| Stockholders’ Equity, Warrants, Debentures and Guaranty | 10. Stockholders’ Equity, Warrants, Debentures and Guaranty Preferred stock Common stock Recent sales of securities On November 2, 2021, the Company entered into
a securities purchase agreement (the “November Purchase Agreement”) with a buyer for the purchase and sale of (i) a warrant
to purchase up to 5,000,000 shares of the Company’s common stock, subject to increase as described below (the “Series A Warrants”),
in a private placement; and (ii) an aggregate of 2,500,000 shares of the Company’s common stock, and a warrant to purchase up to
2,500,000 shares of the Company’s common stock (the “Series B Warrants” and, collectively with the Series A Warrants,
the “A&B Warrants”), in a registered direct offering (the “Public Offering”). The aggregate purchase price
for the Shares and the Warrants was $5,000. At the date of issuance, the Series A Warrants
had an exercise price of $2.00 per share, were exercisable commencing on the date of issuance, and were scheduled to expire five years
from the date of issuance. The Series B Warrants had an exercise price of $2.00 per share, were also exercisable on the date of issuance
and were scheduled to expire two years from the date of issuance. The Company has the right to force the holders of the Series B Warrants
to exercise such warrants in the event shares of the Company’s common stock trade at or above $2.40 per share for a period of five
consecutive trading days, subject to certain conditions, including equity conditions. Initially, the Series A Warrants were only exercisable
for 2,500,000 shares of our common stock, but upon any exercise of the Series B Warrant, the number of shares issuable upon exercise of
the Series A Warrant increased by the number of shares of the Company’s common stock issued upon exercise of the Series B Warrant.
Northland Securities, Inc., the placement agent in connection with the offering, received fees of 7% of the aggregate gross proceeds. As summarized in the table below, in connection with the Company’s
consummation of the Credit Agreement, the exercise price of the Series A and Series B Warrants were subsequently reduced to $1.50 per
share, the number of warrants were increased and the buyers received certain Series C Warrants. As of the date of the modification, the
Company recognized a change in fair value of warrant liabilities equal to the excess of the fair value of the modified instrument over
the previous fair value. The fair value of the Series C Warrants as of the issuance date was considered to be analogous to a financing
charge and is included in interest charges. On December 15, 2021, the Company consummated
the sale of certain securities pursuant to a securities purchase agreement, dated as of December 13, 2021 between the Company and an investor
( the “Buyer”). At the closing, the Company issued to the Buyer (i) a warrant (the “Series D Warrant”) to purchase
up to 15,625,000 shares of the Company’s common stock, in a private placement; and (ii) an aggregate of 7,840,000 shares of the
Company’s common stock, and 12,456 shares of Series A Preferred with a stated value of $1,000 per share, initially convertible into
7,785,000 shares of the Company’s common stock at a conversion price of $1.60 per share, in a registered direct offering (the “Public
Offering”). The aggregate purchase price paid at the closing for the common stock, the Series A Preferred and the Series D Warrants
was $25,000. The Series D Warrants had an exercise price of
$2.00 per share, subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based
adjustment, on a “full ratchet” basis, in the event of any issuances of the Company’s common stock, or securities convertible,
exercisable or exchangeable for, common stock at a price below the then-applicable exercise price (subject to certain exceptions). The
Series D Warrants were exercisable starting on the issuance date and will expire on December 15, 2026. The Company has the right to force
the buyer to exercise the Series D Warrant in the event the volume weighted average closing price of its common stock is at or above $5.00
per share for a period of three consecutive trading days, subject to certain conditions, including equity conditions. The Series A Preferred shares were convertible
into shares of the Company’s common stock at the election of the holders at any time at an initial conversion price of $1.60 (the
“Conversion Price”). The Conversion Price was subject to customary adjustments for stock dividends, stock splits, reclassifications
and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of the Company’s
common stock, or securities convertible, exercisable or exchangeable for such common stock at a price below the then-applicable Conversion
Price (subject to certain exceptions). No dividends were payable on the Series A Preferred, except that holders of the Series A Preferred
shares would have been entitled to receive any dividends paid on account of the Company’s common stock, on an as-converted basis.
The holders of the Series A Preferred had no voting rights on account of the Series A Preferred, other than with respect to certain matters
affecting the rights of the Series A Preferred. In December 2021, the holders of the Series A
Preferred exercised their conversion rights and the Series A Preferred Shares were converted to 7,785,000 shares of the Company’s
common stock. The following table summarizes certain required
and other disclosures and the status, as of December 31, 2021, of the warrants issued in November and December.
Series
A Series
B Series
C Monroe Series
D
Date
issued 11/5/2021 11/5/2021 12/2/2021 12/2/2021 12/15/2021
Number
of warrants issued at inception Between 2,500,000 and 5,000,000 2,500,000 1,500,000 Between 2,519,557 and 5,016,704 (3) 15,625,000
Issued
in connection with Sale of 2,500,000 shares of common stock Sale of Modification of Series A Warrants and Series B Warrants Monroe Credit Facility Sale of 7,840,000 shares of common stock and 12,456 units of Series A Preferred Stock
Exercise
price on issuance date $2.00 $2.00 $0.0001 $0.0001 $2.00 (5)
Exercise
price modified after issue date? Yes Yes No No No
Date
of modification, if modified 12/2/2021 12/2/2021 NA - not modified NA - not NA - not
Assuming
no antidilution triggers occur, maximum number of warrants issuable as of the modification date, if modified 6,666,667 (4) 3,333,334 NA - not modified NA - not NA - not
Modified
exercise price, if modified during 2021 $1.50 (5) $1.50 (5) NA - not modified NA - not NA - not
Maturity
date of warrant 11/5/2026 11/5/2023 (1) 12/2/2026 1/31/2029 12/15/2026 (2)
Underlying
shares registered? No, on the issuance date; Yes, as of 12/10/21 Yes, beginning on the issuance date Yes, beginning on the issuance date No, on the issuance date; Yes, as of 2/9/22 No, on the issuance date; Yes, as of 1/7/22
Fair
value per warrant as of issuance date $0.92 $0.35 $1.48 $1.48 $0.63
Fair
value per warrant as of modification date, if modified $0.80 $0.45 NA - not modified NA - not NA - not
Amounts
and dates of warrants exercised during the year NA 1,800,000 on 12/10/21 1,500,000 on 12/8/21 NA NA
Fair
value per warrant on exercise date(s) NA $0.91 on 12/10/21 $1.03 on 12/8/21 NA NA
Warrants
exercisable as of 12/31/21 6,666,666 - - 2,519,557 15,625,000
Valuation
basis Black-Scholes Monte Carlo Stock price Stock price Monte Carlo
Fair
value per warrant as of 12/31/21, if outstanding $1.52 NA NA $2.43 $1.25
Assumptions
used in estimating fair values:
◦
stock price volatility 60% - 65% 60% - 65% NA NA 60% - 65%
◦
exercise price $1.50 - $2.00 $1.50 - $2.00 NA NA $2.00
◦
discount rate 1.04% - 1.24% 0.39% - 0.68% NA NA 1.25% - 1.26%
◦
remaining useful life (in years) 4.85 - 5.00 1.85 - 2.00 NA NA 4.96 - 5.00
◦
stock price $1.48 - $2.43 $1.48 - $2.43 $1.03 - $1.48 $1.48 - $2.43 $1.53 - $2.43
(1) Commencing on November 15, 2021, the Company has the right to force the Buyer to exercise the Series B Warrant in the event shares of the Company’s common stock trade at or above $2.40 per share for a period of five consecutive trading days, subject to certain conditions, including equity conditions.
(2) The Company has the right to force the Buyer to exercise
the Series D Warrant in the event the volume weighted average closing price of the Company’s common stock is at or above $5.00 per share
for a period of three consecutive trading days, subject to certain conditions, including equity conditions.
(3) The number of shares of the Company’s common stock issuable
upon exercise of the Monroe Warrants is subject to adjustment for certain issuances (or deemed issuances) of the Company’s common stock
at a price per share below $1.564 while the Monroe Warrants are outstanding, such that the Monroe Warrants will remain exercisable for,
in the aggregate, approximately 2.5% of the total number of shares of the Company’s common stock outstanding, calculated on a fully-diluted
basis.
(4) For each exercise of the Series B Warrant, the Series A warrants
were increased. Accordingly, because all of the 3,333,333 Series B warrants were exercised during the year, the Series A Warrants increased
from 3,333,333 Warrants to 6,666,666 Warrants.
(5) See Note 18. Registration rights agreements In connection with the November and December sales
of securities and the Credit Agreement with Monroe, the Company entered into certain registration rights agreements with the investors
to register the common stock underlying the warrants by specified dates and to use reasonable best efforts to cause such registration
statements to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as soon as practicable,
thereafter, subject to certain fees if the shares were not registered by certain dates. As of February 9, 2022, all such shares were registered. On the Computex Closing Date, the Company, Pensare
Sponsor Group, LLC (the “Sponsor”) and certain other initial stockholders of the Company, as well as Stratos Management Systems
Holdings, LLC, (“Holdings”), and certain other Investors (as defined below), entered into a Registration Rights Agreement
(the “2020 Registration Rights Agreement”). The 2020 Registration Rights Agreement amended, restated and replaced a previous
registration rights agreement entered into among AVCT, the Sponsor and certain other initial stockholders of AVCT on July 27, 2017. Pursuant
to the terms of the 2020 Registration Rights Agreement, the holders of certain of the Company’s securities, including holders of
the Company’s founders’ shares, shares of common stock underlying the Company’s private warrants, shares of common
stock underlying the securities issued in the 2020 Private Placement (as defined below) are entitled to certain registration rights under
the Securities Act and applicable state securities laws with respect to such shares of common stock, including up to eight demand registrations
in the aggregate and customary “piggy-back” registration rights. Convertible Debentures, related warrants
and guaranty On the Computex Closing Date, the Company consummated
the sale, in a private placement (the “2020 Private Placement”), of units of securities of the Company (“Units”)
to certain investors (each, an “Investor”), as contemplated by the terms of the previously disclosed Securities Purchase
Agreement, dated as of April 3, 2020 (the “Securities Purchase Agreement”). Each Unit consisted of (i) $1,000 in principal
amount of the Company’s Series A convertible debentures (the “Convertible Debentures” or “Debentures”)
and (ii) a warrant to purchase 100 shares of the Company’s common stock at an exercise price of $0.01 per whole share (the “Penny
Warrants”). The issuances of such securities were not registered under the Securities Act in reliance on the exemption from registration
provided by Section 4(a)(2) of the Securities Act. In addition, in connection with the acquisition
of Kandy on December 1, 2020 and pursuant to the terms of the Kandy purchase agreement, the Company, in December 2020, issued 43,778
Units to Ribbon as consideration for the Kandy purchase, sold 10,000 Units to SPAC Opportunity Partners, LLC, a significant shareholder
of the Company and 1,000 Units to a director of the Company. Also, the Company sold 24,000 additional Units between January 1, 2021 and
May 27, 2021, including 9,540 Units that were sold to related parties. Debentures The Debentures issued on the Computex Closing
Date had an aggregate principal amount of approximately $43,169 (including $3,000 in aggregate principal amount issued as part of Units
sold to MasTec, Inc. (“Mastec”), a greater than five percent stockholder of the Company, and $20,000 in aggregate principal
of which was part of Units issued to Holdings pursuant to the terms of the Computex Business Combination agreement and approximately
$8,566 in aggregate principal amount of which was issued to the Sponsor as part of Units issued in exchange for the cancellation of indebtedness
previously incurred by the Company to the Sponsor). The Debentures issued in connection with the
acquisition of Kandy on December 1, 2020 and pursuant to the terms of the Kandy purchase agreement consisted of aggregate principal amounts
of $43,778 issued to Ribbon, $10,000 sold to SPAC Opportunity Partners, LLC, a significant shareholder of the Company and $1,000 sold
to a director of the Company. In addition, between January 1, 2021 and May 27, 2021, $24,000 were sold to various investors (including
$9,540 sold to related parties). The Debentures sold in December 2020 and those sold between January 1, 2021 and May 27, 2021 were in
the same form as those issued in connection with the acquisition of Kandy. The Debentures previously bore interest at a
rate of 10.0% per annum, previously payable quarterly on the last day of each calendar quarter in the form of additional Debentures.
Until converted, the entire principal amount of each Debenture together with accrued and unpaid interest thereon, was due and payable
on the earlier of (i) such date, that was thirty months after the issuance date, as the holder thereof, at its sole option, upon not
less than 30 days’ prior written notice to the Company, demanded payment thereof and (ii) the occurrence of a Change in Control
(as defined in the Debentures). Each Debenture was convertible, in whole or in
part, at any time at the option of the holder thereof into that number of shares of common stock calculated by dividing the principal
amount being converted, together with all accrued but unpaid interest thereon, by the applicable conversion price, initially $3.45. The
conversion price was subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and was also
subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of common stock, or securities
convertible, exercisable or exchangeable for, common stock at a price below the then-applicable conversion price (subject to certain
exceptions). The Debentures were subject to mandatory conversion if the closing price of the Company’s common stock exceeded $6.00
for any 40 trading days within a consecutive 60 trading day-period, subject to the satisfaction of certain other conditions. Pursuant to the terms of the Debentures, on September
8, 2021, the Debentures and related accrued interest were mandatorily converted to 38,811,223 shares of common stock. The components
of the Debenture prior to conversion are reflected in the table below. Penny Warrants The Penny Warrants issued on the Computex Closing
Date entitled the holders to purchase an aggregate of up to 4,316,936 shares of the Company’s common stock (including warrants
to purchase up to 2,000,000 shares, 856,600 shares, and 300,000 shares issued to Holdings, the Sponsor and MasTec Inc., respectively,
as part of the Units issued to them), at an exercise price of $0.01 per share. The Penny Warrants issued in December 2020, as
part of the Units sold, entitled the holders to purchase an aggregate of up to 5,477,800 shares of the Company’s common stock at
an exercise price of $0.01 per share. Such warrants consisted of 4,377,800 warrants issued to Ribbon, 1,000,000 warrants issued to SPAC
Opportunity Partners, LLC and 100,000 warrants issued to a director of the Company. The Penny Warrants issued between January 1,
2021 and May 27, 2021, as part of the Units sold during that period, entitled the holders to purchase an aggregate of up to 2,400,000
warrants (including 954,000 warrants issued to related parties). The Penny Warrants are exercisable at any time
through the fifth anniversary of the date of issuance. The number of shares issuable upon exercise of each Penny Warrant is subject to
customary adjustments for stock dividends, stock splits, reclassifications and the like. During the year ended December 31, 2021 and pursuant
to the terms of the Penny Warrant agreements, holders of 6,259,061 Penny Warrants exercised their right to convert such Penny Warrants
to 6,243,308 shares of common stock. As of December 31, 2021, unexercised Penny Warrants totaled 5,935,675. Derivative consideration and other disclosures relating to the
Debentures and Penny Warrants Based on ASC 815, Derivatives and Hedging Debt with Conversion and Other Options Both the Penny Warrants issued on the Computex
Closing Date as well as the Penny Warrants issued on and after the Kandy acquisition date had qualified as derivatives, but satisfied
the criteria for classification as equity instruments, and were bifurcated from the host contract (the Convertible Debentures) and recorded
in equity at their relative fair values with a corresponding debt discount recorded to the Debentures. The relative fair values of the Penny Warrants
were determined using the Black-Scholes model. Weighted average assumptions used in determining fair values of Penny Warrants issued
during the year ended December, 2021 were: stock price volatility – 70%, exercise price - $0.01, interest rate – 0.78%, stock
price - $6.28. Prior to the conversion of the Debentures
to common stock, the discount (consisting of the relative fair value of the warrants) was being expensed as interest over the then term
of the Debentures to increase the carrying value to face value. However, effective September 8, 2021, the remaining unamortized discount
was transferred to additional paid in capital in connection with the conversion of the Debentures to shares of common stock. During the
year ended December 31, 2021, the Company recorded accretion of the discount of $9,253, and paid-in-kind interest of $8,257. During the
period April 7, 2020 through December 31, 2020, the Company recorded accretion of the discount of $4,717, and paid-in-kind interest of
$3,695. The components of the Debentures, prior to conversion
on September 8, 2021 and the amounts converted, are summarized in the table below:
Discount consisting of
relative fair
Principal value of Penny Net
Issued on the Computex Closing Date $ 43,169 $ (9,937 ) $ 33,232
Issued in the Successor periods:
Issued to Ribbon 43,778 (14,159 ) 29,619
Issued to SPAC Opportunity Partners, LLC 17,990 (6,249 ) 11,741
Other issuances (various holders) 17,010 (6,610 ) 10,400
$ 121,947 $ (36,955 ) $ 84,992
Amortization of discount 12,752
Paid-in-kind interest 11,951
Deferred financing fees (523 )
Net Debentures as of September 8, 2021, prior to conversion $ 109,172
Less reduction due to conversion (109,172 )
Balance at September 8, 2021, after conversion $ -
Financial statement line items impacted by the conversion:
Additional paid in capital $ 109,691
Common stock (38,811,223 shares at par value of $0.0001 per share) 4
Interest expense - write off of deferred financing fees (523 )
$ 109,172 |
