High Wire Networks, Inc 10-Q for FY2023 Q1
High Wire Networks, Inc. (HWNI)
About this 10-Q
High Wire Networks, Inc filed this 10-Q on May 17, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $10.17M
- up 91.3% from $5.31M a year earlier
- Net loss
- $186.21K
- compared with net income of $1.7M a year earlier
- Diluted EPS
- -$0.01
- compared with $0.05 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Or
For the transition period from to
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Table of Contents
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 38 |
| Item 4. | Controls and Procedures | 38 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 39 |
| Item 1A. | Risk Factors | 39 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 39 |
| Item 3. | Defaults Upon Senior Securities | 40 |
| Item 4. | Mine Safety Disclosures | 40 |
| Item 5. | Other Information | 40 |
| Item 6. | Exhibits | 40 |
| SIGNATURES | 41 | |
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited interim condensed consolidated financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars, unless otherwise noted.
High Wire Networks, Inc.
1
High Wire Networks, Inc.
Condensed consolidated balance sheets
| March 31, | December 31, | |||||||
| ASSETS | 2023 | 2022 | ||||||
| (Unaudited) | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Property and equipment, net of accumulated depreciation of $ | ||||||||
| Goodwill | ||||||||
| Intangible assets, net of accumulated amortization of $ | ||||||||
| Operating lease right-of-use assets | ||||||||
| Noncurrent assets of discontinued operations | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Contract liabilities | ||||||||
| Loans payable to related parties | ||||||||
| Current portion of loans payable, net of debt discount of $ | ||||||||
| Current portion of convertible debentures | ||||||||
| Factor financing | ||||||||
| Current portion of derivative liabilities | ||||||||
| Contingent consideration | ||||||||
| Operating lease liabilities | ||||||||
| Current liabilities of discontinued operations | - | |||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Loans payable, net of current portion | ||||||||
| Convertible debentures, net of current portion | ||||||||
| Derivative liabilities, net of current portion | ||||||||
| Noncurrent liabilities of discontinued operations | - | |||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 15) | ||||||||
| Series A preferred stock; $ | ||||||||
| Series B preferred stock; $ | ||||||||
| Series D preferred stock; $ | ||||||||
| Series E preferred stock; $ | ||||||||
| Total mezzanine equity | ||||||||
| Stockholders’ deficit: | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total High Wire Networks, Inc. stockholders’ deficit | ( | ) | ( | ) | ||||
| Noncontrolling interest | ||||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)
2
High Wire Networks, Inc.
Condensed consolidated statements of operations
(Unaudited)
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses: | ||||||||
| Cost of revenues | ||||||||
| Depreciation and amortization | ||||||||
| Salaries and wages | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expenses): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Amortization of discounts on convertible debentures and loans payable | ( | ) | ( | ) | ||||
| Gain on change in fair value of derivatives | ||||||||
| Exchange loss | ( | ) | ||||||
| Amortization of premiums on convertible debentures and loans payable to related parties | ||||||||
| Other income | ||||||||
| Total other income | ||||||||
| Net loss (income) from continuing operations before income taxes | ( | ) | ||||||
| Provision for income taxes | ||||||||
| Net (loss) income from continuing operations | ( | ) | ||||||
| Net (loss) income from discontinued operations, net of taxes | ( | ) | ||||||
| Less: net loss from discontinued operations attributable to noncontrolling interest | ||||||||
| Net (loss) income attributable to High Wire Networks, Inc. common shareholders | $ | ( | ) | $ | ||||
| (Loss) income per share attributable to High Wire Networks, Inc. common shareholders, basic: | ||||||||
| Net (loss) income from continuing operations | $ | ( | ) | $ | ||||
| Net (loss) income from discontinued operations, net of taxes | $ | ( | ) | $ | ||||
| Net (loss) income per share | $ | ( | ) | $ | ||||
| (Loss) income per share attributable to High Wire Networks, Inc. common shareholders, diluted: | ||||||||
| Net (loss) income from continuing operations | $ | ( | ) | $ | ||||
| Net (loss) income from discontinued operations, net of taxes | $ | ( | ) | $ | ||||
| Net (loss) income per share | $ | ( | ) | $ | ||||
| Weighted average common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)
3
High Wire Networks, Inc.
Condensed consolidated statements of stockholder’s equity (deficit)
(Unaudited)
| For the three months ended March 31, 2023 | ||||||||||||||||||||||||
| Common stock | Additional paid-in | (Accumulated deficit)/retained | Noncontrolling | |||||||||||||||||||||
| Shares | $ | capital | earnings | interest | Total | |||||||||||||||||||
| Balances, January 1, 2023 | $ | $ | $ | ( | ) | $ | - | $ | ( | ) | ||||||||||||||
| Issuance of common stock upon conversion of Series A preferred stock | ||||||||||||||||||||||||
| Issuance of common stock pursuant to PIPE transaction | - | - | ||||||||||||||||||||||
| Issuance of common stock upon conversion of Series D preferred stock | - | - | ||||||||||||||||||||||
| Issuance of common stock to third-party vendors | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Net loss for the period | - | ( | ) | - | ( | ) | ||||||||||||||||||
| Ending balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | - | $ | ( | ) | ||||||||||||||
| For the three months ended March 31, 2022 | ||||||||||||||||||||||||
| Common stock | Additional paid-in | (Accumulated deficit)/retained | Noncontrolling | |||||||||||||||||||||
| Shares | $ | capital | earnings | interest | Total | |||||||||||||||||||
| Balances, January 1, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Issuance of common stock to upon conversion of convertible debentures | ||||||||||||||||||||||||
| Issuance of common stock to upon conversion of Series D preferred stock | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Disposal of JTM | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss for the period | - | - | - | 4,957,537 | - | 4,957,537 | ||||||||||||||||||
| Ending balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)
4
High Wire Networks, Inc.
Condensed consolidated statements of cash flows
(Unaudited)
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss (income) from continuing operations | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Gain on change in fair value of derivative liabilities | ( | ) | ( | ) | ||||
| Amortization of discounts on convertible debentures and loans payable | ||||||||
| Amortization of premiums on convertible debentures and loans payable to related parties | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Stock-based compensation related to stock options | ||||||||
| Stock-based compensation related to third-party vendors | ||||||||
| Loss (gain) on disposal of subsidiary | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Contract liabilities | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities of discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Cash received in connection with disposal of JTM | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans payable | ||||||||
| Repayments of loans payable | ( | ) | ( | ) | ||||
| Proceeds from factor financing | ||||||||
| Repayments of factor financing | ( | ) | ||||||
| Securities Purchase Agreement proceeds | ||||||||
| Net cash provided by (used in) financing activities of continuing operations | ( | ) | ||||||
| Net cash (used in) provided by financing activities of discontinued operations | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Common stock issued for conversion of Series A preferred stock | $ | $ | ||||||
| Common stock issued for conversion of Series D preferred stock | $ | $ | ||||||
| Original issue discounts on loans payable | $ | $ | ||||||
| Common stock issued for conversion of convertible debentures | $ | $ | ||||||
| Receivable from JTM disposition | $ | $ | ||||||
(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)
5
High Wire Networks, Inc.
Notes to the unaudited condensed consolidated financial statements
March 31, 2023
| 1. | Organization |
HWN, Inc., (d/b/a High Wire Network Solutions, Inc.) (“HWN” or the “Company”) was incorporated in Delaware on January 20, 2017. The Company is a global provider of managed cybersecurity, managed networks, and tech enabled professional services delivered exclusively through a channel sales model. The Company’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.
