Wytec International Inc 10-Q for FY2021 Q3
Wytec International Inc (WYTC)
About this 10-Q
Wytec International Inc filed this 10-Q on November 16, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $78K
- down 30.1% from $111.63K a year earlier
- Net loss
- $433.03K
- compared with a net loss of $449.57K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarter ended:
or
For the Transition Period from ___________ to____________
Commission File Number:
(Exact Name of registrant as specified in its charter)
| (State or other jurisdiction of | (IRS Employer I.D. No.) |
| incorporation) |
(Address of principal executive offices and Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o | |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨
As of November 8, 2021, 2021, there were shares outstanding of the registrant’s common stock.
WYTEC INTERNATIONAL, INC.
FORM 10-Q
September 30, 2021
Table of Contents
| i |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
WYTEC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (As Restated See Note L) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease, right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable, related party | ||||||||
| Other payable | ||||||||
| Operating lease, right-of-use obligation, current portion | ||||||||
| Contract liability | ||||||||
| Notes payable, current portion | ||||||||
| Promissory notes, shareholder, current portion | ||||||||
| Short-term debt, net of unamortized discount | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Operating lease, right-of-use obligation, long term portion | ||||||||
| Notes payable, net of current portion | ||||||||
| Promissory notes, shareholder, net of current | ||||||||
| Total long term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $ par value shares authorized: | ||||||||
| Series A convertible preferred stock, par $, shares designated, shares and shares issued, shares and shares outstanding | ||||||||
| Series B convertible preferred stock, par $, shares designated, shares and shares issued, shares and shares outstanding | ||||||||
| Series C convertible preferred stock, par $, shares designated, issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized, shares and shares issued, shares and shares outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Repurchased shares | ( | ) | ( | ) | ||||
| Deposit for future common stock subscriptions | ||||||||
| Treasury stock: | ||||||||
| Common stock, at cost, shares and shares | ( | ) | ||||||
| Series A convertible preferred stock, at cost, shares and shares | ( | ) | ( | ) | ||||
| Series B convertible preferred stock, at cost, shares and shares | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements
| 1 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (As Restated See Note L) | (As Restated See Note L) | |||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Operating expenses, net | ||||||||||||||||
| Net operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Pay check Protection Program loan forgiveness | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares Outstanding – Basic and fully diluted | ||||||||||||||||
| Net loss per share - | ||||||||||||||||
| Basic and fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to unaudited consolidated financial statements
| 2 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
| Class A | Class B | Class C | Common | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020, as restated see Note L | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Conversion of Series B preferred stock to common stock | – | ( | ) | ( | ) | – | – | |||||||||||||||||||||||||||||||||
| Conversion of warrants | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash already received | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of Warrants for Service | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Issuance of Warrants | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2021, as restated see Note L | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common stock | ( | ) | ( | ) | – | – | – | |||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | ( | ) | ( | ) | – | – | |||||||||||||||||||||||||||||||||
| Issuance of warrants in connection with conversion of other warrants | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Warrants exercised | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Cancellation of Treasury Stock | – | – | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Conversion of warrants | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | ( | ) | ( | ) | – | – | |||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2021 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements
| 3 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Quarters ended March 31, 2021 and 2020
(Unaudited)
(Continued)
| Class A | Class B | Class C | Common | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
| Balance, December 31, 2019, as restated see Note L | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of Warrants for Service | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Issuance of detachable warrants with Debt | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2020, as restated see Note L | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020, as restated see Note L | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common stock | ( | ) | ( | ) | – | – | – | |||||||||||||||||||||||||||||||||
| Repurchase agreement | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2020, as restated see Note L | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020, as restated see Note L | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock | – | – | – | |||||||||||||||||||||||||||||||||||||
| Conversion of warrants | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | ( | ) | ( | ) | – | – | |||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2020, as restated see Note L | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2020, as restated see Note L | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements
| 4 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Quarters ended March 31, 2021 and 2020
(Unaudited)
(Continued)
| Class A Preferred | Class B Preferred | Additional | Deposit for Future | Total Stockholders' | ||||||||||||||||||||||||||||||||
| Treasury Stock | Treasury Stock | Paid-in | Repurchased | Stock | Accumulated | Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Subscriptions | Deficit | (Deficit) | ||||||||||||||||||||||||||||
| Balance, December 31, 2020, as restated see Note L | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Conversion of Series B preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||
| Conversion of warrants | – | – | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash already received | – | – | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | – | – | ||||||||||||||||||||||||||||||||||
| Issuance of Warrants for Service | – | – | ||||||||||||||||||||||||||||||||||
| Issuance of Warrants | – | – | ||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2021, as restated see Note L | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Conversion of series A preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||
| Issuance of warrants in connection with conversion of other warrants | – | – | ||||||||||||||||||||||||||||||||||
| Warrants exercised | – | – | ||||||||||||||||||||||||||||||||||
| Cancellation of Treasury Stock | – | – | ( | ) | ||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock for services | – | – | ||||||||||||||||||||||||||||||||||
| Issuance of common stock | – | – | ||||||||||||||||||||||||||||||||||
| Conversion of warrants | – | – | ||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2021 | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements
| 5 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Quarters ended March 31, 2021 and 2020
(Unaudited)
(Continued)
| Class A Preferred | Class B Preferred | Additional | Deposit for Future | Total Stockholders' | ||||||||||||||||||||||||||||||||
| Treasury Stock | Treasury Stock | Paid-in | Repurchased | Stock | Accumulated | Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Subscriptions | Deficit | (Deficit) | ||||||||||||||||||||||||||||
| Balance, December 31, 2019, as restated see Note L | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Issuance of common stock for services | – | – | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | – | – | ||||||||||||||||||||||||||||||||||
| Issuance of Warrants for Service | – | – | ||||||||||||||||||||||||||||||||||
| Issuance of detachable warrants with Debt | – | – | ||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2020, as restated see Note L | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, March 31, 2020, as restated see Note L | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Conversion of series A preferred stock to common stock | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
| Repurchase agreement | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2020, as restated see Note L | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, June 30, 2020, as restated see Note L | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock for services | – | – | ||||||||||||||||||||||||||||||||||
| Issuance of common stock | – | |||||||||||||||||||||||||||||||||||
| Conversion of warrants | – | – | ||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2020, as restated see Note L | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance, September 30, 2020, as restated see Note L | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements
| 6 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| 2021 | 2020 (As Restated See Note L) | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Stock based compensation | ||||||||
| Non-cash lease expense | ||||||||
| Pay check protection program loan forgiveness | ( | ) | ||||||
| Decrease (increase) in operating assets | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Work in Process | ( | ) | ||||||
| Prepaid expenses and other assets | ||||||||
| Increase (decrease) in operating liabilities | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable, related party | ||||||||
| Contract liability | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of non-convertible notes | ||||||||
| Repurchase agreement | ( | ) | ||||||
| Proceeds from Paycheck Protection Program loan | ||||||||
| Proceeds from promissory notes, shareholder | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ( | ) | ||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of series A preferred stock to common stock | $ | $ | ||||||
| Conversion of series B preferred stock to common stock | $ | $ | ||||||
| Cancellation and renegotiation of leases | $ | $ | ||||||
| Issuance of common stock in lieu of interest payment | $ | $ | ||||||
| Issuance of detachable warrants with Debt | $ | $ | ||||||
| Issuance of Stock Repurchase Note Payable | $ | $ | ||||||
See accompanying notes to unaudited consolidated financial statements
| 7 |
WYTEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The interim consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K filed with the SEC on June 25, 2021. The results for the nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the year ended December 31, 2021. These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.
Description of Business: Wytec International, Inc. (“Wytec,” “we,” “our,” “us,” or the “Company”), a Nevada corporation, designs, manufactures, and installs carrier-class Wi-Fi Solutions in the 70 and 80 gigahertz licensed frequency program to local government, Mobile Service Operations, National Telecommunications Operators, and corporate enterprises. Wytec is also involved in the sale of wired and wireless services, including products, wireless data cards, back-office platform and rate plans to their commercial and enterprise clients and was previously engaged in the sale of Federal Communications Commission (“FCC”) registered links participating in the 70 and 80 gigahertz licensed frequency program (the “Program”). The Program allows qualified individuals to own a segment of the “backhaul” infrastructure of Wytec’s city-wide business deployment.
On or about August 20, 2020, Capaciti Networks, Inc., our former subsidiary, was dissolved and on or about September 22, 2020, Wylink, Inc., our former subsidiary, was dissolved. No consideration was exchanged in either transaction. As a result of the dissolutions, we acquired the net assets and liabilities of both Wylink, Inc, and Capaciti Networks, Inc. and their operations continue as part of the Company.
Basis of Accounting: The accompanying financial statements have been prepared by the Company’s management in accordance with U. S. generally accepted accounting principles (“GAAP”) and applied on a consistent basis.
Revenue and Cost Recognition. Revenue is recognized by applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.
The Company earns revenues from contracts with customers for (i) sales and installation of cellular enhancement equipment and (ii) support agreements. Revenue from the sale and installation of cellular enhancement equipment is recognized either when the installation is completed or as the Company installs the cellular enhancement equipment, depending on the complexity of the system, such as the degree of customization of the equipment being installed, and the agreement with the customer. The less complex systems installed by the Company where management believes the installed equipment has an alternative use, due to the standard nature of the equipment sourced from our vendors that can be used in other projects, revenue from such contacts is recognized for completed installations upon customer acceptance. This assessment, at contract inception, is a management judgment based on the combination of equipment ordered, the services performed and whether or not material effort, within the context of the contract, would be required to rework the equipment for another project, and the term and terms of the contract with the customer. For example, such contracts are usually completed within 30-45 days. In larger more complex projects where the Company is creating an asset for the customer with no alternative use and has an enforceable right to payment for performance prior to contract completion, we recognize revenue utilizing the percentage of completion method. This method measures completion based on management’s estimate of total costs to complete each contract because management considers total costs to be the best available measure of progress on the contract.
| 8 |
Support agreements entered into with customers are generally for a period of one year, during which the Company stands ready to provide service and support for installed systems at the customer site. Support agreement amounts are billed in advance to the customer, as agreed in the contract, and recorded as a contract liability. During the period, the Company provides unspecified firmware upgrades to installed client equipment as they are available. Management estimates that straight line recognition of revenue over the period of the support agreement contract is a faithful representation of the pattern of delivery on the Company’s obligation under these agreements.
Sales tax is recorded on a net basis and excluded from revenue.
Allowance for Doubtful Accounts: The allowance
for doubtful accounts is evaluated on a regular basis through periodic reviews of the collectability of the receivables in light of historical
experience, adverse situations that may affect our customers' ability to repay, and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accounts
receivable are determined to be past due based on how recently payments have been received and those considered uncollectible are charged
against the allowance account in the period they are deemed uncollectible.
Operating Leases Right-of-use Assets and Operating Lease Obligations: If we determine that an arrangement is or contains a lease, we recognize a right-of-use (ROU) asset and lease obligation at the commencement date of the lease. ROU assets represent our right to use an underlying asset for the lease term and lease obligations represent our lease payments arising from the lease. Operating lease ROU assets and obligations are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Use of Estimates: The preparation of the 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. Actual results could differ from those estimates.
Income Taxes: The provision for income taxes is computed using the asset and liability method, under which 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 losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
NOTE B – GOING CONCERN
Our consolidated financial statements are prepared
using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization
of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an
accumulated deficit of $
| 9 |
Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, there can be no assurance that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time. Management expects to continue to seek additional funding through private or public equity sources and will seek debt financing.
NOTE C – REVENUE AND ACCOUNTS RECEIVABLE
The Company recognizes revenue in accordance with its accounting policy. The Company invoices customers and recognizes accounts receivable in an amount equivalent to which it has an unconditional right and expects to receive aligned with the agreement with the customer. The Company has contracted payment terms with its customer of net 15 days. The Company recognized revenue from performance obligations satisfied as of a point in time and over time as disaggregated in the table below.
Timing of Revenue Recognition
| Disaggregation of Revenue | ||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Point in Time | $ | $ | $ | $ | ||||||||||||
| Over Time | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Due to the Company billing service agreements in advance and recognizing revenue for service agreements over time as more fully described in its accounting policy the Company carries a contract liability balance proportional to the time remaining on each customer agreement. The Company issues invoices to customers for completed work as performance obligations satisfied as of a point in time are fulfilled and does not carry a contract asset balance for these performance obligations.
Contract Assets and Liabilities
| Contract Assets and Liabilities | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Contract Liability | $ | ( | ) | $ | ( | ) | ||
| $ | (8,737 | ) | $ | (25,905 | ) | |||
The Company’s contracts for support services are typically for terms of one year or less. The aggregate amount of contract performance obligation as of September 30, 2021 and December 31, 2020 that the Company expects to recognize over the next year is $8,737 and $25,905, respectively.
The Company is under no obligation and is not in the practice of providing customers with returns, rebates, discounts, or refunds and has not in an amount material to the financial statements. The Company, accordingly, does not recognize these obligations at the time of revenue recognition. The Company may receive consideration from customers who enter into support agreements in the future for incremental services provided to such customers. Those services are delivered as of a point in time when the customer requests the service. Future consideration as described is excluded from the transaction price calculated for support agreement performance obligations.
| 10 |
The Company has applied the practical expedient that permits the Company to recognize revenue without regard to significant financing components based on the Company’s expectations about the transfer of services and the receipt of payment from customers. The effect of this practical expedient is not material to the Company’s financial statements.
NOTE D – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| Schedule of Property and Equipment | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Telecommunication equipment and computers | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense for the nine months ended September 30, 2021 and
2020 was $
NOTE E – DEBT
The Company’s debt consists of the following:
| Schedule of debt | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Various promissory notes payable to due to shareholder, all carry simple interest of 7% per annum, due at various times between August 2022 and March 2023 | $ | $ | ||||||
| Notes payable to a financial institution, interest rates of 4.7% per annum, with the equipment purchased pledged as collateral and varying due dates through November 2024 | ||||||||
| $625,000 of 7% unsecured note payable due February 2022, net of unamortized discount of $-0- and $38,048, respectively | ||||||||
| $ | $ | |||||||
In February 2020, we issued a note in the amount
of $
In March 2021, we received a loan pursuant to
the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)
in the amount of $
| 11 |
In June 18, 2021, a shareholder advanced funds in the amount of $
In August and September 2021, a shareholder loaned a total of $150,000,
to the Company under two separate promissory notes in the amounts of $
| Schedule of long term debt maturities | ||||
| 12 Month Period Ending September 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total future payments | ||||
| Less: discount | ||||
| Total debt | $ | |||
NOTE F – REPURCHASE AGREEMENT
In April 2020, we entered into a Repurchase and
General Release Agreement (the “Agreement”) with one shareholder pursuant to which we promised to pay the amount of $200,000
due on December 31, 2020, in consideration for the return to us of 40,000 shares of outstanding common stock and 40,000 shares of outstanding
Series B Preferred Stock previously purchased and currently held by the shareholder. The Agreement stated that the Company was to make
$10,000 monthly installments with the balance payable on the maturity date. The Agreement contains a feature that allows the Company to
extend the maturity date of the amount payable to March 31, 2021 in the Company’s sole discretion, and if the Company exercises
this option, the $10,000 monthly installments will continue until the extended maturity date on which date the remaining balance will
be due. In September 2020, the Company extended the maturity date under the terms of the Agreement to March 31,2021. The Company made
payments in the amount of $80,000 in good faith during 2020, however, the shareholder has not returned any of the shares that we paid
for so that they may be canceled as contemplated in the Agreement. As the shares had not been returned, the Company is not obligated per
the Agreement to pay any monies. The Company is pursuing action against the shareholder to have the shares returned or have the monies
paid returned. Until such time, the $
NOTE G – LEASES
The Company leases facilities and office equipment
under various operating leases, which generally are expected to be renewed or replaced by other leases. For the nine-month periods ended
September 30, 2021 and 2020, operating lease expense totaled $
The weighted average remaining lease term is
Future minimum lease payments as of September 30, 2021 are as follows:
| Minimum Lease Payments | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| Total minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of minimum lease payments | $ | |||
| Less: current portion of lease obligation | ||||
| Long-term lease obligation | $ |
| 12 |
NOTE H – WARRANTS
The Company has common stock purchase warrants
outstanding at September 30, 2021 to purchase
To calculate the fair value of stock warrants at the date of grant, we use the Black-Scholes option pricing model. The volatility used is based on historical volatilities of selected peer group companies. Management estimates the average volatility considering current and future expected market conditions. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Each issuance is individually valued according to this procedure as of the date of issue with maturity dates between December 31, 2021 and December 31, 2022, volatility estimates between 35% to 60% and risk-free rates 0.05% to 0.1% in the period.
On January 7, 2021 we issued common stock
purchase warrants to three consultants. The warrants are exercisable on a cash or cashless basis at an exercise price of $5.00 per share
until December 31, 2021 with a fair market value on the issuance date of $
During January 2021, we issued common stock
purchase warrants to three investors as part of our offering of units, each unit consisting of one share of our common stock and one common
stock purchase warrant. The total value of these warrants was $
During February 2021, we issued common stock
purchase warrants to two investors as part of our offering of units, each unit consisting of one share of our common stock and one common
stock purchase warrant. The total value of these warrants was $
During February 2021, we issued common stock
purchase warrants to two investors as part of their conversion of existing warrants. The exercise price of the warrants is $5.00. These
warrants are exercisable on a cash or cashless basis until December 31, 2022. The total value of these warrants was $
During March 2021, we issued common stock purchase
warrants to one investor as part of the investor’s exercise of existing warrants. The exercise price of the warrants is $5.00. These
warrants are exercisable on a cash or cashless basis until December 31, 2022. The total value of these warrants was $
During the quarter ended March 31, 2021, a total of warrants were exercised and a total of 15,200 shares of common stock were issued to two investors at a price of $5.00 per share and a total of common stock purchase warrants were issued to these two investors pursuant to the Warrant Offering (as below defined).
In April 2021, a total of common stock purchase
warrants were exercised by three investors for a total of 9,006 shares of Wytec’s common stock at an exercise price of $5.00 per
share or a total of $
In May 2021, a total of common stock purchase
warrants were issued to three investors for a total of 20,000 shares of Wytec’s common stock at an exercise price of $5.00 per share
or a total of $
| 13 |
In July 2021, we issued common stock purchase warrants to four
investors as part of our offering of units, each unit consisting of one share of our common stock and one common stock purchase warrant
(the “Unit Offering”). The exercise price of the warrants is $5.00. These warrants are exercisable on a cash or cashless basis
until December 31, 2022. The total value of these warrants was $
In August 2021, we issued common stock purchase warrants to two
investors as part of our Unit Offering. The exercise price of the warrants is $5.00. These warrants are exercisable on a cash or cashless
basis until December 31, 2022. The total value of these warrants was $
In September 2021, we issued common stock purchase warrants
to three investors as part of our Unit Offering. The exercise price of the warrants is $5.00. These warrants are exercisable on a cash
or cashless basis until December 31, 2022. The total value of these warrants was $
The following is a summary of activity and outstanding common stock warrants:
| Schedule of warrant activity | ||||
| # of Warrants | ||||
| Balance, December 31, 2020 | ||||
| Warrants granted | ||||
| Warrants exercised | ( | ) | ||
| Warrants expired | ||||
| Balance, September 30, 2021 | ||||
| Exercisable, September 30, 2021 | ||||
NOTE I – STOCKHOLDERS’ EQUITY
Holders of common stock are entitled to one vote per share. The common stock does not have cumulative voting rights in the election of directors. Accordingly, the holders of a majority of the outstanding shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferential rights with respect to any series of preferred stock that may be issued, holders of the common stock are entitled to receive ratably such dividends as may be declared by the board of directors on the common stock out of funds legally available therefore and, in the event of liquidation, dissolution or winding-up of affairs, are entitled to share equally and ratably in all the remaining assets and funds.
Series A preferred stock is nonvoting capital stock but may be converted into voting common stock. Each share of series A preferred stock is convertible at the option of the holder at any time after the issuance into one share of common stock, subject to adjustment from time to time in the event (i) the Company subdivides or combines its outstanding common stock into a greater or smaller number of shares, including stock splits and stock dividends; or (ii) of a reorganization or reclassification of common stock, the consolidation or merger with or into another company, the sale, conveyance or other transfer of substantially all of the Company assets to another corporation or other similar event, whereby securities or other assets are issuable or distributable to the holders of the outstanding common stock upon the occurrence of any such event; or (iii) of the issuance to the holders of Company common stock of securities convertible into, or exchangeable for, such shares of common stock.
| 14 |
Each outstanding share of series A preferred stock will automatically convert into one share of common stock (a) if the common stock commences public trading on the NASDAQ capital market or better, (b) if the series A preferred stockholder receives distributions from the net profits pool equal to the original purchase price paid for their registered links, or (c) five years after the date of issuance of the series A preferred stock. The Company does not have any other right to require a conversion of the series A preferred stock into common stock. The Company does not have the option to redeem outstanding shares of series A preferred stock. A holder of the series A preferred stock has no preemptive rights to subscribe for any additional shares of any class of stock or for any issue of bonds, notes or other securities convertible into any class of stock. In the event of a liquidation, dissolution or winding-up whether voluntary or otherwise, after payment of debts and other liabilities, the holders of the series A preferred stock will be entitled to receive from the remaining net assets, before any distribution to the holders of the common stock, the amount of $1.50 per share. After payment of the liquidation preference to the holders of series A preferred stock and payment of any other distributions that may be required with respect to any other series of preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock and the holders of the series A preferred stock on an as-if converted basis.
The series B preferred stock is voting capital stock. The holders of the series B preferred stock will vote on an as-converted basis with the common stock on all matters submitted to a vote of the shareholders. The holders of the series B preferred stock are not entitled to any dividends unless and until the series B preferred stock is converted into common stock. Each share of series B preferred stock is convertible at the option of the holder at any time after issuance into one share of common stock, subject to adjustment from time to time in the event (i) the Company subdivides or combines into outstanding common stock into a greater or smaller number of shares, including stock splits and stock dividends; or (ii) of a reorganization or reclassification of common stock, the consolidation or merger with or into another company, the sale, conveyance or other transfer of substantially all of the Company assets to another corporation or other similar event, whereby securities or other assets are issuable or distributable to the holders of the outstanding common stock upon the occurrence of any such event; or (iii) of the issuance by us to the holders of common stock of securities convertible into, or exchangeable for, such shares of common stock.
Each outstanding share of series B preferred stock will automatically convert into one share of common stock at a conversion rate equal to the lesser of $3.00 per share or 75% of the average closing price of the Company’s common stock as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately after the first day of public trading of common stock if common stock commences public trading on the NASDAQ capital market or better, but in any event no less than $2.50 per share or at $3.00 per share five years after the date of issuance of the series B preferred stock. In the event of a liquidation, dissolution or winding-up whether voluntary or otherwise, after payment of debts and other liabilities, the holders of the series B preferred stock will be entitled to receive from the remaining net assets, before any distribution to the holders of the common stock, and pari pasu with the payment of a liquidation preference of $1.50 per share to the holders of the series A preferred stock, the amount of $3.00 per share. After payment of the liquidation preference to the holders of the series A preferred stock and the series B preferred stock, and payment of any other distribution that may be required with respect to any other series of preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock, the holders of the series A preferred stock, and the holders of the series B preferred stock on an as-if converted basis.
The series C preferred stock is voting capital stock. For so long as any shares of the series C preferred stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right, on or after July 20, 2016, to vote in an amount equal to 51% of the total vote (representing a super majority voting power) with respect to all matters submitted to a vote of the shareholders of Wytec. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of series C preferred stock. For example, if there are 10,000 shares of our common stock issued and outstanding at the time of such shareholder vote, the holders of the series C preferred stock, voting separately as a class, will have the right to vote an aggregate of 10,408 shares, out of a total number of 20,408 shares voting.
Additionally, the Company is prohibited from adopting any amendments to the Company’s bylaws or articles of incorporation, as amended, making any changes to the certificate of designation establishing the series C preferred stock, or effecting any reclassification of the series C preferred stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of series C preferred stock. The Company may, however, by any means authorized by law and without any vote of the holders of shares of series C preferred stock, make technical, corrective, administrative or similar changes to such certificate of designation that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of series C preferred stock.
| 15 |
The holders of the series C preferred stock are not entitled to any dividends. Holders of the series C preferred stock have no conversion rights. The shares of the series C preferred stock shall be automatically redeemed by us at their par value on the first to occur of the following: (i) on the date that Mr. Gray ceases, for any reason, to serve as officer, director or consultant of Wytec, or (ii) on the date that our shares of common stock first trade on any national securities exchange provided that the listing rules of any such exchange prohibit preferential voting rights of a class of securities of Wytec, or listing on any such national securities exchange is conditioned upon the elimination of the preferential voting rights of the series C preferred stock set forth in the certificate of designation. A holder of the series C preferred stock has no preemptive rights to subscribe for any additional shares of any class of stock of Wytec or for any issue of bonds, notes or other securities convertible into any class of stock of Wytec. The holders of the Series C preferred stock are not entitled to any liquidation preference.
During the first quarter of 2021, the Company issued a total of shares of common stock in consideration for the conversion of shares of Series B Preferred Stock by eight shareholders.
In January 2021, a total of shares of common stock were issued in consideration for cash already received.
In February 2021, a total of common stock
purchase warrants were exercised for a total of 15,000 shares of Wytec’s common stock at an exercise price of $5.00 per share or
a total of $
In February 2021, the Company issued a total of shares of common stock to two investors for cash at $5.00 per share as part of the Company’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.
In March 2021, a total of common stock purchase
warrants were exercised for a total of 200 shares of Wytec’s common stock at an exercise price of $5.00 per share or a total of
$
In April 2021, a total of common stock purchase
warrants were exercised by three investors for a total of 9,006 shares of Wytec’s common stock at an exercise price of $5.00 per
share or a total of $
In April 2021, the Company issued a total of shares of common stock in consideration for the conversion of shares of Series B Preferred Stock by two shareholders.
In May 2021, a total of common stock purchase
warrants were exercised by three investors for a total of 20,000 shares of Wytec’s common stock at an exercise price of $5.00 per
share or a total of $
In May 2021, the Company issued a total of shares of common stock in consideration for the conversion of shares of Series B Preferred Stock by two shareholders.
In June 2021, the Company issued a total of shares of common stock in consideration for the conversion of 40,000 shares of Series A Preferred Stock by one shareholder.
On June 14, 2021, the Company cancelled shares of the Company’s common stock which were held in treasury.
In July 2021, the Company issued a total of shares of common stock to four investors for cash at $5.00 per share as part of the Company’s Unit Offering.
| 16 |
In July 2021, the Company issued a total of shares of common stock in consideration for the conversion of shares of Series B Preferred Stock by three shareholders.
In August 2021, the Company issued a total of shares of common stock to two investors for cash at $5.00 per share as part of the Company’s Unit Offering.
In August 2021, the Company issued a total of shares of common stock in consideration for the conversion of shares of Series B Preferred Stock by one shareholder.
In August 2021, the Company issued a total of shares of common stock in consideration for the services performed by one individual.
In September 2021, the Company issued a total of shares of common stock to three investors for cash at $5.00 per share as part of the Company’s Unit Offering.
NOTE J – RELATED PARTY TRANSACTIONS
The Company has an account payable balance owed
to Richardson & Associates in the amount of $
NOTE K – CONCENTRATION
The Company derived $
NOTE L – PRIOR PERIOD MISSTATEMENTS
As part of its internal review prior to submitting
its financial statements for the 3-month period ended March 31, 2021, the Company’s Management identified certain items, which pursuant
to GAAP standards, required adjusting entries for proper financial presentation. The identified items related to prior periods dating
back to 2019, and included: 1) Understatement of 2020 expenses, that related to 2019, in the amount of $
| 17 |
Management evaluated the impact of these misstatements
and determined the impact is immaterial. Management has corrected the accompanying Condensed Consolidated Statement of Cash Flows for
the nine months ended September 30, 2020, which resulted in a decrease to net cash used in operating activities of $
| Scheduled of condensed consolidated statement of operations | ||||||||||||||
| 2020 Statement of Operations Impact | ||||||||||||||
| For the Three Months Ended September 30, 2020 | Adjustment for Error Correction | As Restated | ||||||||||||
| Revenues | $ | $ | $ | |||||||||||
| Cost of sales | ||||||||||||||
| Selling, general and administrative | (3) | ( | ) | |||||||||||
| Depreciation and amortization | (3) | |||||||||||||
| Research and development | ||||||||||||||
| Other expense | (3) | |||||||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||||
| For the Nine Months Ended September 30, 2020 | Adjustment for Error Correction | As Restated | ||||||||||||
| Revenues | $ | $ | $ | |||||||||||
| Cost of sales | ||||||||||||||
| Selling, general and administrative | (1/3) | |||||||||||||
| Depreciation and amortization | (3) | |||||||||||||
| Research and development | ||||||||||||||
| Other expense | (3) | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| December 31, 2020 Balance Sheet Impact | ||||||||||||||
| As Previously | Adjustment for | As | ||||||||||||
| Reported | Error Correction | Restated | ||||||||||||
| Assets | ||||||||||||||
| Accounts Receivable | $ | (2) | $ | $ | ||||||||||
| Other current assets | ||||||||||||||
| Other assets | ||||||||||||||
| Fixed Assets | (3) | |||||||||||||
| Total Assets | ||||||||||||||
| Liabilities | ||||||||||||||
| Current liabilities | $ | (3) | $ | $ | ||||||||||
| Note payables | (3) | |||||||||||||
| Other liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Stockholders' deficit | ||||||||||||||
| Accumulated deficit | ( | ) | (2)/(3) | ( | ) | |||||||||
| Total Stockholders' deficit | $ | ( | ) | $ | $ | ( | ) | |||||||
| 18 |
NOTE M – SUBSEQUENT EVENTS
In October 2021, the Company commenced an offering of up to $1,400,000 of convertible promissory notes (the “Notes”) under Rule 506(b) of Regulation D of the Securities Act of 1933, as amended, (the “Note Offering”). Each Note bears simple interest at the rate of 7% per annum and is due and payable twelve months after the initial issuance of the Note (the “Maturity Date”). If the Company’s common stock is listed on the NASDAQ Market System on or before the Maturity Date, the noteholders (“Noteholders”) will have the option to convert all or a portion of their outstanding Notes into shares of the Company’s common stock at a rate equal to the greater of $5.00 per share or a price equal to eighty-five percent (85%) of the 10-day moving average of the Company’s public trading price as shown on the NASDAQ Market System. If the Note is converted before the Company’s common stock has commenced to trade on the public securities trading market, then (a) the conversion price will be $5.00 per share, and (b) immediately upon the conversion, the converting Noteholders will be issued a number of new warrants from the Company equal to the dollar amount of the conversion divided by $5.00 (the “Warrants”). The Warrants will be exercisable until December 31, 2022 at an exercise price equal to the greater of (i) five dollars ($5.00) or (ii) eighty-five percent (85%) of the 10-day moving average of the Borrower’s public trading price as shown on the NASDAQ Market System.
In October 2021, Wytec issued a total of 40,000 shares of common stock and 40,000 of common stock purchase warrants to six investors pursuant to the Company’s Unit Offering.
In October 2021, the president of the Company loaned $10,000 to the Company pursuant to a promissory note. The note bears simple interest at a rate of 5% per annum with a maturity date of October 21, 2022.
In November 2021, the Company issued a total of 4,100 shares of common stock in consideration for the exercise of 4,100 common stock purchase warrants by two warrant holders at an exercise price of $5.00 per share.
In November 2021, Wytec issued a total of 17,000 shares of common stock and 17,000 of common stock purchase warrants to two investors pursuant to the Company’s Unit Offering.
On November 4, 2021, Ms. Erica Perez was appointed as a director of Wytec.
| 19 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Wytec International, Inc. (hereinafter, with its subsidiary, “Wytec,” “Company,” “us,” “we” or “our”), the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” and variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause the Company’s actual results to be materially different from any future results expressed or implied by the Company in those statements. The most important factors that could prevent the Company from achieving its stated goals include, but are not limited to, the following:
| (a) | volatility or decline of our stock price; |
| (b) | potential fluctuation in quarterly results; |
| (c) | failure to earn revenues or profits; |
| (d) | inadequate capital to continue our business; |
| (e) | insufficient revenues to cover operating costs; |
| (f) | barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; |
| (g) | dilution experienced by our shareholders in their ownership of the Company because of the issuance of additional securities by us, or the exercise of warrants or conversion of outstanding convertible securities; |
| (h) | inability to complete research and development of our technology with little or no current revenue; |
| (i) | lack of demand for our products and services; |
| (j) | loss of customers; |
| (k) | rapid and significant changes in markets; |
| (l) | technological innovations causing our technology to become obsolete; |
| (m) | increased competition from existing competitors and new entrants in the market; |
| (n) | litigation with or legal claims and allegations by outside parties; |
| (o) | inability to start or acquire new businesses, or lack of success of new businesses started or acquired by us, if any; |
| 20 |
| (p) | inability to effectively develop or commercialize our technology; |
| (q) | inability to obtain patent or other protection for our proprietary intellectual property; and |
| (r) | insufficient funds available to our prospective customers (such as our school district clients who depend on Federal Cares Act funding which may not materialize) to enable them to purchase and pay for our products and services. |
Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this Form 10-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking statements and information that involves risks and uncertainties.
Overview of Current Operations
Wytec International, Inc., a Nevada corporation (“Wytec,” the “Company.” “we,” “us,” or “our”) is the developer of a technology called the “LPN-16,” consisting of chipsets, software, hardware designs and antennas that enable strengthened Wi-Fi and cellular transmission within a concentrated coverage area of approximately 500 feet in circumference. The hardware consists of a chassis or framework approximately 3 feet in height with a radius of approximately 32 inches. It is designed to be installed on a utility pole to provide dense network coverage. The unit, referred to as an outdoor “small cell”, is designed to increase Wi-Fi and cellular capacity and signal strength by placing a large number of them in densely populated areas as compared to the traditional macro site cellular towers covering a much larger area of approximately two (2) miles. The growth of small cells is in response to delivering substantially greater speeds to smartphones and other smart devices in preparation for the next generation of cellular technology now referred to as 5G.
When Wytec was first founded, we obtained five (5) United States patents (the “Patents”) related to Local Multipoint Distribution Service (“LMDS”) originally designed for digital television transmission, and later discovered to be useful in wireless broadband technology. Today Wytec utilizes Millimeter and Microwave spectrum as a wireless point to point backhaul for transmitting to small cells, including in the future its LPN-16 technology. This configuration is in place today and has become the center piece of Wytec’s private LTE initiatives requested by large commercial buildings, school districts and municipalities. Wytec’s ultimate configuration includes the extension of its private LTE design into the offering of its Mobile Virtual Network Operator (MVNO) wholesale services to both cable and Wireless Internet Service Providers (“WISPs”) throughout the United States. The Company believes that its MVNO services will become the foundation for supporting true 5G services in the U.S. as defined by the International Telecommunications Union (“ITU”), the standard for all previous mobile generations from 1G to 4G.
The 5G network is expected to have a transformative impact as it connects people with devices, data, transport systems and cities in a smart networked communications environment. The 5G network will rely substantially on small cell technology to achieve its goals. To facilitate this, operators need reliable connections with strong signal integrity, significant bandwidth and low latency. Small cells bring improved connectivity (speeds, reliability, and low latency) to the edge of existing macro networks, serving all morphologies from urban to rural markets.
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We believe the LPN-16 small cell can solve many of the long-term challenges faced by operators deploying small cells who need access to backhaul, lower total cost of ownership and easier site acquisition and access. It can also assist cities wrestling with the on-going technology upgrades, network growth demands, political hurdles and new business models needed to realize the benefits of a 5G network. In addition to aligning with technical and governmental issues, the LPN-16 is designed to meet the standards for 5G deployment and, for operator needs, adheres to the Federal Communications Commission (“FCC”) policy initiatives addressing public safety and First Responder initiatives. Specifically, the FCC’s Report and Order 14-153, Acceleration of Broadband Deployment by Improving Wireless Facilities Siting Policies, adopts rules to help spur wireless broadband deployment by facilitating the sharing of wireless transmission equipment using “neutral host” functionality to simultaneously support multiple providers. The LPN-16 was specifically designed to support neutral host features and performance. The FCC’s goal of “shared used” and “neutral host” seeks to expand coverage and capacity more quickly, reduce costs and promote access to infrastructure which reduces barriers to deployment and incentivize the sharing of resources, rather than relying on new builds for every stakeholder, thereby safeguarding environmental, aesthetic, historic and local land-use values.
We have implemented an aggressive intellectual property strategy and continue to pursue patent protection for new innovations. In addition to the LPN-16 invention covered by our current patent, we have identified additional upgrades and additions to the LPN-16 which further tie it to the goals and timelines of Wytec’s 5G development business model, FCC policy initiatives and customer business usage which we believe could lead to additional patentable property. We intend to file for patent protection on these developments. Our strategy is to continually monitor the costs and benefits of our patent applications and pursue those that will best protect our business and expand the core value of the Company.
We have recruited and hired a seasoned management team with both private and public company experience and relevant technical and industry experience to develop and execute our operating plan. In addition, we have identified key engineering resources for intellectual property development, antenna development, hardware, software, and firmware engineering, as well as integration and testing that will allow us to continue to expand our technology and intellectual property.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the estimated recoverable amounts of trade accounts receivable, impairment of long-lived assets, revenue recognition and deferred tax assets. We believe the following critical accounting policies require more significant judgment and estimates used in the preparation of the financial statements.
We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the collectability of our trade accounts receivable balances. If we determine that the financial conditions of any of our customers deteriorated, whether due to customer specific or general economic issues, increases in the allowance may be made. Accounts receivable are written off when all collection attempts have failed.
Effective January 1, 2018, Wytec International, Inc. adopted the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” Accordingly, Wytec International, Inc. recognizes revenue in accordance with the core principle of the revenue model in that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.
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Effective January 1, 2019, Wytec International, Inc. adopted the leasing standards of Financial Accounting Standards Board Update No. 2016-02, “Leases (Topic 842)." If we determine that an arrangement is or contains a lease which is 12 months or longer, we recognize a right-of-use (“ROU”) asset and lease obligation at the commencement date of the lease. ROU assets represent our right to use an underlying asset for the lease term and lease obligations represent our lease payments arising from the lease. Operating lease ROU assets and obligations are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Income taxes are accounted for under the asset and liability method. Under this method, to the extent that we believe that the deferred tax asset is not likely to be recovered, a valuation allowance is provided. In making this determination, we consider estimated future taxable income and taxable timing differences expected in the future. Actual results may differ from those estimates.
Results of Operations for the Nine Months Ended September 30, 2021 and 2020 and Three Months Ended September 30, 2021 and 2020
Revenue for the nine months ended September 30, 2021 and 2020 was $392,375 and $444,390, respectively. This decrease in revenue of $52,015, or 11.7%, was primarily due to decreases in revenue from our Cel-fi systems. Revenue for the three months ended September 30, 2021and 2020 was $77,999 and $111,625, respectively. This decrease in revenue of $33,626, or 30%, was primarily due to a decrease in revenue from our Cel-fi systems.
Cost of sales for the nine months ended September 30, 2021 and 2020 was $330,733 and $361,087, respectively. This decrease of $30,354, or 8%, was due to the decrease in costs incurred related to the sales of our Cel-fi systems. Cost of sales for the three months ended September 30, 2021 and 2020 was $62,481 and $50,340, respectively. This increase of $12,141, or 24%, was due to the increase in costs incurred related to the sales of our Cel-fi systems.
General and administrative expenses were $552,415 for the three months ended September 30, 2021, as compared to $472,464 for the three months ended September 31, 2020, this resulted in an increase of $79,951 or 17% compared to the same period in 2020. Contributing factor to the increase include an increase in stock transfer fees of $42,580 and an increase in legal fees of $32,201 for the three months ended September 30, 2021 compared to the same period in 2020. The remaining increase is attributable to an overall rise in some office and administrative expenses due to increased activity regarding obtaining new contracts. General and administrative expenses were $1,478,420 for the nine months ended September 30, 2021, as compared to $1,675,332 for the nine months ended September 31, 2020, this resulted in a decrease of $196,912 or 12% compared to the same period in 2020. Contributing factors to the decrease include a decrease in professional fees of $64,069, a decrease in warrant and stock based compensation of $82,107, a decrease in dues and subscriptions of $50,455, a decrease of $95,334 in salaries and wages and a decrease in travel of $21,183 for the nine months ended September 30, 2021 compared to the same period in 2020. The remaining decrease is attributable to cost savings from reduced operating expense to ensure cash needs are met. Where a percentage is not listed, the comparison period expense category is $0 and the calculation is not meaningful.
We estimate that we will need approximately $3,000,000 of capital or financing over the next 12 months to fund our planned operations, which we plan to satisfy as described below under “Satisfaction of our Cash Needs for the Next 12 Months.”
We anticipate that we will incur operating losses in the next twelve months. Our revenue is not expected to exceed our investment and operating costs in the next twelve months. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in, addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.
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Cash Flow from Operating Activities
Cash flows used in operating activities during the nine months ended September 30, 2021 were $1,309,259 compared to $1,342,592 during the nine months ended September 30, 2020. This change of $33,333 was primarily due to changes in net loss during the nine months ended September 30, 2021 to the same period in 2020.
Cash Flow from Investing Activities
Cash flows used by investing activities during the nine months ended September 30, 2021 were $-0- compared to the cash flows used by investing activities of $13,039 during the nine months ended September 30, 2020. Capital expenditures totaled $-0- and $13,039 during the nine months ended September 30, 2021 and 2020, respectively.
Cash Flow from Financing Activities
Cash flows provided by financing activities during the nine months ended September 30, 2021 were $876,606 compared to $1,027,411 during the nine months ended September 30, 2020. These receipts represent proceeds from the sale of the Company’s common stock and from the issuance of debt.
Satisfaction of Our Cash Obligations for the Next 12 Months.
September 30, 2021, our cash balance was $163,079. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, private placements of our capital stock, third party financing, and/or traditional bank financing. We anticipate sales-generated income during that same period of time, but do not anticipate generating sufficient revenue to meet our working capital requirements. Consequently, we intend to attempt to find sources of additional capital in the future to fund our growth and expansion through additional equity or debt financing or credit facilities. There is no assurance that we will be able to meet our working capital requirements through the private placement of equity or debt or from any other source.
Other Payable
Other Payable of $895,000 consists of amounts billed and collected before services related to registered links previously sold by the Company (“Registered Links”) have been completed. During 2019 deferred revenue was reclassified to other payables due by the Company which has exited the business of installing registered links. The Company intends to settle the liability through a combination of exchanges for common and preferred stock and cash.
Going Concern
Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $23,515,665 at September 30, 2021, and have reported negative cash flows from operations. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive nature in which we operate.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Recently Issued Accounting Standards
We have reviewed the standards issued by the Financial Accounting Standards Board (“FASB”) through September 30, 2021 and which are not yet effective. None of the standards will have a material impact on our financial statements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Our chief executive officer, who is also currently our interim chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our chief executive officer and interim chief financial officer has concluded that our disclosure controls and procedures were not effective as of September 30, 2021. Specifically, our disclosure controls and procedures were not effective in timely alerting our management to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings and ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure, for the following reasons:
| · | The Company does not have an independent board of directors or audit committee or adequate segregation of duties; | |
| · | A significant portion of our financial reporting is prepared by our financial consultant; | |
| · | We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company; and | |
| · | Inadequate closing process to ensure all material misstatements are corrected in the financial statements |
We have begun to rectify these weaknesses by hiring additional personnel and will create an independent board of directors once we have additional resources to do so. We have also begun the interview process and the acceptance of bids for the implementation and monitoring of the required SOX guidelines.
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Internal Control Over Financial Reporting
Our chief executive officer and interim chief financial officer is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Due to the matter identified above, we have identified the design and effectiveness of our internal control over financial reporting to not be effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The Company may be involved in legal actions and claims arising in the ordinary course of business from time to time. As of the date of the report, there are no legal matters of which management is aware.
Item 1A. Risk Factors.
During the quarter ended September 30, 2021, there have been no material changes from the risk factors previously in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities.
During the third quarter of 2021, the Company issued a total of 45,375 shares of common stock and 45,375 common stock purchase warrants to nine investors pursuant to a private placement in accordance with Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).
During the third quarter of 2021, the Company issued 400 shares of common stock to one shareholder in consideration for services rendered in accordance with Rule 506(b) of Regulation D of the Securities Act.
During the third quarter of 2021, the Company issued 40,000 shares of common stock in consideration for the conversion of 40,000 shares of Series B Preferred Stock by four shareholders in accordance with Rule 506(b) of Regulation D of the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
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Item 6. Exhibits.
| (1) | Incorporated by reference from the Company’s Registration Statement on Form S-1 and its amendments, originally filed on January 10, 2017. |
| (2) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated September 21, 2018. |
| (3) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated January 4, 2021. |
| (4) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated January 8, 2021. |
| (5) | Incorporated by reference to the Form 10-K filed with the Securities and Exchange Commission on June 25, 2021. |
| * | Filed herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections. |
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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.
WYTEC INTERNATIONAL, INC.
By: /s/ William H. Gray
William H. Gray, Chief Executive Officer and
President (Principal Executive Officer) and interim
Chief Financial Officer (Principal Accounting
Officer)
Date: November 16, 2021
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