Wytec International Inc 10-K/A, filed Dec 22, 2021
Wytec International Inc (WYTC)
About this 10-K/A
Wytec International Inc filed this 10-K/A on December 22, 2021, covering the fiscal year ended December 31, 2020.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2020
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
From _______________ to ________________.
| WYTEC INTERNATIONAL, INC. | ||
| (Exact name of registrant as specified in its charter) |
| Nevada | 333-215496 | 46-0720717 | ||
|
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer Identification Number) |
19206 Huebner Rd., Suite 202
San Antonio, Texas 78258
(Address of principal executive offices, including zip code)
(210) 233-8980
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each Class | Trading Symbol |
Name of each exchange on which registered |
| Common Stock | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ
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 preceding 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.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes þ No o
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 |
| Non-accelerated filer | o | Smaller reporting company | þ |
| Emerging growth company | þ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes o No þ
Indicate by check mark whether the registrant is a shell company (defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2019, cannot yet be determined since the outstanding common stock of the registrant is not yet publicly trading on any public securities trading market, and a valuation of the common stock has not otherwise been established.
The number of shares of common stock, $0.001 par value, outstanding on May 26, 2021 was 6,684,547 shares.
EXPLANATORY NOTE
The purpose of this Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission on June 25, 2021, is to amend the 2020 financial statements for certain errors that were found by management after the financial statements were issued. The revision consists of adding capital assets and note payable obligations for those capital assets as the payments for these capital assets had just been booked to expense; correcting an error for expenses that should have been booked in 2020 rather than booked in 2019; and recognition of accounts receivable and revenue for amounts that had not been billed timely.
No other changes have been made to the Form 10-K other than those described above. This Amendments No. 1 does not reflect subsequent events occurring after the original filing date of the Form 10-K.
WYTEC INTERNATIONAL, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2020
Index to Report on Form 10-K
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General
Wytec International, Inc., a Nevada corporation (“Wytec,” the “Company,” “we,” “us,” or “our”), is a designer and developer of small cell technology and wide area networks designed to support 5G deployments across the United States. Wytec offers in-building and citywide 5G solutions utilizing multiple 5G equipment vendors in combination with its patented LPN-16 small cell technology to complete its network designs. Wytec was incorporated in November 2011 with the purchase of five (5) United States patents (all of which have since expired) directly related to local multipoint distribution service (“LMDS”), utilized in broadband wireless access technology and originally designed for digital television transmission. In June 2014, Wytec filed a provisional patent for its small cell technology which we now call the “LPN-16.” In December 2017, we were granted a patent for our LPN-16 by the United States Patent and Trademark Office (“USPTO”), patent number 9,807,032. The patent is described as an “Upgradeable, High Data Transfer Speed, Multichannel Transmission System (“UHTMTS”). The design of the LPN-16 has been purposed as a small cell device to be installed on strategically placed utility poles throughout the United States in support of a hybrid dense network necessary for the next generation of mobile communications known as 5G. In December 2020, Wytec was granted a second patent by the USPTO, patent number 10868775 B2, which is an expansion to our original 2017 patent. This patent includes all features in the original patent and extends the life of the original patent with additional modifications to 2040. Wytec designs its 5G networks to be capable of supporting private LTE allowing private ownership of the network. Private LTE networks have been significantly enhanced due to the most recent FCC commercialization of the Citizens Broadband Radio Service (“CBRS”) spectrum now integrated in smart devices including 5G smartphones. As a result of both private LTE and CBRS, municipal governments, cable operators, wireless Internet Service Providers (“WISPs”), and carriers are now potential customers for Wytec. While Wytec is a public reporting company, its common stock is not yet quoted for public trading.
Industry Overview
Since the 1990s, a potent global movement, including a series of intergovernmental summit meetings, was conducted to close what has been popularly defined as the “Digital Divide”. The Digital Divide refers to the gap between those able to benefit from the internet and those who are not. This movement has energized solutions in public policy, technology design, finance and management that would allow all connected citizens to benefit equitably as a global digital economy spreads into the far corners of the world. Recently, the movement has been further energized by the massive economic disturbance of the Coronavirus. Thus, on March 27, 2020, the 116th U.S. Congress passed a $2.2 trillion economic stimulus bill known as the CARES Act. Immediately, billions of dollars of funding requests came in from counties, cities, and ISDs in hopes of further resolving the raging Digital Divide issue and its devastating effect on underserved citizens and students across the United States. A portion of these much-needed funds will be utilized to upgrade America’s communication infrastructure necessary for supporting an increased expansion into the nation’s underserved broadband areas and to support the next generation of cellular services called 5G.
As a result of this increased need for greater data capacity, cellular carriers have been aggressively pursuing new technologies to manage this massive data growth. The next generation of wireless communication services, 5G, has now been introduced and is touted to be the answer to America’s future communications needs in supporting fixed broadband and cellular connectivity. For the U.S. cellular industry to meet this challenge, we believe a radical change in network architecture is needed.
Today 4G LTE data traffic depends on “Macro” cell towers for virtually all of the country’s cellular transmission. These towers, which are easily recognized across America’s landscape, stand several hundred feet in height and support antennas six to nine feet in length. These mammoth towers cost mobile operators billions of dollars to construct and millions more to operate. Macro towers were originally designed to support cellular signals in a radius of two to three miles or more and provide service for thousands of subscribers. This design is no longer adequate in meeting current consumer demand or the anticipated speeds of 5G.
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To overcome this inadequacy, 5G network architecture condenses the coverage area with the use of Small Cells, with two primary objectives in mind: to increase data capacity and reduce higher-power transmission signals thus reducing dangerous radiation transmission. Most communication experts agree that Small Cells will be the driving force behind 5G services enabling gigabit speeds on essentially all communication devices, including Smartphones. Small Cells are designed to be mounted on utility poles permitting the flexibility of placement throughout a city supporting citywide ubiquitous coverage. This new architecture has now become the primary infrastructure design for “all” citywide 5G deployments. According to an article by Price Waterhouse Coopers (“PwC”), “5G networks can’t succeed without a small cell revolution.”
Connectivity for All
Wytec owns patented small cell technology known as the “LPN-16.” Its neutral-host design is its key differentiation from other small cell technologies, with its ability to support multiple spectrum usage owned and utilized by multiple mobile operators simultaneously. This multi-operator architecture is overwhelmingly accepted by city governments due to the reduced need for utility poles as compared to a single-operator small cell. Carriers are also expected to avidly embrace Wytec’s solution due to a substantially reduced installation cost and speed of deployment.
Another key feature and differentiation of Wytec’s LPN-16 design is its integration with private LTE networks. Already, the City of San Antonio, in a recent article, has indicated a major initiative in deploying a citywide private network to be integrated with its school districts in support of greater distance learning capabilities and increased public safety. Though much of the funding support could rely on federal relief programs, Wytec believes that it can present a way of “self-funding” these needed initiatives through a collaboration involving existing Independent School Districts’ (“ISDs”) federal funds (already in place), revenue derived from a private LTE network (owned by both the city and ISD), and private funding from the capital markets.
Today, carriers dominate the mobile cellular industry, but due to 5G deployment requiring small cells to be installed on utility poles, city governments have significant influence over small cell deployments in accordance with “right of way” regulations requiring pole access. This legal authority by municipalities has had a major impact on the slow speed of 5G deployment throughout America’s cities. Without this legal authority, municipal governments fear that carriers could further dominate their presence by overcrowding America’s utility poles with small cells leaving both an eyesore and potential hazards. We believe that Wytec’s LPN-16 diminishes these concerns due to its multi-carrier features allowing for multiple operators to gain access to poles and utilize the network simultaneously.
Revenue Opportunities
In October 2019, Wytec, participated in a Request For Proposal (the “RFP”) issued by the Laredo ISD in Laredo, Texas involving in-building cellular enhancement for the ISD. Wytec won the RFP with the lowest bid and best technology and was awarded the Contract consisting of 42 buildings within the district. Laredo ISD is a member of the Central Texas Purchasing Alliance (“CTPA”) consisting of 150 other ISDs. Due to language within the Contract under Section 791.001 of the Texas Government Code, all members of the CTPA became eligible to utilize the same winning bid as the Laredo ISD. The CTPA consists of more than 4,300 buildings, representing approximately 513,270,000 square feet. The Laredo ISD winning bid was $.039 per square feet. Assuming all CTPA members took advantage of the $0.39 per square foot winning bid, Wytec could realize revenues of approximately $195,599,363 over a three-year period. Wytec is now building out its second school district under the benefit of Section 791.001 of the Texas Code and is aligning itself to manage a more aggressive build-out over the coming three-year period. In addition to the current cellular enhancement service provided by Wytec to CTPA, the Company has received a strong interest from certain CTPA members to construct a private LTE solution (to include Wytec’s patented LPN-16) for multiple counties, potentially representing substantially greater revenue opportunities for Wytec in the future. Wytec currently utilizes Nokia for its Private LTE services but was able to brand its own LTE service under a channel partner agreement with Nokia called SmartDAS™.
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In addition to Wytec’s revenue potential involving cellular enhancement and private LTE, the Company plans to utilize its LPN-16 technology to provide wholesale services to MVNOs, predominately in the cable industry. Today, cable operators are aggressively pursuing mobile product (smartphones) solutions due to their eroding subscriber base to the carriers. This mobile service is currently offered to cable operators by virtually all carriers, but the cable operators struggle to achieve acceptable profit margins through MVNOs due to the current absence of multi-operator neutral host small cell technology, which allows for a reduction of deployment costs with the addition of each additional carrier or cable operator. Wytec anticipates wide acceptance of the LPN-16 by city governments due to its multi-carrier service capability. There are 450 cable operators aggressively pursuing MVNO services in the United States. This initiative by cable operators is anticipated to create a substantial revenue opportunity for Wytec.
As described above, we believe that Wytec’s LPN-16 small cell offers two significant revenue opportunities involving both a potential sale of the LPN-16 to private LTE clients (such as schools and cities) and as a 5G (Wytec owned) network to support its MVNO wholesale clients such as carriers, cable operators, and WISPs. In a recent publication by Allied Market Research, studies suggest that the small cell 5G Market will reach $6.87 billion by 2026.
Wytec’s Network Infrastructure- Supporting Wytec Products/Services
The LPN-16, recognized by USPTO patent number 9,807,032, as expanded by USPTO patent number 10868775 B2, is an “Upgradeable, High Data Transfer Speed, Multichannel Transmission System.” The LPN-16 is a local area network system that includes modular, multi-frequency, multi-channel, upgradable transmission nodes. The transmission nodes can include one or more independent RF modules. They may be configured to include 802.11ac and evolve to LTE and other technology and frequency bands as well as software defined radio attributes. The LPN-16 provides transmission and network services for wireless data, wireless video, wireless voice, voice over internet protocol (“VoIP”), local portal for emergency services, mesh node from one transmission to the next, single channel transmission, multi-channel transmission, Wi-Fi access as well as a number of other similar services. We believe this range of services and the timeline of 5G networks needing small cell capabilities squarely places Wytec in the path of serving several substantial markets such as small cells as a service, outdoor Wi-Fi, the IOT, and a host of other related telecommunications services.
In-Building Cellular: We believe Wytec offers a powerful alternative to the in-building cellular enhancement market which consists of signal boosters, small cells and related indoor distributed antenna systems (“DAS”). DAS is designed to strengthen cellular signals in facilities where materials interfere with cellular frequencies and diminish the quality of a cellular call or data usage. DAS may be deployed indoors (an “iDAS”) or outdoors (an “oDAS”), and is a way to deal with isolated spots of poor cellular coverage inside a large building by installing a network of relatively small antennas throughout the building to serve as repeaters. Traditional DAS requires the support of the carrier to allow access to their network and can take months to obtain and will cost substantially more.
We believe that our in-building solution, costing about one third (1/3) that of traditional DAS, is a viable alternative solution without the tedious and sometimes delayed support of the carriers and the Company has already deployed the service in more than 20 building facilities. Wytec has established valuable vendor relationships for in-building solutions with Nokia, Ericcson, Samsung and Nextivity.
Wytec, with its preferred vendor relationships, plans to generate significant revenues deploying in-building, private LTE and MVNO services in 2021.
4G LTE: Wytec, through its relationship with Nokia, is able to provide wholesale MVNO services utilizing to access the largest carrier 4G LTE networks in the United States. Recently, both the cable and WISPs are seeking cellular wholesale arrangements to provide cellular services to their product portfolios.
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Customer Concentration
During the year ended December 31, 2020, we received approximately 40% of our gross revenue from our cellular enhancement contract with the Laredo School District in Bexar County, Texas. Total revenue for the year ended December 31, 2020 was $1,077,030, and revenue from the Laredo contract during this period was $430,647. Purchase orders for other Alliance ISDs aggregate under this single contract, but we believe that the selling opportunities are far more varied than suggested by the revenue associated with that contract because many different ISDs are available to purchase our products and services through the contract without competitive bidding and other lengthy procedures. Accordingly, our customer base is already diversifying with the recent signing of the Round Rock ISD. Our terms for cellular enhancement services, as reflected in the Laredo contract, are already pre-approved by the Central Texas Purchasing Alliance (“CTPA”) comprised of approximately 150 school districts in central Texas. We have, however, only done a few projects for private commercial enterprises (although we’ve done some notable buildings, such as the Johnson Space Center in Houston, Texas), and have not extensively pursued business in that sector of the market. The loss of our relationship with the CTPA would have a material adverse impact on our future results of operations, financial condition and business performance.
SwRI engaged us to serve as the general sub-contractor for the project launched by Bexar County, Texas, to build a network linking the County and several school districts in the County with enhanced internet and cellular service utilizing small cell technology. We had a pre-existing relationship with SwRI for several years regarding SwRI conducting trials and certifying our LPN-16 small cell innovation, which is ongoing with trials planned for 2021 or 2022. Separately, Bexar County hired SwRI to advise it with respect to the Private LTE project, and SwRI hired us to implement it. We obtained the Laredo School District as a customer for our cellular enhancement service prior to the Bexar County project, and our service for the Laredo schools is ongoing. We expect to continue to obtain cellular enhancement orders from school districts in the area and beyond because of our work with the Laredo schools, our reasonable budgets for this infrastructure, our status as a preferred vendor to the Alliance, and our expanding relationship with the County. We expect our customer base to gradually diversify among the various schools that seek cellular enhancement services for public safety and convenience, and among other entities, including commercial enterprises that may also order Private LTEs. We expect to generate a substantial majority of our future business internally and separate from SwRI.
Agreement with Laredo School District
We entered into an In-Building Wireless Solution Agreement with the Laredo Independent School District (“Laredo”) on or about September 19, 2019 (the “Agreement”). The Agreement is the result of a Request for Proposal (“RFP”) circulated by Laredo in 2019 for the design, installation and maintenance of a cellular enhancement system for Laredo’s schools and school buildings. It contains detailed specifications and performance requirements for the system. We won the contract through competitive bidding and submission of a comprehensive response to the RFP. The price of the system for Laredo is fixed by turnkey cost covenants by us in the Agreement. We are required to provide ongoing maintenance services for the system. These services are promised by us at fixed turnkey prices in approved budgets at contract commencement. The Agreement has an initial term of three years, subject to evaluation and renewal for up to two more years through September 19, 2024. Additional items not subject to the turnkey provisions can be ordered by Laredo or other ISDs that work under our contract by submission of purchase orders to us. Specified insurance certificates must be obtained and maintained during the term of the contract. We are required to furnish standard minimum manufacturer’s warranties to Laredo, and Laredo does not waive any warranties, whether express or implied. Laredo has the right to terminate the Agreement for “cause” or without “cause” at any time. The Agreement provides that we indemnify Laredo for losses, costs or liabilities it may incur due to our performance of services or provision of goods. Laredo is not obligated to indemnify us. The Agreement confers on Laredo the right to audit our project books and records, and contains a “No Arbitration” clause. It also prohibits conflicts of interest in any matter involving or affecting the projects. A copy of the Agreement is attached to the Offering Statement of which this Offering Circular is a part as Exhibit 10.1
Agreement with Southwest Research Institute
In September 2020, Wytec International, Inc. entered into a fixed price contract with SwRI for the design, configuration and construction of a Private LTE for the County of Bexar in the State of Texas. The agreement specifies a fixed price for the initial phase of the Bexar County LTE, as provided in the Statement of Work, of $565,247.28. It includes the incorporation of small cells supplied by Nokia Corporation to confer 5G capability to the network. We expect two (2) more phases to complete the project, for which the budget for each phase will be larger than the first phase. A portion of the first phase work was performed by us prior to the signing of the contract in September and carried forward as a credit to us. In that regard, payments are made by SwRI to us as specified milestones are achieved on the project. We invoice SwRI for payments due when milestones are accomplished, and SwRI is obligated to pay them within 15 days. Our invoices include milestone compliance information and certifications for SwRI’s reference and benefit. The first phase of work was completed on or about December 1, 2020, and the final payment was received by us in December 2020.
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SwRI does not waive any rights under the agreement and has the right to demand corrections by us after the work is completed. In addition, we must submit all close-out documents with the final invoice. The close-out documents are specified in Paragraph 5G of the contract. Failure to make this submission to SwRI can cause us to surrender certain rights and payments under the agreement.
Competition
There are numerous existing and commercially available methods of providing both small cell technology and high-speed Internet to multi-tenant commercial and residential units. This makes the telecommunications industry highly competitive, rapidly evolving, and subject to rapid technology changes. Additionally, there are numerous telecommunications service companies that conduct extensive advertising campaigns to capture market share in this highly competitive market. We believe the principal competitive factors affecting our lines of business for LPN-16 is its “neutral host” features allowing multiple carriers to host on one small cell. Additionally, Wytec’s business model invokes a universal placement strategy through its relationship with cities interested in universal support for its school districts. We believe this has placed Wytec in a unique position to incorporate a neutral host small cell that has universal placement throughout a city.
Competition by Equipment (Small Cell). The Hetnet Bible issued by SNS Research has identified approximately 19 small cell vendors offering small cell equipment to network developers. Most, if not all of those vendors utilize the same chipset and provide nearly identical form factors (housing) with standard utility pole and strand mount installations. We are, however, unaware of a single manufacturer who has developed an outdoor small cell device capable of transmitting multiple frequencies on multiple channels from a single device at a single site location without frequency interference such as the LPN-16 small cell technology. We believe our LPN-16 small cell access point will set a new standard in the mobile broadband industry. Wytec is now listed in the updated HetNet Bible version 2014-2020 Report on small cells, Carrier Wi-Fi, and DAS.
Competition by Service (Internet). There are a substantial number of local, regional, and national residential and commercial Internet Service Providers (“ISPs”) hosting data, voice and texting services in the United States. Publicly traded brands such AT&T, Verizon, T-Mobile, Sprint, Cox Communications, Spectrum, Comcast, and Tower Stream all provide both commercial and/or residential cellular and wired Internet services. Although we have our own hybrid wired-wireless network for delivering our own branded version of 5G Internet services, we also provide, through wholesale agreements, a 4G LTE voice, text and data service through four of the largest U.S. wireless carriers. These services have significant competition from the carriers providing similar services at less cost and using other communications technologies unavailable to us, as well as having substantial financial resources and brand awareness that we do not have. While some of these technologies and services are now operational, others are being developed or may be developed. As a 4G LTE MVNO, we compete for customers based principally on providing better and lower cost services.
Competition for Tower Site Location Rentals (Access). For the deployment of Wytec’s small cell, adequate access to rights-of-way on towers and utility poles is necessary. There are a number of other local, regional, and national parties interested in tower/utility pole space access. This includes the equipment used by various public utilities, including electric utilities, major cellular carriers, fiber optic companies and cable companies, and may also include equipment placed by the municipality for public safety.
Intellectual Property
Wytec owns an interest in five (5) U.S. patents related to LMDS or millimeter technology, all of which are now expired. In April 2014, we filed a provisional patent representing the LPN-16 small cell device. In March 2015, the Company filed a Taiwanese Patent Application along with Patent Cooperation Treaty (PCT) application for patent filings in additional countries. In May 2017, Wytec was granted a patent for its LPN-16 technology and device by the USPTO, patent number 9,807,032. In December of 2020, Wytec was granted a second patent for additional claims to its LPN-16 and device by the USPTO, patent number 10868775 B2. We may be subject to legal proceedings and claims in the ordinary course of business and third parties may sue us for intellectual property infringement or initiate proceedings to invalidate our intellectual property. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (if available on acceptable terms or at all), pay damages or curtail our product and service offerings. We may also need to redesign some of our products or services to avoid future infringement liability. Any of the foregoing could prevent us from competing effectively and could adversely affect our business.
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Government Regulation
Wytec generally is subject to all of the governmental regulations that regulate businesses generally such as compliance with regulatory requirements of federal, state, and local agencies and authorities, including regulations concerning the environment, permits for certain activities, workplace safety, labor relations, employee rights, and government taxes. The adoption of any additional laws or regulations may decrease the growth of our business, decrease the demand for services and increase our cost of doing business. Changes in tax laws also could have a significant adverse effect on our operating results and financial condition.
Employees
As of December 31, 2020, we have ten full-time employees. Currently, there are no organized labor agreements or union agreements between us and our employees. Assuming we can earn additional revenue through organic growth, acquisitions and strategic alliances during 2020, we may need to hire additional employees. In the interim, we intend to use the services of independent consultants and contractors to perform various professional services when appropriate. We believe the use of third-party service providers may enhance our ability to control general and administrative expenses and operate efficiently.
Seasonality
Our operations are not expected to be materially affected by seasonality.
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-K. The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
The business, financial condition and operating results of the Company can be affected by several factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
Risks Related to Our Business and Marketplace
If we are unable to renew lease agreements for the locations where our equipment is installed, our business could be harmed. We constructed our first wireless network in Columbus, Ohio to include the installation of our millimeter wave equipment on select rooftops and other structures (our Diamond Ring) pursuant to lease or license agreements designed to send and receive wireless signals necessary for the operation of the network. While we have tested this network, we have not yet launched it for daily commercial operations and have not yet built any other networks, although we are currently doing several cellular enhancement installations, and are building a private LTE network for Bexar County, Texas. Nevertheless, we would typically seek five-year initial terms for our leases with three to five year renewal options. Such renewal options are generally exercisable at our discretion before the expiration of the current term. If these leases are terminated or if the owners of these structures are unwilling to continue to enter into leases or licenses with us in the future, or breach those agreements with us, we would be forced to seek alternative arrangements with other building owners or providers. If we are unable to continue to obtain, retain or renew such leases on satisfactory terms, our business would be harmed.
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We have a history of operating losses and expect to continue incurring losses for the foreseeable future. Our current business was launched in 2011 and has incurred losses in each year of operation. We cannot anticipate when, if ever, our operations will become profitable. We expect to incur significant net losses as we invest in our technology, expand our markets and pursue our business strategy. We intend to invest significantly in our business before we expect cash flow from operations to be adequate to cover our operating expenses. If we are unable to execute our business strategy and grow our business, either as a result of the risks identified in this section or for any other reason, our business, prospects, financial condition and results of operations will be adversely affected.
We are selling telecommunications equipment and services that are relatively new in our portfolio, and the revenue model for them is uncertain. We do not have extensive experience in pricing and billing in-building cellular and private LTE services, nor have we yet deployed LPN-16 with our networks or charged anyone for its capabilities. There is a risk that we may not price and bill sufficiently for our products and services to earn a profit, especially in the early stages of our sale and installation of them. We may continue to incur operating losses even as our sales and revenue increase.
Our Link Program was terminated, and we have liability with respect to the remaining outstanding Links. Through January 2016, Wytec had been relying primarily on the sale of registered links and related equipment and services (“Links”) through Wylink, Inc., our former wholly owned subsidiary which we dissolved in 2020, for revenue and working capital. Wylink terminated the offer and sale of Links in January 2016, except for two sales in July 2016. From June 2016 to December 2017, Wytec had been offering to buy back Links in consideration for the issuance of its Series B Preferred Stock and warrants at $3.00 per unit (i.e. one share of Series B Preferred Stock and one warrant exercisable at $1.50 per share until December 31, 2018). Subsequently, in 2018 and 2019, Wytec has been making exchange offers for Links by offering shares of common stock and warrants for them. As of December 31, 2020, we had repurchased all but 39 outstanding Links that currently remain with third party owners. Those outstanding Links include 22 that are activated and 17 that are not yet and may not be activated. We are generally retaining activated (“live”) Links that are repurchased by us and letting pending Links lapse for the present. Once Links were sold, Wytec incurred substantial costs to provide equipment and make related lease payments on activated Links. The Company has recently shifted its focus to in-building cellular and private LTE services, respectively, and to LPN-16. Consequently, the Company does not plan to sell, lease, use or activate any more Links. In fact, it plans to continue to try to repurchase them to give Linkholders a better opportunity to monetize their purchase of them and to strengthen the Company’s balance sheet by having holders exchange them for equity. We have recorded a current liability for “other payables” on our balance sheet for the remaining outstanding Links. There is no assurance that the Company will be able to retire the rest of the outstanding Links, or that it will not have claims asserted by Linkholders against it for forced activations and lease renewals or refunds.
Our success depends in part on the results of current and planned tests of our proprietary LPN-16 technology. Testing thus far has included environmental and radio frequency interference testing with our manufacturer and multiple speed tests utilizing an integrated 2.4GHz and 5GHz Qualcomm 802.11ac chipset which we completed in December of 2014. Additional tests will include proof of concept testing for network load balancing, public safety Band 14 and mobile network operator mobile data offloading, and WiFi and backhaul network testing. While we expect future tests of our LPN-16 to go well since preliminary testing of the technology in San Antonio, Texas was positive, the LPN-16 may not work as we have currently designed and constructed it, causing us material delays and harm. If the LPN-16 fails the upcoming tests or the tests are materially delayed, it could have a material adverse impact on our financial condition, operating results, and business performance. The timing of the commencement of the launch of the LPN-16 product line is currently uncertain, and may be delayed until we have more capital to fund it. There is no assurance that our LPN-16 or any other proprietary technology that we develop will be successful, will work as planned, or can be commercialized or monetized profitably.
If the comprehensive testing to be conducted by the SwRI does not yield favorable results, the execution of our business plan could be delayed or otherwise adversely effected. We are planning to conduct comprehensive trials in the near future with SwRI to test the efficacy of the LPN-16, and while we expect good results with respect to transmission speed, capacity, latency, clarity, and related performance parameters, there is no assurance that the actual results will not be less than expected. There is no assurance as to the date on which the trials will be conducted and completed. The trials with satisfactory results are a necessary predicate to commercializing and deploying our LPN-16 small cell technology. There is no assurance as to the performance results that will be experienced in the upcoming trials. If the results are not satisfactory, we will be delayed in the execution of our business plan, our costs will rise as we make necessary adjustments to the prototypes, and our anticipated revenue will be reduced or delayed.
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We must adapt quickly to changes in technology. Telecommunications technology is a rapidly evolving technology. We must keep abreast of this technological evolution. To do so, we must continually improve the performance, features and reliability of our equipment and related products. If we fail to maintain a competitive level of technological expertise, then we will not be able to compete in our market.
Our revenues are concentrated in a small number of customers and they may decrease significantly if we were to lose one of these customers. Two customers (i.e., Laredo ISD and Southwest Research Institute) generated approximately 92% of our revenue in the year ended December 31, 2020. Purchase orders aggregate under the Laredo ISD contract, but we believe that the selling opportunities are far more varied than suggested by the revenue associated with the Laredo ISD contract because many different ISDs are able to purchase our products and services through that contract without competitive bidding or other lengthy procedures. In that regard, we have preferred vendor status with the Central Texas Purchasing Alliance (“CTPA”) of which Laredo is a member, along with approximately 150 other school districts in Texas. Nevertheless, this high concentration of revenue from a single customer creates a risk that our revenue may decrease substantially if we were to lose this customer. We cannot assure you that our current main customer will continue to purchase our products and services in the future.
Our inability to respond timely to technological advances could have an adverse effect on our business. We must be able to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. We can offer no assurance that we will be able to successfully use new technologies effectively or adapt our products and services in a timely manner to a competitive standard. If we are unable to adapt in a timely manner to changing technology, market conditions or customer requirements, then we may not be able to successfully compete in our market.
Our ability to protect our intellectual property is uncertain. We assigned our five Patents to our former subsidiary, Wytec, LLC, which was then managed and 50% owned by General Patent Corporation. General Patent Corporation (“GPC”), the oldest patent enforcement firm in the United States, represents clients on patent enforcement rights and licensing transactions on a contingency basis. GPC was the manager of Wytec, LLC until 2017, when it assigned all of its rights in Wytec, LLC back to us. After extensive research and analysis, GPC elected not to assert infringement claims for the Patents on behalf of us and itself through Wytec, LLC. All five previous patents prior to 2017 have expired. We re-acquired the 50% of Wytec, LLC that we did not already own, and became the manager of it. In 2014, we filed a new provisional patent application for our proprietary LPN-16 data transmission technology. We have applied for additional patents and may do so in the future. On October 31, 2017, we received our first patent on the LPN-16 (patent number 9,807,032). In December of 2020, Wytec was granted a second patent (patent number 10868775 B2), for our additional claims to our original 2017 patent.. There is no assurance that this patent or any other patent that may be granted to us, if any, in the future will be enforceable. We will have limited resources to fight any infringements on our proprietary rights and if we are unable to protect our proprietary rights or if such rights infringe on the rights of others, our business would be materially adversely affected. The current manufacturer of our LPN-16 owns the intellectual property rights to certain software used in the device, for which our license is only exclusive for the first three years of sales, after which it is nonexclusive in perpetuity. This arrangement may enable our competitors to enter the market more readily for this type of equipment.
Our business may be adversely affected by competition. The telecommunications industry is highly competitive. Many of our current and potential competitors have financial, personnel and other resources, including brand name recognition, substantially greater than ours, as well as other competitive advantages over us. Certain competitors may be able to secure products from vendors on more favorable terms, devote greater resources to marketing and promotional campaigns, and adopt more aggressive pricing than we will. We cannot assure that we will be able to compete successfully against these competitors, which ultimately may have a materially adverse effect on our business, results of operations, financial condition, and potential products in the future.
Our business is subject to government regulation. Aspects of our telecommunication business are subject to and designed to comply with the regulations of the FCC. A change in those regulations or significant diminution of the right to access, use or license of the spectrum that we seek may have a material adverse effect on our operating results, financial condition, and business prospects and performance. We are also subject to regulations applicable to businesses generally, including without limitation those governing employment, construction, permit requirements, the environment, and health and safety, those governing the telecommunications industry, and the FCC. The adoption of any additional laws or regulations may decrease the growth of our business, decrease the demand for services and increase our cost of doing business. Changes in tax laws also could have a significant adverse effect on our operating results and financial condition.
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We cannot assure that we will achieve profitability. We cannot assure that we will be able to operate profitably in the future. Profitability, if any, will depend in part upon our ability to successfully develop and market our proprietary telecommunications technology, and other products and services. We may not be able to successfully transition from our current stage of business to a stabilized operation having sufficient revenues to cover expenses. While attempting to make this transition, we will be subject to all the risks inherent in a small business, including the need to adequately service and expand our customer base and to maintain and enhance our current services.
We are exposed to various possible claims relating to our business and we may not have sufficient insurance to fully protect us. We cannot assure that we will not incur uninsured liabilities and losses because of the conduct of our business, even though we currently maintain insurance policies for liability and property insurance coverage, along with workmen’s compensation and related insurance. Should uninsured losses occur, our investors could lose their invested capital.
We may incur additional indebtedness. We cannot assure that we will not incur additional debt in the future, that we will have sufficient funds to repay our indebtedness or that we will not default on our debt, jeopardizing our business viability. Furthermore, we may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to conduct our business. We are currently conducting an offering of promissory notes and warrants seeking to raise up to $5,000,000 of additional capital. To date, we have sold $625,000 of the promissory notes and warrants to one accredited investor.
We expect to incur losses for the near future. We project that we will incur development and administrative expenses and operate at a loss for the foreseeable future unless we are able to generate substantial revenues from our existing and planned proprietary products and services. We cannot be certain whether or when we will be able to achieve profitability because of the significant uncertainties with respect to our business.
We may incur cost overruns. We may incur substantial cost overruns in the development and deployment of our proprietary products and services. Management is not obligated to contribute capital to us. Unanticipated costs may force us to obtain additional capital or financing from other sources or may cause us to lose our entire investment in our business if we are unable to obtain the additional funds necessary to implement our business plan. We cannot assure that we will be able to obtain sufficient capital to successfully implement our business plan. If a greater investment is required in the business because of cost overruns, the probability of earning a profit or a return on investment in us is diminished.
We could be subject to liens. If we fail to pay for materials and services for our business on a timely basis, our assets could be subject to material men’s and workmen’s liens. We may also be subject to bank liens in the event that we default on loans from banks, if any.
We may face litigation in the future. We may incur substantial legal fees and costs in connection with future litigation, if any. The Company carries Officers’ and Directors’ liability insurance, as well as other forms of insurance customarily carried by companies such as Wytec, but there is no assurance that our insurance policies will be adequate to cover all of our litigation costs. There is also a risk that we could face litigation and regulatory claims that could have a material adverse effect on our financial condition, operating results, and business. For example, a former Linkholder and current Series B Preferred Stockholder of the Company has requested a refund of his payments to Wytec. While the Company does not believe that this individual is entitled to a refund, the Company has been amenable to refunding him, but not in excess of the amount he paid for his Links, which he previously exchanged for the Series B Preferred Stock that he currently owns. If this individual does not accept the Company’s offer and commences litigation or the Company becomes involved in other litigation, there could be a material adverse effect on the Company.
We may not have adequate funds to implement our business plan. We have limited capital available to us. Although we anticipate securing additional funding from the issuance of additional securities, we cannot assure that we will secure all or any of the funding we anticipate. If our entire original capital is fully expended and additional costs cannot be funded from borrowings or capital from other sources, then our financial condition, results of operations and business performance would be materially adversely affected. We cannot assure that we will have adequate capital or financing to conduct our business or to grow.
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Our limited resources may prevent us from retaining key employees or inhibit our ability to hire and train a sufficient number of qualified management, professional, technical and regulatory personnel. Our success may also depend on our ability to attract and retain other qualified management and personnel familiar in telecommunications industry. Currently, we have a limited number of personnel that are required to perform various roles and duties as a result of our limited financial resources. We intend to use the services of independent consultants and contractors to perform various professional services, when appropriate to help conserve our capital. If and when we determine to acquire additional personnel, we will compete for such persons with other companies and other organizations, some of which have substantially greater capital resources than we do. We cannot provide any assurance that we will be successful in recruiting or retaining personnel of the requisite caliber or in adequate numbers to enable us to conduct our business.
The loss of the services of any or our management or key executives could adversely affect our business. Our success is substantially dependent on the performance of our executive officers and key employees. The loss of an officer or director could have a material adverse impact on us. We are generally dependent upon our primary executive officer, William H. Gray, for the direction, management and daily supervision of our operations. We do not currently have any employment agreements with any members of our management team.
The consideration being paid to management has not been determined at arm’s-length. The common stock and cash consideration being paid by us to our management have not been determined based on arm’s-length negotiation. We may grant stock options and other equity incentives to our executive officers and directors, which may further dilute our shareholders’ ownership of us. While management believes that the consideration is fair for the work being performed, there is no assurance that the consideration to management reflects the true market value of its services.
Directors and officers have limited liability. As permitted by the Nevada General Corporation Law, our certificate of incorporation and by-laws limit the personal liability of our directors and officers and authorize our indemnification of them, but such provision does not eliminate or limit the liability of a director or officer in certain circumstances, such as for: (i) any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Nevada General Corporate Law; or (iv) for any transaction from which the director derived an improper personal benefit. If we were called upon to perform under our indemnification agreement, then the portion of our assets expended for such purpose would reduce the amount otherwise available for our business.
Global and regional economic conditions could materially adversely affect the Company’s business, results of operations, financial condition and growth. Adverse macroeconomic conditions, including inflation, slower growth, or recession, new or increased tariffs, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could materially adversely affect demand for the Company’s products and services. In addition, consumer confidence and spending could be adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other economic factors.
In addition to an adverse impact on demand for the Company’s products, uncertainty about, or a decline in, global or regional economic conditions could have a significant impact on the Company’s suppliers, contract manufacturers, logistics providers, distributors, cellular network carriers and other channel partners. Potential effects include financial instability; inability to obtain credit to finance operations and purchases of the Company’s products; and insolvency.
A downturn in the economic environment could also lead to increased credit and collectability risk on the Company’s trade receivables; the failure of derivative counterparties and other financial institutions; limitations on the Company’s liquidity, which is currently minimal; and declines in the fair value of the Company’s financial instruments. These and other economic factors could materially adversely affect the Company’s business, results of operations, financial condition and growth.
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The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of innovative new products, services and technologies to the marketplace.
The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities. The Company is subject to taxes in the U.S. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The Company’s effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. The Company is also subject to the examination of its tax returns and other tax matters by the U.S. Internal Revenue Service and other tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of these examinations.
Impact of COVID-19 on Wytec’s business. Wytec expects delays in the commencement of its next installation with the Laredo, Texas school district because district staff has not been consistently available to coordinate the installation of the Company’s equipment at their schools as a result of the COVID-19 pandemic. The Company also expects that as state actions in response to COVID-19 continue to disrupt commerce at all levels of industry, the Company will experience delays in its supply chain. Although the Company is taking measures to mitigate the effect of COVID-19 on the Company’s business as much as possible, the Company is unable to predict the overall impact of the pandemic on the Company at this time.
Risks Related to Our Common Stock
No market for our common stock currently exists, and an active trading market may not develop or be sustained. Our stock price may fluctuate significantly. There is currently no public market for our common stock. We intend to apply to have our common stock quoted and traded on the OTC-QX Market or the NASDAQ Capital Market. There is no assurance that the Company’s application for listing its common stock for trading on the NASDAQ Capital Market will be accepted. In order to have our common stock quoted for public trading on the OTC-QX Market, which is an over-the-counter market, not an exchange, we must have a market maker registered with FINRA to sponsor our application for a trading symbol for that over-the-counter market. There is no assurance that we will find a market maker to sponsor our common stock for public trading. An active trading market for our common stock may not develop or may not be sustained in the future. The lack of an active market may make it more difficult for stockholders to sell our shares and could lead to our share price and trading volume being depressed or volatile. We cannot predict the prices at which our common stock may trade. The market price of the common stock may fluctuate widely and decline, depending on many factors, some of which may be beyond our control.
The concentration of our capital voting stock ownership may limit our stockholders’ ability to influence corporate matters and may involve other risks. William H. Gray, our chief executive officer, is currently the beneficial owner of an aggregate (not subject to dilution) of approximately 51% of Wytec’s outstanding voting power. As a result of such stock ownership, Mr. Gray is able to exercise significant control over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of all of our shareholders.
Your percentage ownership in us may be diluted in the future. Our board of directors has the authority to cause us to issue additional securities and convertible securities at such prices and on such terms as it determines in its discretion without the consent of the stockholders, including without limitation common stock, preferred stock, warrants, stock options, and convertible notes. Consequently, our shareholders are subject to the risk that their ownership in us will be substantially diluted in the future.
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We may not pay dividends in the future. Any return on investment may be limited to the value of our common stock. We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition, and other business and economic factors affecting us at such time as our board of directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and marketing. Prospective investors seeking or needing dividend income should therefore not purchase our common stock. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if our stock price appreciates.
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline. If our stockholders sell substantial amounts of our common stock in the public market if one ever develops, or upon the expiration of any statutory holding period under Rule 144 or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang”, in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Our stock price may be volatile. The market price of our common stock may be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control. In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock in general.
Item 1B. Unresolved Staff Comments.
None.
We currently lease approximately 3,395 square feet of office space at 19206 Huebner Road, Suite 202, San Antonio, Texas 78258 and 2,210 square feet of office space at 19206 Huebner Road, Suite 201, San Antonio, Texas 78258 for approximately $6,100 per month.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
Market Information
Our common stock has not yet been approved for trading on FINRA’s Over-the-Counter QB Market (OTC:QX) or any other trading market or exchange.
The Company is authorized to issue 495,000,000 shares of common stock, par value $0.001 per share. The Company is also authorized to issue 20,000,000 shares of preferred stock, par value $0.001 per share, 4,100,000 of which have been designated as Series A Preferred Stock, 2,420,000 of which are issued and 2,320,000 of which are outstanding as of December 31,2020, 6,650,000 of which have been designated as Series B Preferred Stock, 3,412,885 of which are issued and 3,368,350 of which are outstanding as of December 31, 2020, and 1,000 of which have been designated as Series C Preferred Stock, 1,000 of which are issued and outstanding as of December 31, 2020. Each share of Series C Preferred Stock has a par value of $0.001 and the equivalent of 51% of the votes on any matter submitted to shareholders for a vote. The Series C Preferred Stock is not convertible into the Company’s common stock and has no rights to dividends and virtually no rights to liquidation preference. The liquidation preference of each share of the Series C Preferred Stock is its par value.
As of May 26, 2021, there were 833 record holders of our common stock, not including shares held in “street name” in brokerage accounts which is unknown. As of December 31, 2020, there were 6,090,205 shares of our common stock issued and outstanding.
We have never declared or paid dividends on our Common Stock and have no plan to do so in the immediate future.
Equity Compensation Plan and Information
We have not yet, but may in the future, establish a management equity incentive plan pursuant to which stock options and restricted stock awards may be authorized and granted to the executive officers, directors, employees and key consultants of Wytec.
Warrants
As of December 31, 2020, we have outstanding 2,000,000 warrants to purchase our common stock at an exercise price of $1.00 per share until December 31, 2022, and 388,675 warrants to purchase our common stock with expiration dates through December 31, 2022, 155,000 of which are exercisable at an exercise price of $5.00 per share and 233,675 of which are exercisable at an exercise price of the greater of (i) $5.00 per share or (ii) 85% of the average closing price of our common stock, as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately prior to the date of exercise.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statements
This Form 10-K contains financial projections and other “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others, statements concerning the potential for revenues and expenses and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statements by looking for 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 in this Form 10-K.
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These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. The most important facts that could prevent us from achieving our 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) | our failure to earn revenues or profits; |
| (e) | inadequate capital to continue 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 minimal 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; |
| (p) | inability to effectively develop or commercialize our technology; and |
| (q) | inability to obtain patent or other protection for our proprietary intellectual property. |
Because the statements are subject to 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-K. 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.
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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-K or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our audited 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 1,000 feet in circumference. The hardware consists of a chassis or framework approximately three (3) feet in height and 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 within densely populated areas as compared to a traditional macro site celluar towers covering a much larger area of approximately two (2) miles. The growth of small cells is a response to delivering substantially greater speeds to smartphones and other smart devices in preparation of 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”), all of which have expired, related to local multipoint distribution service (“LMDS”) originally designed for digital television transmission, and later discovered to be useful in wireless broadband technology Today Wytec utilizes Millimeter and Microwave spectrum as a wireless point to point backhaul for transmitting to its LPN-16 technology. This configuration is being tested in San Antonio, Texas and represents the center piece of Wytec’s 5G initiatives desired 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.
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.
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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.
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. Wytec International, Inc. follows the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.
Revenues from the sale and installation of Cel-fi systems, including fixed wireless, SmartDAS, and 4G LTE, totaled $482,273 in 2020 and $358,149 in 2019. Our contracts for the sale of Cel-Fi systems generally include three identified performance obligations: (i) sales of equipment, (ii) sales of installation services, and (iii) sales of testing, commissioning and integration services. The performance obligation for the sale of equipment is deemed to be satisfied on the date the customer takes physical possession of the equipment and has control of the equipment. For installation, testing, commissioning and integration services, the Company measures progress toward complete satisfaction of the performance obligations ratably as the services are performed.
Revenues from network and other services including fixed wireless services totaled $594,756 in 2020 and $47,319 in 2019. Network service revenues are recognized each month as services are rendered.
Revenue on sales of FCC registered links is recognized once the link has been registered on behalf of the customer and the necessary equipment has been installed and is ready for use. Revenue is not recognized on the link sales until the link construction is completed and the link has been placed in service. Amounts collected prior to completion of all obligations to the customer are recorded as deferred revenue. No revenues for the sale of FCC registered links were recorded in 2020 or 2019. This source of revenue no longer exists.
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Any deposits received from a customer prior to delivery of the purchased product or monies paid to us prior to the period for which a service is provided are accounted for as deferred revenue on the balance sheet.
Sales tax is recorded on a net basis and excluded from revenue.
The Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated, and will pass on the warranties from its vendors, if any, which generally covers this one year period. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated. At December 31, 2020, the Company has no product warranty accrual given the Company’s de minimis historical financial warranty experience.
Cash and Cash Equivalents: The Company considers all bank deposits and short-term securities with an original purchase maturity of three months or less to be cash equivalents.
Allowance for Doubtful Accounts: The allowance for doubtful accounts is evaluated on a regular basis through periodic reviews of the collectability of the receivables considering historical experience, adverse situations that may affect our customers' ability to repay, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accounts Receivable are determined to be past due based on how recently payments have been received and those considered uncollectible are charged against the allowance account in the period they are deemed uncollectible. No allowance for trade accounts receivable was determined to be necessary on December 31, 2020 and December 31, 2019.
Construction in Process: The cost of equipment and materials purchased, and contract labor incurred, for the construction of network, plant property and equipment, and the installation of registered links on behalf of customers are held in construction in process until construction is completed. No depreciation or amortization is applied to construction in process. Once construction is complete and network element is placed in service, the costs are either capitalized or expensed as cost of goods sold as appropriate.
Property and Equipment: Property and equipment are stated at cost. Depreciation is computed using the estimated useful lives of the related assets, generally ranging from five to ten years. Expenditures for repairs and maintenance are charged to costs and expensed as incurred, while expenditures for renewal and betterments are capitalized. Leasehold improvements are amortized over the remaining term of the lease. Upon retirement or replacement, the cost of capitalized assets and the related accumulated depreciation and amortization is eliminated with the resulting gain or loss recognized.
Operating Leases Right-of-use Assets and Operating Lease Obligations: In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)." This update requires that a lessee recognize in the statement of financial position a liability to make lease obligations and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease obligations. Similar to current guidance, the update continues to differentiate between finance leases and operating leases, however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. The guidance became effective for us on January 1, 2019. As a lessee, this standard primarily impacted our accounting for leased facilities and office equipment, for which we recognized right-of-use assets of $510,675 and a corresponding lease obligation of $510,675 on our consolidated balance sheet upon adoption of ASU No. 2016-02. At year end December 31, 2020 and 2019, the balance of the right of use asset was $117,169 and $386,742, respectively, and the corresponding lease liability was $98,530 and $387,951, respectively.
We adopted obligations on these provisions on January 1, 2019 using the optional transition method that permits us to apply the new disclosure requirements in 2019 and continue to present comparative period information as required under FASB ASC Topic 840, "Leases." We did not have a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to exclude leases with an initial term of 12 months or less from the right-of-use assets and obligations. Adoption of the standards had no impact on results of operations or liquidity.
| 17 |
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.
Impairment of Assets: The Company reviews the carrying value of construction in process and property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors. Useful lives are periodically evaluated to determine whether events or circumstances have occurred which indicate the need to revise the useful lives.
During the course of a strategic review of its assets, the Company assessed the recoverability of the carrying value of certain fixed assets and construction in process, this resulted in impairment losses of $0 and $144,994 as of December 31, 2020 and 2019, respectively. These losses reflect the amounts by which the carrying values of these assets exceed their estimated fair values determined by their estimated future discounted cash flows.
Deferred Revenue: Deferred revenue consists of amounts billed and collected before services have been completed. Such amounts are deferred until the revenue recognition requirements have been met. During 2019, $390,000 of deferred revenue obligations were relieved in exchange for the issuance of preferred stock and $35,000 was refunded to the customer. During 2019 deferred revenue was reclassified to other payables to the Company exiting the business of installing registered links. The Company intendeds to relieve the liability through a combination of common and preferred stock and cash.
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.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.
Fair Value of Financial Instruments: The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The recorded values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values based on their short-term nature.
Concentrations of Credit Risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company maintains cash deposits with financial institutions and limits the amount of credit exposure to any one financial institution. Deposits with financial institutions may on occasion exceed the federally insured limits. The Company periodically assesses the financial institutions and believes the risk of any loss is minimal.
| 18 |
Government Regulations: The Company is subject to federal, state and local provisions regulating the discharge of materials into the environment. Management believes that its current practices and procedures for the control and disposition of such wastes comply with applicable federal, state and local requirements.
Income (loss) per share: Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of shares of stock outstanding during the year, including shares issuable without additional consideration. Diluted – assuming dilution is calculated by dividing net income by the weighted average number of shares outstanding during the year adjusted for the effect of dilutive potential shares from options and warrants calculated using the treasury stock method and the if-converted method for preferred stock. Potentially dilutive shares of common stock will be excluded from diluted net loss per common share because the impact of such inclusion would be anti-dilutive.”
Subsequent Events: Subsequent events have been evaluated by management through the inclusion of this financial statement in the filing of Form 10-K with the Securities and Exchange Commission (“SEC”). Material subsequent events, if any, are disclosed in a separate footnote to these financial statements.
Use of Estimates: The preparation of the consolidated financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications may have been made to our prior year’s consolidated financial statements to conform to our current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.
Recent Accounting Pronouncements: Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.”
Results of Operations for the Years Ended December 31, 2020 and 2019
Revenues for the year ended December 31, 2020 were $1,077,030 compared to revenues of $405,468 for the year ended December 31, 2019, which resulted in an increase of $671,562, or 166%. Our revenues increased in 2020 compared to 2019 due to an increase in revenue from our Cel-Fi Services. Revenues from the sale and installation of Cel-fi systems, including fixed wireless, SmarrtDAS, and 4G LTE, totaled $482,273 in 2020 and $358,149 in 2019, which resulted in an increase of $124,124. Our revenues also increased from network and other services including fixed wireless services which totaled $594,756 in 2020 and $47,319 in 2019, representing an increase of $547,437. The revenue increase in network services was predominately due to our contracts with the Texas School Districts and Southwest Research Institute.
Cost of sales for the year ended December 31, 2020 was $791,845, an increase of $572,753 or 261%, from $219,092 for the year ended December 31, 2019. Our cost of sales increased primarily due to increased costs incurred related predominately to our contracts with the Texas School Districts and Southwest Research Institute.
Selling and general and administrative expenses were $2,299,895 for the year ended December 31, 2020 compared to $2,754,447 for the year ended December 31, 2019, which resulted in a decrease of $454,552 or 16.5%. The decrease in our selling and general and administrative expenses was largely a result of a decrease in our monthly link lease payments and rooftop rent expenses due to cancellations as well as a decrease in consulting and legal fees. Salaries and wages expense decreased by $274,664 or 19.5% from $1,408,698 for the year ended December 31, 2019 to $1,134,034 for the year ended December 31, 2020. The decrease in salaries and wages is due to a decrease in larger salaried employees.
| 19 |
Research and development costs were $21,161 for the year ended December 31, 2020 compared to $4,500 of research and development costs for the year ended December 31, 2019, which resulted in an increase of $16,661, or 370%. The increase in research and development costs is due to an increase in expenses incurred in the development of our LPN-16.
Depreciation expense was $70,440 for the year ended December 31, 2020 compared to $136,182 for the year ended December 31, 2019, resulting in a decrease of $65,742 or 48%. The decrease in depreciation expense is principally due to fewer asset additions in the last two to three years.
Liquidity and Capital Resources
While we have raised capital to meet our working capital and financing needs in the past, additional financing will be required in order to meet our current and projected cash requirements for operations. As of December 31, 2020, we had a working capital deficit of $1,184,431. As of December 31, 2019, $895,000 of our current liabilities is deferred revenue on Link sales that have been funded by the customers, for which obligations to the customers have not yet been completely performed, or the Link has not yet been repurchased by the Company. During 2019 deferred revenue was reclassified to other payable due to the Company exiting the business of installing registered links. The Company intends to relieve the liability through a combination of common and preferred stock and cash.
We estimate that we could approximately need $3,800,000 of capital or financing over the next twelve months to fund our planned operations, including completing the final San Antonio trials of the LPN-16, obtaining a “certification” from Southwest Research Institute for its commercial and military applications, and supporting a valuation of the LPN-16, which we plan to satisfy as described below under “Satisfaction of our Cash Obligations for the Next Twelve Months.” These needs include paying down existing $625,000 of debt that is expected to come due in the next twelve months as well as to pay out the $895,000 included in other payables for monies due back to the Registered Link holders. Until the $895,000 is converted to common stock, the amounts are due on demand and, therefore, while unlikely to be demanded, the monies are included as an outflow over the next twelve months. Additionally, Wytec will look to extend the long-term debt of $625,000 that comes due in August of 2021, however, until negotiated, it is included as a cash need for the next twelve months. Approximately $2,280,000 of the cash needs relate to operational needs that cannot be extended.
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 considering the risks, expenses, and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.
Cash Flow from Operating Activities
Cash flows used in operating activities during the year ended December 31, 2020 were $1,660,419 compared to $2,620,130 during the year ended December 31, 2019.
Cash Flow from Investing Activities
Our investing activities consist principally of equipment.
Cash flows used by investing activities during the year ended December 31, 2020 were $13,039 compared to the cash flows used by investing activities of $25,001 during the year ended December 31, 2019.
| 20 |
Cash Flow from Financing Activities
Cash flows provided from financing activities during the year ended December 31, 2020 were $1,650,086 compared to $1,543,100 during the year ended December 31, 2019. During the year ended December 31, 2020, we issued $839,375 in common stock and during December 31, 2019, we issued $1,543,100 in common stock. During the year ended December 31, 2020, we also obtained financing for $803,158 and received $121,055 for common stock issued in 2021.
Satisfaction of Our Cash Obligations for the Next Twelve Months
As of December 31, 2020, our cash balance was $595,732. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, including revenue from our installation contracts with the Texas school districts, private placements of our capital stock, exercise of warrants, third party financing, and/or traditional bank financing. We anticipate sales-generated income during that same period, 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
During 2019, $895,000 of deferred revenue, related to amounts billed and collected before services related to registered links previously sold by the Company (“Registered Links”) had been completed, was reclassified to other payable due to the Company’s exiting the business of installing registered links. The Company intends to relieve the liability through a combination of exchanges for common and preferred stock and cash.
Repurchase of Registered Links
During 2019, the Company refunded the purchase price of one Registered Link for a total cash payment of $35,000, respectively, for the return of the Registered Link and elimination of related obligations. Wytec, at its sole discretion, has at times refunded the purchase price of Registered Links before the Registered Links were installed and absent the acceptance of repurchase under a Registered Link buy-back offering of Series B Preferred Stock and warrants. This action resulted in a corresponding reduction of unearned revenue. During 2020, no Registered Link refunds were given.
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 $22,071,742 at December 31, 2020, and have reported negative cash flows from operations over the last six years. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months. The Company’s ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive nature in which we operate.
There is substantial doubt about 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.
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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 or operations, liquidity, capital expenditures or capital resources that is material to investors.
Recently Issued Accounting Standards
We have reviewed the standards issued by the Financial Accounting Standards Board (“FASB”) through December 31, 2020 and which are not yet effective. No new accounting standards will impact the Company.
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Item 8. Financial Statements and Supplementary Data
WYTEC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
CONTENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders’, Board of Directors and Management
Wytec International, Inc
Opinion on the financial statements
We audited the accompanying consolidated balance sheet of Wytec International, Inc (“the Company”) as of December 31, 2020 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for and the year ended December 31, 2020 and the related notes (collectively referred to as “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020, and the results of its operations and cash flows for and the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern. As discussed in Note B to the financial statements, as of December 31, 2020, the Company had recurring losses from operations and a stockholder’s deficit. These conditions, among others, raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis of Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
We have served as the Company’s auditor since 2020.
/s/ Prager Metis CPA’s LLP
El Segundo, California
June 25, 2021 (December 22, 2021, as to the effects of the errors discussed in Note O to the consolidated financial statements)
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Wytec International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Wytec International, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2019 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2019.
Houston, Texas
June 29, 2020
| F-2 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (As revised) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 595,732 | $ | 619,104 | ||||
| Accounts receivable | 59,352 | 93,800 | ||||||
| Inventory | 2,371 | – | ||||||
| Prepaid expenses and other current assets | 1,581 | 13,286 | ||||||
| Total current assets | 659,036 | 726,190 | ||||||
| Property and equipment, net | 174,964 | 80,273 | ||||||
| Operating lease, right-of-use assets | 117,169 | 386,742 | ||||||
| Total assets | $ | 951,169 | $ | 1,193,205 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 123,768 | $ | 68,614 | ||||
| Accounts payable, related party | 107,084 | 76,280 | ||||||
| Other payable | 895,000 | 895,000 | ||||||
| Operating lease, right-of-use obligation, current portion | 71,256 | 150,909 | ||||||
| Contract liability | 25,905 | – | ||||||
| Notes payable, current portion | 33,502 | – | ||||||
| Short-term debt, net of unamortized discount | 586,952 | – | ||||||
| Total current liabilities | 1,843,467 | 1,190,803 | ||||||
| Long-term liabilities: | ||||||||
| Operating lease, right-of-use obligation, long term portion | 27,274 | 237,042 | ||||||
| Notes payable, net of current portion | 82,383 | – | ||||||
| 109,657 | 237,042 | |||||||
| Total liabilities | 1,953,124 | 1,427,845 | ||||||
| Commitments and contingencies (See Note M) | ||||||||
| Preferred stock, $0.001 par value 20,000,000 shares authorized: | ||||||||
| Series A convertible preferred stock, par $.001, 4,100,000 shares designated, 2,420,000 and 2,560,000 shares issued and 2,320,000 shares and 2,460,000 shares outstanding | 2,420 | 2,560 | ||||||
| Series B convertible preferred stock, par $.001, 6,650,000 shares designated, 3,412,885 shares and 3,735,784 shares issued, 3,368,350 shares and 3,691,249 shares outstanding | 3,412 | 3,735 | ||||||
| Series C preferred stock, par $.001, 1,000 shares designated, 1,000 and 1,000 outstanding | 1 | 1 | ||||||
| Common stock, $0.001 par value, 495,000,000 shares authorized, 30,224,653 shares and 29,564,014 shares issued, 6,090,205 and 5,429,566 shares outstanding | 30,225 | 29,564 | ||||||
| Additional paid-in capital | 26,352,142 | 25,207,137 | ||||||
| Accumulated (deficit) | (22,071,742 | ) | (20,118,169 | ) | ||||
| Repurchased shares | (80,000 | ) | – | |||||
| Deposit for future common stock subscriptions | 121,055 | – | ||||||
| Treasury stock: | ||||||||
| Common stock, at cost, 24,134,448 shares and 24,134,448 shares | (5,100,218 | ) | (5,100,218 | ) | ||||
| Series A convertible preferred stock, at cost, 100,000 shares and 100,000 shares | (179,368 | ) | (179,368 | ) | ||||
| Series B convertible preferred stock, at cost, 44,535 shares and 44,535 shares | (79,882 | ) | (79,882 | ) | ||||
| Total stockholders' (deficit) | (1,001,955 | ) | (234,640 | ) | ||||
| Total liabilities and stockholders' (deficit) | $ | 951,169 | $ | 1,193,205 | ||||
See accompanying notes to financial statements.
| F-3 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| (As revised) | ||||||||
| Revenue | $ | 1,077,030 | $ | 405,468 | ||||
| Cost of sales | 791,854 | 219,092 | ||||||
| Gross profit | 285,176 | 186,376 | ||||||
| Expenses: | ||||||||
| Selling, general and administrative | 2,299,895 | 2,754,447 | ||||||
| Research and development | 21,161 | 4,500 | ||||||
| Depreciation and amortization | 70,440 | 136,182 | ||||||
| Operating expenses, net | 2,391,496 | 2,895,129 | ||||||
| Net operating loss | (2,106,320 | ) | (2,708,753 | ) | ||||
| Other income (expense): | ||||||||
| Interest income | 42 | 404 | ||||||
| Interest expense | (94,375 | ) | (38 | ) | ||||
| Other income | 178,158 | – | ||||||
| Impairment of assets | – | (144,994 | ) | |||||
| Total other income (expense) | 83,825 | (144,628 | ) | |||||
| Net loss | $ | (2,022,495 | ) | $ | (2,853,381 | ) | ||
| Weighted average number of common shares outstanding - basic and fully diluted | 5,649,517 | 5,129,767 | ||||||
| Net loss per share - basic and fully diluted | $ | (0.36 | ) | $ | (0.56 | ) | ||
See accompanying notes to financial statements.
| F-4 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) AS REVISED
| 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, 2018 | 2,560,000 | $ | 2,560 | 3,735,784 | $ | 3,735 | 1,000 | $ | 1 | 29,106,868 | $ | 29,107 | 24,134,448 | $ | (5,100,218 | ) | ||||||||||||||||||||||||
| Stock based payments for services | – | – | – | – | – | – | 28,526 | 29 | – | – | ||||||||||||||||||||||||||||||
| Issuance of common stock | – | – | – | – | – | – | 193,800 | 194 | – | – | ||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for deferred revenue obligations | – | – | – | – | – | – | 120,000 | 120 | – | – | ||||||||||||||||||||||||||||||
| Conversion of warrants to common stock | – | – | – | – | – | – | 114,820 | 114 | – | – | ||||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2019 | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 2,560,000 | $ | 2,560 | 3,735,784 | $ | 3,735 | 1,000 | $ | 1 | 29,564,014 | $ | 29,564 | 24,134,448 | $ | (5,100,218 | ) | ||||||||||||||||||||||||
| Revision of beginning accumulated deficit due to prior period misstatements (See Note O) | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | – | – | – | 27,324 | 27 | – | – | ||||||||||||||||||||||||||||||
| Issuance of common stock for cash | – | – | – | – | – | – | 104,916 | 105 | – | – | ||||||||||||||||||||||||||||||
| Conversion of Series A preferred stock to common stock | (140,000 | ) | (140 | ) | – | – | – | – | 140,000 | 140 | – | – | ||||||||||||||||||||||||||||
| Conversion of Series B preferred stock to common stock | – | – | (322,899 | ) | (323 | ) | – | – | 322,899 | 323 | – | – | ||||||||||||||||||||||||||||
| Repurchase Agreement | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Issuance of warrants for services | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Issuance of detachable warrants with Debt | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Conversion of warrants to common stock | – | – | – | – | – | – | 65,500 | 66 | – | – | ||||||||||||||||||||||||||||||
| Deposit received for future common stock subscriptions | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2020 | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 2,420,000 | $ | 2,420 | 3,412,885 | $ | 3,412 | 1,000 | $ | 1 | 30,224,653 | $ | 30,225 | 24,134,448 | $ | (5,100,218 | ) | ||||||||||||||||||||||||
| F-5 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) AS REVISED (CONTINUED)
| Class A Preferred Treasury Stock | Class B Preferred Treasury Stock | Additional Paid-in | Repurchased | Deposit for Future Stock | Accumulated | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Subscription | (Deficit) | (Deficit) | ||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 100,000 | $ | (179,368 | ) | 44,535 | $ | (79,882 | ) | $ | 23,131,864 | $ | – | – | $ | (17,264,788 | ) | $ | 543,011 | ||||||||||||||||||
| Stock based payments for services | – | – | – | – | 142,601 | – | – | – | 142,630 | |||||||||||||||||||||||||||
| Issuance of common stock | – | – | – | – | 968,806 | – | – | – | 969,000 | |||||||||||||||||||||||||||
| Issuance of common stock in exchange for deferred revenue obligations | – | – | – | – | 389,880 | – | – | – | 390,000 | |||||||||||||||||||||||||||
| Conversion of warrants to common stock | – | – | – | – | 573,986 | – | – | – | 574,100 | |||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2019 | – | – | – | – | – | – | – | (2,853,381 | ) | (2,853,381 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2019 | 100,000 | $ | (179,368 | ) | 44,535 | $ | (79,882 | ) | $ | 25,207,137 | – | – | $ | (20,118,169 | ) | $ | (234,640 | ) | ||||||||||||||||||
| Revision of beginning accumulated deficit due to prior period misstatements (See Note O) | – | – | – | – | – | – | – | 68,922 | 68,922 | |||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | – | 136,593 | – | – | – | 136,620 | |||||||||||||||||||||||||||
| Issuance of common stock for cash | – | – | – | – | 511,770 | – | – | – | 511,875 | |||||||||||||||||||||||||||
| Conversion of Series A preferred stock to common stock | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
| Conversion of Series B preferred stock to common stock | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
| Repurchase agreement | – | – | – | – | – | (80,000 | ) | – | – | (80,000 | ) | |||||||||||||||||||||||||
| Issuance of warrants for services | – | – | – | – | 89,155 | – | – | – | 89,155 | |||||||||||||||||||||||||||
| Issuance of detachable warrants with Debt | – | – | – | – | 80,053 | – | – | – | 80,053 | |||||||||||||||||||||||||||
| Conversion of warrants to common stock | – | – | – | – | 327,434 | – | – | – | 327,500 | |||||||||||||||||||||||||||
| Deposit received for future common stock subscriptions | – | – | – | – | – | – | 121,055 | – | 121,055 | |||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2020 | – | – | – | – | – | – | – | (2,022,495 | ) | (2,022,495 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2020 | 100,000 | $ | (179,368 | ) | 44,535 | $ | (79,882 | ) | $ | 26,352,142 | $ | (80,000 | ) | $ | 121,055 | $ | (22,071,742 | ) | $ | (1,001,955 | ) | |||||||||||||||
See accompanying notes to financial statements.
| F-6 |
WYTEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| (As revised) | ||||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (2,022,495 | ) | $ | (2,853,381 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Revision adjustments (see Note O) | 66,217 | – | ||||||
| Depreciation | 70,440 | 136,182 | ||||||
| Amortization of debt discount | 42,005 | – | ||||||
| Impairment of assets | – | 144,994 | ||||||
| Stock based compensation | 225,775 | 142,630 | ||||||
| Non-cash lease expense | 123,111 | 142,256 | ||||||
| Debt forgiveness | (178,158 | ) | – | |||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | 34,448 | (70,339 | ) | |||||
| Inventory | (2,371 | ) | – | |||||
| Prepaid expenses and other assets | 338 | (2,861 | ) | |||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable and accrued expenses | 55,154 | (159,844 | ) | |||||
| Accounts payable, related party | 30,804 | 76,280 | ||||||
| Other payable | – | (35,000 | ) | |||||
| Operating lease liability | (131,592 | ) | (141,047 | ) | ||||
| Contract liability | 25,905 | – | ||||||
| Net cash used in operating activities | (1,660,419 | ) | (2,620,130 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | (13,039 | ) | (25,001 | ) | ||||
| Net cash used in investing activities | (13,039 | ) | (25,001 | ) | ||||
| Cash flows from financing activities | ||||||||
| Repurchase agreement | (80,000 | ) | – | |||||
| Payments on notes payable | (33,502 | ) | – | |||||
| Deposit received for future common stock subscriptions | 121,055 | – | ||||||
| Proceeds from issuance of debt | 803,158 | – | ||||||
| Proceeds from exercise of warrants | 327,500 | 574,100 | ||||||
| Proceeds from issuance of common stock | 511,875 | 969,000 | ||||||
| Net cash provided by financing activities | 1,650,086 | 1,543,100 | ||||||
| Net decrease in cash | (23,372 | ) | (1,102,031 | ) | ||||
| Cash - beginning | 619,104 | 1,721,135 | ||||||
| Cash - ending | $ | 595,732 | $ | 619,104 | ||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | 29,411 | $ | 38 | ||||
| Income taxes paid | $ | – | $ | – | ||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of series A preferred stock to common stock | $ | 140 | $ | – | ||||
| Conversion of series B preferred stock to common stock | $ | 323 | $ | – | ||||
| Cancellation and renegotiation of leases | $ | 157,829 | $ | – | ||||
| Issuance of detachable warrants with Debt | $ | 80,053 | $ | – | ||||
| Issuance of Stock Repurchase Note Payable | $ | 200,000 | $ | – | ||||
| Issuance of common stock in exchange for deferred revenue obligations | $ | – | $ | 390,000 | ||||
| Recognition of right-of use asset and lease liability upon adoption of ASU 2016-02 | $ | – | $ | 510,675 | ||||
| Recognition of right-of use asset and lease liability during the period | $ | – | $ | 18,323 | ||||
See accompanying notes to financial statements.
| F-7 |
WYTEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Principles of Consolidation: Wytec International, Inc., a Nevada corporation incorporated on November 7, 2011 (“Wytec”), designs, manufactures, and installs carrier-class Wi-Fi Solutions in the 70 and 80 gigahertz licensed frequency program to local government, Mobile Service Operations, National Telecommunications Operators, and corporate enterprises. The accompanying Consolidated Financial Statements include the accounts of Wytec and its subsidiaries, Wylink, Inc., Wytec, LLC, and Capaciti Networks, Inc. All significant intercompany transactions have been eliminated in consolidation.
Wylink Inc., a Texas corporation and wholly owned subsidiary, was until January 2016 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. Wylink Inc. has assigned all of its link related contract to Wytec and Wytec plans to wind up and dissolve Wylink Inc. in the near future. Wylink, Inc. was wound up and dissolved on or about September 22, 2020 and its assets and liabilities were assumed by Wytec.
Wytec, LLC, a Delaware limited liability company, formed September 7, 2012 and previously managed by General Patent Corporation (“GPC”), owns five expired patents focused on high-capacity millimeter wave technology. On September 20, 2016, General Patent Corporation, the then Managing Partner of Wytec, LLC, assigned its partial ownership in the patents to Wytec, thereby terminating its role as Managing Partner. Wytec, LLC was wound up and dissolved in April 2020 and its assets and liabilities were assumed by Wytec.
Capaciti Networks, Inc. (“Capaciti”), a Texas corporation, was engaged 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. Capaciti is in the process of winding up and dissolving. Its assets and liabilities will be assumed by Wytec. Capaciti was wound up and dissolved on or about August 20, 2020 and its assets and liabilities were assumed by Wytec.
Collectively, Wytec and its subsidiaries, are referred to as “we,” “our,” “us,” or 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.
| F-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.
Cash and Cash Equivalents: The Company considers all bank deposits and short-term securities with an original purchase maturity of three months or less to be cash equivalents.
Allowance for Doubtful Accounts: The allowance for doubtful accounts is evaluated on a regular basis through periodic reviews of the collectability of the receivables in light of historical experience, adverse situations that may affect our customers' ability to repay, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accounts receivable are determined to be past due based on how recently payments have been received and those considered uncollectible are charged against the allowance account in the period they are deemed uncollectible. No allowance for trade accounts receivable was determined to be necessary at December 31, 2020 and December 31, 2019.
Construction in Process: The cost of equipment and materials purchased, and contract labor incurred, for the construction of network, plant property and equipment, and the installation of registered links on behalf of customers are held in construction in process until construction is completed. No depreciation or amortization is applied to construction in process. Once construction is complete and network element is placed in service, the costs are either capitalized or expensed as cost of goods sold as appropriate.
Property and Equipment: Property and equipment are stated at cost. Depreciation is computed using the estimated useful lives of the related assets, generally ranging from five to ten years. Expenditures for repairs and maintenance are charged to costs and expensed as incurred, while expenditures for renewal and betterments are capitalized. Leasehold improvements are amortized over the remaining term of the lease. Upon retirement or replacement, the cost of capitalized assets and the related accumulated depreciation and amortization is eliminated with the resulting gain or loss recognized.
Operating Leases Right-of-use Assets and Operating Lease Obligations: In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)." This update requires that a lessee recognize in the statement of financial position a liability to make lease obligations and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease obligations. Similar to current guidance, the update continues to differentiate between finance leases and operating leases, however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. The guidance became effective for us on January 1, 2019.
We adopted obligations on these provisions on January 1, 2019 using the optional transition method that permits us to apply the new disclosure requirements in 2019 and continue to present comparative period information as required under FASB ASC Topic 840, "Leases." We did not have a cumulative-effect adjustment to the opening balance of accumulated deficit at the date of adoption. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to exclude leases with an initial term of 12 months or less from the right-of-use assets and obligations. Adoption of the standards had no impact on results of operations or liquidity.
If we determine that an arrangement is or contains a lease, we recognize a right-of-use (ROU) asset and lease obligation at the commencement date of the lease. ROU assets represent our right to use an underlying asset for the lease term and lease obligations represent our lease payments arising from the lease. Operating lease ROU assets and obligations are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
| F-9 |
Impairment of Assets: The Company reviews the carrying value of construction in process and property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors. Useful lives are periodically evaluated to determine whether events or circumstances have occurred which indicate the need to revise the useful lives.
During the course of a strategic review of its assets, the Company assessed the recoverability of the carrying value of certain fixed assets and construction in process, this resulted in impairment losses of $0 and $144,994 as of December 31, 2020 and 2019, respectively. These losses reflect the amounts by which the carrying values of these assets exceed their estimated fair values determined by their estimated future discounted cash flows.
Deferred Revenue: Deferred revenue consists of amounts billed and collected before services have been completed. Such amounts are deferred until the revenue recognition requirements have been met. During 2019, $390,000 of deferred revenue obligations were relieved in exchange for the issuance of common stock and $35,000 refunded to one link holder. During 2018, $400,000 of deferred revenue obligations were relieved in exchange for the issuance of common stock and $35,000 was refunded to the customer. During 2019 deferred revenue was reclassified to other payable due to the Company exiting the business of installing registered links. The Company intends to relieve the liability through a combination of exchanges for common and preferred stock and cash.
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.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.
Fair Value of Financial Instruments: The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The recorded values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values based on their short-term nature.
The Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 820, “Fair Value Measurements and Disclosures”. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a three-level valuation hierarchy for disclosures of fair value measurements, defined as follows:
Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3: inputs to the valuation methodology are unobservable and significant to the fair value
Concentrations of Credit Risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company maintains cash deposits with financial institutions and limits the amount of credit exposure to any one financial institution. Deposits with financial institutions may on occasion exceed the federally insured limits. The Company periodically assesses the financial institutions and believes the risk of any loss is minimal.
| F-10 |
Government Regulations: The Company is subject to federal, state and local provisions regulating the discharge of materials into the environment. Management believes that its current practices and procedures for the control and disposition of such wastes comply with applicable federal, state and local requirements.
Income (loss) per share: basic is calculated by dividing net income (loss) by the weighted average number of shares of stock outstanding during the year, including shares issuable without additional consideration. Diluted – assuming dilution is calculated by dividing net income by the weighted average number of shares outstanding during the year adjusted for the effect of dilutive potential shares from options and warrants calculated using the treasury stock method and the if-converted method for preferred stock. Potentially dilutive shares of common stock will be excluded from diluted net loss per common share because the impact of such inclusion would be anti-dilutive.
Subsequent Events: Subsequent events have been evaluated by management through the inclusion of this financial statement in the filing of Form 10-K with the Securities and Exchange Commission (“SEC”). Material subsequent events, if any, are disclosed in a separate footnote to these financial statements.
Use of Estimates: The preparation of the consolidated financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include depreciation. Actual results could differ from those estimates.
Recent Accounting Pronouncements: Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements.
NOTE B – GOING CONCERN
The consolidated financial statements are prepared using U.S. generally accepted accounting principles applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred continuous losses from operations, has an accumulated deficit of $22,071,742 at December 31, 2020, and reported cash used by operations of $1,660,419 for the year ended December 31, 2020, all of which raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company expects to have ongoing requirements for capital investment to implement its business plan. Finally, 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 environment in which it operates.
Since inception, operations have primarily been funded through private equity financing. Management expects to continue to seek additional funding through private or public equity sources and will seek debt financing. The Company’s ability to continue as a going concern is ultimately dependent on its ability to generate sufficient cash from operations to meet cash needs and/or to raise funds to finance ongoing operations and repay debt. There can be no assurance that the Company will be successful in these efforts. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary should it be unable to continue as a going concern.
NOTE C – REVENUE AND ACCOUNTS RECEIVABLE
The Company recognizes revenue in accordance with its accounting policy. The Company invoices customers and recognizes accounts receivable in an amount equivalent to which it has an unconditional right and expects to receive aligned with the agreement with the customer. The Company has contracted payment terms with its customer of net 15 days. The Company recognized revenue from performance obligations satisfied as of a point in time and over time as disaggregated in the table below.
| F-11 |
Timing of Revenue Recognition
| For the Year Ended | ||||||||
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Point in Time | $ | 1, 044,730 | $ | 405,468 | ||||
| Over Time | 32,300 | – | ||||||
| $ | 1,077,030 | $ | 405,468 | |||||
The Company earns revenues from Cel-fi systems and network services. Revenues from the sale and installation of Cel-fi systems, including fixed wireless, SmartDAS, and 4G LTE, totaled $482,273 in 2020 and $358,149 in 2019. The contracts for the sale of Cel-Fi systems generally include three identified performance obligations: (i) sales of equipment, (ii) sales of installation services, and (iii) sales of testing, commissioning and integration services. The performance obligation for the sale of equipment is deemed to be satisfied on the date the customer takes physical possession of the equipment and has control of the equipment. For installation, testing, commissioning and integration services, the Company measures progress toward complete satisfaction of the performance obligations ratably as the services are performed.
Revenues from network and other services totaled $594,756 in 2020 and $47,319 in 2019. Network service revenues are recognized each month as services are rendered.
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
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Contract Liability | $ | (25,905 | ) | $ | 0 | |||
| $ | (25,905 | ) | $ | 0 | ||||
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 December 31, 2020 and December 31, 2019 that the Company expects to recognize over the next year is $25,905 and $0, respectively.
The Company is under no obligation and is not in the practice of providing customers with returns, rebates, discounts, or refunds and has not in an amount material to the financial statements. The Company, accordingly, does not recognize these obligations at the time of revenue recognition. The Company may receive consideration from customers who enter into support agreements in the future for incremental services provided to such customers. Those services are delivered as of a point in time when the customer requests the service. Future consideration as described is excluded from the transaction price calculated for support agreement performance obligations.
The Company has applied the practical expedient that permits the Company to recognize revenue without regard to significant financing components based on the Company’s expectations about the transfer of services and the receipt of payment from customers. The effect of this practical expedient is not material to the Company’s financial statements.
NOTE D – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Telecommunication equipment and computers | $ | 1,267,497 | $ | 1,092,901 | ||||
| Less: accumulated depreciation | (1,092,533 | ) | (1,012,628 | ) | ||||
| $ | 174,964 | $ | 80,273 | |||||
Depreciation expense for the year ended December 31, 2020 and 2019 was $70,440 and $136,182, respectively.
| F-12 |
NOTE E – DEBT
| 2020 | 2019 | |||||||
| 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 | $ | 115,885 | $ | – | ||||
| $625,000 of 7% unsecured notes payable due August 2021, net of unamortized discount of $38,048 | 586,952 | – | ||||||
| $ | 702,837 | $ | – | |||||
In February 2020, we issued a note in the amount of $625,000 bearing simple interest at a rate of 7% per annum to one investor due August 2021. The note contains a feature that allows the Company to extend the maturity date up to six months, twice, in the Company’s sole discretion. This note was issued along with 62,500 common stock purchase warrants that were determined to have a fair market value of $80,053 on the issuance date, which was recorded as a debt discount and amortized over the term of the notes, with $38,048 amortized in the year ended December 31, 2020 and reported in the statement of operations as interest expense.
In April 2020, we received a loan pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the amount of $178,158. The loan bears interest at a fixed rate of 1% per annum after a six-month deferral period. The loan contains a feature pursuant to which the Small Business Administration (“SBA”) will forgive the balance of the loan under statutory authority and conditions set forth in the CARES Act. This loan was forgiven in its entirety on December 18, 2020 by the Small Business Administration which has been recorded as other income in the consolidated statement of operations.
Future minimum payments consist of the following:
| 2021 | $ | 658,502 | ||
| 2022 | 33,502 | |||
| 2023 | 29,534 | |||
| 2024 | 19,347 | |||
| 740,885 | ||||
| Less discount on debt | (38,048 | ) | ||
| $ | 702,837 |
NOTE F – REPURCHASE AGREEMENT
In April 2020, we entered into a Repurchase and General Release Agreement with one shareholder pursuant to which we promised to pay the amount of $200,000 due on December 31, 2020. 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. During the quarter, the Company extended the maturity date under the terms of the agreement to March 2021. The Company made payments in the amount of $80,000 during the period, however, the shareholder has not returned the shares so they may be canceled. As the shares had not been returned, the Company is not obligated per the agreement to pay any monies and the $80,000 was paid in good faith that the shares would be returned. The Company is pursuing action against the shareholder to get the shares returned or get the monies paid returned. Until such time, the $80,000 payments have been recorded as a reduction of additional paid in capital.
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 year ended December 31, 2020 and 2019, operating lease expense totaled $85,025 and $191,472, respectively.
The weighted average remaining lease term is 1.66 years and weighted average discount rate is 5.5% as of December 31, 2020.
| F-13 |
Future minimum lease payments as of December 31, 2020 are as follows:
| 2021 | $ | 103,314 | ||
| Total minimum lease payments | 103,314 | |||
| Less: imputed interest | (4,784 | ) | ||
| Present value of minimum lease payments | $ | 98,530 | ||
| Less: current portion of lease obligation | 71,256 | |||
| Long-term lease obligation | $ | 27,274 |
NOTE H – WARRANTS
The Company has common stock purchase warrants outstanding at December 31, 2020 to purchase 2,388,675 shares of common stock exercisable until various dates through December 31, 2022. The warrants are exercisable at the following amounts and rates: 2,000,000 of which are exercisable at an exercise price of $1.00 per share and 155,000 of which are exercisable at an exercise price of $5.00 per share, and 233,675 of which are exercisable at an exercise price of the greater of $5.00 per share or (ii) 85% of the average closing price of our common stock, as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately prior to the date of exercise.
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 44% and risk-free rates 0.38% to 1.44% in the period.
On February 25, 2020, we issued a note in the amount of $625,000 bearing simple interest at a rate of 7% per annum to one shareholder. This note was issued along with 62,500 common stock purchase warrants that were determined to have a fair market value of $80,053 on the issuance date, which was recorded as a debt discount and amortized over the term of the notes, with $13,217 amortized in the current quarter ended December 31, 2020, and $42,005 in the year ended December 31, 2020.
On March 3, 2020, we issued 92,500 warrants for services rendered with a fair market value on the issuance date of $89,155 recorded as an expense in the period.
During the first quarter, we issued a total of 20,000 common stock purchase warrants to two investors as part of our offering of units, each unit consisting of one share of our common stock and one common stock purchase warrant. Fair market value based on the Black-Scholes Model on the date of issuance was $21,098 and was recorded in additional-paid-in-capital along with the common stock issued.
During the first quarter, we issued a total of 10,000 common stock purchase warrants to one investor who purchased units at the end of 2019, but did not receive the common stock purchase warrants until February 2020. Fair market value based on the Black-Scholes Model on the date of issuance was $10,116 and was recorded in additional-paid-in-capital along with the common stock issued.
There were no warrants issued in the second quarter of 2020.
During the third quarter, we issued a total of 41,375 common stock purchase warrants to six investors as part of our offering of units, each unit consisting of one share of our common stock and one common stock purchase warrant. Fair market value based on the Black-Scholes Model $38,630 on the date of issuance and was recorded in additional-paid-in-capital along with the common stock issued. A total of 500 of these common stock purchase warrants were exercised during the third quarter.
| F-14 |
During the fourth quarter, we issued a total of 47,000 common stock purchase warrants to seven investors as part of our offering of units, each unit consisting of one share of our common stock and one common stock purchase warrant. Fair market value based on the Black-Scholes Model on the date of issuance was $39,055 and was recorded in additional-paid-in-capital along with the common stock issued.
During 2019, 193,800 warrants were issued in connection with the issuance of common stock for cash with an exercise price of $5 and expiration date of December 31, 2020 and 140,000 warrants were issued in connection with link exchanges, with an exercise price of $5, 40,000 of which expired on June 30, 2019 and the remaining 100,000 warrants expired on December 31, 2019. During 2019, 114,820 warrants were exercised for cash proceeds of $574,100.
The following is a summary of activity and outstanding common stock warrants:
| # of Warrants | ||||
| Balance, December 31, 2018 | 5,219,103 | |||
| Warrants granted | 333,800 | |||
| Warrants exercised | (114,820 | ) | ||
| Warrants expired | (3,054,827 | ) | ||
| Balance, December 31, 2019 | 2,383,256 | |||
| Warrants granted | 273,375 | |||
| Warrants exercised | (65,500 | ) | ||
| Warrants expired | (202,456 | ) | ||
| Balance, December 31, 2020 | 2,388,675 | |||
| Exercisable, December 31, 2020 | 2,388,675 | |||
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.
| F-15 |
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.
| F-16 |
The holders of the series C preferred stock are not entitled to any dividends. Holders of the series C preferred stock have no conversion rights. The shares of the series C preferred stock shall be automatically redeemed by us at their par value on the first to occur of the following: (i) on the date that Mr. Gray ceases, for any reason, to serve as officer, director or consultant of Wytec, or (ii) on the date that our shares of common stock first trade on any national securities exchange provided that the listing rules of any such exchange prohibit preferential voting rights of a class of securities of Wytec, or listing on any such national securities exchange is conditioned upon the elimination of the preferential voting rights of the series C preferred stock set forth in the certificate of designation. A holder of the series C preferred stock has no preemptive rights to subscribe for any additional shares of any class of stock of Wytec or for any issue of bonds, notes or other securities convertible into any class of stock of Wytec. The holders of the Series C Preferred Stock are not entitled to any liquidation preference.
In January 2020, the Company issued 554 shares of common stock to one vendor for services rendered at fair value of $2,770.
In March 2020, the Company issued a total of 20,000 shares of common stock to two investors for cash at $5.00 per share as part of the Company’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.
In February 2020, the Company issued 10,000 shares of common stock at fair value of $50,000 to one employee pursuant to a severance agreement.
In April 2020, the Company entered into a Repurchase and General Release Agreement with one investor to repurchase 40,000 shares of common stock and 40,000 shares of series B preferred stock at $2.50 per share in exchange for a note payable in the amount of $200,000 bearing no interest and due on March 31, 2021 as extended under the terms of the note. No portion of the agreement with the investor was treated as an expense. This agreement has been cancelled. See “NOTE M – SUBSEQUENT EVENTS.”
In May 2020, the Company issued 40,000 shares of common stock in consideration for the conversion of 40,000 shares of Series A Preferred Stock by one shareholder.
In July 2020, the Company issued a total of 12,000 shares of common stock to two investors for cash at $5.00 per share as part of the Company’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.
In August 2020, the Company issued a total of 25,000 shares of common stock to four 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 September 2020, the Company issued 4,375 shares of common stock to one investor in lieu of making an accrued interest payment in 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 September 2020, one investor exercised 500 common stock purchase warrants for which the Company issued 500 shares of common stock for cash at $5.00 per share.
In September 2020, the Company issued 83,333 shares of common stock in consideration for the conversion of 83,333 shares of Series B Preferred shares by one shareholder.
In October 2020, the Company issued 20,000 shares of common stock in consideration for the conversion of 20,000 shares of Series A Preferred shares by one shareholder.
In October 2020, the Company issued 172,964 shares of common stock in consideration for the conversion of 172,964 shares of Series B Preferred shares by three shareholders.
In October 2020, the Company issued a total of 21,000 shares of common stock to three 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.
| F-17 |
In October 2020, one investor exercised 5,000 common stock purchase warrants for which the Company issued 5,000 shares of common stock for cash at $5.00 per share.
In November 2020, the Company issued a total of 60,000 shares of common stock in consideration for the conversion of 60,000 shares of Series A Preferred Stock by two shareholders.
In November 2020, the Company issued a total of 55,000 shares of common stock in consideration for the conversion of 55,000 shares of Series B Preferred Stock by six shareholders.
In November 2020, one investor exercised 20,000 common stock purchase warrants for which the Company issued 20,000 shares of common stock for cash at $5.00 per share.
In December 2020, the Company issued a total of 20,000 shares of common stock to two investors for cash at $5.00 per share as part of the Company’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.
In December 2020, the Company issued a total of 20,000 shares of common stock in consideration for the conversion of 20,000 shares of Series A Preferred Stock by one shareholder.
In December 2020, the Company issued a total of 11,602 shares of common stock in consideration for the conversion of 11,602 shares of Series B Preferred Stock by two shareholders.
In December 2020, three investors exercised a total of 40,000 common stock purchase warrants for which the Company issued 40,000 shares of common stock for cash at $5.00 per share.
During the year, the Company issued 14,474 shares of common stock to nine employees as compensation.
During the year, the Company issued 2,296 shares of common stock to one vendor for services rendered at fair value of $11,484.
During the year ended December 31, 2019, there were 193,800 shares of common stock issued for cash proceeds of $969,000 at the price of $5.00 per share; 120,000 shares of common stock issued in exchange for deferred revenue of $390,000; 114,820 shares of common stock issued from exercise of warrants; and 28,526 shares of common stock issued for stock based compensation of $142,630.
NOTE J – INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at:
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards | $ | 4,305,806 | $ | 3,835,214 | ||||
| Less: Valuation allowance | (4,305,806 | ) | (3,835,214 | ) | ||||
| Net deferred tax assets | $ | – | $ | – | ||||
The Company has net operating loss carryforwards for tax purposes of approximately $20.5 million for the year 2020 that begin to expire in the year 2032. Management has reviewed its net deferred asset position, and due to the history of operating losses has determined that the application of a full valuation allowance against its net deferred tax asset at December 31, 2020 and December 31, 2019 is warranted. As of December 31, 2020, the Company had not accrued any interest or penalties related to uncertain tax positions. Tax returns filed for the years 2017 through 2020 are open for examination by taxing authorities.
| F-18 |
The Company does not have a liability for state taxes at either December 31, 2020 or December 31, 2019.
The federal income tax benefit expected by the application of the corporate income tax rates to pre-tax net loss differs from the actual benefit recognized due to the valuation allowance recorded for 2020 and 2019.
The U.S. Statutory Tax Rate is 21%. See below table for the effective tax rate reconciliation:
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Pre-tax GAAP loss at U.S. statutory rate | $ | (414,647 | ) | $ | (496,900 | ) | ||
| Change in valuation allowance | 414,647 | 496,900 | ||||||
| Income tax expense | $ | – | $ | – | ||||
NOTE K – RELATED PARTY TRANSACTIONS
The Company has an accounts payable balance owed to Richardson & Associates in the amount of $107,084 as of December 31, 2020, and $76,280 as of December 31, 2019. The Company incurred expense of $128,340 and $86,033 with Richardson & Associates as of the year ended December 31, 2020 and 2019, respectively. Mark Richardson is the owner of Richardson & Associates and he was appointed as a director of Wytec International, Inc. in September 2019.
NOTE L – CONCENTRATIONS
The Company derived $995,894, 92%, and $0, 0%, of revenue in the years ended December 31, 2020 and 2019, respectively, from two customers. The Company derived $0, 0%, and $358,997, 89%, for the year ended December 31, 2020 and 2019, respectively, from four additional customers. We continue to endeavor to diversify our customer base and make efforts to mitigate the risk associated with excess concentration of sales from a limited number of customers.
NOTE M – COMMITMENTS AND CONTINGENCIES
We are party to various legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceedings that management believes could have a material adverse effect on our consolidated financial statements.
See Note C in regards to commitments related to contracts with customers.
NOTE N – SUBSEQUENT EVENTS
During the first quarter of 2021, Wytec issued a total of 33,586 shares of common stock and a total of 33,586 common stock purchase warrants to four investors pursuant to Wytec’s offering of units under Rule 506(c) of Regulation D of the Securities Act, each unit consisting of one share of common stock and one common stock purchase warrant at a purchase price of $5.00 per unit, 4,375 units of which were issued in lieu of making an accrued interest payment in cash at $5.00 per share. These warrants are exercisable for cash until December 31, 2021 at an exercise price equal to the greater of (i) $5.00 or (ii) 85% of the average closing price of our common stock as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately prior to the date of exercise.
During the first quarter of 2021, Wytec issued a total of 56,592 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.
During the first quarter of 2021, the Company issued a total of 461,270 shares of common stock in consideration for the conversion of 461,270 shares of Series B Preferred Stock by eight shareholders.
In February 2021, a total of 15,000 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 $75,000.
| F-19 |
In February 2021, the Company filed a Regulation A Offering Statement on Form 1-A under the Securities Act of 1933, as amended, pursuant to which the Company plans to offer 4,000,000 shares of its common stock at a purchase price of $5.00 per share. The Regulation A Registration Statement on Form 1-A is not yet effective.
On March 18, 2021, Wytec received its second PPP loan in the amount of $160,073 Wytec fully expects to have the loan forgiven and no due date or payment schedule has been set by the financial institution providing the loan until forgiveness is determined. If the loan is not forgiven, the loan will carry interest at 1% per annum.
In March 2021, a total of 200 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 $1,000.
In April 2021, a total of 9,006 common stock purchase warrants were exercised for a total of 9,006 shares of Wytec’s common stock at an exercise price of $5.00 per shares or a total of $45,030.
In April 2021, the Company issued a total of 25,280 shares of common stock in consideration for the conversion of 25,280 shares of Series B Preferred Stock by two shareholders.
On May 5, 2021, Ms. Donna Ward submitted her written resignation as a director of Wytec and verbally resigned as the chief financial officer, secretary, and employee of Wytec.
In April 2021, the Company terminated a Repurchase and General Release Agreement with one investor to repurchase 40,000 shares of common stock and 40,000 shares of series B preferred stock at $2.50 per share in exchange for a note payable in the amount of $200,000 bearing no interest and due on March 31, 2021 as extended under the terms of the note. The Company paid $80,000 toward the repurchase, but did not receive shares from the investor.
In May 2021, a total of 20,000 common stock purchase warrants were exercised 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 $100,000.
In May 2021, the Company issued a total of 30,000 shares of common stock in consideration for the conversion of 30,000 shares of Series B Preferred Stock by two shareholders.
On June 14, 2021, the Company cancelled 24,134,448 shares of the Company’s common stock which were held in treasury.
In June 2021, the Company issued a total of 40,000 shares of common stock in consideration for the conversion of 40,000 shares of Series A Preferred Stock by one shareholder.
NOTE O - Correction of Previously Issued Financial Statements
As part of its internal review, after the financial statements were issued, certain items were discovered, which pursuant to GAAP standards, required adjusting entries for proper financial presentation. The identified items related to 2020 and other items dating back to 2019. These items included: 1) Understatement of 2020 expenses, that were recorded in 2019, in the amount of $49,176; 2) Understatement of 2019 accounts receivable and revenue by $17,041 due to billing not timely identified; and 3) Unrecorded gross up of fixed assets and corresponding loans on the Consolidated Balance Sheet as of December 31, 2020, which also resulted in a misclassification of costs on the Consolidated Statement of Operations by overstating Selling, General and Administrative expense and understating Depreciation and Amortization and Other Expense (for associated interest expense). The results of these items that related to 2019 were deemed immaterial with respects to the consolidated financial statements of 2019, and, therefore, were updated in the consolidated financial statements of 2020.
| F-20 |
Management has corrected the accompanying Consolidated Financial Statements and the changes made are summarized below:
| 2020 Consolidated Statement of Operations Impact | |||||||||||||
| As Previously | Adjustment for | As | |||||||||||
| Reported | Error Correction | Revised | |||||||||||
| Revenues | $ | 1,077,030 | $ | – | $ | 1,077,030 | |||||||
| Cost of sales | 791,854 | – | 791,854 | ||||||||||
| Selling, general and administrative | 2,292,597 | (3)/(1) | 7,298 | 2,299,895 | |||||||||
| Depreciation and amortization | 38,128 | (3) | 32,312 | 70,440 | |||||||||
| Research and development | 21,161 | – | 21,161 | ||||||||||
| Other income (expense) | 92,201 | (3) | (8,376 | ) | 83,825 | ||||||||
| Net loss | $ | (1,974,509 | ) | $ | (31,234 | ) | $ | (2,022,495 | ) | ||||
| December 31, 2020 Consolidated Balance Sheet Impact | |||||||||||||
| As Previously | Adjustment for | As | |||||||||||
| Reported | Error Correction | Revised | |||||||||||
| Assets | |||||||||||||
| Accounts Receivable | $ | 42,311 | (2) | $ | 17,041 | $ | 59,352 | ||||||
| Other current assets | 599,684 | – | 599,684 | ||||||||||
| Other assets | 117,169 | – | 117,169 | ||||||||||
| Fixed Assets | 55,184 | (3) | 119,780 | 174,964 | |||||||||
| Total Assets | $ | 814,348 | $ | 136,821 | $ | 951,169 | |||||||
| Liabilities | |||||||||||||
| Current liabilities | $ | 1,809,965 | (3) | $ | 33,502 | $ | 1,843,467 | ||||||
| Note payables | – | (3) | 82,383 | 82,383 | |||||||||
| Other liabilities | 27,274 | – | 27,274 | ||||||||||
| Total liabilities | 1,837,239 | 115,885 | 1,953,124 | ||||||||||
| Stockholders' deficit | |||||||||||||
| Accumulated deficit | (22,092,678 | ) | (1/2/3) | 20,936 | (22,071,742 | ) | |||||||
| Total Stockholders' deficit | $ | (22,092,678 | ) | $ | 20,936 | $ | (22,071,742 | ) | |||||
| December 31, 2020 Consolidated Cash Flow Statement Impact | |||||||||||||
| As Previously | Adjustment for | As | |||||||||||
| Reported | Error Correction | Revised | |||||||||||
| Cash flows from operating activities | |||||||||||||
| Net loss | $ | (1,974,509 | ) | (1/3) | $ | (47,986 | ) | $ | (2,022,495 | ) | |||
| Revision adjustment | – | (1/2/3) | 66,217 | 66,217 | |||||||||
| Depreciation | 38,128 | (3) | 32,312 | 70,440 | |||||||||
| Accounts receivable | 51,489 | (2) | (17,041 | ) | 34,448 | ||||||||
| Other operating balances | 190,971 | – | 190,971 | ||||||||||
| Total cash flows from operating activities | (1,693,921 | ) | 33,502 | (1,660,419 | ) | ||||||||
| Cash flows from investing activities | |||||||||||||
| Purchase of equipment | (13,039 | ) | – | (13,039 | ) | ||||||||
| Total cash flows from investing activities | (13,039 | ) | – | (13,039 | ) | ||||||||
| Cash flows from financing activites | |||||||||||||
| Payments on notes payable | – | (3) | (33,502 | ) | (33,502 | ) | |||||||
| Other financing balances | 1,683,588 | – | 1,683,588 | ||||||||||
| Total cash flows from financing activities | 1,683,588 | (33,502 | ) | 1,650,086 | |||||||||
| Net decrease in cash | $ | (23,372 | ) | $ | – | $ | (23,372 | ) | |||||
| F-21 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer during the year ended December 31, 2020 who is also currently our principal financial officer, William Gray, 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 that evaluation, Mr. Gray concluded that our disclosure controls and procedures are not effective, which are discussed below in more detail, in timely alerting him to material information relating to us required to be included in our periodic SEC filings and in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting as identified below under the heading “Management’s Report on Internal Control over Financial Reporting.” Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based upon this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2020 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; | |
|
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| · | 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. |
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We intend to rectify these weaknesses by implementing an independent board of directors and hiring additional accounting personnel once we have additional resources to do so.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting through the date of this report or during the quarter ended December 31, 2020, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
No Attestation Report by Independent Registered Accountant
The effectiveness of our internal control over financial reporting as of December 31, 2019 and December 31, 2020 have not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company.
None.
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Item 10. Directors, Executive Officers, and Corporate Governance.
The members of the board of directors of the Company will serve until the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the board of directors. Officers are elected by the board of directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the board. Information as to the directors and executive officers of the Company is as follows:
| Name | Age | Position | ||||
| William H. Gray | 69 |
Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, and Secretary | ||||
| Mark J. Richardson | 67 | Director | ||||
Duties, Responsibilities, and Experience
William H. Gray has been the chairman and chief executive officer of Wytec since November 2011, the president of Wytec since April 2020, the interim chief financial officer and corporate secretary of Wytec since May 2021, a director of Competitive Companies, Inc., a Nevada corporation and the former parent company of Wytec (“CCI”), since November 2008, and the chief executive officer, president, and chief financial officer of CCI since February 10, 2009. Mr. Gray was the president of Wytec from November 2011 to September 2019, the chief financial officer of Wytec from November 2011 to January 2020, and the corporate secretary of Wytec from November 2011 to April 2014 and again from November 2015 to February 2019. Mr. Gray was the secretary of CCI from February 2009 to April 2014 and again since July 2015. Mr. Gray has over 19 years of experience in the planning, development, and implementation of wide area networks in both wired and wireless configurations. As the president and chief executive officer of Wireless Wisconsin, LLC, a wholly owned subsidiary of CCI, he developed one of the state’s first ISPs to enter into the internet industry by forming and developing a statewide telecommunications network in the state of Wisconsin starting in 1995. Wireless Wisconsin, LLC later became one of the first ISPs to become a competitive local exchange carrier in the state of Wisconsin.
Mark J. Richardson has been a director of Wytec since September 2019. He has been a securities lawyer since he graduated from the University of Michigan Law School in 1978. He practiced as an associate and partner in large law firms until 1993, when he established his own practice under the name Richardson & Associates. He has been the principal securities counsel on a variety of equity and debt placements for corporations, partnerships, and real estate companies. His practice includes public and private offerings, venture capital placements, debt restructuring, compliance with federal and state securities laws, representation of publicly traded companies, Nasdaq and FINRA filings, corporate law, partnerships, joint ventures, mergers, asset acquisitions, and stock purchase agreements. As a partner in a major international law firm in the 1980’s, Mr. Richardson participated in the leveraged buyout and recapitalization of a well-known producer of animated programming for children, financed by Prudential Insurance and Bear Stearns, Inc. He was also instrumental in restructuring the public debentures of a real estate company without resorting to a bankruptcy proceeding. From 1986 to 1993 Mr. Richardson was a contributing author to State Limited Partnerships Laws – California Practice Guide, Prentice Hall Law and Business. Prior to receiving his juris doctor degree cum laude from the University of Michigan Law School in 1978, Mr. Richardson received a Bachelor of Science degree summa cum laude in Conservation from the University of Michigan School of Natural Resources in 1975, where he earned the Bankstrom Prize for academic excellence and achieved Phi Beta Kappa honors. Mr. Richardson is an active member of the Los Angeles County and California State Bar Associations, including the Section on Corporations, Business and Finance and the Section on Real Estate. Richardson & Associates is outside corporate legal counsel for the Company.
No officer or director is required to make any specific amount or percentage of his business time available to us. Each of our officers intends to devote such amount of his or her time to our affairs as is required or deemed appropriate by us.
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Election of Directors and Officers
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the board of directors following the next annual meeting of stockholders and until their successors have been elected and qualified.
Involvement in Certain Legal Proceedings
No executive officer or director of the Company has been the subject of any order, judgment, or decree of any Court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring, suspending or otherwise limiting him from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.
No executive officer or director of the Company has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding which is currently pending.
Neither the Company nor any of the current executive officers or directors of the Company are the subject of any pending legal proceedings.
Limitation of Liability and Indemnification of Officers and Directors
Under Nevada General Corporation Law and our articles of incorporation, our directors will have no personal liability to us or our stockholders for monetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care.” This provision does not apply to the directors’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.
The effect of this provision in our articles of incorporation is to eliminate the rights of Wytec and our stockholders (through stockholder’s derivative suits on behalf of Wytec) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (vi) above. This provision does not limit nor eliminate the rights of Wytec or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director’s duty of care. In addition, our Articles of Incorporation provide that if Nevada law is amended to authorize the future elimination or limitation of the liability of a director, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the law, as amended. Nevada General Corporation Law grants corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law. Our bylaws provide for indemnification of such persons to the full extent allowable under applicable law. These provisions will not alter the liability of the directors under federal securities laws.
We intend to enter into agreements to indemnify our directors and officers, in addition to the indemnification provided for in our bylaws. These agreements, among other things, indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines, and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of Wytec, arising out of such person’s services as a director or officer of Wytec, any subsidiary of Wytec or any other company or enterprise to which the person provides services at the request of Wytec. We believe that these provisions and agreements are necessary to attract and retain qualified directors and officers.
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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Wytec pursuant to the foregoing provisions, Wytec has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Board Committees
Director Independence. The board of directors has analyzed the independence of each director and has concluded that currently no director is considered an independent director in accordance with the director independence standards of the Financial Industry Regulatory Authority (“FINRA”) the NYSE Amex Equities or the NASDAQ Capital Market.
Audit Committee. Currently, we do not have an audit committee. Until a formal committee is established, the board of directors will perform the necessary functions of an audit committee, such as: recommending an independent registered public accounting firm to audit the annual financial statements; reviewing the independence of the independent registered public accounting firm; review of the financial statements and other required regulatory financial reporting; and reviewing management’s policies and procedures in connection with its internal control over financial reporting.
Additionally, we do not have a financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. At such time the Company has the financial resources, a financial expert will be appointed.
Compensation Committee. We currently do not have a compensation committee of the board of directors. Until a formal committee is established, our board of directors will review all forms of compensation provided to our executive officers, directors, consultants and employees, including stock compensation. The board makes all compensation decisions for the Executives and approves recommendation regarding equity awards to all elected officers of Wytec. Decisions regarding the non-equity compensation of other executive officers are made by the board.
Nominating Committee. We do not have a nominating committee or nominating committee charter. Our board of directors performs some of the functions associated with a nominating committee. We elected not to have a nominating committee during the year ended December 31, 2019 because we had limited operations and resources.
Director Nomination Procedures. Generally, nominees for directors are identified and suggested by the members of the board or management using their business networks. The board has not retained any executive search firms or other third parties to identify or evaluate director candidates in the past and does not intend to soon. In selecting a nominee for director, the board or management considers the following criteria:
| · | whether the nominee has the personal attributes for successful service on the board, such as demonstrated character and integrity; experience at a strategy/policy setting level; managerial experience dealing with complex problems; an ability to work effectively with others; and sufficient time to devote to the affairs of the Company; | |
| · | whether the nominee has been the chief executive officer or senior executive of a public company or a leader of a similar organization, including industry groups, universities, or governmental organizations; | |
| · | whether the nominee, by virtue of experience, technical expertise or specialized skills or contacts relevant to the Company’s current or future business, will add specific value as a board member; and | |
| · | whether there are any other factors related to the ability and willingness of a new nominee to serve, or an existing board member to continue his service. |
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The board or management has not established any specific minimum qualifications that a candidate for director must meet in order to be recommended for board membership. Rather, the board or management will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the board’s current expectations with respect to each such criterion and decide regarding whether a candidate should be recommended to the stockholders for election as a director. During 2020, the Company received no recommendation for directors from its stockholders.
Report of the Audit Committee
Our board of directors has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2020 with senior management. The board of directors has also discussed with Prager Metis, CPAs, (“PM”), our independent auditors, the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees”, as adopted by the Public Company Accounting Oversight Board (“PCAOB”) and received the written disclosures and the letter from MB required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Board of Directors concerning independence and have discussed with the independent registered public accounting firm its independence.
Our board of directors has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2020 with senior management. The board of directors has also discussed with MaloneBailey, LLP, (“MB”), our prior independent auditors, the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees”, as adopted by the Public Company Accounting Oversight Board (“PCAOB”) and received the written disclosures and the letter from ADKF required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Board of Directors concerning independence and have discussed with the independent registered public accounting firm its independence.
BOARD OF DIRECTORS
William H. Gray
Mark Richardson
Notwithstanding anything to the contrary set forth in any of our previous or future filings under the United States Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate this report in future filings with the Securities and Exchange Commission, in whole or in part, the foregoing report shall not be deemed to be incorporated by reference into any such filing.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires executive officers and directors, and persons who beneficially own more than ten percent of an issuer’s common stock, which has been registered under Section 12 of the Exchange Act, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater-than-ten-percent beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based upon a review of the copies of such forms furnished to us and written representations from our executive officers and directors, we believe that as of December 31, 2020, they were current in their filings.
Code of Conduct
We have adopted a code of conduct that applies to all of our directors, officers and employees. The text of the code of conduct has been posted on our internet website and can be viewed at http://www.Wytec International.com. Any waiver of the provisions of the Code of Conduct for executive officers and directors may be made only by the audit committee and, in the case of a waiver for members of the audit committee, by the board of directors. Any such waivers will be promptly disclosed to our shareholders.
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Item 11. Executive Compensation.
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis describes the material elements of compensation for the executive officers identified in the Summary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described below, our board of directors makes all decisions for the total direct compensation of our executive officers, including the Named Executive Officers. We do not have a compensation committee, so all decisions with respect to management compensation are made by the whole board.
Compensation Program Objectives and Rewards
Our compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, working toward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following this philosophy, in determining executive compensation, we consider all relevant factors, such as the competition for talent, our desire to link pay with performance in the future, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork and performance, and each executive’s total compensation package. We strive to accomplish these objectives by compensating all executives with total compensation packages consisting of a combination of competitive base salary and, once we grow more and increase our staff, incentive compensation. Because of our small size and staff to date, we have not yet adopted a management equity incentive plan, nor have we yet used equity incentives as part of our management compensation policy.
While we have not hired at the executive level significantly since inception because our business has not grown sufficiently to justify increasing staff, we expect to grow and hire in the future. Our Named Executive Officers have been with us for many years and their compensation has basically been static, based primarily on levels at which we can afford to retain them, and their responsibilities and individual contributions. To date, we have not applied a formal compensation program to determine the compensation of the Named Executives. In the future, as we and our management team expand, our board of directors expects to add independent members, form a compensation committee comprised of independent directors, adopt a management equity incentive plan and apply the compensation philosophy and policies described in this section of the Registration Statement.
The primary purpose of the compensation and benefits described below is to attract, retain and motivate highly talented individuals when we do hire, who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitive marketplace. Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each Named Executive Officer are subject to the annual review of the board of directors. The following is a brief description of the key elements of our planned executive compensation structure.
| · | Base salary and benefits are designed to attract and retain employees over time. |
| · | Incentive compensation awards are designed to focus employees on the business objectives for a particular year. |
| · | Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’ control that they believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of several years, growth in our profitability and other elements. |
| · | Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as it competes for talented employees in a marketplace where such protections are commonly offered. We currently have not given separation benefits to any of our Name Executive Officers. |
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Benchmarking
We have not yet adopted benchmarking but may do so in the future. When making compensation decisions, our board of directors may compare each element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includes both publicly traded and privately-held companies. Our board believes that while such peer group benchmarks are a point of reference for measurement, they are not necessarily a determining factor in setting executive compensation as each executive officer’s compensation relative to the benchmark varies based on scope of responsibility and time in the position. We have not yet formally established our peer group for this purpose.
The Elements of Wytec’s Compensation Program
Base Salary
Executive officer base salaries are based on job responsibilities and individual contribution. The board reviews the base salaries of our executive officers, including our Named Executive Officers, considering factors such as corporate progress toward achieving objectives (without reference to any specific performance-related targets) and individual performance experience and expertise. None of our Named Executive Officers have employment agreements with us. Additional factors reviewed by the board of directors in determining appropriate base salary levels and raises include subjective factors related to corporate and individual performance. For the year ended December 31, 2020, all executive officer base salary decisions were approved by the board of directors.
Our board of directors determines base salaries for the Named Executive Officers at the beginning of each fiscal year, and the board proposes new base salary amounts, if appropriate, based on its evaluation of individual performance and expected future contributions. We do not have a 401(k) Plan, but if we adopt one in the future, we expect that base salary would be the only element of compensation that would be used in determining the amount of contributions permitted under the 401(k) Plan.
Incentive Compensation Awards
Although our executive officers have been paid bonuses on a case-by-case basis, our board of directors has not yet established a formal compensation policy for the determination of bonuses. If our revenue grows and bonuses become affordable and justifiable, we expect to use the following parameters in justifying and quantifying bonuses for our Named Executive Officers and other officers of Wytec: (1) the growth in our revenue, (2) the growth in our earnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price. The board has not adopted specific performance goals and target bonus amounts for any of its fiscal years, but may do so in the future.
Equity Incentive Awards
Our board has not yet adopted a management equity incentive plan and no stock options or other equity incentive awards have yet been made to any of our Named Executives or other officers or employees of Wytec other than a limited number of stock issuances made to two Named Executive and seven other employees of Wytec on December 20. 2019 which were not issued pursuant to a formal plan. As stated previously, in the future we plan to adopt a formal management equity incentive plan pursuant to which we plan to grant stock options and make restricted stock awards to members of management, which would not be assignable during the executive’s life, except for certain gifts to family members or trusts that benefit family members. These equity incentive awards, we believe, would motivate our employees to work to improve our business and stock price performance, thereby further linking the interests of our senior management and our stockholders. The board will consider several factors in determining whether awards are granted to an executive officer, including those previously described, as well as the executive’s position, his or her performance and responsibilities, and the number of options or other awards, if any, currently held by the officer and their vesting schedule. Our policy will prohibit backdating options or granting them retroactively.
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Benefits and Prerequisites
At this stage of our business, we have limited benefits and no prerequisites for our employees other than health insurance and vacation benefits that are generally comparable to those offered by other small private and public companies or as may be required by applicable state employment laws. We recently established a 401(k) Plan for our Named Executive Officers and other employees. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($19,500 for calendar year 2020). We match 0% to 100% of each employee’s contributions.
Separation and Change in Control Arrangements
We do not have any employment agreements with our Named Executive Officers or any other executive officer or employee of Wytec. None of them are eligible for specific benefits or payments if their employment or engagement terminates in a separation or if there is a change of control.
Our Anticipated Compensation Program
We are currently in the process of determining the compensation programs we anticipate implementing for our senior executives, including our Named Executive Officers.
Executive Officer Compensation
The following table summarizes compensation paid or accrued by us for the years ended December 31, 2019 and December 31, 2020 for services rendered in all capacities, by our chief executive officer and our other most highly compensated executive officers during the fiscal years ended December 31, 2020 and December 31, 2019.
| Name and Principal Position (1) |
Year | Salary | Bonus | Stock Awards | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All Other Compensation | Total | ||||||||||||||||||||||||
| William H, Gray, | 2019 | $ | 126,438 | $ | 35,000 | $ | 5,578 | $ | – | $ | – | $ | 59,500 | $ | 226,516 | |||||||||||||||||
| Chief Executive Officer, | 2020 | $ | 214,687 | $ | 35,000 | $ | – | $ | – | $ | – | $ | – | $ | 249,687 | |||||||||||||||||
| President, interim Chief Financial Officer, and Secretary (2) | ||||||||||||||||||||||||||||||||
| Angus Davis, | 2019 | $ | 77,238 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 77,238 | |||||||||||||||||
| Former Chief Strategy | 2020 | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | |||||||||||||||||
| Officer and Former Secretary (3) | ||||||||||||||||||||||||||||||||
| Robert Merola, | 2019 | $ | 106,250 | $ | 45,000 | $ | 4,688 | $ | – | $ | – | $ | 65,000 | $ | 220,938 | |||||||||||||||||
| Former President and | 2020 | $ | 57,211 | $ | 15,000 | $ | – | $ | – | $ | – | $ | – | $ | 72,211 | |||||||||||||||||
| Former Chief Technical Officer (4) | ||||||||||||||||||||||||||||||||
| Donna Ward, | 2019 | $ | 39,583 | $ | – | $ | 1,339 | $ | – | $ | – | $ | – | $ | 40,922 | |||||||||||||||||
| Former Chief Financial Officer | 2020 | $ | 92,270 | $ | – | $ | 2,820 | $ | – | $ | – | $ | – | $ | 95,090 | |||||||||||||||||
| and Former Secretary (5) | ||||||||||||||||||||||||||||||||
| Officers as a Group | 2019 | $ | 349,509 | $ | 80,000 | $ | 11,605 | $ | – | $ | – | $ | 124,500 | $ | 565,614 | |||||||||||||||||
| 2020 | $ | 364,168 | $ | 50,000 | $ | 2,820 | $ | – | $ | – | $ | – | $ | 416,988 | ||||||||||||||||||
| (1) | All current officers serve at will without employment contracts. |
| (2) | Mr. Gray stepped down as the chief financial officer of Wytec on January 30, 2020. He was appointed interim chief financial officer and secretary in May 2021. |
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| (3) | Mr. Davis resigned as the chief strategy officer and secretary of Wytec, effective August 30, 2019. |
| (4) | Mr. Merola was appointed as the chief technical officer of Wytec on January 16, 2018 and as the president of Wytec on September 20, 2019. He resigned as the chief technical officer and president of Wytec, effective April 30, 2020. |
| (5) | Ms. Ward joined Wytec as a financial accountant in 2019 and was appointed as the secretary of Wytec on September 20, 2019 and as the chief financial officer of Wytec on January 30, 2020. She resigned as the chief financial officer and secretary of Wytec in May 2021. |
Employment Agreements
Except for an employment agreement with Robert Merola which was terminated on April 30, 2020, we have not entered into any employment agreements with our executive officers to date, and do not intend to enter into employment agreements with them at this time.
Outstanding Equity Awards at Fiscal Year-End
None of our executive officers had any unexercised options, stock that had not vested, or equity incentive plan awards at December 31, 2020.
Option Exercises and Stock Vested
None of our executive officers exercised any stock options or acquired stock through vesting of an equity award during the fiscal year ended December 31, 2020.
Employee Benefit Plans
We have not yet, but may in the future, establish a management equity incentive plan pursuant to which stock options and restricted stock awards may be authorized and granted to the executive officers, directors, employees, and key consultants of Wytec. In the event we establish the equity incentive plan, we expect to authorize approximately 10,000,000 shares or more for future issuance.
Director Compensation
None of our directors received any compensation for their respective services rendered to us as directors during the years ended December 31, 2019 and December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table presents information, to the best of our knowledge, about the beneficial ownership of our common stock on December 31, 2020, held by those persons known to beneficially own more than 5% of our capital stock and by our directors and executive officers. The percentage of beneficial ownership for the following table is based on 6,050,670 shares of common stock outstanding as of December 31, 2020.
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Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes (unless footnoted) shares of common stock that the stockholder has a right to acquire within 60 days after December 31, 2020, through the exercise of any option, warrant or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.
| Name of Officer, Director or Shareholder (1) | Number of Common Shares | Percent Beneficially Owned (2) | ||||||
| William Gray, Chairman, Chief Executive Officer, President, interim Chief Financial Officer, and Secretary (3) | 10,114 | * | ||||||
| Donna Ward, Former Chief Financial Officer, Former Secretary, and Former Director | 4,159 | * | ||||||
| Mark J. Richardson, Director | 0 | 0 | ||||||
| All Officers and Directors as a Group (3 persons) | 11,273 | * | ||||||
*Beneficial ownership of less than one percent.
| (1) | As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). The address of each person is in the care of the Company. |
| (2) | Figures are rounded to the nearest hundredth of a percent. |
| (3) | Does not include 2,000,000 common stock purchase warrants owned by Mr. Gray which are exercisable at an exercise price of $1.00 per share until December 31, 2022 or 1,000 shares of our Series C Preferred Stock issued to Mr. Gray on July 20, 2016. The shares were issued as $100 in compensation expense. The Series C Preferred Stock has a par value of $0.001 and the equivalent of 51% of the shareholder votes. The Series C Preferred Stock is not convertible into the Company’s common stock and has no rights to dividends and virtually no rights to liquidation preference. The liquidation preference of each share of the Series C Preferred Stock is its par value. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
As of December 31, 2020, the Company had not yet formed an audit committee. The Company plans to form an audit committee once it adds a director to its Board of Directors who may be considered to be independent as defined in Rule 4200 of the Financial Industry Regulatory Authority’s listing standards and qualified with sufficient financial acumen to meet the standards for an audit committee member.
The Company has an accounts payable balance owed to Richardson & Associates in the amount of $107,084 as of December 31, 2020, and $76,280 as of December 31, 2019. The Company incurred expense of $128,340 and $86,033 with Richardson & Associates as of the year ended December 31, 2020 and 2019, respectively. Mark Richardson is the owner of Richardson & Associates and he was appointed as a director of Wytec International, Inc. in September 2019.
Item 14. Principal Accounting Fees and Services.
Audit Fees
The aggregate fees billed for professional services rendered by MaloneBailey, LLP. For the audit of our annual financial statements and review of the financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for 2020 was $62,000 for the year ended December 31, 2020 and $83,000 for the year ended December 31, 2019.
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The aggregate fees billed for professional services rendered by Prager Metis CPAs. For the audit of our annual financial statements and review of the financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for 2020 was $40,000 for the year ended December 31, 2020.
The aggregate fees billed for professional services rendered by Akin, Doherty, Klein and Feuge, P.C. for the audit of our annual financial statements and review of the financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for 2019 was $67,000 for the year ended December 31, 2019.
Audit-Related Fees
No fees were billed for audit-related services rendered by Prager Metis CPAs for 2020.
No fees were billed for audit-related services rendered by MaloneBailey, LLP for 2020 or 2019.
No fees were billed for audit-related services rendered by Akin, Doherty, Klein & Feuge, P.C for 2019.
Tax Fees
No fees were billed for tax services rendered by Prager Metis CPAs for 2020.
No fees were billed for tax services rendered by MaloneBailey, LLP for 2019 or 2020.
No fees were billed for tax services rendered by Akin, Doherty, Klein & Feuge, P.C. for 2019.
All Other Fees
No other fees were billed.
Pre-Approval Policies and Procedures of Audit and Non-Audit Services of Independent Registered Public Accounting Firm
Until we appoint an audit committee, our board of directors’ policy in the future is to pre-approve, typically at the beginning of our fiscal year, all audit and non-audit services, other than de minimis non-audit services, to be provided by an independent registered public accounting firm. These services may include, among others, audit services, audit-related services, tax services and other services and such services are generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the full board of directors regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. As part of the board’s review, the board will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management. At board meetings throughout the year, the auditor and management may present subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year.
Our board of directors has considered the provision of non-audit services provided by our independent registered public accounting firm to be compatible with maintaining their independence. Until we appoint an audit committee, our board of directors will continue to approve all audit and permissible non-audit services provided by our independent registered public accounting firm.
| 35 |
Item 15. Exhibits, Financial Statement Schedules.
| (a) | The following documents are filed as a part of this report on Form 10-K: |
| 1. | The financial statements listed in the “Index to Financial Statements” at page F-1 are filed as part of this report. |
| 2. | Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. |
| 3. | Exhibits included or incorporated herein: See index to Exhibits. |
| (b) | Exhibits |
__________________
* To be filed by amendment.
| (1) | Incorporated by reference from the original filing of the Registration Statement 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. |
| 36 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WYTEC INTERNATIONAL, INC. | |||
| Date: December 22, 2021 | By: | /s/ William Gray | |
| William Gray, Chief Executive Officer | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ William Gray | Chief Executive Officer, President, | |||
| William Gray | Principal Executive Officer, Principal Accounting Officer, and Chairman | December 22, 2021 | ||
| 37 |
EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, William Gray, certify that:
| 1. | I have reviewed this Amendment to Annual Report on Form 10-K of Wytec International, 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 presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are 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 financial 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. |
| 5. | The registrant’s other certifying officer(s) and 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 (of 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 small business issuer’s internal control over financial reporting. |
Dated December 22, 2021
By: /s/ William Gray
William Gray, Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
SECTION 302 CERTIFICATION
I, William Gray, certify that:
| 1. | I have reviewed this Amendment to Annual Report on Form 10-K of Wytec International, 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 presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are 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 financial 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. |
| 5. | The registrant’s other certifying officer(s) and 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 (of 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 small business issuer’s internal control over financial reporting. |
Dated: December 22, 2021
By: /s/ William Gray
William Gray, interim Chief Financial Officer
(Principal Accounting Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Amendment to Annual Report of Wytec International, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2020 (the “Report”) William Gray, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: December 22, 2021
By: /s/ William Gray
William Gray, Chief Executive Officer
(Principal Executive Officer)
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Amendment to Annual Report of Wytec International, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2020 (the “Report”) I, William Gray, interim Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: December 22, 2021
By: /s/ William Gray
William Gray, interim Chief Financial Officer
(Principal Accounting Officer)
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.