HWN and JTM Electrical Contractors,
Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which High Wire owned
On June 16, 2021, the Company completed a merger with Spectrum Global Solutions, Inc. On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. (“High Wire” or, collectively with HWN, “the Company”). The merger was accounted for as a reverse merger. At the time of the reverse merger, High Wire’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”). For accounting purposes, HWN is the surviving entity.
High Wire was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, High Wire reincorporated in the province of British Columbia, Canada.
On November 4, 2021, the Company closed on its acquisition of Secure Voice Corp (“SVC”). The closing of the acquisition was facilitated by a senior secured promissory note.
On February 15, 2022, HWN
sold its
On March 6, 2023, HWN divested the ADEX Entities (refer to Note 3, Disposal of Subsidiary, for additional detail). The divestiture of the ADEX Entities qualified for discontinued operations treatment (refer to Note 18, Discontinued Operations, for additional detail).
The Company’s AWS PR and Tropical subsidiaries are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. The Company’s SVC subsidiary is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers.
| 2. | Significant Accounting Policies |
Condensed Financial Statements
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year.
6
Basis of Presentation/Principles of Consolidation
These unaudited condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These unaudited condensed consolidated financial statements include the accounts of the Company as well as High Wire and its subsidiaries, AWS PR, Tropical, and SVC. All subsidiaries are wholly-owned.
All inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Accounts Receivable
Trade accounts receivable
are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not
billed. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful
accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in
which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of
account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment
activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance
for doubtful accounts at March 31, 2023 and December 31, 2022 was $
Property and Equipment
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
| Computers and office equipment | |
| Vehicles | |
| Leasehold improvements | |
| Software | |
| Machinery and equipment |
Goodwill
The Company tests its goodwill for impairment at least annually on December 31st and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.
7
The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the three months ended March 31, 2023 and 2022.
Intangible Assets
At March 31, 2023 and December
31, 2022, definite-lived intangible assets consist of tradenames and customer relationships which are being amortized over their estimated
useful lives of
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were no impairment charges during the three months ended March 31, 2023 and 2022.
Long-lived Assets
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were no impairment charges during the three months ended March 31, 2023 and 2022.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company conducts business, and files federal and state income, franchise or net worth, tax returns in United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2022. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of the U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
8
Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The Company follows the guidance set forth within ASC 740, “Income Taxes” which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.
Prior to 2021, the Company had elected to be treated as a Subchapter S Corporation for income tax purposes, and as such recognized no income tax liability or benefit.
Revenue Recognition
The Company recognizes revenue based on the five criteria for revenue recognition established under ASC 606, “Revenue from Contracts with Customers”: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Contract Types
The Company’s contracts fall under two main types: 1) fixed-price and 2) time-and-materials. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working permanently at customer locations and materials costs incurred by those employees.
A significant portion of the Company’s revenues come from customers with whom the Company has a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types, the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases, this may be each day or each week, depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work.
Revenue Service Types
The following is a description of the Company’s revenue service types, which include professional services and construction:
| ● | Professional services are services provided to the clients where the Company delivers distinct contractual deliverables and/or services. Deliverables may include but are not limited to: engineering drawings, designs, reports and specification. Services may include, but are not limited to: consulting or professional staffing to support our client’s objectives. Consulting or professional staffing services may be provided remotely or on client premises and under their direction and supervision. |
| ● | Construction Services are services provided to the client where the Company may self-perform or subcontract services that require the physical construction of infrastructure or installation of equipment and materials. |
9
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by contract type. See the below table:
| Revenue by contract type | Three months ended March 31, 2023 | Three months
ended March 31, 2022 | ||||||
| Fixed-price | $ | $ | ||||||
| Time-and-materials | ||||||||
| Total | $ | $ | ||||||
The Company also disaggregates its revenue by operating segment and geographic location (refer to Note 16, Segment Disclosures, for additional information).
Accounts Receivable
Accounts receivable include amounts from work completed in which the Company has billed. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable.
Contract Assets and Liabilities
Contract assets include costs and services incurred on contracts with open performance obligations. These amounts are included in contract assets on the unaudited condensed consolidated balance sheets. At March 31, 2023 and December 31, 2022, the Company did not have any contract assets.
Contract liabilities include
payment received for incomplete performance obligations and are included in contract liabilities on the unaudited condensed consolidated
balance sheets. At March 31, 2023 and December 31, 2022, contract liabilities totaled $
Cost of Revenues
Cost of revenues includes all direct costs of providing services under the Company’s contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment, direct materials, insurance claims and other direct costs.
Research and Development Costs
Research and development costs are expensed as incurred.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Accounting Standards Update (“ASU”) 2018-07.
10
The Company uses certain pricing models to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
(Loss) Income per Share
The Company computes (loss)
income per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted
loss per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the (loss) income available
to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred
stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number
of shares assumed to be purchased from the conversion of convertible debentures or preferred stock and the exercise of stock options or
warrants. Diluted EPS excludes dilutive potential shares if their effect is anti-dilutive. As of March 31, 2023 and December 31, 2022,
respectively, the Company had
Leases
The Company adopted ASC 842, “Leases” on January 1, 2019.
The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the Company’s lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.
The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months as of January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.
Going Concern Assessment
Management assesses going concern uncertainty in the Company’s unaudited condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
11
The Company generated operating
losses in the three months ended March 31, 2023 and 2022, and High Wire has generated operating losses since its inception and has relied
on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cash
flow from operations. As of and for the three months ended March 31, 2023, the Company had an operating loss of $
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
Management believes that based on relevant conditions and events that are known and reasonably knowable, its forecasts of operations for one year from the date of the filing of the unaudited condensed consolidated financial statements in the Company’s Quarterly Report on Form 10-Q indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. These unaudited consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
Recent Accounting Pronouncements
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). In June 2016, the FASB issued ASU No. 2016-13. The amendments in ASU 2016-13, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (the “SEC”) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company adopted ASU 2016-13 effective January 1, 2023. The adoption did not have a material effect on the Company’s unaudited condensed consolidated financial statements.
ASU 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08). In October 2021, the FASB issued ASU 2021-08. This guidance amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. As a public business entity, this standard will become effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2021-08 effective January 1, 2023. The adoption did not have a material effect on the Company’s unaudited condensed consolidated financial statements.
12
Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.
Concentrations of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains
its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided
on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk. As of March 31, 2023, HWN had a cash balance
in excess of provided insurance of $
The Company provides credit
to customers on an uncollateralized basis after evaluating client creditworthiness. For the three months ended March 31, 2023,
The Company’s customers
are primarily located within the domestic United States of America and Puerto Rico. Revenues generated within the domestic United States
of America accounted for approximately
Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the three months ended March 31, 2023 and 2022. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
The Company’s financial assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2023 and December 31, 2022 consisted of the following:
13
| Total fair value at March 31, 2023 | Quoted prices in active markets (Level 1) | Quoted prices in active markets (Level 2) | Quoted prices in active markets (Level 3) | |||||||||||||
| Description: | ||||||||||||||||
| Derivative liability (1) | $ | $ | $ | $ | ||||||||||||
| Total fair value at December 31, 2022 | Quoted prices in active markets (Level 1) | Quoted prices in active markets (Level 2) | Quoted prices in active markets (Level 3) | |||||||||||||
| Description: | ||||||||||||||||
| Derivative liability (1) | $ | $ | $ | $ | ||||||||||||
| (1) |
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 10, Derivative Liabilities, for additional information.
Derivative Liabilities
The Company accounts for
derivative instruments in accordance with ASC 815, “Derivatives and Hedging” and all derivative instruments are reflected
as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative
instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and
able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices
for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model
fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying
first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models
could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.
The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three
levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of March 31, 2023 and December
31, 2022, the Company had a derivative liability of $
Sequencing Policy
Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.
| 3. | Disposal of Subsidiary |
On March 6, 2023, the Company
entered into a stock purchase agreement, by and among ADEX Corporation, ADEX Canada LTD., ADEX Puerto Rico, LLC and ADEXCOMM, and ADEX
Acquisition Corp., pursuant to which the Company sold to ADEX Acquisition Corp. its legacy staffing business in a transaction valued
at approximately $
The Company considered whether or not this transaction would cause the ADEX Entities to qualify for discontinued operations treatment. The Company determined that the sale of the ADEX Entities qualifies for discontinued operations treatment as of March 31, 2023 due to the size of their operations and because the sale represents a strategic shift (refer to Note 18, Discontinued Operations, for additional detail).
In connection with the sale,
the Company recorded a loss on disposal of subsidiary of $
14
| 4. | Property and Equipment |
Property and equipment as of March 31, 2023 and 2022 consisted of the following:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Computers and office equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Leasehold improvements | ||||||||
| Software | ||||||||
| Machinery and equipment | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Equipment, net | $ | $ | ||||||
During the three months ended
March 31, 2023 and 2022, the Company recorded depreciation expense of $
| 5. | Intangible Assets |
Intangible assets as of March 31, 2023 and 2022 consisted of the following:
| Cost | Accumulated Amortization | Impairment | Net carrying value at March 31, 2023 | Net carrying value at December 31, 2022 | ||||||||||||||||
| Customer relationship and lists | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| Trade names | ( | ) | ||||||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
During the three months ended
March 31, 2023 and 2022, the Company recorded amortization expense of $
The estimated future amortization expense for the next five years and thereafter is as follows:
| Year ending December 31, | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | $ | |||
| 6. | Related Party Transactions |
Loans Payable to Related Parties
As of March 31, 202 and December 31, 2022, the Company had outstanding the following loans payable to related parties:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Promissory note issued to Mark Porter, | $ | $ | ||||||
| Convertible promissory note issued to Keith Hayter, | ||||||||
| Total | $ | $ | ||||||
Promissory note, Mark Porter,
On June 1, 2021, the Company
issued a $
On December 15, 2021, this note matured and is now due on demand.
As of March 31, 2023, the
Company owed $
15
Convertible promissory note, Keith Hayter,
On June 15, 2021, in connection
with the 2021 merger transaction, the Company assumed High Wire’s convertible promissory note issued to Keith Hayter. The note
was originally issued on August 31, 2020 in the principal amount of $
During the period of June
16, 2021 through December 31, 2021, the holder of the note converted $
During the year ended December
31, 2022, the holder of the note converted $
For the three months ended
March 31, 2022, the Company recorded $
On September 30, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to October 31, 2022. The terms of the note were unchanged.
On October 31, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to November 30, 2022. The terms of the note were unchanged.
On December 31, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to March 31, 2023. The terms of the note were unchanged.
As of January 1, 2023, the holder was no longer considered a related party.
On January 1, 2023, the note
was exchanged by the holder for a new unsecured promissory note with no conversion feature (refer to Note 7, Loans Payable, for additional
detail). The amount exchanged was the outstanding principal and accrued interest of $
| 7. | Loans Payable |
As of March 31, 2023 and December 31, 2022, the Company had outstanding the following loans payable:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Unsecured promissory note, Keith Hayter, | $ | $ | ||||||
| Promissory note, Jeffrey Gardner, | ||||||||
| Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures | ||||||||
| Future receivables financing agreement with Pawn Funding, non-interest bearing, matures | ||||||||
| Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand | ||||||||
| Promissory note issued to Cornerstone National Bank & Trust, | ||||||||
| Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures | ||||||||
| Future receivables financing agreement with Pawn Funding, non-interest bearing, matures | ||||||||
| Total | $ | $ | ||||||
| Less: Current portion of loans payable, net of debt discount | ( | ) | ( | ) | ||||
| Loans payable, net of current portion | $ | $ | ||||||
16
Unsecured promissory note, Keith Hayter,
On January 1, 2023, Keith
Hayter, formerly a related party, exchanged a convertible promissory note for an unsecured promissory note with no conversion feature.
The principal amount of the new note is $
During the three months ended
March 31, 2023, the Company made cash payments for principal of $
As of March 31, 2023, the
Company owed $
Promissory note, Jeffrey Gardner,
On January 16, 2023, the
Company issued a $
As of March 31, 2023, the
Company owed $
On April 14, 2023, the Company paid the outstanding principal balance (refer to Note 19, Subsequent Events, for additional detail).
Loan with Cedar Advance LLC (2023)
On February 9, 2023, the
Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement
of Sale of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing
Parties sold to Cedar Advance future receivables in an aggregate amount equal to $
17
During the three months ended
March 31, 2023, the Company paid $
As of March 31, 2023, the
Company owed $
Loan with Pawn Funding (2023)
On February 16, 2023, the
Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement
of Sale of Future Receipts (the “Financing Agreement”) with Pawn Funding. Under the Financing Agreement, the Financing Parties
sold to Pawn Funding future receivables in an aggregate amount equal to $
During the three months ended
March 31, 2023, the Company paid $
As of March 31, 2023, the
Company owed $
Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand
On June 15, 2021, in connection
with the 2021 merger transaction, the Company assumed High Wire’s promissory note issued to InterCloud Systems, Inc. The note was
originally issued on February 27, 2018 in the principal amount of $
As of March 31, 2023, the
Company owed $
Promissory note issued to Cornerstone National
Bank & Trust,
On October 21, 2019, the
Company issued a promissory note to Cornerstone National Bank & Trust with an original principal amount of $
During the year ended December
31, 2021, the Company made cash payments for principal of $
During the year ended December
31, 2022, the Company made cash payments for principal of $
During the three months ended
March 31, 2023, the remaining principal balance of $
Loan with Cedar Advance LLC (2022)
On November 9, 2022, the
Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement
of Sale of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing
Parties sold to Cedar Advance future receivables in an aggregate amount equal to $
18
During the year ended December
31, 2022, the Company paid $
During the period of January
1, 2023 and March 6, 2023, the Company paid $
On March 6, 2023, in connection with the divestiture of the ADEX Entities, the buyer assumed this note (refer to Note 3, Disposal of Subsidiary, for additional detail).
Loan with Pawn Funding (2022)
On November 9, 2022, the
Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement
of Sale of Future Receipts (the “Financing Agreement”) with Pawn Funding. Under the Financing Agreement, the Financing Parties
sold to Pawn Funding future receivables in an aggregate amount equal to $
During the year ended December
31, 2022, the Company paid $
During the period of January
1, 2023 and March 6, 2023, the Company paid $
On March 6, 2023, in connection with the divestiture of the ADEX Entities, the buyer assumed this note (refer to Note 3, Disposal of Subsidiary, for additional detail).
| 8. | Convertible Debentures |
As of March 31, 2023 and December 31, 2022, the Company had outstanding the following convertible debentures:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Convertible promissory note, Jeffrey Gardner, | $ | $ | ||||||
| Convertible promissory note, James Marsh, | ||||||||
| Convertible promissory note issued to Roger Ponder, | ||||||||
| Convertible promissory note issued to the Mark Munro 1996 Charitable Remainder UniTrust, | ||||||||
| Convertible promissory note, FJ Vulis and Associates LLC, | ||||||||
| Total | ||||||||
| Less: Current portion of convertible debentures, net of debt discount/premium | ( | ) | ( | ) | ||||
| Convertible debentures, net of current portion, net of debt discount | $ | $ | ||||||
The Company’s convertible
debentures have an effective interest rate range of
Convertible promissory note, Jeffrey Gardner,
On June 15, 2021 the Company
issued to Jeffrey Gardner an unsecured convertible promissory note in the aggregate principal amount of $
The interest on the outstanding
principal due under the note accrues at a rate of
19
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
On September 15, 2021, this
note matured and is now due on demand. Additionally, the interest rate increased to
As of March 31, 2023, the
Company owed $
Convertible promissory note, James Marsh,
On June 15, 2021 the Company
issued to James Marsh an unsecured convertible promissory note in the aggregate principal amount of $
The interest on the outstanding
principal due under the note accrues at a rate of
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
On September 15, 2021, this
note matured and is now due on demand. Additionally, the interest rate increased to
As of March 31, 2023, the
Company owed $
Convertible promissory note, Roger Ponder,
On June 15, 2021, in connection
with the 2021 merger transaction, the Company assumed High Wire’s convertible promissory note issued to Roger Ponder. The note
was originally issued on August 31, 2020 in the principal amount of $
On September 30, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to December 31, 2022. The terms of the note were unchanged.
On December 31, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to March 31, 2023. The terms of the note were unchanged.
On March 31, 2023, the Company and the holder of the note mutually agreed to extend the maturity date to June 30, 2023. The terms of the note were unchanged.
As of March 31, 2023, the
Company owed $
Convertible promissory note issued to the
Mark Munro 1996 Charitable Remainder UniTrust,
On December 28, 2021, the
Mark Munro 1996 Charitable Remainder UniTrust, the holder of a note with a principal balance of $
20
The embedded conversion option
qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the conversion feature of $
On April 11, 2022, the Mark Munro 1996 charitable Remainder Unitrust amended the terms of the Company’s convertible promissory note payable. The note maturity was amended from September 30, 2022 to April 30, 2024. Payment terms were also amended, and no payments are due until October 1, 2022. All other terms of the note remain the same.
On September 30, 2022,
During the year ended December
31, 2022, the Company made cash payments of
As of March 6, 2023, the
Company owed $
On March 6, in connection with the divestiture of the ADEX Entities, the buyer assumed this note (refer to Note 3, Disposal of Subsidiary, for additional detail).
Convertible promissory note, FJ Vulis and
Associates LLC,
On May 11, 2022, the Company
issued to FJ Vulis and Associates LLC a secured convertible redeemable note in the aggregate principal amount of $
The embedded conversion option
and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives
and Hedging”. The initial fair value of the conversion feature of $
On October 28, 2022, the Company executed an agreement with FJ Vulis and Associates, LLC whereby FJ Vulis and Associates, LLC agreed to extend its option to call for payment of the principal amount and accrued interest of its convertible debenture from November 7, 2022 to December 22, 2022.
On December 22, 2022, the Company executed an agreement with FJ Vulis and Associates, LLC whereby FJ Vulis and Associates, LLC agreed to extend its option to call for payment of the principal amount and accrued interest of its convertible debenture from December 22, 2022 to February 6, 2023.
On February 6, 2023,
As of March 6, 2023, the
Company owed $
On March 6, 2023, in connection with the divestiture of the ADEX Entities, the buyer assumed this note (refer to Note 3, Disposal of Subsidiary, for additional detail).
21
| 9. | Factor Financing |
On February 22, 2023, ADEX,
a former subsidiary of the Company, entered into an amendment to its factor financing agreement, pursuant to which ADEX agreed to sell
and assign and Bay View Funding agreed to buy and accept, certain accounts receivable owing to ADEX. The amendment amended the agreement
to include the Company’s HWN and SVC subsidiaries. Under the terms of the Amendment, upon the receipt and acceptance of each assignment
of accounts receivable, Bay View Funding will pay ADEX, HWN and SVC, individually and together, ninety percent (
Under the factoring agreement, HWN and SVC may borrow up to the lesser of $4,000,000 or an amount equal to the sum of all undisputed purchased receivables multiplied by the advance percentage, less any funds in reserve. HWN and SVC will pay to Bay View Funding a factoring fee upon purchase of receivables by Bay View Funding equal to 0.45% of the gross face value of the purchased receivable for the first 30 day period from the date said purchased receivable is first purchased by Bay View Funding, and a factoring fee of 0.25% per 15 days thereafter until the date said purchased receivable is paid in full or otherwise repurchased by HWN and SVC or otherwise written off by Bay View Funding within the write off period. HWN and SVC will also pay a finance fee to Bay View Funding on the outstanding advances under the agreement at a floating rate per annum equal to the Prime Rate plus 1.75%. The finance rate will increase or decrease monthly, on the first day of each month, by the amount of any increase or decrease in the Prime Rate, but at no time will the finance fee be less than 9.25%.
The Company used proceeds from the amended agreement to pay the remaining principal on the promissory note outstanding to Cornerstone National Bank & Trust discussed in Note 7, Loans Payable.
On March 6, 2023, in connection with the divestiture of the ADEX Entities, the amounts owed and related to ADEX accounts receivable were assumed by the buyer (refer to Note 3, Disposal of Subsidiary, for additional detail).
During the three months ended
March 31, 2023, the Company paid $
During the three months ended
March 31, 2023, the Company received an aggregate of $
The Company owed $
| 10. | Derivative Liabilities |
On June 15, 2021, in connection
with the 2021 merger transaction, the Company assumed High Wire’s derivative liabilities. As of June 15, 2021, the derivative liability
balance of $
The embedded conversion options
of the convertible debentures described in Note 8, Convertible Debentures, which were assumed as part of the merger transaction, contain
conversion features that qualify for embedded derivative classification. The fair value of the liability is re-measured at the end of
every reporting period and the change in fair value is reported in the statement of operations as a gain or loss on change in fair value
of derivatives. Derivative liabilities also include the fair value of the Company’s share purchase warrants and stock options discussed
in Note 13, Share Purchase Warrants and Stock Options. As of March 31, 2023, the derivative liability balance of $
22
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2023:
| March 31, | ||||
| 2023 | ||||
| Balance at the beginning of the period | $ | |||
| Change in fair value of embedded conversion option | ( | ) | ||
| Divestiture of the ADEX Entities | ( | ) | ||
| Balance at the end of the period | ||||
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using Monte-Carlo model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
| Expected volatility | Risk-free interest rate | Expected dividend yield | Expected life (in years) | |||||||||||
| At March 31, 2023 | % | |||||||||||||
| At December 31, 2022 | % | |||||||||||||
| 11. | Common Stock |
Authorized shares
The Company has
Issuance of shares pursuant to conversion of Series A preferred stock
On January 5, 2023, the Company
issued
Issuance of shares pursuant to conversion of Series D preferred stock
On January 20, 2023, the Company issued
Issuance of shares pursuant to consulting agreements
On February 20, 2023, the
Company issued
On February 20, 2023, the
Company issued
Securities Purchase Agreement
On November 18, 2022, the
Company entered into a Securities Purchase Agreement with several accredited investors (the “Investors”) for the offering,
sale, and issuance (the “Offering”) by the Company of an aggregate of
The Company has used and intends to continue to use the proceeds from the Offering to retire outstanding convertible debt, for working capital, and other general corporate purposes.
The shares issued in the Offering have not been registered under the Securities Act and are instead being offered pursuant to the exemption provided in Section 4(a)(2) thereof and/or Rule 506(b) of Regulation D promulgated thereunder, based on the Investors being “accredited investors” within the meaning of said Regulation D.
23
The shares issued as part
of the Offering are subject to Lockup Leak-out Agreements, under which the Investors are unable to transfer or sell their shares within
six months of the closing date (the “lockup period”). After that date, the Investors can sell up to
As of March 31, 2023, the
Company had received an aggregate of $
Issuances of shares pursuant to a Securities Purchase Agreement
On January 6, 2023, the Company
issued an aggregate of
On January 17, 2023, the
Company issued an aggregate of
On February 3, 2023, the
Company issued an aggregate of
On March 17, 2023, the Company
issued an aggregate of
On March 22, 2023, the Company
issued an aggregate of
On March 23, 2023, the Company
issued an aggregate of
| 12. | Preferred Stock |
On June 15, 2021, in connection
with the 2021 merger transaction, the Company assumed High Wire’s Series A preferred stock obligations. Additionally, the holders
of High Wire’s Series B preferred stock transferred their shares to the Company’s Chief Executive Officer. Lastly, a new
class of preferred stock, Series D, was designated and issued. At the time of the merger transaction, the fair value of the Series A
and Series B preferred stock was $
See below for a description of each of the Company’s outstanding classes of preferred stock, including historical and current information.
Series A
On November 15, 2017, High
Wire created one series of the
On October 29, 2018, High Wire made the first amendment to the Certificate of Designation of its Series A convertible preferred stock. This amendment updated the conversion price to be equal to the greater of 75% of the lowest VWAP during the ten trading day period immediately preceding the date a conversion notice is delivered or $120.00, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock.
24
On August 16, 2019, High Wire made the second amendment to the Certificate of Designation of its Series A convertible preferred stock. As a result of this amendment, the Company recorded a deemed dividend in accordance with ASC 260-10-599-2.
On April 8, 2020, High Wire
made the third amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price and
the conversion price floor to $
On June 18, 2020, High Wire
made the fourth amendment to the Certificate of Designation of its Series A preferred stock, which lowered the fixed conversion price
to $
On January 27, 2021, High
Wire made the fifth amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price
to $
On December 30, 2022, High
Wire made the sixth amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price
to $
Subsequent to the sixth amendment, the principal terms of the Series A preferred stock shares are as follows:
Voting rights – The Series A preferred stock shares do not have voting rights.
Dividend rights – The holders of the Series A preferred stock shares shall not be entitled to receive any dividends. No dividends (other than those payable solely in common stock) shall be paid on the common stock or any class or series of capital stock ranking junior, as to dividends, to the Series A preferred stock shares during any fiscal year of the Company until there shall have been paid or declared and set apart during that fiscal year for the holders of the Series A preferred stock shares a dividend in an amount per share equal to (i) the number of shares of common stock issuable upon conversion of the Series A preferred stock times (ii) the amount per share of the dividend to be paid on the common stock.
Conversion rights –
The holders of the Series A preferred stock shares have the right to convert each Series A preferred stock share and all accrued and
unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance of such share into
fully paid and nonassessable shares of common stock of the Company.
Liquidation rights – Upon the occurrence of any liquidation, each holder of Series A preferred stock shares then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, before any payment shall be made in respect of the common stock, or other series of preferred stock then in existence that is outstanding and junior to the Series A preferred stock shares upon liquidation, an amount per share of Series A preferred stock shares equal to the amount that would be receivable if the Series A preferred stock shares had been converted into common stock immediately prior to such liquidation distribution, plus, accrued and unpaid dividends.
On June 24, 2021, the Company
issued
25
On August 12, 2021, the Company
issued
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series A preferred stock shares as temporary equity or “mezzanine.”
On January 5, 2023, the holder of the Company’s Series A preferred
stock converted the remaining
Series B
On April 16, 2018, High Wire
designated
Issue Price — The
stated price for the Series B preferred stock shares shall be $
Redemption — The Series B preferred stock shares are not redeemable.
Dividends — The holders of the Series B preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation
— The Corporation’s Series A preferred stock (the “Senior Preferred Stock) shall have a liquidation preference senior
to the Series B preferred stock. Upon any fundamental transaction, liquidation, dissolution or winding up of the Company, whether voluntary
or involuntary, the holders of the shares of the Series B preferred stock shares shall be entitled, after any distribution or payment
is made upon any shares of capital stock of the Company having a liquidation preference senior to the Series B preferred stock shares,
including the Senior Preferred Stock, but before any distribution or payment is made upon any shares of common stock or other capital
stock of the Company having a liquidation preference junior to the Series B preferred stock shares, to be paid in cash the sum of $
Voting — The holders of shares of Series B preferred stock shall be voted together with the shares of common stock such that the aggregate voting power of the Series B preferred stock is equal to 51% of the total voting power of the Company.
Conversion — There are no conversion rights.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series B preferred stock shares as temporary equity or “mezzanine.”
Series D
On June 14, 2021, High Wire
designated
26
On December 13, 2021, the
Company made the first amendment to the Certificate of Designation of its Series D preferred stock which changed the conversion right.
As a result of this amendment, the Company recorded a deemed dividend of $
Subsequent to the first amendment, the principal terms of the Series D preferred stock shares are as follows:
Issue Price — The
stated price for the Series D preferred stock shares shall be $
Redemption — The Series D preferred stock shares are not redeemable.
Dividends — The holders of the Series D preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation
— Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),
the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal
to $
Voting — Except
as otherwise provided in the agreement or as required by law, the Series D shall be voted together with the shares of common stock, par
value $
Conversion — Beginning
ninety (90) days from the date of issuance, all or a portion of the Series D may be converted into Common Stock at the greater of the
Fixed Price and the Average Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a
national securities exchange (the “Automatic Series D Conversion Date”), without any further action, all shares of Series
D shall automatically convert into shares of Common Stock at the Fixed Price, which is defined as the closing price of the Common Stock
on the trading day immediately preceding the date of issuance of the Series D ( subject to adjustment for any reverse or forward split
of the Common Stock). The Series D shares were issued on June 16, 2021, and the closing price of the Company’s common stock was
$
Vote to Change the Terms
of or Issuance of Series D — The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting,
of the holders of not less than fifty-one (
On October 20, 2021, Keith
Hayter assigned
On December 16, 2021, the
Company issued
27
On February 7, 2022, the
Company issued
On October 11, 2022, Mark
Porter assigned
On October 11, 2022, the
Company issued
On December 23, 2022, the
Company issued an additional
On January 20, 2023, the
Company issued
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series D preferred stock shares as temporary equity or “mezzanine.”
As of March 31, 2023, the carrying value of the Series D Preferred
Stock was $
Series E
On December 20, 2021, the
Company designated
The principal terms of the Series E preferred stock shares are as follows:
Issue Price — The
stated price for the Series E preferred stock shares shall be $
Redemption — The Series E preferred stock shares are not redeemable.
