UNITED STATES
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Washington, D.C. 20549
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TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. Forward-looking statements include all statements that do not directly or exclusively relate to historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “forecasts,” “predicts,” “potential,” or the negative of those terms, and similar expressions and comparable terminology. These include, but are not limited to, statements relating to future events or our future financial and operating results, plans, objectives, expectations and intentions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not be achieved. Forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to known and unknown risks, uncertainties and other factors outside of our control that could cause our actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Actual results may differ materially from those anticipated or implied in the forward-looking statements.
You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. You should also consider carefully the statements under Item 1A. Risk Factors appearing in this report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Such risks and uncertainties include:
| ● | our ability to successfully execute our business strategies, including the acquisition of other businesses to grow our company and integration of recent and future acquisitions; |
| ● | changes in aggregate capital spending, cyclicality and other economic conditions, and domestic and international demand in the industries we serve; |
| ● | the ongoing COVID-19 pandemic may, directly or indirectly, adversely affect our business, results of operations, and financial condition; |
| ● | our ability to adopt and master new technologies and adjust certain fixed costs and expenses to adapt to our industry’s and customers’ evolving demands; |
| ● | our ability to obtain additional financing in sufficient amounts or on acceptable terms when required; |
| ● | our ability to adequately expand our sales force and attract and retain key personnel and skilled labor; |
| ● | shifts in geographic concentration of our customers, supplies and labor pools and seasonal fluctuations in demand for our services; |
| ● | our dependence on third-party subcontractors to perform some of the work on our contracts; |
| ● | our ability to comply with certain financial covenants of our debt obligations; |
| ● | the impact of new or changed laws, regulations or other industry standards that could adversely affect our ability to conduct our business; and |
| ● | changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural or man-made disasters. |
These risk factors also should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward looking statements made in connection with this report that are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, you are cautioned not to place undue reliance on any forward-looking statements and you should carefully review this report in its entirety. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. 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 report or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.
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PART I
Unless specifically set forth to the contrary, when used in this report the terms “we”, “our”, the “Company” and similar terms refer to High Wire Networks, Inc., a Nevada corporation, and its consolidated subsidiaries.
The information that appears on our websites at www.HighWireNetworks.com and www.SpectrumGlobalSolutions.com is not part of this report.
ITEM 1. BUSINESS
Business Overview
High Wire Networks, Inc. (f/k/a Spectrum Global Solutions, Inc.) (“High Wire”) was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, Spectrum reincorporated in the province of British Columbia, Canada.
On April 25, 2017, High Wire entered into and closed on an Asset Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Asset Purchase Agreement, High Wire purchased 80.1% of the assets associated with InterCloud’s AW Solutions, Inc., AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”) (collectively “AWS” or the “AWS Entities”) subsidiaries.
On November 15, 2017, High Wire changed its name to “High Wire Enterprises, Inc.” and reincorporated in the state of Nevada.
On February 6, 2018, High Wire entered into and closed on a Stock Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Stock Purchase Agreement High Wire purchased all of the issued and outstanding capital stock and membership interests of ADEX Corporation, ADEX Puerto Rico LLC, ADEX Towers, Inc. and ADEX Telecom, Inc. and formed ADEX Canada LLC in September 2019 (collectively “ADEX” or the “ADEX Entities”). High Wire completed the acquisition on February 27, 2018.
On February 14, 2018, High Wire entered into an agreement with InterCloud providing for the sale, transfer, conveyance and delivery to High Wire of the remaining 19.9% of the assets associated with InterCloud’s AWS business not already purchased by High Wire.
On May 18, 2018, High Wire transferred all of its ownership interests in and to its subsidiaries Carbon Commodity Corporation, Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., Mantra Wind Inc., Climate ESCO Ltd. and Mantra Energy Alternatives Ltd. to an entity controlled by Mantra’s former Chief Executive Officer, Larry Kristof. The new owner of the aforementioned entities assumed all liabilities and obligations with respect to such entities.
On January 4, 2019, High Wire entered into a Stock Purchase Agreement with InterCloud. Pursuant to the terms of the Purchase Agreement, InterCloud agreed to sell, and High Wire agreed to purchase, all of the issued and outstanding capital stock of TNS, Inc. (“TNS”), an Illinois corporation.
On September 30, 2020, High Wire sold its TNS subsidiary. On December 31, 2020, Spectrum sold its AWS subsidiary.
HWN, Inc., (d/b/a High Wire Network Solutions, Inc.) (“HWN”) was incorporated in Delaware on January 20, 2017. HWN is a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. HWN’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.
On February 7, 2019, HWN and JTM Electrical Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which HWN owned 50% of JTM.
On June 16, 2021, HWN completed a merger with High Wire Networks, Inc. fka Spectrum Global Solutions, Inc. The merger was accounted for as a reverse merger. At the time of the reverse merger, High Wire’s subsidiaries included the ADEX Entities, AWS PR and Tropical.
On November 4, 2021, we closed on our acquisition of Secure Voice Corp (“SVC”).
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On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. For accounting purposes, HWN is the surviving entity and is referred to throughout as “HWN”, “High Wire”, or “the Company”.
On February 15, 2022, HWN sold its 50% interest in JTM.
Our AWS PR and Tropical subsidiaries are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. Our ADEX Entities are a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications industry, service providers and enterprise customers domestically and internationally. Our SVC subsidiary is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers.
We provide the following categories of offerings to our customers:
| ● | Technology Solutions: We provide a comprehensive technology platform and array of professional services and solutions to our clients that are applicable across multiple platforms and technologies to include, but are not limited to: Wi-Fi, Wi-Max and wide-area networks, fiber networks (ISP/OSP), DAS networks (iDAS/oDAS), small cell distributed networks, public safety networks and enterprise networks for incumbent local exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators (MSOs), tower and network aggregators, utility entities, government and enterprise customers. Our services teams support the deployment of new networks and technologies, as well as expand, maintain and decommission existing networks. |
| ● | Construction Solutions: We are also a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. |
| ● | Security: High Wire’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment. |
The Technology Solutions division offers carriers, service providers and enterprise customers professional contracting services, to include: infrastructure audits; site acquisition; architectural, structural and civil design and analysis; construction management; construction; installation; warehousing and logistics; maintenance services, that support the build-out and upgrade and operation of some of the most advanced networks, small cell, Wi-Fi, fiber and distributed antenna system (DAS) networks. We believe the expansion and migration of these next-generation networks, our long-term relationships supported by multiyear Master Service Agreements (MSA) and multi-year service contracts with major wireless, commercial wireline and wireless operators, DAS operators, tower companies, original equipment manufacturers (OEM’s) and prime contractor/project management organization provides us a significant opportunity as a long-term leading and well respected industry leader in this marketplace.
Our Technology Solutions division is supported by its subsidiaries: the ADEX Entities, the AWS Entities, and SVC. The AWS Entities provide a broad range of professional services and solutions to top tier communication carriers and Fortune 1000 enterprise customers.
Our Operating Units
Our company is comprised of the following:
| ● | Technology Solutions: The Technology Solutions group is composed of the following: High Wire is a global provider of managed security, professional services delivered exclusively through a channel sales model. ADEX is a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications and technology industry, service providers and enterprise customers domestically and internationally. |
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| ● | High Wire’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment. |
| ● | Construction Solutions: Tropical provides fiber and DAS deployments for facilities and outdoor environments. |
| ● | The High Wire Entities: ADEX is a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications and technology industry, service providers and enterprise customers domestically and internationally. ADEX seeks to assist its customers throughout the entire life cycle of a network deployment via its comprehensive suite of managed solutions that include consulting and professional staffing services to service providers as well as enterprise customers, network implementation, network installation, network upgrades, rebuilds, design, engineering and integration wireless network support, wireless network integration, wireless and wireline equipment installation and commissioning, wireless site development and construction management, network engineering, project management, disaster recovery design engineering and integration. The AWS Entities are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. The AWS Entities services include network systems design, site acquisition services, asset audits, architectural and engineering services, program management, construction management and inspection, construction, installation, maintenance and other technical services. The AWS Entities provide in-field design, computer aided design and drawing services (CADD), fiber and DAS deployments for facilities and outdoor environments. SVC is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers. |
Our Industry
The pace of technology evolution continues to accelerate and shows no signs of slowing down. From Enterprise to Carriers and Service Providers, there is a continuous need to plan, install, manage, and protect networks from cybersecurity threats. As technology evolves, the demand for more robust networks, faster speeds, better experiences, and protection from the ever evolving cyber threat landscape continues to grow at a robust pace. This demand has been compounded by the global COVID-19 pandemic and the rapid transition to “work from home” for large swaths of the global workforce. Remote learning, remote video meetings, collaboration software, increased email volumes, all have transformed the way we share information, and created strain on the way business used to be done. Nearly two years later, the technology and telecom industry anticipates these trends to continue for many years to come, and a new hybrid workplace environment evolving.
Wireless infrastructure which has been in place since the 1980’s includes towers, buildings, telephone poles and other facilities to place critical antennas and associated electronics to support a wind range of wireless protocols including WiMax, LTE and now 5G technologies. These wireless trends combined with the wireline transition from copper to fiber, and its corresponding order of magnitude change in bandwidth, are occurring to satisfy the world’s ever-increasing demand for data, which are significant long term drivers of our business model and continued success. There has been a significant transition underway from 4G wireless technology to 5G wireless technology. According to Gartner, spending on 5G infrastructure slowed in 2020 due to the pandemic, and only slightly increased in 2021. Gartner also expects this important transition to accelerate by 39% in 2022. The transition to 5G will accelerate migration to the next generation standard that allows for higher capacity, lower latency, and the architecture required to support new applications. The roll-out of enhanced mobile broadband, small cell architectures, 5G services and billions of new Internet of Things (IoT) connected devices greatly increases the need to modernize networks to accommodate this new breed of connectivity. This long-term trend is a significant enduring opportunity for companies like ours. The transition from trial-based deployments of 5G to a full nationwide implementation is expected to continue beyond 2025. Necessary investments in supporting infrastructure such as fiber optic backhaul is expected by Deloitte Consulting LLP to require $130-$150 billion over the next 5-7 years to adequately support the consumer demand for broadband and wireless densification projects in the United States alone. It is mission-critical for these providers to deliver broadband capacity, reliably, securely and cost-effectively in a solution that supports the massive data consumption of emerging applications such as: augmented reality/virtual reality, video streaming, mobile advertising, IoT, self-driving cars, personalized health monitoring and much more.
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With the rapid proliferation of device connectivity and the transition of the workforce to remote or hybrid, the demands on Enterprise networks and all traditional networks have shifted. Cyber security risks have proliferated right along with it. PurpleSec reports that cyber attacks were up 600% as a result of the pandemic and the change in network design and utilization. They also estimate a global cost of over $6 trillion annually in 2021 from ransomware alone. Cyber risk is now something that every business is forced to address around the globe. Closer to home, a patchwork of legislation has emerged in the United States with various states enacting different requirements for protection of sensitive data, networks, and adding duties to disclose. Congress has yet to enact federal laws mandating cyber security protections thus far, but there have been many discussions, task forces, and the Department of Defense has updated standards for private sector companies doing business with them.
Global Cyber Security spending is expected to exceed $1.75 trillion from 2021 to 2025 according to Cybersecurity Ventures. Enterprises, Service Providers, Wireless Providers, and Managed Service Providers are all working at a feverish pace to keep up with emerging threats. There are over 1500 different “point” solutions on the market today. Most focused on a single part of the problem or “attack surface”. Traditional solutions require a lot of work to deploy, constant monitoring, and well-trained people to interpret the massive amounts of data they produce. This sets the stage for managed service solutions that meld best in breed tools together into a comprehensive solution, manage the solution 24x7x365, to detect and respond to threats.
All of these trends come together at the network level. As networks improve from the Carrier to the Enterprise, demand for building, managing, and protecting these networks will rise as a requisite portion of the predicted industry spend dollars. The contracts to perform these services, provide human capital for them, and protect them will last years.
INDUSTRY TRENDS AND OPPORTUNITIES
| ● | Cyber Security Managed Service |
| ● | Network buildout and deployment |
| ● | IOT creating deployment and cyber security opportunities |
| ● | Fiber backhaul network buildouts |
| ● | Future forward Cloud Area Networks |
| ● | Monetize existing technology intellectual property and develop the portfolio |
| ● | International growth, developing and emerging markets |
| ● | Monetize our existing telecom network (Secure Voice Corp) in new ways |
Competitors
We provide, managed and professional services to carriers, service provider, utilities and enterprise clients on a national and international basis. Demand for our services is strong and growing in all segments of the business. Our channel-oriented sales model provides for very rapid expansion within our clients as they win contracts, develop new programs, build out their own suite of services, or leverage our portfolio to expand their own under private label.
Managed Services is a very competitive market and as such, our strategy to work exclusively through distribution channels with existing customer bases and robust sales organizations that can provide rapid growth. Most of our competitors are not channel only, but rather serve customers directly as well as have a channel component. Many are also wed to their own software, which makes it challenging to pivot as threats change. Some of our significant competitors would be Arctic Wolf, Herjevic Group, SecureWorks, and numerous smaller competitors. This space is rapidly evolving and hiring and retaining talent can be challenging. The company that develops a competitive edge in recruitment and employee retention will have a significant advantage. In a crowded and evolving landscape, there will be a continued need to spend on marketing and sales to acquire partners and help them convert and acquire new customers. We believe that with the combination of businesses we have, we are able to differentiate our services and compete aggressively in this market.
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Our current and potential larger competitors in the professional services sector include MasTec, Dycom Industries, Inc., Goodman Networks, Inc., and Black and Veatch. In some segments of our business, a significant portion of our services revenue is currently derived from MSAs and price is often an important factor in awarding such agreements. Accordingly, our competitors may underbid us if they elect to price their services aggressively to procure such business. Our competitors may also develop the expertise, experience and resources to provide services that are equal or superior in both price to our services, and we may not be able to maintain or enhance our competitive position based on thresholds for margin and profitability that has been established as benchmarks within our telecommunications division. The principal competitive factors for our professional services include; agility to respond, geographic presence, breadth of service offerings, technical skills “in-house” professional competencies and methodologies, price, quality of service, safety record, proven performance and industry reputation. We believe we compete favorably with our competitors on the basis of all of these factors.
Our Competitive Strengths
We believe our market advantage is our positioning as a trusted authority in the space and the long-term relationships, Master Service Agreements (MSAs), industry leading provider of solutions and a reputation and track record of our ability to perform with agility, quality on a seamless and flawless manner for our clients is key in our success to date. High Wire’s ability to provide a wide range of services in a turn-key integrated solution is critical to our clients. Our highly experienced and professional team provide such services as: Managed Services, Cyber security services, Technology Professional Services, RF, civil, electrical, architectural engineering and design, structural engineering, analysis and design, value engineering, network engineering services, network planning, site acquisition, land use planning, feasibility/environmental studies, lease/contract negotiations, Build-To-Suit (BTS) services, audits functions, program planning, professional services, product development, construction and installation, technical services, warehouse and logistics, network decommissioning and maintenance.
We believe our additional strengths described below will enable us to continue to compete effectively and to take advantage of anticipated growth opportunities:
| ● | Service Provider Relationships: We have established relationships with leading wireless and wireline telecommunications providers, cable broadband MSOs, Original Equipment Manufacturers (OEMs), utility companies, Project Management Organizations (PMOs), enterprise clientele and others. |
| ● | Established expertise in Cyber Security and manage services with over 120 established MSP channel partners |
| ● | Established operational expertise and channel partnerships with the largest technology resellers and channel partners in the world |
Sample Customers
| ● | Commercial Operators (Carriers): AT&T, Verizon Communications, T-Mobile/Sprint, Frontier Communications, COX, Open Mobile, Claro, Summit Broadband |
| ● | Technology Resellers such as Presido, Tech Data/Synnex, Worldwide Technologies, NWN Carousel, Sirius, Myriad 360, and many more. |
| ● | Aggregators: Crown Castle, SBA Wireless, Global Tower Partners (GTP), American Tower, Vertical Bridge |
| ● | OEMs: Ericsson, Nokia, Samsung |
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| ● | PMOs: MasTec Network Solutions, Ericsson |
| ● | Unified Communications Providers and Carriers: RingCentral, Lumen, Call One, Peerless, Frontier, Windstream |
| ● | Long-Term Master Service Agreements (MSA) and Contracts: We have MSA’s and agreements with service providers, OEMs, software manufacturers, technology resellers, managed services providers, value added distributors and other clients. Our relationships with our customers and existing master service agreements position us to continue to capture existing and emerging opportunities, both domestically and internationally. We believe the barriers are extremely high for new entrants to obtain master service agreements with service providers and OEMs unless there are established relationships, proven ability to execute, national coverage and licensing, spotless safety records and broad and deep insurance coverage. |
| ● | Global Professional Engineering Talents: Our extensive geographical reach and licensing that covers all US states and territories, all of the United Kingdom and Euro Zone, all Canadian Provinces, all of South and Central America, most of the Middle East and Africa, and select areas in the Caribbean and Pacific Rim coupled with our vast engineering experience and expertise supported by talented staff enables our customers to take advantage of our end-to-end solutions and one-stop full turn-key solutions. |
| ● | Proven Ability to Recruit, Manage and Retain High-Quality Personnel. Our ability to recruit, manage and retain skilled labor is a critical advantage in an industry where a shortage of highly skilled and experience personal is limited. This is often a key factor in our customers selecting High Wire Networks over our competitors. We believe that our highly skilled professionals with professional certifications gives us a competitive edge over our competitors as we continue to expand and meet our national and international clients needs across their entire service footprints. |
| ● | Expansion of our recurring revenue streams through increased focus on managed services, cyber security services, and professional services programs that are multiple years in duration will increase client retention, grow margins, and make the business more predictable through uncertain economic cycles. |
| ● | Increased value creation through continued expansion of our intellectual property (IP) and potential acquisition of additional IP. |
| ● | Our sales organization has extensive expertise and deep industry relationships. Paired with an effective and efficient marketing message that drives new client acquisition, we believe they position us to compete very well. |
| ● | Our highly experienced management team has deep industry knowledge and brings extensive combined experience across a broad range of disciplines. We believe our senior management team is a key driver of our success and is well-positioned to execute our strategy. |
KEY ASPECTS
| ● | Strong management team in place |
| ● | Competing in high growth markets |
| ● | Global operational capabilities |
| ● | Effective marketing and strong brand awareness in the industry |
| ● | Vast expertise in technology domains |
| ● | Top customers in the industry in every segment |
| ● | Diverse customer base of nearly 500 channel partners across three different sales channels |
| ● | Focused on high growth markets |
| ● | Multiple data centers/clouds and intellectual property portfolio |
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Our Growth Strategy
| ● | Under our current management team we have developed a growth strategy based on a combination of organic growth and growth through operations. Our strategy is focused on building the business on high margin recurring revenue to drive long term sustainability. We have consolidated our sales and management team to leverage the strength of our clients and sell across the existing base. We will continue to focus on existing offerings while adding robust new capabilities. |
| ● | We will continue to grow and expand our award winning, channel only Overwatch Managed Cyber Security platform. This service leverages our extensive expertise to prevent, detect, and respond to cyber threats 24x7x365. These services are in high demand around the world, and our platform is cutting edge. |
| ● | Grow Revenues and Market Share through Selective Acquisitions. We plan to continue to acquire private companies that enhance our earnings and offer complementary services plus expand our geographic reach and client base. We believe such acquisitions will help us to accelerate our revenue growth, leverage our existing strengths, and capture and retain market share. |
| ● | Aggressively Expand Our Organic Growth Initiatives around our Professional Services Business. Our customers have an extensive array of needs and business segments they serve. We will expand our offerings, skillsets, and geographic reach with our customers to support their clients. As we expand the breadth of our service offerings through both organic growth and selective acquisitions, we believe we have opportunities to expand revenues with our existing clients. |
| ● | Expand Our Relationships with New Service Partners. We plan to capture and expand new relationships. We believe that the business model for the expansion of these relationships, leveraging our core strengths, experience and broad array of service solutions, will support our business model for organic growth. |
| ● | Increase Operating Margins by Leveraging Operating Efficiencies. We believe that by centralizing administrative functions, consolidating insurance coverage and eliminating redundancies across our newly acquired businesses, we will be positioned to offer more integrated end-to-end solutions and increase operating margins. |
| ● | Expansion of Sales and Marketing. We believe that we can continue to expand our outside sales team, build an effective inside sales team, and provide additional momentum through marketing support and partner focused events. |
Our Services
We provide award winning managed cyber security solutions, managed services, and wholesale communications exclusively through our channel partners around the world. We leverage state of the art cyber security tools to deliver these services. We have built out extensive data center/cloud infrastructure enabling our partners to provide concierge level security services and extend their value proposition to their own clients with a high degree of certainty. Our U.S. based Security Operations Center (SOC) provides SOC as a Service (SOCaaS) to manage all of the tools 24x7x365.
We are a leading provider of professional services and infrastructure solutions to the Technology, Telecom, and Service Provider markets in both Carrier and Enterprise sectors. Our engineering, design, construction, installation, maintenance service offerings supported by our professional teams to support the build-out, maintenance, upgrade and operation of some of the most advanced fiber optic, Ethernet, copper, wireless, wireline, utility and enterprise networks. Our breadth of comprehensive services enables our customers to selectively augment existing services or to outsource entire projects or operational functions.
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We offer a full array of operations, construction, project and program management professional required to facilitate the full turn-key completion of networks from the design and planning phase, engineer evaluation and sign off, regulatory, installation, commissioning and maintain various types of Wi-Fi and wide-area networks, DAS networks, and small cell distribution networks for incumbent local exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators (MSOs) and enterprise customers. Our services and teams support the deployment of new networks and technologies, expand and maintain existing networks, as well as decommissioning obsolete legacy networks. We also design, install and maintain hardware solutions for the leading OEMs that support voice, data and optical networks. Our consulting and professional solutions to the service-provider and enterprise market in support of all facets of telecommunications and next-generation networks, including project management, network implementation, network installation, network upgrades, rebuilds, maintenance and consulting services. Our global certified professional services organization offers consulting, design, engineering, integration, implementation and ongoing support of all solutions offered by our company. We believe our ability to respond rapidly is a differentiating factor for national and international-based customers needing a broad range of our services and solutions.
We seek to assist our customers throughout the entire life cycle of a network deployment via its comprehensive suite of managed solutions and Professional Staffing services. We actively maintain a Proprietary Candidate Database with profiles of more than 138,000 telecommunications professionals. The database contains domestic and international based telecommunications professionals of all levels. Our recruiters are able to search the database by any number of criteria including, but not limited to: technical skill sets, equipment types, technology experience, education, years of experience, past employment history, geographic location.
Customers
On behalf of our clients, we provide services for most of the Fortune 1000 enterprises and the like, software and hardware OEMs, wireless and wireline service providers, cable broadband MSOs and telecommunications OEMs. Our current service provider and OEM customers include leading telecommunications companies, such as Ericsson, Inc., Verizon Communications, T-Mobile/Sprint Corporation and AT&T.
During the years ended December 31, 2021 and 2020, respectively, our top four customers accounted for approximately 55% and 69% of our total revenues.
A substantial portion of our revenue is derived from work performed under multi-year master service agreements and multi-year service contracts. We have entered into master service agreements, or MSAs, with numerous service providers and OEMs, and generally have multiple agreements with each of our customers. MSAs are generally the contracting vehicle with work awarded primarily through a competitive bidding process based on the depth of our service offerings, experience, price, geographic coverage and capacity. MSAs generally contain customer-specified service requirements, such as discrete pricing for individual tasks, but do not require our customers to purchase a minimum amount of services. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, perform work with the customer’s own employees and use other service providers. Most of our MSAs may be cancelled by our customers upon minimum notice (typically 60 days), regardless of whether we are or are not in default. In addition, many of these contracts permit cancellation of particular purchase orders or statements of work without any prior notice but do allow for payment for services performed up to the point of hold or cancellation.
Suppliers and Vendors
We have supply agreements with major technology vendors and material supply houses. However, for a majority of the professional services we perform, our customers supply the necessary major equipment and materials. We expect to continue to further develop our relationships with our technology vendors and to broaden our scope of work with each of our partners. In many cases, our relationships with our partners have extended for over a decade, which we attribute to our commitment to excellence. It is our objective to selectively expand our partnerships moving forward in order to expand our service offerings.
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Safety and Risk Management
We require our employees to participate in internal training and service programs from time to time relevant to their employment and to complete any training programs required by law. The telecommunications division has not had any OSHA recordable incidents, lost workdays or fatalities since inception which includes: 2006 through 2020. Our policy is to review accidents and claims from our operations, examine trends and implement changes in procedures to address safety issues. We have no Claims in our business related to: workers’ compensation claims, general liability and damage claims, or claims related to vehicle accidents, including personal injury and property damage. We insure against the risk of loss arising from our operations up to certain deductible limits in all of the states in which we operate. In addition, we retain risk of loss, up to certain limits, under our employee group health plan. We evaluate our insurance requirements on an ongoing basis to help ensure we maintain adequate levels of coverage internally and externally for our clients.
Our internal policy is to carefully monitor claims and actively participate with our insurers in determining claims estimates and adjustments. The estimated costs of claims are accrued as liabilities and include estimates for claims incurred but not reported. If we experience future insurance claims in excess of our umbrella coverage limit, our business could be materially and adversely affected.
Employees
As of December 31, 2021, we had 335 full-time employees and 5 part-time employees, of whom 37 were in administration and corporate management, 4 were accounting personnel, 23 were sales personnel and 276 are engaged in professional engineering, operations, project managerial and technical roles.
We maintain a core of professional, technical and managerial personnel and add employees as deemed appropriate to address operational and scale requirement related to growth. Additionally, we will “flex” our work force through the use of temporary or agency staff and through subcontractors.
Environmental Matters
A portion of the work related to the telecommunication division which is work associated with above ground and underground networks of our customers. As a result, we are potentially subject to material liabilities related to encountering underground objects that may cause the release of hazardous materials or substances. We are subject to federal, state and local environmental laws and regulations, including those regarding the removal and remediation of hazardous substances and waste. These laws and regulations can impose significant fines and criminal sanctions for violations. Costs associated with the discharge of hazardous substances may include clean-up costs and related damages or liabilities. These costs could be significant and could adversely affect our results of operations and cash flows.
Regulation
Our operations are subject to various federal, state, local and international laws and regulations, including licensing, permitting and inspection requirements applicable to electricians and engineers; building codes; permitting and inspection requirements applicable to construction and installation projects; regulations relating to worker safety and environmental protection; telecommunication regulations affecting our wireless, wireline and fiber optic business; labor and employment laws; laws governing advertising, and laws governing our public business.
Our Corporate Information
Our principal offices are located at 980 N. Federal Highway, Suite 304, Boca Raton, Florida 33432. Our telephone number is (407) 512-9102.
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ITEM 1A. RISK FACTORS
An investment in our in our common stock involves a high degree of risk. The risks described below include all material risks to our company or to investors in this offering that are known to our company. You should carefully consider such risks before participating in this offering. If any of the following risks actually occur, our business, financial condition and results of operations could be materially harmed. As a result, the trading price of our common stock could decline, and you might lose all or part of your investment. When determining whether to buy our common stock, you should also refer to the other information in this prospectus, including our financial statements and the related notes included elsewhere in this prospectus.
In addition to the other information in this prospectus, you should carefully consider the following factors in evaluating us and our business. This prospectus contains, in addition to historical information, forward-looking statements that involve risks and uncertainties, some of which are beyond our control. Should one or more of these risks and uncertainties materialize or should underlying assumptions prove incorrect, our actual results could differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below, as well as those discussed elsewhere in this prospectus, including the documents incorporated by reference.
There are risks associated with investing in companies such as ours who are primarily engaged in research and development. In addition to risks which could apply to any company or business, you should also consider the business we are in and the following:
Risks Related to Our Financial Results and Financing Plans
We have a history of losses and may continue to incur losses in the future.
We have a history of losses and may continue to incur losses in the future, which could negatively impact the trading value of our common stock. We incurred losses from operations of $3,674,429 and $1,442,236 for the years ended December 31, 2021 and 2020, respectively. In addition, we incurred a net loss attributable to common stockholders of $19,191,952 and $693,083 for the years ended December 31, 2021 and 2020, respectively. We may continue to incur operating and net losses in future periods. These losses may increase, and we may never achieve profitability for a variety of reasons, including increased competition, decreased growth in the unified communications industry and other factors described elsewhere in this “Risk Factors” section. If we cannot achieve sustained profitability, our stockholders may lose all or a portion of their investment in our company.
If we are unable to grow our revenue, we may never achieve or sustain profitability.
To become profitable, we must, among other things, continue increase our revenues. We have experienced significant growth in recent years, primarily due to our strategic acquisitions. Our total revenues increased from $9,909,157 in the year ended December 31, 2020 to $27,206,689 in the year ended December 31, 2021. In order to become profitable and maintain our profitability, we must, among other things, continue to increase our revenues. We may be unable to sustain our recent revenue growth, particularly if we are unable to develop and market our telecommunications, increase our sales to existing customers or develop new customers. However, even if our revenues continue to grow, they may not be sufficient to exceed increases in our operating expenses or to enable us to achieve or sustain profitability.
Our substantial indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations.
As of December 31, 2021, we had total indebtedness of $15,837,105, consisting of $6,580,200 of convertible debentures, $5,415,803 of loans payable, $454,031 of loans and convertible loans payable to related parties, and $3,387,070 of factor financing. $8,030,681 of this debt is due within the year ending December 31,2022. Our substantial indebtedness could have important consequences to our stockholders. For example, it could:
| ● | increase our vulnerability to and limit our flexibility in planning for, or reacting to, changes in our business; |
| ● | place us at a competitive disadvantage compared to our competitors that have less debt; |
| ● | limit our ability to borrow additional funds, dispose of assets, pay dividends and make certain investments; and |
| ● | make us more vulnerable to a general economic downturn than a company that is less leveraged. |
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A high level of indebtedness would increase the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of indebtedness will depend on our future performance. General economic conditions and financial, business and other factors affect our operations and our future performance. Many of these factors are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include our ability to access the public equity and debt markets, financial market conditions, the value of our assets and our performance at the time we need capital.
Risks Relating To Our Business
Our inability to obtain additional capital may prevent us from completing our acquisition strategy and successfully operating our business; however, additional financings may subject our existing stockholders to substantial dilution.
We expect to finance our anticipated future strategic acquisitions through public or private equity offerings or debt financings. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more strategic acquisitions or business plans. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. In addition, debt financing, if available, may involve restrictive covenants. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Our access to the financial markets and the pricing and terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets and interest rates.
Our future funding requirements will depend on many factors, including, but not limited to, the costs and timing of our future acquisitions.
A failure to successfully execute our strategy of acquiring other businesses to grow our company could adversely affect our business, financial condition, results of operations and prospects.
We intend to continue pursuing growth through the acquisition of companies or assets to expand our product offerings, project skill sets and capabilities, enlarge our geographic markets, and increase critical mass to enable us to bid on larger contracts. However, we may be unable to find suitable acquisition candidates or to complete acquisitions on favorable terms, if at all. Moreover, any completed acquisition may not result in the intended benefits. For example, while the historical financial and operating performance of an acquisition target are among the criteria we evaluate in determining which acquisition targets we will pursue, there can be no assurance that any business or assets we acquire will continue to perform in accordance with past practices or will achieve financial or operating results that are consistent with or exceed past results. Any such failure could adversely affect our business, financial condition or results of operations. In addition, any completed acquisition may not result in the intended benefits for other reasons and our acquisitions will involve a number of other risks, including:
| ● | We may have difficulty integrating the acquired companies; |
| ● | Our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing geographically or culturally diverse enterprises; |
| ● | We may not realize the anticipated cost savings or other financial benefits we anticipated; |
| ● | We may have difficulty retaining or hiring key personnel, customers and suppliers to maintain expanded operations; |
| ● | Our internal resources may not be adequate to support our operations as we expand, particularly if we are awarded a significant number of contracts in a short time period; |
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| ● | We may have difficulty retaining and obtaining required regulatory approvals, licenses and permits; |
| ● | We may not be able to obtain additional equity or debt financing on terms acceptable to us or at all, and any such financing could result in dilution to our stockholders, impact our ability to service our debt within the scheduled repayment terms and include covenants or other restrictions that would impede our ability to manage our operations; |
| ● | We may have failed to, or be unable to, discover liabilities of the acquired companies during the course of performing our due diligence; and |
| ● | We may be required to record additional goodwill as a result of an acquisition, which will reduce our tangible net worth. |
Any of these risks could prevent us from executing our acquisition growth strategy, which could adversely affect our business, financial condition, results of operations and prospects.
Our engagements can require longer implementations and other professional services engagements.
Our implementations can involve a longer period of delivery of telecommunication and infrastructure services and technologies. In addition, existing customers for other professional services projects often retain us for those projects sometime beyond an initial implementation. A successful implementation or other professional services project requires a close working relationship between us, the customer and often third- party consultants and systems integrators who assist in the process. These factors may increase the costs associated with completion of any given project award/sale, increase the timeline risks of collection of amounts due during implementations or other professional services projects, and increase risks of delay of such projects. Delays in the completion of an implementation or any other professional services project may require that the revenues associated with such implementation or project be recognized over a longer period than originally anticipated, or may result in disputes with customers, third-party consultants or systems integrators regarding performance as originally anticipated. Such delays in the implementation may cause material fluctuations in our operating results. In addition, customers may defer implementation projects or portions of such projects and such deferrals could have a material adverse effect on our business and results of operations.
Our future success is substantially dependent on third-party relationships.
An element of our strategy is to establish and maintain alliances with other companies, such as suppliers of products and services for construction and maintenance. These relationships enhance our status in the marketplace, which generates new business opportunities and marketing channels and, in certain cases, additional revenue and profitability. To effectively generate revenue out of these relationships, each party must coordinate and support required hence the sales and marketing efforts of the other, often including making a sizable investment in such sales and marketing activity. Our inability to establish and maintain effective alliances with other companies could impact our success in the marketplace, which could materially and adversely impact our results of operations. In addition, as we cannot control the actions of these third-party alliances, if these companies suffer business downturns or fail to meet their objectives, we may experience a resulting diminished revenue and decline in results of operations.
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If we do not accurately estimate the overall costs when we bid on a contract that is awarded to us, we may achieve a lower than anticipated profit or incur a loss on the contract.
A portion of our revenues from our technology and professional services offerings are derived from fixed unit price contracts that require us to perform the contract for a fixed unit price irrespective of our actual costs. We bid for these contracts based on our estimates of overall costs, but cost overruns may cause us to incur losses. The costs incurred and any net profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to:
| ● | onsite conditions that differ from those assumed in the original bid and do not qualify for a job change order; |
| ● | delays in project starts or completion; |
| ● | contract modifications creating unanticipated costs not covered by change orders; |
| ● | development of new technologies; |
| ● | availability and skill level of workers in the geographic location of a project; |
| ● | our suppliers’ or subcontractors’ failure to perform due to various reasons, including bankruptcy; |
| ● | fraud or theft committed by our employees or others; |
| ● | citations or fines issued by any governmental authority; |
| ● | delays caused by any government authority; |
| ● | difficulties in obtaining required governmental permits or approvals or performance bonds; |
| ● | labor and material cost greater than anticipated; |
| ● | changes in applicable laws and regulations; and |
| ● | claims or demands from third parties alleging damages arising from our work or from the project of which our work is a part. |
These factors may cause actual reduced profitability or losses on projects, which could adversely affect our business, financial condition, results of operations and prospects.
Our contracts may require us to perform extra or change order work, which can result in disputes and adversely affect our business, financial condition, results of operations and prospects.
Our contracts generally require us to perform extra or change order work as directed by the customer, even if the customer has not agreed in advance on the scope or price of the extra work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved by the customer and we are paid by the customer.
To the extent that actual recoveries with respect to change orders or amounts subject to contract disputes or claims are less than the estimates used in our financial statements, the amount of any shortfall will reduce our future revenues and profits, and this could adversely affect our reported working capital and results of operations. In addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.
We derive a significant portion of our revenue from a few customers and the loss of one of these customers, or a reduction in their demand for our services, could adversely affect our business, financial condition, results of operations and prospects.
Our customer base on the telecommunication sector is highly concentrated. Due to the size and nature of our contracts, one or a few customers have represented a substantial portion of our consolidated revenues and gross profits in any one year or over a period of several consecutive years. Our top four customers accounted for approximately 55% and 69% of our revenue in the years ended December 31, 2021 and 2020, respectively. Revenues under our contracts with significant customers may continue to vary from period to period depending on the timing or volume of work that those customers order or perform with in-house service organizations. A limited number of customers may continue to comprise a substantial portion of our revenue for the foreseeable future.
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Because we do not maintain any reserves for payment defaults, a default or delay in payment on a significant scale could adversely affect our business, financial condition, results of operations and prospects. We could lose business from a significant customer for a variety of reasons, including:
| ● | the consolidation, merger or acquisition of an existing customer, resulting in a change in procurement strategies employed by the surviving entity that could reduce the amount of work we receive; |
| ● | our performance on individual contracts or relationships with one or more significant customers could become impaired due to another reason, which may cause us to lose future business with such customers and, as a result, our ability to generate income would be adversely impacted; |
| ● | key customers could slow or stop spending on initiatives related to projects we are performing for them due to increased difficulty in the markets as a result of economic downturns or other reasons. |
Since many of our customer contracts allow our customers to terminate the contract without cause, our customers may terminate their contracts with us at will, which could impair our business, financial condition, results of operations and prospects.
Our failure to adequately expand our direct sales force will impede our growth.
We will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. We plan to continue to expand our account management/sales force, both domestically and internationally. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. If we are unable to hire, develop and retain talented account management/sales personnel or if the personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the intended benefits of this investment or increase our revenue.
If we are unable to attract and retain qualified executive officers and managers, we will be unable to operate efficiently, which could adversely affect our business, financial condition, results of operations and prospects.
We depend on the continued efforts and abilities of our management, as well as the senior management of our subsidiaries, to establish and maintain our customer relationships and identify strategic opportunities. The loss of any one of them could negatively affect our ability to execute our business strategy and adversely affect our business, financial condition, results of operations and prospects. Competition for managerial talent with significant industry experience is high and we may lose access to executive officers for a variety of reasons, including more attractive compensation packages offered by our competitors. Although we have entered into employment agreements with certain of our senior level management, we cannot guarantee that any of them or other key management personnel will remain employed by us for any length of time.
We derive a significant portion of our revenues from master service agreements that may be cancelled by customers on short notice, or which we may be unable to renew on favorable terms or at all.
During the years ended December 31, 2021 and 2020 we derived substantially all of our revenues from master service agreements and long-term contracts, none of which require our customers to purchase a minimum amount of services. The majority of these contracts may be cancelled by our customers upon minimal notice (typically 60 days), regardless of whether or not we are in default. In addition, many of these contracts permit cancellation of particular purchase orders or statements of work without any notice.
These agreements typically do not require our customers to assign a specific amount of work to us until a purchase order or statement of work is signed. Consequently, projected expenditures by customers are not assured until a definitive purchase order or statement of work is placed with us and the work is completed. Furthermore, our customers generally require competitive bidding of these contracts. As a result, we could be underbid by our competitors or be required to lower the prices charged under a contract being rebid. The loss of work obtained through master service agreements and long-term contracts or the reduced profitability of such work could adversely affect our business or results of operations.
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Unanticipated delays due to adverse weather conditions, global climate change and difficult work sites and environments may slow completion of our contracts, impair our customer relationships and adversely affect our business, financial condition, results of operations and prospects.
Because some of our work in the telecommunication sector is performed outdoors, our business is impacted by extended periods of inclement weather and is subject to unpredictable weather conditions, which could become more frequent or severe if general climatic changes occur. Generally, inclement weather is more likely to occur during the winter season, which falls during our first and fourth fiscal quarters. Additionally, adverse weather conditions can result in project delays or cancellations, potentially causing us to incur additional unanticipated costs, reductions in revenues or the payment of liquidated damages. In addition, some of our contracts require that we assume the risk that actual site conditions vary from those expected. Significant periods of bad weather typically reduce profitability of affected contracts, both in the current period and during the future life of affected contracts, which can negatively affect our results of operations in current and future periods until the affected contracts are completed.
Some of our projects involve challenging engineering, procurement and construction phases that may occur over extended time periods, sometimes up to several years. We may encounter difficulties in engineering, delays in designs or materials provided by the customer or a third party, equipment and material delivery delays, schedule changes, delays from customer failure to timely obtain rights-of-way, weather-related delays, delays by subcontractors in completing their portion of the project and other factors, some of which are beyond our control, but which may impact our ability to complete a project within the original delivery schedule. In some cases, delays and additional costs may be substantial, and we may be required to cancel a project and/or compensate the customer for the delay. We may not be able to recover any of these costs. Any such delays, cancellations, defects, errors or other failures to meet customer expectations could result in damage claims substantially in excess of revenue associated with a project. These factors could also negatively impact our reputation or relationships with our customers, which could adversely affect our ability to secure new contracts.
Environmental and other regulatory matters could adversely affect our ability to conduct our business and could require expenditures that could adversely affect our business, financial condition, results of operations and prospects.
Our operations are subject to laws and regulations relating to workplace safety and worker health that, among other things, regulate employee exposure to hazardous substances. While immigration laws require us to take certain steps intended to confirm the legal status of our immigrant labor force, we may nonetheless unknowingly employ illegal immigrants. Violations of laws and regulations could subject us to substantial fines and penalties, cleanup costs, third- party property damage or personal injury claims. In addition, these laws and regulations have become, and enforcement practices and compliance standards are becoming, increasingly stringent. Moreover, we cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed, or how existing or future laws or regulations will be administered or interpreted, with respect to products or activities to which they have not been previously applied. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could require us to make substantial expenditures for, among other things, pollution control systems and other equipment that we do not currently possess, or the acquisition or modification of permits applicable to our activities.
Fines, judgments and other consequences resulting from our failure to comply with regulations or adverse outcomes in litigation proceedings could adversely affect our business, financial condition, results of operations and prospects.
From time to time, we may be involved in lawsuits and regulatory actions, including class action lawsuits that are brought or threatened against us in the ordinary course of business. These actions may seek, among other things, compensation for alleged personal injury, workers’ compensation, violations of the Fair Labor Standards Act and state wage and hour laws, employment discrimination, breach of contract, property damage, punitive damages, civil penalties, and consequential damages or other losses, or injunctive or declaratory relief. Any defects or errors, or failures to meet our customers’ expectations could result in large damage claims against us. Claimants may seek large damage awards and, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. Any failure to properly estimate or manage cost, or delay in the completion of projects, could subject us to penalties.
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The ultimate resolution of these matters through settlement, mediation or court judgment could have a material impact on our financial condition, results of operations and cash flows. Regardless of the outcome of any litigation, these proceedings could result in substantial cost and may require us to devote substantial resources to defend ourselves. When appropriate, we establish reserves for litigation and claims that we believe to be adequate in light of current information, legal advice and professional indemnity insurance coverage, and we adjust such reserves from time to time according to developments. If our reserves are inadequate or insurance coverage proves to be inadequate or unavailable, our business, financial condition, results of operations and prospects may suffer.
If we are required to reclassify independent contractors as employees, we may incur additional costs and taxes which could adversely affect our business, financial condition, results of operations and prospects.
We use a significant number of independent contractors in our operations for whom we do not pay or withhold any federal, state or provincial employment tax. There are a number of different tests used in determining whether an individual is an employee or an independent contractor and such tests generally take into account multiple factors. There can be no assurance that legislative, judicial or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our independent contractors. Although we believe we have properly classified our independent contractors, the U.S. Internal Revenue Service or other U.S. federal or state authorities or similar authorities of a foreign government may determine that we have misclassified our independent contractors for employment tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties. If we are required to pay employer taxes or pay backup withholding with respect to prior periods with respect to or on behalf of our independent contractors, our operating costs will increase, which could adversely impact our business, financial condition, results of operations and prospects.
Our dependence on subcontractors and suppliers could increase our cost and impair our ability to complete contracts on a timely basis or at all.
We rely on third-party subcontractors to perform some of the work on our contracts. We also rely on third-party suppliers to provide materials needed to perform our obligations under those contracts. We generally do not bid on contracts unless we have the necessary subcontractors and suppliers committed for the anticipated scope of the contract and at prices that we have included in our bid. Therefore, to the extent that we cannot engage subcontractors or suppliers, our ability to bid for contracts may be impaired. In addition, if a subcontractor or third-party supplier is unable to deliver its goods or services according to the negotiated terms for any reason, we may suffer delays and be required to purchase the services from another source at a higher price. We sometimes pay our subcontractors and suppliers before our customers pay us for the related services. If customers fail to pay us and we choose, or are required, to pay our subcontractors for work performed or pay our suppliers for goods received, we could suffer an adverse effect on our business, financial condition, results of operations and prospects.
Our insurance coverage may be inadequate to cover all significant risk exposures.
We will be exposed to liabilities that are unique to the services we provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition, results of operations and prospects.
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A portion of our operations are subject to hazards that may cause personal injury or property damage, thereby subjecting us to liabilities and possible losses, which may not be covered by insurance.
Our workers are subject to hazards associated with providing construction and related services on construction sites. For example, some of the work we perform is underground. If the field location maps supplied to us are not accurate, or if objects are present in the soil that are not indicated on the field location maps, our underground work could strike objects in the soil containing pollutants that could result in a rupture and discharge of pollutants. In such a case, we may be liable for fines and damages. These operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. Even though we believe that the insurance coverage we maintain is in amounts and against the risks that we believe are consistent with industry practice, this insurance may not be adequate to cover all losses or liabilities that we may incur in our operations. To the extent that we experience a material increase in the frequency or severity of accidents or workers’ compensation claims, or unfavorable developments on existing claims, our business, financial condition, results of operations and prospects could be adversely affected.
The Occupational Safety and Health Act of 1970, as amended, or OSHA, establishes certain employer responsibilities, including the maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Health and Safety and Health Administration and various recordkeeping, disclosure and procedural requirements. While we have invested, and will continue to invest, substantial resources in occupational health and safety programs, serious accidents or violations of OSHA rules may subject us to substantial penalties, civil litigation or criminal prosecution, which could adversely affect our business, financial condition, results of operations and prospects. However, our record to date has had no incidents or losses and we are in full compliance with a 100% safety record.
Errors in our contracting services may give rise to claims against us, increase our expenses, or harm our reputation.
Our contracting services are complex and our final work product may contain errors. We have not historically accrued reserves for potential claims as they have been immaterial. The costs associated with such claims, including any legal proceedings, could adversely affect our business, financial condition, results of operations and prospects.
The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
Global health concerns relating to the coronavirus outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact our workforce and operations and the operations of our customers, suppliers and business partners. These measures may remain in place for a significant period of time and they are likely to continue to adversely affect our business, results of operations and financial condition.
The spread of the coronavirus has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.
The extent to which the coronavirus outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the coronavirus outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
There are no comparable recent events which may provide guidance as to the effect of the spread of the coronavirus and a global pandemic, and, as a result, the ultimate impact of the coronavirus outbreak or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations, and we will continue to monitor the coronavirus situation closely. As of March 2021, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine distribution, supply and effectiveness will impact when the negative economic effects as a result of COVID-19 will abate or end and the timing of such recovery may affect our financial condition.
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Risks Related to Our Industry
Our industry is highly competitive, with a variety of larger companies with greater resources competing with us, and our failure to compete effectively could reduce the number of new contracts awarded to us or adversely affect our market share and harm our financial performance.
The contracts on which we bid are generally awarded through a competitive bid process, with awards generally being made to the lowest bidder, but sometimes based on other factors, such as shorter contract schedules, larger scale to complete projects or prior experience with the customer. Managed Services is a very competitive market and as such, our strategy to work exclusively through distribution channels with existing customer bases and robust sales organizations that can provide rapid growth. Most of our competitors are not channel only, but rather serve customers directly as well as have a channel component. Many are also wed to their own software, which makes it challenging to pivot as threats change. Some of our significant competitors would be Arctic Wolf, Herjevic Group, SecureWorks, and numerous smaller competitors. Our current and potential larger competitors in the professional services sector include MasTec, Dycom Industries, Inc., Goodman Networks, Inc., and Black and Veatch. In some segments of our business, price is often an important factor in determining which service provider is selected by our customers, especially on smaller, less complex projects. As a result, any organization with adequate financial resources and access to technical expertise may become a competitor. Smaller competitors are sometimes able to win bids for these projects based on price alone because of their lower costs and financial return requirements. Additionally, our competitors may develop the expertise, experience and resources to provide services that are equal or superior in price to our services, and we may not be able to maintain or enhance our competitive position.
Some of our competitors have already achieved greater market penetration than we have in the markets in which we compete, and some have greater financial and other resources than we do. A number of national companies in our industry are larger than we are and, if they so desire, could establish a presence in our markets and compete with us for contracts. As a result of this competition, we may need to accept lower contract margins in order to compete against competitors that have the ability to accept awards at lower prices or have a pre-existing relationship with a customer. If we are unable to compete successfully in our markets, our business, financial condition, results of operations and prospects could be adversely affected.
Many of the industries we serve are subject to consolidation and rapid technological and regulatory change, and our inability or failure to adjust to our customers’ changing needs could reduce demand for our services.
We derive, and anticipate that we will continue to derive, a substantial portion of our revenue from customers in the telecommunications and utilities industries. The telecommunications and utilities industries are subject to rapid changes in technology and governmental regulation. Changes in technology may reduce the demand for the services we provide. For example, new or developing technologies could displace the wireline systems used for the transmission of voice, video and data, and improvements in existing technology may allow telecommunications providers to significantly improve their networks without physically upgrading them. Alternatively, our customers could perform more tasks themselves, which would cause our business to suffer. Additionally, the telecommunications and utilities industries have been characterized by a high level of consolidation that may result in the loss of one or more of our customers. Our failure to rapidly adopt and master new technologies as they are developed in any of the industries we serve or the consolidation of one or more of our significant customers could adversely affect our business, financial condition, results of operations and prospects.
Further, many of our telecommunications customers are regulated by the Federal Communications Commission, or the FCC, and other international regulators. The FCC and other regulators may interpret the application of their regulations in a manner that is different than the way such regulations are currently interpreted and may impose additional regulations, either of which could reduce demand for our services and adversely affect our business and results of operations.
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Economic downturns could cause capital expenditures in the industries we serve to decrease, which may adversely affect our business, financial condition, results of operations and prospects.
The demand for our services has been, and will likely continue to be, cyclical in nature and vulnerable to general downturns in the United States economy. The current election cycle may cause economic uncertainty. The wireless and wireline telecommunications industry are cyclical in nature and vulnerable to general downturns in the United States and international economies. Our customers are affected by economic changes that decrease the need for or the profitability of their services. This can result in a decrease in the demand for our services and potentially result in the delay or cancellation of projects by our customers. Slow-downs in real estate, fluctuations in commodity prices and decreased demand by end-customers for services could affect our customers and their capital expenditure plans. As a result, some of our customers may opt to defer or cancel pending projects. A downturn in overall economic conditions also affects the priorities placed on various projects funded by governmental entities and federal, state and local spending levels.
In general, economic uncertainty makes it difficult to estimate our customers’ requirements for our services. Our plan for growth depends on expanding our company both in the United States and internationally. If economic factors in any of the regions in which we plan to expand are not favorable to the growth and development of the telecommunications industries in those countries, we may not be able to carry out our growth strategy, which could adversely affect our business, financial condition, results of operations and prospects.
Other Risks Relating to Our Company and Results of Operations
Our operating results may fluctuate due to factors that are difficult to forecast and not within our control.
Our past telecommunications operating results may not be accurate indicators of future performance, and you should not rely on such results to predict our future performance.
Our operating results have fluctuated and could fluctuate in the future. Factors that may contribute to fluctuations include:
| ● | changes in aggregate capital spending, cyclicality and other economic conditions, or domestic and international demand in the industries we serve; |
| ● | our ability to effectively manage our working capital; |
| ● | our ability to satisfy consumer demands in a timely and cost-effective manner; |
| ● | pricing and availability of labor and materials; |
| ● | shifts in geographic concentration of customers, supplies and labor pools; and |
| ● | seasonal fluctuations in demand and our revenue. |
Actual results could differ from the estimates and assumptions that we use to prepare our financial statements.
To prepare financial statements in conformity with GAAP, management is required to make estimates and assumptions as of the date of the financial statements that affect the reported values of assets and liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Areas requiring significant estimates by our management include:
| ● | contract costs and profits and application of percentage-of-completion accounting and revenue recognition of contract change order claims; |
| ● | provisions for uncollectible receivables and customer claims and recoveries of costs from subcontractors, suppliers and others; |
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| ● | valuation of assets acquired and liabilities assumed in connection with business combinations; |
| ● | accruals for estimated liabilities, including litigation and insurance reserves; and |
| ● | goodwill and intangible asset impairment assessment. |
At the time the estimates and assumptions are made, we believe they are accurate based on the information available. However, our actual results could differ from, and could require adjustments to, those estimates.
We exercise judgment in determining our provision for taxes in the United States, Canada, and Puerto Rico that are subject to tax authority audit review that could result in additional tax liability and potential penalties that would negatively affect our net income.
The amounts we record in intercompany transactions for services, licenses, funding and other items affects our potential tax liabilities. Our tax filings are subject to review or audit by the U.S. Internal Revenue Service and state, local and foreign taxing authorities. We exercise judgment in determining our worldwide provision for income and other taxes and, in the ordinary course of our business, there may be transactions and calculations where the ultimate tax determination is uncertain. Examinations of our tax returns could result in significant proposed adjustments and assessment of additional taxes that could adversely affect our tax provision and net income in the period or periods for which that determination is made.
Risks Related to our Common Stock
An active trading market for our common stock may not develop.
Our common stock has not yet been listed on any national securities exchange and has not been quoted on The OTC Bulletin Board or any of the marketplaces of OTC Link. We cannot predict the extent to which investor interest in us will lead to the development of an active public trading market or how liquid that public market may become.
Additionally, because the quoted price of our common stock is less than $5.00 per share, our common stock is considered a “penny stock,” and trading in our common stock is subject to the requirements of Rule 15g-9 under the Exchange Act. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including making an individualized written suitability determination for the purchaser and receiving the purchaser’s written consent prior to the transaction. Securities and Exchange Commission regulations also require additional disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few brokers or dealers are likely to undertake these compliance activities and this limited liquidity will make it more difficult for an investor to sell his shares of our common stock in the secondary market should the investor wish to liquidate the investment. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.
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Our stock price may be volatile, which could result in substantial losses to investors and litigation.
In addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this “Risk Factors” section, the market price of and trading volume for our common stock may change for a variety of other reasons, not necessarily related to our actual operating performance. The capital markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition, the average daily trading volume of the securities of small companies can be very low, which may contribute to future volatility. Factors that could cause the market price of our common stock to fluctuate significantly include:
| ● | the results of operating and financial performance and prospects of other companies in our industry; |
| ● | strategic actions by us or our competitors, such as acquisitions or restructurings; |
| ● | announcements of innovations, increased service capabilities, new or terminated customers or new, amended or terminated contracts by our competitors; |
| ● | the public’s reaction to our press releases, other public announcements, and filings with the Securities and Exchange Commission; |
| ● | lack of securities analyst coverage or speculation in the press or investment community about us or market opportunities in the telecommunications services and staffing industry; |
| ● | changes in government policies in the United States and, as our international business increases, in other foreign countries; |
| ● | changes in earnings estimates or recommendations by securities or research analysts who track our common stock or failure of our actual results of operations to meet those expectations; |
| ● | market and industry perception of our success, or lack thereof, in pursuing our growth strategy; |
| ● | changes in accounting standards, policies, guidance, interpretations or principles; |
| ● | any lawsuit involving us, our services or our products; |
| ● | arrival and departure of key personnel; |
| ● | sales of common stock by us, our investors or members of our management team; and |
| ● | changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural or man-made disasters. |
Any of these factors, as well as broader market and industry factors, may result in large and sudden changes in the trading volume of our common stock and could seriously harm the market price of our common stock, regardless of our operating performance. This may prevent you from being able to sell your shares at or above the price you paid for your shares of our common stock, if at all. In addition, following periods of volatility in the market price of a company’s securities, stockholders often institute securities class action litigation against that company. Our involvement in any class action suit or other legal proceeding could divert our senior management’s attention and could adversely affect our business, financial condition, results of operations and prospects.
The sale or availability for sale of substantial amounts of our common stock could adversely affect the market price of our common stock.
Sales of substantial amounts of shares of our common stock, or the perception that these sales could occur, could adversely affect the market price of our common stock and could impair our future ability to raise capital through common stock offerings. As of December 31, 2021, we had 46,151,188 shares of common stock issued and 46,149,117 shares outstanding, of which 429,168 shares were restricted securities pursuant to Rule 144 promulgated by the SEC. The sale of these shares into the open market may adversely affect the market price of our common stock.
In addition, at December 31, 2021, we also had outstanding $6,934,231 aggregate principal and $238,678 accrued interest of convertible loans payable to related parties and convertible notes that were convertible into 57,092,108 shares of common stock on that date. However, we cannot currently determine the total number of shares of our common stock that may be issued upon the conversion or repayment of our convertible notes because the total number of shares and the conversion prices or the prices at which we can issue our common stock to pay down the principal of and interest on our convertible notes depend on a number of factors, including the prices and nature of any equity securities we may issue in the future and the market prices of our common stock in the periods leading up to any particular amortization payment date on which we elect to make amortization payments on our convertible notes in shares of our common stock. As of December 31, 2021, there were also outstanding warrants to purchase an aggregate of 6,002,500 shares of our common stock at a weighted-average exercise price of $0.49 per share and outstanding stock options to purchase 10,794,605 shares of our common stock at a weighted average exercise price of $0.29 per share, all of which warrants and stock options were exercisable as of such date. The conversion of a significant principal amount of our outstanding convertible debt securities into shares of our common stock, our repayment of a significant amount of principal, interest or other amounts payable under such debt securities in shares of our common stock or the exercise of outstanding warrants at prices below the market price of our common stock could adversely affect the market price of our common stock. The market price of our common stock also may be adversely affected by our issuance of shares of our capital stock or convertible securities in connection with future acquisitions, or in connection with other financing efforts.
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If we do not meet the listing standards of a national securities exchange our investors’ ability to make transactions in our securities will be limited and we will be subject us to additional trading restrictions.
Our securities currently are traded over-the-counter on the OTC QB market and are not qualified to be listed on a national securities exchange, such as NASDAQ. Accordingly, we face significant material adverse consequences, including:
| ● | a limited availability of market quotations for our securities; |
| ● | reduced liquidity with respect to our securities; |
| ● | our shares of common stock are currently classified as “penny stock” which requires brokers trading in our shares of common stock to adhere to more stringent rules, resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock; |
| ● | a limited amount of news and analyst coverage for our company; and |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Since our common stock is traded on the OTC Pink, our common stock is a covered security. Although the states are preempted from regulating the sale of our securities, the federal statute allows the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer traded over-the-counter, our common stock would not be a covered security and we would be subject to regulation in each state in which we offer our securities.
Our shares of common stock are subject to penny stock regulations. Because our common stock is a penny stock, holders of our common stock may find it difficult or may be unable to sell their shares.
The SEC has adopted rules that regulate broker/dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange system). The penny stock rules require a broker/dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker/dealer, and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker/dealer must make a special written determination that a penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in any secondary market for a stock that becomes subject to the penny stock rules, and accordingly, holders of our common stock may find it difficult or may be unable to sell their shares.
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We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock.
We have never paid cash dividends and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain any earnings to finance our operations and growth. As a result, any short-term return on your investment will depend on the market price of our common stock, and only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. The decision whether to pay dividends will be made by our board of directors in light of conditions then existing, including, but not limited to, factors such as our financial condition, results of operations, capital requirements, business conditions, and covenants under any applicable contractual arrangements. Investors seeking cash dividends should not invest in our common stock.
If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the market price of our common stock will likely decline.
The trading market for our common stock will rely in part on the research and reports that equity research analysts, over whom we have no control, publish about us and our business. We may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the market price for our common stock could decline. In the event we obtain securities or industry analyst coverage, the market price of our common stock could decline if one or more equity analysts downgrade our common stock or if those analysts issue unfavorable commentary, even if it is inaccurate, or cease publishing reports about us or our business.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal executive offices are located in Boca Raton, Florida. We are occupying our 1,282 sq ft offices under a three-year lease that expires in August 2022 and has current monthly lease payments of $2,933.
Set forth below are the locations of the other properties leased by us, the businesses that use the properties, and the size of each such property. All such properties are used by our company or by one of our subsidiaries principally as office facilities to house their administrative, marketing, and engineering and professional services personnel. We believe our facilities and equipment to be in good condition and reasonably suited and adequate for our current needs.
| Location | Owned or Leased | User | Size (Sq. Ft.) | |||||
| Batavia, IL | Leased (1) | High Wire Networks, Inc. | 8,050 | |||||
| Miami, FL | Leased (2) | ADEX Corporation | 3,400 | |||||
| Puerto Rico | Leased (3) | AW Solutions Puerto Rico, LLC | 1,575 | |||||
| Miami, FL | Leased (4) | Tropical Communications, Inc. | 3,400 | |||||
| (1) | This facility is leased pursuant to a five-year lease which expires in July 2023 and provides for current monthly lease payments of $9,593, with 12-15% increases annually on August 1. |
| (2) | This facility is leased pursuant to a four-year lease which expires in April 2023 and provides for current monthly lease payments of $5,177, with 3% increases annually on June 1. |
| (3) | This facility is leased on a month-to-month basis and provides for monthly payments of $1,500. |
| (4) | This facility is leased on a month-to-month basis and provides for monthly base rental payments of $3,792. |
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
On December 16, 2021, a former employee filed a lawsuit against us and our Chief Executive Officer for unpaid commissions. The claim is for $100,000. On March 7, 2022, we filed a response and counterclaim against the former employee. We believe we will prevail and have not recorded a loss contingency as of December 31, 2021.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock is currently available for quotation on the OTC QB market under the symbol “HWNI”.
On April 8, 2022, the closing sale price of our common stock, as reported by OTC Markets, was $0.18 per share. On April 8, 2022, there were 70 holders of record of our common stock and 52,901,773 common shares outstanding. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Dividends
We have never paid or declared any dividend on our common stock and we do not anticipate paying cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
Information regarding our equity compensation plans is set forth in Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Unregistered Sales of Equity Securities
In the fourth quarter of 2021, we issued securities in the following transactions, each of which was exempt from the registration requirements of the Securities Act. Except for the shares of our common stock that were issued upon the conversion of our convertible debt securities or the grants of shares of common stock under our 2012 Performance Incentive Plan, all of the below-referenced securities were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act and are deemed to be restricted securities for purposes of the Securities Act. There were no underwriters or placement agents employed in connection with any of these transactions. Use of the exemption provided in Section 4(2) for transactions not involving a public offering is based on the following facts:
| ● | Neither we nor any person acting on our behalf solicited any offer to buy or sell securities by any form of general solicitation or advertising. | |
| ● | The recipients were either accredited or otherwise sophisticated individuals who had such knowledge and experience in business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities. |
| ● | The recipients had access to business and financial information concerning our company. | |
| ● | All securities issued were issued with a restrictive legend and may only be disposed of pursuant to an effective registration or exemption from registration in compliance with federal and state securities laws. |
The shares of our common stock that were issued upon the conversion of our convertible debt securities were issued pursuant to the exemption from registration under Section 3(a)(9) of the Securities Act and are deemed to be restricted securities for purposes of the Securities Act.
On October 6, 2021, we issued 1,761,527 shares of our common stock to Cobra Equities SPV, LLC upon the conversion of $12,442 of principal and $36,000 of accrued interest pursuant to a convertible debenture.
On October 25, 2021, we issued 1,254,545 shares of our common stock to Cobra Equities SPV, LLC upon the conversion of $33,000 of principal and $1,500 of accrued interest pursuant to a convertible debenture.
On November 4, 2021, we issued 1,181,818 shares of our common stock to Cobra Equities SPV, LLC upon the conversion of $32,500 of principal pursuant to a convertible debenture.
On November 8, 2021, we issued 1,833,333 shares of our common stock to Keith Hayter upon the conversion of $110,000 of principal pursuant to a related party convertible debenture.
On November 24, 2021, we issued 1,345,455 shares of our common stock to Cobra Equities SPV, LLC upon the conversion of $35,500 of principal and $1,500 of accrued interest pursuant to a convertible debenture.
On December 15, 2021, we issued 1,261,818 shares of our common stock to Cobra Equities SPV, LLC upon the conversion of $33,500 of principal and $1,200 of accrued interest pursuant to a convertible debenture.
On December 16, 2021, we issued 2,045,454 shares of our common stock to SCS, LLC upon the conversion of 45 shares of Series D preferred stock with a stated value of $10,000 per share.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors known to us could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of our company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our services, fluctuations in pricing for materials, and competition.
Basis of Presentation
Our consolidated financial statements are stated in United States dollars ($) and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this prospectus.
Unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “$” refer to United States dollars and all references to “common stock” refer to the common shares in our capital stock.
Unless specifically set forth to the contrary, when used in this report the terms “we”, “our”, the “Company” and similar terms refer to High Wire Networks, Inc., a Nevada corporation, and its consolidated subsidiaries.
The information that appears on our websites at www.HighWireNetworks.com and www.SpectrumGlobalSolutions.com is not part of this report.
Description of Business
Business Overview
Telecommunications
Telecommunications providers, technology and enterprise customers continue to seek and outsource solutions in order to reduce their investment in capital equipment, provide flexibility in workforce sizing and expand product offerings without large increases in incremental hiring. As a result, we believe there is significant opportunity to expand both our United States and international telecommunications solutions services and staffing services capabilities. As we continue to expand our presence in the marketplace, we will target those customers going through new network deployments and wireless service upgrades.
We expect to continue to increase our gross margins by leveraging our single-source end-to-end network to efficiently provide a full spectrum of end-to-end next-generation network solutions and staffing services to our customers. We believe our solutions and services offerings can alleviate some of the inefficiencies typically present in our industry, which result, in part, from the highly fragmented nature of the telecommunications industry, limited access to skilled labor and the difficulty industry participants have in managing multiple specialty-service providers to address their needs. As a result, we believe we can provide superior service to our customers and eliminate certain redundancies and costs for them. We believe our ability to address a wide range of end-to-end solutions, network infrastructure and project-staffing service needs of our telecommunications industry clients is a key competitive advantage. Our ability to offer diverse technical capabilities (including design, engineering, construction, deployment, and installation and integration services) allows customers to turn to a single source for those specific specialty services, as well as to entrust us with the execution of entire turn-key solutions.
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We have become a multi-faceted company with an international presence. We believe this platform will allow us to leverage our corporate and other fixed costs and capture gross margin benefits. Our platform is highly scalable. We typically hire workers to staff projects on a project-by-project basis and our other operating expenses are primarily fixed. Accordingly, we are generally able to deploy personnel to infrastructure projects in the United States and beyond without incremental increases in operating costs, allowing us to achieve greater margins. We believe this business model enables us to staff our business efficiently to meet changes in demand.
Finally, given the worldwide popularity of telecommunications and wireless products and services, we will selectively pursue international expansion, which we believe represents a compelling opportunity for additional long-term growth.
Our planned expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our growth effectively will require us to continue to enhance our operations management systems, financial and management controls and information systems and to hire, train and retain skilled telecommunications personnel. The timing and amount of investments in our expansion could affect the comparability of our results of operations in future periods.
Our planned acquisitions will be timed with additions to our management team of skilled professionals with deep industry knowledge and a strong track record of execution. Our senior management team brings an average of over 30 years of individual experience across a broad range of disciplines. We believe our senior management team is a key driver of our success and is well-positioned to execute our strategy.
High Wire was incorporated in 2007 and functioned as a development stage company with limited activities through 2017.
HWN, Inc. incorporated in Delaware on January 20, 2017. Our principal offices are located at 980 N. Federal Highway, Suite 304, Boca Raton, Florida 33432. Our telephone number is (407) 512-9102. We are a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. Our Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.
On February 7, 2019, High Wire and JTM Electrical Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which High Wire owned 50% of JTM.
On June 16, 2021, HWN completed a merger with High Wire. The merger was accounted for as a reverse merger. At the time of the reverse merger, High Wire’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, and ADEX Telecom, Inc., (collectively “ADEX”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”).
On November 4, 2021, we closed on our acquisition of Secure Voice Corp (“SVC”).
On February 15, 2022, High Wire sold its 50% interest in JTM.
We provide the following categories of offerings to our customers:
| ● | Technology Solutions: We provide a comprehensive technology platform and array of professional services and solutions to our clients that are applicable across multiple platforms and technologies to include but not limited to: Wi-Fi, Wi-Max and wide-area networks, fiber networks (ISP/OSP), DAS networks (iDAS/oDAS), small cell distributed networks, public safety networks and enterprise networks for incumbent local exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators (MSOs), tower and network aggregators, utility entities, government and enterprise customers. Our services teams support the deployment of new networks and technologies, as well as expand, maintain and decommission existing networks. |
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| ● | Construction Solutions: We are also a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. |
| ● | Security: High Wire’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment. |
The Technology Solutions division offers carriers, service providers and enterprise customers professional contracting services, to include: infrastructure audits; site acquisition; architectural, structural and civil design and analysis; construction management; construction; installation; warehousing and logistics; maintenance services, that support the build-out and upgrade and operation of some of the most advanced networks, small cell, Wi-Fi, fiber and distributed antenna system (DAS) networks. We believe the expansion and migration of these next-generation networks, our long-term relationships supported by multiyear Master Service Agreements (MSA) and multi-year service contracts with major wireless, commercial wireline and wireless operators, DAS operators, tower companies, original equipment manufacturers (OEM’s) and prime contractor/project management organization provides us a significant opportunity as a long term leading and well respected industry leader in this marketplace.
Our Technology Solutions division is supported by our subsidiaries: AW Solutions Puerto Rico, LLC and Tropical Communications, Inc. (collectively known as “AWS” or the “AWS Entities”), ADEX CORP, ADEX Puerto Rico LLC, and ADEX Canada (collectively known as “ADEX” or the “ADEX Entities”), and SVC. The AWS Entities provide a broad range of professional services and solutions to top tier communication carriers and Fortune 1000 enterprise customers.
Our Operating Units
Our company is comprised of the following:
| ● | Technology Solutions: The Technology Solutions group is composed of the following: High Wire is a global provider of managed security, professional services delivered exclusively through a channel sales model. ADEX is a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications and technology industry, service providers and enterprise customers domestically and internationally. |
| ● | High Wire’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment. |
| ● | Construction Solutions: Tropical provides fiber and DAS deployments for facilities and outdoor environments. |
| ● | The High Wire Entities: ADEX is a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications and technology industry, service providers and enterprise customers domestically and internationally. ADEX seeks to assist its customers throughout the entire life cycle of a network deployment via its comprehensive suite of managed solutions that include consulting and professional staffing services to service providers as well as enterprise customers, network implementation, network installation, network upgrades, rebuilds, design, engineering and integration wireless network support, wireless network integration, wireless and wireline equipment installation and commissioning, wireless site development and construction management, network engineering, project management, disaster recovery design engineering and integration. The AWS Entities are professional, multi-service line, telecommunications infrastructure company that provide outsourced services to the wireless and wireline industry. The AWS Entities services include network systems design, site acquisition services, asset audits, architectural and engineering services, program management, construction management and inspection, construction, installation, maintenance and other technical services. The AWS Entities provide in-field design, computer aided design and drawing services (CADD), fiber and DAS deployments for facilities and outdoor environments. SVC is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers. |
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Impact of the COVID-19 Pandemic
The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
Global health concerns relating to the COVID-19 outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact our workforce and operations and the operations of its customers, suppliers and business partners. These measures may remain in place for a significant period of time and they are likely to continue to adversely affect our business, results of operations and financial condition.
The spread of COVID-19 has caused us to modify our company’s business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.
The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a global pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations, and we will continue to monitor the COVID-19 situation closely. As of November 2021, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine distribution, supply and effectiveness will impact when the negative economic effects as a result of COVID-19 will abate or end and the timing of such recovery may affect our financial condition.
Factors Affecting Our Performance
Changes in Demand for Data Capacity and Reliability.
The telecommunications industry has undergone and continues to undergo significant changes due to advances in technology, increased competition as telephone and cable companies converge, the growing consumer demand for enhanced and bundled services and increased governmental broadband stimulus funding. As a result of these factors, the networks of our customers increasingly face demands for more capacity and greater reliability. Telecommunications providers continue to outsource a significant portion of their engineering, construction and maintenance requirements in order to reduce their investment in capital equipment, provide flexibility in workforce sizing, expand product offerings without large increases in incremental hiring and focus on those competencies they consider core to their business success. These factors drive customer demand for our services.
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The proliferation of smart phones and other wireless data devices has driven demand for mobile broadband. This demand and other advances in technology have prompted wireless carriers to upgrade their networks. Wireless carriers are actively increasing spending on their networks to respond to the explosion in wireless data traffic, upgrade network technologies to improve performance and efficiency and consolidate disparate technology platforms. These customer initiatives present long-term opportunities for us for the wireless services we provide. Further, the demand for mobile broadband has increased bandwidth requirements on the wired networks of our customers. As the demand for mobile broadband grows, the amount of cellular traffic that must be “backhauled” over customers’ fiber and coaxial networks increases and, as a result, carriers are accelerating the deployment of fiber optic cables to cellular sites. These trends are increasing the demand for the types of services we provide.
Our Ability to Recruit, Manage and Retain High-Quality IT and Telecommunications Personnel.
The shortage of skilled labor in the telecommunications industry and the difficulties in recruiting and retaining skilled personnel can frequently limit the ability of specialty contractors to bid for and complete certain contracts. We believe our access to a skilled labor pool gives us a competitive edge over our competitors as we continue to expand.
Our Ability to Expand Internationally
We believe international expansion represents a compelling opportunity for additional growth over the long-term because of the worldwide need for telecommunications infrastructure. We plan to expand our global presence either by expanding our current operations or by acquiring subsidiaries with international platforms.
Our Ability to Expand and Diversify Our Customer Base.
Our customers for specialty contracting services consist of leading telephone, wireless, cable television, utility and other companies. Historically, our revenue has been significantly concentrated in a small number of customers. Although we still operate at a net loss, we have acquired additional subsidiaries and diversified our customer base and revenue streams.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based on our historical consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make certain estimates and assumptions that affect the amounts reported therein and accompanying notes. On an ongoing basis, we evaluate these estimates and assumptions, including those related to recognition of revenue for costs, the fair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles and other long-lived assets, income taxes, asset lives used in computing depreciation and amortization, allowance for doubtful accounts, stock-based compensation expense, contingent consideration and accruals for contingencies, including legal matters. These estimates and assumptions require the use of judgment as to the likelihood of various future outcomes and as a result, actual results could differ materially from these estimates.
We have identified the accounting policies below as critical to the accounting for our business operations and the understanding of our results of operations because they involve making significant judgments and estimates that are used in the preparation of our historical consolidated financial statements. The impact of these policies affects our reported and expected financial results and are discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have discussed the development, selection and application of our critical accounting policies with the Audit Committee of our board of directors, and the Audit Committee has reviewed the disclosure relating to our critical accounting policies in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also important to understanding our historical consolidated financial statements. The notes to our consolidated financial statements in this report contain additional information related to our accounting policies, including the critical accounting policies described herein, and should be read in conjunction with this discussion.
Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.
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Revenue Recognition
Adoption of New Accounting Guidance on Revenue Recognition
We recognize revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Contract Types
Our contracts fall under two main types: 1) fixed-price and 2) time-and-materials. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working permanently at customer locations and materials costs incurred by those employees.
A significant portion of our revenues come from customers with whom we have a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For our different revenue service types the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases this may be each day, or each week depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work.
Revenue Service Types
The following is a description of our revenue service types, which include professional services and construction:
| ● | Professional services are services provided to the clients where we deliver distinct contractual deliverables and/or services. Deliverables may include but are not limited to: engineering drawings, designs, reports and specification. Services may include, but are not limited to: consulting or professional staffing to support our client’s objectives. Consulting or professional staffing services may be provided remotely or on client premises and under their direction and supervision. |
| ● | Construction Services are services provided to the client where we may self-perform or subcontract services that require the physical construction of infrastructure or installation of equipment and materials. |
Disaggregation of Revenues
We disaggregate our revenue from contracts with customers by service type, contract type, contract duration, and timing of transfer of goods or services. We also disaggregate our revenue by operating segment and geographic location.
Accounts Receivable
Accounts receivable include amounts from work completed in which we have billed. The amounts due are stated at their net estimated realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable.
Contract Assets and Liabilities
Contract assets include costs and services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated balance sheets.
Contract liabilities include payment received for incomplete performance obligations and are included in contract liabilities on the consolidated balance sheets.
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Fair Value Measurements
We measure and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Derivative Liabilities
We account for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. We use estimates of fair value to value our derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, our policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. We categorizes our fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above.
Goodwill
We test our goodwill for impairment at least annually on December 31st and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and our consolidated financial results.
We test goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the years ended December 31, 2021 and 2020.
Intangible Assets
At December 31, 2021 and 2020, definite-lived intangible assets consist of tradenames and customer relationships which are being amortized over their estimated useful lives of 10 years.
We periodically evaluate the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. We have no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. We measure the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were no impairment charges during the years ended December 31, 2021 and 2020.
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Long-lived Assets
In accordance with ASC 360, “Property, Plant and Equipment”, we test long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were no impairment charges recorded during the years ended December 31, 2021 and 2020.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We regularly evaluate estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Going Concern Assessment
Management assesses going concern uncertainty in our consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date of the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
We have generated losses in 2021 and 2020 and High Wire has generated losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cash flow from operations. As of and for the year ended December 31, 2021, we had an operating loss of $3,886,872 (before deducting losses attributable to noncontrolling interests, cash flows used in operations of $4,207,759 and a working capital deficit of $20,788,076.
Management has prepared estimates of operations for 2022 and believes that sufficient funds will be generated from operations to fund its operations and to service its debt obligations for one year from the date of the filing of the consolidated financial statements in our Annual Report on Form 10-K, which indicate improved operations and our ability to continue operations as a going concern.
The impact of COVID-19 on our business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on a return to more normal operations. Further, the recently enacted CARES Act provides for economic assistance loans through the SBA. As of December 31, 2021, ADEX had $2,010,000 of PPP loans outstanding from the SBA under the CARES Act. The PPP provides that the PPP loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. ADEX used the proceeds from the PPP loans for qualifying expenses and is applying for forgiveness of the PPP loans in accordance with the terms of the CARES Act.
The accompanying consolidated financial statements have been prepared on a going concern basis under which we are expected to be able to realize our assets and satisfy our liabilities in the normal course of business.
Management believes that based on relevant conditions and events that are known and reasonably knowable that our forecasts for one year from the date of the filing of the consolidated financial statements in our Annual Report on Form 10-K indicate improved operations and our ability to continue operations as a going concern. We have contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of management to raise additional equity capital through private and public offerings of our common stock, and the attainment of profitable operations. These factors raise substantial doubt regarding our ability to continue as a going concern for a period of one year from the issuance of these consolidated financial statements. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
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Results of Operations
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The following summary of our results of operations should be read in conjunction with our financial statements for the years ended December 31, 2021 and 2020.
Our operating results for the years ended December 31, 2021 and 2020 are summarized as follows:
| Year Ended December 31, 2021 | Year Ended December 31, 2020 | |||||||
| Statement of Operations Data: | ||||||||
| Revenues | $ | 27,206,689 | $ | 9,909,157 | ||||
| Operating expenses | 30,881,118 | 11,351,393 | ||||||
| Loss from continuing operations before taxes | (3,674,429 | ) | (1,442,236 | ) | ||||
| Total other (expense) income | (10,003,201 | ) | 732,233 | |||||
| Net income from discontinued operations, net of taxes | 675,355 | 33,838 | ||||||
| Net income attributable to noncontrolling interest | (337,677 | ) | (16,918 | ) | ||||
| Deemed dividend - Series A preferred stock modification | (5,852,000 | ) | - | |||||
| Net loss attributable to common shareholders | (19,191,952 | ) | (693,083 | ) | ||||
| Net loss per share, basic and diluted | (1.00 | ) | - | |||||
| Weighted average common shares outstanding, basic and diluted | 19,146,572 | - | ||||||
Revenues
Our revenue increased from $9,909,157 for the year ended December 31, 2020 to $27,206,689 for the year ended December 31, 2021. The increase is primarily related to the addition of the ADEX Entities, AWS PR, SVC, and Tropical, which accounted for $14,269,197 in revenue from the dates of acquisition through December 31, 2021. We expect our revenue to continue to increase with the addition of these entities going forward.
Additionally, our operations, as well as the operations of many of our customers, were impacted by the ongoing COVID-19 pandemic, which negatively impacted our revenues in 2020. We anticipate that as the COVID-19 restrictions are removed, revenues should begin to increase.
A significant portion of our services are performed under master service agreements and other arrangements with customers that extend for periods of one or more years. We are currently party to numerous master service agreements, and typically have multiple agreements with each of our customers. Master Service Agreements (MSAs) generally contain customer-specified service requirements, such as discreet pricing for individual tasks. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, perform work with the customer’s own employees and use other service providers when jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with written notice. The remainder of our services are provided pursuant to contracts for specific projects. Long-term contracts relate to specific projects with terms in excess of one year from the contract date. Short-term contracts for specific projects are generally three to four months in duration. The percentage of revenue from long-term contracts varies between periods depending on the mix of work performed under our contracts.
Operating Expenses
Cost of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.
For a majority of the contract services we perform, our customers provide all required materials while we provide the necessary personnel, tools and equipment. Materials supplied by our customers, for which the customer retains financial and performance risk, are not included in our revenue or costs of revenues.
General and administrative costs include all of our corporate costs, as well as costs of our subsidiaries’ management personnel and administrative overhead. These costs primarily consist of employee compensation and related expenses, including legal, consulting and professional fees, information technology and development costs, provision for or recoveries of bad debt expense and other costs that are not directly related to performance of our services under customer contracts. Information technology and development costs included in general and administrative expenses are primarily incurred to support and to enhance our operating efficiency. We expect these expenses to continue to generally increase as we expand our operations, but expect that such expenses as a percentage of revenues will decrease if we succeed in increasing revenues.
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During the year ended December 31, 2021, our operating expenses were $30,881,118, compared to operating expenses of $11,351,393 for the same period of 2020. The increase of $19.529,725 is primarily related to a $14,059,143 increase in cost of revenues as a result of the increase in sales discussed above, combined with increases of $2,976,207 and $2,197,264, respectively, in general and administrative expenses and salaries and wages as a result of the reverse merger and the acquisition of SVC.
Other Expense
During the year ended December 31, 2021, we had other expense of $10,003,201, compared to other income of $732,233 for the same period of 2020. The change of $10,735,434 is primarily related to loss on settlement of debt of $6,251,954 and initial derivative expense of $4,750,064 in 2021.
Net Loss
For the year ended December 31, 2021, we incurred a net loss attributable to High Wire Networks, Inc. common shareholders of $19,191,952, compared to a net loss attributable to High Wire Networks, Inc. common shareholders of $693,083 for the same period in 2020.
Liquidity and Capital Resources
As of December 31, 2021, our total current assets were $11,072,222 and our total current liabilities were $31,860,298, resulting in a working capital deficit of $20,788,076, compared to working capital of $516,679 as of December 31, 2020.
We suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. In this regard, we have historically raised additional capital through equity offerings and loan transactions.
Cash Flows
| Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (4,207,759 | ) | $ | (532,726 | ) | ||
| Net cash used in investing activities | $ | (593,347 | ) | $ | (115,320 | ) | ||
| Net cash provided by financing activities | $ | 5,124,824 | $ | 328,717 | ||||
| Change in cash | $ | 323,718 | $ | (319,329 | ) | |||
For the year ended December 31, 2021, cash increased $323,718, compared to a decrease in cash of 319,329 for the same period of 2020. The primary cash inflows during the year ended December 31, 2021 were $5,165,019 of proceeds from debt and factor financing in excess of repayments and release of restricted cash of $2,000,000. The net loss of $13,677,630 was partially offset by loss on settlement of debt of $6,251,954 and initial derivative expense of $4,750,064. During the year ended December 31, 2020, we received $873,400 of CARES Act loans.
In order to improve our liquidity, we intend to pursue additional equity financing from private placement sales of our equity securities or shareholders’ loans. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to preserve our liquidity.
As of December 31, 2021, we had cash of $508,395 compared to $184,677 as of December 31, 2020.
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Indebtedness
As of December 31, 2021, the outstanding balances of loans payable to related parties, loans payable, convertible debentures, and factor financing were $1,442,949, $5,176,590, $4,132,931, and $3,387,070, respectively, net of debt discounts and premiums of $988,917, $239,214, $2,447,270, and $0, respectively.
The total outstanding principal balance per the loan agreements and factor financing due to our debt holders was $15,837,105 at December 31, 2021. We are currently in discussions with certain of our creditors to restructure some of these loan agreements to reduce the principal balance and extend maturity dates. However, there can be no assurance that we will be successful in reducing the principal balance or extending the maturity dates of any of our outstanding notes.
Loans Payable to Related Parties
At December 31, 2021 and 2020, we had outstanding the following loans payable to related parties:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Convertible promissory note issued to Keith Hayter, 10% interest, unsecured, matures August 31, 2022, debt premium of $988,917 | $ | 1,342,949 | $ | - | ||||
| Promissory note issued to Mark Porter, 9% interest, unsecured, matures December 15, 2021 | 100,000 | - | ||||||
| Promissory note issued to the James Marsh and Jeffrey Gardner, 5.5% interest, unsecured, due February 27, 2022 | - | * | 2,292,972 | |||||
| Total | $ | 1,442,949 | $ | 2,292,972 | ||||
| Less: Long-term portion of loans payable | - | (1,735,114 | ) | |||||
| Loans payable, current portion, net of debt discount | $ | 1,442,949 | $ | 557,858 | ||||
Additional information on our loans payable to related parties is set forth in our consolidated financial statements included in this report in Item 8, Financial Statements and Supplementary Data.
Loans Payable
As of December 31, 2021 and 2020, loans payable consisted of the following:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Promissory note issued to Cornerstone National Bank & Trust, 4.5% interest, unsecured, matures on October 9, 2024 | $ | 304,187 | $ | 358,343 | ||||
| Promissory note issued to Dominion Capital., LLC., 10% interest, unsecured, matures on September 30, 2022 | 1,552,500 | - | ||||||
| Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures August 31, 2022, net of debt discount of $191,371 | 754,575 | - | ||||||
| Future receivables financing agreement with Pawn Funding, non-interest bearing, matures August 31, 2022, net of debt discount of $47,843 | 188,644 | - | ||||||
| EIDL Loan, 3.75% interest, matures October 12, 2050 | 149,284 | - | ||||||
| CARES Act Loans | 2,010,000 | - | ||||||
| Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand | 217,400 | - | ||||||
| Total | $ | 5,176,590 | $ | 358,343 | ||||
| Less: Long-term portion of loans payable | (2,402,969 | ) | (344,941 | ) | ||||
| Loans payable, current portion, net of debt discount | $ | 2,773,621 | $ | 13,402 | ||||
Additional information on our loans payable is set forth in our consolidated financial statements included in this report in Item 8, Financial Statements and Supplementary Data.
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Convertible Debentures
At December 31, 2021 and 2020, we had outstanding the following convertible debentures:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Convertible promissory note, Cobra Equities SPV, LLC, 18% interest, unsecured, matured June 1, 2019 | $ | 200,000 | $ | - | ||||
| Convertible promissory note, Cobra Equities SPV, LLC, 12% interest, secured, due on demand | 89,047 | * | - | |||||
| Convertible promissory note, Cobra Equities SPV, LLC, 10% interest, secured, due on demand | 125,680 | * | - | |||||
| Convertible promissory note, Cobra Equities SPV, LLC, Tranche 1, 9% interest, secured, matures January 1, 2023, net of debt discount of $117,556 | 171,918 | - | ||||||
| Convertible promissory note, Cobra Equities SPV, LLC, Tranche 2, 9% interest, secured, matures January 1, 2023, net of debt discount of $148,173 | 203,932 | - | ||||||
| Convertible promissory note, Jeffrey Gardner, 6% interest, unsecured, matured September 15, 2021, due on demand | 125,000 | - | ||||||
| Convertible promissory note, James Marsh, 6% interest, unsecured, matured September 15, 2021, due on demand | 125,000 | - | ||||||
| Convertible promissory note issued to Roger Ponder, 10% interest, unsecured, matures August 31, 2022, debt premium of $42,435 | 66,329 | ** | - | |||||
| Convertible promissory note, Dominion Capital, LLC, 9.9% interest, senior secured, matures December 29, 2023, net of debt discount of $2,223,975 | 276,025 | - | ||||||
| Convertible promissory note issued to the Mark Munro 1996 Charitable Remainder UniTrust, 9% interest, unsecured, due September 1, 2022 | 2,750,000 | - | ||||||
| Total | 4,132,931 | - | ||||||
| Less: Long-term portion of convertible debentures, net of debt discount | (208,374 | ) | - | |||||
| Convertible debentures, current portion, net of debt discount | $ | 3,924,557 | $ | - | ||||
Additional information on our convertible debentures is set forth in our consolidated financial statements included in this report in Item 8, Financial Statements and Supplementary Data.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Inflation
The effect of inflation on our revenue and operating results has not been significant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required under Regulation S-K for “smaller reporting companies.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15.
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our Chief Executive Officer concluded that, as a result of the material weaknesses described below, as of December 31, 2021, our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:
| a) | Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis; and |
| b) | the lack of the quantity of resources to implement an appropriate level of review controls to properly evaluate the completeness and accuracy of transactions entered into by our company. |
We are committed to improving our financial organization. In addition, we will look to increase our personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters.
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 Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2021 for the reasons discussed above.
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
37
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our bylaws state that the authorized number of directors shall be not less than one and not more than fifteen and shall be set by resolution of the board of directors. Our board of directors consists of two (2) members, all of whom are not considered “independent directors,” as defined in applicable rules of the SEC and NASDAQ. Officers are appointed and serve at the discretion of our board of directors. There are no family relationships among any of our directors or executive officers.
Our current directors and officers are as follows:
| Name | Position | Age | Date First Elected or Appointed | |||
| Mark W. Porter | Chief Executive Officer and Chairman of the Board | 49 | March 1, 2021 | |||
| Daniel J. Sullivan | Chief Financial Officer | 64 | April 28, 2021 | |||
| Stephen W. LaMarche | Director | 58 | August 9, 2021 | |||
| Peter H. Kruse | Director | 58 | September 27, 2021 |
All directors serve for one year and until their successors are elected and qualified. All officers serve at the pleasure of the Board of Directors. There are no family relationships among any of our officers and directors.
The following is information about the experience and attributes of the members of our board of directors and senior executive officers as of the date of this report. The experience and attributes of our directors discussed below provide the reasons that these individuals were selected for board membership, as well as why they continue to serve in such positions.
Mark W. Porter, Chief Executive Officer and Chairman of the Board
Mr. Porter, age 49, was appointed our Chief Executive Officer on March 1, 2021. Since January 2001, Mr. Porter has been President and Chief Executive Officer of HWN, Inc. (“High Wire Networks”). With over two decades of technology industry experience, Mr. Porter is a channel veteran with extensive experience in pioneering new and more innovative ways to deliver professional and managed services.
Daniel J. Sullivan, Chief Financial Officer
On April 28, 2021, the Board appointed Daniel J. Sullivan to serve as our Chief Financial Officer. Since 2003, Mr. Sullivan had been the President of PCN Enterprises, Inc., which provides accounting related consulting services to public companies
Stephen W. LaMarche, Director
On August 9, 2021, Stephen W. LaMarche was appointed to the Board of Directors. Since 2019, Mr. LaMarche has been providing consulting services to the managed technology and professional services space where he has extensive experience leading sales & marketing, product and service innovation, finance and operational management. From 2016 to 2018, Mr. LaMarche served as Vice President of Product Management at TPx Communications.
Peter H. Kruse, Director
On September 27, 2021, Peter H. Kruse was appointed to the Board of Directors. Since 2016, Mr. Kruse has been President of P410 Group LLC, which provides coaching to companies to implement a practical business operating system to align, simplify and focus entrepreneurial businesses to achieve strong results.
Family Relationships
None.
Board Independence and Committees
We are not required to have any independent members of the Board of Directors.
38
Involvement in Certain Legal Proceedings
To the best of our knowledge, with the exception of the lawsuit discussed in Item 3. Legal Proceedings, none of our directors or executive officers has, during the past ten years:
| 1. | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences); |
| 2. | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
| 3. | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
| 4. | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| 5. | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| 6. | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Code of Ethics
We adopted a Code of Ethics applicable to all of our directors, officers, employees and consultants, which is a “code of ethics” as defined by applicable rules of the SEC. Our Code of Ethics was attached as an exhibit to our Registration Statement filed on Form S-1 filed with the SEC on February 26, 2008. If we make any amendments to our Code of Ethics other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics to our Chief Executive Officer, Chief Financial Officer, or certain other finance executives, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies in a Current Report on Form 8-K filed with the SEC.
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors. We will provide a copy of our Code of Business Conduct and Ethics, without charge, to any person desiring a copy, by written request to our company at 980 N. Federal Highway, Suite 304, Boca Raton, Florida, 33432.
Section 16(a) Beneficial Ownership Compliance Reporting
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our shares of common stock and other equity securities, on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.
39
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive Officer, the two highest paid executive officers and up to two other highest paid individuals whose total annual salary and bonus exceeded $100,000 for the years ended December 31, 2021 and 2020.
| Changes in Pension Value and | ||||||||||||||||||||||||||||||||||||
| Non-Equity | Non-Qualified | |||||||||||||||||||||||||||||||||||
| Incentive | Deferred | All | ||||||||||||||||||||||||||||||||||
| Name and Principal | Fiscal | Salary | Bonus | Stock Awards | Option Awards | Plan Compensation | Compensation Earnings | Other Compensation | Total | |||||||||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||
| Mark W. Porter | 2021 | 201,539 | — | 729,292 | 86,147 | — | — | 27,000 | (a) | 1,043,978 | ||||||||||||||||||||||||||
| Chief Executive Officer | 2020 | 116,827 | — | — | — | — | — | 18,000 | (a) | 134,827 | ||||||||||||||||||||||||||
| Daniel J. Sullivan | 2021 | 205,000 | — | — | 119,073 | — | — | — | 324,073 | |||||||||||||||||||||||||||
| Chief Financial Officer | 2020 | 115,000 | — | — | — | — | — | — | 115,000 | |||||||||||||||||||||||||||
| Roger M. Ponder | 2021 | 36,923 | — | — | 186,423 | — | — | — | 223,346 | |||||||||||||||||||||||||||
| Former Chief Executive Officer | 2020 | 164,526 | — | — | — | — | — | — | 164,526 | |||||||||||||||||||||||||||
| Keith W. Hayter | 2021 | 34,615 | — | — | 202,096 | — | — | — | 236,711 | |||||||||||||||||||||||||||
| Former President | 2020 | 137,904 | — | — | — | — | — | — | 137,904 | |||||||||||||||||||||||||||
| (a) | This amount represents a car allowance. |
Outstanding Equity Awards at Fiscal Year-End
The following table shows the outstanding equity awards held by the named executive officers and directors as of December 31, 2021.
| Equity compensation plans not approved by shareholders | Equity compensation plans approved by shareholders | |||||||||||||||||||
| Number of securities | Number of securities | Number of securities | Number of securities | |||||||||||||||||
| Name and Principal | underlying unexercised options exercisable | underlying unexercised options exercisable | underlying unexercised options exercisable | underlying unexercised options exercisable | Option exercise price | Option expiration | ||||||||||||||
| Position | (#) | (#) | (#) | (#) | ($) | date | ||||||||||||||
| Current Officers: | ||||||||||||||||||||
| Mark W. Porter | 3,318,584 | — | — | |||||||||||||||||
| First Award | — | 218,892 | 93,811 | $ | 0.2500 | June 16, 2026 | ||||||||||||||
| Second Award | $ | 0.2545 | August 18, 2026 | |||||||||||||||||
| Daniel J. Sullivan | ||||||||||||||||||||
| First Award | 77,587 | — | — | $ | 0.5800 | February 21, 2026 | ||||||||||||||
| Second Award | — | 302,554 | 129,666 | $ | 0.2545 | August 18, 2026 | ||||||||||||||
| Current Directors: | ||||||||||||||||||||
| Peter H. Kruse | 96,712 | $ | 0.2545 | August 18, 2026 | ||||||||||||||||
| Stephen W. LaMarche | 100,603 | $ | 0.2485 | August 11, 2026 | ||||||||||||||||
| Former Officers: | ||||||||||||||||||||
| Roger M. Ponder | 323,863 | $ | 0.5800 | February 21, 2026 | ||||||||||||||||
| Keith W. Hayter | 482,393 | $ | 0.5800 | February 21, 2026 | ||||||||||||||||
40
Employment Contracts and Termination of Employment and Change-In-Control Arrangements
Mark W. Porter Employment Agreement
On March 31, 2021, we entered into an employment agreement (the “Employment Agreement”) with Mark W. Porter, our Chief Executive Officer, pursuant to which Mr. Porter will serve as our Chief Executive Officer for an initial term of five (5) years with automatic two (2) year renewals unless terminated by us or Mr. Porter. Pursuant to the Employment Agreement, Mr. Porter will receive an annual base salary of $375,000, plus an annual cash bonus based on our achievement of certain performance targets made at the discretion of our Board of Directors. If all performance targets are achieved, Mr. Porter’s annual cash bonus shall not be less than five percent (5%) of our EBITDA for the applicable year.
Board of Directors Compensation
Directors who are employees of our company or of any of our subsidiaries receive no additional compensation for serving on our Board of Directors or any of its committees. All directors who are not employees of our company or of any of our subsidiaries are compensated at the rate of $25,000 per year in stock compensation and are paid $1,500 for each board meeting attended and are reimbursed for their expenses incurred in attending Board and committee meetings.
| Name and Principal | Fiscal | Fees earned or paid in cash | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All Other Compensation | Total | ||||||||||||||||||||||||
| Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||
| Stephen W. LaMarche (1) | 2021 | 1,500 | — | 25,871 | — | — | 75,000 | (a) | 102,371 | |||||||||||||||||||||||
| Director | 2020 | — | — | — | — | — | - | - | ||||||||||||||||||||||||
| Peter H. Kruse (2) | 2021 | — | — | 25,997 | — | — | 22,500 | (b) | 48,497 | |||||||||||||||||||||||
| Director | 2020 | — | — | — | — | — | 18,000 | (b) | 18,000 | |||||||||||||||||||||||
| (1) | Stephen W. LaMarche was appointed as a Director on August 9,2021 |
| (2) | Peter J Kruse was appointed as a Director on September 27,2021 |
| (a) | Represents consulting fees paid during 2021. |
| (b) | Represents consulting fees paid during 2021 and 2020. |
41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of April 8, 2022, the names, addresses and number of shares of our common stock beneficially owned by all persons known to us to be beneficial owners of more than 5% of the outstanding shares of our common stock, and the names and number of shares beneficially owned by all of our directors and all of our executive officers and directors as a group (except as indicated, each beneficial owner listed exercises sole voting power and sole dispositive power over the shares beneficially owned). As of April 8, 2022, we had a total of 52,901,773 shares of common stock outstanding.
| Name of beneficial owner | Number of shares and nature of beneficial ownership (1) | Percent of common stock outstanding | ||||||
| Mark W. Porter (3) | 11,603,304 | 18.4 | % | |||||
| Daniel J. Sullivan (4) | 661,798 | 1.3 | % | |||||
| Peter H. Kruse | 96,712 | * | ||||||
| Stephen W. LaMarche | 100,603 | * | ||||||
| All directors and officers as a Group | 12,462,417 | 19.7 | % | |||||
| Keith Hayter (5) | 7,747,526 | 13.1 | % | |||||
| Roger Ponder (6) | 7,151,066 | 12.2 | % | |||||
| Cobra Equities SPV, LLC (7) | 20,422,985 | 26.6 | % | |||||
| * | Less than 1% |
| (1) | A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days (such as through exercise of stock options or warrants). Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children. Includes 3,412,395 common shares issuable upon the exercise of vested stock options and 8,190,909 common shares issuable upon the conversion of Series D Preferred Stock and 170,259 common shares issuable upon the exercise of vested stock options and 272,727 common shares issuable upon the conversion of Series E Preferred Stock. |
| (2) | Shares of our common stock issuable upon the conversion of our convertible preferred stock are deemed outstanding for purposes of computing the percentage shown above. In addition, for purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days after the date of this prospectus. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days after the date of this prospectus is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. |
| (3) | Represents 96,712 common shares issuable upon the exercise of vested stock options. |
| (4) | Represents 100,703 common shares issuable upon the exercise of vested stock options. |
| (5) | Represents 7,166,807 common shares issuable upon the conversion of convertible debentures. The address of Mr. Hayter is 501 Bluff Oak Court, Apopka, FL 32712. |
| (6) | Includes 455,348 common shares issuable upon the conversion of convertible debentures and 86,363,636 common shares issuable upon the conversion of Series D Preferred Stock. The address of Mr. Ponder is 134 Varsity Circle, Altamonte Springs, FL 32714. |
| (7) | Includes 5,659,155 common shares issuable upon the conversion of convertible debentures and 86,363,636 common shares issuable upon the conversion of Series D Preferred Stock. The address of Cobra Equities SPV LLC is 7050 Aloma Ave. Winter Park, FL 32792. |
From time to time, the number of our shares held in the “street name” accounts of various securities dealers for the benefit of their clients or in centralized securities depositories may exceed 5% of the total shares of our common stock outstanding.
42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Other than compensation arrangements for our named executive officers and directors, we describe below each transaction or series of similar transactions, since January 1, 2020, to which we were a party or will be a party, in which:
| ● | the amounts involved exceeded or will exceed $120,000; or |
| ● | any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest. |
See “Executive Compensation” for a description of certain arrangements with our executive officers and directors.
Exchange of Shares of Common Stock for Series B Preferred Stock
On June 16, 2021, in connection with the reverse merger with HWN, Inc., Mark Porter exchanged 350 shares of HWN’s Series D Preferred Stock for 1,000 shares of HWN’s Series B Preferred Stock from Roger Ponder and Keith Hayter.
Loans Payable to Related Parties
Convertible promissory note, Keith Hayter, 10% interest, unsecured, matures August 31, 2022
On June 15, 2021, in connection with the reverse merger with HWN, HWN assumed High Wire’s convertible promissory note issued to Keith Hayter. The note was originally issued on August 31, 2020 in the principal amount of $554,031. Interest accrues at 10% per annum. All principal and accrued but unpaid interest under the note is due on August 31, 2022. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.06 per share, subject to adjustment based on the terms of the note. The embedded conversion option does not qualify for derivative accounting. As a result of the conversion price being fixed at $0.06, the note has a conversion premium of $1,359,761, and the fair value of the note is $378,000.
Promissory note, Mark Porter, 9% interest, unsecured, matures December 15, 2021
On June 1, 2021, the Company issued a $100,000 promissory note to the Chief Executive Officer of the Company in connection with the reverse merger between High Wire and HWN. The note is due on December 15, 2021 and bears interest at a rate of 9% per annum. This note is still outstanding as of January 30, 2022.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees billed for the years ended December 31, 2021 and 2020 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
| For the year ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Sadler, Gibb & Associates, LLC | ||||||||
| Audit Fees | $ | 169,531 | $ | 93,500 | ||||
| Audit-Related Fees | 89,000 | - | ||||||
| Tax Fees | - | - | ||||||
| All Other Fees | - | - | ||||||
| Total | $ | 258,531 | $ | 93,500 | ||||
Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.
43
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements.
See the “Index to Consolidated Financial Statements” on page F-1 below for the list of financial statements filed as part of this report.
Financial Statement Schedules.
All schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto set forth below beginning on page F-1.
Exhibits.
See the Exhibit Index immediately following the signature page of this Report on Form 10-K. The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Report on Form 10-K.
ITEM 16. FORM 10-K SUMMARY
None.
44
HIGH WIRE NETWORKS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of High Wire Networks, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of High Wire Networks, Inc., formerly known as Spectrum Global Solutions, Inc. (“High Wire” or “the Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2021 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses since inception, has negative cash flows from operations, and has negative working capital, which creates substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this 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 audits. 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 audits 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 audits, 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Long-Lived Asset Impairment Assessment
Critical Audit Matter Description
As described in Note 2 to the consolidated financial statements, the Company performs impairment testing for its long-lived assets when events or changes in circumstances indicate that its carrying amount may not be recoverable and exceeds its fair value. Due to challenging industry economic conditions, the Company tested its long-lived assets during the year ended December 31, 2021. The first step of the long-lived asset impairment review is a recoverability test based upon projected future undiscounted cash flows.
How the Critical Audit Matter was Addressed in the Audit
We identified the evaluation of the impairment analysis for long-lived assets as a critical audit matter because of the significant estimates and assumptions management used in the undiscounted cash flow analysis. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.
Our audit procedures related to the following:
| ● | Testing management’s process for developing the fair value estimate. | |
| ● | Evaluating the appropriateness of the discounted cash flow model used by management. | |
| ● | Testing the completeness and accuracy of underlying data used in the fair value estimate. | |
| ● | Evaluating the significant assumptions used by management related to revenues, gross margin, operating expenses, and long term growth rate to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. |
In addition, professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the undiscounted cash flow model.
Goodwill Impairment Assessment
Critical Audit Matter Description
As described in Note 2 to the consolidated financial statements, the Company tests goodwill for impairment annually at the reporting unit level, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Reporting units are tested for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recorded based on the difference between the fair value and carrying amount, not to exceed the associated carrying amount of goodwill. The Company’s annual impairment test occurred on December 31, 2021. The Company utilized a third-party valuation specialist to assist in the preparation of the goodwill impairment test for this reporting unit. The Company primarily used a discounted cash flow income method to estimate the fair value of the reporting unit.
How the Critical Audit Matter was Addressed in the Audit
We identified the evaluation of the impairment analysis for goodwill as a critical audit matter because of the significant estimates and assumptions management used in the discounted cash flow analysis performed by management to determine fair value of the reporting unit. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
F-3
Our audit procedures related to the following:
| ● | Testing management’s process for developing the fair value of the reporting unit. | |
| ● | Evaluating the appropriateness of the discounted cash flow model utilized by the Company. | |
| ● | Testing the completeness and accuracy of underlying data used in the fair value estimate. | |
| ● | Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist related to revenues, gross margin, operating expenses, income taxes, long term growth rate, and discount rate to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. |
In addition, professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the discounted cash flow model.
Determination and Valuation of Derivative Liabilities
Critical Audit Matter Description
As described further in Note 10 of the financial statements, during the year ended December 31, 2021, the Company issued convertible notes and warrants that required management to assess whether the conversion features of the convertible notes required bifurcation and separate valuation as a derivative liability and whether the warrants required accounting as derivative liabilities. The Company determined that the conversion features of certain of its convertible notes and certain warrants issued in financing arrangements required to be accounted for as derivative liabilities due to: (1) certain conversion features did not contain an explicit limit on the number of shares to be delivered in share settlement; and (2) the fact the Company could not assert it had sufficient authorized but unissued shares available to settle certain instruments considering all other stock-based commitments. The derivative liabilities were recorded at fair value when issued and subsequently re-measured to fair value upon settlement or at the end of each reporting period. The Company utilized either Monte Carlo Simulation models or Black Scholes option pricing models to determine the fair value of the derivative liabilities depending on the features embedded in the instruments. These models use certain assumptions related to exercise price, term, expected volatility, and risk-free interest rate.
We identified auditing the determination and valuation of the derivative liabilities as a critical audit matter due to the significant judgements used by the Company in determining whether the embedded conversion features and warrants required derivative accounting treatment and the significant judgements used in determining the fair value of the derivative liabilities. Auditing the determination and valuation of the derivative liabilities involved a high degree of auditor judgement, and specialized skills and knowledge were needed.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures included the following, among others:
| ● | We inspected and reviewed debt agreements, warrant agreements, conversion notices, and settlement agreements to evaluate the Company’s determination of whether derivative accounting was required, including assessing and evaluating management’s application of relevant accounting standards to such transactions. | |
| ● | We evaluated the reasonableness and appropriateness of the choice of valuation model used for each specific derivative instrument. | |
| ● | We tested the reasonableness of the assumptions used by the Company in the Monte Carlo and Black Scholes models, including exercise price, term, expected volatility, and risk-free interest rate. | |
| ● | We tested the accuracy and completeness of data used by the Company in developing the assumptions used in the valuation models. | |
| ● | We developed an independent expectation for comparison to the Company’s estimate, which included developing our own valuation model and assumptions. | |
| ● | We evaluated the accuracy and completeness of the Company’s presentation of these instruments in the financial statements and related disclosures in Note 10, including evaluating whether such disclosures were in accordance with relevant accounting standards. |
F-4
Professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the Company estimate of fair value and the development of our own independent expectation.
Reverse Merger and Acquisition – Refer to Note 3 to the Consolidated Financial Statements
Critical Audit Matter Description
On June 16, 2021, the Company consummated a reverse merger in which High Wire became a legal subsidiary of Spectrum Global solutions, Inc., but High Wire was deemed to be the accounting acquirer. The aggregate purchase price of the merger was $21,334,282. On November 4, 2021, the Company acquired 100% of the membership interests of Secure Voice Corp., for an aggregate purchase price of $10,463,817. The Company accounted for this acquisition as a business combination. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed in both transactions at fair value as of the transaction dates. The Company utilized a third-party valuation specialist to assist in determining the fair value of the consideration granted and identifiable intangible assets acquired in each transaction. We identified the estimation of the fair value of the consideration transferred, assets acquired, and liabilities assumed in these transactions as a critical audit matter.
How the Critical Audit Matter was Addressed in the Audit
We identified the valuation of the consideration transferred, assets acquired, and liabilities assumed as a critical audit matter because of the significant estimates and assumptions management made to determine the fair value of certain of these assets. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of valuation methodologies applied and the assumptions used such as forecasted sales growth rates, cash flows, attrition rates, market-based royalty rates, and estimated discount rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Our audit procedures related to the following:
| ● | We evaluated management’s and the valuation specialist’s identification of assets acquired and liabilities assumed. | |
| ● | We obtained management’s purchase price allocation detailing fair values assigned to acquired tangible and intangible assets. | |
| ● | We obtained valuation report prepared by valuation specialist engaged by management to assist in the purchase price allocation, including determination of fair values assigned to acquired intangible assets, and examined valuation methods used and qualifications of specialist. | |
| ● | We examined the completeness and accuracy of the underlying data supporting the significant assumptions and estimates used in the valuation report, including historical and projected financial information. | |
| ● | We evaluated the accuracy and completeness of the financial statement presentation and disclosure of the acquisitions. |
In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in the evaluations of the valuation methodologies deployed and the reasonableness of the significant assumptions used.
/s/
We have served as the Company’s auditor since 2015.
April 15, 2022
F-5
High Wire Networks, Inc. (fka Spectrum Global
Solutions, Inc.
Consolidated balance sheets
| December 31, | ||||||||
| ASSETS | 2021 | 2020 | ||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowances of $ | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and deposits | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Noncurrent assets of discontinued operations | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Contract liabilities | ||||||||
| Loans payable to related parties, net of debt premium of $ | ||||||||
| Loans payable, current portion, net of debt discount of $ | ||||||||
| Convertible debentures, current portion, net of net debt discount/premium of $ | ||||||||
| Factor financing | ||||||||
| Derivative liabilities, current portion | ||||||||
| Contingent consideration | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Loans payable to related parties, net of current portion | ||||||||
| Loans payable, net of current portion | ||||||||
| Convertible debentures, net of current portion, net of debt discount of $ | ||||||||
| Derivative liabilities, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Noncurrent liabilities of discontinued operations | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 15) | ||||||||
| Series A preferred stock; $ | ||||||||
| Series B preferred stock; $ | ||||||||
| Series D preferred stock; $ | ||||||||
| Series E preferred stock; $ | ||||||||
| Total mezzanine equity | ||||||||
| Stockholders’ (deficit) deficit: | ||||||||
| Additional paid-in capital | ||||||||
| (Accumulated deficit) retained earnings | ( | ) | ||||||
| Total High Wire Networks, Inc. stockholders’ (deficit) equity | ( | ) | ||||||
| Noncontrolling interest | ||||||||
| Total stockholders’ (deficit) equity | ( | ) | ||||||
| Total liabilities and stockholders’ (deficit) equity | $ | $ | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
F-6
High Wire Networks, Inc. (fka Spectrum Global
Solutions, Inc.
Consolidated statements of operations
| For the years ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses: | ||||||||
| Cost of revenues | ||||||||
| Depreciation and amortization | ||||||||
| Salaries and wages | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (expenses) income: | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Loss on settlement of debt | ( | ) | ||||||
| Amortization of discounts on convertible debentures and loans payable | ( | ) | ||||||
| Amortization of premiums on convertible debentures and loans payable to related parties | ||||||||
| Loss on change in fair value of derivatives | ( | ) | ||||||
| Exchange (loss) gain | ( | ) | ||||||
| Initial derivative expense | ( | ) | - | |||||
| Loss on settlement of warrants | ( | ) | ||||||
| Management fee income | ||||||||
| Gain on PPP loan forgiveness | ||||||||
| Other income | ||||||||
| Total other (expense) income | ( | ) | ||||||
| Net loss from continuing operations before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Net income from discontinued operations, net of tax | ||||||||
| Less: net income from discontinued operations attributable to noncontrolling interest | ( | ) | ( | ) | ||||
| Net loss attributable to High Wire Networks, Inc. | ( | ) | ( | ) | ||||
| Less: deemed dividend - Series D preferred stock modification | ( | ) | ||||||
| Net loss attributable to High Wire Networks, Inc. common shareholders | $ | ( | ) | $ | ( | ) | ||
| Loss per share attributable to High Wire Networks, Inc. common shareholders, basic and diluted: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ||||
| Net income from discontinued operations, net of taxes | $ | $ | ||||||
| Net loss per share | $ | ( | ) | $ | ||||
| Weighted average common shares outstanding, basic and diluted | ||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
F-7
High Wire Networks, Inc. (fka Spectrum Global
Solutions, Inc.
Consolidated statements of stockholder’s (deficit) equity
| For the year ended December 31, 2021 | ||||||||||||||||||||||||
| Additional | (Accumulated | |||||||||||||||||||||||
| Common stock | paid-in | deficit)/retained | Noncontrolling | |||||||||||||||||||||
| Shares | $ | capital | earnings | interest | Total | |||||||||||||||||||
| Balances, January 1, 2021 | - | $ | $ | $ | $ | $ | ||||||||||||||||||
| Issuance of shares for reverse merger | ||||||||||||||||||||||||
| Stock compensation in connection with reverse merger | - | |||||||||||||||||||||||
| Fair value of convertible debt issued to HWN shareholders | - | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of common stock to Cobra Equities upon conversion of convertible debentures | ||||||||||||||||||||||||
| Issuance of common stock to Efrat Investments upon conversion of a convertible debenture | ||||||||||||||||||||||||
| Issuance of common stock to Dominion upon conversion of Series A preferred stock | ||||||||||||||||||||||||
| Issuance of common stock to Pawn Funding upon exercise of warrants | ||||||||||||||||||||||||
| Issuance of common stock to a related party upon conversion of a convertible debenture | ||||||||||||||||||||||||
| Issuance of common stock to Efrat Investments upon exercise of warrants | ||||||||||||||||||||||||
| Issuance of common stock to SCS, LLC upon conversion of Series D preferred stock | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Series D preferred stock deemed dividend | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Ending balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| For the year ended December 31, 2020 | ||||||||||||||||||||||||
| Additional | (Accumulated | |||||||||||||||||||||||
| Common stock | paid-in | deficit)/retained | Noncontrolling | |||||||||||||||||||||
| Shares | $ | capital | earnings | interest | Total | |||||||||||||||||||
| Balances, January 1, 2020 | - | $ | $ | $ | $ | $ | ||||||||||||||||||
| Distributions to shareholders | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||
| Ending balance, December 31, 2020 | - | $ | $ | $ | $ | $ | ||||||||||||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
F-8
High Wire Networks, Inc. (fka Spectrum Global Solutions, Inc.
Consolidated statements of cash flows
| For the years ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on change in fair value of derivative liability | ||||||||
| Amortization of discounts on convertible debentures | ||||||||
| Amortization of premiums on convertible debentures and loans payable to related parties | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Amortization of operating right-of-use assets | ||||||||
| Amortization of operating right-of-use liabilities | ( | ) | ( | ) | ||||
| Stock compensation | ||||||||
| Loss on settlement of debt | ||||||||
| Initial derivative expense | ||||||||
| Gain on PPP loan forgiveness | ( | ) | ( | ) | ||||
| Loss on settlement of warrants | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ||||||||
| Prepaid expenses and deposits | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Net cash used in operating activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities of discontinued operations | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash paid to acquire business | ( | ) | ||||||
| Restricted cash acquired in reverse merger | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans payable | ||||||||
| Repayments of loans payable | ( | ) | ( | ) | ||||
| Repayments of loans payable to related parties | ( | ) | ||||||
| Distributions to shareholders | ( | ) | ||||||
| Proceeds from Cares Act loans | ||||||||
| Proceeds from convertible debentures | ||||||||
| Repayments of convertible debentures | ( | ) | ||||||
| Proceeds from factor financing | ||||||||
| Repayments of factor financing | ( | ) | ||||||
| Net cash provided by financing activities of continuing operations | ||||||||
| Net cash used in financing activities of discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Common stock issued for conversion of convertible debentures | $ | $ | ||||||
| Common stock issued for conversion of convertible loans payable to related parties | $ | $ | ||||||
| Common stock issued for conversion of Series A preferred stock | $ | $ | ||||||
| Common stock issued for conversion of Series D preferred stock | $ | $ | ||||||
| