common stock to be registered (1)
Proposed
Maximum
Offering
Price Per
Share
Proposed
Maximum
Aggregate
Offering
Price
Amount of
Registration
Fee (2)
Common Stock 6,074,142 $ 0.10 (3) $ 607,414.20 $ 73.62
Common Stock 250,000 0.09 (4) 22,500.00 2.73
Total 6,324,142 629,914.20 76.35

===========================================================================================================
Proposed Proposed
Title(1) Includes up to an aggregate of Amount Maximum Maximum Amount6,324,142 shares of Securities To be Offering Price Aggregate Registration
To be Registered Registered Per Share Offering Price Fee (3)
- -----------------------------------------------------------------------------------------------------------
the Company’s common stock, par value $0.001 (the “Common Stock”) including (i) 250,000 shares of Common stock issuable upon conversionStock issued to Peak One Opportunity Fund, L.P. (“Peak One”) as commitment shares (the “Commitment Shares”); and (ii) 6,074,142 shares of
convertible preferred stock (1) 984,640 $1.10 $1,083,104 $303.27

- ----------------------------------------------------------------------------------------------------------- Common Stock to be paid as dividendissued in connection with an equity purchase agreement.
(2) The fee is calculated by multiplying the aggregate offering amount by .0001212, pursuant to Section 6(b) of the Securities Act of 1933.
(3) Based on convertible preferred (1) 118,157 $1.10 $ 129,973 $ 36.39

- ------------------------------------------------------------------------------------------------------------
Commonthe reported closing price for our common stock issuable upon exerciseon the trading day period immediately preceding the filing of warrants granted as placementthis Registration Statement of $0.10. The shares offered, hereunder, may be sold by the selling stockholder from time to time in the open market, through privately negotiated transactions, or a combination of these methods at market prices prevailing at the time of sale or at negotiated prices.
(4) Estimated solely for purposes of calculating the registration fee (2) 50,000 $1.10 $ 55,000 $ 15.40

- ------------------------------------------------------------------------------------------------------------
Common stock issuable as placement fee (2) 19,693 $1.10 $ 21,662 $ 6.07
- ------------------------------------------------------------------------------------------------------------pursuant to Rule 457(c) and (g) under the Securities Act, based on the average of the high and low prices reported for the shares of Common Stock issuable upon exercise of
warrants (2) 40,000 $1.10 $ 44,000 $ 12.32

============================================================================================================
as reported on the OTC Marketplace on September 9, 2019.

(1) Calculated pursuant to Rule 457 (c), using the average of the high and low
prices reported on January 10, 2000, solely for the purpose of calculating
the Registration Fee.

(2) Calculated pursuant to Rule 457 (g) (3), using the average of the high and
low prices reported on January 10, 2000, solely for the purpose of
calculating the Registration Fee.

(3) A fee of $256.16 was previously paid in conjunction with the Company's S-3
filing filed on October 26, 1999. A balance of $117.29 remains to be paid
with
The registrant hereby may amend this filing.

The Registrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay itsour effective date until the Registrantregistrant shall file a further amendment which specifically states that this Registration
Statementregistration statement shall, thereafter, become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statementthe registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
PRELIMINARY PROSPECTUS NOT COMPLETE

1,212,490SUBJECT TO COMPLETION DATED September 16, 2019
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Digerati Technologies, Inc.
6,324,142 Shares of Common Stock

AMERICAN TELESOURCE INTERNATIONAL, INC.

Investing
The selling stockholder identified in this prospectus may offer an indeterminate number of shares of its common stock, which will consist of up to 6,324,142 shares of common stock to be sold by Peak One pursuant to an Equity Purchase Agreement (the “Financing Agreement”) dated January 12, 2018. If issued presently, the 6,324,142 of common stock registered for resale by Peak One would represent approximately 25% of our issued and outstanding shares of common stock as of September 12, 2019. Additionally, as of the date hereof, the 6,324,142 shares of our common stock involves a high degreeregistered for resale herein would represent approximately 31% of risk. See "Risk
Factors" beginning on page 8.

the Company’s public float.
The selling shareholders identified on page 14stockholder may sell all or a portion of the shares being offered pursuant to this prospectus are
offering these shares of common stock. For additional information onat fixed prices and prevailing market prices at the methodstime of sale, you should refer to the section entitled "Plan of Distribution"
on page 15. at varying prices, or at negotiated prices.
We will not receive any of the proceeds from the sale of the shares of our common stock by Peak One. However, we will receive proceeds from our initial sale of shares to Peak One pursuant to the Financing Agreement. We will sell shares to Peak One at a price equal to 88% of the lowest closing price of our common stock during the ten (10) consecutive trading day period beginning on the date on which we deliver a put notice to Peak One (the “Market Price”).
Peak One is an “underwriter” within the meaning of the Securities Act of 1933, and any broker-dealers or agents that are involved in selling shareholders.

the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933.
Peak One may sell the shares of common stock described in this Prospectus in a number of different ways and at varying prices. See “Plan of Distribution” for more information about how the Selling Shareholder may sell the shares of common stock being registered pursuant to this Prospectus.
Our common stock is traded on the National Association of Securities
Dealers, Inc. Over-the-Counter Bulletin BoardOTC Markets under the symbol "AMTI."“DTGI”. On January 10, 2000,September 12, 2019, the last reported bidclosing price offor our common stock was $1.10$0.10 per share.
Prior to this offering, there has been a very limited market for our securities. While our common stock is on the OTC Markets, there has been negligible trading volume. There is no guarantee that an active trading market will develop in our securities.
This offering is highly speculative and these securities involve a high degree of risk and should be considered only by persons who can afford the loss of their entire investment. See “Risk Factors” beginning on page 10. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined ifpassed upon the accuracy or adequacy of this prospectus is truthful or complete.prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is January 11, 2000.

TABLE OF CONTENTS
_____ __, 2019.

FORWARD LOOKING STATEMENTS............................................................ 1

RELY ONLY ON THIS PROSPECTUS.......................................................... 1

ATSI.................................................................................. 1

RISK FACTORS.......................................................................... 8

EMPLOYEES............................................................................. 12

PROPERTIES............................................................................ 12

LEGAL PROCEEDINGS..................................................................... 12

USE OF PROCEEDS....................................................................... 13

COMMON STOCK ISSUED................................................................... 13

SELLING SHAREHOLDERS.................................................................. 14

PLAN OF DISTRIBUTION.................................................................. 15

MARKET FOR REGISTRANT'S COMMON EQUITY................................................. 16

SELECTED FINANCIAL AND OPERATING DATA................................................. 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................. 17

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.. 26

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................... 26

EXECUTIVE COMPENSATION................................................................ 29

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 32

SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................... 33

LEGAL MATTERS......................................................................... 34

EXPERTS............................................................................... 34

WHERE YOU CAN FIND MORE INFORMATION................................................... 34

INDEX TO FINANCIAL STATEMENTS......................................................... 36

FORWARD-LOOKING STATEMENTS

This prospectus andTable of Contents
The following table of contents has been designed to help you find information contained in this prospectus. We encourage you to read the documents incorporated by referenceentire prospectus.
Prospectus Summary 1
Summary Consolidated Financial Information 7
Risk Factors 10
Cautionary Note Regarding Forward-Looking Statements 18
Use of Proceeds 19
Determination of Offering Price 19
Selling Stockholders 20
Plan of Distribution 22
Experts 26
Market for Our Common Stock and Related Stockholder Matters 32
Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
Directors, Executive Officers and Key Employees 39
Executive Compensation 41
Security Ownership of Certain Beneficial Owners and Management 44
Index to Consolidated Financial Statements F-1
You may only rely on the information contained in this prospectus contain "forward-looking statements." "Forward looking statements"
are those statements which describe management's beliefs and expectations about
the future.or that we have referred you to. We have identified forward-looking statementsnot authorized any person to give you any supplemental information or to make any representations for us. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the Common Stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus is correct as of any time after its date. You should not rely upon any information about our company that is not contained in this prospectus. Information contained in this prospectus by
using words such as "anticipate," "believe," "could," "estimate," "may,"
"could," "expect," and "intend." Although we believe these expectations are
reasonable, our operations involve a number of risks and uncertainties,
including those described in the Risk Factors section of this prospectus.
Therefore, these types of statements may prove to be incorrect. We do not
promise to update any forward-looking statements, even if new information or
future events indicate that these statements will prove to be incorrect.

RELY ONLY ON THIS PROSPECTUSbecome stale. You should rely only onnot assume the information provided or incorporated by
referencecontained in this prospectus or any supplement. We have not authorized anyone to
provide you with different information. This prospectus may be used only in
states and other jurisdictions where it is legal to sell the common stock. The
information contained in this prospectussupplement is accurate only as of theany date of this
prospectus,other than their respective dates, regardless of the time of delivery of this prospectus, any prospectus supplement or of any sale of the shares. Our business, financial condition, results of operations, and prospects may have changed since those dates. The selling stockholders are offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted.
In this prospectus, “Digerati” the “Company,” “we,” “us,” and “our” refer to Digerati Technologies, Inc., a Nevada corporation.
i
PROSPECTUS SUMMARY
You should carefully read all information in the prospectus, including the financial statements and their explanatory notes under the Financial Statements prior to making an investment decision.
This summary highlights selected information appearing elsewhere in this prospectus. While this summary highlights what we consider to be important information about us, you should carefully read this entire prospectus before investing in our Common Stock, especially the risks and other information we discuss under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes beginning on page F-1. Our fiscal year end is July 31 and our fiscal years ended July 31, 2017 and 2018 are sometimes referred to herein as fiscal years 2017 and 2018, respectively. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the salecontext requires otherwise, the words “we,” “us,” “our”, the “Company” or “our Company” or “Digerati” refer to Digerati Technologies, Inc., a Nevada corporation, and our each of any shares.

ATSI

American TeleSource International,our subsidiaries.
When used in this prospectus the following terms have the following meanings related to our subsidiaries.
● “Shift8 Technologies” refers to Shift8 Technologies, Inc a company organized under the laws of the state of Nevada. On April 10, 2019, Shift8 Technologies changed its name to T3 Communications, Inc.
● “Shift8 Networks” refers to Shift8 Networks, Inc a company organized under the laws of the state of Texas.
● “T3 Communications” refers to T3 Communications, Inc. a company organized under the laws of the state of Florida.
Corporate History
Digerati Technologies, Inc. ("ATSI"(“we”, “our”, “Company” or “Digerati”) was incorporated in the state of Nevada on May 24, 2004. Digerati is a telecommunicationsdiversified holding company focusingthat has no independent operations apart from its subsidiaries. Through our operating subsidiaries, T3 Communications, Inc., and Shift8 Networks, Inc., dba, Synergy Telecom, we are an establishedprovider of cloud services specializing in UCaaS (Unified Communications as a Service) solutions for the small to medium-sized business (“SMB”) market. Weoffer a comprehensive suite of cloud communication services to meet the global needs of businesses that are seeking simple, flexible, and cost-effective communication solutions. Our servicesinclude cloud PBX, cloud mobile, Internet broadband, cloud WAN, SIP trunking, and customized VoIP services, all delivered on the market for wholesaleits global carrier-grade network and retail services between the
United States and Latin America, and within Latin America. In 1993, we began
assembling a framework of licenses, interconnection and service agreements,
network facilities and distribution channels so that we would be in a position
to take advantage of the de-monopolization of the Latin American
telecommunications market, as well as the increasing demand for services in this
market. Most of our current operations involve services between the U.S. and
Mexico or within Mexico. We have some operations in Central America as well, and
may expand our operationsOnly in the rest of Latin America as the regulatory
environment permits.

We originate retail traffic in Mexico from our public payphones and
casetas. Casetas are indoor calling centers where travelers or the large portion
of the Mexican population that does not haveCloud™.
On December 1, 2017, Shift8 Technologies, Inc., a telephone may place or receive
calls or faxes. We originate retail traffic in the U.S. with our MEXICOnnect/SM/
service (1010-624) and One Plus residential and commercial long distance
services. We carry wholesale traffic into Mexico for other U.S. carriers who
lack transmission facilities or require additional capacity. We also provide
private network services to companies needing reliable private communications
within Mexico and Central America and between Mexico or Central America and the
United States.

We also ownNevada corporation (“Shift8”), a subsidiary, GlobalSCAPE, Inc., ("GlobalSCAPE") which sells
its proprietary Internet productivity software, CuteFTP/TM/, CuteHTML/TM/ and
CuteMAP/TM/.

We began operations in 1994 as a Canadian holding company, Latcomm
International, Inc. with a Texas operating subsidiary, Latin America Telecomm,
Inc. Both corporations were renamed "American TeleSource International, Inc." in
1994. In May 1998, the Canadian corporation completed a share exchange with a
newly formed Delaware corporation, also called American TeleSource
International, Inc., which resulted in the Canadian corporation becoming the wholly owned subsidiary of Digerati Technologies, Inc., a Nevada corporation (the “Company”), and Synergy Telecom, Inc., a Texas corporation (“Synergy”), closed a transaction to acquire all the Delaware corporation. Our principal operating
subsidiaries are:

. American TeleSource International de Mexico, S.A. de C.V.assets, assumed all customers, and critical vendor arrangements from Synergy.
On May 2, 2018, Shift8 completed the acquisition of T3 Communications, Inc., an established UCaaS and Internet broadband provider serving a high-growth corridor in Southwest Florida. On April 10, 2019, Shift8 changed its name to T3 Communications, Inc.
Overview
As a provider of cloud communications solutions to the SMB, we are seeking to capitalize on the migration by businesses from the legacy telephone network to the Internet Protocol (“IP”) telecommunication network and the migration from hardware-based on-premise telephone systems to software-based communication systems in the cloud. Most SMBs are lagging in technical capabilities and advancement and seldom reach the economies of scale that their larger counterparts enjoy, due to their achievement of a critical mass and ability to deploy a single solution to a large number of workers. SMBs are typically unable to afford comprehensive enterprise solutions and, therefore, need to integrate a combination of business solutions to meet their needs. Cloud computing has revolutionized the industry and opened the door for businesses of all sizes to gain access to enterprise applications with affordable pricing. This especially holds true for cloud telephony applications, but SMBs are still a higher-touch sale that requires customer support for system integration, network installation, cabling, and troubleshooting. We have placed a significant emphasis on that “local” touch when selling, delivering, and supporting our services which we formed
in 1995believe will differentiate us from the national providers that are experiencing high attrition rates due to further position ourselvespoor customer support model.
The adoption of cloud communication services is being driven by the convergence of several market trends, including the increasing costs of maintaining installed legacy communications systems, the fragmentation resulting from use of multiple on-premise systems, and the proliferation of personal smartphones used in the Mexicanworkplace. Today, businesses are increasingly looking for an affordable path to modernizing their communications system to improve productivity, business performance and Latin American
market;

. Sistema de Telefonia Computarizada, S.A. de C.V.customer experience.
Our cloud solutions offer the SMB reliable, robust, and full-featured services at affordable monthly rates that eliminates high-cost capital expenditures and provides for integration with other cloud-based systems.

Products and Services
We provide a comprehensive suite of Internet-based communication services to meet the global needs of businesses that are seeking simple, flexible, and cost-effective communication solutions. Our Internet-based services include fully hosted IP/PBX services, SIP trunking, call center applications, interactive voice response auto attendant, voice and web conferencing, call recording, simultaneous calling, voicemail to email conversion, integrated mobility applications that are device and location agnostic, and multiple customized IP/PBX features in a hosted or cloud environment. Our services, known as UCaaS or cloud communications, are specifically designed for the needs of the small to medium-sized business, enterprise customers, call centers, and telephony service providers that do not have the scale or expertise necessary to deploy their own cloud telephony infrastructure.
Through our recent acquisitions, we have enhanced our product portfolio with the addition of enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), which we acquiredfiber, and Ethernet over copper. Other services include remote network monitoring, data backup and disaster recovery. The addition of these new products and services allows us to increase our value-proposition through product bundles that go beyond the voice application and to serve as a one-stop-shop for business customers seeking a comprehensive voice and data solution.
Voice over Internet Protocol Networks
The basic technology of traditional telecommunications systems was designed for slow mechanical switches. Communications over the traditional telephone network are routed through circuits that must dedicate all circuit resources to each call from its inception until the call ends, regardless of whether anyone is actually talking on the circuit. This circuit-switching technology incurs a significant cost per call and does not efficiently support the integration of voice with data services. Data networks, however, were designed for electronic switching. They break the data stream into small, individually addressed packages of data (“packets”) that are routed independently of each other from the origin to the destination. Therefore, they do not require a fixed amount of bandwidth to be reserved between the origin and destination of each call and they do not waste bandwidth when it is not being used for actual transmission of information. This allows multiple voice or voice and data calls to be pooled, resulting in August 1997; this subsidiary owns 126 casetas in 66 cities in Mexico;

. Servicios de Infraestructura, S.A. de C.V., which we acquired in June 1997;
this subsidiary owns certain transmission equipment and valuable long term
licenses in Mexico;

. TeleSpan, Inc., which we formed in February 1998these networks being able to carry our wholesalemore calls with an equal amount of bandwidth. Moreover, they do not require the same complex switching methods required by traditional voice telephone networks, instead using a multiplicity of routers to direct each packet to its destination and privateautomatically routing packets around blockages, congestion or outages.
Packet switching can be used within a data network services traffic betweenor across networks, including the U.S.public Internet. The Internet itself is not a single data network owned by any single entity, but rather a loose interconnection of networks belonging to many owners that communicate using the Internet Protocol. By converting voice signals to digital data and Latin America;handling the voice signals as data, it can be transmitted through the more efficient switching networks designed for data transmissions and through the Internet using the Internet Protocol. The transmission of voice signals as digitalized data streams over the Internet is known as Voice over Internet Protocol or “VoIP”. GlobalSCAPE, Inc., which we formedA VoIP network has the following advantages over traditional networks:
● Simplification:An integrated infrastructure that supports all forms of communication allows more standardization, a smaller equipment complement, and less equipment management.
● Network Efficiency:The integration of voice and data fills up the data communication channels efficiently, thus providing bandwidth consolidation and reduction of the costs associated with idle bandwidth. This combined infrastructure can support dynamic bandwidth optimization and a fault tolerant design. The differences between the traffic patterns of voice and data offer further opportunities for significant efficiency improvements.
● Co-existence with traditional communication mediums:IP telephony can be used in conjunction with existing public telephone system switches, leased and dial-up lines, PBXs and other customer premise equipment, enterprise LANs, and Internet connections. IP telephony applications can be implemented through dedicated gateways, which in turn can be based on open standards platforms for reliability and scalability.
● Cost reduction:Under the VoIP network, the connection is directly to the Internet backbone and as a result the telephony access charges and settlement fees are avoided.
The growth of voice over the Internet was limited in April 1996the past due to implementpoor sound quality caused by technical issues such as delays in packet transmission and by bandwidth limitations related to Internet strategies, which are not currently consistent with our core business. We
are currently investigating various optionsnetwork capacity and local access constraints. However, the expansion of Internet Protocol network infrastructure, improvements in packet switching and compression technology, new software algorithms and improved hardware have substantially reduced delays in packet transmissions and resulted in superior sound quality to divest ourselves of this
business, or to distribute somethat of the ownershiplegacy telephone network.
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Cloud Communications
Cloud communications are Internet-based voice and data communications where telecommunications applications, switching and storage are hosted by a third-party service provider outside of thisthe organization using the services. Services are accessed by the user over the public Internet. Cloud telephony refers specifically to voice services and more specifically the replacement of conventional business telephone equipment (such as a PBX) with VoIP service hosted by a third-party service provider and delivered over the Internet.
We operate a cloud communication network that consists of a VoIP switching system and cloud telephony application platform. Our network allows us to provide end-to-end cloud telephony solutions designed to provide significant benefits to businesses of all sizes, with single or multiple locations. The integration of our shareholders, in an effortcloud communication platform and global VoIP network allows us to maximize shareholder value.

Strategyprovide our customers with virtually any type of telephony solution on a global basis.
Our cloud communication solutions, also known as UCaaS, are designed to minimize upfront capital costs, increase the scalability and Competitive Conditions

ATSI'sflexibility of the customer’s communications network and service environment, provide robust features and functionality to increase productivity and reduce the overall cost of communications.
Strategy
Our strategy is to position itselftarget the small to take advantagemedium-sized business market and capitalize on the wave of migration from the demonopolizationlegacy telephone network to cloud telephony. We will continue to concentrate our sales and marketing efforts on developing vertically oriented solutions for targeted markets primarily focusing on municipalities, banking, healthcare, legal services and real estate. In addition, we will continue to partner with our distributors and Value-Added Resellers (“VARs”) to expand our customer base. Our typical VAR is an information technology services firm, traditional PBX vendor, managed service provider, or systems integrator that has established relationships with businesses in its local market. These VARs are currently providing local customer support for other IT or PBX services but lack the technology infrastructure to provide cloud communication and VoIP services to their customers. Our strategy allows these VARs to focus on their strength of providing first tier support to their customers while we provide the Latin American telecommunicationssecond and third tier technical support required to operate a cloud communication and VoIP network. In addition, we transform our VARs’ business model by introducing new cloud telephony services and adding a new and lucrative recurring revenue stream that increases the VARs’ value proposition for its current and prospective customers.
Our cloud-based technology platform enables us and our VARs to deliver enhanced voice services to their business customers. The features supported on our cloud communication platform include all standard telephone features and value-added applications such as voicemail to email, VoIP peering, teleconferencing, IVR auto attendant, and dial-by-name directory. Our system provides our customers and VARs with a migration path from a traditional PBX system to a complete cloud-based PBX solution.
Our strategic initiatives to successfully meet our long-term business objectives include:
● A disciplined approach to evaluating additional acquisitions as we build on the foundation created by our most recent acquisitions in Texas and Florida. We will continue to target local and/or regional UCaaS/cloud telephony providers which have excelled in their market with that “local” touch when serving their business customers. We believe the experience gained in integrating products, personnel, and customers will facilitate continued growth via acquisition.
● A continued emphasis on our UCaaS/cloud communication business which operates in a segment of the telecommunication industry that continues to experience significant growth as businesses migrate from legacy phone systems to cloud-based telephony systems.
3
● Enhancements to our broadband product portfolio with an emphasis on marketing leading-edge network and business continuity solutions like cloud WAN, also known as SD-WAN (Software Defined Wide-Area Network), to our customers which we anticipate will increase average revenue per customer.
● Implementing a total support model (pre and post sales) for building a world-class service delivery and help desk organization.
● Emphasis on our sales distribution model that enables our VARs to offer cloud and session-based communication services to the enterprise market in various regions and industries.
● Continue enhancing our infrastructure and back office system to streamline operations, automate key processes, and support the scalability of our VAR distribution model.
Competitive Conditions
The cloud services industry, including the provisioning of cloud communications services, cloud connectivity, cloud storage and cloud computing, as well as the
increasing demand for services in this market. Historically, telecommunications
services in Latin America have been provided by state-run companies operating as
monopolies. Although these companies failed to satisfy the demand for services
in their countries, the regulatory scheme effectively prevented competition by
foreign carriers such as ATSI. Currently, there is a trend toward
demonopolization of the telecommunications industry in Latin America, and many
of these countries are in various stages of migration toward a competitive,
multi-carrier market.

At the same time that Latin American markets have been opening up, the
demand for telecommunications services between the United States and Latin
America, particularly Mexico, has been strengthened by:

. rapid growth of the Latino segment of the United States population
. increase in trade and travel between Latin America and the United States
. the build out of local networks and corresponding increase in the number
of telephones in homes and businesses in Latin countries
. proliferation of communications devices such as faxes, mobile phones,
pagers, and personal computers
. declining rates for services as a result of increased competition.

In addition, technological advances have provided emerging carriers such as
ATSI with the means to provide high quality transmission on a cost-effective
basis. "Packet switching" networks, which allowcarrier voice and data services, is highly competitive, rapidly evolving and subject to constant technological change and intense marketing by providers with similar products and services. We expect that new, smaller, but very agile competitors, specializing in providing service to regional and emerging markets at low margin and hence low cost, may have an impact on our market. Similarly, the business services market includes competitors who may be significantly larger and have substantially greater market presence, financial, technical, operational and marketing resources than we do, including Tier 1 carriers, cable companies and premise-based solutions providers that are implementing cloud communication services. In the event that such a competitor expends significant sales and marketing resources in one or several markets where we compete with them, we may not be able to compete successfully in those markets. Specialized cloud services providers, who focus on one or more cloud service or application, could adopt aggressive pricing and promotion practices that could impact our ability to compete. We also believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs commensurate with the price reductions of our competitors. In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide the same or similar services offered or proposed to be carried on
the same network, are replacing traditional, more expensive circuit-switched
systems.

ATSI has focused most of its efforts on Mexico, but has some operations in
Costa Rica, El Salvador, and Guatemala and intends to expand its services as
regulatory and market conditions permit. Ultimately ATSI would likeoffered by us. If our competitors were to provide better and more cost-effective services throughout Latin America.

Strategy and Competitive Conditions - Mexican Market.

Telefonos de Mexico ("Telmex") had a legal franchise to control the entire
market for local and long distance telecommunications in Mexico until June of
1995, when new laws began to open the market to effective competition. In
January 1997, the Mexican government began granting licenses to provide long
distance service to competing companies, and has licensed at least 15 new long
distance providers. Several of these new license holders are Mexican based
affiliates of top tier U.S. carriers such as MCI/Worldcom and AT&T. Although the
Mexican government has also licensed nine new local competitors, the build out
of additional local infrastructure is just beginning, and the local network in
Mexico is still dominated by Telmex. ATSI began assembling a framework of
licenses, interconnection and service agreements, network facilities, and
distribution channels in Mexico in 1993 in anticipation of the demonoplization
of this market. In 1994, ATSI began providing private network services between
the U.S. and Mexico via satellite. Since then, ATSI has established a retail
distribution network in Mexico through the acquisition of public payphones and
casetas, has entered the U.S. wholesale market for termination services to
Mexico, and has begun implementation of a U.S. retail strategy through the
introduction of its presubscribed and dial around services targeted to the
Latino market in the U.S. ATSI has also invested in its own transmission
facilities, beginning in 1994 with satellite teleport equipment, and most
recently with the acquisition of a new Nortel International Gateway Switch and
the deployment of packet switching technology in its network. As true
competition has emerged, ATSI has beenthan ours, we may not be able to negotiate increasingly more
favorable rates for local network interconnectionincrease our revenues or capture any significant market share.
The VoIP and long distance services
with the newly licensed long distance carriers. In fiscal year 1999 ATSI applied
for its own long distance license, which, if granted, will permit ATSI to
interconnect directly with the local network and build out its own long distance
network, thereby reducing costs further. ATSI believes that its establishment of
a solid framework of licenses, proprietary network and favorable interconnection
agreements has positioned it to take advantage of the benefits to be reaped as
the MexicanInternet telephony market are highly competitive. Our competitors include major telecommunications industry enters a truly competitive phase. ATSI
believes that it has a clear competitive advantage over pure resellers, and that
it has overcome significant hurdles that are a barrier to entry in this market
even for large carriers. ATSI intends to use its framework to capture increased
amounts of the communications traffic in the Mexican market.

Retail

Although Telmex and several large U.S. based carriers (with their Mexican
affiliates) are active participants in the Mexican retail market, ATSI believes
that these carriers will focus on the most lucrative sectors of the market,
leaving many opportunities to further develop the large portion of the market
that continues to be underserved, both in the U.S. and Mexico.

ATSI will devote most of its new resources on deploying innovative new public
and prepaid services targeted to the consumer market, and in particular services
which incorporate ATSI's "borderless" concept of seamless function, regardless
of the user's location north or south of the U.S./Mexico border. ATSI will use
its existing retail distribution network, and may pursue acquisitions of
established distribution channels from others. ATSI believes that its focus on a
retail strategy, combined with the cost reductions that will follow the grant of
a Mexican long distance license, will permit it to improve overall corporate
profit margins and secure a stable customer base.

Wholesale

The U.S. wholesale market for termination to Mexico has become increasingly
dynamic as competition, call volumes and industry capacity along U.S. -Mexico
routes have all increased. Although ATSI increased the volume of wholesale
minutes it transmitted to Mexico during fiscal year 1999, downward pricing
pressure in this market resulted in little additional revenue for these minutes.
ATSI expects its wholesale volume of traffic transported to increase during the
upcoming year as a result of the inauguration of its high quality ATM based
fiber route to Mexico in July 1999. In addition, ATSI plans to explore ways to
exploit its wholesale operation without the investment of significant new
resources (see Network Management Services - Carrier Services).

Although ATSI has succeeded in obtaining interconnection agreements with
various Mexican-based providers that permit ATSI to terminate northbound traffic in the U.S., itnational UCaaS providers, and numerous small cloud telephony operators. We expect to face continuing competition based on price and service offerings from existing competitors and new market entrants in the future. The principal competitive factors in our market include price, coverage, customer service, technical response times, reliability, and network size/capacity. The competitive landscape is rapidly altering the number, identity and competitiveness of the marketplace, and we are unable to determine with certainty the impact of potential consolidation in our industry.
Many of our competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we have. As a result, certain of these competitors may be able to adopt more aggressive pricing policies that could hinder our ability to market our services. We believe that our key competitive advantages are our ability to deliver reliable, high quality voice service over the Internet in a cost-effective manner, superior customers service and our VAR distribution model. We cannot provide assurances, however, that these advantages will enable us to succeed against comparable service offerings from our competitors.
Government Regulation
VoIP and other communications services, like ours, have been subject to less regulation at the state and federal levels than traditional telecommunications services. Providers of traditional telecommunications services are subject to the highest degree of regulation, while providers of VoIP and other information services are largely exempt from most federal and state regulations governing traditional common carriers. The FCC has subjected VoIP service providers to a smaller subset of regulations that apply to traditional telecommunications service providers and has not realized substantial revenue fromyet classified VoIP services as either telecommunications or information. The FCC is currently examining the status of VoIP service providers and the services they provide in multiple open proceedings. In addition, many state regulatory agencies impose taxes and other surcharges on VoIP services, and certain states take the position that offerings by VoIP providers are intrastate telecommunications services and therefore subject to state regulation. These states argue that if the beginning and end points of communications are known, and if some of these arrangements.
ATSI believescommunications occur entirely within the boundaries of a state, the state can regulate that offering. We believe that the long distance concession, if obtained, will permit it to
lower costs significantly, improving its competitive position in the wholesale
market for both north and south bound services.

Retail Distribution Network

ATSI's Mexican retail distribution network consists of casetas, and public
pay telephones.

Casetas

Casetas are indoor calling centers strategically located to serve travelers
and the large population of the country who do not have personal telephones.
Casetas are a widely recognized and utilized medium in Mexico, but do not
currently have a real equivalent in the U.S. ATSI's casetas offer local, intra-
Mexico and international long distance calling, as well as facsimile service.
ATSI is the largest caseta operator in Mexico with approximately 126 casetas in
66 cities operating under the trade name "Computel/TM/". Each location employs
at least one attendant, who processes calls, monitors call duration, collects
money and runs daily reports on call activity. As compared to public pay
telephones, casetas offer privacy and comfort as well as the personalized
attention needed by customers who are not accustomed to using a telephone. Key
factors favoring ATSI over competing caseta operators are the well-recognized
Computel name, a reliable platform and billing system, the provision of
facsimile services (which are not offered by many other operators) and a larger
distribution network. The next largest competitor in MexicoFCC has only 70
locations.

Using these casetas as the cornerstone, ATSI intends to further increase
its retail presence in Mexico and the U.S. The next generation caseta will be a
"Communication Center" and will offer additional services, such as Internet
access and prepaid services. ATSI intends to bring the Communication Center
concept to strategic markets in the U.S., targeting Mexican nationals and U.S.
citizens of Mexican origin who are familiar with the caseta concept and the
Computel/TM/ name. The Communication Centers will be used to distribute
"borderless" products that functionpreempted states from regulating VoIP offerings in the same manner regardlessas providers of traditional telecommunications services. However, this issue has not been resolved definitively as a matter of law, and it remains possible that the FCC could determine that such services are not information services, or that there could be a judicial or legislative determination that the states are not preempted from regulating VoIP services as traditional telecommunications services. We cannot predict how or when these issues will be resolved or its potential future impact on our business at this time.
4
The effect of any future laws, regulations and orders on our operations, including, but not limited to, our cloud-based communications and collaboration services, cannot be determined. But as a general matter, increased regulation and the imposition of additional funding obligations increases service costs that may or may not be recoverable from our customers, which could result in making our services less competitive with traditional telecommunications services if we increase our prices or decreasing our profit margins if we attempt to absorb such costs.
Federal, state, local and foreign governmental organizations are considering other legislative and regulatory proposals that would regulate and/or tax applications running over the Internet. We cannot predict whether new taxes will be imposed on our services, and depending on the type of taxes imposed, whether and how our services would be affected thereafter. Increased regulation of the users
location northInternet may decrease its growth and hinder technological development, which may negatively impact the cost of doing business via the Internet or southotherwise materially adversely affect our business, financial condition and results of the U.S./Mexico border. These products will be
targeted to established Latino households, as well as to recent immigrants and
transient Latinos who may have acculturation issues, or identity, credit or
economic challenges. ATSI believes it will capture customer loyalty by serving
these challenged consumers, and will keep their business as they establish
households in the U.S.

The main sourceoperations.
Regulation of competition for Communication Centers on both sides of
the border will be prepaid card services, payphone and prepaid cellular, which
are essentially designed for the same target market. There is already a robust
market for prepaid calling cards in the U.S. Regulations in Mexico have only
recently permitted the use of dial around products from payphones, and ATSI
expects many more prepaid card vendors to enter that market. ATSI is aware of
only a limited number of caseta-style call centers in the U.S. located on the
East Coast, in Miami and Los Angeles.

Pay Telephones

ATSI also owns and operates approximately 574 pay telephones in various
Mexican cities and resort areas, including Acapulco, Cancun, Cozumel, Mazatlan,
Puerto Vallarta, Tijuana, Huatulco, Puerto Escondido, Cabo San Lucas, and Puerto
Angel. ATSI also has pay telephones in the Mexico City airport and Mexico City's
mass transit metro system

transfer stations. All of ATSI's pay telephones are "intelligent" phones,
meaning that certain features are fully automated, reducing operating costs.
ATSI's telephones accept pesos and U.S. quarters. Customers may also access an
ATSI operator for assistance in placing collect, third party, person-to -person
calls or credit card calls.

ATSI markets its pay telephone services in Mexico through direct sales
efforts as well as some independent marketing representatives working on a
commission basis. ATSI has targeted a significant portion of its pay telephone
marketing efforts toward various resort areas in Mexico, specifically on
locations with high tourist-traffic such as airports, ship ports and marinas,
restaurants and bars. Approximately 16 million U.S. tourists visit Mexico each
year, and the country's vacation destinations are major hubs for northern
visitors via major U.S. airline carriers, and cruise ships. Although ATSI
targets the tourist market for payphones and operator-assisted calling, these
services are available for Mexican nationals as well.

As of October 1, 1999, there were 31 authorized payphone providers in
Mexico, of which Telmex is the largest. ATSI believes it is the second largest
provider after Telmex in the tourist markets, where it has focused its efforts.
ATSI's multi-pay payphones give it a significant advantage over its largest
competitor, Telmex, which accepts only pre-paid Telmex calling cards. Vendors of
the cards are often difficult to locate and denominations tend to be higher than
needed by consumers. Although other companies have plans to install pay
telephones, ATSI believes that it will be one of the few providers with its own
network, allowing it to maintain flexibility with respect to rates.Internet-based Telecommunication Services and Products

In the presentation of its financial results, ATSI divides its revenues
into three categories:

. Network Management Services, which includes Carriers Services and Private
Network Services
. Call Services, which includes Integrated Prepaid and Postpaid
. Electronic Commerce.

Network Management Services

Carrier Services

ATSI offers wholesale termination services to U.S. and Latin American
carriers who lack transmission facilities or require additional capacity.
Revenues from this service accounted for approximately 41% of overall revenues
in fiscal 1999. This market experienced tremendous downward pricing pressure
during fiscal year 1999 due to a combination of several factors, most notably an
increase in the activation of fiber optic cable along U.S.-Mexico routes and
regulatory changes which permitted the top tier carriers to lower their
international wholesale rates. Therefore, although ATSI experienced increased
volumes in this line of business during the year, it realized little additional
revenue. ATSI has seen a substantial increase in volume since it activated its
high-quality fiber route in July 1999, and believes this fiber network will
continue to attract increased volumes from top tier carriers. In addition, ATSI
believes it will generate opportunities to transport traffic for Mexican
carriers. ATSI should be able to use the increased volumes to negotiate more
favorable termination costs in Mexico, and if ATSI receives a Mexican long
distance license, it will be able to substantially cut its costs for carrying
this traffic.

Private Networks

ATSI offers private communications links for multi-national and Latin
American customers who use a high volume of telecommunications services and need
greater dependability than is available through public networks. These services
include data, voice, and fax transmission as well as videoconferencing and
Internet. During fiscal 1999, ATSI did not devote significant resources toward
the development of this business in Mexico. However, expansion of this line of
business is consistent with ATSI's plans to build out its network in Mexico,
since many of the same facilities that would be used for delivery of retail
consumer products could be used for private network services as well.

ATSI has and will continue to use the provision of private network services
as an entry into new Latin markets that are in the process of migrating from
state-run systems to competitive systems.

ATSI competes with MCI/Worldcom, Americatel, Pointe Communications
Corporation, and Telscape International Inc., among others, in providing private
network services. Factors contributing to ATSI's competitiveness in the private
network business include reliability, network quality, speed of installation,
and in some cases, geography, network size, and hauling capacity. ATSI believes
it has the reputation as being a responsive service provider capable of
processing all types of network traffic.

Call Services

Postpaid

ATSI's principal call service is operator-assistance for international
collect, person-to-person, third party, calling card and credit card calls
originating in Mexico. The primary source of demand for operator assistance are
ATSI's pay telephones and casetas in Mexico. ATSI also provides operator
services for calls originating from payphones and casetas owned by others, hotel
and resort operators, and others who control the right to direct operator-
assisted calling from groups of telephones. ATSI pays these third parties a
commission based on the revenue generated by the call traffic they send. These
postpaid calling services are billed to the consumer or other appropriate party
subsequent to the time the call is placed.

As part of its ongoing efforts to minimize costs, ATSI began outsourcing
its live operator services in July 1999, and executed an agreement with another
operator service provider to handle ATSI's call services traffic on a
transaction basis. The vendor will continue ATSI's practice of providing
bilingual service 24 hours per day, 7 days per week.

ATSI's owned retail distribution network of payphones and casetas will
continue to generate call services traffic. Competition for traffic from third
parties in this market revolves largely around the amount of commissions the
operator services provider is willing to pay. ATSI is currently focusing more on
improving its profitability rather than simply generating additional revenues,
and it has therefore lost ground to competitors willing to accept lower profit
margins by paying higher commissions. However, ATSI believes it has a reputation
as a reliable provider, and it is also able to offer the value-added service of
intelligent pay telephones in hotel lobbies.

During fiscal 1999, ATSI provided direct dial services (long distance calls
which do not require live or automated operator assistance) to a small extent in the United States. ATSI provided 1+ and MEXICOnnect service to residential and
business customers in the San Antonio metropolitan area. MEXICOnnect allows
customer to dial-around their presubscribed carrier by dialing 10-10-624 + the
area code + the telephone number. Under the 1+ program, customers presubscribe
to ATSI's network for all long distance calls made from their telephone number,
eliminating the need to dial any extra digits to reach ATSI's network.

ATSI competes with large carriers such as AT&T, MCI/Worldcom, and Sprint as
well as numerous smaller companies for presubscribed long distance. Price
remains a primary concern for many consumers since the technology is not
distinguishable from one provider to another. ATSI is focused on the Latino
market and offers an aggressive international rate to Mexico as well as
competitive domestic rates. Unlike many other long distance providers, ATSI's
charges are included on the customer's bill from the local phone company. ATSI
also offers the convenience of bilingual customer service. ATSI believes that it
will be able to expand its presubscribed customer base by using U.S.
Communication Centers as magnets to attract underserved Latino customers to
ATSI's products.

There are numerous dial-around products on the market, offered by small and
large companies, and by long distance resellers as well as facilities-based
carriers. MEXICOnnect's competitive advantage is its focus on the Latino market,
and the elimination of per call minimums, monthly access fees, surcharges, and
other types of restrictions and small print that make dial-around discounts
deceiving. In comparison to long distance resellers, ATSI has greater
flexibility in adjusting rates, as it has greater control over its own network.

Integrated Prepaid

The Company also generates call services revenues from direct dial calls
made in Mexico from ATSI's own communication centers and pay telephones. These
integrated prepaid revenues are paid for by the consumer prior to or at the time
the calls are placed. In Mexico, the Company competes with other payphone and
caseta operators, including Telmex, the form monopoly.

Sales

Direct dial sales are supervised by the Senior Vice President, Sales and
Marketing based in San Antonio. U.S. domestic carrier sales are supervised by
the Senior Vice President, Sales and Marketing in San Antonio. Mexican carrier
sales are also supervised by the Senior Vice President, Sales and Marketing in
San Antonio, who is assisted by the Director General (President) of ATSI-Mexico.
The Director of Central American operations, based in San Jose, Costa Rica,
manages the Central American carrier and private network accounts under the
supervision of the Senior Vice President, Sales and Marketing in San Antonio.
Payphone, hospitality and aggregator sales are managed from ATSI-Mexico with
supervision from the Senior Vice President, Sales and Marketing in San Antonio.
Communication center's sales efforts are managed

from Computel's offices in Guadalajara with oversight from ATSI-Mexico in Mexico
City. ATSI is in the process of consolidating the operations of Computel and
ATSI-Mexico.

Electronic Commerce via Internet

GlobalSCAPE was formed in April 1996 to implement Internet related
strategies that are not complementary to ATSI's core business. GlobalSCAPE's
revenues are attributable to sales of Internet productivity software, primarily
its flagship product CuteFTP/TM/ that it has historically distributed via its
web site. GlobalSCAPE operates autonomously, generating substantially all funds
for its development and expansion internally from its own operations. In January
1999 GlobalSCAPE acquired ownership of CuteFTP from its original author, and
subsequently released an enhanced new version. In fiscal 1999, GlobalSCAPE also
released two new products, CuteHTML/TM/ and CuteMAP/TM/, began distributing
CuteFTP in CompUSA stores, and began realizing revenue from advertisements
placed in its software.

ATSI announced in February, 1999 that it was considering a spin off or
public offering of GlobalSCAPE's stock, and ATSI has retained an investment
banking firm to assist it in evaluating these options and other options to
finance GlobalSCAPE's continued growth.

GlobalSCAPE's market includes all computer users on the Internet.
GlobalSCAPE's products are distributed as shareware, meaning that users may
download and use the products for free on a trial basis for a limited time.
After the expiration of the trial period, the user must register the product to
be in compliance with the license and to obtain product support. GlobalSCAPE's
primary source of revenue is generated through product registration, with
additional revenues generated by advertising in the form of ad banners and
sponsorships in its "live" software products and on its web site. On a monthly
basis, GlobalSCAPE receives approximately 1.2 million unique visitors to its web
site and displays more than 15 million in-product and web site ad banners.

GlobalSCAPE's flagship product, CuteFTP/TM/, is a Windows/R/-based file
transfer protocol (FTP) utility allowing users the ability to transfer and
manage files via the Internet, including media files, web pages, software, and
graphics. ATSI believes that CuteFTP/TM/ has 30% of the U.S. market share for
FTP programs. ATSI's portfolio of products also includes CuteHTML/TM/, an
advanced HTML editor for developing web sites, and CuteMAP/TM/, an image mapping
utility for graphic navigation through web sites, and others in various stages
of alpha and beta testing. GlobalSCAPE intends to leverage its strong brand
recognition into a full suite of "Cute" products.

GlobalSCAPE operates in a highly competitive environment with respect to
all its products. CuteFTP/TM/'s primary competitors are WS_FTP Voyager and
Bulletproof FTP. While many FTP products have mimicked CuteFTP/TM/'s features,
they are not commercially successful due to their late arrival to the
marketplace and lack of support infrastructure. CuteHTML/TM/ and CuteMAP/TM/,
although relatively new to the market,States
We have the advantage of being able to
piggyback on the success of CuteFTP/TM/ through product integration and cross-
marketing efforts.

Network

ATSI has established a technologically advanced network having an "ATM"
backbone with satellite and fiber optic arms. ATM stands for "Asynchronous
Transfer Mode," and is a packet switching technology that allocates bandwidth on
demand for high-speed connection of voice, data and video services. This
technology allows ATSI to use its switch capacity more efficiently than a
circuit-switched system that requires capacity to be dedicated to certain
customers regardless of whether they are using it fully. ATSI's network also
employs compression technology to carry greater volumes on the same facilities.
ATM is compatible with Internet protocols and Frame Relay, permitting ATSI to
explore even more cost-effective transmission methods in the future.

Generally, ATSI's strategy is to use the fiber optic arm of its network to
access major metropolitan areas in Mexico, and the satellite arm to access semi-
rural and smaller metropolitan areas. This hybrid network also offers redundancy
that can minimize service interruptions. ATSI's fiber route runs from its
facility at the Infomart in Dallas, Texas to Mexico City, Mexico. ATSI has
satellite transmission and receiving equipment in:

. San Antonio, Texas
. Mexico City, Monterrey, and Cancun, Mexico
. Guatemala City, Guatemala
. San Salvador, El Salvador, and
. San Jose, Costa Rica.

ATSI leases fiber capacity from third parties, primarily Bestel. ATSI
leases satellite capacity on the Mexican satellites Solidaridad I and II, from
Satelites Mexicanos, S.A. de C.V. ("SATMEX").

ATSI owns switching and other equipment in the U.S. and Mexico. In April
1999, ATSI began using its new Nortel DMS 300/250 International Gateway Switch
in its Dallas location. This advanced switch will permit ATSI to deploy the new
retail and wholesale products that are key to its competitive strategy.

All aspects of ATSI's owned network facilities are designed to allow for
modular expansion, permitting ATSI to increase capacity as needed.

ATSI must contract with others to complete the intra-Mexico and domestic
U.S. portions of its network. ATSI has interconnection and service agreements in
place with four Mexican long distance concessionaires, Operadora Protel, S.A. de
C.V., Avantel, S.A. de C.V., Miditel, S.A. de C.V. and Bestel, S.A. de C.V. ATSI
has applied for its own Mexican long distance license, which will allow it to
build out its network in Mexico and to interconnect directly with Telmex and
other local carriers, thereby lowering its transmission costs. ATSI has
interconnection agreements with Radiografica Costarricense, S.A., FT&T, S.A. ,
and Corporacion Solares, S.A. de C.V. for transmission services in Costa Rica,
Guatemala and El Salvador, respectively. In the U.S., ATSI purchases long
distance capacity from various companies.

ATSI purchases local line access in Mexico for its payphones and casetas
from Telmex, and various cellular companies including SOS Telecomunicaciones,
S.A. de C.V., Portatel del Sureste, S.A. de C.V., Movitel del Noreste, S.A. de
C.V, and Baja Celular Mexicana, S.A. de C.V.

Licenses/Regulatory

United States

Pursuant tonecessary authority under Section 214 of the Communications Act of 1934,to operate as a domestic and international carrier. We are considered a non-dominant domestic interstate carrier subject to minimal regulation by the Federal
Communications Commission ("FCC") has granted ATSI globalFCC. We are not required to obtain FCC authority to provide
switched international telecommunications services between the U.S.initiate or expand our domestic interstate operations, but we are required to obtain FCC approval to transfer control or discontinue service and certain
other countries. ATSI maintains informational tariffsare required to file various reports and pay various fees and assessments. In addition, we must offer service on file with the FCC for
its international retaila nondiscriminatory basis at just and reasonable rates and charges.

are subject to the FCC’s complaint jurisdiction. Generally, our international voice traffic is subject to minimal regulation by state and local jurisdictions.
The Telecommunications Act of 1996 ("Telecom Act"), which became law in
February 1996, was designedFCC requires Internet voice communications service providers, such as our company, to promote competitionprovide E-911 service in all aspects of
telecommunications.geographic areas covered by the traditional wire-line E-911 network. Under the FCC’s rules, Internet voice communications providers must transmit the caller’s phone number and registered location information to the appropriate public safety answering point, or PSAP, for the caller’s registered location. The FCC has promulgated and continuesalso requires interconnected VoIP service providers to promulgate major
changes to their telecommunications regulations, many of which will have an
impact on ATSI. ATSI cannot predict the ultimate effect of these various
changes. One aspect of the Telecom Act that is of particular importance to ATSI
is that it allows the former Bell local monopolies such as Southwestern Bell and
Ameritech to offer "in region" long distance service once they meet certain
requirements. "In region" means that they will be permitted to offer long
distance within their traditional local service franchise area, allowing them to
offer an additional service to their already-established customer base. The
rules for competition are still being decided by regulators and the courts.
Although no Bell companies have been permitted to provide in-region long
distance service at this time, ATSI anticipates that Southwestern Bell may be
granted permission in the near term. Given their extensive resources and
established customer bases, the entry of the Bell companies into the long
distance market, specifically the international market, will create increased
competition for ATSI.

The International Settlements Policy (the "ISP"make Universal Service Fund (“USF”) indirectly regulates the
prices that the dominant carriers such as AT&T may charge for international
calling. The FCC recently enacted certain changes in its rules which made it
possible for the large carriers to lower their international prices, which has
contributed to the substantial downward pricing pressure facing ATSI in the
wholesale carrier market.

Many states require telecommunications providers operating within the state
to maintain certificates and tariffs with the state regulatory agencies, and to
meet various other requirements (e.g. reporting, consumer protection,
notification of corporate events). ATSI believes it is in compliance with all
applicable State laws and regulations governing its services.

Mexico

The Secretaria de Comunicaciones y Transportes ("SCT") and COFETEL have
issued ATSI's Mexican subsidiaries the following licenses:

Comercializadora License - a 20-year license issued in February 1997
allowing for nationwide resale of local calling and long distance services from
public pay telephones and casetas.

Teleport and Satellite Network License - a 15-year license issued in May
1994 allowing for transport of voice, data, and video services domestically and
internationally. The license allows for the operation of a network utilizing
stand-alone VSAT terminals and/or teleport facilities, and interconnection to
the public switched network via other licensed carriers. A shared teleport
facility enables ATSI to provide services to multiple users/customers through a
single centralized satellite earth station.

Packet Switching Network License - a 20-year license issued in October 1994
allowing for the installation and operation of a network interconnecting packet
switching nodes via ATSI's proprietary network or circuits leased from other
licensed carriers. The license supports any type of packet switching technology,
and can be utilized in conjunction with ATSI's other licenses to build a hybrid
nationwide network with international access to the U.S.

Value-Added Service License - an indefinite license allowing ATSI to
provide a value added network service, such as delivering public access to the
Internet.

Mexico is in the process of revising its regulatory scheme consistent with
its new competitive market. Various technical and pricing issues related to
interconnections between carriers are the subject of regulatory actions which
will effect the competitive environment in ways ATSI is not able to determine at
this time.

Other Foreign Countries

In addition to Mexico, ATSI currently has operations in Costa Rica, El
Salvador, and Guatemala. The telecommunications markets in these countries are
in transition from monopolies to functioning, competitive markets. ATSI has
established a presence in those countries by providing a limited range of
services, and intends to expand the services it offers as regulatory conditions
permit. ATSI does not believe that any of its current operations in those
countries requires licensing, and it believes it is in compliance with
applicable laws and regulations governing its operations in those countries.

RISK FACTORS

The purchase of our common stock is very risky. You should not invest any
money that you cannot afford to lose. Before you buy our stock, you should
carefully read this entire prospectus. We have highlighted for you what we think
are the major risks which could most affect our business.

. It is difficult for us to compete with much larger companies such as AT&T,
Sprint and MCI/Worldcom

The large carriers such as AT&T, Sprint and MCI/Worldcom have more extensive
owned networks than we do, which enables them to control costs more easily
than we can. They are also able to take advantage of their large customer base
to generate economies of scale, substantially lowering their costs. Therefore,
they are better able than we are to lower their prices as needed to retain
customers. In addition, these companies have stronger name recognition and
brand loyalty, as well as a broader portfolio of services, making it difficult
for us to attract new customers. We believe we can successfully compete by
targeting the Latino population in the U.S. and by introducing innovative
services. However, some larger companies have announced that they intend to
enter the Latino market in the U.S. In Mexico, we compete with the former
Mexican telephone monopoly, Telmex, which has substantially greater resources
than we do.

Mergers, acquisitions, and joint ventures in our industry have created and
will continue to create more large and well positioned competitors. As a
result, we won't have as many potential customers for our wholesale network
services.

. The market for wholesale services is extremely price sensitive and there
may be downward pricing pressure in this market making it difficult for us to
retain customers and generate adequate revenue from this service.

Industry capacity along the routes serviced by ATSI is generally growing as
fiber optic cable is activated. This increased capacity along with intense
competition among carriers in this market has created severe downward pricing
pressure. For example, from October 1998 to October 1999, the prevailing price
per minute to carry traffic from the U.S. to Mexico declined by approximately
45%. Generally, our wholesale customers are able to re-route their traffic to
other carriers very quickly in response to price changes. Although we carried
almost twice as much wholesale traffic in fiscal year 1999 than in fiscal year
1998, we realized about the same amount of revenue. Our recent network
enhancements have resulted in increased volumes, and we believe we will
continue to increase our wholesale volumes.

. The telecommunications industry has been characterized by continual
technological change. We may not be able to raise the money we need to acquire
the new technology necessary to keep our services competitive.

To compete successfully in the wholesale and retail markets, we must maintain
the highest quality of service. Therefore, we must continually upgrade our
network to keep pace with technological change. This is expensive, and we do
not have the substantial resources that our large competitors have.contributions. We believe that our investment in our current network infrastructure will allow us to
upgradeservices are currently compliant with all applicable requirements of the FCC, and retain high quality transmission without a major network overhaul
for the next several years.

. We may not be able to generate the sales volume we need to recover our
substantial capital investment in our network

We have and must continue to spend substantial sums to keep our network up to
date and to expand our network. Therefore, to attain profitability, we must
generate a large volume of sales. We compete for wholesale and retail
customers with larger, and better known companies making it relatively more
difficult for us to attract new customers for our services.

. If we do not raise additional capital we may go out of business

We have never been profitable and do not expect to become profitable in the
near future. We have invested and will continue to invest significant amounts
of money in our network and personnel in order to maintain and develop the
infrastructure we need to compete in the markets for our services. In the past we have financed our operations almost exclusively throughmade and are making the private sales
of securities. Sincerequired contributions to the USF. However, should we are losing money, we must raise the money we needat some time fail to continue operations and expand our network either by selling more securitiesmeet certain requirements or borrowing money. We may not be able to sell additional securities or borrow
money on acceptable terms. If we are not able to raise additional money, we
will not be able to implement our strategy for the future, and we will either
have to scale back our operations or stop operations.

If we sell more common stock the interest of our existing shareholders will be
diluted, meaning that their percentage of ownership of ATSI will be reduced,
and the price of our common stock may go down. If we borrow money, our expense
in running the business will be increased, requiring us to generate even more
revenue to generate a profit.

. A large portion of our revenue is concentrated among a few customers, making
us vulnerable to sudden revenue declines

Our revenues from wholesale services currently comprise about 60% of our total
revenues. We currently have seven customers for our wholesale services. The
volume of business sent by each customer fluctuates, but this traffic is often
heavily concentrated among three or four customers. In the past, two of these
customers have been responsible for 50% of this traffic. If we are not able to
continue to offer competitive prices, these customers will find some other
supplier and we will lose a substantial portion of our revenue very quickly.

. We may not be able to collect large receivables, which would create serious
cash flow problems

Our wholesale network customers generate large receivable balances, often over
$500,000 for a two-week period. We incur substantial direct costs to provide
this service since we must pay our carrier in Mexico to terminate these calls.
If a customer fails to pay a large balance on time, we will have difficulty
paying our carrier in Mexico on time. If our carrier suspends services to us,
it will affect all our customers.

. Our auditors have questioned our viability

Our auditors' opinion on our financial statements as of July 31, 1999 calls
attention to substantial doubts as to our ability to continue as a going
concern. This means that they question whether we can continue in business. If
we cannot continue in business, our common stockholders would likely lose
their entire investment. Our financial statements are prepared on the
assumption that we will continue in business. They do not contain any
adjustments to reflect the uncertainty over our continuing in business.

. We do not expect to pay dividends

We have no plan to pay dividends in the near future.

. Our stock has been a penny stock which is more difficult to sell

Our common stock is a "penny stock." It is relatively difficult for an
investor to sell shares of a penny stock.

A "penny stock" is any stock which falls below a selling price of $5.00 per
share in the public market. Our common stock has traded below $5.00 per share
since it began trading on the NASD Over-the-Counter Bulletin Board in January,
1998. It is much more difficult to sell a penny stock than stock that trades
on a national market or stock exchange because of the extra steps the
broker/dealer must take before selling the stock. A sale of penny stock does
not usually take place as quickly as a sale of shares that trade on a national
market or stock exchange. You may decide to sell your stock when the price is
high enough for youfail to make a profit on your investment, but by the time the
sale is complete, the price of the stock may have fallen to the point that you
have a loss on your investment. Also, because of the difficulty in dealing in
penny stock, many broker/dealers are unwilling to participate in buying and
selling our shares.

. Our common stock price is volatile, which makes it more difficult for your to
sell shares when you choose, at prices you find attractive.

Over the past year, the price of our common stock has fluctuated by as much as
100% within a 30 day period. See the section of this Prospectus entitled
"Market for Registrant's common Equity and Related Stockholder Matters" on
page 21 for more information on changes in our stock price over time. This
volatility, combined with the effect of the penny stock rules described above
may make it difficult for you to complete a sale of your shares at the price
you wish.

. Our stock price may fall if we fail to spin off GlobalSCAPE

We have announced that we are considering a spin off or public offering (or
combination of the two) of our subsidiary, GlobalSCAPE, and that we have
retained an investment banking firm to help us evaluate the alternatives in
achieving the appropriate value for GlobalSCAPE. If we do not complete this
type of transaction (or if we take too long to complete this transaction) our
stock price could fall. This transaction could be delayed or cancelled if we
are unable to find an underwriter, we are unable to negotiate a favorable
offering price for the stock of GlobalSCAPE, there is a lack of public
interest in such a transaction, or management and the Board determine that
this transaction involves excessive operational and economic risk.

. We may not be able to attract and retain qualified personnel since we are not
as attractive an employer as other, larger carriers

We compete for technical and managerial personnel with other
telecommunications companies. Many of these have greater resources than we do
and are able to offer more attractive compensation packages, as well as the
security of working for an established company. We have been able to attract
qualified personnel in part by granting incentive stock options, and believe
we will be able to continue to do so.

. We may not be able to lease transmission facilities we need at cost-effective
rates

We do not own all of the transmission facilities we need to complete calls.
Therefore, we depend on contractual arrangements with other telecommunications
companies to complete our network. For example, although we own the switching
and transport equipment needed to receive and transmit calls via satellite and
fiber optic cable, we do not own a satellite or any fiber optic cable and must
therefore lease transmission capacity from other companies. We may not be able
to lease facilities at cost-effective rates in the future or enter into
contractual arrangements necessary to expand our network or improve our
network as necessary to keep up with technological change.

There are a limited number of suppliers for the products and services we need
to complete our network. We may have difficulty finding alternate suppliers if
any of our suppliers go out of business or are acquired by our competitors.

Also if certain current suppliers fail to honor their contractual commitments,required contributions, we could be very seriously affected.

. We may not be ablesubject to pay our suppliers on time, causing them to discontinue
critical services

We have not always paid allrevocation of our suppliers on time dueauthority to temporary cash
shortfalls. These suppliers have given us payment extensions in the past, but
critical suppliers may discontinue service if we are not ableoperate or to make payments
on time in the future. In addition, equipment vendors may refuse to provide
critical technical support for their products if they are not paid on time
under the terms of support arrangements. Our ability to make payments on time
depends on our ability to raise additional capitalfines or improve our cash flow
from operations.

. We may not be able to make our debt payments on time, causing our lenders
to repossess critical equipment

We purchased some of our significant equipment with borrowed money. The
lenders have a security interest in the equipment to secure repayment of the
debt. This means that the lenders may take possession of the equipment and
sell it to repay the debt if we do not make our payments on time. We have not
always paid all of our equipment lenders on time due to temporary cash
shortfalls. These lenders have given us payment extensions in the past, but
they may exercise their right to take possession of certain critical equipment
if we are not able to make payments on time in the future. Our ability to make
our payments on time depends on our ability to raise additional capital or
improve our cash flow from operations.

. We may have service interruptions and problems with the quality of
transmission, causing us to lose call volumes and customers

To retain and attract customers, we must keep our network operational 24 hours
per day, 365 days per year. We have experienced service interruptions and
other problems that affect the quality of voice and data transmission. To
date, these problems have been temporary. We may experience more serious
problems. In addition to the normal risks that any telecommunications company
faces (such as fire, flood, power failure, equipment failure), we may have a
serious problem if a meteor or space debris strikes the satellite that
transmits our traffic, or a volcanic eruption or earthquake interferes with
our operations in Mexico City. We have the ability to transmit calls via
either the satellite or fiber optic portion of our network, and this
redundancy should protect us if there is a problem with one portion of our
network. However, a significant amount of time could pass before we could re-
route traffic from one portion of our network to the other, and there may not
be sufficient capacity on only one portion of the network to carry all of our
traffic at any given time.

To stay competitive, we will continue to integrate the latest technologies
into our network. We are currently implementing "packet switching" transport
capabilities such as Asynchronous Transfer Mode and we will continue to
explore new technologies as they are developed. The risk of network problems
increases during periods of expansion and transition to new technologies.

. Changes in telecommunications regulations may harm our competitive position

The telecommunications industry in the United States is regulated by the
Federal Communications Commission (the "FCC") and by the public utilities
commissions in the various states. penalties.
As a result of the deregulationFCC’s preemption of states’ ability to regulate certain aspects of VoIP service, and a trend in state legislatures to affirmatively deregulate VoIP services for most purposes, our VoIP services are subject to relatively few state regulatory requirements aside from collection of state and local E911 fees and state Universal Service support obligations. We believe that our VoIP services are currently compliant with all applicable state requirements, and we have made and are making the required by
the Telecommunications Act of 1996, the FCC has issued,contributions to E911, state USF, and other funds. The state regulatory framework for our VoIP services continues to issue, major changesevolve, so we, in conjunction with our professional advisors, monitor the actions of the various state regulatory agencies and endeavor to their regulations. These new regulations have
significantly changed and will continue to change the competitive environment.
For example, FCC regulations now permit the regional Bell operating companies
(former local telephone monopolies such as Southwestern Bell) to enter the
long distance market if certain conditions are met. The entry of these
formidable competitors into the long distance market will make it more
difficult for us to establish a retail customer base. Other new regulations
affect the pricing for services that we purchase from others. Pricing changes
could put us at a relative disadvantage to larger competitors. We cannot
predict what other changes there may be in the regulations or what effect
these changes will have on our business.

The Mexican telecommunications industry is also going through the process of
de-monopolization and regulatory change, and new laws and regulations there
could affect our business. These regulatory changes may not continue to
improve market conditions for us and, even if they do, we may not have the
opportunity to provide additional telecommunications services within Mexico
and between Mexico and other countries.

The international telecommunications industry is also governed by foreign laws
and treaties between the United States and other countries. Changes in these
laws or treaties may also affect the competitive environment.

. Our compliance with laws and regulations could be challenged

We believeensure that we are in compliance with applicable state law, including any new statutes or regulations that may be passed. However, there can be no assurance that we will become aware of all domesticapplicable requirements on a timely basis, or that we will always be fully compliant with applicable rules and foreign
telecommunications laws that govern our current business. However, government
enforcement and interpretation of the telecommunications laws and licenses is
unpredictable and is often based on informal views of government officials and
ministries. This is particularly true in Mexico and certain of our target
Latin American markets, where government officials and ministries mayregulations. Should we fail to be compliant with applicable state regulations, or to file required reports with state regulatory agencies, we could be subject to influencefines and/or penalties.
In addition to regulations addressing Internet telephony and broadband services, other regulatory issues relating to the Internet generally could affect our ability to provide our services. Congress has adopted legislation that regulates certain aspects of the Internet including online content, user privacy, taxation, liability for third-party activities and jurisdiction. In addition, a number of initiatives pending in Congress and state legislatures would prohibit or restrict advertising or sale of certain products and services on the Internet, which may have the effect of raising the cost of doing business on the Internet generally.
5
International Regulation
The regulatory treatment of Internet telephony outside of the U.S. varies widely from country to country. A number of countries that currently prohibit competition in the provision of voice telephony also prohibit Internet telephony. Other countries permit but regulate Internet telephony. Some countries will evaluate proposed Internet telephony service on a case-by-case basis and determine whether it should be regulated as a voice service or as another telecommunications service. In many countries, Internet telephony has not yet been addressed by legislation or regulation. Increased regulation of the former telecommunications monopoly, such as
Telmex. This means that our compliance withInternet and/or Internet telephony providers or the laws may be challenged. Itprohibition of Internet telephony in one or more countries could be very expensive to defend this type of challenge and we might not win.
If we were found to have violated the laws that governadversely affect our business and future prospects if we could
be fineddecide to expand globally.
Customers and Suppliers
We rely on various suppliers to provide services in connection with our Voice over Internet Protocol (“VoIP”) or denied the right to offer services. To our knowledge, weUnified Communication as a Service (“UCaaS”) offerings. Our customers include businesses in various industries including Healthcare, Banking, Financial Services, Legal, Real Estate, and Construction. We are not currently subject todependent upon any regulatory inquirysingle supplier or investigation.

. We maycustomer.
During the year ended July 31, 2018, the Company did not be able to obtain new licenses we need to reduce costsderived a significant amount of revenue from one single customer. During the year ended July 31, 2017, the Company derived a significant amount revenue from four customers, comprising 24%, 24%, 11%, and expand
our network

Our strategy8% of the total revenue for the future depends on obtaining a long distance concession
from the Mexican government. We may not be able to obtain this license, and if
we do not obtain this license, we may not be able to implement our strategy
for the future or continue to offer services at competitive prices. Our
strategy is to expand into other Latin American countries as regulatory
conditions in those countries permit. We may not be able to obtain the
licenses we need for this expansion.

. Our operations may be affected by political changes in Mexico and other
Latin American countries

The majority of our foreign operations are in Mexico. The political and
economic climate in Mexico and other Latin American countries is more
uncertain than in the United States and unfavorable changes could have a
direct impact on our operations in Mexico. For example, newly elected
government officials could decide to quickly reverse the deregulationyear.
As of the Mexican telecommunications industry economyyear ended July 31, 2018, the company derived 13% and take steps to limit our
business, such as seizing our property, revoking our licenses, or modifying
our contracts with Mexican suppliers. A period of poor economic performance
could reduce the demand for our services in Mexico. There might be trade
disputes between the United States and Mexico which result in trade barriers
such as additional taxes on our services. The Mexican government might also
decide to restrict the conversion of pesos into dollars or restrict the
transfer of dollars out of Mexico. These types of changes, whether they occur
or are only threatened, would also make it more difficult for us to obtain
financing in the United States.

. If the value23% total accounts receivable from two customers. As of the Mexican Peso declines relative toyear ended July 31, 2017, the Dollar, we will
have decreased earnings as stated Dollars

Approximately 20%Company derived a significant amount of ATSI's revenue is collected in Mexican Pesos. If the
valueaccounts receivable from three customers, comprising 37%, 27% and 14% of the Peso relative tototal accounts receivable as of the Dollar declines, that is, if Pesos are
convertible into fewer Dollars, then our earnings, which are stated in
dollars, will decline. We do not engage in any typeyear ended July 31, 2017.
Employees
As of hedging transactions to
minimize this risk and do not intend to do so.

EMPLOYEES

At December 1, 1999, ATSI (excluding ATSI-Mexico)September 12, 2019, we had 84 full-time23 employees, all of whom 9 wereperformed sales, and marketing personnel, and 72 performed operational, technical and administrative functions, and 3 part-time employees.
Of the foregoing, 22 were employed by GlobalSCAPE, and 7 were employed by
Sinfra. ATSI believes itsfunctions. We believe our future success will depend to a large extent on itsour continued ability to attract and retain highly skilled and qualified employees. ATSI considers itsWe consider our employee relations to be good. None of thethese aforementioned employees belong to labor unions.

At December 1, 1999, ATSI-Mexico had 434 full-time employees
Peak One Equity Purchase Agreement and Registration Rights Agreement
Summary of whom 375
were operatorsthe Offering
Shares currently outstanding (1): 25,240,222
Shares being offered: 6,324,142
Shares Outstanding after the offering: 31,564,364 assuming each share offered for resale hereby is sold.
Offering Price per share: The selling stockholders may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices.
Use of Proceeds: We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholder. However, we will receive proceeds from our initial sale of shares to Peak One, pursuant to the Financing Agreement. The proceeds from the initial sale of shares will be used for the purpose of working capital and that the Board of Directors, in good faith deem to be in the best interest of the Company.
Trading Symbol: DTGI
Risk Factors: See “Risk Factors” beginning on page 10 and the other information in this prospectus for a discussion of the factors you should consider before deciding to invest in shares of our common stock.
(1) The number of shares of our Common Stock outstanding prior to and to be outstanding immediately after this offering, as set forth in the table above, is based on 25,240,222 shares outstanding as of September 12, 2019, and excluding 6,324,142 shares of Common Stock issuable in this offering as well as the 250,000 shares of Common Stock issued to Peak One as commitment shares for entering into the Equity Purchase Agreement (the “Commitment Shares”).
6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated statements of operations data for the quarter ended April 30, 2019 and 59 performed sales, marketing, operational, technicalfiscal year ended July 31, 2018 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Additionally, the nine months ended April 30, 2019 and administrative functions. A portion2018 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of ATSI-Mexico's employees, chiefly
operators, belongApril 30, 2019 are derived from our consolidated financial statements that are included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods, and the results for the quarter ended April 30, 2019 is not necessarily indicative of our operating results to be expected for the full fiscal year ending July 31, 2019 or any other period. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our consolidated financial statements have been prepared on a union.

PROPERTIES

ATSI's executive offices, principal teleport facilitybasis consistent with our audited financial statements and control center
are located at its leased facility in San Antonio, Texas,include all adjustments, consisting of 11,819
square feet. The lease expires August 2002,normal and has two five-year renewal
options. ATSI pays annual rent of $98,452 (increasing to $107,789 per year for
the last year) under the lease and is responsible for taxes and insurance.
GlobalSCAPE, Inc.'s offices are located at its leased facility in San Antonio,
Texas, consisting of 5,401 square feet. The lease expires January 31, 2001.
GlobalSCAPE, Inc. pays annual rent of $87,496 per year and is responsible for
taxes and insurance.

Subsequent to year-end, ATSI and GlobalSCAPE entered into agreements for
new office space beginning in December of 1999. Both agreements arerecurring adjustments that we consider necessary for a period
of eight and a half-years with rent deferred for the first six monthsfair presentation of the agreement. ATSI's facilityfinancial position and results of operations as of and for such periods.
7
DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
April 30, July 31,
2019 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 460 $ 388
Accounts receivable, net 245 229
Prepaid and other current assets 80 124
Deposits 55 -
Total current assets 840 741
LONG-TERM ASSETS:
Intangible assets, net 2,736 3,046
Property and equipment, net 535 713
Other assets 58 59
Total assets $ 4,169 $ 4,559
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,173 $ 1,177
Accrued liabilities 1,432 893
Current portion of capital lease obligations 32 30
Convertible note payable, current, net $11 and $187, respectively 761 585
Note payable, current, related party 425 126
Note payable, current, net $0 and $0, respectively 1,200 725
Convertible note payable, current, net $345 and $273, respectively 235 33
Deferred income 314 262
Derivative liability 1,303 632
Total current liabilities 6,875 4,463
LONG-TERM LIABILITIES:
Convertible debenture, net $99 and $273, respectively 51 27
Notes payable, related party, net $27 and $38, respectively 147 505
Note payable - 500
Obligations under capital leases 40 64
Total long-term liabilities 238 1,096
Total liabilities 7,113 5,559
Commitments and contingencies
STOCKHOLDERS’ DEFICIT:
Preferred stock, $0.001, 50,000,000 shares authorized, 50,000 and 0 issued and outstanding, respectively - -
Common stock, $0.001, 150,000,000 shares authorized, 18,876,431 and 12,775,143 issued and outstanding, respectively 19 13
Additional paid in capital 81,764 79,993
Accumulated deficit (84,434 ) (80,800 )
Other comprehensive income 1 1
Total Digerati’s stockholders’ deficit (2,650 ) (793 )
Noncontrolling interest (294 ) (207 )
Total stockholders’ deficit (2,944 ) (1,000 )
Total liabilities and stockholders’ deficit $ 4,169 $ 4,559
See accompanying notes to unaudited consolidated financial statements
8
DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
Three months ended
April 30, Nine months ended
April 30,
2019 2018 2019 2018
OPERATING REVENUES:
Cloud-based hosted services $ 1,485 $ 196 $ 4,493 $ 403
Total operating revenues 1,485 196 4,493 403
OPERATING EXPENSES:
Cost of services (exclusive of depreciation and amortization) 770 106 2,322 249
Selling, general and administrative expense 875 332 2,309 830
Stock compensation & warrant expense 345 354 731 1,328
Legal and professional fees 95 68 305 359
Bad debt - - (3 ) -
Depreciation and amortization expense 167 50 505 89
Total operating expenses 2,252 910 6,169 2,855
OPERATING LOSS (767 ) (714 ) (1,676 ) (2,452 )
OTHER INCOME (EXPENSE):
Gain (loss) on derivative instruments 903 47 (594 ) 155
Income tax (10 ) - (37 ) -
Interest income (expense) (376 ) (41 ) (1,414 ) (250 )
Total other income (expense) 517 6 (2,045 ) (95 )
NET LOSS INCLUDING NONCONTROLLING INTEREST (250 ) (708 ) (3,721 ) (2,547 )
Less: Net loss attributable to the noncontrolling interest 29 - 87 -
NET LOSS $ (221 ) $ (708 ) $ (3,634 ) $ (2,547 )
Deemed dividend on Series A Convertible preferred stock (2 ) - (2 ) -
NET LOSS ATTRIBUTABLE TO DIGERATI’S COMMON SHAREHOLDERS $ (223 ) $ (708 ) $ (3,636 ) $ (2,547 )
INCOME (LOSS) PER COMMON SHARE - BASIC $ (0.01 ) $ (0.06 ) $ (0.24 ) $ (0.26 )
INCOME (LOSS) PER COMMON SHARE - DILUTED $ (0.01 ) $ (0.06 ) $ (0.24 ) $ (0.26 )
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 18,184,442 11,063,326 15,163,082 9,903,152
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 18,184,442 11,063,326 15,163,082 9,903,152
See accompanying notes to unaudited consolidated financial statements
9
RISK FACTORS
This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.
Special Information Regarding Forward-Looking Statements
Some of the statements in this prospectus are “forward-looking statements.” These forward-looking statements involve certain known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the factors set forth herein under “Risk Factors.” The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar expressions identify forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update and revise any forward-looking statements or to publicly announce the result of any revisions to any of the forward-looking statements in this document to reflect any future or developments. However, the Private Securities Litigation Reform Act of 1995 is not available to us as a non-reporting issuer. Further, Section 27A(b)(2)(D) of the Securities Act and Section 21E(b)(2)(D) of the Securities Exchange Act expressly state that the safe harbor for forward looking statements does not apply to statements made in connection with an initial public offering.
Risks Related to Our Business
WE HAVE A HISTORY OF OPERATING LOSSES, ANTICIPATE FUTURE LOSSES AND MAY NEVER BE PROFITABLE.
We have experienced significant operating losses in our Company’s recent history. Our ability to achieve annual profitability in the future depends on a number of factors, including our ability to attract and service customers on a profitable basis and the growth of the video surveillance industry. If we are unable to achieve annual profitability, we may not be able to execute our business plan, our prospects may be harmed, and our stock price could be materially and adversely affected.
THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE.
The cloud services and internet-based telephony products and services markets in which we primarily compete are highly competitive and are influenced by competitive factors including:
● our ability to rapidly develop and introduce new high performance integrated solutions;
● the price and total cost of ownership and return on investment associated with the solutions;
● the simplicity of deployment and use of the solutions;
● the reliability and scalability of the solutions;
● the market awareness of a particular brand;
● our ability to provide secure access to wireless networks;
● our ability to offer a suite of products and solutions;
● our ability to allow centralized management of the solutions; and
● our ability to provide quality product support.
New entrants seeking to gain market share by introducing new technology and new products may also make it more difficult for us to sell our products and could create increased pricing pressure.
We expect competition to continuously intensify as other established and new companies introduce new products in the same markets that we serve or intend to enter, as these markets consolidate. Our business will consistsuffer if we do not maintain our competitiveness.
A number of 15,050 square feetour current or potential competitors have longer operating histories, greater brand recognition, larger customer bases and significantly greater resources than we do.

As we move into new markets for different types of products, our brand may not be as well-known as incumbents in those markets. Potential customers may prefer to purchase from their existing suppliers or well-known brands rather than a new supplier, regardless of product performance or features. We expect increased competition from other established and emerging companies if our markets continue to develop and expand. As we enter new markets, we expect to face competition from incumbent and new market participants and there is no assurance that our entry into new markets will be successful.
MANY OF THESE COMPANIES HAVE SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL, MARKETING, DISTRIBUTION AND OTHER RESOURCES THAN WE DO AND ARE BETTER POSITIONED TO ACQUIRE AND OFFER COMPLEMENTARY PRODUCTS AND TECHNOLOGIES.
Industry consolidation, acquisitions and other arrangements among competitors may adversely affect our competitiveness because it may be more difficult to compete with annual rententities that have access to their combined resources. As a result of $178,794 persuch consolidation, acquisition or other arrangements, our current and potential competitors might be able to adapt more quickly to new technologies and consumer preference, devote greater resources to the marketing and promotion of their products, initiate or withstand price competition, and take advantage of acquisitions or other opportunities more readily and develop and expand their products more quickly than we do. These combinations may also affect customers’ perceptions regarding the viability of companies our size and, consequently, affect their willingness to purchase our products.
THE COMPLEXITY OF OUR PRODUCTS COULD RESULT IN UNFORESEEN DELAYS OR EXPENSES CAUSED BY UNDETECTED DEFECTS OR BUGS.
Our products may contain defects and bugs when they are introduced, or as new versions are released. We have focused, and intend to focus in the future, on getting our new products to market quickly. Due to our rapid product introductions, defects and bugs that may be contained in our products may not yet have manifested. We have in the past experienced, and may in the future experience, defects and bugs. If any of our products contain material defects or bugs, or has reliability, quality or compatibility problems, we may not be able to promptly or successfully correct these problems. The existence of defects or bugs in our products may damage our reputation and disrupt our sales. If any of these problems are not found until after we have commenced commercial production and distribution of a new product, we may be required to incur additional development costs, repair or replacement costs, and other costs relating to regulatory proceedings, product recalls and litigation, which could harm our reputation and operating results. Undetected defects or bugs may lead to negative online Internet reviews of our products, which are increasingly becoming a significant factor in the success of our new product launches, especially for our consumer products. If we are unable to quickly respond to negative reviews, including end user reviews posted on various prominent online retailers, our ability to sell these products will be harmed. Moreover, we may offer stock rotation rights to our distributors. If we experience greater returns from retailers or end customers, or greater warranty claims, in excess of our reserves, our business, revenue and operating results could be harmed.
SECURITY VULNERABILITIES IN OUR PRODUCTS, SERVICES AND SYSTEMS COULD LEAD TO REDUCED REVENUES AND CLAIMS AGAINST US.
The quality and performance of some of our products and services may depend upon their ability to withstand cyber attacks. Third parties may develop and deploy viruses, worms and other malicious software programs, some of which may be designed to attack our products, systems, or networks. Some of our products and services also involve the storage and transmission of users’ and customers’ proprietary information which may be the target of cyber attacks. Hardware and software that we produce or procure from third parties also may contain defects in manufacture or design, including bugs and other problems, which could compromise their ability to withstand cyber attacks.
The costs to us to eliminate or alleviate security vulnerabilities can be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions, as well as potential liability to the company. The risk that these types of events could seriously harm our business is likely to increase as we expand the web-based products and services that we offer.

WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE CONTINUING LOSSES THAT WILL RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS AND WE MAY BE FORCED TO CEASE OPERATIONS.
We have incurred losses since our inception and have an accumulated deficit of $84,434,000 as of April 30, 2019. Our operations have been financed primarily through the issuance of equity and debt. For the year while GlobalSCAPE's facility will consist of 14,553 square
feet with annual rent of $174,636 per year. Management believes its leased
facilitiesended July 31, 2018, net loss and cash used in operations were $3,220,000 and $985,000, respectively. We are suitableconstantly evaluating our cash needs and adequate for their intended use.

LEGAL PROCEEDINGS

On January 29, 1999, one of ATSI's customers, Twister Communications, Inc.
filed a Demand for Arbitration seeking damages for breach of contract. The
customer claims that ATSI wrongfully terminated an International Carrier
Services Agreement executed by the parties in June 1998 under which ATSI
provided wholesale carrier services from June 1998 to January 1999. The
customer's claims for damages represent amounts that it claims it had to payour burn rate, in order to replacemake appropriate adjustments in operating expenses. We anticipate that our cash used in operations will continue to increase as a result of becoming a public company due to increased professional fees. Our continued existence is dependent upon, among other things, our ability to raise capital and to market and sell our products and services successfully. While we are attempting to increase sales, growth has not been significant enough to support daily operations, there is no assurance that we will continue as a going concern. If we are unable to continue as a going concern and were forced to cease operations, it is likely that our stockholders would lose their entire investment in our company.
OUR AUDITORS HAVE EXPRESSED DOUBTS ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. IF WE WERE FORCED TO CEASE OUR BUSINESS AND OPERATIONS, YOU WOULD LOSE YOUR INVESTMENT IN OUR COMPANY.
Our revenues are not sufficient to enable us to meet our operating expenses and otherwise implement our business plan. The report of our independent registered public accounting firm on our financial statements for the service provided by ATSI. ATSI disputesyear ended July 31, 2018 contains an explanatory paragraph raising doubt as to our ability to continue as a going concern as a result of our losses from operations, stockholders’ deficit and negative working capital. Our consolidated financial statements, which appear elsewhere in this Form 10-K, are prepared assuming we will continue as a going concern. The financial statements do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that it terminatedmay result if we are not successful.
WE WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS IF AT ALL. DUE TO THE SIZE OF OUR COMPANY AND THE LACK OF A PUBLIC MARKET FOR OUR COMMON STOCK IT IS LIKELY THAT THE TERMS OF ANY FINANCING WE MAY BE ABLE TO SECURE WILL BE DETRIMENTAL TO OUR CURRENT STOCKHOLDERS.
Our current operations are not sufficient to fund our operating expenses and we will need to raise additional working capital to continue our current business and to provide funds for marketing to support our efforts to increase our revenues. Generally, small businesses such as ours which lack a public market for their securities, face significant difficulties in their efforts to raise equity capital. While to date we have relied upon the contract wrongfully and assertsrelationships of our executive officers in our capital raising efforts, there are no assurances that we will be successful utilizing these existing sources. In such an event, we could be required to engage a broker-dealer to assist us in our capital raising efforts. Even if we are successful in finding a broker-dealer willing to assist us in raising capital, there are no assurances that the customer breachedterms of financings offered by a broker-dealer will be as favorable as those we have offered our investors to date. While we do not have any commitments to provide additional capital, if we are able to raise capital, the agreementstructure of that capital raise could impact our company and our stockholders in a variety of ways. If we raise additional capital through the issuance of debt, this will result in interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our company held by failingexisting stockholders will be reduced and those stockholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to pay for services rendered and by intentionally making false
representation regarding its

traffic patterns and on March 3, 1999 filed a Demand for Arbitration seeking
damages for breachthose of contract in an amount equal to the amounts due to ATSI for
services rendered plus interest, plus additional damages for fraud. An
arbitration panel was selected and the parties are now completing written
discovery.

While ATSI believesour common stock. We cannot assure you that it has a justifiable basis for its arbitration
demand and that itwe will be able to resolveraise the dispute withoutworking capital as needed in the future on terms acceptable to us, if at all. If we do not raise funds as needed, we may not be able to continue our operations and it is likely that you would lose your entire investment in our company.
WE MAY NEED TO RAISE CAPITAL OVER THE NEXT TWELVE MONTHS TO FUND OUR OPERATIONS.
We do not have any additional commitments to provide capital and we cannot assure you that funds are available to us upon terms acceptable to us, if at all. If we do not raise funds as needed, our ability to provide for current working capital needs and satisfy our obligations is in jeopardy. In this event, you could lose all of your investment in our company.

WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL AND THE LOSS OF THEIR SERVICES COULD ADVERSELY AFFECT OUR BUSINESS.
We place substantial reliance upon the efforts and abilities of our executive officers Arthur L. Smith, our President and Chief Executive Officer, and Antonio Estrada Jr., our Chief Financial Officer. The loss of the services of any of our executive officers could have a material adverse effect on ATSI's financial condition; untilour business, operations, revenues or prospects. We do not maintain key man life insurance on the arbitration proceedings
take place, ATSI canlives of these individuals.
MANAGEMENT EXERCISES SIGNIFICANT CONTROL OVER MATTERS REQUIRING SHAREHOLDER APPROVAL WHICH MAY RESULT IN THE DELAY OR PREVENTION OF A CHANGE IN OUR CONTROL.
Arthur L. Smith, our President and Chief Executive Officer, Antonio Estrada Jr., our Chief Financial Officer and Craig K. Clement, Chairman of the Board, have voting power equal to approximately 20% of our voting securities. As a result, management through such stock ownership rights has the ability to exercise significant control over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership in management may also have the effect of delaying or preventing a change in control of us that may be otherwise viewed as beneficial by shareholders other than management.
OUR REVENUES, OPERATING MARGINS, CASH FLOWS AND OTHER OPERATING RESULTS COULD VARY SIGNIFICANTLY FROM PERIOD TO PERIOD AS A RESULT OF VARIOUS FACTORS, MANY OF WHICH ARE OUTSIDE OF OUR CONTROL.
Our revenues, operating margins, cash flows and other operating results could vary significantly from period to period as a result of various factors, many of which are outside of our control. Our customers also have the choice of entering into agreements for term licenses and agreements for our cloud services.
WE EMPLOY MULTIPLE AND EVOLVING PRICING MODELS FOR OUR OFFERINGS.
We offer a subscription model for cloud services, which each have different payment schedules, and depending on the mix of such licenses and cloud subscriptions, our revenues or deferred revenues could be adversely affected.
IT MAY BE DIFFICULT TO EVALUATE OUR FUTURE PROPSOECTS AND MAY INCREASE RISK THAT WE WILL NOT BE SUCCESSFUL.
Some of the risks include:
● respond timely and effectively to competitor offerings and pricing models;
● appropriately price our offerings;
● manage the costs of providing our cloud services;
● generate leads and convert users of the trial versions of our offerings to paying customers;
● prevent users from circumventing the terms of their licenses and cloud subscriptions;
● continue to invest in our platform to deliver additional enhancements and content for our offerings and to foster an ecosystem of developers and users to expand the use cases of our offerings;
● maintain and enhance our website and cloud services infrastructure to minimize interruptions when accessing our offerings;
● process, store and use our employees, customers’ and other third parties’ data in compliance with applicable governmental regulations and other legal obligations related to data privacy, data protection, data transfer, data residency, encryption and security;
● hire, integrate and retain world-class professional and technical talent; and
● successfully integrate acquired businesses and technologies.

IF WE OR OUR THIRD-PARTY SERVICE PROVIDERS EXPERIENCE A SECURITY BREACH OR UNAUTHORIZED PARTIES OTHERWISE OBTAIN ACCESS TO OUR CUSTOMERS’ NETWORK, OUR DATA, OR OUR CLOUD SERVICES, OUR OFFERINGS MAY BE PERCEIVED AS NOT BEING SECURE, OUR REPUTATION MAY BE HARMED, DEMAND FOR OUR OFFERINGS MAY BE REDUCED, AND WE MAY INCUR SIGNIFICANT LIABILITIES.
Our offerings involve the storage and transmission of data, and security breaches could result in the loss of this information, litigation, indemnity obligations and other liability. We may become the target of cyber-attacks by third parties seeking unauthorized access to our data or users’ data or to disrupt our ability to provide service. While we have taken steps to protect the confidential information that we have access to, including confidential information we may obtain through our customer support services or customer usage of our cloud services, our security measures or those of our third-party service providers could be breached or we could suffer data loss. Computer malware, viruses, social engineering (predominantly spear phishing attacks), and general hacking have become more prevalent in our industry, particularly against cloud services. In addition, we do not reasonably estimatedirectly control content that customers store in our offerings. If customers use our offerings for the possible loss, if any,transmission or storage of personally identifiable information and thereour security measures are or are believed to have been breached as a result of third-party action, employee error, malfeasance or otherwise, our reputation could be damaged, our business may suffer, and we could incur significant liability.
We also process, store and transmit our own data as part of our business and operations. This data may include personally identifiable, confidential or proprietary information. There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. While we have developed systems and processes to protect the resolutionintegrity, confidentiality and security of this dispute would notour data, our security measures or those of our third-party service providers could fail and result in unauthorized access to or disclosure, modification, misuse, loss or destruction of such data.
Because there are many different security breach techniques and such techniques continue to evolve, we may be unable to anticipate attempted security breaches and implement adequate preventative measures. Third parties may also conduct attacks designed to temporarily deny customers access to our cloud services. Any security breach or other security incident, or the perception that one has occurred, could result in a loss of customer confidence in the security of our offerings and damage to our brand, reduce the demand for our offerings, disrupt normal business operations, require us to spend material resources to investigate or correct the breach, expose us to legal liabilities, including litigation, regulatory enforcement, and indemnity obligations, and adversely affect our revenues and operating results. These risks may increase as we continue to grow the number and scale of our cloud services, and process, store, and transmit increasingly large amounts of data.
WE USE THIRD-PARTY TECHNOLOGY AND SYSTEMS FOR A VARIETY OF REASONS, INCLUDING, WITHOUT LIMITATION, ENCRYPTION AND AUTHENTICATION TECHNOLOGY, EMPLOYEE EMAIL, CONTENT DELIVERY TO CUSTOMERS, BACK-OFFICE SUPPORT, CREDIT CARD PROCESSING AND OTHER FUNCTIONS.
Although we have an
adverse effect on ATSI's resultsdeveloped systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of operations.

On June 16, 1999, ATSI initiated a lawsuit against one of its vendors
claiming misrepresentation andsecurity breach of conduct. Under an agreement ATSI signed
in late 1998, the vendor was to provide quality fiber optic capacity in January
1999. The delivery of the route in early 1999 was a significant component of
ATSI's operational and sales goal for the year and the failure of its vendor to
provide the capacity led to ATSI negotiating an alternative agreement with
Bestel, S.A. de C.V. at a higher cost. Whilethird-party vendor, such measures cannot provide absolute security.
Interruptions or performance problems associated with our technology and infrastructure, and our reliance on Unified Communications as a Service (“UCaaS”) technologies from third parties, may adversely affect our business operations and financial results.
Our continued growth depends in part on the total economic impact is still
being assessed, ATSI believes lost revenuesability of our existing and incremental costspotential customers to use and access our website or our cloud services in order to download our on-premises software or encrypted access keys for our software within an acceptable amount of time. We have experienced, and may in the future experience, website and cloud service disruptions, storage failures, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our website and services simultaneously, unauthorized access, denial of service, security or ransomware attacks. In some instances, we may not be able to identify the cause or causes of these website or service performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our website and service performance, especially during peak usage times and as our offerings become more complex and our user traffic increases. If our website or cloud services are unavailable or if our users are unable to download our software or encrypted access keys within a reasonable amount of time or at all, our business would be negatively affected. We expect to continue to make significant investments to maintain and improve website and service performance and to enable rapid releases of new features and apps for our offerings. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in excess
of $15 million. While ATSI's contract contains certain limitations regarding the
typetechnology, our business and amounts of damages that can be pursued, ATSI has authorized its
attorneys to pursue all relief to which it is entitled under law. As such, ATSI
can not reasonably estimate the ultimate outcome of neither this lawsuit nor the
additional costs thatoperating results may be incurredadversely affected.

Risks Related to Our Stock
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the pursuitfollowing:
● technological innovations or new products and services by us or our competitors;
● additions or departures of key personnel;
● sales of our common stock, particularly under any registration statement for the purposes of selling any other securities, including management shares;
● negative sentiment from investors, customers, vendors and strategic partners due to doubt about our ability to continue as a going concern;
● our ability to execute our business plan;
● operating results that fall below expectations;
● loss of any strategic relationship;
● industry developments;
● economic and other external factors; and
● period-to-period fluctuations in our financial results.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of its case.

USEparticular companies. These market fluctuations may also significantly affect the market price of our common stock.
WE ARE SUBJECT TO PENNY STOCK RULES WHICH WILL MAKE THE SHARES OF PROCEEDS

The selling shareholders will receiveOUR COMMON STOCK MORE DIFFICULT TO SELL.
We are subject to the proceeds from theSecurities and Exchange Commission’s “penny stock” rules since our shares of common stock sell below $5.00 per share. Penny stocks generally are equity securities with a per share price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

In addition, the penny stock rules require that prior to a transaction the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.
THERE IS, AT PRESENT, ONLY A LIMITED MARKET FOR OUR COMMON STOCK AND WE CANNOT ENSURE INVESTORS THAT AN ACTIVE MARKET FOR OUR COMMON STOCK WILL EVER DEVELOP OR BE SUSTAINED.
Our shares of common stock are thinly traded. Due to the illiquidity, the market price may not accurately reflect our relative value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Because our common stock is so thinly traded, a large block of shares traded can lead to a dramatic fluctuation in the share price and investors may not be able to liquidate their investment in us at all or at a price that reflects the value of the business. In addition, our common stock currently trades on the OTC QB, which generally lacks the liquidity, research coverage and institutional investor following of a national securities exchange like the NYSE MKT, the New York Stock Exchange or the Nasdaq Stock Market. While we intend to list our common stock on a national securities exchange once we satisfy the initial listing standards for such an exchange, we currently do not, and may not ever, satisfy such initial listing standards.
OUR BOARD OF DIRECTORS CAN AUTHORIZE THE ISSUANCE OF PREFERRED STOCK, WHICH COULD DIMINISH THE RIGHTS OF HOLDERS OF OUR COMMON STOCK AND MAKE A CHANGE OF CONTROL OF US MORE DIFFICULT EVEN IF IT MIGHT BENEFIT OUR SHAREHOLDERS.
Our board of directors is authorized to issue up to 50,000,000 shares of preferred stock in one or more series and to fix the voting powers, preferences and other rights and limitations of the preferred stock. We will not receive anycurrently have no shares of preferred stock issued and outstanding. We may issue additional shares of preferred stock with a preference over our common stock with respect to dividends or distributions on liquidation or dissolution, or that may otherwise adversely affect the voting or other rights of the proceeds.holders of common stock. Issuances of preferred stock, depending upon the rights, preferences and designations of the preferred stock, may have the effect of delaying, deterring or preventing a change of control, even if that change of control might benefit our shareholders.
OFFERS OR AVAILABILITY FOR SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK ISSUED

The common stock offered by this prospectus may be issued to the selling
stockholders pursuant to the termsMAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.
Sales of the following:

. shares of 6% Series C Cumulative Convertible Preferred Stock,
("Series C Preferred Stock") issued to The Shaar Fund on September
24, 1999,

. a Common Stock Warrant issued to The Shaar Fund on September 24,
1999,

. a Common Stock Purchase Warrant that may be issued to The Shaar Fund
if ATSI elects to redeem the Series C Preferred Stock,

. a Common Stock Purchase Warrant issued to Corporate Capital
Management LLC as commission on ATSI's 6% Series B Cumulative
Convertible Preferred Stock issuance,

. 19,693 shares of Common Stock issued to Corporate Capital Management
LLC as commission on ATSI's Series C Preferred Stock issuance.

Series C Preferred Stock

The Shaar Fund purchased 500 shares of Series C Preferred Stock for $1000
per share on September 24, 1999. The Shaar Fund may convert each share of Series
C Preferred Stock into thatsignificant number of shares of our common stock in the public market could harm the market price of our common stock and make it more difficult for us to raise funds through future offerings of common stock. As additional shares of our common stock become available for resale in the public market, the supply of our common stock will increase, which could decrease the price of our common stock.
In addition, if our shareholders sell substantial amounts of our common stock in the public market, upon the expiration of any statutory holding period under Rule 144, upon the expiration of lock-up periods applicable to outstanding shares, or upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang,” in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, could also make it more difficult for us to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FUTURE. AS A RESULT, ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR COMMON STOCK.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investment in our common stock will only occur if our stock price appreciates.

WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption of a code of ethics. While we have adopted certain corporate governance measures such as a Code of Ethics, we presently do not have any independent directors. It is equalpossible that if we were to 1000 dividedhave independent directors on our board, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a "Conversion Price"majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by our directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures and independent directors in formulating their investment decisions.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE FAIL TO IMPLEMENT AND MAINTAIN EFFECTIVE DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
We concluded that as of July 31, 2018, our disclosure controls and procedures and our internal control over financial reporting were not effective. We have determined that we have deficiencies in the design or operation of our internal controls under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) within the required time periods and that material weaknesses in our internal control over financial reporting exist relating to not being able to provide for adequate review of our financial statements. If we are unable to implement and maintain effective disclosure controls and procedures and remediate the material weaknesses in a timely manner, or if we identify other material weaknesses in the future, our ability to produce accurate and timely financial statements and public reports could be impaired, which could adversely affect our business and financial condition. We identified a lack of sufficient segregation of duties. In addition, investors may lose confidence in our reported information and the market price of our Common Stock may decline.
Risks Related to the Offering
OUR EXISTING STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION FROM THE SALE OF OUR COMMON STOCK PURSUANT TO THE PEAK ONE FINANCING AGREEMENT.
The sale of our common stock to Peak One in accordance with the Financing Agreement may have a dilutive impact on our shareholders. As a result, the market price of our common stock could decline. In addition, the lower our stock price is at the lesser of:

. $1.031time we exercise our put options, the more shares of our common stock we will have to issue to Peak One in order to exercise a put under the Financing Agreement. If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering.
The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.

THE ISSUANCE OF SHARES PURSUANT TO THE PEAK ONE FINANCING AGREEMENT MAY HAVE A SIGNIFICANT DILUTIVE EFFECT.
Depending on the number of shares we issue pursuant to the Peak One Financing Agreement, it could have a significant dilutive effect upon our existing shareholders. Although the number of shares that we may issue pursuant to the Financing Agreement will vary based on our stock price (the closing bidhigher our stock price, the less shares we have to issue), there may be a potential dilutive effect to our shareholders, based on different potential future stock prices, if the full amount of the Financing Agreement is realized. Dilution is based upon common stock put to Peak One and the stock price discounted to 88% purchase price of the lowest closing price during the pricing period.
PEAK ONE WILL PAY LESS THAN THE THEN-PREVAILING MARKET PRICE OF OUR COMMON STOCK WHICH COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.
Our common stock onto be issued under the NASD Over-the-
Counter Bulletin Board on September 23, 1999), and

. seventy-eight percent (78%)Peak One Financing Agreement will be purchased at a 12% discount, or 88% of the average of the five lowest closing bid
prices ofprice for the Company’s common stock on the NASD Over-the-Counter Bulletin Board during the ten (10) consecutive trading days immediately preceding the Purchase Date (as defined in the Peak one Financing Agreement).
Peak One has a financial incentive to sell our shares immediately upon receiving them to realize the profit between the discounted price and the market price. If Peak One sells our shares, the price of our common stock may decrease. If our stock price decreases, Peak One may have further incentive to sell such shares. Accordingly, the discounted sales price in the Financing Agreement may cause the price of our common stock to decline.
WE MAY NOT HAVE ACCESS TO THE FULL AMOUNT UNDER THE FINANCING AGREEMENT.
The lowest closing price of the Company’s common stock during the ten (10) consecutive trading day period immediately preceding the filing of this Registration Statement was approximately $0.09. At that price we would be able to sell shares to Peak One under the Financing Agreement at the discounted price of $0.08. At that discounted price, the 6,074,142 shares would only represent approximately $546,675, which is far below $5,000,000 (the full amount of the Financing Agreement).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.
Examples of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.

Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:
● changes in the market acceptance of our products;
● increased levels of competition;
● changes in political, economic or regulatory conditions generally and in the markets in which we operate;
● our relationships with our key customers;
● our ability to retain and attract senior management and other key employees;
● our ability to quickly and effectively respond to new technological developments;
● our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and
● other risks, including those described in the “Risk Factors” discussion of this prospectus.
We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of conversion.

Therefore,them in light of new information, future events, or otherwise.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our Common Stock by the Selling Stockholder. However, we will receive proceeds from our initial sale of shares to Peak One, pursuant to the Financing Agreement. The proceeds from the initial sale of shares will be used for the purpose of working capital or for other purposes that the Board of Directors, in good faith deem to be in the best interest of the Company.
DETERMINATION OF OFFERING PRICE
We have not set an offering price for the shares registered hereunder, as the only shares being registered are those sold pursuant to the Peak One Financing Agreement. Peak One may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices.
DILUTION
Not applicable. The shares registered under this registration statement are not being offered for purchase. The shares are being registered on behalf of our selling shareholders pursuant to the Peak One Financing Agreement.

SELLING SECURITY HOLDER
The selling stockholder identified in this prospectus may offer and sell up to 6,324,142 shares of our common stock, which consists of shares of common stock to be sold by Peak One pursuant to the Financing Agreement. If issued presently, the shares of common stock registered for resale by Peak One would represent approximately 25% of our issued and outstanding shares of common stock as of September 12, 2019.
We may require the selling stockholder to suspend the sales of the shares of our common stock being offered pursuant to this prospectus upon the occurrence of any event that makes any statement in this prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in those documents in order to make statements in those documents not misleading.
The selling stockholder identified in the table below may from time to time offer and sell under this prospectus any or all of the shares of common stock described under the column “Shares of Common Stock Being Offered” in the table below.
Peak One will be deemed to be an underwriter within the meaning of the Securities Act. Any profits realized by such selling stockholder may be deemed to be underwriting commissions.
Information concerning the selling stockholder may change from time to time and, if necessary, we will amend or supplement this prospectus accordingly. We cannot give an estimate as to the number of shares of common stock that The Shaar Fundwill actually be held by the selling stockholder upon termination of this offering, because the selling stockholders may acquire increases if the priceoffer some or all of the common stock decreases. Although thereunder the offering contemplated by this prospectus or acquire additional shares of common stock. The total number of shares that may be sold, hereunder, will not exceed the number of shares offered, hereby. Please read the section entitled “Plan of Distribution” in this prospectus.
The manner in which the selling stockholder acquired or will acquire shares of our common stock is discussed below under “The Offering.”
The following table sets forth the name of each selling stockholder, the number of shares of our common stock beneficially owned by such stockholder before this offering, the number of shares to be offered for such stockholder’s account and the number and (if one percent or more) the percentage of the class to be beneficially owned by such stockholder after completion of the offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares of our common stock as to which a person has sole or shared voting power or investment power and any shares of common stock which the person has the right to acquire within 60 days, through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement, and such shares are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding such options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership percentages are calculated based on 25,240,222 shares of our common stock outstanding as of September 12, 2019.
Unless otherwise set forth below, (a) the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the selling stockholder’s name, subject to community property laws, where applicable, and (b) no ceiling onselling stockholder had any position, office or other material relationship within the maximumpast three years, with us or with any of our predecessors or affiliates. The number of shares of common stock that The Shaarshown as beneficially owned before the offering is based on information furnished to us or otherwise based on information available to us at the timing of the filing of the registration statement of which this prospectus forms a part.

Shares
Owned by
the Selling
Stockholders Shares of
Common Stock Number of Shares to be Owned by Selling Stockholder After the Offering and Percent of Total Issued and Outstanding Shares
Name of Selling Stockholder before the
Offering (1) Being
Offered # of
Shares (2) % of
Class (2)
Peak One Opportunity Fund, L.P. (3) 250,000 (4 ) 0 0 %
Notes:
(1) Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within 60 days, are counted as outstanding. The actual number of shares of common stock issuable upon the conversion of the convertible debentures is subject to adjustment depending on, among other factors, the future market price of our common stock, and could be materially less or more than the number estimated in the table.
(2) Because the selling stockholders may offer and sell all or only some portion of the 6,324,142 shares of our common stock being offered pursuant to this prospectus and may acquire additional shares of our common stock in the future, we can only estimate the number and percentage of shares of our common stock that any of the selling stockholders will hold upon termination of the offering.
(3) Jason Goldstein, Manager of Peak One Opportunity Fun, L.P. exercises voting and dispositive power with respect to the shares of our common stock that are beneficially owned by Peak One Opportunity Fund, L.P.
(4) Consists of up to (i) 250,000 shares of Common Stock issued to Peak One Opportunity Fund, L.P. (“Peak One”) as commitment shares (the “Commitment Shares”); and (ii) 6,074,142 shares of Common Stock to be issued in connection with the Financing Agreement.
THE OFFERING
On January 12, 2018, we entered into an Equity Purchase Agreement (the “Financing Agreement”) with Peak One Opportunity Fund, may acquire, ifL.P. (“Peak One”) Although we are not mandated to sell shares under the closing bid price forFinancing Agreement, the Financing Agreement gives us the option to sell to Peak One, up to $5,000,000 worth of our common stock falls to $.85 or less
on any trading day, The Shaar Fund may not convert any Series C Preferred Stockover the period ending twenty-four (24) months after the date this Registration Statement is deemed effective. In consideration for a single period of forty-five days from that day. The Series C Preferred
Stock

will never be convertible into fewer than 484,966peak One’s execution and performance under the Financing Agreement, the Company issued 250,000 shares of Common Stock, as Commitment Shares (as defined in the Financing Agreement), to Peak One.
There is no assurance the market price of our common stock (i.e.,will increase in the number of shares that may be acquired if the Conversion Price is $1.031).
Here are some examples of the number of shares of common stock thatfuture. The Shaar
Fund may acquire, assuming different prices of the common stock:

78% of Avg. of 5
Lowest Bid Prices
During 10 Trading
Days Preceding Closing Bid on Number of Shares of
Conversion September 23, 1999 Formula Common Stock
- ------------------------------------------------------------------------------------------------------------

0.85 1.031 500,000 divided by 0.85 588,235
- ------------------------------------------------------------------------------------------------------------
1.01 1.031 500,000 divided by 1.01 495,050
- ------------------------------------------------------------------------------------------------------------
1.05 1.031 500,000 divided by 1.031 484,966
- ------------------------------------------------------------------------------------------------------------
2.00 1.031 500,000 divided by 1.031 484,966
- ------------------------------------------------------------------------------------------------------------
2.50 1.031 500,000 divided by 1.031 484,966
- ------------------------------------------------------------------------------------------------------------

The Shaar Fund may convert any of its shares of Series C Preferred Stock at any
time it elects after December 23, 1999, but any shares not converted by
September 24, 2001 must be converted by ATSI at the Conversion Price on that
day.

The Registration Rights Agreement signed by ATSI and The Shaar Fund at the time
of the sale of the Series C Preferred Stock requires ATSI to register that number of common shares intothat remain issuable may not be sufficient, dependent upon the share price, to allow us to access the full amount contemplated under the Financing Agreement. If the bid/ask spread remains the same we will not be able to place a put for the full commitment under the Financing Agreement. Based on the lowest closing price of our common stock during the ten (10) consecutive trading day period preceding the filing date of this registration statement was approximately $0.09, the registration statement covers the offer and possible sale of approximately $546,675 worth of our shares. At that price we would be able to sell shares to Peak One under the Financing Agreement at the discounted price of $0.08. At that discounted price, the 6,074,142 shares would only represent approximately $546,675, which allis far below $5,000,000 (the full amount of the sharesFinancing Agreement).
The purchase price of the Series C Preferred
Stock wouldcommon stock will be convertibleset at a Conversion Price_______ (_____%) of $.5078 (one-half of the lowest closing bid price of the common stock during the ten (10) consecutive trading day period immediately preceding the date on which the Company delivers a put notice to _______. In addition, there is an ownership limit for _____ of 4.99%.
Peak One is not permitted to engage in short sales involving our common stock during the term of the commitment period. In accordance with Regulation SHO, however, sales of our common stock by Peak One after delivery of a put notice of such number of shares reasonably expected to be purchased by Peak One under a put will not be deemed a short sale.

In addition, we must deliver the other required documents, instruments and writings required. Peak One is not required to purchase the put shares unless:
● Our registration statement with respect to the resale of the shares of common stock delivered in connection with the applicable put shall have been declared effective;
● We shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the registrable securities; and
● We shall have filed all requisite reports, notices, and other documents with the SEC in a timely manner.
As we draw down on the NASD Over-the-Counter Bulletin
Board on September 24, 1999). If the closing bid price for theequity line of credit, shares of our common stock falls below .80, ATSIwill be sold into the market by Peak One. The sale of these shares could cause our stock price to decline. In turn, if our stock price declines and we issue more puts, more shares will come into the market, which could cause a further drop in our stock price. You should be aware that there is an inverse relationship between the market price of our common stock and the number of shares to be issued under the equity line of credit. If our stock price declines, we will be required to register additionalissue a greater number of shares under the equity line of its common
stock based on an assumed Conversion Price of .30 per share.

ATSI must pay quarterly dividends on the Series C Preferred Stock at the rate of
6% per annum calculated on a value of $1000 per share. ATSI may elect to pay the
dividends in either cash or in shares of its registered common stock, valued at
the Conversion Price on each dividend payment date.credit. We have included 118,157no obligation to utilize the full amount available under the equity line of credit.
Neither the Financing Agreement nor any of our rights or Peak One’s rights thereunder may be assigned to any other person.
PLAN OF DISTRIBUTION
Each of the selling stockholders named above and any of their pledgees and successors-in-interest may, from time to time, sell any or all of their shares of common stock in this prospectus and Registration Statement foron OTC Markets or any other stock exchange, market or trading facility on which the
payment of dividends on the Series C Preferred Stock.

The Registration Rights Agreement provides that we will indemnify The Shaar Fund
and its assignees against certain liabilities, including civil liabilities under
the Securities Act of 1933, as amended.

Series B Preferred Stock

On July 2, 1999, ATSI issued 2000 shares of 6% Series B Cumulative Convertible
Preferred Stock to The Shaar Fund. This Series B Preferred Stock has
substantially the same terms as the Series C Preferred Stock described in this
Prospectus, except that the formula for determining the conversion price
incorporates the closing bid price for theour common stock on July 1, 1999 instead
of September 23, 1999. This transaction is describedare traded or in more detail in our
Registration Statement on Form S-3 filed on August 18, 1999.

The Warrants

The Shaar Fundprivate transactions. These sales may elect to acquire up to 20,000 additional shares of common
stockbe at an exercise price of $1.19 per share under the terms of a Common Stock
Purchase Warrant issued on September 24, 1999. If ATSI elects to redeem the
Series C Preferred Stock, part of the redemption price is an additional warrant
for 20,000 shares on the same terms as the Common Stock Purchase Warrant. ATSI
is required to register 40,000 shares of its common stock for the exercise of
these warrants under the Registration Rights Agreement signed by The Shaar Fundfixed prices and ATSIprevailing market prices at the time of the sale, of the Series C Preferred Stock and the Common
Stock Purchase Warrant.

ATSI issued Corporate Capital Management a Common Stock Purchase Warrant for the
purchase of 50,000 shares of ATSI common stock at an exercise price of $1.25 as
a commission in connection with its issuance of its 6% Series B Cumulative
Convertible Preferred Stock on July 2, 1999. ATSI agreed to register the common
shares underlying this warrant as consideration for Corporate Capital
Management's services in connection with the issuance of the Series C Preferred
Stock.

SELLING SHAREHOLDERS

There are two selling shareholders, The Shaar Fund, Ltd., and Corporate
Capital Management, LLC.varying prices or at negotiated prices. The selling shareholders and their affiliates have not
heldstockholders may use any position, office or other material relationship, other than as a
shareholder, with ATSI during the three years preceding the date of this
prospectus. The shareholders, the amount of common stock

owned as of January 10, 2000, the maximum amount of common stock that may be
offered under the Registration Statement, and the percentage ownership in ATSI
as of January 10, 2000:

The amount of shares listed in the table below as "owned" by The Shaar Fund
includes the following:

. the remaining number of shares that The Shaar Fund may acquire under the
terms of Series B Preferred Stock assuming a conversion price of $0.7422,

. the number of shares that The Shaar Fund may purchase under the terms of
the Common Stock Purchase Warrant issued on July 2, 1999;

. the maximum number of shares that The Shaar Fund may acquire under the
terms of the terms of Series C Preferred Stock assuming a conversion price
of $0.5078; plus

. the number of shares that The Shaar Fund may purchase under the terms of
the Common Stock Purchase Warrant issued on September 24, 1999.

It does not include any shares of common stock that may be paid as a dividend on
the Series B Preferred Stock or the Series C Preferred Stock and does not
include the shares that The Shaar Fund could purchase under additional warrants
for 70,000 shares of common stock that ATSI would be required to issue if it
elected to redeem the Series B Preferred Stock and Series C Preferred Stock.

The amount shown as the maximum amount of common stock that the Shaar Fund
may offer under this Prospectus assumes that The Shaar Fund acquires all of the
common stock it may acquire under the terms of the Series C Preferred Stock at
an assumed conversion price of $0.5078, plus the number of shares that The Shaar
Fund may purchase under the terms of the Common Stock Purchase Warrant issued on
September 24, 1999.

The amount of shares listed in the table below as "owned" by Corporate
Capital Management and that may be offered under this prospectus includes the
following:

. the number of shares that Corporate Capital Management may purchase under
the terms of the Common Stock Purchase Warrant issued on July 2, 1999;

. the number of shares that Corporate Capital Management may purchase under
the terms of the Common Stock Purchase Warrant issued on September 24,
1999.

Amount of Common Maximum Amount of % Ownership of
Stock Owned as of Common Stock that ATSI as of January
Name January 10, 2000 may be Offered 10, 2000
- ----------------------------------------------------------------------------------------------------------------------

The Shaar Fund 2,233,568 1,004,640 4.2%
- ----------------------------------------------------------------------------------------------------------------------
Corporate Capital Management 69,693 69,693 Less than 1%
- ----------------------------------------------------------------------------------------------------------------------

PLAN OF DISTRIBUTION

The Registration Statement of which this prospectus forms a part has been
filed to satisfy registration rights held by the selling shareholders under
agreements between ATSI and the selling shareholders. To ATSI's knowledge, as of
this date, none of the selling shareholders has entered into any agreement,
arrangement or understanding with any particular broker or market maker with
respect to the shares offered by them, nor does ATSI know the identity of the
brokers or market makers which might participate in such an offering.

The shares being registered and offered may be sold from time to time by
the selling shareholders while the Registration Statement is in effect. The
selling shareholders will act independently of ATSI in making decisions with
respect to the timing, manner, and size of each sale. The sales may be made on
the NASD Over-the- Counter Bulletin Board or otherwise, at prices and on terms
then prevailing or at prices related to the market price, or in negotiated
transactions.

The shares may be sold by one or more of the following methods:

. A block trademethods when selling shares:
● ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
● block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
● purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
● privately negotiated transactions;
● broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; or
● a combination of any such methods of sale.
Broker-dealers engaged by a selling shareholder
would attempt to sell shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction.

. Purchases by the broker-dealer as principal and resale by such broker or
dealer for its account according to this prospectus.

. ordinary brokerage transactions and transactions in which the broker
solicits purchasers.

To our knowledge, none of the selling shareholders has, as of the date of
this prospectus, entered into any arrangement with a broker or dealer for the
sale of shares through a block trade, special offering, or secondary
distribution of a purchase by a broker-dealer. In effecting sales, broker-
dealers engaged by a selling shareholderstockholders may arrange for other broker-dealersbrokers-dealers to participate.participate in sales. Broker-dealers may receive commissions or discounts from athe selling shareholderstockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated.

In offeringnegotiated, but, except as set forth in a supplement to this prospectus, in the shares,case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the selling shareholderscase of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
Peak One is an underwriter within the meaning of the Securities Act of 1933 and any broker-dealers who
execute sales foror agents that are involved in selling the selling shareholdersshares may be deemed to be "underwriters"“underwriters” within the meaning of the Securities Act of 1933 in connection with such sales,sales. In such event, any commissions received by such broker-dealers or agents and any profits realizedprofit on the resale of the shares purchased by the selling shareholders and the compensation of
such broker-dealersthem may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. Peak One has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common stock of our company. Pursuant to a requirement by FINRA, the maximum commission or discount to be received by any FINRA member or independent broker-dealer may not be greater than 8% of the gross proceeds received by us for the sale of any securities being registered pursuant to Rule 415 promulgated under the Securities Act of 1933.

Discounts, concessions, commissions and commissions.similar selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholder. The selling stockholder may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act of 1933.
We are required to pay certain fees and expenses incurred by us incident to the registration of the shares covered by this prospectus. We have agreed to keepindemnify the Registration Statementselling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act of which1933. We will not receive any proceeds from the resale of any of the shares of our common stock by the selling stockholders. We may, however, receive proceeds from the sale of our common stock under the Financing Agreement with Peak One. Neither the Financing Agreement with Peak One nor any rights of the parties under the Financing Agreement with Peak One may be assigned or delegated to any other person.
We have entered into an agreement with Peak One to keep this prospectus is a part effective until The Shaar Fund sellsPeak One has sold all of the common shares purchased by it under the Financing Agreement and has no right to acquire any additional shares of common stock offered under the Financing Agreement.
The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this prospectus available to the selling stockholders.
DESCRIPTION OF SECURITIES TO BE REGISTERED
General
We are authorized to issue an aggregate of 150,000,000 shares of common stock, $0.001 par value per share and 50,000,000 shares of preferred stock in one or until two years followingmore series and to fix the effective datevoting powers, preferences and other rights and limitations of the Registration Statementpreferred stock. As of which this prospectusSeptember 12, 2019, we had 25,240,222 shares of common stock outstanding and no shares of preferred stock outstanding.
Each share of common stock shall have one (1) vote per share. Our common stock does not provide a preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for election of Board of Directors.
Dividends
We have not paid any dividends on our common stock since our inception and do not intend to pay any dividends in the foreseeable future.
The declaration of any future cash dividends is a part, whichever comes
first. No sales may be made pursuantat the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions. It is our present intention not to this prospectus after this date unless
we amend or supplement this prospectuspay any cash dividends in the foreseeable future, but rather to indicate thatreinvest earnings, if any, in our business operations.

Warrants
As of September 12, 2019, we have agreedissued warrants to extendpurchase 2,350,000 shares of Common Stock issuable with a weighted average exercise price of $0.34. Of which 2,050,000 warrants are exercisable immediately, have a weighted-average remaining life of 2.21 years and a weighted-average exercise price of $0.25 as of September 12, 2019.
Options
As of September 12, 2019, we have issued options to purchase 5,240,000 shares of Common Stock issuable with a weighted average exercise price of $0.28. Of which 3,156,000 options are exercisable immediately, have a weighted-average remaining life of 3.38 years and a weighted-average exercise price of $0.30 as of September 12, 2019.
Securities Authorized for Issuance Under Equity Compensation Plans
In November 2015, Digerati adopted the effective period.

We cannot assure you thatDigerati Technologies, Inc. 2015 Equity Compensation Plan (the “Plan”). The Plan authorizes the grant of up to 7.5 million stock options, restricted common shares, non-restricted common shares and other awards to employees, directors, and certain other persons. The Plan is intended to permit Digerati to retain and attract qualified individuals who will contribute to the overall success of Digerati. Digerati’s Board of Directors determines the terms of any grants under the Plan. Exercise prices of all stock options and other awards vary based on the selling shareholders will sell any or
allmarket price of the shares of common stock registeredas of the date of grant. The stock options, restricted common stock, non-restricted common stock and other awards vest based on the terms of the individual grant. On November 18, 2015, the Company filed a Registration Statement on Form S-8 to register with the U.S. Securities and Exchange Commission 7,500,000 shares of the Company’s common stock, which may be issued by the Company upon the exercise of options granted, or other awards made, pursuant to the terms of the Plan. Please see the Plan filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed with the U.S. Securities and Exchange Commission on November 18, 2015.
Preferred Stock
The Company has authorized 50,000,000 shares of preferred stock. The board of directors has the authority to issue these shares and to set dividends, voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions.
Anti-Takeover Effects of Various Provisions of Nevada Law
Provisions of the Nevada Revised Statutes, our articles of incorporation, as amended, and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, would be expected to discourage certain types of takeover practices and takeover bids our Board may consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us will outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Blank Check Preferred
Our articles of incorporation permit our Board to issue preferred stock with voting, conversion and exchange rights that could negatively affect the voting power or other rights of our Common Stockholders. The issuance of our preferred stock could delay or prevent a change of control of our Company.
Amendments to our Articles of Incorporation and Bylaws
Under the Nevada Revised Statutes, our articles of incorporation may not be amended by stockholder action alone.
Nevada Anti-Takeover Statute
We may be subject to Nevada’s Combination with Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444) which prohibits an “interested stockholder” from entering into a “combination” with the corporation, unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) 10% or more of the corporation’s capital stock entitled to vote.

Limitations on Liability and Indemnification of Officers and Directors
The Nevada Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors.
The limitation of liability and indemnification provisions under the Nevada Revised Statutes and in our articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the Registration Statement.

event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Authorized but Unissued Shares
Our authorized but unissued shares of Common Stock and preferred stock will be available for future issuance without stockholder approval, except as may be required under the listing rules of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of Common Stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Penny Stock Considerations
Our shares will be “penny stocks” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00 per share. Thus, our shares will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock. Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt.
In addition, under the penny stock regulations, the broker-dealer is required to:
● Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;
● Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;
● Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value, and information regarding the limited market in penny stocks; and
● Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.
Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.

TRANSFER AGENT AND REGISTRAR
The transfer agent of our Common Stock is American Stock Transfer & Trust Company. Their address is 6201 15th Avenue, Brooklyn, NY 11219.
LEGAL MATTERS
Lucosky Brookman LLP, Woodbridge, New Jersey, will pass upon the validity of the securities being offered by this prospectus.
EXPERTS
The consolidated financial statements for the Company as of July 31, 2018 and for the year then ended included in this prospectus have been audited by Malone Bailey, LLP, an independent registered public accounting firm, to the extent and for the periods set forth in our report and are incorporated herein in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
The consolidated financial statements for the Company as of July 31, 2017 and for the year then ended included in this prospectus have been audited by LBB & Associates Ltd., LLP, an independent registered public accounting firm, to the extent and for the periods set forth in our report and are incorporated herein in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
The legality of the shares offered under this registration statement will be passed upon by Lucosky Brookman LLP.
BUSINESS
Overview
Digerati Technologies, Inc., a Nevada corporation (including our subsidiaries, “we,” “us,” “Company” or “Digerati”), through its operating subsidiaries, Shift8 Networks, Inc., dba Synergy Telecom (“Shift8”) and T3 Communications, Inc. (“T3”), provides cloud services specializing in Unified Communications as a Service (“UCaaS”) solutions for the business market. Our product line includes a portfolio of Internet-based telephony products and services delivered through our cloud application platform and session-based communication network and network services including Internet broadband, fiber, and cloud WAN solutions. Our services are designed to provide enterprise-class, carrier-grade services to the small-to-medium-sized business (“SMB”) at cost-effective monthly rates. Our UCaaS or cloud communication services include fully hosted IP/PBX, mobile applications, Voice over Internet Protocol (“VoIP”) transport, SIP trunking, and customized VoIP services all deliveredOnly in the Cloud™.
As a provider of cloud communications solutions to the SMB, we are seeking to capitalize on the migration by businesses from the legacy telephone network to the Internet Protocol (“IP”) telecommunication network and the migration from hardware-based on-premise telephone systems to software-based communication systems in the cloud. Most SMBs are lagging in technical capabilities and advancement and seldom reach the economies of scale that their larger counterparts enjoy, due to their achievement of a critical mass and ability to deploy a single solution to a large number of workers. SMBs are typically unable to afford comprehensive enterprise solutions and, therefore, need to integrate a combination of business solutions to meet their needs. Cloud computing has revolutionized the industry and opened the door for businesses of all sizes to gain access to enterprise applications with affordable pricing. This especially holds true for cloud telephony applications, but SMBs are still a higher-touch sale that requires customer support for system integration, network installation, cabling, and troubleshooting. We have placed a significant emphasis on that “local” touch when selling, delivering, and supporting our services which we believe will differentiate us from the national providers that are experiencing high attrition rates due to poor customer support model.

The adoption of cloud communication services is being driven by the convergence of several market trends, including the increasing costs of maintaining installed legacy communications systems, the fragmentation resulting from use of multiple on-premise systems, and the proliferation of personal smartphones used in the workplace. Today, businesses are increasingly looking for an affordable path to modernizing their communications system to improve productivity, business performance and customer experience.
Our cloud solutions offer the SMB reliable, robust, and full-featured services at affordable monthly rates that eliminates high-cost capital expenditures and provides for integration with other cloud-based systems.
Products and Services
We provide a comprehensive suite of Internet-based communication services to meet the global needs of businesses that are seeking simple, flexible, and cost-effective communication solutions. Our Internet-based services include fully hosted IP/PBX services, SIP trunking, call center applications, interactive voice response auto attendant, voice and web conferencing, call recording, simultaneous calling, voicemail to email conversion, integrated mobility applications that are device and location agnostic, and multiple customized IP/PBX features in a hosted or cloud environment. Our services, known as UCaaS or cloud communications, are specifically designed for the needs of the small to medium-sized business, enterprise customers, call centers, and telephony service providers that do not have the scale or expertise necessary to deploy their own cloud telephony infrastructure.
Through our recent acquisitions, we have enhanced our product portfolio with the addition of enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper. Other services include remote network monitoring, data backup and disaster recovery. The addition of these new products and services allows us to increase our value-proposition through product bundles that go beyond the voice application and to serve as a one-stop-shop for business customers seeking a comprehensive voice and data solution.
Voice over Internet Protocol Networks
The basic technology of traditional telecommunications systems was designed for slow mechanical switches. Communications over the traditional telephone network are routed through circuits that must dedicate all circuit resources to each call from its inception until the call ends, regardless of whether anyone is actually talking on the circuit. This circuit-switching technology incurs a significant cost per call and does not efficiently support the integration of voice with data services. Data networks, however, were designed for electronic switching. They break the data stream into small, individually addressed packages of data (“packets”) that are routed independently of each other from the origin to the destination. Therefore, they do not require a fixed amount of bandwidth to be reserved between the origin and destination of each call and they do not waste bandwidth when it is not being used for actual transmission of information. This allows multiple voice or voice and data calls to be pooled, resulting in these networks being able to carry more calls with an equal amount of bandwidth. Moreover, they do not require the same complex switching methods required by traditional voice telephone networks, instead using a multiplicity of routers to direct each packet to its destination and automatically routing packets around blockages, congestion or outages.

Packet switching can be used within a data network or across networks, including the public Internet. The Internet itself is not a single data network owned by any single entity, but rather a loose interconnection of networks belonging to many owners that communicate using the Internet Protocol. By converting voice signals to digital data and handling the voice signals as data, it can be transmitted through the more efficient switching networks designed for data transmissions and through the Internet using the Internet Protocol. The transmission of voice signals as digitalized data streams over the Internet is known as Voice over Internet Protocol or “VoIP”. A VoIP network has the following advantages over traditional networks:
● Simplification:An integrated infrastructure that supports all forms of communication allows more standardization, a smaller equipment complement, and less equipment management.
● Network Efficiency:The integration of voice and data fills up the data communication channels efficiently, thus providing bandwidth consolidation and reduction of the costs associated with idle bandwidth. This combined infrastructure can support dynamic bandwidth optimization and a fault tolerant design. The differences between the traffic patterns of voice and data offer further opportunities for significant efficiency improvements.
● Co-existence with traditional communication mediums:IP telephony can be used in conjunction with existing public telephone system switches, leased and dial-up lines, PBXs and other customer premise equipment, enterprise LANs, and Internet connections. IP telephony applications can be implemented through dedicated gateways, which in turn can be based on open standards platforms for reliability and scalability.
● Cost reduction: Under the VoIP network, the connection is directly to the Internet backbone and as a result the telephony access charges and settlement fees are avoided.
The growth of voice over the Internet was limited in the past due to poor sound quality caused by technical issues such as delays in packet transmission and by bandwidth limitations related to Internet network capacity and local access constraints. However, the expansion of Internet Protocol network infrastructure, improvements in packet switching and compression technology, new software algorithms and improved hardware have substantially reduced delays in packet transmissions and resulted in superior sound quality to that of the legacy telephone network.
Cloud Communications
Cloud communications are Internet-based voice and data communications where telecommunications applications, switching and storage are hosted by a third-party service provider outside of the organization using the services. Services are accessed by the user over the public Internet. Cloud telephony refers specifically to voice services and more specifically the replacement of conventional business telephone equipment (such as a PBX) with VoIP service hosted by a third-party service provider and delivered over the Internet.
We operate a cloud communication network that consists of a VoIP switching system and cloud telephony application platform. Our network allows us to provide end-to-end cloud telephony solutions designed to provide significant benefits to businesses of all sizes, with single or multiple locations. The integration of our cloud communication platform and global VoIP network allows us to provide our customers with virtually any type of telephony solution on a global basis.
Our cloud communication solutions, also known as UCaaS, are designed to minimize upfront capital costs, increase the scalability and flexibility of the customer’s communications network and service environment, provide robust features and functionality to increase productivity and reduce the overall cost of communications.
Strategy
Our strategy is to target the small to medium-sized business market and capitalize on the wave of migration from the legacy telephone network to cloud telephony. We will continue to concentrate our sales and marketing efforts on developing vertically oriented solutions for targeted markets primarily focusing on municipalities, banking, healthcare, legal services and real estate. In addition, we will continue to partner with our distributors and Value-Added Resellers (“VARs”) to expand our customer base. Our typical VAR is an information technology services firm, traditional PBX vendor, managed service provider, or systems integrator that has established relationships with businesses in its local market. These VARs are currently providing local customer support for other IT or PBX services but lack the technology infrastructure to provide cloud communication and VoIP services to their customers. Our strategy allows these VARs to focus on their strength of providing first tier support to their customers while we provide the second and third tier technical support required to operate a cloud communication and VoIP network. In addition, we transform our VARs’ business model by introducing new cloud telephony services and adding a new and lucrative recurring revenue stream that increases the VARs’ value proposition for its current and prospective customers.

Our cloud-based technology platform enables us and our VARs to deliver enhanced voice services to their business customers. The features supported on our cloud communication platform include all standard telephone features and value-added applications such as voicemail to email, VoIP peering, teleconferencing, IVR auto attendant, and dial-by-name directory. Our system provides our customers and VARs with a migration path from a traditional PBX system to a complete cloud-based PBX solution.
Our strategic initiatives to successfully meet our long-term business objectives include:
● A disciplined approach to evaluating additional acquisitions as we build on the foundation created by our most recent acquisitions in Texas and Florida. We will continue to target local and/or regional UCaaS/cloud telephony providers which have excelled in their market with that “local” touch when serving their business customers. We believe the experience gained in integrating products, personnel, and customers will facilitate continued growth via acquisition.
● A continued emphasis on our UCaaS/cloud communication business which operates in a segment of the telecommunication industry that continues to experience significant growth as businesses migrate from legacy phone systems to cloud-based telephony systems.
● Enhancements to our broadband product portfolio with an emphasis on marketing leading-edge network and business continuity solutions like cloud WAN, also known as SD-WAN (Software Defined Wide-Area Network), to our customers which we anticipate will increase average revenue per customer.
● Implementing a total support model (pre and post sales) for building a world-class service delivery and help desk organization.
● Emphasis on our sales distribution model that enables our VARs to offer cloud and session-based communication services to the enterprise market in various regions and industries.
● Continue enhancing our infrastructure and back office system to streamline operations, automate key processes, and support the scalability of our VAR distribution model.
Competitive Conditions
The cloud services industry, including the provisioning of cloud communications services, cloud connectivity, cloud storage and cloud computing, as well as carrier voice and data services, is highly competitive, rapidly evolving and subject to constant technological change and intense marketing by providers with similar products and services. We expect that new, smaller, but very agile competitors, specializing in providing service to regional and emerging markets at low margin and hence low cost, may have an impact on our market. Similarly, the business services market includes competitors who may be significantly larger and have substantially greater market presence, financial, technical, operational and marketing resources than we do, including Tier 1 carriers, cable companies and premise-based solutions providers that are implementing cloud communication services. In the event that such a competitor expends significant sales and marketing resources in one or several markets where we compete with them, we may not be able to compete successfully in those markets. Specialized cloud services providers, who focus on one or more cloud service or application, could adopt aggressive pricing and promotion practices that could impact our ability to compete. We also believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs commensurate with the price reductions of our competitors. In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide the same or similar services offered or proposed to be offered by us. If our competitors were to provide better and more cost-effective services than ours, we may not be able to increase our revenues or capture any significant market share.

The VoIP and Internet telephony market are highly competitive. Our competitors include major telecommunications carriers in the U.S., national UCaaS providers, and numerous small cloud telephony operators. We expect to face continuing competition based on price and service offerings from existing competitors and new market entrants in the future. The principal competitive factors in our market include price, coverage, customer service, technical response times, reliability, and network size/capacity. The competitive landscape is rapidly altering the number, identity and competitiveness of the marketplace, and we are unable to determine with certainty the impact of potential consolidation in our industry.
Many of our competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we have. As a result, certain of these competitors may be able to adopt more aggressive pricing policies that could hinder our ability to market our services. We believe that our key competitive advantages are our ability to deliver reliable, high quality voice service over the Internet in a cost-effective manner, superior customers service and our VAR distribution model. We cannot provide assurances, however, that these advantages will enable us to succeed against comparable service offerings from our competitors.
Government Regulation
VoIP and other communications services, like ours, have been subject to less regulation at the state and federal levels than traditional telecommunications services. Providers of traditional telecommunications services are subject to the highest degree of regulation, while providers of VoIP and other information services are largely exempt from most federal and state regulations governing traditional common carriers. The FCC has subjected VoIP service providers to a smaller subset of regulations that apply to traditional telecommunications service providers and has not yet classified VoIP services as either telecommunications or information. The FCC is currently examining the status of VoIP service providers and the services they provide in multiple open proceedings. In addition, many state regulatory agencies impose taxes and other surcharges on VoIP services, and certain states take the position that offerings by VoIP providers are intrastate telecommunications services and therefore subject to state regulation. These states argue that if the beginning and end points of communications are known, and if some of these communications occur entirely within the boundaries of a state, the state can regulate that offering. We believe that the FCC has preempted states from regulating VoIP offerings in the same manner as providers of traditional telecommunications services. However, this issue has not been resolved definitively as a matter of law, and it remains possible that the FCC could determine that such services are not information services, or that there could be a judicial or legislative determination that the states are not preempted from regulating VoIP services as traditional telecommunications services. We cannot predict how or when these issues will be resolved or its potential future impact on our business at this time.
The effect of any future laws, regulations and orders on our operations, including, but not limited to, our cloud-based communications and collaboration services, cannot be determined. But as a general matter, increased regulation and the imposition of additional funding obligations increases service costs that may or may not be recoverable from our customers, which could result in making our services less competitive with traditional telecommunications services if we increase our prices or decreasing our profit margins if we attempt to absorb such costs.
Federal, state, local and foreign governmental organizations are considering other legislative and regulatory proposals that would regulate and/or tax applications running over the Internet. We cannot predict whether new taxes will be imposed on our services, and depending on the type of taxes imposed, whether and how our services would be affected thereafter. Increased regulation of the Internet may decrease its growth and hinder technological development, which may negatively impact the cost of doing business via the Internet or otherwise materially adversely affect our business, financial condition and results of operations.
Regulation of Internet-based Telecommunication Services in the United States
We have the necessary authority under Section 214 of the Communications Act to operate as a domestic and international carrier. We are considered a non-dominant domestic interstate carrier subject to minimal regulation by the FCC. We are not required to obtain FCC authority to initiate or expand our domestic interstate operations, but we are required to obtain FCC approval to transfer control or discontinue service and are required to file various reports and pay various fees and assessments. In addition, we must offer service on a nondiscriminatory basis at just and reasonable rates and are subject to the FCC’s complaint jurisdiction. Generally, our international voice traffic is subject to minimal regulation by state and local jurisdictions.

The FCC requires Internet voice communications service providers, such as our company, to provide E-911 service in all geographic areas covered by the traditional wire-line E-911 network. Under the FCC’s rules, Internet voice communications providers must transmit the caller’s phone number and registered location information to the appropriate public safety answering point, or PSAP, for the caller’s registered location. The FCC also requires interconnected VoIP service providers to make Universal Service Fund (“USF”) contributions. We believe that our services are currently compliant with all applicable requirements of the FCC, and we have made and are making the required contributions to the USF. However, should we at some time fail to meet certain requirements or fail to make required contributions, we could be subject to revocation of our authority to operate or to fines or penalties.
As a result of the FCC’s preemption of states’ ability to regulate certain aspects of VoIP service, and a trend in state legislatures to affirmatively deregulate VoIP services for most purposes, our VoIP services are subject to relatively few state regulatory requirements aside from collection of state and local E911 fees and state Universal Service support obligations. We believe that our VoIP services are currently compliant with all applicable state requirements, and we have made and are making the required contributions to E911, state USF, and other funds. The state regulatory framework for our VoIP services continues to evolve, so we, in conjunction with our professional advisors, monitor the actions of the various state regulatory agencies and endeavor to ensure that we are in compliance with applicable state law, including any new statutes or regulations that may be passed. However, there can be no assurance that we will become aware of all applicable requirements on a timely basis, or that we will always be fully compliant with applicable rules and regulations. Should we fail to be compliant with applicable state regulations, or to file required reports with state regulatory agencies, we could be subject to fines and/or penalties.
In addition to regulations addressing Internet telephony and broadband services, other regulatory issues relating to the Internet generally could affect our ability to provide our services. Congress has adopted legislation that regulates certain aspects of the Internet including online content, user privacy, taxation, liability for third-party activities and jurisdiction. In addition, a number of initiatives pending in Congress and state legislatures would prohibit or restrict advertising or sale of certain products and services on the Internet, which may have the effect of raising the cost of doing business on the Internet generally.
International Regulation
The regulatory treatment of Internet telephony outside of the U.S. varies widely from country to country. A number of countries that currently prohibit competition in the provision of voice telephony also prohibit Internet telephony. Other countries permit but regulate Internet telephony. Some countries will evaluate proposed Internet telephony service on a case-by-case basis and determine whether it should be regulated as a voice service or as another telecommunications service. In many countries, Internet telephony has not yet been addressed by legislation or regulation. Increased regulation of the Internet and/or Internet telephony providers or the prohibition of Internet telephony in one or more countries could adversely affect our business and future prospects if we decide to expand globally.
Customers and Suppliers
We rely on various suppliers to provide services in connection with our Voice over Internet Protocol (“VoIP”) or Unified Communication as a Service (“UCaaS”) offerings. Our customers include businesses in various industries including Healthcare, Banking, Financial Services, Legal, Real Estate, and Construction. We are not dependent upon any single supplier or customer.
During the year ended July 31, 2018, the Company did not derived a significant amount of revenue from one single customer. During the year ended July 31, 2017, the Company derived a significant amount revenue from four customers, comprising 24%, 24%, 11%, and 8% of the total revenue for the year.
As of the year ended July 31, 2018, the company derived 13% and 23% total accounts receivable from two customers. As of the year ended July 31, 2017, the Company derived a significant amount of accounts receivable from three customers, comprising 37%, 27% and 14% of the total accounts receivable as of the year ended July 31, 2017.

Employees
As of September 12, 2019, we had 23 employees, all of whom performed sales, operational, technical and administrative functions. We believe our future success will depend to a large extent on our continued ability to attract and retain highly skilled and qualified employees. We consider our employee relations to be good. None of these aforementioned employees belong to labor unions.
MARKET FOR REGISTRANT'SPRICE OF THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ATSI's
Market for Common StockEquity
Our common stock is quoted on the NASD: OTCBBOTCQB under the symbol "AMTI"“DTGI”. Prior to December 1997, ATSI's Common Stock was traded on the Canadian Dealing
Network under the symbol ATIL.CDN. The following table below sets forth the high and low bid prices for our common stock for the Common Stock from August 1, 1997 through December 21, 1997two most recently completed fiscal years, as reported by Bloomberg, LP. Price quotations on the Canadian Dealing Network and from December 22, 1997 through
January 10, 2000 as reported by NASD: OTCBB. These price quotationsOTCQB reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

Fiscal 1998 High Low
------------------------------------------------------
First - ...............................$ 3 1/4 $ 1 3/8
Second - ..............................$ 3 7/16 $ 2
Third - ...............................$ 3 1/2 $ 1 5/7
Fourth - ..............................$ 2 1/4 $ 3/4

Fiscal 1999 High Low
------------------------------------------------------
First - ...............................$ 1 1/8 $ 15/32
Second - ..............................$ 1 9/32 $ 3/4
Third - ...............................$ 1 13/64 $ 5/8
Fourth - ..............................$ 1 53/64 $ 1 1/32

Fiscal 2000 High Low
------------------------------------------------------
First - ...............................$ 1 11/32 $ 45/64
Second - (through January 10, 2000)....$ 1 13/64 $ 49/64

At January 10, 2000
The following table sets forth the closinghigh and low price of ATSI's Common Stock as reported by
NSD:OTCBB was $1.10 per share. for our common stock for each quarter during the 2018 and 2017 fiscal years. The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.
Holders
As of January 10, 2000, ATSI hadSeptember 12, 2019, there were approximately 5,000 stockholders, including both beneficial and registered owners. ATSI has336 record holders of our Common Stock.
Dividends
We have not paid cash dividends on itsour common stock the past three years and doeswe do not expect
to do soanticipate paying a dividend in the foreseeable future.

SELECTED FINANCIAL AND OPERATING DATA

Equity Compensation Plans
The following selected financial and operating data shouldtable provides information regarding securities that have been or are authorized to be read in
conjunction with "Management's Discussion and Analysisissued under our equity compensation plans as of Financial Condition
and Results of Operations" and ATSI's Consolidated Financial Statements and the
Notes thereto included elsewhere herein.

For the three months
Years ended July 31, ending October 31,
1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ----
(In thousands of $, except per share data)

Consolidated Statement of
Operations Data:
Operating revenues:
Network management services $ 318 $ 2,614 $ 1,698 $ 13,362 $ 19,250 $ 6,713 $ 6,105
Call services 4,470 10,807 13,986 19,632 12,626 2,967 2,576
Internet e-commerce - 54 564 1,526 2,642 556 773
-------- -------- -------- -------- -------- -------- ---------
Total operating revenues 4,788 13,475 16,228 34,520 34,518 10,236 9,454
Operating expenses:
Cost of services 4,061 10,833 12,792 22,287 21,312 6,501 6,526
Selling, general and administrative 2,196 3,876 6,312 12,853 12,652 3,109 3,374
Bad debt 340 554 735 1,024 2,346 224 120
Depreciation and amortization 141 281 591 1,822 3,248 649 908
-------- -------- -------- -------- -------- -------- ---------
Total operating expenses 6,738 15,544 20,430 37,986 39,558 10,483 10,928
Loss from operations (1,950) (2,069) (4,202) (3,466) (5,040) (247) (1,474)
-------- -------- -------- -------- -------- -------- ---------
Net loss ($2,004) ($2,205) ($4,695) ($5,094) ($7,591) ($642) ($3,207)
-------- -------- -------- -------- -------- -------- ---------
Per share information
Net loss ($0.14) ($0.11) ($0.18) ($0.12) ($0.16) ($0.01) ($0.07)
-------- -------- -------- -------- -------- -------- ---------
Weighted average common shares
outstanding 13,922 19,928 26,807 41,093 47,467 45,627 48,687

Consolidated Balance Sheet Data:
Working capital (deficit) ($446) ($592) $ 195 ($5,687) ($6,910) ($6,384) ($10,268)
Current assets 1,088 1,789 5,989 5,683 4,827 4,592 5,187
Total assets 2,766 4,348 15,821 24,251 23,922 22,875 24,218
Long-term obligations, including
current portion 133 604 3,912 8,303 10,168 7,727 9,791

Total stockholders' equity 1,231 1,629 6,936 7,087 6,137 6,617 4,939

MANAGEMENT'SJuly 31, 2018.
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity Compensation plans approved by security holders -0- -- -0-
Equity Compensation Plans not approved by security holders 3,415,000 $ 0.33 200,023
Total 3,415,000 $ 0.33 200,023
32
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE: Certain Statements set forthOPERATION
You should read the following discussion of our financial condition and results of operations in conjunction with financial statements and notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below underand elsewhere in this caption constitute
"forward-looking statements" withinprospectus, particularly in the meaningsection labeled “Risk Factors.”
This section of the Securities Act. See page
2 for additional factors relatingprospectus includes a number of forward-looking statements that reflect our current views with respect to such statements.

future events and financial performance. Forward-looking statements are often identified by words like “believe,” “expect,” “estimate,” “anticipate,” “intend,” “project,” and similar expressions, or words that, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this prospectus. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
The following is a discussion of the unaudited interim consolidated financial condition and results of operations of ATSIDigerati for the three fiscal years ended July 31, 1997,
1998, and 1999 and the threenine months ended October 31, 1998April 30, 2019 and 1999.2018. It should be read in conjunction with theour audited Consolidated Financial Statements, of ATSI, the Notes thereto, and the other financial information included elsewhere in this
Registration Statementthe Company’s Annual Report on Form S-1.10-Kfor the fiscal year ended July 31, 2018 filed with the Securities and Exchange Commission on November 16, 2018. For purposes of the following discussion, referencesfiscal 2019 or 2019 refers to year periods refer to ATSI's fiscalthe year ended July 31.

General

ATSI's mission is to employ leading-edge technologies for delivery of
exceptional telecommunication services to underserved Latino markets in the U.S.31, 2019 and Latin America emphasizing convenience, accessibility, quality, reliability,
and affordability, while continually seeking to add value through new and
innovative products and services. Utilizing a framework of licenses,
interconnection and service agreements, network facilities and retail
distribution channels (the "framework"), ATSI is primarily focused on capturing
market share in the international telecommunications corridor between the United
States and Mexico. Even with poor phone-line penetration, ATSI's research
indicates that Mexico may exchange more international traffic with the U.S. than
any other country in the world within the next two years. As the regulatory

environments allow, ATSI plans to establish framework in other Latin American
countries as well. In additionfiscal 2018 or 2018 refers to the U.S. and Mexico, ATSI currently owns or
has rights to use facilities in and has strategic relationships with carriers in
Costa Rica, El Salvador, and Guatemala.

Utilizing the framework described above, ATSI provides local, domestic long
distance and international calls from its own public telephones and casetas
within Mexico, and provides similar services to some third party-owned casetas,
public telephones and hotels in Mexico. Consumers visiting a Company-owned
communication center or public telephone may dial directly to the desired party
in exchange for cash payment, or can charge the call to a U.S. address (collect,
person-to-person, etc.) or calling card, or to a U.S. dollar-denominated credit
card with the assistance of an operator. In July 1998, ATSI began providing
domestic U.S. and international call services to Mexico to residential customers
on a limited basis in the U.S. Callers may either pre-subscribe to ATSI's one-
plus residential service, or dial around their pre-subscribed carrier by dialing
10-10-624, plus the area code and desired number. Where possible, these retail
calls are transported over ATSI's own network infrastructure.

Utilizing the same framework described above, ATSI also serves as a retail
and wholesale facilities-based provider of network services for corporate
clients and U.S. and Latin American telecommunications carriers. These customers
typically lack transmission facilities into certain markets, or require
additional capacity into certain markets. ATSI currently provides these services
to and from the United States, Mexico, Costa Rica, El Salvador and Guatemala.

ATSI is also the sole owner of GlobalSCAPE, Inc., which is rapidly becoming
a leader in electronic commerce of top Internet-based software, utilizing the
Web as an integral component of its development, marketing, distribution and
customer relationship strategies. Utilizing CuteFTP as its flagship product,
GlobalSCAPE has a user base of approximately 7.5 million users as of July 31,
1999.

ATSI's consolidated financial statements have been prepared assuming that
ATSI will continue as a going concern. ATSI has incurred losses since inception
and has a working capital deficit as of July 31, 1999. Additionally, ATSI has
had recurring negative cash flows from operations with the exception of a three-
month period ended January 31, 1998. For the reasons stated in Liquidity and
Capital Resources and subject to the risks referred to in Liquidity and Capital
Resources, ATSI expects improved results of operations and liquidity in fiscal
2000. However, no assurance may be given that this will be the case.

Results of Operations

The following table sets forth certain items included in ATSI's results of
operations in thousands of dollar amounts and as a percentage of total revenues
for the yearsyear ended July 31, 1997, 19982018.
Overview
Digerati Technologies, Inc., a Nevada corporation (including our subsidiaries, “we,” “us,” “Company” or “Digerati”), through its operating subsidiaries in Texas and 1999Florida, Shift8 Networks, Inc., dba, T3 Communications (“T3”) and T3 Communications, Inc. (“T3”), provides cloud services specializing in Unified Communications as a Service (“UCaaS”) solutions for the business market. Our product line includes a portfolio of Internet-based telephony products and services delivered through our cloud application platform and session-based communication network and network services including Internet broadband, fiber, and cloud WAN solutions. Our services are designed to provide enterprise-class, carrier-grade services to the small-to-medium-sized business (“SMB”) at cost-effective monthly rates. Our UCaaS or cloud communication services include fully hosted IP/PBX, mobile applications, Voice over Internet Protocol (“VoIP”) transport, SIP trunking, and customized VoIP services all deliveredOnly in the Cloud™.
As a provider of cloud communications solutions to the SMB, we are seeking to capitalize on the migration by businesses from the legacy telephone network to the Internet Protocol (“IP”) telecommunication network and the three months ended
October 31, 1998migration from hardware-based on-premise telephone systems to software-based communication systems in the cloud. Most SMBs are lagging in technical capabilities and 1999.

Year Ended July 31, Three months ended October 31,
1997 1998 1999 1998 1999
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- ---

Operating revenues
- ------------------
Network services
Carrier $ 0 0% $ 10,047 29% $ 14,123 41% $ 5,626 55% $ 5,368 57%
Private Network 1,698 11% 3,315 10% 5,127 15% 1,087 11% 737 8%
Call services
Integrated Prepaid 1,421 9% 6,102 18% 5,424 15% 1,268 12% 1,401 15%
Postpaid 12,545 77% 13,530 39% 7,202 21% 1,699 17% 1,175 12%
Internet e-commerce 564 3% 1,526 4% 2,642 8% 556 5% 773 8%
------- -------- -------- ------- --------
Total operating revenues 16,228 100% 34,520 100% 34,518 100% 10,236 100% 9,454 100%

Cost of services 12,792 79% 22,287 65% 21,312 62% 6,501 64% 6,526 69%
------- -------- -------- ------- --------

Gross margin 3,436 21% 12,233 35% 13,206 38% 3,735 36% 2,928 31%

Selling, general and
administrative expenses 6,312 39% 12,853 37% 12,652 37% 3,109 30% 3,374 36%

Bad debt 735 4% 1,024 3% 2,346 6% 224 2% 120 1%

Depreciation and amortization 591 4% 1,822 5% 3,248 10% 649 6% 908 10%
------- -------- -------- ------- --------

Operating loss (4,202) -26% (3,466) -10% (5,040) -15% (247) -2% (1,474) -16%

Other, net (493) -3% (1,628) -5% (1,696) -5% (395) -4% (473) -5%
------- -------- -------- ------- --------

Net loss ($4,695) -29% ($5,094) -15% ($6,736) -20% ($642) -6% ($1,947) -21%

Less: preferred stock dividends
- 0% - 0% 855 -2% - 0% 1,260 -13%

Net loss to common shareholders
($4,695) -29% ($5,094) -15% ($7,591) -22% ($642) -6% ($3,207) -34%
======= ======== ======== ======= ========
advancement and seldom reach the economies of scale that their larger counterparts enjoy, due to their achievement of a critical mass and ability to deploy a single solution to a large number of workers. SMBs are typically unable to afford comprehensive enterprise solutions and, therefore, need to integrate a combination of business solutions to meet their needs. Cloud computing has revolutionized the industry and opened the door for businesses of all sizes to gain access to enterprise applications with affordable pricing. This especially holds true for cloud telephony applications, but SMBs are still a higher-touch sale that requires customer support for system integration, network installation, cabling, and troubleshooting. We have placed a significant emphasis on that “local” touch when selling, delivering, and supporting our services which we believe will differentiate us from the national providers that are experiencing high attrition rates due to poor customer support model.
The adoption of cloud communication services is being driven by the convergence of several market trends, including the increasing costs of maintaining installed legacy communications systems, the fragmentation resulting from use of multiple on-premise systems, and the proliferation of personal smart phones used in the workplace. Today, businesses are increasingly looking for an affordable path to modernizing their communications system to improve productivity, business performance and customer experience.
Our cloud solutions offer the SMB reliable, robust, and full-featured services at affordable monthly rates that eliminates high-cost capital expenditures and provides for integration with other cloud-based systems.

Recent Acquisitions
In December 2017, we closed a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy Telecom, Inc. Synergy provides UCaaS or cloud communication services to small and medium-sized business and municipalities, primarily in Texas.
In May 2018, we completed the acquisition of T3 Communications, Inc., an established UCaaS and Internet broadband provider serving a high-growth corridor in Southwest Florida.
Sources of revenue:
Cloud-based hosted Services: We provide UCaaS or cloud communication services and managed cloud-based solutions to small and medium size enterprise customers and to other resellers. Our Internet-based services include fully hosted IP/PBX services, SIP trunking, call center applications, auto attendant, voice and web conferencing, call recording, messaging, voicemail to email conversion, integrated mobility applications that are device and location agnostic, and other customized IP/PBX features in a hosted or cloud environment. Other services include enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper. We also offer remote network monitoring, data backup and disaster recovery.
Direct Costs:
Cloud-based hosted Services: We incur bandwidth and colocation charges in connection with our UCaaS or cloud communication services. The bandwidth charges are incurred as part of the connectivity between our customers to allow them access to our various services. We also incur costs from underlying providers for fiber, Internet broadband, and telecommunication circuits in connection with our data and connectivity solutions.
Results of Operations
Three Months ended October 31, 1999April 30, 2019 Compared to Three Months ended October
31, 1998

Operating Revenues. Operating revenues were down 8%April 30, 2018
Cloud-based hosted Services. Cloud-based hosted services revenue increased by $1,289,000, or 658% from the three months ended April 30, 2018 to the three months ended April 30, 2019. The increase in revenue between periods dueis primarily to declines in the Company's network management services and postpaid
call services revenues offset somewhat by the growth in the Company's integrated
prepaid call services revenue and its Internet e-commerce services revenue.

Network management services, which includes both carrier services and
private network services declined approximately $610,000 from $6.7 million to
$6.1 million. During the quarter ended October 31, 1999, the Company processed
more minutes in its carrier services business than it had in any previous
quarter and transported 56% more minutes than it had in the first quarter of
fiscal 1999. In spite of this increase in volumes, the Company's carrier
services revenues declined from $5.6 million to $5.4 million, between quarters,
due to pricing and other market pressures, which resulted in the Company's
revenue per minute declining significantly between periods. The Company's
private network services declined from $1.1 million to $737,000 between periods
due to the loss of a customer upon expiration of its contract as well as the
termination of several customers with poor credit histories.

Call services revenue, which is comprised of both integrated prepaid
revenues, generated from calls paid for before or at the time the call is
placed, and postpaid calling services, which represent calls subsequently billed
to the consumer or other appropriate party, declined approximately $390,000
between quarters. This decline was the result of an approximate $130,000
increase in integrated prepaid revenues offset by an approximate $525,000
decline in postpaid revenues. The approximate 15% increase in integrated prepaid
revenues between periods came from calls generated from the Company's payphones
and communication centers in Mexico, which continue to be one of the Company's
competitive advantages in Mexico. The Company's decline in postpaid revenues was
a result of several factors. As the Company continued its focus of providing
revenues from its own payphones and communication centers, it de-emphasized
revenues generated from third-party owned premises, because of higher costs
associated with these calls. The Company also experienced a decline in its
operator services calls as new services such as prepaid cellular were introduced
into the market by the Company's competitors and Mexican cellular providers
recently introduced "calling party pays". These two factors led to a tremendous
increase in cellular traffic in Mexico and the resultant congestion hindered the
ability of the Company to complete operator assisted calls from certain of its
payphones, which use cellular access to transport calls.

Revenues from the Company's e-commerce subsidiary GlobalSCAPE, Inc.
increased 39% between quarters from approximately $556,000 to approximately
$773,000 as GlobalSCAPE continued to increase the rate at which users download
its products. Each month during the quarter ended October 31, 1999, the Company
produced an all-time record number of downloads culminating with a record
740,000 downloads in October. Downloads serve not only as the primary driver for
product registration revenues but increase GlobalSCAPE's targeted audience for
banner advertisements. GlobalSCAPE began selling banner advertisements in April
1999, and for the quarter ended October 31, 1999, advertising revenues
represented approximately 15% of the total e-commerce revenues.

Cost of Services. Cost of services remained flat at $6.5 million between
quarters but increased as a percentage of revenues from 64% to 69% between
quarters. Cost of services on the Company's e-commerce subsidiary declined from
28% to 3% between quarters, due to its purchase of the source code to CuteFTP in
January 1998, which resulted in the elimination of royalty payments associated
with its sale and distribution. Cost of services on the Company's telco business
increased from 66% to 75% between quarters. This increase was primarily due to
the pricing pressures related to the Company's carrier services business as well
as costs related to reserve capacity held by the Company during the period. The
completion of the

Company's fiber-based international network in July 1999 left the Company with
excess satellite capacity during the quarter. Effective October 1999 the Company
restructured its satellite bandwidth contract resulting in lower short-term
financial obligations while still allowing the Company the flexibility and
additional capacity it will need in both the near and long-term to achieve its
business plan. The Company experienced a slight decline in the cost of services
percentage related to its call services business as it has continued to
challenge underlying carrier costs. Management believe that the further build-
out of its network, its increased focus on retail-based call services and by
shifting traffic from third-party owned networks to its own networks that it
will be able to maintain a competitive advantage over its competitors in its
targeted markets. The Company's telco gross margins remain well above that of
the average of the companies in its peer group.

Selling, General and Administrative (SG&A) Expenses. SG&A expenses
increased 9%, or approximately $265,000 between periods, due primarily to
increased personnel and costs related to the Company's e-commerce subsidiary
GlobalSCAPE subsequent to October 1998, related to the introduction of new
products and the enhancement of its current products. As mentioned earlier,
downloads of its products, the primary driver for both its product registration
and advertising revenues continued to increase throughout the year with
October's downloads of 740,000 representing the fourth consecutive month of
record downloads. SG&A expenses related to the Company's telco operations
remained flat between periods as the Company incurred non-recurring costs
related to the integration of its Mexican operations. This integration has
resulted in the termination of approximately 40 employees to date, each of whom
must be paid three months of severance in accordance with Mexican law. The
Company expects to have completed the integration of its Mexican operations and
the close of its Guadalajara office by December 31, 1999.

Bad Debt Expense. Bad Debt Expense declined from $224,000 to $120,000
between periods due to the decline in the Company's postpaid call services
business between quarters.

Depreciation and Amortization. Depreciation and amortization rose
approximately $259,000 between periods, The increased depreciation and
amortization is attributable to an approximate $2.7 million increase in fixed
assets between October 31, 1998 and October 31, 1999 as well as increased
amortization related to the Company's acquisition of the source code to CuteFTP.

Operating Loss. The Company's operating loss increased $1.2 million from
the first quarter of fiscal 1999 to the first quarter of fiscal 2000 primarily
due to decreased revenues, increased selling, general and administrative
expenses and increased depreciation and amortization.

Other Income (expense). Other income (expense) decreased approximately
$90,000 between years. This decrease was principally attributableattributed to the increase in interest expensetotal customers acquired from approximately $415,000the acquisitions of T3 Communications, Inc. and Synergy Telecom’s assets. Our total number of customers increased from 145 customers for the quarterthree months ended October 31, 1998April 30, 2018 to approximately $488,000688 customers for the quarterthree months ended October 31,
1999.

Preferred Stock Dividends. During the first quarter of fiscal 2000, the
Company recorded approximately $1.3 million of expense related to cumulative
convertible preferred stock. In addition to cumulative dividends on its Series
A, Series B and Series C Preferred Stock, which are accrued at 10%, 6% and 6%,
respectively, per month the Company has recorded amortization related to a
discount or "beneficial conversion feature" associated with the issuance of its
preferred stock of approximately $1.6 million related to its Series A Preferred
Stock, which is being amortized over a twelve-month period, $1.1 million related
to its Series B Preferred Stock, which is being amortized over a three-month
period and approximately $130,000 related to its Series C Preferred Stock, which
is being amortized over a three-month period. The Company completed the
amortization of the discount related to its Series B Preferred Stock in the
first quarter of fiscal 2000.

Year ended July 31, 1999 Compared to Year Ended July 31, 1998

Operating Revenues. Operating revenues were flat between years, due
primarily to declines in ATSI's call services revenues offset by the growth in
ATSI's network management and Internet e-commerce services.

Network management services, which includes both carrier and private
network services increased 44%, or $5.9 million from 1998 to 1999. Revenues from
the wholesale transport of traffic for U.S.-based carriers increased as ATSI
processed approximately 78.6 million minutes in 1999 as compared to 46.1 million
minutes in 1998. The 70% increase in minutes did not result in a corresponding
increase in revenues as competitive and other market factors caused ATSI'sApril 30, 2019. Additionally, our average monthly revenue per minute to declinecustomer increased from period to period. ATSI's agreement with
Satelites Mexicanos, S.A. de C.V. ("SATMEX"), secured in the fourth quarter of
fiscal 1998 allowed ATSI to secure and resell additional bandwidth capacity.
This increased capacity and flexibility allowed ATSI to increase billings to
existing corporate clients who previously dealt with SATMEX directly and to add
additional retail, corporate clients more quickly.

Call services revenue, which includes both integrated prepaid and postpaid
services decreased approximately $6.9 million, or 51%, between years. This
decline is principally attributable declines in the Company's postpaid revenues
related to ATSI's strategy to focus on providing international call services
from its own payphones and communication centers (casetas). In July 1998, ATSI
ceased providing call services for third-party owned payphones and hotels in the
U.S., Jamaica and the Dominican Republic and decreased the level of services
provided to third-party owned telephones and hotels in Mexico, as these services
did not utilize ATSI's core business and the costs associated with further
provision of services did not justify keeping the business. For the year ended
July 31, 1999, ATSI processed approximately 160,000 calls from Mexico as
compared to approximately 314,000$466 for the same period in 1998three months ended April 30, 2018 to $723 for the three months ended April 30, 2019.
Cost of Services (exclusive of depreciation and no calls for
third-party owned telephones and hotels in the U.S., Jamaica and the Dominican
Republic as compared to approximately 350,000 calls in 1998.

Integrated prepaid revenues, generated by calls paid for before or at the
time the call is placed declined slightly between years. A majority of these
revenues, stated in U.S. dollars in the accompanying consolidated financial
statements are generated by calls processed by ATSI's public telephones and
casetas in Mexico in exchange for immediate cash payment in pesos, the local
Mexican currency. While the number of these calls and consequently the pesos
collected increased between years, those pesos converted into fewer U.S. dollars
as the average exchange rate between years went from 8.33 pesos to the dollar
for fiscal 1998 to 9.77 pesos to the dollar for fiscal 1999.

Revenues from GlobalSCAPE, Inc., ATSI's e-commerce subsidiary increased
approximately $1.1 million or 73% between years. GlobalSCAPE's purchase of the
rights to the source code of CuteFTP, its flagship product in January 1999,
resulted in an enhanced version of CuteFTP which increased the number of
downloads and subsequent purchases. Additionally, GlobalSCAPE began using its
Internet presence to produce ad revenues in the fourth quarter of 1999.

Cost of Services. Cost of services decreased approximately $975,000, or 4%
between years, and decreased as a percentage of revenues from 65% to 62%amortization). The
decline in cost of services between years was primarily a result ofincreased by $664,000, or 627%, from the contributions of GlobalSCAPE. Prior to GlobalSCAPE's purchase of CuteFTP, it was
obligated to pay royalties to CuteFTP's original author for the right to sell
and distribute CuteFTP. The purchase of the source code eliminated such royalty
fees and improved GlobalSCAPE's and ATSI's gross margins. Gross margins for
ATSI's telco operations remained flat at 34% between years, in spite of intense
market pressures in ATSI's carrier services. By eliminating and reducing certain
call services, namely postpaid services such as those offered to third-party
owned payphones and hotels in the U.S., Jamaica, the Dominican Republic and
Mexico, which did not fully utilize ATSI's own network infrastructure, ATSI was
able to move toward vertical integration of its services and operations and
maximize its gross margins using its own network where possible.

Selling, General and Administrative (SG&A) Expenses. SG&A expenses
decreased 2%, or approximately $200,000 between year, as ATSI did not incur
expenses incurred in the prior year associated with its Plan of Arrangement. As
a percentage of revenue, these expenses remained flat at 37%. ATSI had
anticipated that these expenses would decline as a percentage of revenues, but
they did not do so in light of the circumstances surrounding the delay of fiber
capacity available to ATSI. In the fourth quarter of 1999, ATSI began to further
integrate its two primary operating subsidiaries in Mexico, Computel and ATSI-
Mexico as ATSI continues to seek ways to lower its SG&A expense levels. Net of
non-cash expenses, related to ATSI's option plans, SG&A expenses decreased
approximately $300,000.

Bad Debt Expense. Bad Debt Expense increased $1.3 million from fiscal 1998
to fiscal 1999. During the fourth quarter of 1999, ATSI established specific bad
debt reserves of approximately $1.5 million related to retail and wholesale
transport of network management services. While ATSI has reserved for these
customers, it is actively pursuing collection of amounts owed including legal
proceedings specifically related to approximately $1.2 million of the accounts
reserved. Excluding these specific reserves, bad debt expense declined both as a
% of revenues and in actual dollars between years.

Depreciation and Amortization. Depreciation and amortization rose
approximately $1.4 million, or 78%, and rose as a percentage of revenues from 5%
to 10% between years. The increased depreciation and amortization is
attributable to an approximate $2.4 million increase in fixed assets between
years as well as increased amortization related to acquisition costs, trademarks
and goodwill. The majority of the assets purchased consisted of equipment which
added capacity to ATSI's existing international network infrastructure including
the Network Technologies (N.E.T.) equipment purchased in December 1998 and
ATSI's new Nortel DMS 250/300 International Gateway switch purchased in January
1999.

Operating Loss. ATSI's operating loss increased $1.6 million from 1998
primarily due to increased depreciation and amortization and increased bad debt
expense which more than offset the improvements in gross margin dollars produced
from 1998 to 1999.

Other Income(expense). Other income (expense) decreased approximately
$70,000 between years. This decrease was principally attributablethree months ended April 30, 2018 to the increase in interest expense from approximately $1.6 million for 1998 to
approximately $1.7 million for 1999.

Preferred Stock Dividends. During fiscal 1999, ATSI recorded approximately
$855,000 of expense related to cumulative convertible preferred stock. In
addition to cumulative dividends on its Series A and Series B Preferred Stock,
which are accrued at 10% and 6%, respectively per month, ATSI has recorded a
discount or "beneficial conversion feature" associated with the issuance of its
preferred stock of approximately $1.6 million related to Series A Preferred
Stock, which is being amortized over a twelve-month period and $1.1 million
related to Series B Preferred Stock, which is being amortized over a three-month
period.

Yearthree months ended July 31, 1998 Compared to Year Ended July 31, 1997

Operating Revenues. Operating revenues increased approximately $18.3
million, or 113%, as ATSI experienced growth in each service category.

Network management services increased 687% from $1.7 million in 1997 to
$13.4 million in 1998. The majority of this growth was due to the amount of
wholesale network services provided to other carriers seeking transmission
facilities or additional capacity for their services. ATSI began providing these
services in October 1997, and produced approximately $10 million in revenues
from this service during 1998.

Postpaid call services revenue increased approximately $1.0 million, or 8%,
primarily due to growth in ATSI's customer base in Mexico that produces calls to
the United States from hotels, public telephones and casetas. As a result of the
installation of public telephones, the implementation of a direct sales
strategy, and the purchase of Computel in August 1997, ATSI processed
approximately 314,000 international calls originating in Mexico during fiscal
1998. This compares to approximately 200,000 calls processed the year before.
This increase in international calls from Mexico was offset to a large extent by
a decrease in domestic and international operator-assisted calls originating in
the United States and Jamaica. During 1998, ATSI de-emphasized these services
due to relatively lower profit margins on this business. On July 16, 1998, ATSI
ceased providing these services altogether. Revenues from these services
decreased from approximately $3.9 million in 1997 to approximately $2.9 million
in 1998. ATSI does not anticipate producing significant revenues from such
services, if any, during fiscal 1999.

Integrated prepaid call services, calls processed in exchange for cash
without utilizing ATSI's operator center in San Antonio, Texas, increased 328%
from approximately $1.4 million in fiscal 1997 to approximately $6.1 million in
fiscal 1998. This increase was primarily due to the acquisition in May and
August 1997 of Computel, the largest private caseta operator in Mexico. ATSI
also began processing local and domestic long distance calls within Mexico
during the latter half of 1997 from its own intelligent payphones installed in
resort areas of Mexico. These calls are made by depositing coins (pesos or
quarters) in ATSI's phones to initiate service.

Cost of Services. Cost of services increased approximately $9.5 million, or
74% between years, but decreased as a percentage of revenues from 79% to 65%.April 30, 2019. The increase in cost of services between periods is attributableprimarily attributed to the increased volume of
business handled by ATSI during 1998, as discussed above. The improvement in
ATSI's gross profit margin resultedadditional costs arising from our acquisitions and the change in the mixacquired customers. Although our consolidated cost of services it
provided during 1998 as described above, and its continuing efforts to decrease
costs subsequent to the demonopolization of Telmex, which took place January 1,
1997. Subsequent to Telmex's demonopolization, ATSI was able to negotiate with
newly concessioned carriers in Mexico to transport its calls originating and
terminating in Mexico, which has lowered the associated per minute rate to carry
those calls. Additionally, ATSI was one of the first four companies to receive a
public payphone comercializadora license from the SCT in February 1997, which
has allowed ATSI to provide local, domestic and international calls from public
telephones in Mexico. In November 1997, ATSI purchased the customer base of
Comunicaciones del Caribe, S.A. de C.V., an independent marketing representative
in the Cancun/Cozumel area of Mexico which did not have a comercializadora
license, and which had been utilizing ATSI's operator center for processing
international calls. By purchasing the customer base, ATSI was able to eliminate
a layer of expense associated with the traffic and effectively lower its overall
commission rate paid to public telephone location owners in Mexico. ATSI has
also improved itsincreased between periods, our consolidated gross margin by utilizing its own existing satellite network
infrastructure and licensesincreased from 46% during the three months ended April 30, 2018 to provide network48% during the three months ended April 30, 2019. The increase in gross margin between periods is attributed to a higher concentration of enterprise customers revenue, which generate a slightly higher margin than services to other carriers
seeking transmission facilities or extra capacity for their own services.

provided via resellers.
Selling, General and Administrative (SG&A) Expenses. Expenses (exclusive of legal and professional fees).SG&A expenses rose
104%increased by $543,000, or 164%, from the three months ended April 30, 2018 to the three months ended April 30, 2019. The increase in SG&A expenses between periods is primarily attributed to the additional salaries and other employee related expenses of approximately $417,000 attributable to the T3 Communications, Inc. acquisition.

Stock Compensation expense.Stock compensation expense decreased by $9,000, from the three months ended April 30, 2018 to the three months ended April 30, 2019. The decrease between periods is attributed to recognition of stock option expense of $82,000 associated to the stock options granted to various employees during FY2018. In addition, during the three months ended April 30, 2018 the Company recognized $271,000 in warrant expense for warrants issued in conjunction with various promissory notes secured during the quarter ended April 30, 2018. During the three months ended April 30, 2019 the Company recognized $178,000 as stock compensation expense for shares of common stock issued for consulting services and the recognition of stock option expense of $153,000 associated to the stock options granted to various employees during FY2018 and FY2019.
Legal and professional fees. Legal and professional fees increased by $27,000, or approximately $6.5 million,40%, from 1997three months ended April 30, 2018 to 1998. As a percentagethe three months ended April 30, 2019. The increase between periods is attributed to the recognition during FY 2019 of revenue, these$20,000 in professional expenses decreased from 39% to 37% between years. The growth in
dollars between years was caused by the acquisition of Computel, the continued
growth of ATSI's ATSI-Mexico operations, the expensing of costsincurred related to ATSI's planned acquisitioninvestor relations services. In addition, during the quarter ended April 30, 2019 the Company recognized $8,000 in legal expenses associated with the preparation of additional concessionsthe consolidated tax return for 2018.
Depreciation and amortization. Depreciation and amortization increased by $117,000, from the Mexican regulatory
authorities,three months ended April 30, 2018 to the three months ended April 30, 2019, mainly due to increase in amortization expense and the expensing of costsdepreciation expense related to ATSI's reincorporation from
Canadathe intangible and tangible assets obtained in the acquisitions of T3 Communications Inc., and Synergy Telecom.
Operating loss. The Company reported an operating loss of $767,000 for the three months ended April 30, 2019 compared to Delaware. Approximately $890,000

22
an operating loss of $714,000 for the three months ended April 30, 2018. The increase wasin operating loss between periods is primarily due to the acquisitionincrease of Computel, which operates
approximately 134 retail-based casetas$543,000 in approximately sixty cities throughout
Mexico,SG&A expenses, increase in legal expenses of $27,000 and employsthe increase of $117,000 in excessdepreciation and amortization. These increases were slightly offset by the increase of 400 people. In August 1997, ATSI-Mexico
expanded its operations$625,000 in gross margin and began procuring, installing, operating and
maintaining coin-operated, intelligent payphones. During 1998, ATSI expensed
$631,000the decrease of $9,000 in costs incurred relative to ATSI's reincorporation. Approximately
$268,000 in expenses were incurred during 1997 relativestock compensation expense.
Gain (loss) on derivative instruments.Gain (loss) on derivative instruments increased by $856,000 from three months ended April 30, 2018 to the reincorporation.

Bad Debt Expense. Bad Debt expense increased approximately $300,000 between
years but decreasedthree months ended April 30, 2019. We are required to re-measure all derivative instruments at the end of each reporting period and adjust those instruments to market, as a %result of revenues from 4% to 3%.the re- measurement of all derivative instruments we recognized a loss between periods.
Income tax expense.During the three months ended April 30, 2019, the Company recognized an income tax expense of $10,000. The principalprimary reason for the improved bad debtincome tax expense as a percentageis due to the accrual of revenues wasstate income tax.
Interest expense. Interest income (expense) increased by $335,000 from the three months ended April 30, 2018 to the three months ended April 30, 2019. The primary reason for the increase in network management services revenues between years.

Depreciation and Amortization. Depreciation and amortization rose
approximately $1.2 million, or 208%, and rose as a percentageinterest expenses is attributed to the recognition of revenues from
4% to 5% between years. From July 31, 1997 through July 31, 1998, ATSI acquired
approximately $7.9 million in equipment. Approximately $4.6 millionnon-cash interest / accretion expense of these
assets were acquired through capital lease arrangements. The majority of the
assets consisted of equipment that added capacity to ATSI's existing
international network infrastructure, and intelligent coin telephones that were
installed in Mexico. Approximately $1.4 million in fixed assets were acquired
subsequent to July 31, 1997 with the acquisition of Computel. ATSI also recorded
$2.8 million of goodwill during 1998 associated with the purchase of Computel,
which is being amortized over a forty-year period.

Operating Loss. ATSI's operating loss improved $736,000 to approximately
$3.5 million for 1998. Increased revenue levels and improved gross margins more
than offset increases in selling, general and administrative expenses and
depreciation and amortization, allowing for the improvement.

Other Income (expense). Other income (expense) rose approximately 230%, or
$1.1 million, between years. This increase was due almost exclusively to
increased interest expense levels. During 1998, ATSI incurred capital lease
obligations of approximately $4.6 million$248,000 related to the purchaseadjustment to the present value of equipment
mentioned above,various convertible notes and issueddebentures. Additionally, the company recognized $90,000 in interest expense for cash interest payments on various promissory notes, payableaccrual of $43,000 for interest expense for various promissory notes and interest income of $2,400.
Net income (loss) including noncontrolling interest.Net loss including noncontrolling interest for the three months ended April 30, 2019 was $250,000 compared to a net loss for the three months ended April 30, 2018 of $708,000. The improvement in net loss including noncontrolling interest between periods is primarily due to the amountimprovement of approximately $3.1
million.

Year Ended July 31, 1997 Compared to Year Ended July 31, 1996

Operating Revenues. Operating revenues increased approximately $2.8 million
or 20%, due mainly to increased revenues from postpaid call services.
Approximately $1.4 million$856,000 in loss on derivative instruments and the improvement of revenues$625,000 in fiscal 1996gross margin. These improvements were offset between periods by the increase in SG&A of $543,000, the increase in legal and professional fees of $27,000 and the increase of $117,000 in depreciation and amortization.
Net income attributable to the sale and installationnoncontrolling interest.During the three months ended April 30, 2019, the consolidated entity recognized net income in noncontrolling interest of $29,000. The noncontrolling interest is presented as a large networkseparate line item in Mexico to one of Mexico's largest
milk producers. Subsequent to completing the sale and installationCompany’s stockholders equity section of the network, ATSI began recognizing monthly revenuesbalance sheet.
Net income (loss).Net loss for the three months ended April 30, 2019 was $221,000 compared to a net loss for the three months ended April 30, 2018 of $708,000.

Deemed dividend on Series A Convertible Preferred Stock Net income (loss).Deemed dividend on convertible preferred stock for the three months ended April 30, 2019 was $2,000 compared to a Deemed dividend on convertible preferred stock for the three months ended April 30, 2018 of $0.
Net income (loss) attributable to Digerati’s common shareholders.Net loss for the three months ended April 30, 2019 was $223,000 compared to a net loss for the three months ended April 30, 2018 of $708,000.
Nine Months ended April 30, 2019 Compared to Nine Months ended April 30, 2018
Cloud-based hosted Services. Cloud-based hosted services revenue increased by $4,090,000, or 1015% from the managementnine months ended April 30, 2018 to the nine months ended April 30, 2019. The increase in revenue between periods is primarily attributed to the increase in total customers acquired from the acquisitions of the
network. The saleT3 Communications, Inc. and installation of such a large network is not considered to
be of a recurring nature by ATSI; however, management of this and other networks
is considered to be a recurring source of revenues for ATSI. GlobalSCAPE had
revenue of $500,000 in fiscal 1997, representing less than 4% of ATSI's
consolidated revenue.

Operating revenues from call services increased 29%, or approximately $3.2
million, due almost entirely to increased call volumes from international call
services provided from hotels and resorts in Jamaica, increased call volumes
attributable to ATSI's Brazilian calling card product, and the inclusion of
Computel's revenues attributable to call services provided by Computel during
the last quarter of fiscal 1997 (which represented approximately $1.4 million of
consolidated revenues in fiscal 1997). Revenues from international calls
originating in Mexico increased 5%, while call volumes and related revenues from
calls originating in Mexico and from calls originating and terminating
domestically within the U.S. remained relatively constant between periods.
Although ATSI continued to install Charge-a-Call telephones in Mexico throughout
fiscal 1997, theSynergy Telecom’s assets. Our total number of calls per phone decreased slightly. ATSI believes
this was duecustomers increased from 145 customers for the nine months ended April 30, 2018 to increasing costs to688 customers for the consumer. ATSI began to lower the price
per call to the consumer from certain telephones in the first quarter of fiscal
1998 based on the decrease in ATSI's cost of providing these calls through its
agreement with Investcom. The increased volume of calls relating to Jamaica and
Brazil increased the number of international calls processed by ATSI as compared
to domestic calls processed entirely within the United States. Because
international calls typically generate higher revenues on a per call basis than
domestic calls, thenine months ended April 30, 2019. Additionally, our average monthly revenue per completed call processed by ATSIcustomer increased from $14.93$418 for fiscal 1996the nine months ended April 30, 2018 to $17.88$738 for fiscal 1997.

Excluding the $1.4 millionnine months ended April 30, 2019.
Cost of revenues recognized in fiscal 1996
attributable to the saleServices (exclusive of depreciation and installation of the network to the Mexican milk
producer, revenues from network management services increased approximately
$596,000, or 67%amortization). This increase was largely due to recurring revenues from the
Mexican milk producer and Investcom commencing in the early and latter part,
respectively, of fiscal 1997.

Cost of Services. Cost The cost of services increased approximately $2.0 million,by $2,073,000, or 18%833%, resulting in an increase in ATSI's overall gross margin from 20% in fiscal
1996 to 21% in fiscal 1997. If the approximately $1.4 million in revenues and
the $960,000 in costs relatednine months ended April 30, 2018 to the sale and installation of the network to the
Mexican milk producer were excluded from ATSI's

results for fiscal 1996, ATSI's gross profit percentage would have been 18% for
fiscal 1996.nine months ended April 30, 2019. The increase in cost of services wasbetween periods is primarily attributableattributed to the increased volume of calls handled by ATSIadditional costs arising from Jamaica toour acquisitions and the U.S. and from the
U.S. to Brazil, the inclusion of Computel'sacquired customers. Although our consolidated cost of services forincreased between periods, our consolidated gross margin increased from 38% during the last
quarternine months ended April 30, 2018 to 48% during the nine months ended April 30, 2019. The increase in gross margin between periods is attributed to a higher concentration of fiscal 1997, and rising costs associated with transporting calls from
Mexico to ATSI's Switching/Operator Facility in San Antonio, Texas. Although
Telmex officially lost its status asenterprise customers revenue, which generate a monopoly on August 10, 1996, Investcom
was not allowed connectivity to Telmex's local network in Mexico until January
1997 and did not have the switch capacity in Mexico to process ATSI's traffic
until May 1997. As a result, ATSI was unable to commence processing any of its
traffic at lower per-minute costs until May 1997. Subsequent to May 1997, the
public phones serviced by ATSI in Mexico were frequently only able to access
ATSI's operator center utilizing a cellular connection, since local connectivity
had not yet beenhigher margin than services provided by Telmex. This added a per-minute air time charge to
ATSI's cost of transmitting calls from Mexico, resulting in a decline in the
gross profit margin on international calls transmitted from ATSI's public phones
in Mexico.

via resellers.
Selling, General and Administrative Expenses. (SG&A) Expenses (exclusive of legal and professional fees).SG&A expenses rose 63%increased by $1,479,000, or 178%, or
approximately $2.4 million between years. Iffrom the revenues relatednine months ended April 30, 2018 to the sale
and installation of the network to the Mexican milk producer in fiscal 1996 were
excluded, SG&A expenses would have increased as a percentage of overall revenues
from 29% to 32%.nine months ended April 30, 2019. The increase in SG&A expenses between periods is primarily attributed to the additional salaries and other employee related expenses of approximately $1,246,000 attributable to the T3 Communications, Inc. acquisition and $136,000 increase in additional salaries and other related expenses attributable to the asset acquisition from Synergy Telecom.
Stock Compensation expense.Stock compensation expense decreased by $597,000, from the nine months ended April 30, 2018 to the nine months ended April 30, 2019. The decrease between periods is almost entirelyattributed to the recognition during FY 2018 of stock compensation expense of $226,000 associated with the Profit-Sharing Plan contribution and stock compensation expense of $155,000 for the stock issued in lieu of cash to the Company’s management team. In addition, during the nine months ended April 30, 2018 the Company recognized $292,000 in warrant expense for warrants issued to various professionals. During the nine months ending April 30, 2019 the Company only recognized $64,000 in warrant expense for warrants issued to professionals. Additionally, during the nine months ended April 30, 2019, the Company recognized as stock compensation expense $114,000 associated with the Profit-Sharing Plan contribution, $289,000 in other stock-based compensation to the employees and recognized $249,000 as stock compensation expense for shares of common stock issued for consulting services.
Legal and professional fees. Legal and professional fees decreased by $54,000, or 15%, from nine months ended April 30, 2018 to the nine months ended April 30, 2019. The decrease between periods is attributed to the recognition during FY 2018 of $159,000 in professional and legal expenses incurred related to the professionals conducting the due diligence and audit work on the acquisition of T3 Communications. The Company only recognized $34,000 in legal and professional expenses associated with due diligence for other potential acquisitions during the nine months ending April 30, 2019. In addition, during FY2019 the Company recognized $62,500 in professional fees related to investor relations services. Also, during the period ended April 30, 2019 the Company recognized $8,000 in legal expenses associated with the preparation of the consolidated tax return for 2018.
Bad debt. Bad debt improved by $3,000 between periods. During the nine months ended April 30, 2019 the Company recognized a recovery of bad debt of $3,000 for accounts that were previously deemed uncollectable.

Depreciation and amortization. Depreciation and amortization increased by $416,000, from the nine months ended April 30, 2018 to the nine months ended April 30, 2019, mainly due to expanded
operations within Mexicoincrease in amortization expense and depreciation expense related to the intangible and tangible assets obtained in the acquisitions of T3 Communications Inc., and Synergy Telecom during fiscal 2018.
Operating loss. The Company reported an operating loss of $1,676,000 for the nine months ended April 30, 2019 compared to an operating loss of $2,452,000 for the nine months ended April 30, 2018. The improvement in operating loss between periods is primarily due to the increase of $2,017,000 in gross margin, the decrease of $597,000 in stock compensation expense and the inclusiondecrease of Computel's$54,000 in legal and professional fees. These positive improvements were slightly offset by the increase of $1,479,000 in SG&A expense forand the last quarterincrease of fiscal 1997. ATSI-Mexico had less than five employees at the
beginning of fiscal 1996 as compared$416,000 in depreciation and amortization.
Gain (loss) on derivative instruments.Gain on derivative instruments increased by $749,000 between periods. We are required to 36 employeesre-measure all derivative instruments at the end of fiscal 1997.
Computel operates 134 casetas in approximately 72 cities throughout Mexico,each reporting period and has approximately 430 employees.

Bad Debt Expense. Bad debt expense increased approximately $180,000 between
years and remained flatadjust those instruments to market, as a percentageresult of revenues at 4%. ATSI incurred greater
bad debtthe re- measurement of all derivative instruments we recognized a loss between the nine months ended April 30, 2018 and 2019.
Income tax expense.During the nine months ended April 30, 2019, the Company recognized an income tax expense of $37,000. The primary reason for the income tax expense is due to the higher revenue levelsaccrual of state income tax.
Interest expense. Interest income (expense) increased by $1,164,000 from the nine months ended April 30, 2018 to the nine months ended April 30, 2019. The primary reason for the increase in interest expenses is attributed to the recognition of non-cash interest / accretion expense of $971,000 related to the adjustment to the present value of various convertible notes and debentures. Additionally, the company recognized $355,000 in interest expense for cash interest payments on various promissory notes, accrual of $96,000 for interest expense for various promissory notes and interest income of $5,400.
Net income (loss) including noncontrolling interest.Net loss including noncontrolling interest for the nine months ended April 30, 2019 was $3,721,000 compared to a net loss for the nine months ended April 30, 2018 of $2,547,000. The increase in net loss between years.

Depreciation and Amortization. Depreciationperiods is primarily attributed to the increase of $1,479,000 in SG&A, the increase of $416,000 in depreciation and amortization, increased
approximately $310,000, or 110%, due primarily to approximately $2.1 millionthe increase of $749,000 in fixed asset additions principally for the development of ATSI's teleport
facilities in San Antonio, Texas, Cancun and Mexico City, Mexico, and San Jose,
Costa Rica; the acquisition of intelligent payphones;loss on derivative instruments and the inclusionincrease of Computel's depreciation$1,164,000 in interest expense. The increases were slightly offset by the increase of $2,017,000 in gross margin, the decrease of $597,000 in stock compensation expense and the decrease of $54,000 in legal and professional fees and professional fees and the recognition of $3,000 in recovery of bad debt for accounts that were previously deemed uncollectable.
Net income (loss) attributable to the acquisitionnoncontrolling interest.During the nine months ended April 30, 2019, the consolidated entity recognized income in noncontrolling interest of Computel.

Other$87,000. The noncontrolling interest is presented as a separate line item in the Company’s stockholders equity section of the balance sheet.
Net income (expense)(loss). Other income (expense) increasedNet loss for the nine months ended April 30, 2019 was $3,634,000 compared to a net expenseloss for the nine months ended April 30, 2018 of $2,547,000.
Deemed dividend on Series A Convertible Preferred Stock Net income (loss).Deemed dividend on convertible preferred stock for the nine months ended April 30, 2019 was $2,000 compared to a Deemed dividend on convertible preferred stock for the nine months ended April 30, 2018 of $0.
Net income (loss) attributable to Digerati’s common shareholders.Net loss for the nine months ended April 30, 2019 was $3,636,000 compared to a net loss for the nine months ended April 30, 2018 of $2,547,000.
Liquidity and Capital Resources
Cash Position: We had a consolidated cash balance of $460,000 as of April 30, 2019. Net cash consumed by operating activities during the nine months ended April 30, 2019 was approximately $445,000$299,000, primarily as a result of operating expenses, that included $716,000 in stock compensation and warrant expense, amortization of debt discount of $959,000, interest expense incurredfrom stock issued for debt extension of $24,000, loss on capital lease obligationsderivative liability of $594,000 depreciation and convertible notes issuedamortization expense of $505,000. Additionally, we had an increase of $54,000 in 1997.

Liquidityaccounts payable, increase in accrued expenses of $539,000, decrease in accounts receivables of $13,000, increase in deferred income of $52,000, a decrease in prepaid expenses and Capital Resources

Because ATSI did not produce sufficient gross margin dollars to cover its
selling, generalother current assets of $45,000 and administrative costs, ATSI generated negative cash flows
from operationsan increase in escrow deposits of $55,000.

Cash used in investing activities during the yearnine months ended July 31, 1999April 30, 2019 was $43,000 for the purchase of approximately $3.6
million. This shortfall includes the $1.5 million provision for specific
accounts receivable generatedequipment.
Cash provided by financing activities during the year for which ATSI may not receive any
funds.

ATSI's payablenine months ended April 30, 2019 was $414,000, the Company secured $40,000 from an accredited investor through the issuance of 80,000 restricted common shares with a price of $0.50 per share and accrued liability position increased15,000 warrants with an exercise price of $0.50 per share. Also, the Company secured $75,000 from July 31, 1998an accredited investor through the issuance of 258,621 restricted common shares with a price of $0.29 per share. The Company also secured $150,000 from an accredited investor through the issuance of 600,000 restricted common shares with a price of $0.25 per share. Furthermore, the Company secured $50,000 from accredited investors under a private placement and issued 50,000 shares of Series A Convertible Preferred Stock at an conversion price of $0.30 per share and warrants to July 31, 1999 as ATSI often utilized cash flows produced from financing
activities to pay down debt and capital lease obligations before paying vendors
or suppliers of services to ATSI.

When possible, ATSI arranged capital lease obligations in order to obtain
equipment necessary to expand or maintain its operations. During fiscal 1999,
ATSI was able to secure long-term capital lease arrangements of $2.0 million
from NTFC Capital Corporation to cover the acquisitionpurchase an additional 100,000 shares of its Nortel DMS 250/300
switch and $900,000 from Bank Boston Leasing to cover the cost of ATM equipment
needed to upgrade its network to a packet-switching environment. As of July 31,
1999 ATSI has only utilized approximately $500,000 of the Bank Boston Leasing
facility. During the year ended July 31, 1999 ATSI acquired approximately $1.0
million in equipment which was not financed. The majority of this equipment was
used to maintain or upgrade its network between the U.S. and Mexico.

In January 1999, GlobalSCAPE purchased the rights to the source code for
CuteFTP, its flagship product. Terms of the purchase called for a cash payment
of approximately $171,000, which ATSI financed through a bank note of $180,000common stock at an interest rateexercise price of prime plus 1%, and twelve monthly payments$0.20 per share. The Company also secured $7,500 for the exercise of principal
and interest75,000 warrants, with an exercise price of $63,000 beginning February 1999. The terms of the note called
for principal and interest payments over a two-year period, comprised initially
of twelve monthly principal payments of $5,000 plus interest to be followed by
twelve monthly principal payments of $10,000 plus interest. GlobalSCAPE paid the
monthly amounts owed for these obligations out of recurring cash flows produced
from its operations during fiscal 1999, and management anticipates that it will
continue to be able to do so during the next fiscal year.

24
$0.10 per warrant. In addition, to the financing by GlobalSCAPE, ATSI borrowed $250,000Company secured $100,000 from officers and directors of ATSI that was used for working capital purposes. As of
July 31, 1999, a total of $100,000 remained outstanding to two officers of ATSI.

During 1999, ATSI stopped factoring a portion of its receivables. At that
point, ATSI had accumulated an approximate $319,000 balance due to the factoring
company. As of July 31, 1999 approximately $137,000 remains outstanding on this
balance, which is being paid monthly3rd party promissory notes. The Company also secured $509,000 from cash generated by ATSI's call services
business.

ATSI paid approximately $941,000 toward its capital lease obligations
during fiscal 1999. In an effort to reduce its cash outflows, in May 1999 ATSI
restructured its capital lease obligation with IBM de Mexico, extending payment
of the total obligation over a forty-eight (48) month period. Monthly payments
due under the facility with NTFC Capital Corporation are deferred until January
2000.

In an effort to improve its working capital position, ATSI raised
approximately $4.2 million from March 1999 through July 1999,convertible notes, net of issuance costs and discounts. Furthermore, the Company secured $25,000 from a promissory note with a related party. Also, the Company made principal payments of $94,000 on related party notes, $301,000 in private placements of preferred stock,principal payments on convertible notes, $125,000 in principal payments on 3rd party promissory notes and another $302,000$22,000 in a
private placement of common stock. Exercises of warrants and options during
fiscal 1999 generated an additional approximate $1.3 million in cash proceeds
during the year. The majority of the proceeds from these private placements and
warrant and option exercises were used to pay vendors and suppliers of services
to ATSI.

Theprincipal payments on financing leases. Overall, our net result of ATSI's operating, investing and financing activities during the year was a working capital deficit at July 31, 1999nine months ended April 30, 2019 provided approximately $72,000 of approximately
$6.9 million and cash on hand of approximately $379,000. Included in ATSI's
current obligations, net of the associated debt discount,our available cash.
We are notes payable of
$2.2 million which will be due and payable, along with accrued interest of
approximately $760,000 in March 2000. The Company's current obligations also
include the total obligation under its debt facility with NTFC Capital
Corporation because of the Company's non-compliance with the EBITDA covenant of
the debt facility as of October 31, 1999. Although the Company does not
anticipate NTFC Capital Corporation calling the amounts due under the debt
facility, the Company has classified the debt as being current in accordance
with generally accepted accounting principles. The Company is currently in the
process of obtaining a formal waiver from the lender, and is also reviewing the
covenant requirements in the future for possible adjustment.

The Company's receivable balance at October 31, 1999 includes balances of
approximately $325,000 due to the Company from several of its private network
customers located in Central America which are past due. Subsequent to October
1999, the Company has intensified its efforts to collect these balances.
However, it can not ensure that it will be able to collect the full amounts due
under its contracts with these customers. No amounts have been reserved as being
uncollectible for these accounts as of October 31, 1999.

Although ATSI generated cash flows from financings in excess of $6.2
million during fiscal 1999, these proceeds were not sufficient to cover the net
cash used in operations, capital expenditures and debt service requirements of
approximately $6.9 million incurred during the year. As planned, ATSI shifted
its focus during the year away from traffic generated outside of its core market
of Mexico, and focused on generating and transporting traffic over its own
international network infrastructure in order to produce better cash flow
results. The result was an increase in wholesale network transport traffic
flowing over ATSI's network. Overall, network services contributed approximately
56% of overall corporate revenues during the year, as opposed to approximately
39% in fiscal 1998. However, market pressures caused the price at which
wholesale network transport services could be sold to decline approximately 40%
during fiscal 1999. Although ATSI was abletaking initiatives to reduce its costs associated with
transporting the traffic, ATSI produced less dollars of gross marginour overall cash deficiencies on a per
minute basis than it had inmonthly basis. During fiscal 1998. GlobalSCAPE's gross margins increased
during the year with the purchase of the source code to CuteFTP, but on a
consolidated basis ATSI was unable to generate the gross margin dollars
necessary to cover SG&A2019 we anticipate reducing fixed costs and allgeneral expenses, in addition, certain members of its debt service requirements.

Asour management team have taken a significant portion of October 1999, ATSI is continuingtheir compensation in common stock to experience market pressures on
its wholesale network transport services business.reduce the depletion of our available cash. To strengthen our business, we intend to invest in a new marketing and sales strategy to grow our monthly recurring revenue; we anticipate utilizing our value-added resellers to tap into new sources of revenue streams, we have also secured various agent agreements to accelerate revenue growth. In orderaddition, we will continue to produce better
cash flows, ATSI must focus on keeping its international network between Mexico
and the U.S. optimally utilized withselling a blendgreater number of retail and wholesale traffic.
Because ATSI upgraded its network during fiscal 1999comprehensive services to an ATM packet-switching
environment, ATSI feels that it can transport traffic as efficiently as possibleour existing customer base. Further, in an effort to minimize costs. However, ATSI anticipates that pricing pressuresincrease our revenues, we will continue to evaluate the acquisition of various assets with emphasis in VoIP Services and Cloud Communication Services. As a result, during the due diligence process we anticipate incurring significant legal and professional fees. During the year ended fiscal 2018, the Company acquired T3 Communications, Inc., a leading provider of cloud communication and Internet broadband solutions in Southwest Florida. The acquisition of T3 allowed the Company to accelerate its wholesale transport market, so it will focus its efforts on
implementing a retail strategy which targets the growingrevenue growth and underserved Latino
markets in both the U.S. and Mexico. Although management does not expect
improved results from this effort until the latter stages of fiscal 2000, itexpand into new markets.
Management believes that its retail strategy combined withcurrent available resources will not be sufficient to fund the deployment of leading edge
technology for communications transport will ultimately bring about improved
profitability and sustainable growth inCompany’s operations over the future.

In the near term, ATSI mustnext 12 months. The Company’s ability to continue to manage its costs of providing
services and overhead costs as it begins focusing on optimizing use of its
network. ATSI has applied for a long distance concession in Mexico which, if
obtained, ATSI believes will eventually allow it to significantly reduce its
cost of transporting services. In order for it to significantly reduce costs
with the concession, ATSI would need to purchase a significant amount of
hardware and software, allowing it to expand and operate its own network in
Mexico.

Until ATSI is able to produce positive cash flows from operations in an
amount sufficient to meet its obligations and to achieve its business objectives is dependent upon, among other things, raising additional capital, issuing stock-based compensation to certain members of the executive management team in lieu of cash, or generating sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company will seek to secure such best-efforts funding from various possible sources, including equity or debt servicefinancing, sales of assets, or collaborative arrangements. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and capital expenditure requirements,
it must be able to access debt and/such securities may have rights, preferences or equity capital to assist it in doing so,
although no assurance may be given that it will be able to do so. In September
1999, ATSI issued approximately $500,000 of 6% Series C Preferred Stock on terms
substantially similarprivileges senior to those of the Series B Preferred Stock. In an effortholders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to meetlimitations on its financial needs going forward, ATSI has engagedoperations, through debt covenants or other restrictions. If the investment banking
firm of Gerard, Klauer Mattison & Co. ("GKM"). GKM will assist ATSI in finding
and securing financial andCompany obtains additional funds through arrangements with collaborators or strategic relationships. ATSI has also engagedpartners, the investment banking

firm of SunTrust Equitable SecuritiesCompany may be required to assist it in, among other things,
raising private or public funds for GlobalSCAPE. However, thererelinquish its rights to certain technologies. There can be no assurance that such fundsthe Company will be raised.

Inflation/Foreign Currency

Inflation hasable to raise additional funds or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, it may be unable to execute its business plan, the Company could be required to curtail its operations, and the Company may not had a significant impactbe able to pay off its obligations, if and when they come due.
Our current cash expenses are expected to be approximately $95,000 per month, including wages, rent, utilities and corporate professional fees. As described elsewhere herein, we are not generating sufficient cash from operations to pay for our ongoing operating expenses, or to pay our current liabilities. As of April 30, 2019, our total liabilities were approximately $7,113,000, which included $1,303,000 in derivative liabilities. We will continue to use our available cash on ATSI's operations. Withhand to cover our deficiencies in operating expenses.

We estimate that we need approximately $500,000 of additional working capital to fund our ongoing operations during Fiscal 2019. We used proceeds secured from 3rd party promissory notes to pay existing notes and we anticipate raising additional debt financing to meet our working capital needs.
Digerati’s consolidated financial statements for the exception of direct dial services from ATSI's casetas and coin operated public
telephones, almost all of ATSI's revenues are generated and collected in U.S.
dollars. Direct dial services from ATSI's casetas and public telephones are
generally providednine months ending April 30, 2019 have been prepared on a "sent-paid"going concern basis, atwhich contemplates the timerealization of assets and the callsettlement of liabilities in exchange
for cash payment, so ATSI does not maintain receivables on its books that are
denominatedthe normal course of business. Since the Company’s inception in pesos. In an effort1993, Digerati has incurred net losses and accumulated a deficit of approximately $84,434,000 and a working capital deficit of approximately $6,035,000 which raises doubt about Digerati’s ability to reduce foreign currency risk, ATSI
attempts to convert pesos collected to U.S. dollars quicklycontinue as a going concern.
Directors, Executive Officers, Promoters, and attempts to
maintain minimal cash balances denominated in pesos. Some expenses related to
certain services provided by ATSI are incurred in foreign currencies, primarily
Mexican pesos. The devaluation of the Mexican peso over the past several years
has not had a material adverse effect on ATSI's financial condition or operating
results.

Seasonality

ATSI's call service revenues are typically higher on a per phone basis
during January through July, the peak tourism months in Mexico.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

Control Persons
The following table sets forth certain information concerningcontains the current
directorsname, age of our Directors and executive officers as of ATSI:

Name Age Position Held
- ---- --- -------------

Arthur L. Smith 34 Chief Executive Officer and Chairman of the Board of Directors
Charles R. Poole 56 President
H. Douglas Saathoff 37 Secretary, Treasurer, Senior Vice President and Chief Financial
Officer
Craig K. Clement 41 Senior Vice President, Corporate Development
Everett L. Waller 48 Senior Vice President, Operations
Jeffrey J. Gehring 43 Senior Vice President, Sales and Marketing
H. Steve Kennedy 44 Senior Vice President, Engineering and Chief Technical Officer
Charles E. Bagby, Jr. 45 Senior Vice President, Operations and Engineering
Glenn Dower 49 Senior Vice President, Chief Information Officer
Sandra Poole-Christal 33 President of GlobalSCAPE, Inc.
Jesus Enriquez 47 Senior Vice President
Murray R. Nye 47 Director
Tomas Revesz 62 Director
Richard C. Benkendorf 60 Director
Carlos K. Kauachi 59 Director
Robert B. Werner 42 Director
September 12, 2019.
Name Age Position Held Held Office Since
Arthur L. Smith 53 President, Chief Executive Officer & Director 2003
Craig K. Clement 60 Chairman of the Board 2014
Maxwell A. Polinsky 60 Director 2014
Antonio Estrada Jr. 43 Chief Financial Officer 2007
Arthur L. Smith (53) is our Chief Executive Officer, President, and Director. Mr. Smith has servedover 25 years of specialized experience in the telecommunications, technology, and oil and gas industries. As the founder of Digerati, formerly known as ATSI Communications, Inc. (“ATSI”), he led the Company’s start-up operation focused on the USA – Mexico telecommunications corridor to over US$65 million in annual revenue and a listing on the American Stock Exchange that resulted in a market value of over US$450 million. Between 1999 and 2009, ATSI was a three-time recipient of Deloitte and Touche’s Fast 500 Award for recognition as one of the 500 fastest growing technology companies in North America. As CEO of ATSI, Mr. Smith also co-founded the Company’s highly successful Internet software subsidiary, GlobalSCAPE, Inc., in 1996 (NYSE MKT: GSB). As Chairman of the Board of GlobalSCAPE, he led the Company’s strategic and business development efforts from inception through its growth strategy that resulted in a listing on a public stock exchange and the subsequent sale of ATSI’s ownership to private investors in June 2002. Mr. Smith is currently President and CEO of the Company’s cloud communications subsidiary, Shift8 Technologies, Inc.
Craig K. Clement(60) is the Executive Chairman of Digerati Technologies. Craig has over thirty-five years of executive and director experience with Technology (telecom, Internet software) and Oil Exploration and Production (E&P) entities where he has been responsible for asset management, acquisitions and divestitures, strategic and tactical planning, financial operations, corporate finance, legal, transaction structuring, business development, and investor relations. He assisted in the growth of a San Antonio-based telecom provider (AMEX: AI) from 10 employees to 500, achieving a public market valuation of US$500 million. Craig was the founding CEO of GlobalSCAPE, Inc. (NYSE: GSB), and was the former COO of XPEL Technologies Corp. (TSXV:DAP.U). Craig was also the former Chairman of the South Texas Regional Center for Innovation and Commercialization, which screened and supported entrepreneurs through the Texas Emerging Technology Fund managed by the Texas Governor’s office, which invested more than $350 million in Texas-based technology start-ups.
Maxwell A. Polinsky (60) is our Director. Mr. Polinsky is currently the President, CFO and a Director of Winston Gold Corp, a Canadian-based mineral exploration company that is traded on the CSE Exchange, and a principal in Venbanc Investment and Management Group Inc., an investment and merchant bank he co-founded in 1994. From 2009 to 2011, Mr. Polinsky was the Chief ExecutiveFinancial Officer and a director of ATSI since its formation in June 1996 and served as President of ATSI since its
formation in June 1996 to July 1998. Mr. Smith also served as President, Chief
Operating Officer and a director of ATSI-Canada since its formation in May 1994.
From December 1993 until May 1994, Mr. Smith served in the same positions with
Latcomm International Inc., which company amalgamated with Willingdon Resources
Ltd. to form ATSI-Canada in May 1994. Mr. Smith has also served as President and
Chief Executive Officer of American TeleSource International,RX Exploration Inc., a Texas
corporation ("ATSI-Texas"), one of ATSI's principal operating subsidiaries,
since December 1993. From June 1989 to December 1993,company that successfully re opened the previous old historic Drumlummon gold mine in Montana. Mr. Smith was employed as
director of international sales by GeoComm Partners, a satellite-based
telecommunications company located in San Antonio, providing telecommunications
services to Latin America. Mr. Smith has over nine years experience in the
telecommunications industry.

Charles R. Poole has served as President of ATSI since July 1998 and served
as Chief Operating Officer of ATSI from December 1997, to July 1998. Mr. Poole
served as Vice President of ATSI from February 1997 to December 1997. Mr. Poole
has also served as Senior Vice President-Sales and Marketing of ATSI-Texas since
February 1997. From February 1995 to January 1997, Mr. Poole served as Senior
Vice President for A+ Communications, responsible for paging, cellular and
telemessaging sales. From April 1994 to February 1995, Mr. Poole served as
Senior Vice President of American Paging, a communications company. From 1992 to
1994, Mr. Poole served as Division Manager, Data Documents, Inc. of Chicago,
Illinois. From 1989 to 1992, Mr. Poole served as President of GeoComm Partners,
a satellite-based telecommunications company located in San Antonio, providing
telecommunication services to Latin America. Prior to that time, Mr. Poole was
Senior Vice President of Mobilecomm, a Bell South company, for approximately
five years. Mr. Poole has over fifteen years experience in the
telecommunications industry. Mr. Poole is the father of Sandra Poole-Christal,
President of ATSI's subsidiary, GlobalSCAPE, Inc.

H. Douglas Saathoff, C.P.A., has served as Secretary, Treasurer, Senior
Vice President and Chief Financial Officer of ATSI since its formation in June
1996. Mr. Saathoff also served as Vice President, Chief Financial Officer and
Treasurer of ATSI-Canada since February 1996 and Secretary since June 1996. Mr.
Saathoff has served as Vice President-Finance of ATSI-Texas since June 1994, and
as Secretary and Treasurer of ATSI-Texas since October 1994. From May 1993 to
May 1994, Mr. Saathoff served in the position of Chief Accountant for Santa Rosa
Healthcare Corporation, a San Antonio-based healthcare corporation. From January
1990 to February 1993, Mr. Saathoff served as Financial Reporting Manager for
U.S. Long Distance Corp., a San Antonio-based, publicly traded long distance
telecommunications company. Prior to that time, Mr. Saathoff served as an
accountant with Arthur Andersen LLP for approximately five years.

Craig K. Clement has served as Senior Vice President, Corporate Development
of ATSI since its formation in June 1996. Mr. Clement has also served as Vice
President-Corporate Development for ATSI-Texas since August 1994. From April
1993 to July 1994, Mr. Clement served as Vice President of Corporate Development
for LATelco, a wireless communications company. From February 1992 until March
1993, Mr. Clement served as Vice President of Operations for CSI Environmental,
an environmental cleanup company. From August 1983 until July 1993, Mr. Clement
served as President of Yucca Oil Company, an oil and gas exploration company.
Mr. Clement served as a director of Geocommunications, Inc., a satellite
networks company, from November 1987 to November 1991. Mr. ClementPolinsky also served as a director of PANACO,Nerium Biotechnology from 2006 to 2010, XPEL Technologies from 2003 to 2009, and Nighthawk Systems from 2001 to 2007 and Cougar Minerals from 2012 to 2014. Mr. Polinsky holds a Nasdaq-traded company,Bachelor of Commerce degree from 1988the University of Manitoba.

Antonio Estrada Jr. (43) is our Chief Financial Officer and Treasurer. Mr. Estrada is a seasoned financial executive with over 19 years of experience in the telecommunications and oil and gas industries. Mr. Estrada’s vast experience includes financial reporting and modeling, strategic planning, grant writing, and cash management. Mr. Estrada served as the Sr. VP of Finance and Corporate Controller of Digerati, formerly known as ATSI Communications, Inc., from 2008 to 1993,2013. From 1999 to 2008, Mr. Estrada served in various roles within ATSI, including International Accounting Manager, Treasurer, Internal Auditor, and wasController. Mr. Estrada graduated from the University of Texas at San Antonio, with a memberBachelors of Business Administration, with a concentration in Accounting.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the compensationSecurities Exchange Act of 1934, as amended, requires our Directors and executive officers and persons who own more than 10% of a registered class of our equity securities to file various reports with the Securities and Exchange Commission concerning their holdings of, and transactions in, securities we issued. Each such person is required to provide us with copies of the reports filed. Based on a review of the copies of such forms furnished to us and other information, we believe that none of our officers, Directors or owners of 10% of any class of our securities failed to report transactions in our securities or reported transactions in our securities late.
Code of Ethics
We adopted an Executive Code of Ethics that applies to the Chief Executive Officer, Chief Financial Officer, Controller and other members of our management team. The Executive Code of Ethics may be viewed on our Website, www.digerati-inc.com. A copy of the Executive Code of Ethics will be provided without charge upon written request to Digerati Technologies, Inc., 825 W. Bitters, Suite 104, San Antonio, Texas 78216.
Nominating Committee and Nomination of Directors
We do not have a nominating committee because the size of our Board of Directors is too small to establish separate standing committees. Our Directors perform the function of a nominating committee.

Everett L. Waller
The Directors consider candidates recommended by other members of the Board of Directors, by executive officers and by one or more substantial, long-term stockholders. In addition, the Board of Directors may seek candidates through a third-party recruiter. Generally, stockholders who individually or as a group have held 5% of our shares for over one year will be considered substantial, long-term stockholders. In considering candidates, the Directors take into consideration the needs of the Board of Directors and the qualifications of the candidate. The Board of Directors has not established a set of criteria or minimum qualifications for candidacy and each candidate is considered based on the demonstrated competence and knowledge of the individual. To have a candidate considered by the Directors, a stockholder must submit the recommendation in writing and must include the following information:
● The name of the stockholder and evidence of ownership of our shares, including the number of shares owned and the length of time of ownership; and
● The name of the candidate, the candidate’s resume or a listing of her or his qualifications to be one of our Directors and the person’s consent to be named as a Director if nominated by the Directors.
The stockholder’s recommendation and information described above must be sent to us at 1600 NE Loop 410, Suite 126, San Antonio, Texas 78209.
Audit Committee and Audit Committee Financial Expert
We do not have an audit or other committee of our Board of Directors that performs equivalent functions. Our Board of Directors performs all functions of the audit committee. Mr. Maxwell A. Polinsky served as Vice President, Operationsthe Audit Committee Financial Expert during the year ended July 31, 2018.

Involvement in Certain Legal Proceedings
There are no known pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of ATSI since
its formationthe Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any other pending legal proceedings
Executive Compensation
The compensation programs presently in June 1996. Mr. Waller has also servedeffect with respect to the Chief Executive Officer, Chief Financial Officer and Chairman of the Board were established by the Board of Directors.
Arthur Smith serves as Senior Vice President-
Operations and Technical Services of ATSI-Texas since January 1997. Mr. Waller
served as Senior Vice President-Operations and Sales of ATSI-Texas from August
1993 to January 1997. From May 1994 to August 1995, Mr. Waller served as Vice
President-Operations of ATSI-Texas. Prior to that time, Mr. Waller served as
Vice President of Technical Services of U.S. Long Distance Corp., a San Antonio-
based, publicly traded long distance telecommunications company, for a period of
seven years.

Jeffrey J. Gehring has served as Senior Vice President, Sales and Marketing
of ATSI since February 1998 and Vice President of Sales of ATSI-Texas since
February 1998. From August 1996 to January 1998, Mr. Gehring served as Regional
Vice President at A+ Communications, a communications company. From March 1995
to July 1996, Mr. Gehring was Vice President of Premier Paging Corporation, a
communications company. From March 1994 to March 1995 Mr. Gehring was General
Manager of American Paging, a communications company. From October, 1991 to
March 1994, Mr. Gehring was Vice President of Sales for GeoComm Partners, a
satellite-based telecommunications company.

H. Steve Kennedy has served as Senior Vice President, Engineering and Chief
Technical Officer of ATSI since January 1998 and Vice President of Engineering
of ATSI-Texas since July 1998 and Chief Technical Officer since April 1998. From
July 1996 to January 1998, Mr. Kennedy served as President and was a principal
of HSK INC, a telecommunications service provider. From August 1995 to July
1996, Mr. Kennedy served as Director of Technical Services for Wireless
Resources, Inc., a wireless telecommunications company. From July 1994 to August
1995, Mr. Kennedy served as Regional Technical Manager of American Paging, a
communications company. From November 1993 to July 1994, Mr. Kennedy served as
Vice President of Technical Services for Zycom Corporation, a communications
company.

Glenn Dower has served as Senior Viceour President and Chief Information
OfficerExecutive Officer. Mr. Smith does not have a written employment agreement with the Company. Effective October 1, 2015, Mr. Smith’s annual salary was approved by the Board of ATSI since January 1999.Directors to be set at $165,000. The Board of Directors also approved the reimbursement of monthly expenses up to $1,667. During FY2018 the Board of Directors approved the issuance of common stock in lieu of cash compensation equivalent to 40% of Mr. DowerSmith’s annual salary. No other cash compensation is presently being paid to Mr. Smith.
Antonio Estrada Jr., serves as our Chief Financial Officer. Mr. Estrada does not have a written employment agreement with the Company. Effective October 1, 2015, Mr. Estrada’s annual salary was employed from 1989 until 1998approved by the Board of Directors to be set at $165,000. The Board of Directors also approved the reimbursement of monthly expenses up to $1,667. During FY2018 the Board of Directors approved the issuance of common stock in lieu of cash compensation equivalent to 40% of Mr. Estrada’s annual salary. No other cash compensation is presently being paid to Mr. Estrada.
Craig K. Clement, serves as the Director of Information Resources with DSC Communications, Inc.
(Alcatel), a digital switching manufacturer headquartered in Plano, Texas, where
he was responsible for directing the deploymentour Chairman of the Internet/Intranet,
Executive Information Systems, Information Warehousing and Document Management
applications.

Charles E. Bagby, Jr. has served as Senior Vice President, Operations and
Engineering of ATSI since May 1999. Prior to joining ATSI, Mr. Bagby served for
eleven years in various capacities with AT&T, most recently as the Global
Customer-Service Satisfaction Team Manager (November, 1997-July, 1998) and then
the System Planning and Support Manager (August 1998-May 1999) in the Consumer
Markets Division, Global Sales and Service Organization. From August 1996 to
November 1997, Mr. Bagby served as a Consultant for AT&T's Quality & Process
Improvement (ISO 9000) in its Business Markets Division. From May 1995 to August
1996, he served as the Operations Manager: Latin American Data Communication
Services in the Business Communications Services division, and from August 1993
to May 1995 as a Manager: Network Performance & Assets in the Business
Communications Services division.

Sandra Poole-Christal has served as President of GlobalSCAPE, Inc. since
January 1, 1998. Ms. Poole-Christal founded GlobalSCAPE, Inc. in 1996 at the
request of ATSI. Ms. Poole-Christal was one of the founding employees of ATSI,
serving as its Director of International Sales and Marketing from January 1994
until April 1996. Prior to joining ATSI, Ms. Poole-Christal served as an account
executive with GeoComm Partners. Ms. Poole-Christal holds a BA in Communications
from Baylor University. Ms. Poole-Christal is the daughter of Charles R. Poole,
President of ATSI.

Jesus Enriquez has served as Senior Vice President of ATSI since February
1998, and as Director General of American TeleSource International de Mexico,
S.A. de C.V. (ATSI-Mexico), one of ATSI's principal operating subsidiaries,
since August 1996. From March 1995 to July 1996 Mr. Enriquez served as
Commercial Director of ATSI-Mexico. From January 1989 to February 1995, Mr.
Enriquez was the Director General of Servicios Espectro Radioelectricos
("SERSA"), an international communications company in Mexico City.

Murray R. Nye has served as a director of ATSI since its formation in June
1996. Mr. Nye also served asBoard, Chief Executive Officer and President of Flagship Energy Company, a directorwholly-owned subsidiary of ATSI-
Canada from its formationDigerati. Mr. Clement does not have a written employment agreement with the Company. Effective October 1, 2015, Mr. Clement’s annual salary was approved by the Board of Directors to be set at $195,000. During FY2018 the Board of Directors approved the issuance of common stock in May 1994. From December 1993 until May 1994,lieu of cash compensation equivalent to 40% of Mr. Nye servedClement’s annual salary. No other cash compensation is presently being paid to Mr. Clement.
Compensation Discussion and Analysis
Our compensation programs are designed to meet the following objectives:
● Offer compensation opportunities that attract highly qualified executives, reward outstanding initiative and achievement, and retain the leadership and skills necessary to build long-term stockholder value;
● Emphasize pay-for-performance by maintaining a portion of executives’ total compensation at risk, tied to both our annual and long-term financial performance and the creation of stockholder value; and
● Further our short and long-term strategic goals and values by aligning executive officer compensation with business objectives and individual performance.
Our Board of Directors believes that an executive’s compensation should be tied to the performance of the individual and the performance of the complete executive team against both financial and non-financial goals, some of which are subjective and within the discretion of the Board of Directors.
Our executive compensation program is intended to be simple and clear, and consists of the following elements (depending on individual performance):
● Base salary;
● Annual performance-based cash bonus;

● Long-term incentives in the form of stock options; and
● Benefits that are offered to executives on the same basis as our non-executive employees.
Role of Management in Determining Compensation Decisions
At the request of our Board of Directors, our management makes recommendations to our Board of Directors relating to executive compensation program design, specific compensation amounts, bonus targets, incentive plan structure and other executive compensation related matters for each of our executive officers, including our Chief Executive Officer. Our Board of Directors maintains decision-making authority with respect to these executive compensation matters.
Our Board of Directors reviews the recommendations of our management with respect to total executive compensation and each element of compensation when making pay decisions. In allocating compensation among compensation elements, we emphasize incentive, not fixed compensation to ensure that executives only receive superior pay for superior results. We equally value short- and long-term compensation because both short- and long-term results are critical to our success. In addition, our compensation program includes various benefits provided to all employees, including life insurance, health insurance and other customary benefits. The objectives and details of why each element of compensation is paid are described below.
Base Salary.Our objective for paying base salaries to executives is to reward them for performing the core responsibilities of their positions and to provide a level of security with respect to a portion of their compensation. We consider a number of factors when setting base salaries for executives, including:
● Existing salary levels;
● Competitive pay practices;
● Individual and corporate performance; and
● Internal equity among our executives, taking into consideration their relative contributions to our success.
Long-term Incentive Awards.We award long-term incentive compensation to focus our executives on our long-term growth and stockholder return, as well as to encourage our executives to remain with us for the long-term. Long-term incentive awards are primarily in the same positions with Latcomm International Inc., which company
amalgamated with Willingdon Resources Ltd.form of grants of stock options and/or stock award pursuant to our 2015 Equity Compensation Plan (the “Plan”). We selected this form ATSI-Canadabecause of the favorable accounting and tax treatment and the expectation of key employees in May 1994. From
1992our industry that they would receive stock options and/or stock grants. We do not have pre-established target award amounts for long-term incentive grants. In determining long-term incentive awards for the Named Executive Officers, our Board of Directors relies on recommendations from our Chief Executive Officer, who considers the individual performance of the executives, the relation of the award to 1995, Mr. Nye served as Presidentbase salary and annual incentive compensation, and associated accounting expense. The terms of Kirriemuir Oil & Gas Ltd. From 1989
until 1992, Mr. Nye was self-employed as a consultant and Mr. Nye is again
currently self-employed as a consultant. Mr. Nye serves as a directoramount of D.M.I.
Technologies, Inc., an Alberta Stock Exchange-traded company.

Tomas Revesz has served as a directorawards are made by our Board of ATSI since its formationDirectors in June
1996. Mr. Revesz has served as President of Long Distance International, Inc., a
long distance reseller, since October 1993. From 1983 to June 1993, Mr. Revesz
served as President of Star Long Distance, Inc., also a long distance reseller.
From January 1990 until August 1993, Mr. Revesz served as Vice President of
Operations of AAA Telephone & Communications, Inc., a telephone interconnection
company.

Richard C. Benkendorf has served as a director of ATSI since October 1996.
From 1991 to present, Mr. Benkendorf has been a principal of Technology Impact
Partners, which provides advisory and investment services. From 1989-1991, Mr.
Benkendorf served as Senior Vice President Investment, Planning, Mergers &
Acquisitions and Venture Capital for Ameritech, a communications services
company.

Carlos K. Kauachi has served as a director of ATSI since October 1996. From
1996 to present, Mr. Kauachi has been self-employed as a consultant. From 1962
until 1996, Mr. Kauachi served in various positions with Telefonos de Mexico;
the then privately owned telecommunications monopoly in Mexico, including Vice
President-Telephone Business Development, Vice President-Marketing and Sales
and, most recently, Vice President-International Business Development.

Robert B. Werner has served as a director of ATSI since September 1998.
From 1990 to present, Mr. Werner has been a stockholder and practicing attorneyaccordance with the law firm of Jeffers and Banack, Incorporated, located in San Antonio,
Texas.

EXECUTIVE COMPENSATION

Summary Compensation Table

Stock Option Plan.

The following table sets forth information concerning the compensation earned during ATSI's last three fiscal years by ATSI's Chief Executive Officer
and each of ATSI's other four most highly compensated executive officers whose
total cash compensation exceeded $100,000 for services rendered in all
capacities for the fiscal year ended July 31, 1999 (collectively, the "Named
Executive Officers").

Annual Compensation Long-Term Compensation
---------------------------------------------------------------------------------------
Awards Payouts
--------------------------------------------
Securities
Other Annual Restricted Underlying LTIP All Other
Fiscal Compensa-tion Stock Options/ Payout Compen-
Name And Principal Position Year Salary ($) Bonus ($) ($)(1) Awards ($) SARs (#) ($) sation ($)
- --------------------------- ------ ---------- --------- ------------- ---------- ---------- ------ ----------

Arthur L. Smith(2)................ 1999 $129,519 - - - 200,000 - -
Chief Executive Officer 1998 96,731 $10,634 - - - -
1997 91,538 10,000 - - 800,000 - -

Charles R. Poole(3)............... 1999 126,442 - - - 150,000 - -
President 1998 95,808 2,474 - - 50,000 - -
1997 46,000(4) - - - 300,000 - -

H. Douglas Saathoff(5)............ 1999 102,244 - - - 100,000 - -
Chief Financial Officer, Senior 1998 91,394 13,631 - - - - -
Vice President , Treasurer and 1997 87,769 10,000 - - 900,000 - -
Secretary

Craig K. Clement(6)............... 1999 99,015 - - - 100,000 - -
Senior Vice President, Corporate 1998 88,192 15,662 - - - - -
Development 1997 93,448 10,000 - - 900,000 - -

Sandra Poole-Christal............. 1999 80,000 40,000 - - 75,000 - -
President, GlobalSCAPE 1998 73,423 31,000 - - - -
1997 55,385 - - - 15,000 - -

_______________
(1) Certain of ATSI's executive officers receive personal benefits in addition
to salary; however, ATSI has concluded that the aggregate amount of such
personal benefits do not exceed the lesser of $50,000 or 10% of annual
salary and bonus for any Named Executive Officer.
(2) Also serves as Chief Executive Officer of American TeleSource
International, Inc., a Texas corporation ("ATSI-Texas"), ATSI's principal
operating subsidiary. Mr. Smith's compensation is paid by ATSI-Texas.
(3) Also serves as President of ATSI-Texas. Mr. Poole's compensation is paid by
ATSI-Texas.
(4) Amount shown reflects Mr. Poole's salary from February 1, 1997, the
beginning date of his employment with ATSI, through July 31, 1997, the end
of fiscal 1997.
(5) Also serves as Vice President-Finance and Secretary and Treasurer of ATSI-
Texas. Mr. Saathoff's compensation is paid by ATSI-Texas.
(6) Also serves as Vice President-Corporate Development of ATSI-Texas. Mr.
Clement's compensation is paid by ATSI-Texas.

Employment Agreements

ATSI has entered into employment agreements with certain of its executive
officers as follows:

Name Term Minimum
Annual Salary

Craig K. Clement January 1, 1997 - December 31, 1999(4)(5) $92,000(1)
Craig K. Clement January 1, 2000 - December 31, 2000 $101,424(2)
Sandra Poole-Christal(7) January 1, 1998 - December 31, 2001(4) $80,000(3)
Charles R. Poole August 1, 1998 - July 31, 2001(4) $127,000(6)
Arthur L. Smith August 1, 1998 - July 31, 2001(4) $130,000(6)
H. Douglas Saathoff January 1, 2000 - December 31, 2000 $104,738(2)
H. Douglas Saathoff January 1, 1997 - December 31, 1999(4)(5) $95,000(2)

(1) agreement provides for lump sum payment equal to 6 months of salary in the
event of executive's disability or termination without cause; if executive
resigns within two months following a change in control of company, or is
terminated within 24 months following a change in control of company, executive
is entitled to lump sum payment equal to six months of salary.

(2) agreement provides for 6 months of continuing payments in the event of
executive's death or disability; if executive is terminated without cause,
executive is entitled to continuing payments until the third anniversary of the
start date or for 12 months from termination, whichever is longer; if executive
resigns following a change in control of Company, executive is entitled to
continuing payments until the third anniversary of the start date, or if
agreement has been renewed, until 1 year following anniversary date.

(3) agreement provides for 6 months of continuing payments in the event of
executive's death or disability; if executive is terminated without cause,
executive is entitled to continuing payments until the third anniversary of the
start date or for 12 months from termination, whichever is longer; if executive
resigns following a change in control of GlobalSCAPE, executive is entitled to
continuing payments until the third anniversary of the start date, or if
agreement has been renewed, until 1 year following anniversary date.

(4) agreement provides for an automatic renewal for an additional one-year term
unless notice of termination is given 120 days prior to end of initial term.

(5) notice of non-renewal has been given.

(6) agreement provides for 6 months of continuing payments in the event of
executive's death or disability; if executive is terminated without cause or
resigns following a change in control in company, executive is entitled to
continuing payments until third anniversary of start date or end of 24 months
from termination, whichever comes first.

(7) agreement is between Sandra Poole-Christal and ATSI's subsidiary
GlobalSCAPE, Inc.

The Board may increase each officer's salary, and may pay a bonus to each of them fromour principal executive officers (the “Named Executive Officers”) during the last two completed fiscal years:
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary
($) Bonus ($) Stock Awards
($) (1) Option Awards
($) (2) All Other Compensation ($) Total
($)
Arthur L. Smith 2019 $ 113,410 $ -0- $ 217,500 $ 73,680 $ -0- $ 404,590
President,
Chief Executive Officer & Director 2018 $ 96,000 $ -0- $ 144,000 $ 64,000 $ -0- $ 304,000
Antonio Estrada Jr. 2019 $ 106,517 $ -0- $ 198,500 $ 65,494 $ -0- $ 370,511
Chief Financial Officer 2018 $ 96,000 $ -0- $ 132,000 $ 64,000 $ -0- $ 292,000
Craig K. Clement 2019 $ 123,875 $ -0- $ 236,500 $ 78,089 $ -0- $ 438,464
Chairman of the Board 2018 $ 117,000 $ -0- $ 252,000 $ 64,000 $ -0- $ 433,000
(1) During the year ended July 31, 2019 and 2018, Digerati issued common shares as part of the Company’s profit-sharing plan contribution. In addition, during the year ended July 31, 2018 and July 31, 2017, Digerati issued common stock in lieu of cash compensation to its Officers.
(2) During the year ended July 31, 2019, Digerati issued 1,725,000 options to its Officers to acquire common shares at an exercise price of $0.22 and a fair value at the time issuance of $217,263. The options vest ratably on a monthly basis through February 14, 2020. During the year ended July 31, 2018, Digerati issued 900,000 options to its Officers to acquire common shares at an exercise price of $0.35 and a fair value at the time issuance of $192,000, all of these options have vested.
Our Board of Directors adopted the 2015 Equity Compensation Plan (the “Plan”). Under the Plan the Board of Directors may grant up to time. Each7.5 million shares of our common stock to our officers, Directors, employees and consultants. Grants may be in the employment agreements provides for early
termination under certain conditions, and restricts each executive from various
competing and other potentially damaging activities during employment and for a
specified time after terminationform of employment.

Pursuant to each of Messrs. Smith's and Poole's employment agreement, ATSI
granted to them, under ATSI's 1998 Stock Option Plan, incentive stock options, to
purchase 200,000 and 150,000 shares, respectively, of ATSI's Common Stock, at an
exercise price of $0.55 per share, representing the fair market value of a share
of Common Stock on the date of grant. Additionally, pursuant to and on the date
each of Messrs. Saathoff's and Clement's employment agreement was entered into,
and pursuant to each of Messrs. Smith's and Poole's prior employment agreements,
ATSI granted to them, under ATSI's 1997 Stock Option Plan, nonqualified options
to purchase 900,000, 900,000, 800,000 and 300,000 shares, respectively, of
ATSI's Common Stock, at an exercise price of $0.58 per share, representing the
fair market value of a share of Common Stock on the date of grant. In fiscal
1999, Messrs. Saathoff and Clement and Ms.Poole-Christal were issued incentivenon-statutory stock options, to purchase 100,000, 100,000restricted stock awards, and/or unrestricted stock awards. The number and 75,000 shares, respectively,terms of ATSI's Common Stock, at an exercise price of $0.55 per share representing the
fair market value of a share of Common Stock on the date of grant. Upon the
occurrence of a change in control, as defined in the respective governing option
agreements, the exercisability of all such options, to the extent unexercisable,
will be accelerated.

Stock Option Plans

1997 Option Plan

The American TeleSource International Inc. 1997 Stock Option Plan (the
"1997 Option Plan") was adopted in February 1997each award is determined by the Board of Directors, of
ATSI and approved in May 1997 by ATSI's shareholders.

The 1997 Option Plan terminated on February 10, 1998. No further options
will be granted under the 1997 Option Plan. All options outstanding under the
1997 Option Plan on the date of termination will remain outstanding under the
1997 Option Plan in accordance with their respective terms and conditions.

As of July 31, 1999, options for 4,222,667 shares were outstanding under
the 1997 Option Plan at a weighted average exercise price of $.75 and options
for 3,271,333 shares were exercisable. As of July 31, 1999, 543,000 options had
been exercised.

1998 Option Plan

The American TeleSource International, Inc. 1998 Stock Option Plan (the
"1998 Option Plan") was adopted in September 1998 by the Board of Directors of
ATSI and approved December 1998 by ATSI's shareholders.

The 1998 Option Plan authorizes the grant of up to two million incentive stock
options and non-qualified stock options to employees, directors and certain
other persons. As of July 31, 1999, the Board had granted options to purchase
1,843,300 shares of Common Stock under the 1998 Option Plan at exercise prices
as follows: (i) 1,541,000 at $0.55 per share, (ii) 302,300 at $0.78 per share.
As of July 31, 1999, options for 1,785,800 shares were outstanding under the
1998 Option Plan at a weighted average exercise price of $0.60. As of July 31,
1999 no options were exercisable, however, 57,500 options had been forfeited.

Stock Option Grant Table

The following table sets forth certain information concerning options
grantedsubject to the Named Executive Officers during ATSI's fiscal year ended July 31,
1999.

Potential Realizable Value At
Assumed Annual Rates of Stock
Price Appreciation For Option
Individual Grants Term
-----------------------------------------------------------------------------------------
Percent of
Total
Number of Options
Securities Granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration
Name Granted (#) Year ($/share) Date 5% ($)(1) 10% ($)(1)
---- ----------- ---------- --------- ---------- --------- ----------

Arthur L. Smith................ 200,000(2) 10.9 $0.55 09/09/08 $180,000 $286,000
Charles R. Poole............... 150,000(2) 8.1 $0.55 09/09/08 $135,000 $214,500
H. Douglas Saathoff............ 100,000(2) 5.4 $0.55 09/09/08 $ 90,000 $143,000
Craig K. Clement............... 100,000(2) 5.4 $0.55 09/09/08 $ 90,000 $143,000
Sandra Poole-Christal.......... 75,000(2) 0.4 $0.55 09/09/08 $ 67,500 $107,250

_______________

(1) The 5% and 10% assumed annual compound rates of stock appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent ATSI' estimate or projection of future Common Stock prices. The
actual value realized may be greater or less than the potential realizable
value set forth in the table.
(2) None of such options are presently exercisable. The options become
exercisable in three equal annual installments commencing on September 9,
1999. The exercise price represented the market price of a share of Common
Stock on September 9, 1998, the effective date of the grant.

Aggregate Option Exercises in Fiscal 1999 and Fiscal Year-End Option Values
Table

The following table shows stock options exercised by the Named Executive
Officers during the fiscal year ended July 31, 1999, including the aggregate
value of gains on the date of exercise. In addition, the table includes the
number of shares covered by both exercisable and unexercisable stock options as
of July 31, 1999. Also reported are the values of "in-the-money" options which
represent the positive spread betweenlimitation that the exercise price of any such existing
stock options and the Common Stock price as of July 31, 1999.

Shares Value of Unexercised
Acquired Number of Securities Underlying In-the-Money
On Value Unexercised Options at
Name Exercise(#) Realized($) Options at Fiscal Year End(#) Fiscal Year End($)(1)
- ---- ----------- ----------- ------------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
-------------- --------------- ----------- -------------

Arthur L. Smith - - 666,667 333,333 $480,000 $246,000
Charles R. Poole - - 216,666 283,334 144,000 184,500
H. Douglas Saathoff - - 733,334 266,666 528,000 195,000
Craig K. Clement - - 623,334 266,666 448,800 195,000
Sandra Poole-Christal - - 15,000 75,000 10,800 56,250

____________________

(1) Values stated are based upon the $1.30 closing price per share on July 30,
1999, as reported on the Electronic Bulletin Board, and represent the
difference betweenoption may not be less than the fair market value of the shares underlyingcommon stock on the options anddate of grant.
We currently provide a Non-Standardized Profit-Sharing Plan (the “Profit-Sharing Plan”). The Board of Directors approved the exercise priceProfit-Sharing Plan on September 15, 2006. Under the Profit-Sharing Plan our employees qualified to participate in the Profit-Sharing Plan after one year of employment. Contribution under the Profit-Sharing Plan by us is based on 25% of the options at fiscal year end.

annual base salary of each eligible employee up to $54,000 per year. Contributions under the Profit Sharing Plan are fully vested upon funding.
OUTSTANDING EQUITY AWARDS AS OF JULY 31, 2019
Option Awards Stock Awards
Name Number of Securities Underlying Unexercised Options
(#)
Exercisable Number of Securities Underlying Unexercised Options
(#)
Unexercisable Option Exercise Price
($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested
(#) Market Value of Shares or Units of Stock That Have Not Vested
($)
195,000 390,000 $ 0.22 2/14/2024
Arthur L. Smith 300,000 - $ 0.35 12/01/2022 - -
300,000 $ 0.24 11/21/2021 - -
173,336 346,664 $ 0.22 2/14/2024
Antonio Estrada Jr. 300,000 - $ 0.35 12/01/2022 - -
300,000 $ 0.24 11/21/2021 - -
206,664 413,336 $ 0.22 2/14/2024
Craig K. Clement 300,000 - $ 0.35 12/01/2022 - -
300,000 $ 0.24 11/21/2021 - -
43
(1) During the year ended July 31, 2019, Digerati issued 1,725,000 options to its Officers to acquire common shares at an exercise price of $0.22 and a fair value at the time issuance of $217,263. The options vest ratably on a monthly basis through February 14, 2020. During the year ended July 31, 2018, Digerati issued 900,000 options to its Officers to acquire common shares at an exercise price of $0.35 and a fair value at the time issuance of $192,000, all of these options have vested. During the year ended July 31, 2017, Digerati issued 900,000 options to its Officers to acquire common shares at an exercise price of $0.24 and a fair value at the time of issuance of $169,000, all of these options have vested.
Compensation Committee Interlocks and Insider Participation

Messrs. Benkendorf, Kauachi and Nye serve onof Directors
Each Director that is not an officer is reimbursed the Compensation Committee.
The Compensation Committee met four times in fiscal 1999.

In January 1997, ATSI entered into an agreement with KAWA Consultores, S.A.
de C.V., an international consulting firm of which Company director Carlos K.
Kauachi is president, for international business development support. Under the
terms of the agreement, ATSI paid the consulting firm $8,000 per month for a
period of twelve months. In January 1998, the agreement was renewed at $10,000
per month (payable in a combination of cash and Common Stock) for a period of
twelve months. In March 1999, the agreement was renewed at $6,000 per month for
a period of twelve months.

ATSI has entered into a month-to-month agreement with Technology Impact
Partners, a consulting firm of which Company director Richard C. Benkendorf, is
principal and owner. Under the agreement, Technology Impact Partners provides
ATSI with various services that include strategic planning, business development
and financial advisory services. Under the terms of the agreement, ATSI pays the
consulting firm $3,750 per month plus expenses. At July 31, 1999, ATSI has a
payable to Technology Impact Partners of approximately $74,000.

Director Compensation

Directors are reimbursed their reasonable out-of-pocket expenses in connection with their travel to and attendance atattend meetings of the Board of Directors. Each directorDirector that is not an officer was paid $1,000 per month.
Compensation Committee Interlocks and Insider Participation
We do not have a compensation committee of our Board of Directors or other thancommittee that performs the same functions. Mr. Arthur L. Smith receives $1,000is presently our Chief Executive Officer and participates in deliberations concerning executive compensation.
Compensation Committee Report
Our Board of Directors reviewed and discussed the Compensation Discussion and Analysis with management and, based on such discussion, included the Compensation Discussion and Analysis in this Registration Statement on Form S-1.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding securities authorized to be issued under equity compensation plans is set forth under Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The following table lists the beneficial ownership of shares of our Common Stock by (i) each meetingperson known to own more than 5% of our outstanding voting securities, (ii) each Director and nominee, (iii) the Named Executive Officers and (iv) all Directors and officers as a group. Information with respect to officers, Directors and their families is as of September 12, 2019 and is based on our books and records and information obtained from each individual. Information with respect to other stockholders is based upon the Schedule 13D or Schedule 13G filed by such stockholders with the Securities and Exchange Commission. Unless otherwise stated, the business address of each individual or group is the same as the address of our principal executive office and all securities are beneficially owned solely by the person indicated.
Name of Beneficial Owner Shares
Owned Vested
Warrants and
Options Total
Beneficial
Ownership % Of
Class (1)
INDIVIDUAL OFFICERS AND DIRECTORS
Arthur L. Smith
President, Chief Executive Officer Director 3,315,851 941,250 4,257,101 16.26 %
Antonio Estrada Jr.
Chief Financial Officer 2,608,666 903,333 3,511,999 13.43 %
Craig K. Clement (2)(3)
Chairman of the Board 2,420,845 861,667 3,282,512 12.58 %
Maxwell Polinsky
Director 81,594 254,032 335,626 1.31 %
ALL INDIVIDUAL OFFICERS AND DIRECTORS AS A GROUP 8,426,956 2,960,282 11,387,238 40.38 %
5% HOLDERS
Graham Gardner 1,308,621 150,000 1,458,621 5.74 %
(1) Based upon 25,240,222 shares of common stock outstanding as of September 12, 2019.
(2) Mr. Clement holds 146,941 shares jointly with Jayne K. Clement
(3) Mr. Clement holds 323,917 shares through Flagship Oil and Gas Corp, an entity controlled by Clement.

Transactions with Related Persons
On April 30, 2018, Shift8 Technologies, Inc. (“Shift8”) entered into a convertible promissory note for $525,000 with an effective annual interest rate of 8% and a maturity date of April 30, 2020. With a principal payment of $100,000 due on June 1, 2018 and a principal payment of $280,823 due on April 30, 2020. Payment are based on a 60-month repayment schedule. At any time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under the Note or the Pledge and Escrow Agreement; or (ii) mutual agreement between the Borrower and the Holder, the Holder may convert all or any portion of the Board attended excluding telephonic meetings foroutstanding principal, accrued and unpaid interest, Premium, if applicable, and any other sums due and payable hereunder (such total amount, the “Conversion Amount”) into shares of Common Stock (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount (the numerator);divided by(ii) a conversion price of $1.50 per share of Common Stock, which each
director other than Arthur L. Smith receives $250.

On September 9, 1998, eachprice shall be indicated in the conversion notice (in the form attached hereto as Exhibit “B”, the “Conversion Notice”) (the denominator) (the “Conversion Price”). The Holder shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered. The promissory note is secured by a Pledge and Escrow Agreement, whereby Shift8 agreed to pledge 51% of the directors of ATSI were granted optionssecurities owned in T3 until the principal payment is paid in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 75,000 shares of Common Stock of ATSI, with the exception of Murray R.
Nye, who was granted options to purchase 150,000 shares of Common Stock of ATSI.
In addition, each of the directors serving on a committee of the Board were
granted options to purchase an additional 15,000 shares of Common Stock for each
committee served on,common stock at an exercise price of $0.55$0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $19,000 and was recognized as a discount on the two promissory notes, the company amortized $6,000 as interest expense during the year ended July 31, 2018. During the year ended July 31, 2018, the Company paid $119,000 of the principal balance. The total principal outstanding and unamortized discount as of July 31, 2018 were $406,000 and $13,000, respectively. One of the note holders also serves as President, CEO and Board Member of T3 Communications, Inc., one of our operating subsidiaries.
On May 1, 2018, Shift8 Technologies, Inc. (“Shift8”) entered into a Stock Purchase Agreement (“SPA”), whereby in an exchange for $250,000, Shift8 agreed to sell to the buyer 199,900 shares of common stock equivalent to 19.99% of the issued and outstanding common share of Shift8 Technologies, Inc. The $250,000 of the cash received under this transaction was recognized as an adjustment to the 1998
Option Plan.

CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS

In April 1998, ATSI engaged two companiescarrying amount of the noncontrolling interest and as an increase in additional paid-in capital in Shift8. For the year ending July 31, 2018, the Company accounted for billinga noncontrolling interest of $57,000. Additionally, one of the buyers serves as President, CEO and administrative
services relatedBoard Member of T3 Communications, Inc., one of our operating subsidiaries.
On May 1, 2018, Shift8 entered into a promissory note for $275,000 with an effective annual interest rate of 0% with an interest and principal payment of $6,000 per month and shall continue perpetuity until the entire principal amount is paid in full. The promissory note is guaranteed to network management services it provides. The companies,
which arethe lender by 15% of the stock owned by Tomas Revesz, a director of ATSI, wereShift8 in T3, the secured interest will continue until the principal balance is paid approximately
$140,000 for their services during fiscal 1998. Subsequent to year-end, ATSI
entered into an agreementin full. In conjunction with the two companies capping their combined monthly
fees at $18,500 per month. For fiscal 1999,promissory note, the companies were paid
approximately $180,000 for their services. Additionally, ATSI has a payableCompany issued 3-year warrants to Mr. Revesz of $90,000.

In January 1997, ATSI issued 90,000 shares of Common Stock, and in February
1997 ATSI issued warrants for the purchase of 250,000100,000 shares of common stock at $0.85 for three years to J&W,an exercise price of $0.50 per share. Under a joint venture ("J&W") upon cancellation of a
contract with J&W for pay telephone equipment financing. One third of J&W was
owned by Robert B. Werner , a director of ATSI. Upon dissolution of J&W, Mr.
Werner received 30,000 sharesBlack-Scholes valuation the relative fair market value of the Common Stockwarrants at time of issuance was approximately $27,000 and 83,300was recognized as a discount on the promissory note, the company amortized $2,000 as interest expense during the year ended July 31, 2018. During the year ended July 31, 2018, the Company paid $13,000 of the warrants.
Also in connection with the cancellation of the contract, ATSI issued warrants
in February 1997 for the purchase of 58,824 shares of Common Stock at $0.85 to
Jeffers & Banack, Incorporated, a law firm in which Mr. Werner is a partner. In
addition, ATSI is represented by the law firm of Jeffers & Banack , Incorporated
with respect to one litigation matter.

See "Compensation Committee Interlocksprincipal balance. The total principal outstanding and Insider Participation" for certain
additional relationships and related party transactions. The information called
for by item 11 of Form 10-K is incorporated herein by reference to such
information included in ATSI's Proxy Statement for the 1999 Annual Meeting of
Stockholders.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding ownership of
the Common Stock as of January 3, 2000 by (i) each person known by ATSI to be
the beneficial owner of more than 5% of the outstanding shares of Common Stock,
(ii) each director of ATSI, (iii) the Chief Executive Officer and each other
executive officer of ATSI named in the Summary Compensation Table, and (iv) all
executive officers and directors of ATSI as a group. (13)

Amount and Nature of
Beneficial Ownership of
Name Common Stock(1) Percent of Class
---- --------------- ----------------

Arthur L. Smith (2)................................................ 3,423,616 6.68%
Charles R. Poole (3)............................................... 443,334 *
H. Douglas Saathoff (4)............................................ 1,037,084 2.02%
Craig K. Clement (5)............................................... 823,334 1.61%
Sandra Poole-Christal (6).......................................... 115,000 *
Murray R. Nye (7).................................................. 470,500 *
Robert B. Werner (8)............................................... 372,362 *
Tomas Revesz (9)................................................... 122,000 *
Richard C. Benkendorf (10)......................................... 180,000 *
Carlos K. Kauachi (11)............................................. 159,123 *
All directors and executive officers as a group (16 persons) (12).. 8,020,854 14.63%

* Less than 1%
(1) To the knowledge of ATSI, each person named in the table has sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by him. Shares of Common Stock that are not outstanding
but that may be acquired by a person upon exercise of options or warrants
within 60 days of January 3, 2000 are deemed outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by such
person but are not deemed outstanding for the purpose of computing the
percentage of outstanding shares beneficially owned by any other person.
(2) Includes 866,667 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(3) Includes 383,334 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(4) Includes 933,334 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(5) Includes 823,334 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(6) Includes 40,000 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(7) Includes 205,000 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(8) Includes 178,393 shares issuable upon exercise of presently exercisable
options and warrants or options and warrants exercisable within 60 days of
January 3, 2000.
(9) Includes 105,000 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(10) Includes 85,000 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(11) Includes 30,000 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(12) Includes 4,468,063 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.

The following table sets forth certain information regarding ownership of
ATSI's wholly-owned subsidiary GlobalSCAPE, Inc.'s Common Stock as of January 3,
2000 by (i) each person known by ATSI to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock, (ii) each director of ATSI or ATSI's
subsidiary, (iii) the Chief Executive Officer and each other executive officer
of ATSI named in the Summary Compensation Table, and (iv) all executive officers
and directors of ATSI as a group.

Amount and Nature of
Beneficial Ownership of
Name Common Stock(1) Percent of Class
---- --------------- ----------------

Arthur L. Smith (2).............................................. 18,190 1.05%
H. Douglas Saathoff (2).......................................... 18,190 1.05%
Craig K. Clement (2)............................................. 18,190 1.05%
Sandra Poole-Christal (3)........................................ 97,143 5.40%
All directors and executive officers as a group (4 persons) (4).. 151,713 8.19%

(1) To the knowledge of ATSI, each person named in the table has sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by him. Shares of Common Stock that are not outstanding
but that may be acquired by a person upon exercise of options or warrants
within 60 days of January 3, 2000 are deemed outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by such
person but are not deemed outstanding for the purpose of computing the
percentage of outstanding shares beneficially owned by any other person.
(2) Includes 18,190 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(3) Includes 97,143 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.
(4) Includes 151,713 shares issuable upon exercise of presently exercisable
options or options exercisable within 60 days of January 3, 2000.

LEGAL MATTERS

The validity of the shares of common stock offered hereby is being passed
upon by Alice King, Esq., San Antonio, Texas. Alice King is ATSI's Corporate
Counsel and is an employee.

EXPERTS

The consolidated balance sheetsunamortized discount as of July 31, 19982018 were $262,000 and 1999,$25,000, respectively. The note holder also serves as Board Member of T3 Communications, Inc., one of our operating subsidiaries.
Director Independence
The common stock of the Company is currently quoted on the OTCQB which currently do not have director independence requirements. On an annual basis, each director and executive officer will be obligated to disclose any transactions with the Company in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest in accordance with Item 407(a) of Regulation S-K. Following completion of these disclosures, the Board will make an annual determination as to the independence of each director using the current standards for “independence” that satisfy the criteria for the Nasdaq.
For a director to be considered independent according to the standards set forth in Section 303A.02 of the New York Stock Exchange Listed Company Manual (the “NYSE Manual”), the Board of Directors must affirmatively determine that the director has no material relationship with Digerati, either directly or as a partner, shareholder or officer of an organization that has a relationship with Digerati. In addition, the NYSE Manual provides that a director will not be considered independent if, within the preceding three years, the director or an immediate family member (i) was an employee of Digerati, (ii) received more than $120,000 per year in direct compensation from Digerati, (iii) is affiliated with or employed by a present or former internal or external auditor of Digerati, (iv) employed as an executive officer of another company for which an executive officer of Digerati serves on the compensation committee or (v) is an executive officer or employee that makes payments to or receives payments from Digerati of more than $1,000,000 or two percent of such other company’s gross revenues.
The Board has determined that Mr. Maxwell A. Polinsky satisfies the independence requirements in the NYSE Manual.

Page No.
PART I. Financial Information
Report of Independent Registered Public Accounting Firm F-2
Report of Independent Registered Public Accounting Firm F-3
Consolidated balance sheets as of July 31, 2018 and 2017 F-4
Consolidated statements of operations for the years ended July 31, 2018 and 2017 F-5
Consolidated statements of stockholders’ deficit for the years ended July 31, 2018 and 2017 F-6
Consolidated statements of cash flows for the years ended July 31, 2018 and 2017 F-7
Notes to consolidated financial statements F-8
Condensed consolidated balance sheets as of April 30, 2019 (unaudited) and July 31, 2018 F-29
Condensed consolidated statements of operations for the three and nine months ended April 30, 2019 and 2018 (unaudited) F-30
Condensed consolidated statement of stockholders’ deficit for the three and nine months ended April 30, 2019 (unaudited) F-31 – F-32
Condensed consolidated statements of cash flows for the nine months ended April 30, 2019 and 2018 (unaudited) F-33
Notes to condensed consolidated financial statements (unaudited) F-34

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Digerati Technologies, Inc.
San Antonio, Texas
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Digerati Technologies, Inc. and its subsidiaries (collectively, the “Company”) as of July 31, 2018, and the related consolidated statements of operations, stockholders' equity,
comprehensive lossstockholders’ deficit, and cash flows for the yearsyear then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 1997, 19982018, and 1999the results of ATSItheir operations and its subsidiariestheir cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been includedprepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and incorporated by
referencehas a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this prospectusuncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and Registration Statementare required to be independent with respect to the Company in reliance uponaccordance with the reportU.S. federal securities laws and the applicable rules and regulations of Arthur Andersen LLP, independent certified public accountants,
included in and incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

Government Filings. We file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission (the "SEC"). You may read and copy any documentthe PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we file atplan and perform the SEC's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The SEC public reference room in Washington D.C.Company is located at 450 Fifth Street,
N.W., Washington D.C., 20549. Please callnot required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the SEC at 1-800-SEC-0330 for further
informationpurpose of expressing an opinion on the pubic reference rooms. effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our SEC filings are also availableaudits included performing procedures to you freeassess the risks of charge atmaterial misstatement of the SEC's web site at http://www.sec.gov.
-------------------

Information Incorporated by Reference. The SEC allows usfinancial statements, whether due to "incorporate by
reference" the information we file with them which meanserror or fraud, and performing procedures that we can disclose
important information to you by referring yourespond to those documents. The
information incorporatedrisks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by reference is considered to be part of this
prospectus, and later information that we file withmanagement, as well as evaluating the SEC will automatically
update and replace information previously filed, including information contained
in this prospectus.

We incorporate by reference the documents listed below and any future
filings made with the SEC under Section 13(a), 13(c), 14 or 15(d)overall presentation of the Securities Exchange Act of 1934 until this offering has been completed.

. Our Annual Report on Form 10-K for the years ended July 31, 1998 and 1999
. Our Quarterly Reports on Form 10-Q for the quarters ended October 31, 1998,
January 31, 1999, April 30, 1999 and October 31, 1999;
. Our Proxy Statements dated November 6, 1998 and October 25, 1999financial statements. We believe that our audit provides a reasonable basis for our annual meeting of shareholders;
. The description of our common stock included in our Registration Statement on
Form S-4 filed on March 6, 1998.
. Our Registration Statement on Form S-3 for 3,198,054 shares of Common Stock
filed on August 18, 1999.

You may request a free copy of these filings by writing or telephoning us at the
following address:

American TeleSource International, Inc.
Investor Relations
12500 Network Blvd., Suite 407
San Antonio, Texas 78249
(210) 558-6090.

We will not send exhibits to these documents unless the exhibits are
specifically incorporated by reference in these documents.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements of American TeleSource International, Inc. and
Subsidiaries
opinion.

Report of Independent Public Accountants............................................................................ 37

Consolidated Balance Sheets/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as of July 31, 1998 and 1999 and October 31, 1999....................................... 38

Consolidated Statements of Operations for the Years Ended July 31, 1997, 1998 and 1999 and the Three Month
Periods ended October 31, 1998 and 1999............................................................................. 39

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended July 31, 1997, 1998 and 1999 and the
Month Periods ended October 31, 1998 and 1999....................................................................... 40

Consolidated Statements of Stockholders' Equity for the Years Ended July 31, 1997, 1998 and 1999 and the Three
Month Period ended October 31, 1999................................................................................. 41

Consolidated Statements of Cash Flows for the Years Ended July 31, 1997, 1998 and 1999 and the Three Month Periods
ended October 31, 1998 and 1999..................................................................................... 42

Notes to Consolidated Financial Statements.......................................................................... 43
Company’s auditor since 2018.
Houston, Texas
November 15, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

ACCOUNTING FIRM
To the StockholdersBoard of American TeleSource International,Directors and Stockholders
Digerati Technologies, Inc.:

San Antonio, Texas
We have audited the accompanying consolidated balance sheets of American
TeleSource International,Digerati Technologies, Inc. (a Delaware corporation) and its subsidiaries (the
Company)(collectively, “Digerati”) as of July 31, 1998 and 1999,2017 and the related consolidated statements of operations, comprehensive income (loss), stockholders' equitystockholders’ deficit and cash flows for the years ended July 31, 1997, 1998 and 1999. Theseyear then ended. Digerati Technologies, Inc.’s management is responsible for these financial statements are
the responsibility of the Company's management.statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

statements.
We conducted our auditsaudit in accordance with generally accepted auditing
standards.standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Digerati is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Digerati’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American TeleSource
International, Inc. and subsidiariesDigerati as of July 31, 19982017 and 1999, and the consolidated results of their operations and their cash flows for the yearsyear then ended July 31,
1997, 1998 and 1999, in conformity with accounting principles generally accepted accounting
principles.

in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the CompanyDigerati will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the CompanyDigerati suffered losses from operations and has a working capital deficit, has suffered recurring losses from operations since inception, has negative cash
flows from operations and has limited capital resources available to support
further development of its operations. These matters raisewhich raises substantial doubt about the Company'sits ability to continue as a going concern. Management'sManagement’s plans in regard to theseregarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts including goodwill
and other intangibles or the amount and classification of liabilities that might result shouldfrom the Company be unable to continue as a going concern.

/s/ ARTHUR ANDERSEN LLP

San Antonio, Texas
October 5, 1999

AMERICAN TELESOURCE INTERNATIONAL,outcome of this uncertainty.
/s/ LBB & Associates Ltd., LLP
LBB & Associates Ltd., LLP
Houston, Texas
December 13, 2017

PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)

July 31, July 31, October 31,
1998 1999 1999
---------- -------- ------------
(unaudited)

ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,091 $ 379 $ 513
Accounts receivable, net of allowance of $209, $ 1,600 and $ 1,547, respectively 3,748 3,693 3,373
Prepaid expenses and other assets 844 755 1,301
-------- -------- --------
Total current assets 5,683 4,827 5,187
-------- -------- --------

PROPERTY AND EQUIPMENT (At cost): 14,233 16,669 17,317
Less - Accumulated depreciation and amortization (2,418) (4,713) (5,312)
-------- -------- --------
Net property and equipment 11,815 11,956 12,005
-------- -------- --------

OTHER ASSETS, net
Goodwill, net 5,091 5,032 4,997
Contracts, net 1,173 703 539
Trademarks, net -- 789 741
Other assets 489 615 749
-------- -------- --------
Total assets $ 24,251 $ 23,922 $ 24,218
======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,683 $ 4,004 $ 5,866
Accrued liabilities 2,113 3,167 3,264
Current portion of notes payable 688 961 699
Current portion of convertible long-term debt -- 1,942 2,033
Current portion of obligations under capital leases 2,351 1,430 3,417
Deferred revenue 535 233 176
-------- -------- --------
Total current liabilities 11,370 11,737 15,455
-------- -------- --------

LONG-TERM LIABILITIES:
Notes payable, less current portion 719 312 308
Convertible long-term debt, less current portion 1,604 -- --
Obligations under capital leases, less current portion 2,941 5,523 3,334
Other long-term liabilities 530 213 182
-------- -------- --------
Total long-term liabilities 5,794 6,048 3,824
-------- -------- --------

COMMITMENTS AND CONTINGENCIES:

STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, Series A
Cumulative Convertible Preferred Stock, 50,000 shares authorized, no shares
issued and outstanding at July 31, 1998, 24,145
shares issued and outstanding at July 31, 1999 and October 31, 1999 -- -- --
Series B Cumulative Convertible Preferred Stock, 2,000 shares authorized, no
shares issued and outstanding at July 31, 1998, 2,000 shares issued and
outstanding at July 31, 1999, 1,925 shares issued and
outstanding at October 31, 1999 -- -- --
Series C Cumulative Convertible Preferred Stock, 500 shares
authorized, no shares issued and outstanding at July 31, 1998 and 1999,
500 shares issued and outstanding at October 31, 1999 -- -- --
Common stock, $0.001 par value, 100,000,000 shares authorized, 45,603,566
issued and outstanding at July 31, 1998, 48,685,287 issued and
outstanding at July 31, 1999, 48,814,651 issued and outstanding at October 31, 1999 46 49 49
Additional paid in capital 22,248 29,399 31,013
Accumulated deficit (14,396) (21,987) (25,194)
Deferred compensation (667) (466) (309)
Cumulative translation adjustment (144) (858) (620)
-------- -------- --------
Total stockholders' equity 7,087 6,137 4,939

Total liabilities and stockholders' equity $ 24,251 $ 23,922 $ 24,218
======== ======== ========

The
(In thousands)
July 31, July 31,
2018 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 388 $ 673
Accounts receivable, net 229 15
Prepaid and other current assets 124 9
Total current assets 741 697
LONG-TERM ASSETS:
Intangible assets, net 3,046 14
Property and equipment, net 713 2
Other assets 59 -
Total assets $ 4,559 $ 713
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,177 $ 859
Accrued liabilities 893 365
Current portion of capital lease obligations 30 -
Convertible note payable, current, net $187 and $0, respectively 585 -
Note payable, current, related party 126 -
Note payable, current 725 -
Convertible note payable, current, net $273 and $0, respectively 33 -
Deferred income 262 -
Derivative liability 632 -
Total current liabilities 4,463 1,224
LONG-TERM LIABILITIES:
Convertible debenture, net $273 and $0, respectively 27 -
Notes payable, related party, net $38 and $0, respectively 505 -
Deferred income - 131
Note payable 500 -
Obligations under capital leases 64 -
Total long-term liabilities 1,096 131
Total liabilities 5,559 1,355
Commitments and contingencies
STOCKHOLDERS’ DEFICIT:
Preferred stock, $0.001, 50,000,000 shares authorized, none issued and outstanding - -
Common stock, $0.001, 150,000,000 shares authorized, 12,775,143 and 8,386,056 issued and outstanding, respectively 13 8
Additional paid in capital 79,993 76,986
Accumulated deficit (80,800 ) (77,637 )
Other comprehensive income 1 1
Total Digerati’s stockholders’ deficit (793 ) (642 )
Noncontrolling interest (207 ) -
Total stockholders’ deficit (1,000 ) (642 )
Total liabilities and stockholders’ deficit $ 4,559 $ 713
See accompanying notes are an integral part of theseto consolidated financial statements.

AMERICAN TELESOURCE INTERNATIONAL,statements

DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
(In thousands, except per share amounts)
(Unaudited)
Year ended July 31, Three months ended October 31,
1997 1998 1999 1998 1999
------------ ------------ ------------ ------------ -------------

OPERATING REVENUES:
Network Services
Carrier $ 0 $ 10,047 $ 14,123 $ 5,626 $ 5,368
Private Network 1,698 3,315 5,127 1,087 737
Call Services
Integrated Prepaid 1,421 6,102 5,424 1,268 1,401
Postpaid 12,545 13,530 7,202 1,699 1,175
Internet e-commerce 564 1,526 2,642 556 773
------------ ------------ ------------ ------------ -------------

Total operating revenues 16,228 34,520 34,518 10,236 9,454
------------ ------------ ------------ ------------ -------------

OPERATING EXPENSES:
Cost of services 12,792 22,287 21,312 6,501 6,526
Selling, general and administrative 6,312 12,853 12,652 3,109 3,374
Bad debt expense 735 1,024 2,346 224 120
Depreciation and amortization 591 1,822 3,248 649 908
------------ ------------ ------------ ------------ -------------

Total operating expenses 20,430 37,986 39,558 10,483 10,928
------------ ------------ ------------ ------------ -------------

Operating loss (4,202) (3,466) (5,040) (247) (1,474)

OTHER INCOME(EXPENSE):
Interest income 27 76 59 13 5
Other income 41 8 (10) 18 10
Interest expense (513) (1,573) (1,745) (415) (488)
------------ ------------ ------------ ------------ -------------

Total other income (expense) (445) (1,489) (1,696) (384) (473)
------------ ------------ ------------ ------------ -------------

LOSS BEFORE INCOME TAX EXPENSE (4,647) (4,955) (6,736) (631) (1,947)

FOREIGN INCOME TAX EXPENSE -- (139) -- (11) --

MINORITY INTEREST (48) -- -- -- --

NET LOSS $ (4,695) $ (5,094) $ (6,736) $ (642) $ (1,947)

LESS: PREFERRED DIVIDENDS -- -- (855) -- (1,260)
------------ ------------ ------------ ------------ -------------

NET LOSS TO COMMON STOCKHOLDERS $ (4,695) $ (5,094) $ (7,591) $ (642) $ (3,207)
============ ============ ============ ============ =============

BASIC AND DILUTED LOSS PER SHARE $ (0.18) $ (0.12) $ (0.16) $ (0.01) $ (0.07)
============ ============ ============ ============ =============

WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 26,807 41,093 47,467 45,627 48,687
============ ============ ============ ============ =============

The
For the Years ended
July 31,
2018 2017
OPERATING REVENUES:
Cloud-based hosted services $ 2,001 $ 193
Total operating revenues 2,001 193
OPERATING EXPENSES:
Cost of services (exclusive of depreciation and amortization) 1,053 134
Loss on disposal of unproven oil and gas properties - 248
Selling, general and administrative expense 1,563 914
Stock compensation & warrant expense 1,521 773
Legal and professional fees 490 290
Bad debt 15 -
Depreciation and amortization expense 227 18
Total operating expenses 4,869 2,377
OPERATING LOSS (2,868 ) (2,184 )
OTHER INCOME (EXPENSE):
Loss on derivative instruments (91 ) -
Miscellaneous gain - 2,623
Income tax benefit 118 -
Interest income (expense) (379 ) -
Total other income (expense) (352 ) 2,623
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST (3,220 ) 439
Less: Net loss attributable to the noncontrolling interest 57 -
NET INCOME / (LOSS) ATTRIBUTABLE TO DIGERATI’S SHAREHOLDERS $ (3,163 ) $ 439
INCOME (LOSS) PER SHARE - BASIC $ (0.31 ) $ 0.07
INCOME (LOSS) PER SHARE - DILUTED $ (0.31 ) $ 0.06
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 10,339,371 6,339,906
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 10,339,371 6,982,081
See accompanying notes are an integral part of theseto consolidated financial statements.

AMERICAN TELESOURCE INTERNATIONAL,statements

DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)

(Unaudited)
For the Years Ended For the three months ended
July 31, October 31,
---------- ---------- ---------- ---------- ----------
1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ----------

Net loss to common stockholders ($4,695) ($5,094) ($7,591) ($642) ($3,207)

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments $12 ($160) ($714) $ 32 $238
---------- ---------- ---------- ---------- ----------

Comprehensive loss to common stockholders ($4,683) ($5,254) ($8,305) ($610) ($2,969)
========== ========== ========== ========== ==========

TheSTOCKHOLDERS’ DEFICIT
YEARS ENDED JULY 31, 2017 AND 2018
(In thousands, except for share amounts)
Equity Digerati’s Shareholders
Additional Other
Common Paid-in Accumulated Comprehensive Stockholders Noncontrolling
Shares Par Capital Deficit Income Equity Interest Totals
BALANCE, July 31, 2016 5,234,158 $ 5 $ 75,656 $ (78,076 ) $ 1 (2,414 ) $ - $ (2,414 )
Stock issued for services, to employees 1,956,898 2 727 - - 729 - 729
Stock issued for professional services 75,000 - 44 - - 44 - 44
Stock issued for cash 1,120,000 1 559 - - 560 - 560
Net Income - - - 439 - 439 - 439
BALANCE, July 31, 2017 8,386,056 $ 8 $ 76,986 $ (77,637 ) $ 1 $ (642 ) $ - $ (642 )
Stock issued for services, to employees 1,807,012 2 1,052 - - 1,054 - 1,054
Stock issued for services 406,500 - 186 - - 186 - 186
Stock issued for AP settlement 35,575 - 15 - - 15 - 15
Stock issued for cash 960,000 1 479 - - 480 - 480
Stock issued for convertible debt 505,000 1 3 - - 4 - 4
Stock issued, extension of debt 25,000 - 13 - - 13 - 13
Stock issued for Acquisition 500,000 1 174 - - 175 - 175
Stock issued, exercise of warrants 150,000 - 15 - - 15 - 15
Value of warrants issued - - 670 - - 670 - 670
Sale of subsidiary shares to a noncontrolling interest - - 400 - - 400 (150 ) 250
Net Ioss - - - (3,163 ) - (3,163 ) (57 ) (3,220 )
BALANCE, July 31, 2018 12,775,143 $ 13 $ 79,993 $ (80,800 ) $ 1 $ (793 ) $ (207 ) $ (1,000 )
See accompanying notes are an integral part of theseto consolidated financial statements.

AMERICAN TELESOURCE INTERNATIONAL,statements
F-6
DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)

Preferred Shares Common Stock
----------------------- ----------------------- Additional
Shares Amount Shares Amount Paid In Capital
---------- ---------- ---------- ---------- ---------------

BALANCE, July 31, 1996 -- $ -- 23,775 $ 6,288 $ --
Issuances of common shares for cash -- -- 5,760 4,736 --
Conversion of convertible debt to common shares -- -- 3,612 1,967 --
Issuance of common shares for acquisition -- -- 2,716 1,847 --
Issuances of common shares for services -- -- 925 154 --
Deferred compensation -- -- -- 1,394 --
Compensation expense -- -- -- -- --
Warrants issued with convertible long term debt -- -- -- 990 --
Cumulative effect of translation adjustment -- -- -- -- --
Net loss -- -- -- -- --
--------- ---------- ---------- -------- ---------------
BALANCE, July 31, 1997 -- -- 36,788 $ 17,376 --
Issuances of common shares for cash -- -- 5,500 3,496 --
Issuances of common shares for reduction in indebtedness -- -- 2,871 1,076 --
Conversion of convertible debt to common shares -- -- 200 100 --
Issuances of common shares for services -- -- 245 246 --
Compensation expense -- -- -- -- --
Cumulative effect of translation adjustment -- -- -- -- --
Exchange of common shares for common stock -- -- -- (22,248) 22,248
Net loss -- -- -- -- --
--------- ---------- ---------- -------- ---------------
BALANCE, July 31, 1998 -- -- 45,604 $ 46 $ 22,248
Issuances of common shares for cash -- -- 2,706 3 1,637
Issuances of common shares for services -- -- 96 -- 40
Issuances of common shares for acquisition -- -- 279 -- 179
Issuances of preferred stock 26 -- -- -- 4,176
Deferred compensation -- -- -- -- 344
Dividend expense -- -- -- -- --
Amortization of equity discount -- -- -- -- 775
Compensation expense -- -- -- -- --
Cumulative effect of translation adjustment -- -- -- -- --
Net loss -- -- -- -- --
--------- ---------- ---------- -------- ---------------
BALANCE, July 31, 1999 26 -- 48,685 $ 49 $ 29,399
Issuances of preferred stock (unaudited) 1 -- -- -- 417
Dividend expense (unaudited) -- -- -- -- --
Amortization of equity discount (unaudited) -- -- -- -- 1,168
Compensation expense (unaudited) -- -- -- -- --
Cumulative effect of translation adjustment (unaudited) -- -- -- -- --
Conversion of preferred stock (unaudited) -- -- 130 -- 29
Net loss (unaudited) -- -- -- -- --
--------- ---------- ---------- -------- ---------------
BALANCE, October 31, 1999 (unaudited) 27 -- 48,685 $ 49 $ 31,013
========= ========== ========== ======== ===============

Cumulative Total
Accumulated Translation Deferred Stockholders'
Deficit Adjustment Compensation Equity
----------- ----------- ------------ ------------

BALANCE, July 31, 1996 $ (4,607) $ 4 $ (55) $ 1,630
Issuances of common shares for cash -- -- -- 4,736
Conversion of convertible debt to common shares -- -- -- 1,967
Issuance of common shares for acquisition -- -- -- 1,847
Issuances of common shares for services -- -- -- 154
Deferred compensation -- -- (1,394) 0
Compensation expense -- -- 295 295
Warrants issued with convertible long term debt -- -- -- 990
Cumulative effect of translation adjustment -- 12 -- 12
Net loss (4,695) -- -- (4,695)
----------- ---------- ------------ -----------
BALANCE, July 31, 1997 $ (9,302) $ 16 $ (1,154) $ 6,936
Issuances of common shares for cash -- -- -- 3,496
Issuances of common shares for reduction in indebtedness -- -- -- 1,076
Conversion of convertible debt to common shares -- -- -- 100
Issuances of common shares for services -- -- -- 246
Compensation expense -- -- 487 487
Cumulative effect of translation adjustment -- (160) -- (160)
Exchange of common shares for common stock -- -- -- 0
Net loss (5,094) -- -- (5,094)
----------- ---------- ------------ -----------
BALANCE, July 31, 1998 $ (14,396) $ (144) $ (667) $ 7,087
Issuances of common shares for cash -- -- -- 1,640
Issuances of common shares for services -- -- -- 40
Issuances of common shares for acquisition -- -- -- 179
Issuances of preferred stock -- -- -- 4,176
Deferred compensation -- -- (344) 0
Dividend expense (80) -- -- (80)
Amortization of equity discount (775) -- -- 0
Compensation expense -- -- 545 545
Cumulative effect of translation adjustment -- (714) -- (714)
Net loss (6,736) -- -- (6,736)
----------- ---------- ------------ -----------
BALANCE, July 31, 1999 $ (21,987) $ (858) $ (466) $ 6,137
Issuances of preferred stock (unaudited) -- -- -- 417
Dividend expense (unaudited) (92) -- -- (92)
Amortization of equity discount (unaudited) (1,168) -- -- 0
Compensation expense (unaudited) -- -- 157 157
Cumulative effect of translation adjustment (unaudited) -- -- -- 0
Conversion of preferred stock (unaudited) -- 238 -- 267
Net loss (unaudited) (1,947) -- -- (1,947)
----------- ---------- ------------ -----------
BALANCE, October 31, 1999 (unaudited) $ (25,194) $ (620) $ (309) $ 4,939
=========== ========== ============ ===========

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

AMERICAN TELESOURCE INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
(In thousands)
(Unaudited)
For the Years Ended July 31, Three months ended October 31,
1997 1998 1999 1998 1999
----------- ------------------------------------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,695) $ (5,094) $ (6,736) $ (642) $ (1,947)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities-
Depreciation and amortization 591 1,822 3,248 649 908
Amortization of debt discount 87 307 346 82 94
Deferred compensation 295 487 545 116 157
Provision for losses on accounts receivable 735 1,024 2,346 224 120
48 -- -- -- --
Changes in operating assets and liabilities
(Increase) Decrease in accounts receivable (1,983) (2,723) (2,207) (476) 124
(Increase) Decrease in other assets (849) 197 (1,632) 306 (752)
Increase (Decrease) in accounts payable (1,021) 3,479 (1,139) (156) 1,769
Increase (Decrease) in accrued liabilities 884 (192) 1,857 (157) 27
Decrease in deferred revenue 378 71 (191) (70) (56)
------- --------------------------------- -------
Net cash provided by (used in) operating activities (5,530) (622) (3,563) (124) 444
------- --------------------------------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (590) (3,297) (956) (297) (248)
Acquisition of business, net of cash acquired 73 (2,112) (171) -- --
Payments received on notes receivable 101 -- -- -- --
------- ------- ------- ------- -------
Net cash used in investing activities (416) (5,409) (1,127) (297) (248)
------- ------- ------- ------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 3,632 2,547 437 59 --
Net decrease in short-term borrowings 281 353 (488) (188) (97)
Net increase from advanced funding arrangements -- -- -- 382 33
Payments on debt -- (1,141) (679) (49) (170)
Capital lease payments (401) (1,044) (941) (525) (276)
Payments on long-term liabilities -- (67) (123) (53) (11)
Proceeds from issuance of preferred stock, net
of issuance costs -- -- 4,176 -- 417
Proceeds from issuance of common stock, net
of issuance costs 3,699 4,553 1,596 23 42
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities 7,211 5,201 3,978 (351) (62)
------- ------- ------- ------- -------

Net increase (decrease) in cash 1,265 (830) (712) (772) 134

Cash, beginning of period 656 1,921 1,091 1,091 379
------- ------- ------- ------- -------

Cash, end of period $ 1,921 $ 1,091 $ 379 $ 319 $ 513
======= ======= ======= ======= =======

The
For the Years ended
July 31,
2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,220 ) $ 439
Adjustments to reconcile net loss to cash used in by operating activities:
Loss on disposal of unproven oil and gas properties - 248
Deferred tax benefit (159 ) -
Depreciation and amortization 227 18
Stock compensation and warrant expense 1,508 773
Stock issued for extension of debt 13 -
Amortization of debt discount 277 -
Loss (Gain) on derivative liabilities 91 -
Changes in operating assets and liabilities:
Accounts receivable 56 (13 )
Prepaid expenses and other current assets (18 ) (1 )
Accounts payable 181 70
Accrued expenses 120 -
Deferred income (61 ) (2,550 )
Net cash used in operating activities (985 ) (1,016 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of oil and gas property - (38 )
Purchases of property & equipment - (2 )
Cash received from selling of noncontrolling interest 250 -
Cash paid in business acquisition, net of cash acquired (1,788 ) -
Net cash used in investing activities (1,538 ) (40 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 480 560
Proceeds from exercise of warrants 15 -
Borrowings from 3rd party promissory notes, net 890 -
Borrowings from related party notes, net 525 -
Borrowings from convertible notes, net 1,397 -
Principal payments on promissory notes, net (815 ) -
Principal payments on related party notes, net (131 ) -
Principal payments on convertible notes, net (120 )
Principal payment on financing leases (3 ) -
Net cash provided by financing activities 2,238 560
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (285 ) (496 )
CASH AND CASH EQUIVALENTS, beginning of period 673 1,169
CASH AND CASH EQUIVALENTS, end of period $ 388 $ 673
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 143 $ -
Income taxes paid $ 116 $ -
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Debt discount from derivative liabilities $ 542 $ -
Debt discount from BCF on convertible debt and warrants issued with debt $ 402 $ -
Debt discount from common stock issued with debt $ 4 $ -
Stock issued for business acquisition $ 175 $ -
Financing lease on purchased assets $ 98 $ -
Common Stock issued to settle AP $ 15 $ -
Note payable issued for business acquisition $ 1,425 $ -
See accompanying notes are an integral part of theseto consolidated financial statements.

AMERICAN TELESOURCE INTERNATIONAL,statements
F-7
DIGERATI TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Data with respect to the three month periods ended October 31, 1998 and 1999 are
unaudited

1. DESCRIPTION
NOTE 1 – SUMMARY OF BUSINESS AND BASIS OF PRESENTATION

The accompanying consolidated financial statements are thoseSIGNIFICANT ACCOUNTING POLICIES
Description of American
TeleSource International,Business.Digerati Technologies, Inc. and its subsidiaries ("ATSI"(“we”, “our”, “Company” or the "Company"“Digerati”).
The Company was formed on June 6, 1996 under the laws ofincorporated in the state of DelawareNevada on May 24, 2004. Digerati is a diversified holding company that has no independent operations apart from its subsidiaries. Through our operating subsidiaries, T3 Communications, Inc., and Shift8 Networks, Inc., dba, Synergy Telecom, we are an establishedprovider of cloud services specializing in UCaaS (Unified Communications as a Service) solutions for the express purposesmall to medium-sized business (“SMB”) market. Weoffer a comprehensive suite of effectingcloud communication services to meet the global needs of businesses that are seeking simple, flexible, and cost-effective communication solutions. Our servicesinclude cloud PBX, cloud mobile, Internet broadband, cloud WAN, SIP trunking, and customized VoIP services, all delivered on its global carrier-grade network and Only in the Cloud™.
In December 2017, we closed a "Plan of Arrangement" with American
TeleSource International, Inc., which was incorporated under the laws of the
province of Ontario, Canada (hereinafter referredtransaction to as "ATSI-Canada"). The
Plan of Arrangement called for the stockholders of ATSI-Canada to exchange their
shares on a one-for-one basis for shares of the Company. On April 30, 1998,
shareholders of ATSI-Canada approved the Plan of Arrangement, and on May 11,
1998, ATSI-Canada became a wholly owned subsidiary of the Company. The Company
is publicly traded on the OTC Bulletin Board under the symbol "AMTI". The
unaudited interim financial statements of American TeleSource International,
Inc. as of October 31, 1998 and 1999 and for the three month periods then ended
included herein have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and with Securities and
Exchange Commission rules and regulations for interim financial statements and
accordingly do not includeacquire all information and footnotes required under
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, without audit, necessary for a fair
presentation of the consolidated financial position of American TeleSource
International, Inc, and its subsidiaries as of October 31, 1998 and 1999 and the
results of their operations and cash flows for the three month periods ended
October 31, 1998 and 1999 have been included.

The accompanying consolidated balance sheet dated July 31, 1998 includes the assets, liabilitiesassumed all customers, and shareholders' equity of ATSI-Canada which were
transferredcritical vendor arrangements from Synergy Telecom, Inc. Synergy provides UCaaS or cloud communication services to the Company on May 11, 1998,small and the accompanying statements of
operations for the years ended July 31, 1997medium-sized businesses and 1998 include the consolidated
operations of ATSI-Canada through May 11, 1998.

municipalities, primarily in Texas.
In May 1997, ATSI-Canada entered into2018, we completed the acquisition of T3 Communications, Inc., an agreement to purchase up to 100%established UCaaS and Internet broadband provider serving a high-growth corridor in Southwest Florida.
Principles of the outstanding shares of Sistema de Telefonia Computarizada, S.A. de C.V.
("Computel"), the largest privately owned operator of casetas (public calling
stations) in Mexico. Under the terms of the agreement, ATSI-Canada acquired 55%
of the shares of Computel effective May 1, 1997 and the remaining 45% effective
August 28, 1997. As ATSI-Canada acquired majority ownership effective May 1,
1997, the Company has recorded 100% of the net assets and liabilities of
Computel as of that date. Consolidation.The Company's consolidated financial statements for
the period May 1, 1997 to July 31, 1997 include the impact of the 45% minority
ownership interest. For the years ended July 31, 1998 and July 31, 1999, and
the three months ended October 31, 1998 and 1999 the Company's consolidated financial statements include 100%the accounts of the activities of Computel.

In July 1997, American TeleSource International de Mexico, S.A. de C.V.
("ATSI-Mexico") acquired 100% of the outstanding stock of Servicios de
Infraestructura, S.A. de C.V. ("Sinfra"). In April 1998, TeleSpan, Inc.
("Telespan") purchased 100% of the outstanding stock of Sinfra from ATSI-Mexico.
In March 1998, ATSI-Delaware acquired 100% of the outstanding stock of
Soluciones Internactionales de Mercadeo, S.A.Digerati, and subsequently changed the name
to ATSI de CentroAmerica, S.A.

Through its subsidiaries, the Company provides retail and wholesale
communications services within and between the United States and select markets
within Latin America. Utilizing a framework of licenses, interconnection and
service agreements, network facilities and distribution channels, the Company
aims to provide U.S standards of reliability to Mexico and other markets within
Latin America which have historically been underserved by telecommunications
monopolies. As of October 31, 1999, the Company's operating subsidiaries are as
follows:

American TeleSource International, Inc. ("ATSI-Texas" a Texas corporation)
--------------------------------------------------------------------------

ATSI-Texas owns and operates a switching facility and multilingual call
center in San Antonio, Texas. This facility provides U.S. based call services
to public telephonesmajority owned by ATSI-MexicoDigerati In accordance with ASC 810-10-05. All significant inter-company transactions and casetas owned by Computelbalances have been eliminated.
Reclassifications. Certain amounts in Mexico, as well as to third party-owned public telephones, casetas and hotels in
Mexico. Although these calls originate in Mexico, they are terminated and
billed in the United States and Mexico by ATSI-Texas. In July 1998, ATSI-Texas
also began providing domestic U.S. and international call services to
residential customers in the U.S.

American TeleSource International de Mexico, S.A. de C.V.
---------------------------------------------------------
("ATSI-Mexico" a Mexican corporation)
-------------------------------------

ATSI-Mexico owns and operates coin-operated public telephones in Mexico.
Utilizing its 20-year comercializadora license, ATSI purchases telephone lines
and resells local, long distance and international calls from public telephones
connected to the lines. Direct dial calls may be made from the telephones using
pesos or quarters, and users may use the services of ATSI-Texas to place calls
to the U.S. by billing calls to valid third parties, credit cards or calling
cards.

Computel (a Mexican corporation)
--------------------------------

Computel is the largest private operator of casetas in Mexico, operating
approximately 126 casetas in 66 cities. Direct dial calls may be made from the
casetas using cash or credit cards, and users may use the services of ATSI-Texas
to place calls to the U.S. by billing calls to valid third parties, credit cards
or calling cards. Computel utilizes telephone lines owned by ATSI-Mexico.

Sinfra (a Mexican corporation)
-------------------------------

Utilizing its 20-year Teleport and Satellite Network license, Sinfra owns
and operates the Company's teleport facilities in Cancun, Monterrey and Mexico
City, Mexico. These facilities are used for the provision of international
private network services. Sinfra also owns a 15-year Packet Switching Network
license.

TeleSpan, Inc. ("TeleSpan" a Texas corporation)
-----------------------------------------------

TeleSpan owns and operates the Company's teleport facilities in the United
States and Costa Rica. TeleSpan contracts with U.S. based entities and carriers
seeking facilities or increased capacity into Mexico, Costa Rica, El Salvador
and Guatemala. For network services into Mexico, TeleSpan utilizes facilities
owned by Sinfra.

GlobalScape, Inc. ("GlobalSCAPE" a Texas corporation)
-----------------------------------------------------

GlobalSCAPE markets CuteFTP and other digitally downloadable software
products and distributes them over the Internet utilizing electronic software
distribution ("ESD").

ATSI de CentroAmerica (a Costa Rican corporation)
-------------------------------------------------

ATSI de CentroAmerica markets international private network services in
Costa Rica and other Latin American countries and looks to develop corporate
development opportunities in Latin American countries through joint ventures and
interconnection agreements with existing telecommunication monopolies.

2. FUTURE OPERATIONS, LIQUIDITY, CAPITAL RESOURCES AND VULNERABILITY DUE
TO CERTAIN CONDITIONS

The accompanying consolidated financial statements of the Company have been
prepared on the basis of accounting principles applicable to a going concern.
For the period from December 17, 1993 to July 31, 1999 and to October 31, 1999,
the Company has incurred cumulative net losses of $21.9 million and
$25.1 million, respectively.

Further, the Company had a working capital deficit of $5.7 million at July 31,
1998, $6.7 million at July 31, 1999 and $10.3 million at October 31, 1999.
Further, the Company had negative cash flows from operations of $5.5 million,
$.6 million and $3.6 million for the years ended July 31, 1997, 1998 and 1999,
respectively. The Company has limited capital resources available to it, and
these resources may not be available to support its ongoing operations until
such time as the Company is able to generate positive cash flow from operations.
There is no assurance the Company will be able to achieve future revenue levels
sufficient to support operations or recover its investment in property and
equipment, goodwill and other intangible assets. These matters raise substantial
doubt about the Company's ability to continue as a going concern. The ability of
the Company to continue as a going concern is dependent upon the ongoing support
of its stockholders and customers, its ability to obtain capital resources to
support operations and its ability to successfully market its services.

The Company is likely to require additional financial resources in the near
term and could require additional financial resources in the long-term to
support its ongoing operations. The Company has retained various financial
advisers to assist it in refining its strategic growth plan, defining its
capital needs and obtaining the funds required to meet those needs. The plan
includes securing funds through equity offerings and entering into lease or
long-term debt financing agreements to raise capital. There can be no
assurances, however, that such equity offerings or other financing arrangements
will actually be consummated or that such funds, if received, will be sufficient
to support existing operations until revenue levels are achieved sufficient to
generate positive cash flow from operations. If the Company is not successful
in completing additional equity offerings or entering into other financial
arrangements, or if the funds raised in such stock offerings or other financial
arrangements are not adequate to support the Company until a successful level of
operations is attained, the Company has limited additional sources of debt or
equity capital and would likely be unable to continue operating as a going
concern.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the accrual
basis of accounting under generally accepted accounting principles of the U.S.
All significant intercompany balances and transactions have been eliminated in
consolidation. Certain prior period amountsyear have been reclassified to conform to the presentation of the current year for comparative purposes.

Estimates in Financial Statements
---------------------------------

The preparation
Use of Estimates. In preparing financial statements, in conformity with generally
accepted accounting principles requires management to makemakes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenuesrevenue and expenses duringin the reporting period.statement of operations. Actual results maycould differ from those estimates.
Concentration of Credit Risk.Financial instruments that potentially subject Digerati to concentration of credit risk consist primarily of trade receivables. In the normal course of business, Digerati provides credit terms to its customers. Accordingly, Digerati performs ongoing credit evaluations of its customers and maintains allowances for possible losses, which, when realized, have been within the range of management’s expectations. Digerati maintains cash in bank deposit accounts, which, at times, may exceed federally insured limits. Digerati has not experienced any losses in such accounts and Digerati does not believe it’s exposed to any significant credit risk on cash and cash equivalents.
Revenue Recognition Policies
----------------------------

The Company recognizesRecognition.Digerati derives revenue from its callUCaaS or cloud communication services and direct dialmanaged cloud-based services. Our services as suchinclude fully hosted IP/PBX services, are performed, net of unbillable calls.SIP trunking, call center applications, interactive voice response auto attendant, call recording, simultaneous calling, voicemail to email conversion, disaster recovery services and multiple customized IP/PBX features in a hosted or cloud environment. Revenue from
network management service contracts is recognized when persuasive evidence of an arrangement exists, service commences for
service commencement feesor network capacity has been provided, the price is fixed or determinable, collectability is reasonably assured and monthly thereafter as servicesthere are provided. The
Company recognizesno significant obligations remaining.
Digerati records and reports its revenue from equipment sales when the title for the equipment
transfers to the customer and from equipment installation projects when they are
completed. Revenues related to the Company's Internet product are recognized at
the point of delivery, as the Company bears no additional obligation beyond the
provision of its software product other than post-contract customer service.

Foreign Currency Translation
----------------------------

Until January 1, 1999, Mexico's economy was designated as highly
inflationary. Generally Accepted Accounting Principles, "GAAP" require the
functional currency of highly inflationary economies to be the same as the
reporting currency. Accordingly, the consolidated financial statements of ATSI-
Mexico and Computel, whose functional currency is the peso, were remeasured from
the peso into the U.S. dollar for consolidation. Monetary and nonmonetary
assets and liabilities were remeasured into U.S. dollars using current and
historical exchange rates, respectively. The operating activities of ATSI-Mexico
and Computel were remeasured into U.S. dollars using a weighted-average exchange
rate. The resulting translation gains and losses were charged directly to
operations. As

of January 1, 1999, Mexico's economy was deemed to be no longer highly
inflationary. According to GAAP requirements the change from highly inflationary
to non-highly inflationary requires that the nonmonetary assets be remeasured
using not the historical exchange rates, but the exchange rate in place as of
the date the economy changes from highly inflationary to non-highly
inflationary. As such, the Company's non-monetary assets in ATSI-Mexico and
Computel have been remeasured using the exchange rate as of January 1, 1999.
Subsequent to January 1, 1999, monetary assets and non-monetary assets are
translated using current exchange rates and operating activity of ATSI-Mexico
and Computel are remeasured in to U.S. dollars using a weighted average exchange
rate. The effect of these translation adjustments are reflected in the
cumulative translation account shown in equity.

Accounts Receivable
-------------------

The Company utilizes the services of credit card processing companies for
the billing of commercial credit card calls. The Company receives cash from
these calls, net of transaction and billing fees, generally within 20 days from
the dates the calls are delivered. All other calls (calling card, collect,
person-to-person and third party billed) are billed under an agreement between
the Company and a billing clearinghouse. This agreement allows ATSI to submit
call detail records to the clearinghouse, which in turn forwards these records
to the local telephone company to be billed. The clearinghouse collects the
funds from the local telephone company and then remits the funds, net of
charges, to ATSI. Because this collection process can take up to 90 days to
complete, ATSI participates in an advance funding program offered by the
clearinghouse whereby 100% of the call records are purchased for 75% of their
value within five days of presentment. The remaining 25% value of the call
records are remitted to ATSI, net of interest and billing charges and an
estimate for uncollectible calls, as the clearinghouse collects the funds from
the local telephone companies. Under the advanced funding agreement, the
collection clearinghouse has a security interest in the unfunded portion of the
receivables as well as future receivables generated by the Company's long
distance business. The allowance for doubtful accounts reflects the Company's
estimate of uncollectible calls at July 31, 1998 and 1999 and includes $1.5
million of specific accounts identified by the Company as potentially
uncollectible. ATSI currently pays a funding charge of prime plus 4% per annum on the amounts that are advanced to ATSI. Receivables sold with recourse during
fiscal years 1997, 1998, 1999 and the three-month period ending October 31, 1999
were $8,530,665, $11,127,221, $6,138,549 and $1,323,093, respectively. At July
31, 1997, 1998, 1999 and October 31, 1999, $577,256, $484,381, $444,398 and
$411,147 of such receivables were uncollected, respectively. See Note 5 for
additional disclosure regarding advanced funding.

In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". This statement provides accounting
and reporting standards for, among other things, the transfer and servicing of
financial assets, such as factoring receivables with recourse. The adoption of
these statements has not had a material impact on the financial position or
results of operations of the Company.

Impuesto al Valor Agregado (Value-Added Tax) ("IVA")
----------------------------------------------------

The Company's Mexican subsidiaries are required to report a value-added tax
related to both purchases and sales of services and assets, for local tax
reporting. Accordingly, each subsidiary maintains both an IVA receivable and IVA
payable account on their subsidiary ledgers. For consolidated reporting
purposes, the Company nets its Mexican subsidiaries IVA receivable and IVA
payable accounts as allowed by regulatory requirements in Mexico. For the years
ended July 31, 1998 and 1999 and the three month period ended October 31, 1999,
this netting of IVA accounts resulted in the elimination of IVA payable and a
corresponding reduction in IVA receivable of approximately $197,000, $1.3
million and $1.5 million, respectively.

Basic and Diluted Loss Per Share
--------------------------------

Loss per share was calculated using the weighted average number of common
shares outstanding for the years ended July 31, 1997, 1998 and 1999 and the
three-month periods ended October 31, 1998 and 1999. Common stock equivalents,
which consist of the stock purchase warrants and options described in Note 9,
were excluded from the computation of the weighted average number of common
shares outstanding because their effect was antidilutive. Additionally, the
Company has excluded the convertible preferred stock described in Note 8, from
the computation of the weighted average number of common shares outstanding as
their effect will also be antidilutive.

Property and Equipment
----------------------

Property and equipment are stated at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
related assets, which range from five to fifteen years. Expenditures for
maintenance and repairs are charged to expense as incurred. Direct installation
costs and major improvements are capitalized.

Effective for the fiscal years beginning after July 31, 1996, the Company
follows rules as prescribed under Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires an assessment of the
recoverability of the Company's investment in long-lived assets to be held and
used in operations whenever events or circumstances indicate that their carrying
amounts may not be recoverable. Such assessment requires that the future cash
flows associated with the long-lived assets be estimated over their remaining
useful lives and an impairment loss be recognized when the undiscounted future
cash flows are less than the carrying value of such assets. As of July 31,
1999, the Company has determined that the estimated undiscounted future cash
flows associated with its long-lived assets are greater than the carrying value
of such assets and that no impairment loss needs to be recognized.

Goodwill, Trademarks, Contracts and Other Assets
------------------------------------------------

As of the years ended July 31, 1998 and 1999 and the three-month period
ended October 31, 1999, other assets include goodwill, primarily related to the
purchase of Computel, of $5,216,646, $5,296,646 and $5,296,646, respectively,
net of accumulated amortization of $126,668, $265,089 and $299,717,
respectively. Goodwill is amortized over 40 years. As of July 31, 1998 and
1999 and October 31, 1999 other assets include acquisition costs of $1,417,870,
$1,596,620 and $1,596,620, respectively, related to the Company's acquisitions
of several of its independent marketing representatives, net of accumulated
amortization of $244,652, $893,212 and $1,057,452, respectively. These
acquisition costs are being amortized over the life of the contracts, which
approximates three years. As of July 31, 1999 and October 31, 1999, other assets
include $898,943 related to the purchase of the rights to CuteFTP, net of
accumulated amortization of $110,352 and $157,645, respectively. This trademark
is being amortized over an estimated five-year life. Additionally, as of July
31, 1998 and 1999 and October 31, 1999, other assets include approximately
$489,000, $615,000 and $749,000 of other assets, not specifically identified as
goodwill, acquisition costs or trademarks. As it relates to SFAS 121, as of
July 31, 1999 and October 31,1999, the Company has determined that the estimated
future cash flows associated with its goodwill and other intangible assets are
greater than the carrying value of such assets and that no impairment loss needs
to be recognized. For the years ended July 31, 1997, 1998 and 1999 and the
three-month periods ended October 31, 1998 and 1999, the Company recorded
amortization expense of $55,491, $369,219, $925,440, $171,677 and $252,510,
respectively relatedgross amount billed to its other assets.

Income Taxes
------------

The Company accounts for income taxescustomers in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under the provisionsfollowing indicators:
● Digerati is the primary obligor in its arrangements,
● Digerati has latitude in establishing pricing,
● Digerati changes the product or performs part of the service and is involved in the determination of the product or service specifications,
● Digerati has discretion in supplier selection and
● Digerati assumes credit risk for the amount billed to the customer.

Sources of SFAS 109, the Company
recognizes deferred tax liabilitiesrevenue:
Cloud-based hosted Services: We provide UCaaS or cloud communication services and assets based on enacted income tax ratesmanaged cloud-based solutions to small and medium size enterprise customers and to other resellers. Our Internet-based services include fully hosted IP/PBX services, SIP trunking, call center applications, interactive voice response auto attendant, voice and web conferencing, call recording, simultaneous calling, voicemail to email conversion, integrated mobility applications that are expecteddevice and location agnostic, and multiple customized IP/PBX features in a hosted or cloud environment. Other services include enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper. We also offer remote network monitoring, data backup and disaster recovery.
Direct Costs:
Cloud-based hosted Services: We incur bandwidth and colocation charges in connection with our UCaaS or cloud communication services. The bandwidth charges are incurred as part of the connectivity between our customers to beallow them access to our various services. We also incur costs from underlying providers for fiber, Internet broadband, and telecommunication circuits in effect in the period in which the deferred tax
liability or asset is expected to be settled or realized. A change in the tax
laws or rates results in adjustments in the period in which the tax laws or
rates are changed.

Statements of connection with our data and connectivity solutions.
Cash Flows
------------------------

Cash payments and non-cash investing and financing activities during the
periods indicated were as follows:

For the Three Months Ended
For the Years Ended July 31, October 31,

1997 1998 1999 1998 1999
---------- ---------- ---------- ------------ -----------

Cash payments for interest $ 416,756 $1,349,679 $1,101,771 $ 414,961 $ 488,264

Cash payments for taxes $ - $ 148,097 $ - $ 10,930 $ -

Common shares issued for services $ 153,885 $ 246,591 $ 40,000 $ - $ -

Common shares issued for acquisition
of Computel and other $1,846,569 $ - $ 178,750 $ - $ -

Assets acquired in acquisition of Computel $3,418,753 $ - $ - $ - $ -

Liabilities assumed in acquisition of Computel $4,205,404 $ - $ - $ - $ -

Conversion of convertible debt to common shares $1,966,531 $ 100,000 $ - $ - $ -

Capital lease obligations incurred $1,521,875 $4,635,693 $ - $ 110,617 $ 21,051

Common share subscriptions sold $1,113,170 $ - $ 42,500 $ - $ -

For purposes of determining cash flows, theequivalents.The Company considers all temporary
cashbank deposits and highly liquid investments with an original maturitymaturities of three months or less to be cash and cash equivalents.

New Accounting Pronouncements
-----------------------------

In June 1997,
Allowance for Doubtful Accounts.
Bad debt expense is recognized based on management’s estimate of likely losses each year based on past experience and an estimate of current year uncollectible amounts. As of July 31, 2018 and 2017, Digerati’s allowance for doubtful accounts balance was $122,000 and $0, respectively.
Customer deposits.
The Company in some instances requires customers to make deposits for equipment, installation charges and training. As equipment is installed and training takes places the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income,"deposits are then applied to revenue. As of July 31, 2018 and 2017, Digerati’s customer deposits balance was $262,000 and $131,000, respectively.
Property and equipment.Property and equipment is recorded at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which establishes standardsare one to five years.
Goodwill, Intangible Assets, and Long-Lived Assets
Goodwill is carried at cost and is not amortized. The Company tests goodwill for impairment on an annual basis at the end of each fiscal year, relying on a number of factors including operating results, business plans, economic projections, anticipated future cash flows and marketplace data. Company management uses its judgment in assessing whether goodwill has become impaired between annual impairment tests according to specifications set forth in ASC 350. The Company completed an evaluation of goodwill at July 31, 2018 and determined that there was no impairment. We did not have any goodwill during the year ended July 31, 2017.
The fair value of the Company’s reporting unit is dependent upon the Company’s estimate of future cash flows and disclosureother factors. The Company’s estimates of comprehensive incomefuture cash flows include assumptions concerning future operating performance and economic conditions and may differ from actual future cash flows. Estimated future cash flows are adjusted by an appropriate discount rate derived from the Company’s market capitalization plus a suitable control premium at date of the evaluation.

The financial and credit market volatility directly impacts the Company’s fair value measurement through the Company’s weighted average cost of capital that the Company uses to determine its discount rate and through the Company’s stock price that the Company uses to determine its market capitalization. Therefore, changes in the stock price may also affect the amount of impairment recorded.
The Company recognizes an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their useful lives. Impairment losses are recognized if the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and its componentscarrying amount exceeds its fair value.
The Company reviews its long-lived assets, including property and equipment, identifiable intangibles, and goodwill annually or whenever events or changes in a full
setcircumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets.
Impairment of Long-Lived Assets. Digerati reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that the value of an asset may no longer be appropriate. Digerati assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value.
Derivative financial statements. SFAS No. 130instruments. Digerati does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. However, Digerati analyzes its convertible instruments and free-standing instruments such as warrants for derivative liability accounting.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is effectiveinitially recorded at its fair value and is then re-valued at each reporting date, any changes in fair value is recorded as non-operating, non-cash income or expense for fiscal years
beginning after December 15, 1997,each reporting period. For option-based derivative financial instruments, warrants and requires reclassificationnotes payable conversion options Digerati uses the Black-Scholes option-pricing model to value the derivative instruments.
The classification of comparative
financial statements for earlier periods. The adoptionderivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of SFAS No. 130 has
resultedeach reporting period. Derivative instrument liabilities are classified in the presentationbalance sheet as current or non-current based on whether or not net-cash settlement of comprehensive income (loss) that differsthe derivative instrument is probable within the next 12 months from net income (loss)the balance sheet date.
Notes payable conversion options are recorded as presenteddebt discounts and are amortized as interest expense over the term of the related debt instrument.
Sequencing Policy
In January 2018, as a result of entering into a convertible debenture which contained a variable conversion feature with no floor, we adopted a sequencing policy in the accompanying financial statements to the
extent of foreign currency translation adjustments as shown in the accompanying
consolidated statements of comprehensive income (loss).accordance with ASC 815-40-35-12 The Company presentation of its comprehensive income component, foreign currency translation
adjustments,retrospectively is presented net of tax, which is $0 foradopting the sequencing policy so all periods presented, in
light of the Company's current net operating loss carryforward position.

Disclosures about warrants with fixed exercise price, and convertible notes with fixed conversion price or with a conversion price floor are sequenced by issue date thus excluded from derivative consideration.
Fair Value of Financial Instruments
-----------------------------------------------------Instruments. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following methods and assumptions werefair value hierarchy based on the three levels of inputs that may be used to estimate themeasure fair value are as follows:
Level 1– Quoted prices in active markets for identical assets or liabilities.
Level 2– Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of each classthe assets or liabilities.
F-10
Level 3– Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
For certain of our financial instrument held byinstruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the Company:

Current assets and liabilities: The carrying value approximatesamounts approximate fair value due to the short maturity of these items.

Long-terminstruments. The carrying value of our long-term debt approximates its fair value based on the quoted market prices for the same or similar issues or the current rates offered to us for debt of the same remaining maturities.
Our derivative liabilities as of July 31, 2018 and 2017 of $632,000 and $0, respectively, were valued using Level 3 inputs.
The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:
Balance at July 31, 2017 $ -
Derivative discount - convertible debt 541,000
Derivative loss 91,000
Balance at July 31, 2018 $ 632,000
Income taxes. Digerati recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. Digerati provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Since January 1, 2007, Digerati accounts for uncertain tax positions in accordance with the authoritative guidance issued by the Financial Accounting Standards Board on income taxes which addresses how an entity should recognize, measure and present in the financial statements uncertain tax positions that have been taken or are expected to be taken in a tax return. Pursuant to this guidance, Digerati recognizes a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that is greater than 50% likely of being realized upon settlement. As of July 31, 2017 we have no liability for unrecognized tax benefits.
Stock-based compensation. In June 2018 FASB adopted the Accounting Standards Update No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting. This update simplifies the accounting for non employee share-based payment transactions by expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within that reporting period. The Company adopted the updated standard as of May 1, 2018 and adopting this guidance did not have a material effect on its consolidated financial statements. During fiscal 2017 and 2018, the Company issued 1,003,970 common shares and 2,213,512 common shares, respectively to various employees as part of our profit-sharing plan contribution and stock in lieu of cash. At the time of issuance during fiscal 2017 and 2018 we recognized stock-based compensation expense of approximately $241,000 and $1,240,000, respectively equivalent to the market value of the shares issued calculated based on the share’s closing price at the grant dates.
F-11
Basic and diluted net income (loss) per share. The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the year ended July 31, 2017, potential dilutive securities including options and warrants had dilutive effect and were included in the calculation of diluted net income (loss) per common share. For the year ended July 31, 2018, potential dilutive securities including options and warrants were not included in the calculation of diluted net (loss) per common share. Potential dilutive securities, which are not included in dilutive weighted average shares are as follows:
7/31/2018 7/31/2017
Options to purchase common stock 3,415,000
Warrants to purchase common stock 2,370,000 210,000
Convertible debt 3,268,214 -
Total: 9,053,214 210,000
Noncontrolling interest
The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, which governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance.
The net income (loss) attributed to the NCI is separately designated in the accompanying consolidated statements of operations and other comprehensive income (loss). For the year ended July 31, 2018 and 2017, the Company recognized a noncontrolling deficits of $57,000 and $0, respectively.
Recently issued accounting pronouncements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, and the Company adopted the standard effective August 1, 2018.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments under this pronouncement will change the way all leases with a duration of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases are under current accounting, as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. This update is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2018. In July 2018 the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provided additional implementation guidance on the previously issued ASU. The Company is currently assessing the impact of adopting this guidance on its consolidated financial statements.
In June 2018, the FASB issued Accounting Standards Update No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting. This update simplifies the accounting for non-employee share-based payment transactions by expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within that reporting period. The Company adopted this updated standard as of May 1, 2018, and adopting this guidance did not have a material effect on the presentation of our consolidated financial statements.
NOTE 2 – GOING CONCERN
Financial Condition
Digerati’s consolidated financial statements for the year ending July 31, 2018 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. Digerati has incurred net losses and accumulated a deficit of approximately $80,800,000 and a working capital deficit of approximately $3,722,000which raises substantial doubt about Digerati’s ability to continue as a going concern.
Management Plans to Continue as a Going Concern
Management believes that current available resources will not be sufficient to fund the Company’s operations over the next 12 months. The Company’s ability to continue to meet its obligations and to achieve its business objectives is dependent upon, among other things, raising additional capital or generating sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company will seek to secure such additional funding from various possible sources, including the public equity market, private financings, sales of assets, collaborative arrangements and debt. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain technologies. There can be no assurance that the Company will be able to raise additional funds or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, it may be unable to execute its business plan, the Company could be required to delay or reduce the scope of its operations, and the Company may not be able to pay off its obligations, if and when they come due.
The Company will continue to work with various funding sources to secure additional debt and convertible debt: Sinceequity financings. However, Digerati cannot offer any assurance that it will be successful in executing the Company's debtaforementioned plans to continue as a going concern.
Digerati’s consolidated financial statements as of July 31, 2018 do not include any adjustments that might result from the inability to implement or execute Digerati’s plans to improve our ability to continue as a going concern.

NOTE 3 – INTANGIBLE ASSETS
During fiscal 2008, Digerati made a loan of $150,000 to NetSapiens Inc. The note receivable had a maturity date of June 26, 2008 with interest at 8% per year. The note was secured by NetSapiens’ proprietary Starter Platform License and SNAPsolution modules. On June 26, 2008 Digerati converted the outstanding interest and principal balance into a lifetime and perpetual NetSapiens’ License. The License provides Digerati with the ability to offer Hosted PBX(Private Branch eXchange), IP Centrex application, prepaid calling, call center, conferencing, messaging and other innovative telephony functionality necessary to offer standard and/or custom services to enterprise markets. The NetSapiens’ License, in the amount of $150,000, is not
quoted, estimates arebeing amortized equally over a period of 10 years. For the years ended July 31, 2018 and 2017, amortization totaled approximately $13,750 and $15,000, respectively. As of July 31, 2018 the NetSapiens’ License is fully amortized.
On December 1, 2017, Shift8 and Synergy Telecom, Inc., a Delaware corporation (“Synergy”), closed a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy. The total purchase price was $425,000, the acquisition was accounted for under the purchase method of accounting, with Digerati identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by Digerati was allocated to customer contracts acquired, software licenses, and goodwill based on each obligations' characteristics, including
remaining maturity, interest rate, credit rating, collateral,their fair values as of July 31, 2018.
The following information summarizes the allocation of the fair values assigned to the assets. The allocation of fair values is based on an extensive analysis and is subject to changes in the future during the measurement period.
Synergy Useful life
(years)
Customer relatiosnhips $ 40,000 5
License - software 105,000 3
Goodwill 280,000 -
Total Purchase price $ 425,000
For the years ended July 31, 2018 and 2017, amortization schedule and liquidity (without considerationexpense for the convertibilityacquired intangible was $25,000 and $0, respectively.
On May 2, 2018, the Company closed on the Merger Agreement with T3 Communications, Inc. to increase its customer base and obtain higher efficiency of its existing infrastructure.
The total purchase price was $3,211,945 paid in cash at closing. The acquisition was accounted for under the purchase method of accounting, with the Company identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by the Company was allocated to cash, customer contracts acquired, current assets, property plant and equipment and assumed payables based on their estimated fair values as of May 2, 2018.
The following information summarizes the allocation of the notes).purchase price assigned to intangible assets. The Company believes thatallocation of fair values is based on an extensive analysis and is subject to changes in the carrying amount does not differ
materially fromfuture during the fair value.

4.measurement period.
Synergy Useful life (years)
Customer relationships $ 1,480,000 7
Marketing & Non-compete 800,000 5
Goodwill 554,828 -
Total $ 2,834,828

For the years ended July 31, 2018 and 2017, amortization expense for the acquired assets totaled approximately $93,000 and $0, respectively.
Intangible assets at July 31, 2018 and 2017 are summarized in the tables below:
July 31, 2018 Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Amount
NetSapeins - license, 10 years $ 150,000 $ (150,000 ) $ -
Customer relationships, 5 years 40,000 (4,667 ) 35,333
Customer relationships, 7 years 1,480,000 (64,652 ) 1,415,348
Marketing & Non-compete, 5 years 800,000 (40,000 ) 760,000
Total Define-lived Assets 2,470,000 (259,319 ) 2,210,681
Goodwill, Indefinite 834,828 - 834,828
Balance, July 31, 2018 3,304,828 (259,319 ) 3,045,509
Gross Net
Carrying Accumulated Carrying
July 31, 2017 Value Amortization Amount
NetSapeins - license, 10 years $ 150,000 $ (136,500 ) $ 13,500
Total Define-lived Assets 150,000 (136,500 ) 13,500
Goodwill, Indefinite - - -
Balance, July 31, 2017 150,000 (136,500 ) 13,500
Total amortization expense for the periods ended July 31, 2018 and 2017 was approximately $123,000 and $15,000, respectively.
NOTE 4 – PROPERTY AND EQUIPMENT NET (at cost)

Following is a summary of the Company'sDigerati’s property and equipment at July 31, 19982018 and 1999 and October 31, 1999:

July 31, 1998 July 31, 1999 October 31, 1999
------------- ------------- ----------------

Telecommunications equipment $ 6,084 ,771 $ 6,476,395 $ 6,709,820

Land and buildings 892,507 447,748 460,495

Furniture and fixtures 882,449 902,873 930,912

Equipment under capital leases 5,585,291 7,758,739 8,025,089

Leasehold improvements 281,014 474,748 474,748

Other 517,192 608,914 715,439
------------- ------------- ----------------
14,233,224 16,669,417 17,316,503

Less: accumulated depreciation and amortization (2,418,514) (4,712,671) (5,312,203)
------------- ------------- ----------------
Total - property and equipment, net $ 11,814,710 $ 11,956,746 $ 12,004,300
============= ============= ================

Depreciation expense as reported in the Company's Consolidated Statements
of Operations includes depreciation expense related to the Company's capital
leases. For the years ended July 31, 1997, 1998 and 1999 and the three months
ended October 31, 1998 and 1999, the Company recorded approximately $536,000,
$1,453,000, $2,323,0000, $477,662 and $655,017, respectively of depreciation
expense related to its fixed assets.

5. NOTES PAYABLE AND CONVERTIBLE DEBT

Notes Payable
- -------------

July 31, October 31,
Notes payable are comprised of the following: -------- -----------

1998 1999 1999
---- ---- ----

Note payable to a company, see terms below. $ 25,320 $ 137,071 $ 39,725

Note payable to an individual, see terms below. - 150,000 150,000

Note payable to a bank, see terms below. - 150,000 190,000

Notes payable to related parties, see terms below. - 100,000 72,858

Note payable to an individual, see terms below. - 368,768 185,283

Notes payable to various banks, see terms below. 416,846 56,878 55,641

Notes payable to a company, net of discount, see terms below. 364,803 309,588 314,017
---------- ---------- ----------

$1,406,969 $1,272,305 $1,007,524

Less: current portion $ 688,005 $ 960,523 $ 699,313
---------- ---------- ----------

$ 718,964 $ 311,782 $ 308,211
Total non-current notes payable ========== ========== ==========

During November 1996, the Company entered into an agreement with a
financing company under which the Company is advanced an additional 13.75% of
its receivables sold to a billing clearinghouse, as discussed in Note 3. These
advances are typically outstanding for periods of less than 90 days, and are
repaid, including accrued interest, by the clearinghouse on behalf of the
Company as its receivables from long distance call services are collected. 2017 (in thousands):
Useful lives 2018 2017
Telecom equipment & software 1-5 years $ 831 $ 16
Less: accumulated depreciation (118 ) (14 )
Net–property and equipment $ 713 $ 2
The Company was charged 4% per month for these fundings. When the agreement with
the financing company expired in November 1998, it was renewed on a month-to-
month basis, and the Company ceased using the factoring arrangement altogether
in April 1999 as part of its ongoing effort to minimize costs. The approximate
$40,000 outstanding at October 31, 1999 represents advances to be repaid by the
clearinghouse to the financing company upon its subsequent collection of its
receivables from long distance call services.

During February 1999, the Company entered into a note payable with an
individual, for working capital purposes, in the amount of $150,000. Interest
accrues at an interest rate of 12% per year, principal and interest due at
maturity. The note originally matured in May 1999, but the Company has extended
the note with the individual for an additional six months.

During January 1999, one of the Company's subsidiaries entered into a note
payable with a bank in the amount of $180,000 related to its acquisition of a
computer software program known as "CuteFTP/TM/". (See Note 10). The note
calls for principal payments of $5,000 per month for twelve months and $10,000
per month for twelve months. Interest accrues monthly at an interest rate of the
Lender's "Prime Rate" plus 1%. At July 31, 1999, the Lender's "Prime Rate" was
8.00%. In October 1999, the Company's subsidiary entered into an additional note
payable with a bank in the amount of $50,000 for working capital purposes. The
note calls for principal payments of $1,000 per month for six months and $3,667
per month for twelve months. Interest accrues monthly at an interest rate of the
Lender's "Prime Rate" plus 1%. At October 31, 1999, the Lender's "Prime Rate"
was 8.25%.

In February 1999, the Company entered into notes payable with related
parties, all of whom were officers or directors of the Company in the amount of
$250,000. The notes accrue interest at a rate of 12% per year until paid in
full. As of October 31, 1999, approximately $73,000 of the notes remain
outstanding.

In January 1999, one of the Company's subsidiaries entered into an
agreement with an individual related to its acquisition of a computer software
program known as "CuteFTP/TM/". (See Note 10). The agreement calls for twelve
principal and interest payments of $63,000 per month beginning February 28,
1999. The Company has imputed interest using an interest rate of 12% per annum.

As of July 31, 1998 and July 31, 1999 and October 31, 1999, the Company
through its acquisition of Computel had approximately $416,846, $56,878 and
$55,641, respectively, of bank notes payable to various banks in Mexico. The
notes have interest rates ranging from 8% to 15%, with monthly principal and
interest payments of approximately $7,500. The notes mature between October
1999 and December 2015 and are collaterized by the assets of Computel. In the
year ended July 31, 1999, the Company through Computel exchanged certain assets
collaterized by the notes for a reduction in its indebtedness. The notes
remaining mature during the year ended July 2000.

During October 1997, the Company entered into a note payable with a company
in the amount of $1,000,000. The note calls for quarterly payments of principal
and interest beginning in January 1998 and continuing until October 2004.
Interest accrues on the unpaid principal at the rate of 13% per year. The
Company also issued 250,000 warrants to the note holder which carry an exercise
price of $3.56 per warrant. These warrants expire in October 2000. The amount
of debt discount recorded by the Company related to the issuance of these
warrants was $103,333. The fair value of the warrants was calculated on the date
of issuance using an option pricing model with the following assumptions:
Dividend yield of 0.0%, expected volatility of 30%, risk-free interest rate of
6.00%, and an expected life of three years. The warrants expire three years
from their date of issuance, and are not exercisable for a period of one year
after their initial issuance. In January 1998, the noteholder exercised 700,000
warrants at an exercise price of $0.70, unrelated to the warrants noted above,
in consideration of a $490,000 reduction of the principal balance outstanding on
the note.

Convertible Debt
- ----------------

In March and May 1997, the Company issued $2.2 million in convertible
notes, interest at 10%. The principal and interest, which accrues quarterly, is
due and payable three years from the date of issuance. The convertible notes
convert into fully redeemable preferred stock at the Company's option. In
addition, for each $50,000 unit of convertible debt, each holder was issued
108,549 warrants to purchase an equal number of shares of common stock at $0.27
per share. The fair value of the warrants was determined to be $0.37 per share
and the Company assigned $990,000 to the value of the warrants in stockholders'
equity. The fair value of the warrants was calculated on the date of issuance
using an option pricing model with the following assumptions: Dividend yield of
0.0%, expected volatility of 62%, risk-free interest rate of 6.35%, and an
expected life of three years. The warrants expire three years from their date of
issuance, and were not exercisable for a period of one year after their initial
issuance. The Company has recorded the $990,000 as debt discount and is
amortizing the discount over the term of the debt based on the effective
interest method. Principal outstanding as of July 31, 1998 and July 31, 1999 and
October 31, 1999, net of debt discount, was $1,603,802, $1,942,614 and
$2,032,623, respectively. All of the outstanding principal at July 31, 1999 and
October 31, 1999, is reflected in the current portion of convertible long-term
debt.

Maturities of notes payable and convertible debt as of July 31, 1999 were as
follows:

Year Ending July 31, 2000 $2,903,137

2001 107,983

2002 56,949

2003 67,138

2004 78,718

Thereafter 994
----------

Total $3,214,919
==========

6. LEASES

Operating Leases
----------------

The Company leases office space, furniture, equipment and network capacity
under noncancelable operating leases and certain month-to-month leases. During
fiscal 1997, 1998 and 1999, the Company also leased certain equipment under
capital leasing arrangements. Rental expense under operating leasesuses straight-line depreciation, for the years ended July 31, 1997, 19982018 and 19992017, depreciation totaled approximately $104,000 and $3,000, respectively.
NOTE 5 – INCOME TAXES
Digerati files a consolidated tax return. The current tax year is subject to examination by the three months ended October 31,
1998Internal Revenue Service and 1999, was $176,700, $942,750, $2,952,710, $728,981 and $633,374,
respectively. Future minimum lease payments under the noncancelable operating
leases at July 31, 1999, are as follows:

2000 $ 2,929,328
2001 3,284,740
2002 2,598,753
2003 583,524
2004 574,542
Thereafter 1,864,863
-----------
Total minimum lease payments $11,835,750
===========

Capital Leases
--------------

Future minimum lease payments under the capital leases together with the
present value of the net minimum lease payments at July 31, 1999 are as follows:

2000 $ 2,295,036
2001 2,246,127
2002 2,022,825
2003 1,758,391
2004 562,335
Thereafter 277,435
-----------
Total minimum lease payments 9,162,149
Less: Amount representing taxes (45,302)
-----------
Net minimum lease payments 9,116,847
Less: Amount representing interest (2,164,572)
-----------
Present value of minimum lease payments $ 6,952,275
===========

In April 1997, the Company, through ATSI-Mexico secured a capital lease
facility with IBM de Mexico to purchase intelligent pay telephones for
installation in Mexico. The capital lease facility of approximately $1.725
million has allowed the Company to install U.S. standard intelligent pay
telephones in various Mexican markets. In April 1998, the Company through ATSI-
Mexico secured an additional capital lease facility with IBM de Mexico for
approximately $2.9 million to increase network capacity and to fund the purchase
and installation of public telephones in Mexico. In May 1999, the Company
restructured its capital lease obligation with IBM de Mexico by extending the
payment of its total obligation. The restructured lease facility calls for
monthly payments of principal and interest of approximately $108,000 beginning
in July 1999 and extending through June 2003. Interest accrues on the facility
at an interest rate of approximately 13% per year. The obligation outstanding
under said facility at July 31, 1998, July 31, 1999 and October 31, 1999 was
approximately $4,272,000, $3,826,000 and $3,704,000, respectively.

In December 1998, the Company ordered a DMS 250/300 International gateway
switch from Northern Telecom, Inc. at a cost of approximately $1.8 million.certain state taxing authorities. As of July 31, 1999,2018, Digerati had net operating loss carry-forwards of approximately $5,956,000 to reduce future federal income tax liabilities; the loss carryforwards will start to expire in 2020. Under the recently enacted Tax Cuts and Jobs Act (TCJA), the new effective Corporate flat tax rate is 21% (effective for tax years beginning after December 31, 2017). Income tax benefit (provision) for the years ended July 31, 2018 and 2017 are as follows:
The effective tax rate for Digerati is reconciled to statutory rates as follows:
2018 2017
Expected Federal benefit (provision), at statutory rate 21.0 % 35.0 %
Change in valuation allowance (21.0 )% (35.0 )%
0.0 % 0.0 %

Deferred tax assets are comprised of the following as of July 31, 2018 and 2016:
2018 2017
Net operating loss carryover $ 1,090,700 $ 1,282,000
Valuation allowance (1,090,700 ) (1,282,000 )
Total deferred tax asset, net $ - $ -
At July 31, 2018, realization of Digerati’s deferred tax assets was not considered likely to be realized. The change in the valuation allowance for 2018 was resulted in a decrease of approximately $191,000. Management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in Digerati’s combined financial statements. The current year remains open to examination by the major taxing jurisdictions in which Digerati is subject to tax. The Company entered intofiles a capital lease transaction with NTFC
Capital Corporation, ("NTFC") to finance the switch and an additional
approximate $200,000 of equipment over a five and a half-year period with
payments delayed for six months. Quarterly payments approximate $139,000calendar year return and the capital lease has an interest rate of approximately 11%. The lease facility
requires that the Company meet certain financial covenants on a quarterly basis
beginning October 31, 1999, including minimum revenue levels, gross margin
levels, EBITDA results and debt to equity ratios. As of October 31, 1999, the
Company did not meet certain of its financial covenants related to EBITDA
results. While the Company has requested a waiver from NTFC for not meeting all
of its financial covenants, there is no guarantee it will receive it. Should the
company be unable to cure its default related to non-compliance within the time
period called for in the debt facility, one of the options available to NTFC
Capital Corporation would be to call the debt. Accordingly, the Company has
classified the total amount outstanding under said lease as current in its
October 31, 1999 balance sheet.

The Company secured a capital lease for approximately $500,000 in December
1998net operating loss was adjusted for the purchase of ATM equipment from Network Equipment Technologies
("N.E.T"). The capital lease is for thirty-six months with monthly payments of
approximately $16,000 a month. The Company's capital leases have interest rates
ranging from 11% to 14%.

7. DEFERRED REVENUE

The Company records deferred revenue related to the private network
services it provides. Customers may be required to advance cash to the Company
prior to service commencement to partially cover the cost of equipment and
related installation costs. Any cash received prior to the actual commencement
of services is recorded as

deferred revenue until services are provided by the Company, at which time the
Company recognizes service commencement revenue.

8. SHARE CAPITAL

As discussed in Note 1, in May 1998, the Company completed its Plan of
Arrangement whereby the shareholders of ATSI-Canada exchanged their shares on a
one-for-one basis for shares of ATSI-Delaware stock. The exchange of shares
resulted in the recording on the Company's books of $0.001 par value stock and
additional paid-in capital.

fiscal year ended July 31, 2018.
During the year ended July 31, 1997,2018 the Company issued 13,012,448 common
shares. Of this total, 5,760,355 shares were issued for approximately
$4,737,000 of net cash proceeds, 924,761 shares were issued for services
rendered to the Company, 3,611,786 shares were issued for the conversion of
convertible debt to4,389,086 common shares, and 2,715,546 shares were issued relatedunder our initial assessment this will likely result in a change of control and the net operation loss (NOL’s) became subject to the Company's acquisitionseparate return limitation year. We will evaluate during the tax year and consider the limitations.
We record unrecognized tax benefits as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of Computel. (See Note 10)the evaluate on new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Commitments
Digerati leases its corporate facilities, sales office and network facilities in Texas and Florida. The annual rent expense under the operating leases was $81,670 and $6,996, for 2018 and 2017, respectively. Below is a list of our primary operating leases:
The future minimum lease payment under the operating leases are as follows:
Location Lease Expiration Date Annual
Rent Business Use Approx. Sq. Ft.
1600 NE Loop 410, Suite 126, San
Antonio, TX 78209 Apr-19 $ 27,300 Executive offices 1,453
2401 First Street, Suite 300,
Ft. Myers, FL 34901 Nov-20 $ 107,534 Lease of network facilitie
and office space 6,800
7218 McNeail Dr, Austin, TX 78729 Aug-21 $ 14,222 Lease of network facilities 25
6606 Lyndon B. Johnson, Fwy., FL1,
Suite 125, Dallas, TX 75240 Sep-21 $ 25,161 Lease of network facilities 25
9701 S. John Young Parkway, Orlando,
FL 32819 May-23 $ 30,528 Lease of network facilities 540
NOTE 7 – STOCK -BASED COMPENSATION
In November 2015, Digerati adopted the Digerati Technologies, Inc. 2015 Equity Compensation Plan (the “Plan”). DuringThe Plan authorizes the year ended July 31, 1998, the Company issued 8,816,461 common
shares. Of this total, 7,765,174 shares were issued for approximately $3.2
million of net cash proceeds and reductions in indebtedness of approximately
$1.1 million through the exercise of 7,765,174 warrants and options, 245,016
shares were issued for services rendered to the Company, 200,000 were issued
resulting from the conversion of a $100,000 convertible note and 606,271 shares
were issued for approximately $333,000 in net cash proceeds.

During the year ended July 31, 1999, the Company issued 3,081,721 common
shares. Of this total, 2,203,160 shares were issued for approximately $1.3
million of net cash through the exercise of 2,203,160 warrants and options,
36,643 shares were issued for consulting services rendered to the Company,
59,101 shares were issued to a shareholder in exchange for a guaranteegrant of up to $500,000 of Company debt, 503,3877.5 million stock options, restricted common shares, non-restricted common shares and an equal number of warrants to
purchase the Company's common stock for $0.70 per share were issued in exchange
for approximately $300,000 in net cash proceeds and 279,430 shares were issued
related to the Company's acquisition of certain customer contracts in previous
years. The shares issued for services rendered, the guarantee of Company debt,
and the shares issued for the $300,000 in cash proceeds (including the shares
underlying the warrants issued) have not been registered by the Company, nor
does the Company have any obligation to register such shares.

During the three months ended October 31, 1999, the Company issued 129,274
common shares related to the conversion of $75,000 of the Company's Series B
Preferred Stock.

At July 31, 1999 and October 31, 1999, stock subscription receivables of
$42,500 and $0, respectively, were outstanding related to sales of common stock.
Such amounts were collected by the Company subsequent to said date. No
dividends were paid on the Company's stock during the years ended July 31, 1997,
1998 and 1999 or the three months ended October 31, 1999.

The shareholders of ATSI-Canada approved the creation of a class of
preferred stock at the Company's annual shareholders meeting on May 21, 1997.
Effective June 25, 1997, the class of preferred stock was authorized under the
Ontario Business Corporations Act. According to the Company's amended Articles
of Incorporation, the Company's Board of Directors may issue, in series, an
unlimited number of preferred shares, without par value. No preferred shares
have been issued as of July 31, 1999.

Pursuant to ATSI-Delaware's Certificate of Incorporation, the Company's
Board of Directors may issue, in series, an unlimited number of preferred
shares, with a par value of $0.001. In March and April 1999, the Company issued
a total of 24,146 shares of Series A Preferred Stock for cash proceeds of
approximately $2.4 million and in July 1999 the Company issued 2,000 shares of
Series B Preferred Stock for cash proceeds of approximately $2.0 million. The
Series A Preferred Stock accrues cumulative dividends at the rate of 10% per
annum payable quarterly, while the Series B Preferred Stock accrues cumulative
dividends at the rate of 6% per annum.

In September 1999, the Company issued 500 shares of Series C Preferred
Stock for cash proceeds of approximately $500,000. The Series C Preferred Stock
accrues cumulative dividends at the rate of 6% per annum.

The Series A Preferred Stock and any accumulated, unpaid dividends may be
converted into Common Stock for up to one year at the average closing price of
the Common Stock for twenty (20) trading days preceding the Date of Closing (the
"Initial Conversion Price"). On each Anniversary Date up to and including the
fifth Anniversary Date, the Conversion price on any unconverted Preferred Stock,
will be reset to be equal to 75% of the average closing price of the stock for
the then twenty (20) preceding days provided that the Conversion price can not
be reset any lower than 75% of the Initial Conversion Price. The Series B
Preferred Stock and any accumulated, unpaid dividends may be converted into
Common Stock for up to two years at the lesser of a) the market price on the day
prior to closing or b) 78% of the five lowest closing bid prices on the ten days
preceding conversion. As these conversion features are considered a "beneficial
conversion feature" to the holder, the Company allocated approximately $1.6
million and $1.1 million, respectively of the approximate $2.4 million and $2.0
million, respectively, in proceeds to additional paid-in capital as a discount
to be amortized over a twelve month and three month period, respectively. The
Series A Preferred Stock is callable and redeemable by the Company at 100% of
its face value, plus any accumulated, unpaid dividends at the Company's option
any time after the Common Stock of the Company has traded at 200% or more of the
conversion price in effect for at least twenty (20) consecutive trading days, so
long as the Company does not call the Preferred Stock prior to the first
anniversary date of the Date of Closing. The Series B Preferred Stock is
callable and redeemable by the Company at 127% of its face value, plus any
accumulated, unpaid dividends at the Company's option any time prior to the
second anniversary date of the Date of Closing.

The Series C Preferred Stock and any accumulated, unpaid dividends may be
converted into Common Stock for up to two years at the lesser of a) the market
price on the day prior to closing or b) 78% of the five lowest closing bid
prices on the ten days preceding conversion. Consistent with the accounting for
the Company's Series A and Series B Preferred Stock, this is considered a
"beneficial conversion feature" to the holder. The Company will allocate
approximately $130,000 of the proceeds to additional paid-in capital as a
discount to be amortized over a three-month period.

The terms of the Company's Series A, Series B and Series C Preferred Stock
restrict the Company from declaring and paying on its common stock until such
time as all outstanding dividends have been fulfilled related to the Preferred
Stock.

9. STOCK PURCHASE WARRANTS AND STOCK OPTIONS

During the year ended July 31, 1999, certain shareholders and holders of
convertible debt of the Company were issued warrants to purchase shares of
common stock at exercise prices ranging from $0.70 to $1.06 per share.
Following is a summary of warrant activity from August 1, 1996 through July 31,
1999:

Year Ending July 31,
--------------------------------------------------
1997 1998 1999
--------------------------------------------------

Warrants outstanding, beginning 8,097,463 14,489,942 7,562,168
Warrants issued 9,931,854 667,400 933,387
Warrants expired (777,200) - (2,386,470)
Warrants exercised (2,762,175) (7,595,174) (1,905,160)
---------- ---------- ----------
Warrants outstanding, ending 14,489,942 7,562,168 4,203,925
========== ========== ==========

Warrants outstanding at July 31, 1999 expire as follows:

Number of Warrants Exercise Price Expiration Date
- ------------------ -------------- ---------------

80,000 $1.06 November 6, 1999

30,000 $0.50 December 31, 1999

367,400 $0.85 January 1, 2000

550,824 $0.85 February 7, 2000

1,030,060 $0.27 February 17, 2000

1,000,000 $0.70 February 28, 2000

192,254 $0.75 April 7, 2000

503,387 $0.70 April 13, 2000

50,000 $2.00 June 20, 2000

250,000 $3.56 October 14, 2000

50,000 $3.09 March 9, 2002

100,000 $1.25 July 2, 2004

The Company had two fixed stock plans during 1997. The Company had a stock
option plan that was in existence since May 1994 (the Canadian Plan). No
options were ever issued as part of the Canadian Plan, even though the Company
had the ability to issue options to acquire approximately 2,800,000 shares of
the Company's common stock. In February 1997, the Company's Board of Directors
adopted the 1997 Stock Option Plan, which replaced the Canadian Plan. Under the
1997 Stock Option Plan, options to purchase up to 5,000,000 shares of common
stock may be grantedother awards to employees, directors, consultants and advisers.certain other persons. The
1997 Stock Option Plan is intended to permit the CompanyDigerati to retain and attract qualified individuals who will contribute to the Company's overall success. The
exercise pricesuccess of Digerati. Digerati’s Board of Directors determines the terms of any grants under the Plan. Exercise prices of all of thestock options is equal toand other awards vary based on the market price of the shares of common stock as of the date of grant. The stock options, restricted common stock, non-restricted common stock and other awards vest pursuantbased on the terms of the individual grant.
During the year ended July 31, 2018, we issued:
● 644,732 common shares to various employees as part of the Company’s profit-sharing plan contribution. The Company recognized stock-based compensation expense of approximately $226,000 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.
● 515,493 common shares to management for services in lieu of cash compensation. The Company recognized stock-based compensation expense of approximately $222,000 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.
● 646,787 common shares to management for services in lieu of cash compensation. The Company recognized stock-based compensation expense of approximately $306,000 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.
● 1,025,000 options to purchase common shares to various employees with an exercise price of $0.35 per share and a term of 5 years. The options vest equally over a period of one year. The options have a fair market value of $218,200.
●
275,000 options to purchase common shares to various employees with an exercise price of $0.35 per share and a term of 5 years. The options vest equally over a period of two years. The options have a fair market value of $74,600.
● 545,000 options to purchase common shares to various employees with an exercise price of $0.35 per share and a term of 5 years. The options vest equally over a period of three years. The options have a fair market value of $164,600.
● 420,000 options to purchase common shares to various employees with an exercise price of $0.45 per share and a term of 5 years. The options vest equally over a period of three years. The options have a fair market value of $160,000.
The fair market value of all options issued was determined using the Black-Scholes option pricing model which used the following assumptions:
Expected dividend yield 0.00%
Expected stock price volatility 162.72% - 169.76%
Risk-free interest rate 2.13% -2.78%
Expected term 1.0 - 3.0 years

During the year ended July 31, 2018 we issued the following to non-employee professionals:
● In September 2017, the Company issued an aggregate of 12,500 shares of common stock with a market value at time of issuance of $4,375. The shares were issued for consulting services.
● In December 2017, the Company issued an aggregate of 100,000 shares of common stock with a market value at time of issuance of $40,000. The shares were issued for consulting services.
● In June 2018, the Company issued an aggregate of 100,000 shares of common stock with a market value at time of issuance of $48,000. The shares were issued for consulting services.
● In July 2018, the Company issued an aggregate of 194,000 shares of common stock with a market value at time of issuance of $93,720. The shares were issued to various professionals for consulting services.
Also, during the year ended July 31, 2018 we issued the following to settle accounts payables:
● In June 2018, the Company issued an aggregate of 35,575 shares of common stock with a market value at time of issuance of $15,288. The shares were issued to settle accounts payables with various professionals, the Company recognized a loss of $5,700 upon issuance of the shares.
During fiscal 2018, the Company recognized $1,054,000 as employee stock compensation expense and $186,000 as non-employee stock compensation expense. Unamortized compensation cost totaled $397,000 and $88,000, respectively as of July 31, 2018 and July 31, 2017.
A summary of the stock options of July 31, 2018 and 2017 and the changes during the years ended July 3, 2018 and 2017 are presented below:
Weighted-average
Weighted-average remaining contractual
Options exercise price term (years)
Outstanding at July 31, 2016 - $ - -
Granted 1,170,000 $ 0.24 5.00
Exercised - - -
Forfeited and cancelled - - -
Outstanding at July 31, 2017 1,170,000 $ 0.24 4.30
Granted 2,265,000 $ 0.37 5.00
Exercised - - -
Forfeited and cancelled (20,000 ) $ 0.24 3.30
Outstanding at July 31, 2018 3,415,000 $ 0.33 4.58
Exercisable at July 31, 2018 2,006,111 $ 0.29 4.58
The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) of the 1,170,000 and 3,415,000 stock options outstanding at July 31, 2017 and July 31, 2018 was $339,000 and $706,372 , respectively.
The aggregate intrinsic value of 721,111 and 2,006,111 stock options exercisable at July 31, 2017 and July 31, 2018 was $209,000 and $587,389, respectively.
NOTE 8 – WARRANTS
During the year ended July 31, 2017, the Company issued the following warrants:
The Company secured $560,000 from various accredited investors under a private placement and issued 1,120,000 shares of its common stock at a price of $0.50 per share and warrants to purchase an additional 210,000 shares of its common stock at an exercise price of $0.50 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments.
F-18
During the year ended July 31, 2018, the Company issued the following warrants:
The Company secured $480,000 from various accredited investors under a private placement and issued 960,000 shares of its common stock at a price of $0.50 per share and warrants to purchase an additional 180,000 shares of its common stock at an exercise price of $0.50 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments.
In December 2017, Digerati issued 100,000 warrants to a consultant for services, the warrants vested at time of issuance. The warrants have a term of 5 years, with an exercise price of $0.50. Under a Black-Scholes valuation the fair market value of the warrants at time of issuance was approximately $49,000, the company will amortize the fair market value as warrant expense over 12 months. Additionally, Digerati committed to issue 100,000 warrants if the Company’s stock price traded at $0.75 per share for 10 consecutive days, to issue 100,000 warrants if the Company’s stock price traded at $1.00 per share for 10 consecutive days, and to issue 100,000 warrants if the Company’s stock price traded at $1.25 per share for 10 consecutive days. Under a Black-Scholes valuation the fair market value of the warrants at time of issuance was approximately $143,000, the company will amortize the fair market value as warrant expense over 12 months. During the year ended July 31, 2018 the Company amortized $128,000 in warrant expense related to these warrants.
In January 2018, Digerati issued 220,000 warrants to a consultant for services, the warrants vested at time of issuance. The warrants have a term of 5 years, with an exercise price of $0.001. At time of issuance the company recognized approximately $119,000 in warrant expense using Black-Scholes valuation.
In March 2018, Digerati issued 300,000 warrants under two promissory notes and, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $127,000 and was recognized as a discount on the two promissory notes, the company will amortize the fair market value as interest expense over 9 months.
In March 2018, Digerati issued 30,000 warrants under various promissory notes, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.15. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $12,000 and was recognized as a discount on the two promissory notes, the company will amortize the fair market value as interest expense over 4 months.
In April 2018, Digerati issued 400,000 warrants under various promissory notes, the warrants vested at time of issuance. The warrants have a term of 5 years, with an exercise price of $0.15. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $107,000 and was recognized as a discount on the promissory notes, the company will amortize the fair market value as interest expense over 4 months.
In April 2018, Digerati issued 100,000 warrants under a promissory note, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.50.Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $27,000 and was recognized as a discount on the promissory notes, the company will amortize the fair market value as interest expense over 55 months.
In April 2018, Digerati issued 75,000 warrants under a promissory note, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.50.Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $19,000 and was recognized as a discount on the promissory notes, the company will amortize the fair market value as interest expense over 25 months.
In June 2018, Digerati issued 255,000 warrants under various promissory notes, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10.Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $110,000 and was recognized as a discount on the promissory notes, the company will amortize the fair market value as interest expense over 9 months.
In July 2018, Digerati issued 50,000 warrants to a consultant for services, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.50. At time of issuance the company recognized approximately $21,000 in warrant expense using Black-Scholes valuation.
In July 2018, Digerati received $15,000 for the exercise of 150,000 warrants, with an exercise price of $0.10 per warrant.

The fair market value of all warrants issued was determined using the Black-Scholes option pricing model which used the following assumptions:
Expected dividend yield 0.00%
Expected stock price volatility 153.99% - 176.56%
Risk-free interest rate 2.05% -2.80%
Expected term 3.0 - 5.0 years
A summary of the warrants as of July 31, 2018 and 2017 and the changes during the years ended July 31, 2018 and 2017 are presented below:
Weighted-average
Weighted-average remaining contractual
Warrants exercise price term (years)
Outstanding at July 31, 2016 300,000 $ 0.14 3.45
Granted 210,000 $ 0.50 3.00
Exercised - - -
Forfeited and cancelled - - -
Outstanding at July 31, 2017 510,000 $ 0.29 2.87
Granted 2,010,000 $ 0.26 3.34
Exercised (150,000 ) $ 0.10 3.00
Forfeited and cancelled - - -
Outstanding at July 31, 2018 2,370,000 $ 0.28 2.90
Exercisable at July 31, 2018 2,070,000 $ 0.24 2.90
The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money warrants) of the 510,000 and 2,370,000 stock options outstanding at July 31, 2017 and July 31, 2018 was $124,800 and $607,557 , respectively.
The aggregate intrinsic value of 510,000 and 2,070,000 stock options exercisable at July 31, 2017 and July 31, 2018 was $124,800 and $597,927, respectively.
Warrant expense for the years ended July 31, 2018 and 2017 was $268,000 and $0, respectively. Unamortized warrant expense totaled $64,000 and $0, respectively as of July 31, 2018 and July 31, 2017.
NOTE 9 – NON-STANDARDIZED PROFIT-SHARING PLAN
We currently provide a Non-Standardized Profit-Sharing Plan, adopted September 15, 2006. Under the plan our employees qualify to participate in the plan after one year of employment. Contributions under the plan are based on 25% of the annual base salary of each eligible employee up to $54,000 per year. Contributions under the plan are fully vested upon funding. During the years ended July 31, 2018 and July 31, 2017, the Company issued 644,732 and 1,003,966 respectively, common shares to various employees as part of the Company’s profit-sharing plan contribution. The Company recognized stock-based compensation expense for July 31, 2018 and July 31, 2017 of $226,000 and $241,000, respectively, equivalent to the individualvalue of the shares calculated based on the share’s closing price at the grant dates.
NOTE 10 – SIGNIFICANT CUSTOMERS
During the year ended July 31, 2018, the Company did not derive a significant amount of revenue from one single customer. During the year ended July 31, 2017, the Company derived a significant amount revenue from four customers, comprising 24%, 24%, 11%, and 8% of the total revenue for the year.
As of the year ended July 31, 2018, the company derived 13% and 23% total accounts receivable from two customers. As of the year ended July 31, 2017, the Company derived a significant amount of accounts receivables from three customers, comprising 37%, 27% and 14% of the total accounts receivable as of the year ended July 31, 2017.
F-20
NOTE 11 – DEBT
Non-convertible debt
On December 1, 2017, Shift8 and Synergy Telecom, Inc., a Delaware corporation (“Synergy”), closed a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy. In conjunction with the transaction, Shift8 entered into a promissory note for $125,000 with an effective annual interest rate of 6% with 5 quarterly payments and a maturity date of February 28, 2019. The note holder agreed to extend two of the quarterly payment until January 15, 2019. During the year ended July 31, 2018, the Company made a principal payment of $50,000, the balance outstanding as of July 31, 2018 was $75,000.
On January 17, 2018, the Company entered into a Promissory Note for $30,000, bearing interest at a rate of 5% per annum, with maturity date of January 19, 2018. The Company paid the full principal amount outstanding and accrued interest on January 19, 2018.
On February 21, 2018, the Company entered into a Promissory Note for $35,000, bearing interest at a rate of 5% per annum, with maturity date of March 2, 2018. The Company paid the full principal amount outstanding and accrued interest on March 2, 2018.
On March 13, 2018, the Company entered into various Promissory Notes (the “Notes”) for $200,000, bearing interest at a rate of 12% per annum, with maturity date of April 13, 2018. The Company paid the full principal amount outstanding and accrued interest on April 13, 2018. In conjunction with the Notes, the Company issued 30,000 warrants under the promissory notes, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.15. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $12,000 and was recognized as a discount on the promissory notes, the company amortized the relative fair market value as interest expense during the year ended July 31, 2018. During the year ended July 31, 2018, the Company paid the full principal amount outstanding and accrued interest.
On April 30, 2018, Shift8 entered into a promissory note for $650,000 with an effective annual interest rate of 0% and a maturity date of May 14, 2018, provided, however, the Maturity Date will automatically be extended by one (1) additional period of thirty (30) days, until June 14, 2018. In addition, Shift8 entered into a Security Agreement, whereby Shift8 Agreed to pledge one third of the outstanding shares of T3, the secured interest will continue until the principal balance is paid in full. Furthermore, a late fee of $3,000 per calendar week will be accessed beginning on May 15, 2018 and will continue until he principal balance is paid in full. The lender agreed to extend the maturity date until November 30, 2018, we are currently paying a $3,000 per week late fee. As of July 31, 2018, the outstanding principal balance was $650,000.

On April 30, 2018, Shift8 Networks, Inc. (“Shift8”), a subsidiary of Digerati Technologies, Inc. entered into a credit facility under a promissory note of $500,000, interest payment for the first twenty-three months with a balloon payment on the twenty-fourth month and a maturity date of April 30, 2020. Collateralized by Shift8 and T3’s accounts receivables and with an effective annual interest rate of prime plus 5.25%, adjusted quarterly on the first day of each calendar quarter. However, the rate will never be less than 9.50% per annum. In the event of default, the interest rate will be the maximum nonusurious rate of interest per annum permitted by whichever of applicable United States federal law or Louisiana law permits the higher interest rate. Shift8 agreed to pay the lender a commitment fee of 1.00% upon payment of the first interest payment under the credit facility and 1.00% on the first anniversary of the credit facility. In addition, Shift8 agreed to pay a monitoring fee of 0.33% of the credit facility, payable in arrears monthly. Shift8 also agreed to pay an over-advance fee of 3.00% of the amount advanced in excess of the borrowing base or maximum amount of the credit facility, payable in arrears monthly. Shift8 is required to maintain the following financial covenants: 1) A consolidated debt service coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, 2) A fixed charge coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, and 3) A tangible net worth, at all times of at least $100,000. As of July 31, 2018, the outstanding principal balance was $500,000.
On May 1, 2018, Shift8 entered into a promissory note for $150,000 with an effective annual interest rate of 3% and a maturity date of May 7, 2018. On May 4, 2018 the promissory note was paid in full.
On April 27, 2018, Shift8 entered into a promissory note for $350,000 with an effective annual interest rate of 12% and a maturity date of June 27, 2018. With a principal payment of $200,000 due on May 31, 2018 and a principal payment of $150,000 due on June 27, 2018. The promissory note is secured by a Pledge and Security Agreement, whereby Shift8 agreed to pledge the cash on hand at one of the bank accounts owned by T3 until the principal payment is paid in full.
In conjunction with the Notes, the Company issued 3-year warrants to purchase 400,000 shares of common stock option agreements, usually 33 percenteach at an exercise price of $0.15 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $107,000 and was recognized as a discount on the promissory notes during the year beginningended July 31, 2018. During the year ended July 31, 2018, the promissory note was paid in full.
Notes payable, related party
On April 30, 2018, Shift8 Technologies, Inc. (“Shift8”) entered into a convertible promissory note for $525,000 with an effective annual interest rate of 8% and a maturity date of April 30, 2020. With a principal payment of $100,000 due on June 1, 2018 and a principal payment of $280,823 due on April 30, 2020. Payment are based on a 60-month repayment schedule. At any time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under the Note or the Pledge and Escrow Agreement; or (ii) mutual agreement between the Borrower and the Holder, the Holder may convert all or any portion of the outstanding principal, accrued and unpaid interest, Premium, if applicable, and any other sums due and payable hereunder (such total amount, the “Conversion Amount”) into shares of Common Stock (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount (the numerator);divided by(ii) a conversion price of $1.50 per share of Common Stock, which price shall be indicated in the conversion notice (in the form attached hereto as Exhibit “B”, the “Conversion Notice”) (the denominator) (the “Conversion Price”). The Holder shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered. The promissory note is secured by a Pledge and Escrow Agreement, whereby Shift8 agreed to pledge 51% of the securities owned in T3 until the principal payment is paid in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 75,000 shares of common stock at an exercise price of $0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $19,000 and was recognized as a discount on the two promissory notes, the company amortized $6,000 as interest expense during the year ended July 31, 2018. During the year ended July 31, 2018, the Company paid $119,000 of the principal balance. The total principal outstanding and unamortized discount as of July 31, 2018 were $406,000 and $13,000, respectively. One of the note holders also serves as President, CEO and Board Member of T3 Communications, Inc., one of our operating subsidiaries.
On May 1, 2018, Shift8 entered into a promissory note for $275,000 with an effective annual interest rate of 0% with an interest and principal payment of $6,000 per month and shall continue perpetuity until the entire principal amount is paid in full. The promissory note is guaranteed to the lender by 15% of the stock owned by Shift8 in T3, the secured interest will continue until the principal balance is paid in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 100,000 shares of common stock at an exercise price of $0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $27,000 and was recognized as a discount on the promissory note, the company amortized $2,000 as interest expense during the year ended July 31, 2018. During the year ended July 31, 2018, the Company paid $13,000 of the principal balance. The total principal outstanding and unamortized discount as of July 31, 2018 were $262,000 and $25,000, respectively. The note holder also serves as Board Member of T3 Communications, Inc., one of our operating subsidiaries.

Convertible debt non-derivative
In March 2018, the Company entered into two (2) Promissory Notes (the “Notes”) for $250,000 each, bearing interest at a rate of 12% per annum. The Notes have a maturity date of September 15, 2018, provided, however, the Company shall have the right to request that the maturity date to be extended by one (1) additional period of ninety (90) days, until December 14, 2018. The Notes are payable every month, commencing April 15, 2018, in monthly payments of interest only and a single payment of the principal amount outstanding plus accrued interest on September 15, 2018. The Company agreed to repay the Notes from the grantproceeds from the Company’s current private placement. As proceeds from the Private Placement are received, the Company shall direct all funds to the Note Holders until the principal amount outstanding and accrued interest are paid in full. In addition, on March 15, 2018, the Company entered into a Note Conversion Agreement (the “Agreement”) with the Note holders, whereby, the holders may elect to convert up to 50% of the principal amount outstanding on the Notes into Common Stock of Digerati at any time after 90 days of funding the Notes. The Conversion Price shall be the greater of: (i) the Variable Conversion Price (as defined herein) or (ii) the Fixed Conversion Price (as defined herein). The“Variable Conversion Price”shall be equal to the average closing price for Digerati’s Common Stock (the “Shares”) for the ten (10) Trading Day period immediately preceding the Conversion Date. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. The“Fixed Conversion Price”shall mean $0.50. In conjunction with the notes, the Company issued 300,000 warrants, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $127,000 and was recognized as a discount on the promissory notes, the company amortized $42,000 as a non-cash interest during the year ended July 31, 2018. The total principal outstanding and unamortized discount as of July 31, 2018 were $500,000 and $85,000, respectively.
On June 19, 2018, the Company entered into various Promissory Notes (the “Notes”) for $272,000, bearing interest at a rate of 10% per annum, with maturity date of April 10, 2019. In conjunction with unexercised options expiring tenthe Notes, the Company issued 240,000 warrants under the promissory notes, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $111,000 and was recognized as a discount on the promissory notes. The company amortized $9,000 as interest expense during the year ended July 31, 2018. The total principal outstanding and unamortized discount as of July 31, 2018 were $272,000 and $102,000, respectively.
Convertible debt - derivative
On January 12, 2018, the Company entered into a securities purchase agreement with Peak One Opportunity Fund, L.P., a Delaware limited partnership (“Peak One”). Under the agreement, Peak One agreed to purchase from us up to $600,000 aggregate principal amount of our convertible debentures (together the “Debentures” and each individual issuance a “Debenture”), bearing interest at a rate of 0% per annum, with maturity on the third anniversary of the respective date of issuance. On July 25, 2018, the securities purchase agreement was amended to increase to $620,000 the aggregate principal amount of the convertible debentures.
The Company issued the first debenture (the “Debenture”) to Peak One on January 17, 2018 in the principal amount of $200,000 for a purchase price of $180,000 and 0% percent stated interest rate. The Company paid Peak One $6,000 for legal and compliance fees. In addition, the Company paid $14,400 in other closing costs, these fees were deducted from the proceeds at time of issuance. The Company recorded these discounts and cost of $40,400 as a discount to the Debenture was amortized to interest expense.
The Debenture provides Peak One with the option to convert any outstanding balance under the Debenture into shares of Common Stock of the Company at a conversion price for each share of Common Stock equal to either: (i) if the date of conversion is prior to the date that is 180 days after the issuance date, $0.50, or (ii) if the date of conversion is on or after the date that is 180 days after the issuance date, the lesser of (a) $0.50 or (b) at 70% of the lowest closing bid price of the Company’s Common Stock during the twenty trading days prior to conversion, provided, further, that if either the Company is not DWAC operational at the time of conversion or the Common Stock is traded on the OTC Pink at the time of conversion, then 70% shall automatically adjust to 65% of the lowest closing bid price.
The Company may at its option call for redemption all or part of the Debentures, with the exception of any portion thereof which is the subject of a previously-delivered notice of conversion, prior to the maturity date for an amount equal to: (i) if the redemption date is 90 days or less from the date of issuance, 110% of the sum of the principal amount so redeemed plus accrued interest, if any; (ii) if the redemption date is greater than or equal to 91 days from the date of issuance and less than or equal to 120 days from the date of issuance, 115% of the sum of the principal amount so redeemed plus accrued interest, if any; (iii) if the redemption date is greater than or equal to 121 days from the date of issuance and less than or equal to 50 days from the date of issuance, 120% of the sum of the principal amount so redeemed plus accrued interest, if any; (iv) if the redemption date is greater than or equal to 151 days from the date of issuance and less than or equal to 180 days from the date of issuance, 130% of the sum of the principal amount so redeemed plus accrued interest, if any; and (v) if the redemption date is greater than or equal to 181 days from the date of issuance, 140% of the sum of the principal amount so redeemed plus accrued interest, if any. During the year ending July 31, 2018, the Company redeemed $120,000 of the principal outstanding, at a redemption price of $156,000. The Company recognized the redemption price as interest expense during the period.

The Company analyzed the Debenture for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, as of the year ending July 31, 2018, the company recognized derivative liability of $112,000 at July 31, 2018, of which $80,000 was recorded as debt discount and will be amortized during the term of the note, and $32,000 was recorded as derivative loss. The total principal balance outstanding as of July 31, 2018 was $80,000. In connection with the execution of the Debenture, we issued 250,000 shares of our common stock to Peak One, the shares were recorded with a relative fair value of $0, the Company also recorded debt discount of $80,000 and will be amortized to interest expense.
The Company issued a second debenture (the “Debenture”) to Peak One on July 31, 2018 in the principal amount of $220,000 for a purchase price of $198,000 and 0% percent stated interest rate. The Company paid Peak One $5,000 for legal and compliance fees, these fees were deducted from the proceeds at time of issuance. The Company recorded these discounts and cost of $22,000 as a discount to the Debenture and amortized to interest expense.
The Company analyzed the Debenture for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As of July 31, 2018, the Company recorded a derivative liability of $189,000 and had an outstanding principal balance of $220,000 In connection with the execution of the Debenture, we issued 130,000 shares of our common stock to Peak One, the shares were recorded with a relative fair value of $3,627 the Company also recorded debt discount of $192,798 and will be amortized to interest expense.
On May 30, 2018, the Company entered into a securities purchase agreement with Firstfire Global Opportunities Fund, LLC, a Delaware limited liability company (“Firstfire”). Under the agreement, we issued Firstfire a $305,556 principal amount of a convertible promissory note for a cash purchase price of $275,000 (“Promissory note”), bearing interest at a rate of 6% per annum, with maturity on the first anniversary of the date of issuance. The Company paid Firstfire $2,500 for legal and compliance fees. The Company recorded the legal fees and other cost for a total of $33,000 as a discount to the Promissory note and they will be amortized over the term to interest expense. In connection with the execution of the securities purchase agreement, we issued 125,000 shares of our common stock to Firstfire as a commitment fee, the shares were recorded with a relative fair value of $0, the Company also recorded debt discount of $272,500 and will be amortized to interest expense.
The Promissory note provides Firstfire with the option to convert at any time on or after the 180th calendar day after the issue date, to convert all or any portion of the then outstanding and unpaid principal amount and interest under the Promissory note into shares of Common Stock of the Company at a conversion price for each share of Common Stock equal to the lower of (i) $0.50 (the “Fixed Conversion Price”) , or (ii) 65% of the lowest closing bid price of the Company’s Common Stock during the twenty (20) consecutive trading day period immediately preceding the trading day that the Company receives a Notice of Conversion (the “Alternate Conversion Price”).
The Company may Prepay at any time prior to the 180th calendar day after the funding of the Promissory note all or part of the outstanding principal balance, with the exception of any portion thereof which is the subject of a previously-delivered notice of conversion, prior to the maturity date for an amount equal to: (i) if the prepayment date is 90 days or less from the date of issuance, 105% of the sum of the principal amount to be prepaid plus accrued interest, if any; (ii) if the prepayment date is greater than or equal to 91 days from the date of issuance and less than or equal to 120 days from the date of issuance, 110% of the sum of the principal amount to be prepaid plus accrued interest, if any; (iii) if the prepayment date is greater than or equal to 121 days from the date of issuance and less than or equal to 180 days from the date of issuance, 115% of the sum of the principal amount to be prepaid plus accrued interest, if any.
In the event of default, the note shall become immediately due and paid in full in an amount (the “Default Amount”) equal to the principal amount then outstanding plus accrued interest through the date of full repayment multiplied by 150%. The holder may, at its sole discretion, determine to accept payment part in Common Stock and part in cash.

The Company analyzed the Promissory note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, as of the year ending July 31, 2018, the company recognized a debt discount of $272,500 and recorded a $58,000 as a loss in derivative liability. In addition, the Company has a derivative liability of $331,000 at July 31, 2018. As of the year the ended July 31, 2018, the principal balance outstanding was $306,000.
The future principal payments for the Company’s debts is as follows:
FY Payments
2019 $ 1,928,501
2020 890,083
2021 361,924
2022 67,114
2023 23,596
Total Principal Payments $ 3,271,218
NOTE 12 – CAPITAL LEASES
The Company entered into two leases for equipment all of which are classified as capital leases. The Company financed the equipment with a leasing entity. Under the terms of these transactions, assets with a cost of approximately $37,255 and $60,408, leases were financed under two separate lease agreements as of the May 2018 and June 2018, respectively. The leases are net leases as all of the costs associated with the assets such as maintenance, insurance and property taxes are for the account of the Company. Under each of these transactions, the Company can elect to purchase the assets from the lessor at the end of a fixed term. These terms are for 36 months, with the first lease payments starting June 20, 2018 and July 20, 2018, respectively and monthly lease principal and interest payments of $1,176 and $1,856, respectively. The Company will own the equipment at the end of the term. The interest rate under the leases range from 6.65% to 8.50% per annum. The Company has accounted for its repayment obligations under these transactions as capital lease obligations. The assets are included in Leased Equipment and Net investment in finance leases and the capital lease obligation is included in Long-term capital lease obligations and current maturities of capital leases on the accompanying Balance Sheet as of July 31, 2018.
During the year ended July 31, 2018, the Company made total principal payments of $3,032. The future capital lease payments under the financing agreements are as follows:
Year Amount
2019 $ 36,381
2020 36,381
2021 32,152
Total future payments: $ 104,914
Less: amounts representing interest $ 10,622
Present value of net minimum lease payments $ 94,292
Less current maturities $ 30,465
Long-term capital lease obligation $ 63,827

NOTE 13 – BUSINESS ACQUISITIONS
On December 1, 2017, Shift8 and Synergy Telecom, Inc., a Delaware corporation (“Synergy”), closed a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy. Shift8 acquired Synergy to increase its customer base and obtain higher efficiency of its existing infrastructure. Shift8 paid $125,000 upon execution of the agreement, issued 500,000 shares of common stock with a market value of $175,000, and entered into a promissory note for $125,000 with an effective annual interest rate of 6% with 5 quarterly payments and a maturity date of February 28, 2019.
The total purchase price was $425,000, the acquisition was accounted for under the purchase method of accounting, with Digerati identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by Digerati was allocated to customer contracts acquired, software licenses, and goodwill based on their fair values as of July 31, 2018.
The following information summarizes the allocation of the fair values assigned to the assets. The allocation of fair values is based on an extensive analysis and is subject to changes in the future during the measurement period.
Synergy Useful life (years)
Customer relatiosnhips $ 40,000 5
License - software 105,000 3
Goodwill 280,000 -
Total Purchase price $ 425,000
The Company incurred approximately $10,000 in costs associated with the acquisition. These included legal, and accounting. The Company expensed these costs during the year ended July 31, 2018.
Additionally, on May 2, 2018, the Company closed on the Merger Agreement with T3 Communications, Inc. to increase its customer base and obtain higher efficiency of its existing infrastructure.
The total purchase price was $3,211,945, paid in cash upon closing, the acquisition was accounted for under the purchase method of accounting, with the Company identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by the Company was allocated to cash, customer contracts acquired, current assets, property plant and equipment and assumed payables based on their estimated fair values as of May 2, 2018. Allocation of the purchase price is preliminary and based on the best estimates of management.
The allocation of fair values is based on an extensive analysis and is subject to changes in the future during the measurement period.
(in thousands)
T3
Cash $ 250
Accounts receivable & other current assets 367
Intangible assets and Goodwill 2,835
Property and equipment, net 568
Other Assets 140
Total identifiable net assets $ 4,160
Less: liabilities assumed (948 )
Total Purchase price $ 3,212
The following table summarizes the cost of amortizable intangible assets related to the acquisition:
Cost
(in thousands) Useful life (years)
Customer relationships $ 1,480 7
Marketing & Non-compete 800 5
Goodwill 601 -
Total $ 2,881
The Company incurred approximately $160,000 in costs associated with the acquisition. These included legal, and accounting. The Company expensed these costs during the year ended July 31, 2018.
Proforma
The following is the unaudited proforma results of operations for both acquisitions for the years ended July 31, 2018 and 2017 as if the acquisition occurred on August 1, 2016. The proforma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on August 1, 2016, or of results that may occur in the future.
For the Years Ended
July 31,
2018 2017
Revenue $ 5,674 $ 5,729
Loss from operations 8,705 4,785
Net Income (loss) (3,031 ) 944
Earnings (loss) per common shares outstanding - Basic and Diluted $ (0.34 ) $ 0.14
NOTE 14 – NONCONTROLLING INTEREST
On May 1, 2018, Shift8 Technologies, Inc. (“Shift8”) entered into a Stock Purchase Agreement (’SPA”), whereby in an exchange for $250,000, Shift8 agreed to sell to the buyer 199,900 shares of common stock equivalent to 19.99% of the issued and outstanding common share of Shift8 Technologies, Inc. The $250,000 of the cash received under this transaction was recognized as an adjustment to the carrying amount of the noncontrolling interest and as an increase in additional paid-in capital in Shift8. At the option of the Company, and for a period of five years following the date of the grant. On February 10, 1997,SPA, the Board of Directors granted a total
of 4,488,000 options to purchase Common Shares to directors and employees of the
Company. Certain grants were considered vested based on past service as of
February 10, 1997. The 1997 Stock Option Plan was approved by a vote of the
stockholders at the Company's Annual Meeting of Shareholders on May 21, 1997.

In September 1998, the Company's Board of Directors adopted the 1998 Stock
Option Plan. Under the 1998 Stock Option Plan, options to purchase up to
2,000,000199,900 shares of common stock in Shift8 may be grantedconverted into Common Stock of Digerati at a ratio of 3.4 shares of DTGI Common stock for every one (1) share of Shift8 at any time after the DTGI Common Stock has a current market price of $1.50 or more per share for 20 consecutive trading days. For the year ending July 31, 2018, the Company accounted for a noncontrolling interest of $57,000. Additionally, one of the buyers serves as President, CEO and Board Member of T3 Communications, Inc., one of our operating subsidiaries.

NOTE 15 – MISCELLANEOUS GAIN
The Company received a tax refund in July 2015. The Company recorded the funds as an accrued liability until such time as it could determine the proper accounting for the refund. Subsequent to its receipt, management has determined that the Company is the legal owner of the refund which has been recorded as a miscellaneous gain during fiscal 2017. The refund did not result from taxes paid by the Company and will not be taxed as it originated from the Internal Revenue Service.
NOTE 16 – LOSS ON DISPOSAL OF UNPROVEN OIL AND GAS PROPERTIES
On February 29, 2016 Flagship Energy Company (“Flagship”), a wholly-owned subsidiary of Digerati, entered into an Agreement with a Texas-based contract-for-hire oil and gas operator (“Operator”). Under the Agreement, Flagship utilized the Operator for the drilling, completion and the initial operations of a shallow oil and gas well in conjunction with the purchase of 100% of Operator’s working interest and 80% of its Net Revenue Interest. Under the Agreement, the Operator agreed to transfer all field-level operations and assign 100% of a certain oil, gas and mineral lease to Flagship upon demand, which included a tract of land located in South Texas. Additionally, Flagship entered into a Joint Operating Agreement (“JOA”) with Operator, whereby the parties agreed to develop the oil and gas well or wells for the production and retrieval of oil and gas commodities as provided for in the oil, gas and mineral lease.
During the fiscal year ended July 31, 2017 the Company recognized a loss on disposal of unproven oil and gas properties of $248,000 for the total capitalized investment amount in the oil and gas properties.
NOTE 17 – SUBSEQUENT EVENTS
On August 1, 2018, the Company secured $40,000 from an accredited investor under a private placement and issued 80,000 shares of its common stock at a price of $0.50 per share and warrants to purchase an additional 15,000 shares of its common stock at an exercise price of $0.50 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments.
On October 12, 2018, the Company entered into a Promissory Note (the “Note”) for $25,000, bearing interest at a rate of 8% per annum, with maturity date of November 12, 2019. In conjunction with the Note, the Company issued 140,000 common shares, the shares vested at time of issuance. The relative fair market value of the common shares at time of issuance was approximately $31,000 and was recognized as a discount on the promissory notes, the company will amortize the fair market value as interest expense over the term of the note.
On October 18, 2018, the Company entered into a Promissory Note (the “Note”) for $25,000, bearing interest at a rate of 8% per annum, with maturity date of November 18, 2019. In conjunction with the Note, the Company issued 100,000 common shares, the shares vested at time of issuance. The relative fair market value of the common shares at time of issuance was approximately $25,000 and was recognized as a discount on the promissory notes, the company will amortize the fair market value as interest expense over the term of the note.
On October 22, 2018, the Company entered into a Promissory Note (the “Note”) for $50,000, bearing interest at a rate of 8% per annum, with maturity date of December 31, 2019. The promissory note is secured by a Pledge and Escrow Agreement, whereby the Company agreed to pledge rights to a collateral due under certain Agreement.
F-28
DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
April 30, July 31,
2019 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 460 $ 388
Accounts receivable, net 245 229
Prepaid and other current assets 80 124
Deposits 55 -
Total current assets 840 741
LONG-TERM ASSETS:
Intangible assets, net 2,736 3,046
Property and equipment, net 535 713
Other assets 58 59
Total assets $ 4,169 $ 4,559
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,173 $ 1,177
Accrued liabilities 1,432 893
Current portion of capital lease obligations 32 30
Convertible note payable, current, net $11 and $187, respectively 761 585
Note payable, current, related party 425 126
Note payable, current, net $0 and $0, respectively 1,200 725
Convertible note payable, current, net $345 and $273, respectively 235 33
Deferred income 314 262
Derivative liability 1,303 632
Total current liabilities 6,875 4,463
LONG-TERM LIABILITIES:
Convertible debenture, net $99 and $273, respectively 51 27
Notes payable, related party, net $27 and $38, respectively 147 505
Note payable - 500
Obligations under capital leases 40 64
Total long-term liabilities 238 1,096
Total liabilities 7,113 5,559
Commitments and contingencies
STOCKHOLDERS’ DEFICIT:
Preferred stock, $0.001, 50,000,000 shares authorized, 50,000 and 0 issued and outstanding, respectively - -
Common stock, $0.001, 150,000,000 shares authorized, 18,876,431 and 12,775,143 issued and outstanding, respectively 19 13
Additional paid in capital 81,764 79,993
Accumulated deficit (84,434 ) (80,800 )
Other comprehensive income 1 1
Total Digerati’s stockholders’ deficit (2,650 ) (793 )
Noncontrolling interest (294 ) (207 )
Total stockholders’ deficit (2,944 ) (1,000 )
Total liabilities and stockholders’ deficit $ 4,169 $ 4,559
See accompanying notes to unaudited consolidated financial statements

DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
Three months ended
April 30, Nine months ended
April 30,
2019 2018 2019 2018
OPERATING REVENUES:
Cloud-based hosted services $ 1,485 $ 196 $ 4,493 $ 403
Total operating revenues 1,485 196 4,493 403
OPERATING EXPENSES:
Cost of services (exclusive of depreciation and amortization) 770 106 2,322 249
Selling, general and administrative expense 875 332 2,309 830
Stock compensation & warrant expense 345 354 731 1,328
Legal and professional fees 95 68 305 359
Bad debt - - (3 ) -
Depreciation and amortization expense 167 50 505 89
Total operating expenses 2,252 910 6,169 2,855
OPERATING LOSS (767 ) (714 ) (1,676 ) (2,452 )
OTHER INCOME (EXPENSE):
Gain (loss) on derivative instruments 903 47 (594 ) 155
Income tax (10 ) - (37 ) -
Interest income (expense) (376 ) (41 ) (1,414 ) (250 )
Total other income (expense) 517 6 (2,045 ) (95 )
NET LOSS INCLUDING NONCONTROLLING INTEREST (250 ) (708 ) (3,721 ) (2,547 )
Less: Net loss attributable to the noncontrolling interest 29 - 87 -
NET LOSS $ (221 ) $ (708 ) $ (3,634 ) $ (2,547 )
Deemed dividend on Series A Convertible preferred stock (2 ) - (2 ) -
NET LOSS ATTRIBUTABLE TO DIGERATI’S COMMON SHAREHOLDERS $ (223 ) $ (708 ) $ (3,636 ) $ (2,547 )
INCOME (LOSS) PER COMMON SHARE - BASIC $ (0.01 ) $ (0.06 ) $ (0.24 ) $ (0.26 )
INCOME (LOSS) PER COMMON SHARE - DILUTED $ (0.01 ) $ (0.06 ) $ (0.24 ) $ (0.26 )
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 18,184,442 11,063,326 15,163,082 9,903,152
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 18,184,442 11,063,326 15,163,082 9,903,152
See accompanying notes to unaudited consolidated financial statements

DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Nine-Month Period Ended April 30, 2019
(In thousands, except for share amounts, unaudited)
Equity Digerati’s Shareholders
Convertible Preferred Common Additional
Paid-in Accumulated Other
Comprehensive Stockholders Noncontrolling
Shares Par Shares Par Capital Deficit Income Equity Interest Totals
BALANCE, July 31, 2018 - 12,775,143 $ 13 $ 79,993 $ (80,800 ) $ 1 $ (793 ) $ (207 ) $ (1,000 )
Amortization of employee stock options - - - 95 - - 95 - 95
Stock issued for AP settlement - 21,672 - 6 - - 6 - 6
Stock issued for cash - - 80,000 - 47 - - 47 - 47
Stock issued, for debt - 240,000 - 36 - - 36 - 36
Value of warrants issued - - - 79 - - 79 - 79
Net Ioss - - - - (914 ) - (914 ) (27 ) (941 )
BALANCE, October 31, 2018 - - 13,116,815 $ 13 $ 80,256 $ (81,714 ) $ 1 $ (1,444 ) $ (234 ) $ (1,678 )
Amortization of employee stock options - - - 41 - - 41 - 41
Stock issued for services, to employees - 635,156 1 113 - - 114 - 114
Stock issued for services - 200,000 - 70 - - 70 - 70
Stock issued for AP settlement - 56,327 - 18 - - 18 - 18
Stock issued for cash - - 258,621 - 75 - - 75 - 75
Stock issued, for debt - 28,000 - - - - - - -
Stock issued for convertible debt - 1,642,020 2 225 - - 227 - 227
Stock issued, extension of debt - 105,000 - 24 - - 24 - 24
Value of warrants issued - - - 16 - - 16 - 16
Net Ioss - - - - (2,499 ) - (2,499 ) (31 ) (2,530 )
BALANCE, January 31, 2019 - - 16,041,939 $ 16 $ 80,838 $ (84,213 ) $ 1 $ (3,358 ) $ (265 ) $ (3,623 )
Amortization of employee stock options - - - 153 - - 153 - 153
Stock issued for services - 725,000 1 178 - - 179 - 179
Stock issued for AP settlement - 60,715 - 13 - - 13 - 13
Stock issued for cash - - 600,000 1 149 - - 150 - 150
Preferred stock issued for cash 50,000 - - - 50 - - 50 - 50
Stock issued for convertible debt - 1,288,777 1 360 - - 361 - 361
Stock issued, extension of debt - 85,000 - 16 - - 16 - 16
Stock issued, exercise of warrants - 75,000 - 7 - - 7 - 7
Beneficial conversion feature on convertible preferred stock - - - 2 - - 2 - 2
Deemed dividend on Series A Convertible preferred stock - - - (2 ) - - (2 ) - (2 )
Net loss - - - - (221 ) - (221 ) (29 ) (250 )
BALANCE, April 30, 2019 50,000 - 18,876,431 $ 19 $ 81,764 $ (84,434 ) $ 1 $ (2,650 ) $ (294 ) $ (2,944 )
See accompanying notes to consolidated financial statements

DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Nine-Month Period Ended April 30, 2018
(In thousands, except for share amounts, unaudited)
Equity Digerati’s Shareholders
Convertible Preferred Common Additional
Paid-in Accumulated Other
Comprehensive Stockholders Noncontrolling
Shares Par Shares Par Capital Deficit Income Equity Interest Totals
BALANCE, July 31, 2017 - 8,386,056 $ 8 $ 76,986 $ (77,637 ) $ 1 $ (642 ) $ - $ (642 )
Amortization of employee stock options - - - 51 - - 51 - 51
Stock issued for services - 12,500 - 4 - - 4 - 4
Stock issued for cash - 560,000 1 280 - - 281 - 281
Net loss - - - - (370 ) - (370 ) - (370 )
BALANCE, October 31, 2017 - - 8,958,556 $ 9 $ 77,321 $ (78,007 ) $ 1 $ (676 ) $ - $ (676 )
Amortization of employee stock options - - - 72 - - 72 - 72
Stock issued for services, to employees - 1,160,225 1 446 - - 447 - 447
Stock issued for services - 100,000 - 40 - - 40 - 40
Stock issued for convertible debt - 250,000 - - - - - - -
Stock issued for Acquisition - 500,000 1 175 - - 176 - 176
Value of warrants issued - - - 283 - - 283 - 283
Net loss - - - - (1,468 ) - (1,468 ) - (1,468 )
BALANCE, January 31, 2018 - - 10,968,781 $ 11 $ 78,337 $ (79,475 ) $ 1 $ (1,126 ) $ - $ (1,126 )
Amortization of employee stock options - - - 82 - - 82 - 82
Stock issued for cash - 160,000 - 80 - - 80 - 80
Value of warrants issued - - - 272 - - 272 - 272
Net loss - - - - (709 ) - (709 ) - (709 )
BALANCE, April 30, 2018 - - 11,128,781 $ 11 $ 78,771 $ (80,184 ) $ 1 $ (1,401 ) $ - $ (1,401 )
See accompanying notes to consolidated financial statements

DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Nine months ended
April 30,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,721 ) $ (2,547 )
Adjustments to reconcile net loss to cash used in by operating activities:
Depreciation and amortization 505 89
Stock compensation and warrant expense 716 1,328
Bad debt recovery (3 ) -
Loss on AP settled with stock 5 -
Interest expense from stock issued for debt extension 24 -
Amortization of debt discount 959 242
Loss (Gain) on derivative liabilities 594 (155 )
Changes in operating assets and liabilities:
Accounts receivable (13 ) 7
Escrow deposit related to acquisition (55 ) (1,495 )
Prepaid expenses and other current assets 45 (28 )
Accounts payable 54 106
Accrued expenses 539 115
Deferred income 52 -
Net cash provided (used in) operating activities (299 ) (2,338 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of VoIP assets - (125 )
Cash paid in acquisition of equipment (43 ) -
Net cash used in investing activities (43 ) (125 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock and warrants 322 360
Borrowings from convertible debt, net of original issuance cost and discounts 509 159
Borrowings from related party note, net 25 -
Borrowings from 3rd party promissory notes, net 100 2,233
Principal payments on convertible notes, net (301 ) -
Principal payments on related party notes, net (94 ) -
Principal payments on 3rd party promissory notes, net (125 ) (235 )
Principal payment on financing leases (22 ) -
Net cash provided by financing activities 414 2,517
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 72 54
CASH AND CASH EQUIVALENTS, beginning of period 388 673
CASH AND CASH EQUIVALENTS, end of period $ 460 $ 727
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 355 $ 7
Income tax paid $ - $ -
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Debt discount from derivative liabilities $ 509 $ -
Debt discount from warrants issued with debt $ 38 $ -
Debt discount from common stock issued with debt $ 36 $ -
Common Stock issued for debt conversion $ 155 $ -
Derivative liability resolved to APIC due to debt conversion $ 432 $ -
Deemed dividend on Series A Convertible preferred stock $ 2 $ -
Common Stock issued for debt extension $ 17 $ -
See accompanying notes to unaudited consolidated financial statements

DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of Digerati Technologies, Inc. (“we;” “us,” “our,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the United States Securities and Exchange Commission. In the opinion of management, these interim financial statements contain all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial position and the results of operations for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements, which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the year ended July 31, 2018 contained in the Company’s Form 10-K filed on November 16, 2018 have been omitted.
Revenue Recognition
On August 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of August 1, 2018. Results for reporting periods beginning after August 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. There was no impact to the opening balance of accumulated deficit or revenues for the nine months ended April 30, 2019 as a result of applying Topic 606.
The Company recognizes cloud-based hosted services revenue, mainly from subscription services for its cloud telephony applications that includes hosted IP/PBX services, SIP trunking, call center applications, auto attendant, voice and web conferencing, call recording, messaging, voicemail to email conversion, integrated mobility applications that are device and location agnostic, and other customized applications. Other services include enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper. We also offer remote network monitoring, data backup and disaster recovery services. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially all of the Company’s revenue is recognized at the time control of the products transfers to the customer.
Service Revenue
Service revenue from subscriptions to the Company’s cloud-based technology platform is recognized over time on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer. Payments received in advance of subscription services being rendered are recorded as a deferred revenue. Usage fees, either bundled or not bundled, are recognized when the Company has a right to invoice. Professional services for configuration, system integration, optimization, customer training and/or education are primarily billed on a fixed-fee basis and are performed by the Company directly. Alternatively, customers may choose to perform these services themselves or engage their own third-party service providers. Professional services revenue is recognized over time, generally as services are activated for the customer.
Product Revenue
The Company recognizes product revenue for telephony equipment at a point in time, when transfer of control has occurred, which is generally upon delivery. Sales returns are recorded as a reduction to revenue estimated based on historical experience.

Disaggregation of Revenue
Summary of disaggregated revenue is as follows (in thousands):
Three months ended
April 30, Nine months ended
April 30,
2019 2018 2019 2018
Service revenue $ 1,455 $ 189 $ 4,340 $ 373
Product revenue 30 7 153 30
Total operating revenues $ 1,485 $ 196 $ 4,493 $ 403
Contract Assets

Contract assets are recorded for those parts of the contract consideration not yet invoiced but for which the performance obligations are completed. The revenue is recognized when the customer receives services or equipment for a reduced consideration at the onset of an arrangement; for example, when the initial month’s services or equipment are discounted. Contract assets are included in prepaid and other current assets in the consolidated balance sheets, depending on if their reduction is recognized during the succeeding 12-month period or beyond. Contract assets as of April 30, 2019 and July 31, 2018, were $20,558 and $12,155, respectively.
Deferred Income

Deferred income represents billings or payment received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual plan subscription services, for services not yet provided as of the balance sheet date. Deferred revenues that will be recognized during the succeeding 12-month period are recorded as current deferred revenues in the consolidated balance sheets, with the remainder recorded as other noncurrent liabilities in the consolidated balance sheets. Deferred income as of April 30, 2019 and July 31, 2018, were $314,000 and $262,000, respectively.
Costs to Obtain a Customer Contract

Sales commissions are paid upon collections of related revenue and are expensed during the same period. Sales commissions for the nine months ended April 30, 2019 and the nine months ended April 30, 2018, were $39,828 and $25,717, respectively.
NOTE 2 – GOING CONCERN
Financial Condition
Digerati’s consolidated financial statements for the nine months ending April 30, 2019 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. Since the Company’s inception in 1993, Digerati has incurred net losses and accumulated a deficit of approximately $84,434,000 and a working capital deficit of approximately $6,035,000 which raises doubt about Digerati’s ability to continue as a going concern.
Management Plans to Continue as a Going Concern
Management believes that current available resources will not be sufficient to fund the Company’s operations over the next 12 months. The Company’s ability to continue to meet its obligations and to achieve its business objectives is dependent upon, among other things, raising additional capital or generating sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company will seek to secure such additional funding from various possible sources, including the public equity market, private financings, sales of assets, collaborative arrangements and debt. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain technologies. There can be no assurance that the Company will be able to raise additional funds or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, it may be unable to execute its business plan, the Company could be required to delay or reduce the scope of its operations, and the Company may not be able to pay off its obligations, if and when they come due.

The Company will continue to work with various funding sources to secure additional debt and equity financings. However, Digerati cannot offer any assurance that it will be successful in executing the aforementioned plans to continue as a going concern.
Digerati’s consolidated financial statements as of April 30, 2019 do not include any adjustments that might result from the inability to implement or execute Digerati’s plans to improve our ability to continue as a going concern.
NOTE 3 – INTANGIBLE ASSETS
Below are summarized changes in intangible assets at April 30, 2019 and July 31, 2018:
Gross
Carrying Accumulated Net Carrying
April 30, 2019 Value Amortization Amount
NetSapiens - license, 10 years $ 150,000 $ (150,000 ) $ -
Customer relationships, 5 years 40,000 (10,666 ) 29,334
Customer relationships, 7 years 1,480,000 (223,224 ) 1,256,776
Marketing & Non-compete, 5 years 800,000 (160,000 ) 640,000
Total Define-lived Assets 2,470,000 (543,890 ) 1,926,110
Goodwill, Indefinite 809,828 - 809,828
Balance, April 30, 2019 $ 3,279,828 $ (543,890 ) $ 2,735,938
Gross
Carrying Accumulated Net Carrying
July 31, 2018 Value Amortization Amount
NetSapiens - license, 10 years $ 150,000 $ (150,000 ) $ -
Customer relationships, 5 years 40,000 (4,667 ) 35,333
Customer relationships, 7 years 1,480,000 (64,652 ) 1,415,348
Marketing & Non-compete, 5 years 800,000 (40,000 ) 760,000
Total Define-lived Assets 2,470,000 (259,319 ) 2,210,681
Goodwill, Indefinite 834,828 - 834,828
Balance, July 31, 2018 $ 3,304,828 $ (259,319 ) $ 3,045,509
Total amortization expense for the periods ended April 30, 2019 and 2018 was approximately $284,571 and $15,000, respectively. Additional details on intangible assets are disclosed in the Company’s Form 10-K filed on November 16, 2018.

NOTE 4 – STOCK-BASED COMPENSATION
In November 2015, Digerati adopted the Digerati Technologies, Inc. 2015 Equity Compensation Plan (the “Plan”). The Plan authorizes the grant of up to 7.5 million stock options, restricted common shares, non-restricted common shares and other awards to employees, directors, and certain other persons. The 1997 and 1998 Stock Option Plans arePlan is intended to permit the CompanyDigerati to retain and attract qualified individuals who will contribute to the Company's overall success. The exercise pricesuccess of Digerati. Digerati’s Board of Directors determines the terms of any grants under the Plan. Exercise prices of all of thestock options is equal toand other awards vary based on the market price of the shares of common stock as of the date of grant. The stock options, restricted common stock, non-restricted common stock and other awards vest pursuant tobased on the terms of the individual stockgrant.
During the nine months ended April 30, 2019, we issued:
● 635,155 common shares to various employees as part of the Company’s Non-Standardized profit-sharing plan contribution. The Company recognized stock-based compensation expense of approximately $115,000 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.
● 100,000 options to purchase common shares to a member of the Board of Directors with an exercise price of $0.18 per share and a term of 5 years. The options vest equally over a period of one year. The options have a fair market value of $11,406.
● 1,725,000 options to purchase common shares to members of the Management team with an exercise price of $0.19 per share and a term of 5 years. The options vest equally over a period of one year. The options have a fair market value of $217,263.
The fair market value of all options issued was determined using the Black-Scholes option agreements, usually 33 percent per year beginning one year frompricing model which used the grant date
with unexercised options expiring ten years after the date of the grant. On
September 9, 1998, the Board of Directors granted a total of 1,541,000 options
to purchase common stock to directorsfollowing assumptions:
Expected dividend yield 0.00 %
Expected stock price volatility 178.79% - 190.27 %
Risk-free interest rate 2.55% - 2.73 %
Expected term 1.0 year
Digerati recognized approximately $403,000 and employees of the Company. On December
16, 1998, the Board approved the granting of an additional 302,300$585,000 in optionsstock-based compensation expense to employees ofduring the Company. The 1998 Stock Option Plan was approved by a vote of
the stockholdersnine months ended April 30, 2019 and 2018, respectively. Unamortized compensation cost totaled $388,732 and $338,000 at the Company's Annual Meeting of Shareholders on December 17,
1998.

April 30, 2019 and April 30, 2018, respectively.
A summary of the statusstock options as of the Company's 1997April 30, 2019 and 1998 Stock Option Plans
for the years ended July 31, 1997, 19982018 and 1999 andthe changes during the periods
are presented below:

Years Ended July 31,
---------------------------------------------------------------
1997 Stock Option Plan 1997 1998
---------------------------------------------------------------
Weighted Average Weighed Average
Shares Exercise Price Shares Exercise Price

Outstanding, beginning of year - - 4,483,000 $0.58
Granted 4,488,000 $0.58 429,000 $2.33
Exercised - - (245,000) $0.58
Forfeited (5,000) $0.58 (11,667) $1.28
Outstanding, end of year 4,483,000 $0.58 4,655,333 $0.74
========= ===== ========= =====
Options exercisable at end of year 1,786,332 $0.58 2,571,332 $0.58
========= ===== ========= =====
Weighted average fair value of options
granted during the year $0.45 $1.50
===== =====

Year Ended July 31,
------------------------------
1997 Stock Option Plan 1999
------------------------------
Weighted Average
Shares Exercise Price

Outstanding, beginning of year 4,655,333 $0.74
Granted - -
Exercised (298,000) $0.58
Forfeited (134,666) $0.71
Outstanding, end of year 4,222,667 $0.75
========= =====
Options exercisable at end of year 3,271,333 $0.60
========= =====
Weighted average fair value of options
granted during the year $0.00
=====

Year Ended July 31,
------------------------------
1999
------------------------------
1998 Stock Option Plan
Weighted Average
Shares Exercise Price

Outstanding, beginning of year - -
Granted 1,843,300 $0.60
Exercised - -
Forfeited (57,500) $0.78
Outstanding, end of year 1,785,800 $0.60
========= =====
Options exercisable at end of year - -
Weighted average fair value of options
granted during the year $0.64
=====
nine months ended April 30, 2019 and July 31,2018:
Weighted-average
Weighted-average remaining
contractual
Options exercise price term (years)
Outstanding at July 31, 2018 3,415,000 $ 0.33 4.58
Granted 1,825,000 $ 0.19 4.79
Exercised - - -
Forfeited and cancelled - - -
Outstanding at April 30, 2019 5,240,000 $ 0.28 3.81
Exercisable at April 30, 2019 3,156,341 $ 0.30 3.38
The weighted average remaining contractual lifeaggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the nine months and the exercise price, multiplied by the number of in-the-money options) of the 5,240,000 and 3,415,000 stock options outstanding at April 30, 2019 and July 31, 1999 is approximately 7.5 years for options granted
under the 1997 Stock Option Plan2018 was $55,750 and approximately 9 years for options granted
under the 1998 Stock Option Plan.

In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation"
was issued. SFAS 123 defines a fair$706,372, respectively.
The aggregate intrinsic value based method of accounting for
employee3,156,341 and 2,006,111 stock options or similarexercisable at April 30, 2019 and July 31, 2018 was $12,156 and $587,389, respectively.

NOTE 5 – WARRANTS
During the nine months ended April 30, 2019, the Company issued the following warrants:
In August 2018, Digerati secured $40,000 from an accredited investor under a private placement and issued 80,000 shares of its common stock at a price of $0.50 per share and warrants to purchase an additional 15,000 shares of its common stock at an exercise price of $0.50 per share. We determined that the warrants issued in connection with the private placement were equity instruments and encourages all entitiesdid not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.
In October 2018, Digerati issued 200,000 warrants under an extension of payments to adopt that methodexisting promissory notes, with a combined current principal balance of accounting for all$75,000, the warrants vested at time of their employee stock compensation
plans.issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair value based method, compensation cost is measured at the
grant date based on themarket value of the awardwarrants at time of issuance was approximately $38,000 and iswas recognized as a discount on the promissory note, the company will amortize the fair market value as interest expense over the service
period of the award, which is usually the vesting period. However, SFAS 123
also allows entities to continue to measure compensation costs for employee
stock compensation plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25").3 months. The Company has adopted SFAS 123 effective August 1, 1996,a sequencing policy and has
elected to remaindetermined that the warrants with the accounting prescribed by APB 25. The Company has
made the required disclosures prescribed by SFAS 123.

fixed exercise price were excluded from derivative consideration.
In accordanceJanuary 2019, Digerati cancelled 260,000 warrants with APB 25, the Company recorded approximately $1.4 million
in deferred compensation related to approximately 1.5 millionan exercise price of the options
granted based on the increase in the Company's stock price from February 10,
1997 when the options were granted, to May 21, 1997, when the underlying 1997
Stock Option Plan was approved by the Company's shareholders.$0.15. Additionally, the Company recorded approximately $340,000issued 260,000 common shares to replace these warrants, in deferred compensation relatedconjunction with two promissory notes with a principal balance of $50,000, in addition at the time of issuance we recognized a discount of $36,000.
In February 2019, the Company secured $50,000 from accredited investors under a private placement and issued 50,000 shares of Series A Convertible Preferred Stock at an conversion price of $0.30 per share and warrants to approximately 1.5 millionpurchase an additional 100,000 shares of its common stock at an exercise price of $0.20 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.
In February 2019, the Company received $1,500 for the exercise of 15,000 warrants, with an exercise price of $0.10 per warrant.
In March 2019, the Company received $6,000 for the exercise of 60,000 warrants, with an exercise price of $0.10 per warrant.
The fair market value of all warrants issued was determined using the Black-Scholes option pricing model which used the following assumptions:
Expected dividend yield 0.00 %
Expected stock price volatility 153.99% - 237.00 %
Risk-free interest rate 2.05% -2.93 %
Expected term 3.0 - 5.0 years
A summary of the options granted basedwarrants as of April 30, 2019 and July 31, 2018 and the changes during the nine months ended April 30, 2019 and July 31, 2018 are presented below:
Weighted-average
Weighted-average remaining
contractual
Warrants exercise price term (years)
Outstanding at July 31, 2018 2,370,000 $ 0.28 2.90
Granted 315,000 $ 0.15 2.65
Exercised (75,000 ) $ 0.10 2.15
Forfeited and cancelled (260,000 ) $ 0.15 3.75
Outstanding at April 30, 2019 2,350,000 $ 0.34 2.34
Exercisable at April 30, 2019 2,050,000 $ 0.25 2.21

The aggregate intrinsic value (the difference between the Company’s closing stock price on the increase inlast trading day of the Company's stockperiod and the exercise price, from September 9, 1998 to December 17, 1998, when the
underlying 1998 Stock Option Plan was approvedmultiplied by the Company's shareholders.

Asnumber of in-the-money warrants) of the 2,350,000 and 2,370,000 warrants outstanding at April 30, 2019 and July 31, 1998,2018 was $150,880 and $607,557, respectively.
The aggregate intrinsic value of 2,050,000 and 2,070,000 warrants exercisable at April 30, 2019 and July 31, 19992018 was $150,880 and October 31, 1999,$597,927, respectively.
In December 2017, Digerati issued 100,000 warrants to a consultant for services, the Company had
$666,899, $465,487 and $308,874, respectively,warrants vested at time of deferred compensation related
to options granted.

Becauseissuance. The warrants have a term of 5 years, with an exercise price of $0.50. Under a Black-Scholes valuation the Company has elected to remain with the accounting prescribed by
APB 25, no compensation cost has been recognized for its fixed stock option plan
based on SFAS 123. Had compensation cost for the Company's stock-based
compensation plans been determined on the fair market value of the grant dates for
awards underwarrants at time of issuance was approximately $49,000, the fixedcompany will amortize the fair market value as warrant expense over 12 months. Additionally, Digerati committed to issue 100,000 warrants if the Company’s stock option plans consistent with the method of SFAS
123, the Company's net loss (in thousands) and lossprice traded at $0.75 per share would have been
increasedfor 10 consecutive days, to issue 100,000 warrants if the pro forma amounts indicated below:

Year Ended Year Ended Year Ended
July 31, 1997 July 31, 1998 July 31, 1999
------------ ------------- -------------
Net Loss to common stockholders
-------------------------------

As reported $(4,695) $(5,094) $(7,591)

Pro forma $(5,235) $(5,936) $(7,312)

Basic and Diluted Loss per share
--------------------------------

As reported $ (0.18) $ (0.12) $ (0.16)

Pro forma $ (0.20) $ (0.14) $ (0.15)

TheCompany’s stock price traded at $1.00 per share for 10 consecutive days, and to issue 100,000 warrants if the Company’s stock price traded at $1.25 per share for 10 consecutive days. Under a Black-Scholes valuation the fair market value of the option grant is estimated based onwarrants at time of issuance was approximately $143,000, the datecompany will amortize the fair market value as warrant expense over 12 months. During the nine months ended April 30, 2019 and 2018, the Company amortized $64,000 and $0, respectively in stock-based compensation expense related to these warrants. Unamortized warrant expense totaled $0 and $0, respectively as of grant
using an option pricing modelApril 30, 2019 and 2018.
NOTE 6 – DEBT
Non-convertible - debt
On December 1, 2017, Shift8 Networks, Inc., dba, T3 Communications (“T3”) and Synergy Telecom, Inc., a Delaware corporation (“Synergy”), closed a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy. In conjunction with the following assumptions usedtransaction, T3 entered into a promissory note for the grants
in 1997, 1998 and 1999: Dividend yield of 0.0%, expected volatility of 60%, 46%
and 62%, respectively, risk-free$125,000 with an effective annual interest rate of 6.41%, 5.10%6% with 5 quarterly payments and 6.50%,
respectively, and an expected lifea maturity date of ten years.

10. ACQUISITIONS

As discussed in Note 1,February 28, 2019. The note holder agreed to extend three of the quarterly payment until March 31, 2019. During the period ended April 30, 2019 the Company acquired 55%paid in full the principal outstanding balance of Computel$75,000 and accrued interest of $3,105.
On April 30, 2018, T3 entered into a secured promissory note for $650,000 with an effective annual interest rate of 0% and a maturity date of May 14, 2018, provided, however, the Maturity Date will automatically be extended by one (1) additional period of thirty (30) days, until June 14, 2018. In addition, T3 entered into a Security Agreement, whereby T3 agreed to pledge one third of the outstanding shares of its Florida operations, T3 Communications, Inc., the secured interest will continue until the principal balance is paid in full. Furthermore, a late fee of $3,000 per calendar week will be accessed beginning on May 199715, 2018 and acquiredwill continue until he principal balance is paid in full. The lender agreed to extend the remaining shares in August 1997. The total purchase pricematurity date until July 31, 2019, we are currently paying a $3,000 per week late fee. As of April 30, 2019, the outstanding principal balance was $650,000.
On April 30, 2018, T3 entered into a credit facility under a secured promissory note of $500,000, interest payment for the acquisitionfirst twenty-three months with a balloon payment on the twenty-fourth month and a maturity date of ComputelApril 30, 2020. Collateralized by T3’s accounts receivables and with an effective annual interest rate of prime plus 5.25%, adjusted quarterly on the first day of each calendar quarter. However, the rate will never be less than 9.50% per annum. In the event of default, the interest rate will be the maximum nonusurious rate of interest per annum permitted by whichever of applicable United States federal law or Louisiana law permits the higher interest rate. T3 agreed to pay the lender a commitment fee of 1.00% upon payment of the first interest payment under the credit facility and 1.00% on the first anniversary of the credit facility. In addition, T3 agreed to pay a monitoring fee of 0.33% of the credit facility, payable in arrears monthly. T3 also agreed to pay an over-advance fee of 3.00% of the amount advanced in excess of the borrowing base or maximum amount of the credit facility, payable in arrears monthly. T3 is required to maintain the following financial covenants: 1) A consolidated debt service coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, 2) A fixed charge coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, and 3) A tangible net worth, at all times of at least $100,000. As of April 30, 2019, the outstanding principal balance was approximately $3.6 million,$500,000.

On October 12, 2018, the Company issued an unsecured promissory note for $25,000, bearing interest at a rate of which $1.1
million8% per annum, with maturity date of November 12, 2018, subsequently the maturity date was extended to December 10, 2018. In conjunction with the promissory note, the Company issued 140,000 common shares, the shares vested at time of issuance, these shares replaced previously issued warrants with an exercise price of $0.15, therefore the exercise price of $21,000 was recognized as a discount on the promissory note. On December 10, 2018, the Company paid in cash, $700,000 in a note receivable forgiven byfull the principal amount of $25,000 and accrued interest of $323. In addition, the Company and approximately $1.8 million in common stock, representing 2,715,546 shares.
The Company recordedamortized $21,000 of the assets and liabilities of Computeldebt discount as of May 1, 1997.
As Computel had net liabilities at May 1, 1997, the Company recorded goodwill of
$2,279,231interest expense related to the acquisition. The remaining 45% ownership interest is
reflected as minoritynote.
On October 18, 2018, the Company issued an unsecured promissory note for $25,000, bearing interest at a rate of 8% per annum, with maturity date of November 18, 2018. In conjunction with the promissory note, the Company issued 100,000 common shares, the shares vested at time of issuance, these shares replace previously issued warrants with an exercise price of $0.15, therefore the exercise price of $15,000 was recognized as a discount on the promissory note. On November 16, 2018, the Company paid in full the principal amount of $25,000 and accrued interest of $159. In addition, the Company amortized $15,000 of the debt discount as interest expense related to the note.
On October 22, 2018, the Company issued a secured promissory note for $50,000, bearing interest at a rate of 8% per annum, with maturity date of December 31, 2018. The promissory note is secured by a Pledge and Escrow Agreement, whereby the Company agreed to pledge rights to a collateral due under certain Agreement. In June 2019, the maturity date was extended to July 31, 1997. Per2019. As of April 30, 2019, the termsoutstanding principal balance was $50,000.
Notes payable, related party
On April 30, 2018, T3 entered into a convertible secured promissory note for $525,000 with an effective annual interest rate of 8% and a maturity date of April 30, 2020. With a principal payment of $100,000 due on June 1, 2018 and a principal payment of $280,823 due on April 30, 2020. Payment are based on a 60-month repayment schedule. At any time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under the Note or the Pledge and Escrow Agreement; or (ii) mutual agreement between the Borrower and the Holder, the Holder may convert all or any portion of the agreement,outstanding principal, accrued and unpaid interest, Premium, if applicable, and any other sums due and payable hereunder (such total amount, the remaining“Conversion Amount”) into shares of Computel were acquired in August 1997 forCommon Stock (the “Conversion Shares”) at a price equal to: (i) the previously mentioned cash paymentConversion Amount (the numerator);divided by(ii) a conversion price of approximately $1.1 million and forgiveness$1.50 per share of the aforementioned note receivable. The Company recorded additional goodwill
of approximately $2,857,000.

The following unaudited pro forma results of operations for the year ended
July 31, 1997, assumes the acquisition of Computel occurred as of the beginning
of the period. Such pro forma information is not necessarily indicative of the
results of future operations.

Year Ended July 31,
-------------------
1997
----
(Unaudited)

Operating revenues $ 20,312,000
Net loss ($5,408,000)
Basic and Diluted net loss per share ($0.19)

These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments such as additional amortization of
goodwill as a result of the acquisition, and the elimination of intercompany
transactions. The unaudited pro forma information is not necessarily indicative
of the results that would have occurred had such transactions actually taken
place at the beginning of the period specified nor does such information purport
to project the results of operations for any future date or period.

Pro forma results of operations for the year ended July 31, 1998 have been
omitted, as pro forma results would not materially differ from actual results of
operations for the period.

In January 1999, the Company acquired the rights to the source code of a
computer software program known as "CuteFTP". Prior to January 1999, the Company
had been the distributor of this software under an exclusive distribution
agreement executed in June 1996 with the software's author. The Company
acquired the rights to CuteFTP in exchange for cash payments totaling
approximately $190,000 in January and February 1999 and an additional $756,000
toCommon Stock, which price shall be paid in twelve monthly installments.

11. SEGMENT REPORTING

In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997. SFAS No. 131 need not
be applied to interim financial statementsindicated in the initial year of its
application, but comparative information for interim periods inconversion notice (in the initial year
of application is to be reported in financial statements for interim periods inform attached hereto as Exhibit “B”, the second year of application. The Company has three reportable operating
segments: (1) U.S. Telco; (2) Mexico Telco; and (3) Internet e-commerce. The
Company has included the operations of ATSI-Canada, ATSI-Delaware and all
businesses falling below the reporting threshold in the "Other" segment. The
"Other" segment also includes intercompany eliminations.

As of and for the years ending As of and for the three months ending
July 31, 1997 July 31, 1998 July 31, 1999 October 31, 1998 October 31, 1999

U.S. Telco
- -----------------------------------------------------------------------------------------------------------------------
External revenues $ 13,714,251 $ 26,695,690 $ 25,516,665 $ 8,284,135 $ 7,020,757
Intercompany revenues $ 330,362 $ 1,300,000 $ 800,012 - $ 279,188
------------ ------------ ------------ ------------
Total revenues $ 14,044,613 $ 27,995,690 $ 26,316,677 $ 8,284,135 $ 7,299,945
============ ============ ============ ============ ============

Earnings before interest,
taxes, depreciation and
amortization (EBITDA) ($3,131,841) ($16,807) ($1,485,045) $ 857,765 ($279,311)

Operating loss ($3,603,447) ($1,294,037) ($3,342,035) $ 425,613 ($820,284)

Net loss ($3,806,889) ($1,819,986) ($3,866,051) $ 970,063 ($1,138,539)

Total assets $ 6,450,033 $ 10,049,021 $ 9,606,263 $ 10,209,509 $ 9,568,399

Mexico Telco
- -----------------------------------------------------------------------------------------------------------------------
External revenues $ 1,949,755 $ 6,298,620 $ 6,359,238 $ 1,396,678 $ 1,661,037
Intercompany revenues $ 1,359,891 $ 5,136,541 $ 5,052,890 $ 898,916 $ 985,000
------------ ------------ ------------ ------------ ------------
Total revenues $ 3,309,646 $ 11,435,161 $ 11,412,128 $ 2,295,594 $ 2,646,037
============ ============ ============ ============ ============

EBITDA ($183,002) ($1,434,261) ($1,071,502) ($577,851) ($478,808)

Operating loss ($273,740) ($1,927,928) ($2,253,037) ($769,627) ($768,878)

Net loss ($364,402) ($2,564,103) ($2,691,450) ($893,687) ($1,009,550)

Total assets $ 9,097,780 $ 17,228,025 $ 13,236,868 $ 16,314,093 $ 12,968,251

Internet e-commerce
- -----------------------------------------------------------------------------------------------------------------------
External revenues $ 564,381 $ 1,525,517 $ 2,642,376 $ 555,466 $ 772,590
Intercompany revenues - 25,000 - - -
------------ ------------ ------------ ------------ ------------
Total revenues $ 564,381 $ 1,550,517 $ 2,642,376 $ 555,466 $ 772,590
============ ============ ============ ============ ============

EBITDA $ 39,197 $ 215,051 $ 1,052,015 $ 124,192 $ 273,028

Operating income $ 36,483 $ 188,658 $ 873,832 $ 105,016 $ 194,200

Net income $ 38,282 $ 197,698 $ 854,068 $ 110,938 $ 195,256

Total assets $ 266,955 $ 537,289 $ 1,222,238 $ 442,972 $ 1,372,837

Other
- -----------------------------------------------------------------------------------------------------------------------
External revenues - - - - -
Intercompany revenues ($1,690,253) ($6,461,541) ($5,852,902) ($898,916) ($1,264,188)
------------ ------------ ------------ ------------ ------------
Total revenues ($1,690,253) ($6,461,541) ($5,852,902) ($898,916) ($1,264,188)
============ ============ ============ ============ ============

EBITDA ($335,325) ($408,783) ($287,110) ($2,510) ($71,077)

Operating loss ($361,013) ($433,683) ($318,274) ($8,725) ($78,733)

Net loss ($562,119) ($907,570) ($1,887,651) ($829,197) ($1,254,122)

Total assets $ 5,940 ($3,563,743) $ 88,924 ($4,365,007) $ 307,706

Total
- -----------------------------------------------------------------------------------------------------------------------
External revenues $ 16,228,387 $ 34,519,827 $ 34,518,279 $ 10,236,279 $ 9,454,384
Intercompany revenues - - - - -
------------ ------------ ------------ ------------ ------------
Total revenues $ 16,228,387 $ 34,519,827 $ 34,518,279 $ 10,236,279 $ 9,454,384
============ ============ ============ ============ ============

EBITDA ($3,610,971) ($1,644,800) ($1,791,642) $ 401,616 ($556,168)

Depreciation, Depletion and
Amortization ($590,746) ($1,822,190) ($3,247,872) ($649,339) ($907,527)

Operating loss ($4,201,717) ($3,466,990) ($5,039,514) ($247,723) ($1,473,695)

Net loss ($4,695,128) ($5,093,961) ($7,591,084) ($642,383) ($3,206,955)

Total assets $ 15,820,708 $ 24,250,592 $ 24,154,293 $ 22,601,567 $ 24,217,193

12. INCOME TAXES

As of July 31,1999, the Company had net operating loss carryforwards of
approximately $9,335,000 for U.S. federal income tax purposes which are
available to reduce future taxable income of which $534,000 will expire in 2009,
$2,385,000 will expire in 2010, $2,083,000 will expire in 2011, $2,894,000 will
expire in 2012 and $1,439,000 will expire in 2019. The availability of the net
operating loss (NOL) carryforwards to reduce U.S. federal taxable income is
subject to various limitations in the event of an ownership change as defined in
Section 382 of the Internal Revenue Code of 1986“Conversion Notice”) (the "Code"denominator) (the “Conversion Price”). The Holder shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered. The promissory note is secured by a Pledge and Escrow Agreement, whereby T3 agreed to pledge 51% of the securities owned in its Florida operations, T3 Communications, Inc., until the principal payment is paid in full. In conjunction with the promissory note, the Company experiencedissued 3-year warrants to purchase 75,000 shares of common stock at an exercise price of $0.50 per share. Under a change in ownership in excessBlack-Scholes valuation the relative fair market value of 50 percent,the warrants at time of issuance was approximately $19,000 and was recognized as defined ina discount on the Code,promissory note, the company amortized $4,879 as interest expense during the yearnine months ended July 31, 1998. This change in ownership limitsApril 30, 2019. During the annual utilizationnine months ended April 30, 2019, the Company paid $54,000 of NOL under the Code to $1,284,000 per year, but does not
impact its ability to utilize its NOL's because the annual limitation under the
Code would allow full utilization within the statutory carryforward period.

59
principal balance. The tax effects of significant temporary differences representing deferred
income tax assetstotal principal outstanding and liabilities are as followsunamortized discount as of July 31, 1998April 30, 2019 were $352,000 and 1999:

July 31, 1998 July 31,1999

Net operating loss carryforward $ 2,919,000 $ 3,174,000

Other tax differences, net 628,000 839,000

Valuation allowance (3,547,000) (4,013,000)
----------- -----------
Total deferred income tax assets $ - $ -
=========== ===========

A$8,814, respectively. One of the note holders also serves as President, CEO and Board Member of T3 Communications, Inc., one of our operating subsidiaries.
On May 1, 2018, T3 entered into a secured promissory note for $275,000 with an effective annual interest rate of 0% with an interest and principal payment of $6,000 per month and shall continue perpetuity until the entire principal amount is paid in full. The promissory note is guaranteed to the lender by 15% of the stock owned by T3 in its Florida operations, T3 Communications, Inc., the secured interest will continue until the principal balance is paid in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 100,000 shares of common stock at an exercise price of $0.50 per share. Under a Black-Scholes valuation reservethe relative fair market value of $3,547,000the warrants at time of issuance was approximately $27,000 and $4,013,000,was recognized as a discount on the promissory note, the company amortized $5,934 as interest expense during the nine months ended April 30, 2019. During the nine months ended April 30, 2019, the Company paid $39,000 of the principal balance. The total principal outstanding and unamortized discount as of July 31, 1998April 30, 2019 were $223,000 and 1999, respectively, representing$18,490, respectively. The note holder also serves as Board Member of T3 Communications, Inc., one of our operating subsidiaries.

On December 7, 2018, Digerati entered into an unsecured promissory note for $28,000 with an effective annual interest rate of 0%, and a maturity date of January 21, 2019. Subsequently, the total of net deferred tax assets has been
recognized bymaturity date was extended to May 06, 2019. In conjunction with the note, the Company as it cannot determine that it is more likely than not
that allissued 28,000 shares of Common Stock, the shares vested at time of issuance. Under a Black-Scholes valuation the relative fair market value of the deferred tax assets will be realized.

Additionally, the Company's effective tax rate differs from the statutory
rateshares of Common Stock at time of issuance was approximately $3,000 and was recognized as the tax benefits have not been recordeda discount on the losses incurred forpromissory note, the yearscompany amortized $3,000 as interest expense during the nine months ended July 31, 1997, 1998April 30, 2019. The total principal outstanding and 1999.

13. COMMITMENTS AND CONTINGENCIES

Duringunamortized discount as of April 30, 2019 were $28,000 and $0, respectively. On May 5, 2019, the years ended July 31, 1998Company paid in full the principal amount of $28,000 and 1999, nine officersaccrued interest of $1,334. The note holder also serves as Board Member of T3 Communications, Inc., one of our operating subsidiaries.
Convertible debt non-derivative
In March 2018, the Company entered into employment agreements with ATSI-Texas or ATSI-Delaware, generallytwo (2) Promissory Notes (the “Notes”) for periods of up to three years (with automatic one-year extensions) unless
terminated earlier in accordance with the terms of the respective agreements.
The annual base salary under such agreements for$250,000 each, of these nine officers
range from $75,000 to $100,000 per annum, and is subject to increase within the
discretion of the Board. In addition, each of these officers is eligible to
receive a bonus in such amount as may be determined by the Board of Directors
from time to time. Bonuses may not exceed 50% of the executive's base salary in
any fiscal year. No bonuses were paid during fiscal 1999.

Effective August 1998, two of the aforementioned officers entered into
employment agreements with ATSI-Delaware, which superceded their previous
agreements, each for a period of three years (with automatic one-year
extensions) unless terminated earlier in accordance with the terms of the
respective agreements. The annual base salary under such agreements for each of
these two officers may not be less than $127,000 and $130,000, respectively, per
annum, and is subject to increase within the discretion of the Board. In
addition, each of these officers is eligible to receive a bonus in such amount
as may be determined by the Board of Directors from time to time. Bonuses may
not exceed 50% of the executive's base salary in any fiscal year. No such
bonuses were awarded for fiscal 1999.

Subsequent to July 31, 1999, three officers whose employment agreements
were to expire January 1, 2000 were informed that their agreements would not be
renewed under the current terms and conditions. Two of the three officers have
since entered into new employment agreements with ATSI-Delaware, each for a
period of one year unless earlier terminated in accordance with the terms of the
respective agreements. The annual base salaries under such agreements may not be
less than approximately $101,000 and $105,000, respectively, per annum, and is
subject to increase within the discretion of the Board. In addition, each of
these officers is eligible to receive a bonus in such amount as may be
determined by the Board of Directors from time to time. Bonuses may not exceed
50% of the executive's base salary in any fiscal year.

14. RISKS AND UNCERTAINTIES AND CONCENTRATIONS

The Company's business is dependent upon key pieces of equipment, switching
and transmission facilities, fiber capacity and the Solaridad satellites.
Should the Company experience service interruptions from its underlying
carriers, equipment failures or should there be damage or destruction to the
Solaridad satellites or leased fiber lines there would likely be a temporary
interruption of the Company's services which could adversely or materially
affect

the Company's operations. The Company believes that suitable arrangements
could be obtained with other satellite or fiber optic network operators to
provide transmission capacity. Additionally, the Company's network control
center is protected by an uninterruptible power supply system which, upon
commercial power failure, utilizes battery back-up until an on-site generator is
automatically triggered to supply power.

During the year ended July 31, 1999, the Company's wholesale transport
business had two customers, whose aggregated revenues approximated 10% of the
Company's total revenues for the year. No other customer generated revenues
individually greater than 5% during the year.

15. RELATED PARTY TRANSACTIONS

In January 1997, ATSI-Canada entered into an agreement with an
international consulting firm, of which ATSI-Delaware director Carlos K. Kauachi
is president, for international business development support. Under the terms
of the agreement, the Company paid the consulting firm $8,000 per month for a
period of twelve months. In January 1998, the agreement was renewed at $10,000
per month for a period of twelve months. In March 1999, the agreement was
renewed at $6,000 per month for a period of twelve months.

In April 1998, the Company engaged two companies for billing and
administrative services related to network management services it provides. The
companies, which are owned by Tomas Revesz, an ATSI-Delaware director, were paid
approximately $140,000 for their services during fiscal 1998. Subsequent to
year-end, the Company entered into an agreement with the two companies capping
their combined monthly fees at $18,500 per month. For fiscal 1999, the
companies were paid approximately $180,000 for their services. For the three
months ended October 31, 1999, the Company incurred costs of approximately
$47,000 related to these services. Additionally, the Company has a payable to
Mr. Revesz of $90,000 as of July 31, 1999 and October 31, 1999.

In February 1999, the Company entered into notes payable with related
parties, all of whom were officers or directors of the Company in the amount of
$250,000. The notes accruebearing interest at a rate of 12% per yearannum. The Notes have a maturity date of September 15, 2018, provided, however, the Company shall have the right to request that the maturity date to be extended by one (1) additional period of ninety (90) days, until December 14, 2018. The Notes are payable every month, commencing April 15, 2018, in monthly payments of interest only and a single payment of the principal amount outstanding plus accrued interest on September 15, 2018. The Company agreed to repay the Notes from the proceeds from the Company’s current private placement. As proceeds from the Private Placement are received, the Company shall direct all funds to the Note Holders until the principal amount outstanding and accrued interest are paid in full. AsIn addition, on March 15, 2018, the Company entered into a Note Conversion Agreement (the “Agreement”) with the Note holders, whereby, the holders may elect to convert up to 50% of the principal amount outstanding on the Notes into Common Stock of Digerati at any time after 90 days of funding the Notes. The Conversion Price shall be the greater of: (i) the Variable Conversion Price (as defined herein) or (ii) the Fixed Conversion Price (as defined herein). The“Variable Conversion Price”shall be equal to the average closing price for Digerati’s Common Stock (the “Shares”) for the ten (10) Trading Day period immediately preceding the Conversion Date. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. The“Fixed Conversion Price”shall mean $0.50. In conjunction with the notes, the Company issued 300,000 warrants, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $127,000 and was recognized as a discount on the promissory notes, the company amortized $84,433 as a non-cash interest during the period ended April 30, 2019. The total principal outstanding and unamortized discount as of April 30, 2019 were $500,000 and $0, respectively. On December 27, 2018, the Company entered into an Amendment to the Loan Agreements, under the amendments the note holders agreed to extend the maturity date until September 14, 2019. In addition, as part of the amendment, the Company agreed to modify the“Fixed Conversion Price” to $0.35, all other terms under the Promissory Notes remained the same. We accounted for the extensions to the Notes as debt modifications and not extinguishment of debt since the changes in fair value are not substantial in accordance with ASC 470-50.
On June 19, 2018, the Company entered into various Promissory Notes (the “Notes”) for $272,000, bearing interest at a rate of 10% per annum, with maturity date of April 10, 2019. In conjunction with the Notes, the Company issued 255,000 warrants under the promissory notes, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $119,000 and was recognized as a discount on the promissory notes. On March 29, 2019, the Company entered into an Amendment to the Promissory Notes, under the amendments the note holders agreed to extend the maturity date until June 30, 2019. In addition, as part of the amendments, the Company agreed to issue 85,000 shares of common stock. The shares were recorded as debt discount and amortized over the remaining term of the notes. The company amortized $115,548 as interest expense during the nine months ended April 30, 2019. The total principal outstanding and unamortized discount as of April 30, 2019 were $272,000 and $11,429, respectively.

Convertible debt - derivative
On August 2, 2018, the Company redeemed $40,000 of the principal outstanding under the convertible debenture, dated January 12, 2018 with Peak One Opportunity Fund, L. P., at a redemption price of $56,000. The Company recognized the deference between the redemption price and principal balance paid as interest expense of $16,000. On November 26, 2018, the Company issued 139,860 shares of common stock for the conversion of $20,000 of the principal outstanding under the convertible debenture. On December 20, 2018, the Company issued 356,007 shares of common stock for the conversion of $20,000 of the principal outstanding under the convertible debenture. In addition, during the nine months ended April 30, 2019, the Company amortized $80,000 of the debt discount as interest expense related to the convertible debenture. The total principal outstanding and unamortized discount as of April 30, 2019 were $0 and $0, respectively.
On February 12, 2019, the Company issued 475,511 shares of common stock for the conversion of $20,000 of the principal outstanding under the convertible debenture. On March 8, 2019, the Company issued 356,633 shares of common stock for the conversion of $25,000 of the principal outstanding under the convertible debenture. On April 9, 2019, the Company issued 356,633 shares of common stock for the conversion of $25,000 of the principal outstanding under the convertible debenture. During the nine months ended April 30, 2019, the Company amortized $94,207 of the debt discount as interest expense related to the convertible debenture dated July 31, 19992018 with Peak One Opportunity Fund L.P. The total principal outstanding and October 31, 1999 approximately $100,000unamortized discount as of April 30, 2019 were $150,000 and $73,000, respectively$98,592, respectively.
During the nine months ended April 30, 2019, the Company amortized $272,500 of the debt discount as interest expense related to the convertible note dated May 30, 2018 with Firstfire Global Opportunities Fund, LLC. On November 21, 2018 the Company issued 85,000 shares of common stock for a debt amendment and recorded the fair market of the shares of $23,800 as interest expense. On January 3, 2019, the Company issued 218,181 shares of common stock for the conversion of $15,000 of the principal outstanding under the convertible debenture. On January 11, 2019, the Company issued 427,972 shares of common stock for the conversion of $30,000 of the principal outstanding under the convertible debenture. On January 18, 2019, the Company redeemed the full outstanding principal balance on the convertible debenture of $260,556, at a redemption price of $370,000. The Company recognized the difference between the redemption price and principal balance paid as interest expense of $109,444. The total principal outstanding and unamortized discount as of April 30, 2019 were $0 and $0, respectively.
On January 16, 2019, the Company entered into various Securities Purchase Agreements (the SPAs”) with four (4) different investors (each an “Investor”, and together the “Investors”) pursuant to which each Investor purchased a 10% unsecured convertible promissory note (each a “Note”, and together the “Notes”) from the Company. Three of the notes remain outstanding.are in the aggregate principal amount of $140,000 each and a maturity date of October 16, 2019. One of the notes is in the aggregate principal amount of $57,750 and a maturity date of January 24, 2020. The purchase price of $140,000 of each of three Notes were paid in cash on January 16, 2019. After payment of transaction-related expenses of $51,000, net proceeds to the Company from the three Notes totaled $369,000. The purchase price of $57,750 Note was paid in cash on January 24, 2019. After payment of transaction-related expenses of $7,750, net proceeds to the Company from Note totaled $50,000. The Company hasrecorded these discounts and cost of $58,750 as a discount to the Notes and fully amortized as interest expense during the period.
The Company analyzed the Notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, as of the nine months ending April 30, 2019, the company recognized derivative liability for the four (4) new convertible notes of $655,345, of which $419,000 was recorded as debt discount and will be amortized during the term of the Notes, and $236,345 was recorded as day 1 derivative loss. The total principal balance outstanding and unamortized discount on the Notes as of April 30, 2019 were $477,750 and $263,000, respectively. The company amortized $156,000 discount from derivative liabilities as interest expense during the nine months ended April 30, 2019. In connection with the execution of the Notes, we issued 500,000 shares of our common stock to the Note holders, the shares were recorded with a relative fair value of $0 as the notes were fully discounted by derivative liability.

On February 22, 2019, the Company entered into a month-to-month agreementSecurities Purchase Agreement (the SPA”) with Technology
Impact Partners,an investor (an “Investor”) the Investor purchased a consulting firm10% unsecured convertible promissory note (the “Note”) from the Company. The note is in the aggregate principal amount of $57,500 and a maturity date of February 22, 2020. After payment of transaction-related expenses of $7,750, net proceeds to the Company from the Note totaled $50,000. The Company recorded these discounts and cost of $7,750 as a discount to the Note and fully amortized as interest expense during the period.
The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, as of the nine months ending April 30, 2019, the company recognized derivative liability for the convertible note of $79,729, of which Company director Richard C.
Benkendorf, is$50,000 was recorded as debt discount and will be amortized during the term of the Note, and $29,729 was recorded as day 1 derivative loss. The total principal balance outstanding and owner. Underunamortized discount on the agreement, Technology Impact
Partners providesNote as of April 30, 2019 were $57,750 and $41,667, respectively. The company amortized $8,333 discount from derivative liabilities as interest expense during the nine months ended April 30, 2019. In connection with the execution of the Note, we issued 50,000 shares of our common stock to the Note holder, the shares were recorded with a relative fair value of $0 as the notes were fully discounted by derivative liability.
On April 20, 2019, the Company entered into a Securities Purchase Agreement (the SPA”) with various servicesan investor (an “Investor”) the Investor purchased a 10% unsecured convertible promissory note (the “Note”) from the Company. The note is in the aggregate principal amount of $44,000 and a maturity date of January 19, 2020. After payment of transaction-related expenses of $4,000, net proceeds to the Company from the Note totaled $40,000. The Company recorded these discounts and cost of $4,000 as a discount to the Note and fully amortized as interest expense during the period.
The Company analyzed the Note for derivative accounting consideration and determined that include strategic
planning, business developmentthe embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, as of the nine months ending April 30, 2019, the Company recognized derivative liability for the convertible note of $55,592, of which $40,000 was recorded as debt discount and financial advisory services. Underwill be amortized during the term of the Note, and $15,592 was recorded as day 1 derivative loss. The total principal balance outstanding and unamortized discount on the Note as of April 30, 2019 were $44,000 and $40,000, respectively. The Company amortized $0 discount from derivative liabilities as interest expense during the nine months ended April 30, 2019. In connection with the execution of the Note, we issued 50,000 shares of our common stock to the Note holder, the shares were recorded with a relative fair value of $0 as the notes were fully discounted by derivative liability.
Each Note shall bear interest at a rate of ten percent (10%) per annum (the “Interest Rate”), which interest shall be paid by the Company to each Investor in shares of Common Stock at any time an Investor sends a notice of conversion to the Company. Each of the four Investor is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the Note into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock equal to (i) the lowest trading price of the Common Stock (as defined in the Note) as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding the issuance date of each Note; or (ii) 60% multiplied by the lowest traded price of the Common Stock during the twenty (20) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a notice of conversion (the “Variable Conversion Price”). The Variable Conversion Price may further be adjusted in connection with the terms of the agreement,Notes.
Each of the Notes may be prepaid until 180 days from the issuance date with the following penalties: (i) if a Note is prepaid within ninety (90) days of the issuance date, then the prepayment premium shall be 125% of the outstanding principal amount plus any accrued and unpaid interest; (ii) if a Note is prepaid during the period beginning on the date which is ninety-one (91) days following the issuance date, and ending on the date which is one hundred eighty (180) days following the issuance date, then the prepayment premium shall be 130% of the outstanding principal amount plus any accrued and unpaid interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited.
The Company shall at all times reserve a minimum of six (6) times the number of its authorized and unissued common stock (the “Reserved Amounts”), free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the each of the Notes. Upon full conversion of each Note, any shares remaining in such reserve shall be cancelled. The Company will, from time to time, increases the Reserved Amount in accordance with the Company’s obligations under each of the Notes.

Pursuant to the terms of the SPAs, for so long as any of the Investors owns any shares of Common Stock issued upon conversion of a Note (the “Conversion Shares”), the Company payscovenants to secure and maintain the consulting firm $3,750 per month plus
expenses. At July 31, 1999 and October 31, 1999, the Company has a payable to
Technology Impact Partnerslisting of approximately $74,000 and $67,000, respectively.

16. LEGAL PROCEEDINGS

On January 29, 1999, onesuch shares of the Company's customers, Twister
Communications, Inc. filed a Demand for Arbitration seeking damages for breach
of contract. The customer claims that the Company wrongfully terminated an
International Carrier Services Agreement executed by the parties in June 1998
under which the Company provided wholesale carrier services from June 1998 to
January 1999. The customer's claims for damages represent amounts that it
claims it had to pay in order to replace the service provided by the Company.
The Company disputes that it terminated the contract wrongfully and asserts that
the customer breached the agreement by failing to pay for services rendered and
by intentionally making false representation regarding its traffic patterns and
on March 3, 1999 filed a Demand for Arbitration seeking damages for breach of
contract in an amount equal to the amounts due to the Company for services
rendered plus interest, plus additional damages for fraud. An arbitration panel
was selected and the parties are now completing written discovery.

While the Company believes that it has a justifiable basis for its
arbitration demand and that it will be able to resolve the dispute without a
material adverse effect on the Company's financial condition; until the
arbitration proceedings take place, the Company can not reasonably estimate the
possible loss, if any, and there can be no

assurance that the resolution of this dispute would not have an adverse effect
on the Company's results of operations.

On June 16, 1999, the Company initiated a lawsuit against one of its
vendors claiming misrepresentation and breach of contract. Under an agreement
the Company signed in late 1998, the vendor was to provide quality fiber optic
capacity in January 1999. The delivery of the route in early 1999 was a
significant component of the Company's operational and sales goal for the year
and the failure of its vendor to provide the capacity led to the Company
negotiating an alternative agreement with Bestel, S.A. de C.V. at a higher cost,
in addition to the lost revenues and incremental costs incurred. While the
total economic impact is still being assessed, the Company believes lost
revenues and incremental costs total well in excess of $15 million. While the
Company's contract contains certain limitations regarding the type and amounts
of damages that can be pursued, the Company has authorized its attorneys to
pursue all relief to which it is entitled under law. As such, the Company can
not reasonably estimate the ultimate outcome of this lawsuit nor the additional
costs that may be incurred in the pursuit of its case.Common Stock. The Company is also subject to certain customary negative covenants under the Notes and the SPAs, including but not limited to the requirement to maintain its corporate existence and assets, subject to certain exceptions, and not to make any offers or sales of any security under circumstances that would require registration of or stockholder approval for the Notes or the Conversion Shares.
Fair Value of Financial Instruments. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a party to additional claims and legal proceedings
arisingliability (an exit price) in the ordinary courseprincipal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of business.observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company believes it is unlikelyfair value hierarchy based on the three levels of inputs that may be used to measure fair value are as follows:
Level 1– Quoted prices in active markets for identical assets or liabilities.
Level 2– Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the final outcome of anyfull term of the claimsassets or proceedings toliabilities.
Level 3– Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the Company
is a party would have a material adverse effect ondetermination of fair value requires significant judgment or estimation.
For certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the Company's financial
statements; however,carrying amounts approximate fair value due to the inherent uncertaintyshort maturity of litigation,these instruments. The carrying value of our long-term debt approximates its fair value based on the rangequoted market prices for the same or similar issues or the current rates offered to us for debt of possible loss, if any, cannot be estimatedthe same remaining maturities.
Our derivative liabilities as of April 30, 2019 and July 31, 2018 were $1,302,597 and $632,268, respectively.
The fair market value of all derivatives during the nine months ended April 30, 2019 was determined using the Black-Scholes option pricing model which used the following assumptions:
Expected dividend yield 0.00 %
Expected stock price volatility 165.84% - 190.31 %
Risk-free interest rate 2.21% -2.93 %
Expected term 0.58 - 2.75 years
Level 3 inputs.
The following table provides a summary of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:
Balance at July 31, 2018 $ 632,268
Derivative from new convertible promissory notes 509,000
Derivative liability resolved to additional paid in capital due to debt conversion (432,276 )
Derivative loss 593,605
Balance at April 30, 2019 $ 1,302,597

NOTE 7 – EQUITY
During the nine months ended April 30, 2019, the Company issued the following shares of common stock:
On August 1, 2018, the Company secured $40,000 from an accredited investor under a private placement and issued 80,000 shares of its common stock at a price of $0.50 per share and warrants to purchase an additional 15,000 shares of its common stock at an exercise price of $0.50 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.
On September 28, 2018, the Company issued an aggregate of 21,672 shares of common stock with a reasonable degreemarket value at time of precisionissuance of $5,794. The shares were issued to settle accounts payables of $5,287 to a professional, the Company recognized a loss of $507 upon issuance of the shares.
On November 1, 2018 the Company issued an aggregate of 200,000 shares of common stock with a market value at time of issuance of $69,600 and there can be no assurancerecognized the total fair market value as stock-based compensation expense at the time of issuance. The shares were issued for consulting services.
On November 5, 2018, the Company issued an aggregate of 16,883 shares of common stock with a market value at time of issuance of $5,875. The shares were issued to settle accounts payables of $5,287 to a professional, the Company recognized a loss of $587 upon issuance of the shares.
On November 14, 2018, the Company secured $75,000 from an accredited investor under a Securities Purchase Agreement and issued 258,621 shares of its common stock at a price of $0.29.
On November 29, 2018, the Company issued an aggregate of 39,444 shares of common stock with a market value at time of issuance of $11,833. The shares were issued to settle accounts payables of $10,545 to a professional, the Company recognized a loss of $1,288 upon issuance of the shares.
On February 1, 2019 the Company issued an aggregate of 325,000 shares of common stock with a market value at time of issuance of $78,000 and recognized the total fair market value as stock-based compensation expense at the time of issuance. The shares were issued for consulting services.
On February 8, 2019, the Company secured $150,000 from an accredited investor under a Securities Purchase Agreement and issued 600,000 shares of its common stock at a price of $0.25.
On February 8, 2019 the Company issued an aggregate of 400,000 shares of common stock with a market value at time of issuance of $100,000 and recognized the total fair market value as stock-based compensation expense at the time of issuance. The shares were issued for consulting services.
On March 7, 2019, the Company issued an aggregate of 60,715 shares of common stock with a market value at time of issuance of $13,357. The shares were issued to settle accounts payables of $10,382 to a professional, the Company recognized a loss of $3,000 upon issuance of the shares.
NOTE 8 – SUBSEQUENT EVENTS
Series A Convertible Preferred Stock
On May 10, 2019, the Company secured $25,000 from accredited investors under a private placement and issued 25,000 shares of Series A Convertible Preferred Stock at an conversion price of $0.30 per share and warrants to purchase an additional 50,000 shares of its common stock at an exercise price of $0.20 per share. We determined that the resolutionwarrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.
On May 20, 2019, the Company secured $25,000 from accredited investors under a private placement and issued 25,000 shares of Series A Convertible Preferred Stock at an conversion price of $0.30 per share and warrants to purchase an additional 50,000 shares of its common stock at an exercise price of $0.20 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.
On May 30, 2019, the Company secured $75,000 from accredited investors under a private placement and issued 75,000 shares of Series A Convertible Preferred Stock at an conversion price of $0.30 per share and warrants to purchase an additional 150,000 shares of its common stock at an exercise price of $0.20 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.
Equity Issuance
In June 2019 the Company issued an aggregate of 1,192,770 shares of common stock with a market value at time of issuance of $198,000 and recognized the total fair market value as stock-based compensation expense at the time of issuance. The shares were issued for consulting services.
In June 2019 the Company issued an aggregate of 85,000 shares of common stock with a market value at time of issuance of $14,450. The shares were issued in conjunction with a note extension agreement.

In June 2019 the Company issued an aggregate of 500,000 shares of common stock with a market value at time of issuance of $83,000. The shares were issued in conjunction with an acquisition of a 12% minority interest in a VoIP Services provider. In addition, the Company paid $82,500 in cash and issued a promissory note for $17,500, with a maturity date of September 15, 2019 and annual interest rate of 8%.
In July 2019 the Company issued an aggregate of 825,000 shares of common stock with a market value at time of issuance of $145,500. The shares were issued in conjunction with various convertible promissory notes and interest payments.
Convertible debentures - conversions
On May 10, 2019, the Company issued 713,266 shares of common stock for the conversion of $50,000 of the principal outstanding under the convertible debenture.
In June 2019, the Company issued 1,079,237 shares of common stock for the conversion of $79,000 of the principal outstanding under various convertible notes.
In July 2019, the Company issued 468,702 shares of common stock for the conversion of $30,000 of the principal outstanding under various convertible notes.
Convertible Promissory Note
On May 5, 2019, the Company entered into a 10% unsecured convertible promissory note (the “Note”) with an investor (an “Investor”). The note is in the aggregate principal amount of $29,334 and a maturity date of April 30, 2020.
The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, as of the date of the Note, the company recognized derivative liability of $50,700, of which $29,334 was recorded as debt discount and will be amortized during the term of the Note and $21,366 was recorded as derivative loss.
On July 11, 2019, the Company entered into various 10% unsecured convertible promissory notes (the “Notes”) with various investors (the "Investors"). The notes are in the aggregate principal amount of $579,875 and a maturity date of April 11, 2020.
The Company analyzed the Notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, as of the date of the Notes, the company recognized derivative liability of $959,180, of which $505,500 was recorded as debt discount and will be amortized during the term of the Notes and $453,680 was recorded as derivative loss.
On August 30, 2019, the Company entered into a 10% unsecured convertible promissory note (the “Note”) with an investor (an "Investor"). The notes are in the aggregate principal amount of $93,500 and a maturity date of May 30, 2020.
The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, as of the date of the Note, the company recognized derivative liability of $100,978, of which $85,000 was recorded as debt discount and will be amortized during the term of the Note and $15,978 was recorded as derivative loss.
The Note shall bear interest at a rate of ten percent (10%) per annum (the “Interest Rate”), which interest shall be paid by the Company to the Investor in shares of Common Stock at any particular claimtime an Investor sends a notice of conversion to the Company. The Investor is entitled to, at its option, convert all or proceeding would not have an adverse effectany amount of the principal amount and any accrued but unpaid interest of the Note into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock equal to (i) 60% multiplied by the lowest trading price of the Common Stock (as defined in the Note) as reported on the Company's resultsNational Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding the issuance date of operationseach Note; or (ii) 60% multiplied by the lowest traded price of the Common Stock during the twenty (20) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a notice of conversion (the “Variable Conversion Price”). The Variable Conversion Price may further be adjusted in connection with the terms of the Notes.
The Note may be prepaid until 180 days from the issuance date with the following penalties: (i) if a Note is prepaid within ninety (90) days of the issuance date, then the prepayment premium shall be 125% of the outstanding principal amount plus any accrued and unpaid interest; (ii) if a Note is prepaid during the period beginning on the date which is ninety-one (91) days following the issuance date, and ending on the date which is one hundred eighty (180) days following the issuance date, then the prepayment premium shall be 130% of the outstanding principal amount plus any accrued and unpaid interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited.
The Company shall at all times reserve a minimum of six (6) times the number of its authorized and unissued common stock (the “Reserved Amounts”), free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the Note. Upon full conversion of the Note, any shares remaining in which it occurred.

62
such reserve shall be cancelled. The Company will, from time to time, increases the Reserved Amount in accordance with the Company’s obligations under the Note.
F-46
6,324,142 Shares of Common Stock
The date of this prospectus is _______, 2019
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Other Expenses of Issuance and Distribution
The following aretable sets forth the costs and expenses, (estimated except forother than underwriting discounts and commissions, to be paid by the SEC
registration fee) forRegistrant in connection with the issuance and distribution of the securitiesCommon Stock being registered, allregistered. All amounts other than the SEC registration fees and FINRA fees are estimates.
Amount to be Paid
SEC Registration Fees $ 76.30
Printing and Engraving Expenses *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Transfer Agent Fees *
Miscellaneous *
Total $ *
* To be provided by amendment.
Item 14. Indemnification of which will be paid by ATSI:

SEC Registration $ 373.45
Legal 1,000.00
Printing 3,000.00
Miscellaneous 500.00
Total: $4,873.45

ATSI will not pay commissions and discounts of underwriters, dealersOfficers And Directors
Nevada Law
The Nevada Revised Statutes limits or agents,
if any, or any transfer taxes.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by Section 145 of the Delaware General Corporation Law, ATSI's
Amended and Restated Certificate of Incorporation includes a provision that eliminates the personal liability of its directors to corporations and their stockholders for monetary damages for breachbreaches of directors’ fiduciary duties as directors. Our bylaws include provisions that require the company to indemnify our directors or allegedofficers against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized to carry directors’ and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities. Our articles of incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification provisions under the Nevada Revise Statutes and our bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their dutyfiduciary duties. These provisions may also have the effect of care. In addition,reducing the DGCL and
ATSI's Bylaws provide for indemnificationlikelihood of ATSI'sderivative litigation against directors and officers, for
certain liabilitieseven though such an action, if successful, might otherwise benefit us and expenses that they may incurour stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in such capacities. In
general,the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors and officers are indemnified with respect to actions taken in
good faith in a manner reasonably believed to be in, or not opposed to, the best
interests of ATSI, and with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.

ATSI has purchased insurance with respect to, among other things, the
liabilities that may arise under the provisions referred to above. The
directors and officers of ATSI are also insured against liabilities, including
liabilities arising under the Securities act of 1933, as amended, which mightfederal securities laws. In addition, your investment may be incurred by them in their capacities as directors and officers of ATSI and
against which they are not indemnified by ATSI.

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In connection with this offering, The Shaar Fund (or its assignees under a
Registration Rights Agreement signed by ATSI and The Shaar Fund) has agreed to
indemnify ATSI, and its officers, directors and controlling persons, against any
losses, claims, damages or liabilities to which they may become subject that
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in this prospectus or the Registration Statement or
any omission or alleged omission to state in this prospectus or the Registration
Statement a material fact required to be stated or necessary to make the
statements in this prospectus or the Registration Statement not misleading,adversely affected to the extent that, such statementin a class action or omission wasdirect suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
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Item 15. Recent Sales of Unregistered Securities
The sales and issuances of the securities described below were made in reliance on the written
information furnished to ATSI by The Shaar Fund.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In additionpursuant to the securities being registeredexemptions from registration contained in this Registration
Statement on Form S-1, eachto Section 4(a)(2) of the following issuances of securities was made in
reliance upon the exemption from registrationSecurities Act and Regulation D under the Securities Act of 1933,
as amended (Act. Each purchaser represented that such purchaser’s intention to acquire the "Securities Act"), set forth in section 4(2) and/or 3(b) of the
Act. Such issuances were, in each case made to a limited number of purchasers,
who based upon representations made by the purchasers or facts known to the
Company, were either accredited (in substantially all cases) or sophisticated,
were in most cases existing stockholders, were familiar with or had access to
all material information concerning the operations and financial condition of
the Company, and acquired the securitiesshares for investment only and not with a view toward distribution. We requested our stock transfer agent to subsequent distribution. No general distributionaffix appropriate legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser was madegiven adequate access to sufficient information about us to make an informed investment decision. Except as described in this prospectus, none of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved.
In August 2018, the Company secured $40,000 from an accredited investor under a private placement and issued 80,000 shares of its common stock at a price of $0.50 per share and warrants to purchase an additional 15,000 shares of its common stock at an exercise price of $0.50 per share. We determined that the warrants issued in connection with any such issuances.

the private placement were equity instruments and did not represent derivative instruments.
In October 1998 and October 1999,September 2018, the Company issued 59,101 and 31,566an aggregate of 21,672 shares respectively,of common stock with a market value at time of issuance of $5,794. The shares were issued to an individual as considerationsettle accounts payables with a professional, the Company recognized a loss of $507 upon issuance of the shares, this loss is immaterial, thus presented in stock-based compensation expense on the statement of cash flows.
In October 2018, the Company secured a promissory note for his continuing
guaranty$25,000, bearing interest at a rate of approximately $500,0008% per annum, with maturity date of capital leases obtained byNovember 12, 2018. In conjunction with the Company.
The Company will continue to pay an additional $25,000 in stock annually so long
as the guaranty remains outstanding.

In December 1998,Note, the Company issued 279,430140,000 common shares, the shares vested at time of issuance, these shares replace previously issued warrants with an exercise price of $0.15, therefore the exercise price of $21,000 was recognized as a discount on the promissory note. The company will amortize the fair market value as interest expense over the term of the note.
In October 2018, the Company secured a promissory note for $25,000, bearing interest at a rate of 8% per annum, with maturity date of November 18, 2018. In conjunction with the Note, the Company issued 100,000 common shares, the shares vested at time of issuance, these shares replace previously issued warrants with an exercise price of $0.15, therefore the exercise price of $15,000 was recognized as a discount on the promissory note. The company will amortize the fair market value as interest expense over the term of the note.
In November 2018, the Company issued an aggregate of 16,883 shares of common stock with a market value at time of issuance of $5,875. The shares were issued to settle accounts payables of $5,287 to a professional, the Company recognized a loss of $587 upon issuance of the shares. This loss is immaterial, thus presented in stock-based compensation expense on the statement of cash flows.
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In November 2018, the Company issued an aggregate of 39,444 shares of common stock with a market value at time of issuance of $11,833. The shares were issued to settle accounts payables of $10,545 to a professional, the Company recognized a loss of $1,288 upon issuance of the shares. This loss is immaterial, thus presented in stock-based compensation expense on the statement of cash flows.
In November 2018, the Company received $75,000 for the issuance of 258,621 shares of Common Stock. At the time of issuance, the shares of Common Stock inwere priced at $0.29.
In November 2018, the Company entered into an Amendment to the Convertible Promissory Note dated May 30, 2018 with FirstFire Global Opportunity Fund, LLC. (“FirstFire”). Under the Amendment FirstFire agreed to extend the “conversion period” from 180 days after the issuance date to 210 days after the issuance date. No other changes were made to the Convertible Promissory Note. In conjunction with its acquisition of one of its independent marketing
representatives in November 1997.

In January 1999,the Amendment, the Company issued 16,64385,000 shares of Common Stock in
lieuat price per share of $15,000 owed to one of its consultants, for services rendered for the
last quarter of 1998.

$0.28.
In January 1999,November 2018, the Company issued an aggregate of 200,000 shares of common stock at a price per share of $0.35. The shares were issued as compensation of $69,600 under a consulting agreement for professional services.
In November 2018, the Company issued an aggregate of 139,860 shares of common stock. The shares were issued in conjunction with a conversion of $20,000 of principal on a convertible debenture.
In December 2018, the Company issued an aggregate of 28,000 shares of common stock. The shares were issued in conjunction with promissory note $25,000.
In December 2018, the Company issued an aggregate of 356,007 shares of common stock. The shares were issued in conjunction with a conversion of $20,000 of principal on a convertible debenture.
In December 2018, the Company issued an aggregate of 20,000 shares of Common Stockcommon stock at a price per share of $0.20. The shares were issued to a
broker/dealer as a commission forreplace previously completed private placements.

issued warrants under various promissory notes.
In March 1999, April 1999 and December 1999, the Company sold 11,330
shares, 12,816 shares and 14,255 shares, respectively of Series A Preferred
Stock for $1,133,000, $1,281,560 and $1,425,500, respectively. The Series A
Preferred Stock and any accumulated, unpaid dividends may be converted into
Common Stock for up to five years at calculated conversion prices.

In April 1999, the Company sold 503,387 shares of Common Stock for
approximately $302,000. In connection with the saleJanuary 2019, the Company issued 41,667an aggregate of 218,181 shares of Common Stock tocommon stock. The shares were issued in conjunction with a broker/dealer asconversion of $15,000 of principal on a commission.

ITEM 16. EXHIBITS.

5.1 Opinion regarding legality*
10.39convertible debenture.
In January 2019, the Company issued an aggregate of 427,972 shares of common stock. The shares were issued in conjunction with a conversion of $30,000 of principal on a convertible debenture.
In January 2019, the Company issued an aggregate of 450,000 shares of common stock. The shares were issued in conjunction with various convertible promissory notes for $420,000.
In January 2019, the Company issued an aggregate of 50,000 shares of common stock. The shares were issued in conjunction with a convertible promissory note for $57,750.
In February 2019, the Company issued an aggregate of 50,000 shares of common stock. The shares were issued in conjunction with a convertible promissory note for $57,750.
In February 2019, the Company issued an aggregate of 475,511 shares of common stock. The shares were issued in conjunction with a conversion of $20,000 of principal on a Convertible debenture with Peak One Opportunity Fund, LP., dated July 31, 2018.
In February 2019, the Company secured $150,000 from an accredited investor under a Securities Purchase Agreement betweenand issued 600,000 shares of its common stock at a price of $0.25.
In February 2019 the Company issued an aggregate of 325,000 shares of common stock with a market value at time of issuance of $78,000 and recognized the total fair market value as stock-based compensation expense at the time of issuance. The Shaar Fund Ltd.shares were issued for consulting services.
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In February 2019 the Company issued an aggregate of 400,000 shares of common stock with a market value at time of issuance of $100,000 and ATSI
dated September 24, 1999 *
10.40 Certificaterecognized the total fair market value as stock-based compensation expense at the time of Designation, Preferences and Rightsissuance. The shares were issued for consulting services.
In March 2019, the Company issued an aggregate of 6% Series C
Cumulative Convertible Preferred Stock60,715 shares of American TeleSource
International, Inc.*
10.41 Common Stock Purchase Warrantcommon stock with a market value at time of issuance of $11,536. The shares were issued to settle accounts payables of $10,382 to a professional, the Company recognized a loss of $1,154 upon issuance of the shares. This loss is immaterial, thus presented in stock-based compensation expense on the statement of cash flows.
In March 2019, the Company issued an aggregate of 356,633 shares of common stock. The Shaar Fund Ltd. by American
TeleSource International dated September 24, 1999*
10.42 Registration Rights Agreement betweenshares were issued in conjunction with a conversion of $25,000 of principal on a convertible debenture.
In March 2019, the Company issued 75,000 shares of common stock. The Shaar Fund Ltd. and ATSI
dated September 24, 1999*
23 Consentshares were issued in conjunction with the exercise of Arthur Andersen LLP**
24 Power75,000 warrants with an exercise price of Attorney (included$0.10 per warrant.
In March 2019, the Company issued an aggregate of 85,000 shares of common stock at a price per share of $0.21. The shares were issued in conjunction with an extension of various promissory notes.
In April 2019, the Company issued an aggregate of 356,633 shares of common stock. The shares were issued in conjunction with a conversion of $25,000 of principal on signature page toa convertible debenture.
In April 2019, the Registration
Statement)

* ContainedCompany issued an aggregate of 50,000 shares of common stock. The shares were issued in exhibits to Registration Statement on Form S-3 filed
October 26, 1999

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** Filed herewith

conjunction with a convertible promissory note for $44,000.
In May 2019, the Company issued 713,266 shares of common stock. The shares were issued in conjunction with a conversion of $50,000 of the principal outstanding under a convertible debenture.
In June 2019, the Company issued 189,008 shares of common stock for the conversion of $15,000 of the principal outstanding under the convertible debenture.
Item 16. Exhibits
Incorporated by
Exhibit Reference Filed or Furnished
Number Exhibit Description Form Exhibit Filing Date Herewith
2.1 Agreed Order Confirming Joint Plan of Reorganization filed by Plan Proponents 8-K 2.1 04/11/14
2.2 Plan Proponents’ Joint Chapter 11 Plan of Reorganization as Modified on the Record on 4/4/14 8-K 2.2 4/11/14
2.3 Plan Supplement Naming Independent Director in Connection With Plan Proponents’ Joint Chapter 11 Plan of Reorganization 8-K 2.3 4/11/14
2.4 Disclosure Statement Under 11 U.S.C. § 1125 and Bankruptcy Rule 3016 in Support of Plan Proponents’ Joint Chapter 11 Plan of Reorganization. 8-K 2.4 4/11/14
2.5 Bankruptcy Settlement Agreement dated January 15, 2014 8-K 10.1 1/23/14
2.6 Order Authorizing the Sale of 100% Equity Interests of Dishon Disposal, Inc. and Granting Related Relief approving the Stock Purchase Agreement dated 6/27/14 8-K 2.6 7/7/14
2.7 Order Authorizing the Sale of 100% Equity Interests of Hurley Enterprises, Inc. and Granting Related Relief approving the Stock Purchase Agreement dated 6/26/14 8-K 2.7 7/24/14
3.1 Amended and Restated Articles of Incorporation 8-K 3.1 4/11/14
3.2 First Amended and Restated Bylaws 8-K 3.2 4/11/14
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3.3 Amended and Restated Bylaws. 8-KA 3.2 4/25/14
3.4 Second Amended and Restated Bylaws, effective as of 1/13/15 8-K 3.1 1/21/15
5.1* Lucosky Brookman LLP Opinion
10.1 Equity Purchase Agreement with Peak One Opportunity Fund, L.P. dated January 12, 2018 10-Q 10.3 3/22/18
10.2+ Form of stock award agreement under the Company’s 2015 Stock Compensation Plan for grants to qualifying employees’ 401K Retirement Accounts 8-K 10.7 1/21/15
10.3 Stock Purchase Agreement 8-K 10.6 1/21/15
10.4+ 2015 Equity Compensation Plan. S-8 10.2 11/18/15
10.5 Debenture issued to Peak One dated 1/17/18 10-Q 10.2 3/22/18
10.6 Registration Rights Agreement with Peak One dated 1/12/18 10-Q 10.4 3/22/18
10.7 Articles of Merger T3 Communications and T3 Acquisition dated 5/18/18 8-K 10.1 5/8/18
10.8 Promissory Note dated 4/30/18 8-K 10.2 5/8/18
10.9 Promissory Note dated 4/30/18 8-K 10.3 5/8/18
10.10 Promissory Note dated 4/30/18 8-K 10.4 5/8/18
10.11 Promissory Note dated 4/30/18 8-K 10.6 5/8/18
10.12 Securities Purchase Agreement dated 5/30/18 10-Q 10.1 6/14/18
10.13 Stock Purchase Agreement dated 4/30/18 10-Q 10.3 6/14/18
10.14 Debenture issued to Peak One dated 7/31/18 10-K 10.3 11/16/18
10.15 Promissory Note dated 10/12/18. 10-K 10.4 11/16/18
10.16 Promissory Note dated 10/18/18. 10-K 10.5 11/16/18
10.17 Promissory Note dated 10/22/18. 10-K 10.6 11/16/18
10.18 Promissory Note dated 11/22/18 10-Q 10.3 12/14/18
10.19 Promissory Note dated 1/16/19 8-K 4.1 3/1/19
10.20 Promissory Note dated 1/16/19 8-K 4.2 3/1/19
10.21 Promissory Note dated 1/16/19 8-K 4.3 3/1/19
10.22 Promissory Note dated 1/24/19 8-K 4.4 3/1/19
10.23 Promissory Note dated 1/24/19 8-K 4.5 3/1/19
10.24 Securities Purchase Agreement dated 1/16/19 8-K 10.1 3/1/19
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10.25 Securities Purchase Agreement dated 1/16/19 8-K 10.2 3/1/19
10.26 Securities Purchase Agreement dated 1/16/19 8-K 10.3 3/1/19
10.27 Securities Purchase Agreement dated 1/24/19 8-K 10.4 3/1/19
10.28 Securities Purchase Agreement dated 2/22/19 8-K 10.5 3/1/19
10.29+ Employment Agreement between Digerati and Craig K. Clement Dated 2/14/19 10-Q 10.1 3/18/19
10.30+ Employment Agreement between Digerati and Arthur L. Smith Dated 2/14/19 10-Q 10.2 3/18/19
10.31+ Employment Agreement between Digerati and Antonio Estrada Jr. Dated 2/14/19 10-Q 10.3 3/18/19
10.32 Promissory Note dated 4/20/19 10-Q 4.6 6/14/19
10.33 Securities Purchase Agreement dated 4/20/19 10-Q 10.6 6/14/19
21.1 Subsidiaries List. X
23.1 Consent of MaloneBailey, LLP, Auditor for 2018. X
23.2 Consent of LBB & Associates Ltd, LLP for 2017. X
23.3* Consent of Counsel (Exhibit 5.1 Incorporated by Reference to 5.1).
* To be filed by amendment.
+ Indicates management contract or compensatory plan
ITEM 17. UNDERTAKINGS

Undertakings
The undersigned registrant hereby undertakes:

A. Undertakings Regarding Amendments to this Prospectus and the Registration
Statement

1. To file, during any period in which offers or sales are being made, a post-
effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" in the
effective Registration Statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.

Provided, however, that the undertakings set forth in paragraphs
(1)(A)(i) and (ii) of this section do not apply if the information required to
be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by ATSI pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.

2. That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.

B. Undertaking Regarding Filings Incorporating Subsequent Exchange Act
Documents by Reference. ATSI hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
ATSI's Annual Report on Form 10-K pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

C. Undertaking in Respect of Indemnification.
1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
i. To include any Prospectus required by section 10(a)(3) of the Securities Act of 1933;
ii. To reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
iii. To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
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2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
4. That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
i. Any Preliminary Prospectus or Prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
ii. Any free writing Prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
iii. The portion of any other free writing Prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
iv. Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
5. That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser: Each Prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than Prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or Prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or Prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or Prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling person of ATSI pursuant to the
foregoing provisions, or otherwise,persons, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by ATSIus of expenses incurred or paid by a director, officer or controlling person of ATSIthe corporation in the successful defense of any action, , suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrantwe will, unless in the opinion of itsour counsel the matter has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by itus is against public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.

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case.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the city of San Antonio, State of Texas on the 11th day of
January 2000.

AMERICAN TELESOURCE INTERNATIONAL, INC.

By: /s/ H. Douglas Saathoff
------------------------
H. Douglas Saathoff
Chief Financial Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints H.
Douglas Saathoff as attorney-in-fact,September 16, 2019.
DATE SIGNATURE TITLE
September 16, 2019 Chief Executive Officer and President
Arthur L. Smith (Principal Executive Officer)
In accordance with the power of substitution, for him in
any and all capacities, to sign this Registration Statement and any amendments
to this Registration Statement and to file the same, with exhibits thereto and
other documents in connection therewith, with the SEC, granting to said
attorney-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.

In witness whereof, each of the undersigned has executed this Power of
Attorney as of the date indicted.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has beenregistration statement was signed by the following persons in the capacities and on the date indicated.
dates stated:

/s/DATE SIGNATURE TITLE
September 16, 2019 /s/ Arthur L. Smith Chairman of the Board of Directors January 11, 2000
- --------------------------
Arthur L. Smith Chief Executive Officer, President,
Arthur L. Smith and Director

/s/ H. Douglas Saathoff
September 16, 2019 /s/ Antonio Estrada Jr Chief Financial Officer January 11, 2000
- --------------------------
H. Douglas Saathoff Senior Vice President
Secretary
Treasurer

/s/Richard C. Benkendorf Director January 11, 2000
- --------------------------
Richard C. Benkendorf

/s/Carlos
Antonio Estrada Jr (Principal Financial Officer)
(Principal Accounting Officer)
/s/ Craig K. Kauachi Director January 11, 2000
- --------------------------
CarlosClement
Chairman
September 16, 2019
Craig K. Kauachi

/s/ Murray R. Nye Clement
/s/ Maxwell A. Polinsky
Director January 11, 2000
- --------------------------
Murray R. Nye

/s/ Tomas Revesz Director January 11, 2000
- --------------------------
Tomas Revesz

/s/Robert B. Werner Director January 11, 2000
- --------------------------
Robert B. Werner

September 16, 2019
Maxwell A. Polinsky

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EXHIBIT INDEX

5.1 Opinion regarding legality*
10.39 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI
dated September 24, 1999 *
10.40 Certificate of Designation, Preferences and Rights of 6% Series C
Cumulative Convertible Preferred Stock of American TeleSource
International, Inc.*
10.41 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by American
TeleSource International dated September 24, 1999*
10.42 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI
dated September 24, 1999*
23 Consent of Arthur Andersen LLP**
24 Power of Attorney (included on signature page to the Registration
Statement)

* Contained in exhibits in Registration Statement on Form S-3 filed on
October 26, 1999
** File herewith

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=========================================================================================================== Proposed Proposed Title
(1)	Includes up to an aggregate of ~~Amount Maximum Maximum Amount~~6,324,142 shares of Securities To be Offering Price Aggregate Registration To be Registered Registered Per Share Offering Price Fee (3) - ----------------------------------------------------------------------------------------------------------- the Company’s common stock, par value $0.001 (the “Common Stock”) including (i) 250,000 shares of Common ~~stock issuable upon conversion~~Stock issued to Peak One Opportunity Fund, L.P. (“Peak One”) as commitment shares (the “Commitment Shares”); and (ii) 6,074,142 shares of convertible preferred stock (1) 984,640 $1.10 $1,083,104 $303.27 - ----------------------------------------------------------------------------------------------------------- Common Stock to be ~~paid as dividend~~issued in connection with an equity purchase agreement.

(2)	The fee is calculated by multiplying the aggregate offering amount by .0001212, pursuant to Section 6(b) of the Securities Act of 1933.

(3)	Based on convertible preferred (1) 118,157 $1.10 $ 129,973 $ 36.39 - ------------------------------------------------------------------------------------------------------------ Commonthe reported closing price for our common stock ~~issuable upon exercise~~on the trading day period immediately preceding the filing of ~~warrants granted as placement~~this Registration Statement of $0.10. The shares offered, hereunder, may be sold by the selling stockholder from time to time in the open market, through privately negotiated transactions, or a combination of these methods at market prices prevailing at the time of sale or at negotiated prices.

(4)	Estimated solely for purposes of calculating the registration fee (2) 50,000 $1.10 $ 55,000 $ 15.40 - ------------------------------------------------------------------------------------------------------------ Common stock issuable as placement fee (2) 19,693 $1.10 $ 21,662 $ 6.07 - ------------------------------------------------------------------------------------------------------------pursuant to Rule 457(c) and (g) under the Securities Act, based on the average of the high and low prices reported for the shares of Common Stock issuable upon exercise of warrants (2) 40,000 $1.10 $ 44,000 $ 12.32 ============================================================================================================ as reported on the OTC Marketplace on September 9, 2019.

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Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging Growth Company	☐

Title of Each Class of securities to be registered	Number of shares of common stock to be registered (1)		Proposed Maximum Offering Price Per Share			Proposed Maximum Aggregate Offering Price		Amount of Registration Fee (2)

Common Stock		6,074,142	$	0.10	(3)	$	607,414.20	$	73.62
Common Stock		250,000		0.09	(4)		22,500.00		2.73
Total		6,324,142					629,914.20		76.35

Prospectus Summary	1
Summary Consolidated Financial Information	7
Risk Factors	10
Cautionary Note Regarding Forward-Looking Statements	18
Use of Proceeds	19
Determination of Offering Price	19
Selling Stockholders	20
Plan of Distribution	22
Experts	26
Market for Our Common Stock and Related Stockholder Matters	32
Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Directors, Executive Officers and Key Employees	39
Executive Compensation	41
Security Ownership of Certain Beneficial Owners and Management	44
Index to Consolidated Financial Statements	F-1

Shares currently outstanding (1):		25,240,222

Shares being offered:		6,324,142

Shares Outstanding after the offering:		31,564,364 assuming each share offered for resale hereby is sold.

Offering Price per share:		The selling stockholders may sell all or a portion of the shares being offered pursuant to this prospectus at fixed prices and prevailing market prices at the time of sale, at varying prices or at negotiated prices.

Use of Proceeds:		We will not receive any proceeds from the sale of the shares of our common stock by the selling stockholder. However, we will receive proceeds from our initial sale of shares to Peak One, pursuant to the Financing Agreement. The proceeds from the initial sale of shares will be used for the purpose of working capital and that the Board of Directors, in good faith deem to be in the best interest of the Company.

Trading Symbol:		DTGI

Risk Factors:		See “Risk Factors” beginning on page 10 and the other information in this prospectus for a discussion of the factors you should consider before deciding to invest in shares of our common stock.

	April 30,			July 31,
	2019			2018

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	460		$	388
Accounts receivable, net		245			229
Prepaid and other current assets		80			124
Deposits		55			-

Total current assets		840			741

LONG-TERM ASSETS:
Intangible assets, net		2,736			3,046
Property and equipment, net		535			713
Other assets		58			59

Total assets	$	4,169		$	4,559

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	1,173		$	1,177
Accrued liabilities		1,432			893
Current portion of capital lease obligations		32			30
Convertible note payable, current, net $11 and $187, respectively		761			585
Note payable, current, related party		425			126
Note payable, current, net $0 and $0, respectively		1,200			725
Convertible note payable, current, net $345 and $273, respectively		235			33
Deferred income		314			262
Derivative liability		1,303			632
Total current liabilities		6,875			4,463

LONG-TERM LIABILITIES:
Convertible debenture, net $99 and $273, respectively		51			27
Notes payable, related party, net $27 and $38, respectively		147			505
Note payable		-			500
Obligations under capital leases		40			64
Total long-term liabilities		238			1,096

Total liabilities		7,113			5,559

Commitments and contingencies

STOCKHOLDERS’ DEFICIT:
Preferred stock, $0.001, 50,000,000 shares authorized, 50,000 and 0 issued and outstanding, respectively		-			-
Common stock, $0.001, 150,000,000 shares authorized, 18,876,431 and 12,775,143 issued and outstanding, respectively		19			13
Additional paid in capital		81,764			79,993
Accumulated deficit		(84,434	)		(80,800	)
Other comprehensive income		1			1
Total Digerati’s stockholders’ deficit		(2,650	)		(793	)
Noncontrolling interest		(294	)		(207	)
Total stockholders’ deficit		(2,944	)		(1,000	)
Total liabilities and stockholders’ deficit	$	4,169		$	4,559

	Three months ended April 30,						Nine months ended April 30,
	2019			2018			2019			2018
OPERATING REVENUES:
Cloud-based hosted services	$	1,485		$	196		$	4,493		$	403

Total operating revenues		1,485			196			4,493			403

OPERATING EXPENSES:
Cost of services (exclusive of depreciation and amortization)		770			106			2,322			249
Selling, general and administrative expense		875			332			2,309			830
Stock compensation & warrant expense		345			354			731			1,328
Legal and professional fees		95			68			305			359
Bad debt		-			-			(3	)		-
Depreciation and amortization expense		167			50			505			89
Total operating expenses		2,252			910			6,169			2,855

OPERATING LOSS		(767	)		(714	)		(1,676	)		(2,452	)

OTHER INCOME (EXPENSE):
Gain (loss) on derivative instruments		903			47			(594	)		155
Income tax		(10	)		-			(37	)		-
Interest income (expense)		(376	)		(41	)		(1,414	)		(250	)
Total other income (expense)		517			6			(2,045	)		(95	)

NET LOSS INCLUDING NONCONTROLLING INTEREST		(250	)		(708	)		(3,721	)		(2,547	)

Less: Net loss attributable to the noncontrolling interest		29			-			87			-

NET LOSS	$	(221	)	$	(708	)	$	(3,634	)	$	(2,547	)

Deemed dividend on Series A Convertible preferred stock		(2	)		-			(2	)		-

NET LOSS ATTRIBUTABLE TO DIGERATI’S COMMON SHAREHOLDERS	$	(223	)	$	(708	)	$	(3,636	)	$	(2,547	)

INCOME (LOSS) PER COMMON SHARE - BASIC	$	(0.01	)	$	(0.06	)	$	(0.24	)	$	(0.26	)

INCOME (LOSS) PER COMMON SHARE - DILUTED	$	(0.01	)	$	(0.06	)	$	(0.24	)	$	(0.26	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC		18,184,442			11,063,326			15,163,082			9,903,152

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED		18,184,442			11,063,326			15,163,082			9,903,152

	●	our ability to rapidly develop and introduce new high performance integrated solutions;

	●	the price and total cost of ownership and return on investment associated with the solutions;

	●	the simplicity of deployment and use of the solutions;

	●	the reliability and scalability of the solutions;

	●	the market awareness of a particular brand;

	●	our ability to provide secure access to wireless networks;

	●	our ability to offer a suite of products and solutions;

	●	our ability to allow centralized management of the solutions; and

	●	our ability to provide quality product support.

	●	respond timely and effectively to competitor offerings and pricing models;

	●	generate leads and convert users of the trial versions of our offerings to paying customers;

	●	prevent users from circumventing the terms of their licenses and cloud subscriptions;

	●	continue to invest in our platform to deliver additional enhancements and content for our offerings and to foster an ecosystem of developers and users to expand the use cases of our offerings;

	●	maintain and enhance our website and cloud services infrastructure to minimize interruptions when accessing our offerings;

	●	process, store and use our employees, customers’ and other third parties’ data in compliance with applicable governmental regulations and other legal obligations related to data privacy, data protection, data transfer, data residency, encryption and security;

	●	hire, integrate and retain world-class professional and technical talent; and

	●	technological innovations or new products and services by us or our competitors;

	●	additions or departures of key personnel;

	●	sales of our common stock, particularly under any registration statement for the purposes of selling any other securities, including management shares;

	●	negative sentiment from investors, customers, vendors and strategic partners due to doubt about our ability to continue as a going concern;

	●	our ability to execute our business plan;

	●	operating results that fall below expectations;

	●	loss of any strategic relationship;

	●	industry developments;

	●	economic and other external factors; and

	●	period-to-period fluctuations in our financial results.

	●	changes in the market acceptance of our products;

	●	increased levels of competition;

	●	changes in political, economic or regulatory conditions generally and in the markets in which we operate;

	●	our relationships with our key customers;

	●	our ability to retain and attract senior management and other key employees;

	●	our ability to quickly and effectively respond to new technological developments;

	●	our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and

	●	other risks, including those described in the “Risk Factors” discussion of this prospectus.

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans

Equity Compensation plans approved by security holders		-0-		--		-0-

Equity Compensation Plans not approved by security holders		3,415,000	$	0.33		200,023

Total		3,415,000	$	0.33		200,023

Name	Age	Position Held	Held Office Since
Arthur L. Smith	53	President, Chief Executive Officer & Director	2003
Craig K. Clement	60	Chairman of the Board	2014
Maxwell A. Polinsky	60	Director	2014
Antonio Estrada Jr.	43	Chief Financial Officer	2007

Name and Principal Position	Year		Salary ($)		Bonus ($)		Stock Awards ($) (1)		Option Awards ($) (2)		All Other Compensation ($)		Total ($)

Arthur L. Smith		2019	$	113,410	$	-0-	$	217,500	$	73,680	$	-0-	$	404,590
President, Chief Executive Officer & Director		2018	$	96,000	$	-0-	$	144,000	$	64,000	$	-0-	$	304,000
Antonio Estrada Jr.		2019	$	106,517	$	-0-	$	198,500	$	65,494	$	-0-	$	370,511
Chief Financial Officer		2018	$	96,000	$	-0-	$	132,000	$	64,000	$	-0-	$	292,000
Craig K. Clement		2019	$	123,875	$	-0-	$	236,500	$	78,089	$	-0-	$	438,464
Chairman of the Board		2018	$	117,000	$	-0-	$	252,000	$	64,000	$	-0-	$	433,000

	Option Awards							Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)

		195,000		390,000	$	0.22	2/14/2024
Arthur L. Smith		300,000		-	$	0.35	12/01/2022		-		-
		300,000			$	0.24	11/21/2021		-		-
		173,336		346,664	$	0.22	2/14/2024
Antonio Estrada Jr.		300,000		-	$	0.35	12/01/2022		-		-
		300,000			$	0.24	11/21/2021		-		-
		206,664		413,336	$	0.22	2/14/2024
Craig K. Clement		300,000		-	$	0.35	12/01/2022		-		-
		300,000			$	0.24	11/21/2021		-		-

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

Arthur L. Smith
President, Chief Executive Officer Director		3,315,851		941,250		4,257,101		16.26	%

Antonio Estrada Jr.
Chief Financial Officer		2,608,666		903,333		3,511,999		13.43	%

Craig K. Clement (2)(3) Chairman of the Board		2,420,845		861,667		3,282,512		12.58	%

Maxwell Polinsky Director		81,594		254,032		335,626		1.31	%

ALL INDIVIDUAL OFFICERS AND DIRECTORS AS A GROUP		8,426,956		2,960,282		11,387,238		40.38	%

5% HOLDERS
Graham Gardner		1,308,621		150,000		1,458,621		5.74	%

	Page No.

PART I. Financial Information

Report of Independent Registered Public Accounting Firm	F-2

Report of Independent Registered Public Accounting Firm	F-3

Consolidated balance sheets as of July 31, 2018 and 2017	F-4

Consolidated statements of operations for the years ended July 31, 2018 and 2017	F-5

Consolidated statements of stockholders’ deficit for the years ended July 31, 2018 and 2017	F-6

Consolidated statements of cash flows for the years ended July 31, 2018 and 2017	F-7

Notes to consolidated financial statements	F-8

Condensed consolidated balance sheets as of April 30, 2019 (unaudited) and July 31, 2018	F-29

Condensed consolidated statements of operations for the three and nine months ended April 30, 2019 and 2018 (unaudited)	F-30

Condensed consolidated statement of stockholders’ deficit for the three and nine months ended April 30, 2019 (unaudited)	F-31 – F-32

Condensed consolidated statements of cash flows for the nine months ended April 30, 2019 and 2018 (unaudited)	F-33

Notes to condensed consolidated financial statements (unaudited)	F-34

/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as ~~of July 31, 1998 and 1999 and October 31, 1999....................................... 38 Consolidated Statements of Operations for~~ the Years Ended July 31, 1997, 1998 and 1999 and the Three Month Periods ended October 31, 1998 and 1999............................................................................. 39 Consolidated Statements of Comprehensive Income (Loss) for the Years Ended July 31, 1997, 1998 and 1999 and the Month Periods ended October 31, 1998 and 1999....................................................................... 40 Consolidated Statements of Stockholders' Equity for the Years Ended July 31, 1997, 1998 and 1999 and the Three Month Period ended October 31, 1999................................................................................. 41 Consolidated Statements of Cash Flows for the Years Ended July 31, 1997, 1998 and 1999 and the Three Month Periods ended October 31, 1998 and 1999..................................................................................... 42 Notes to Consolidated Financial Statements.......................................................................... 43 Company’s auditor since 2018.
Houston, Texas
November 15, 2018

/s/ LBB & Associates Ltd., LLP
LBB & Associates Ltd., LLP
Houston, Texas

December 13, 2017

	For the Years ended July 31,
	2018			2017
OPERATING REVENUES:
Cloud-based hosted services	$	2,001		$	193

Total operating revenues		2,001			193

OPERATING EXPENSES:
Cost of services (exclusive of depreciation and amortization)		1,053			134
Loss on disposal of unproven oil and gas properties		-			248
Selling, general and administrative expense		1,563			914
Stock compensation & warrant expense		1,521			773
Legal and professional fees		490			290
Bad debt		15			-
Depreciation and amortization expense		227			18
Total operating expenses		4,869			2,377

OPERATING LOSS		(2,868	)		(2,184	)

OTHER INCOME (EXPENSE):
Loss on derivative instruments		(91	)		-
Miscellaneous gain		-			2,623
Income tax benefit		118			-
Interest income (expense)		(379	)		-
Total other income (expense)		(352	)		2,623

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST		(3,220	)		439

Less: Net loss attributable to the noncontrolling interest		57			-

NET INCOME / (LOSS) ATTRIBUTABLE TO DIGERATI’S SHAREHOLDERS	$	(3,163	)	$	439

INCOME (LOSS) PER SHARE - BASIC	$	(0.31	)	$	0.07

INCOME (LOSS) PER SHARE - DILUTED	$	(0.31	)	$	0.06

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC		10,339,371			6,339,906

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED		10,339,371			6,982,081

	Equity Digerati’s Shareholders
					Additional					Other
	Common				Paid-in		Accumulated			Comprehensive		Stockholders			Noncontrolling
	Shares		Par		Capital		Deficit			Income		Equity			Interest			Totals
BALANCE, July 31, 2016		5,234,158	$	5	$	75,656	$	(78,076	)	$	1		(2,414	)	$	-		$	(2,414	)
Stock issued for services, to employees		1,956,898		2		727		-			-		729			-			729
Stock issued for professional services		75,000		-		44		-			-		44			-			44
Stock issued for cash		1,120,000		1		559		-			-		560			-			560
Net Income		-		-		-		439			-		439			-			439
BALANCE, July 31, 2017		8,386,056	$	8	$	76,986	$	(77,637	)	$	1	$	(642	)	$	-		$	(642	)
Stock issued for services, to employees		1,807,012		2		1,052		-			-		1,054			-			1,054
Stock issued for services		406,500		-		186		-			-		186			-			186
Stock issued for AP settlement		35,575		-		15		-			-		15			-			15
Stock issued for cash		960,000		1		479		-			-		480			-			480
Stock issued for convertible debt		505,000		1		3		-			-		4			-			4
Stock issued, extension of debt		25,000		-		13		-			-		13			-			13
Stock issued for Acquisition		500,000		1		174		-			-		175			-			175
Stock issued, exercise of warrants		150,000		-		15		-			-		15			-			15
Value of warrants issued		-		-		670		-			-		670			-			670
Sale of subsidiary shares to a noncontrolling interest		-		-		400		-			-		400			(150	)		250
Net Ioss		-		-		-		(3,163	)		-		(3,163	)		(57	)		(3,220	)
BALANCE, July 31, 2018		12,775,143	$	13	$	79,993	$	(80,800	)	$	1	$	(793	)	$	(207	)	$	(1,000	)

Balance at July 31, 2017	$	-
Derivative discount - convertible debt		541,000
Derivative loss		91,000
Balance at July 31, 2018	$	632,000

	7/31/2018		7/31/2017
Options to purchase common stock		3,415,000
Warrants to purchase common stock		2,370,000		210,000
Convertible debt		3,268,214		-
Total:		9,053,214		210,000

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

	Synergy		Useful life (years)
Customer relationships	$	1,480,000	7
Marketing & Non-compete		800,000	5
Goodwill		554,828	-
Total	$	2,834,828