Dividends — The holders of the Series E preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation
— Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),
the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal
to $
Voting — Except
as otherwise provided herein or as required by law, the Series E shall be voted together with the shares of common stock, par value $
28
Conversion — Beginning
ninety (90) days from the date of issuance, all or a portion of the Series E may be converted into Common Stock at the Fixed Price (as
defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic
Series E Conversion Date”), without any further action, all shares of Series E shall automatically convert into shares of Common
Stock at the Fixed Price. “Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately
preceding the date of issuance of the Series E (subject to adjustment for any reverse or forward split of the Common Stock or similar
occurrence). The Series D shares were issued on December 30, 2021, and the closing price of the Company’s common stock was $
Vote to Change the Terms
of or Issuance of Series E — The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting,
of the holders of not less than fifty-one (
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series E preferred stock shares as temporary equity or “mezzanine.”
On December 5, 2022, the
Company issued
As of March 31, 2023, the
carrying value of the Series E Preferred Stock was $
| 13. | Share Purchase Warrants and Stock Options |
On June 15, 2021, in connection
with the 2021 merger transaction, the Company assumed High Wire’s share purchase warrants and stock options. As of June 15, 2021,
the total fair value of High Wire’s share purchase warrants and stock options was $
The total fair value of the
Company’s share purchase warrants and stock options was $
The following table summarizes the activity of share purchase warrants for the period of December 31, 2022 through March 31, 2023:
| Number of warrants | Weighted average exercise price | Intrinsic value | ||||||||||
| Balance at December 31, 2022 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Expired/forfeited | ||||||||||||
| Outstanding at March 31, 2023 | $ | $ | ||||||||||
| Exercisable at March 31, 2023 | $ | $ | ||||||||||
As of March 31, 2023, the following share purchase warrants were outstanding:
| Number of warrants | Exercise price | Issuance Date | Expiry date | Remaining life | ||||||||||
The following table summarizes the activity of stock options for the period of December 31, 2022 through March 31, 2023:
| Number of stock options | Weighted average exercise price | Intrinsic value | ||||||||||
| Balance at December 31, 2022 | $ | $ | ||||||||||
| Issued | ||||||||||||
| Exercised | ||||||||||||
| Cancelled/expired/forfeited | ||||||||||||
| Outstanding at March 31, 2023 | $ | $ | ||||||||||
| Exercisable at March 31, 2023 | $ | $ | ||||||||||
29
As of March 31, 2023, the following stock options were outstanding:
| Number of stock options | Exercise price | Issuance Date | Expiry date | Remaining Life | ||||||||||
The remaining stock-based
compensation expense on unvested stock options was $
| 14. | Leases |
The Company leases certain office space and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.
The following table sets forth the operating lease right of use (“ROU”) assets and liabilities as of March 31, 2023 and December 31, 2022:
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Operating lease assets | $ | $ | ||||||
| Operating lease liabilities: | $ | $ | ||||||
Expense related to leases
is recorded on a straight-line basis over the lease term, including rent holidays. During the three months ended March 31, 2023 and 2022,
the Company recognized operating lease expense of $
Cash paid for amounts included
in the measurement of operating lease liabilities were $
The operating lease liabilities
as of March 31, 2023 reflect a discount rate of
| Year ending December 31, | ||||
| 2023 | ||||
| Less: imputed interest | ( | ) | ||
| Total | $ | |||
30
| 15. | Commitments and Contingencies |
Leases
The Company leases certain of its properties under leases that expire on various dates through 2023. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years. Leases with an initial term of 12 months or less and immaterial leases are not recorded on the balance sheet (refer to Note 14, Leases, for amounts expensed during the three months ended March 31, 2023 and 2022).
Legal proceedings
In the normal course of business or otherwise, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
| 16. | Segment Disclosures |
During the three months ended March 31, 2023,
the Company had
| ● | Technology, which is comprised of AWS PR, SVC, Tropical, and HWN. |
| ● | High Wire, which consists of the rest of the Company’s operations. |
Factors used to identify
the Company’s reportable segments include the organizational structure of the Company and the financial information available for
evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s
operating segments have been broken out based on similar economic and other qualitative criteria.
Financial statement information by operating segment for the three months ended March 31, 2023 is presented below:
| Three Months Ended March 31, 2023 | ||||||||||||
| High Wire | Technology | Total | ||||||||||
| Net sales | $ | $ | $ | |||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Interest expense | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Total assets as of March 31, 2023 | ||||||||||||
Geographic information as of and for the three months ended March 31, 2023 is presented below:
| Revenues For The Three Months Ended March 31, 2023 | Long-lived Assets as of March 31, 2023 | |||||||
| Puerto Rico | $ | $ | ||||||
| United States | ||||||||
| Consolidated total | ||||||||
31
Financial statement information by operating segment for the three months ended March 31, 2022 is presented below:
| Three Months Ended March 31, 2022 | ||||||||||||
| High Wire | Technology | Total | ||||||||||
| Net sales | $ | - | $ | $ | ||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Interest expense | ||||||||||||
| Depreciation and amortization | - | |||||||||||
| Total assets as of December 31, 2022 | ||||||||||||
Geographic information as of December 31, 2022 and for the three months ended March 31, 2022 is presented below:
| Revenues For The Three Months Ended March 31, 2022 | Long-lived Assets as of December 31, 2022 | |||||||
| Puerto Rico | $ | $ | ||||||
| United States | ||||||||
| Consolidated total | ||||||||
| 17. | Earnings Per Share |
The following table shows the computation of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022:
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Numerator: | ||||||||
| Net (loss) income attributable to High Wire Networks, Inc. common shareholders | $ | ( | ) | $ | ||||
| Denominator | ||||||||
| Weighted average common shares outstanding, basic | ||||||||
| Effect of dilutive securities | ||||||||
| Weighted average common shares outstanding, diluted | ||||||||
| (Loss) income per share attributable to High Wire Networks, Inc. common shareholders, basic: | ||||||||
| Net (loss) income from continuing operations | $ | ( | ) | $ | ||||
| Net (loss) income from discontinued operations, net of taxes | $ | ( | ) | $ | ||||
| Net (loss) income per share | $ | ( | ) | $ | ||||
| (Loss) income per share attributable to High Wire Networks, Inc. common shareholders, diluted: | ||||||||
| Net (loss) income from continuing operations | $ | ( | ) | $ | ||||
| Net (loss) income from discontinued operations, net of taxes | $ | ( | ) | $ | ||||
| Net (loss) income per share | $ | ( | ) | $ | ||||
| 18. | Discontinued Operations |
On February 15, 2022, HWN
sold its
The results of operations of JTM have been included within net (loss) income from discontinued operations, net of taxes, on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2022.
32
On March 6, 2023, HWN divested the ADEX Entities (refer to Note 3, Disposal of Subsidiary, for additional detail). The divestiture of the ADEX Entities qualified for discontinued operations treatment.
The assets and liabilities of the ADEX Entities as of December 31, 2022 have been included within the consolidated balance sheet as current assets of discontinued operations, noncurrent assets of discontinued operations, current liabilities of discontinued operations, and noncurrent liabilities of discontinued operations.
The results of operations of the ADEX Entities have been included within net (loss) income from discontinued operations, net of taxes, on the unaudited condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022.
The following table shows the balance sheet of the Company’s discontinued operations as of December 31, 2022:
| December 31, 2022 | ||||
| Current assets: | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Contract assets | ||||
| Prepaid expenses and deposits | ||||
| Current assets of discontinued operations | $ | |||
| Noncurrent assets: | ||||
| Goodwill | $ | |||
| Intangible assets, net of accumulated amortization of $ | ||||
| Operating lease right-of-use assets | ||||
| Noncurrent assets of discontinued operations | $ | |||
| Current liabilities: | ||||
| Accounts payable and accrued liabilities | $ | |||
| Contract liabilities | ||||
| Current portion of loans payable | ||||
| Factor financing | ||||
| Current portion of operating lease liabilities | ||||
| Current liabilities of discontinued operations | $ | |||
| Noncurrent liabilities: | ||||
| Loans payable, net of current portion | $ | |||
| Noncurrent liabilities of discontinued operations | $ | |||
33
The following table shows the statements of operations for the Company’s discontinued operations for the three months ended March 31, 2023 and 2022:
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses: | ||||||||
| Cost of revenues | ||||||||
| Depreciation and amortization | ||||||||
| Salaries and wages | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Income from operations | ||||||||
| Other (expenses) income: | ||||||||
| Loss (gain) on disposal of subsidiary | ( | ) | ||||||
| Exchange loss | ( | ) | ( | ) | ||||
| Interest expense | ( | ) | ||||||
| PPP loan forgiveness | ||||||||
| Total other (expense) income | ( | ) | ||||||
| Pre-tax (loss) income from operations | ( | ) | ||||||
| Provision for income taxes | ||||||||
| Net (loss) income from discontinued operations, net of taxes | $ | ( | ) | $ | ||||
| 19. | Subsequent Events |
Promissory note, Jeffrey Gardner,
On April 14, 2023, the Company
paid the outstanding principal balance of $
Issuances of shares pursuant to a Securities Purchase Agreement
On April 21, 2023, the Company
issued
34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plan”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited condensed consolidated financial statements are stated in United States dollars ($) and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. 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 such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
All references to “common stock” refer to the common shares in our capital stock.
Unless specifically set forth to the contrary, when used in this report the terms “we”, “our”, the “Company” and similar terms refer to High Wire Networks, Inc., a Nevada corporation, and its consolidated subsidiaries.
The information that appears on our website at www.HighWireNetworks.com is not part of this report.
Description of Business
Business Overview
HWN, Inc., (d/b/a High Wire Network Solutions, Inc.) (“HWN”) was incorporated in Delaware on January 20, 2017. HWN is a global provider of managed cybersecurity, managed networks, and tech enabled professional services delivered exclusively through a channel sales model. Our Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment. HWN has continuously operated under the High Wire Networks brand for 23 years.
HWN and JTM Electrical Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which High Wire owned 50% of JTM. On February 15, 2022, HWN sold its 50% interest in JTM.
On June 16, 2021, we completed a merger with Spectrum Global Solutions, Inc. On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. (“High Wire”). The merger was accounted for as a reverse merger. At the time of the reverse merger, High Wire’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”). For accounting purposes, HWN is the surviving entity. On March 6, 2023, HWN divested the ADEX Entities.
On November 4, 2021, we closed on the acquisition of Secure Voice Corp (“SVC”). The closing of the acquisition was facilitated by a senior secured promissory note which has been repaid.
Our AWS PR and Tropical subsidiaries are professional services organizations that deliver services for Enterprise clients as well as wireline and wireless carriers. These subsidiaries are operated as part of our Technology segment. Our SVC subsidiary is a wholesale network services provider with network footprint in the Northeast United States. This network carries VoIP and other traffic for other service providers.
35
We provide the following categories of offerings to our customers:
| ● | Security: High Wire’s award-winning Overwatch Managed Security offers organizations end-to-end protection for networks, data, endpoints, and users via multiyear recurring revenue contracts in this fast-growing technology segment. This segment is nearly 100% recurring revenue with multi-year contracts. Overwatch delivers services through Managed Service Providers (MSPs), strategic partnerships and alliances, Value Added Resellers (VARs), Distributors, and Network Service Providers. |
| ● | Technology Solutions: We provide technology enabled professional and managed services for a wide array of clients exclusively through our channel partner relationships with the largest technology companies in the world. We deliver in the Enterprise, Wireline Carrier, Wireless Carrier, Network Backbone Carriers, State and Local Government, Federal Government, and Data Center market segments. We deliver services for most of the Fortune 500 alongside our channel partners. We deliver a wide array of services across a wide variety of technologies that include Wi-Fi, networking, SD-WAN, Distributed Antenna Systems, Wireless Carrier Networking, Fiber Backhaul, and many more. We provide planning, installation, project management, and ongoing support for break/fix services. We operate 24/7/365 around the world. We leverage our own technology platform, Workview, to deliver these services cost effectively and in a highly efficient and scalable manner. |
Our Technology Solutions division is supported by our subsidiaries: HWN, Inc.; AW Solutions Puerto Rico, LLC and Tropical Communications, Inc. (collectively known as “AWS” or the “AWS Entities”); and SVC.
Our Operating Units
Our company is comprised of the following:
| ● | Managed Services: The Managed Services Segment encompasses all of our recurring revenue businesses including our Overwatch Managed Security, all network managed services, all managed services performed under a Statement of Work (SoW), and our SVC revenue. | |
| ● | Technology Solutions: The Technology Solutions group is all service and project revenue generally globally by HWN, Tropical, and AWS PR. These business perform professional services for the Enterprise, SMB, Data Center, Carrier Wireline, Carrier Wireless, and Network Service Provider markets. |
Results of Operations for the Three-Month Periods Ended March 31, 2023 and 2022
Our operating results for the three-month periods ended March 31, 2023 and 2022 are summarized as follows:
| Three Months Ended | ||||||||||||
| March 31, 2023 | March 31, 2022 | Difference | ||||||||||
| Revenues | $ | 10,165,171 | $ | 5,313,114 | $ | 4,852,057 | ||||||
| Operating expenses | 12,796,114 | 6,943,712 | 5,852,402 | |||||||||
| Loss from operations | (2,630,943 | ) | (1,630,598 | ) | (1,000,345 | ) | ||||||
| Total other income | 2,444,732 | 3,334,511 | (889,779 | ) | ||||||||
| Net (loss) income from discontinued operations, net of taxes | (1,337,712 | ) | 3,125,137 | (4,462,849 | ) | |||||||
| Net loss from discontinued operations attributable to noncontrolling interest | - | 128,487 | (128,487 | ) | ||||||||
| Net (loss) income attributable to common stockholders | (1,523,923 | ) | 4,957,537 | (6,481,460 | ) | |||||||
Revenues
Our revenue increased from $5,313,114 for the three months ended March 31, 2022 to $10,165,171 for the three months ended March 31, 2023. The increase is primarily related to HWN revenue of $8,926,315, an increase of $5,845,101 compared to 3,081,214 for the three months ended March 31, 2023. The increase in HWN revenue was primarily related to a new customer accounting for $3,703,183 of revenue during the three months ended March 31, 2023, along with a $1,488,149 increase in revenue from an existing customer. The increase in revenue was partially offset by decreases in revenue for AWS PR, TROP, and SVC.
A significant portion of our services are performed under master service agreements and other arrangements with customers that extend for periods of one or more years. We are currently party to numerous master service agreements, and typically have multiple agreements with each of our customers. Master Service Agreements (MSAs) generally contain customer-specified service requirements, such as discreet pricing for individual tasks. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, perform work with the customer’s own employees and use other service providers when jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with written notice. The remainder of our services are provided pursuant to contracts for specific projects. Long-term contracts relate to specific projects with terms in excess of one year from the contract date. Short-term contracts for specific projects are generally three to four months in duration. The percentage of revenue from long-term contracts varies between periods depending on the mix of work performed under our contracts.
36
Operating Expenses
During the three months ended March 31, 2023, our operating expenses were $12,796,114, compared to operating expenses of $6,943,712 for the same period of 2022. The increase of $5,852,402 is primarily related to a $5,307,555 increase in cost of revenues as a result of the increase in sales discussed above, combined with a $501,039 increase in general and administrative expenses, respectively.
Other Income
During the three months ended March 31, 2023, we had other income of $2,444,732, compared to other income of $3,334,511 for the same period of 2022. The decrease of $889,779 is primarily related to decreases in the gain on change in fair value of derivatives and amortization of premiums on convertible debentures and loans payable to related parties of $731,935 and $386,757, respectively.
Net (Loss) Income
For the three months ended March 31, 2023, we had a net loss attributable to High Wire Networks, Inc. common shareholders of $1,523,923, compared to net income of $4,957,537 in the same period of 2022.
Liquidity and Capital Resources
As of March 31, 2023, our total current assets were $8,525,128 and our total current liabilities were $12,804,142, resulting in a working capital deficit of $4,279,014, compared to a working capital deficit of $10,889,962 as of December 31, 2022.
We suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. In this regard, we have historically raised additional capital through equity offerings and loan transactions.
Cash Flows
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (5,159,209 | ) | $ | (150,920 | ) | ||
| Net cash provided by investing activities | $ | 50,000 | $ | 240,000 | ||||
| Net cash provided by (used in) financing activities | $ | 5,438,425 | $ | (102,396 | ) | |||
| Net increase (decrease) in cash | $ | 329,216 | $ | (13,316 | ) | |||
For the three months ended March 31, 2023, cash increased $329,216, compared to a decrease in cash of $13,316 for the same period of 2022. Net cash provided by financing activities included proceeds from Securities Purchase Agreements of $3,425,000 and net proceeds from factor financing of $2,353,956. Net cash used in operating activities included the net loss from continuing operations of $186,211, as well as a net cash outflow from changes in operating assets and liabilities of $3,535,411 and a gain on change in fair value of derivative liabilities of $3,140,404.
As of March 31, 2023, we had cash of $978,243 compared to $649,027 as of December 31, 2022.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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Inflation
The effect of inflation on our revenue and operating results has not been significant.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our Chief Executive Officer concluded that, as a result of the material weaknesses described below, as of March 31, 2023, our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
| a) | Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis; |
| b) | we do not have any formally adopted internal controls surrounding our cash and financial reporting procedures; and |
| c) | the lack of the quantity of resources to implement an appropriate level of review controls to properly evaluate the completeness and accuracy of transactions entered into by our company. |
We are committed to improving our financial organization. In addition, we will look to increase our personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters.
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
Item 1A. Risk Factors
As a “smaller reporting company,” we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In the first quarter of 2023, we issued securities in the following transactions, each of which was exempt from the registration requirements of the Securities Act. Except for the shares of our common stock that were issued upon the conversion of our convertible debt securities or the grants of shares of common stock under our 2012 Performance Incentive Plan, all of the below-referenced securities were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act and are deemed to be restricted securities for purposes of the Securities Act. There were no underwriters or placement agents employed in connection with any of these transactions. Use of the exemption provided in Section 4(2) for transactions not involving a public offering is based on the following facts:
| ● | Neither we nor any person acting on our behalf solicited any offer to buy or sell securities by any form of general solicitation or advertising. | |
| ● | The recipients were either accredited or otherwise sophisticated individuals who had such knowledge and experience in business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities. |
| ● | The recipients had access to business and financial information concerning our company. | |
| ● | All securities issued were issued with a restrictive legend and may only be disposed of pursuant to an effective registration or exemption from registration in compliance with federal and state securities laws. |
The shares of our common stock that were issued upon the conversion of our convertible debt securities were issued pursuant to the exemption from registration under Section 3(a)(9) of the Securities Act and are deemed to be restricted securities for purposes of the Securities Act.
On January 5, 2023, we issued 3,750,000 shares of our common stock to Dominion Capital upon the conversion of 300,000 shares of Series A preferred stock with a stated value of $1 per share.
On January 6, 2023, we issued an aggregate of 8,666,667 shares of our common stock to Investors in exchange for aggregate cash proceeds of $650,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 866,667 shares into escrow.
On January 17, 2023, we issued an aggregate of 10,000,000 shares of our common stock to Investors in exchange for aggregate cash proceeds of $750,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 1,000,000 shares into escrow.
On January 20, 2023, we issued 6,511,628 shares of our common stock to Cobra Equities SPV, LLC upon the conversion of 140 shares of Series D preferred stock with a stated value of $10,000 per share.
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On February 3, 2023, we issued an aggregate of 2,666,667 shares of our common stock to Investors in exchange for aggregate cash proceeds of $200,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 266,667 shares into escrow.
On February 20, 2023, we issued 800,000 shares of our common stock to Ocean Street Partners in connection with a consulting agreement.
On February 20, 2023, we issued 2,000,000 shares of our common stock to Capital Market Access LLC in connection with a consulting agreement.
On March 17, 2023, we issued an aggregate of 3,333,333 shares of our common stock to Investors in exchange for aggregate cash proceeds of $250,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 333,333 shares into escrow.
On March 22, 2023, we issued an aggregate of 16,000,000 shares of our common stock to Investors in exchange for aggregate cash proceeds of $1,200,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 1,600,000 shares into escrow.
On March 23, 2023, we issued an aggregate of 5,000,000 shares of our common stock to Investors in exchange for aggregate cash proceeds of $375,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 500,000 shares into escrow.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| Exhibit # | Exhibit Description | |
| 31.1* | Certification of the Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of the Principal Financial Officer and Principal Accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2* | Certification of the Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| High Wire Networks, Inc. | ||
| Date: May 17, 2023 | By: | /s/ Mark W. Porter |
| Mark W. Porter | ||
| Chief Executive Officer | ||
| High Wire Networks, Inc. | ||
| Date: May 17, 2023 | By: | /s/ Daniel J. Sullivan |
| Daniel J. Sullivan | ||
| Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer | ||
41
Exhibit 31.1
CERTIFICATION
| I, | Mark Porter, certify that: |
| 1. | I have reviewed this Quarterly Report on Form 10-Q of High Wire Networks, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 17, 2023
| By | /s/ Mark Porter | |
| Mark Porter | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
| I, | Daniel Sullivan, certify that: |
| 1. | I have reviewed this Quarterly Report on Form 10-Q of High Wire Networks, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 17, 2023
| By: | /s/ Daniel Sullivan | |
| Daniel Sullivan | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32.1
Section 1350 CERTIFICATION
In connection with this Quarterly Report of High Wire Networks, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Porter, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 17, 2023
| By: | /s/ Mark Porter | |
| Mark Porter | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 32.2
Section 1350 CERTIFICATION
In connection with this Quarterly Report of High Wire Networks, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel Sullivan, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 17, 2023
| By: | /s/ Daniel Sullivan | |
| Daniel Sullivan | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |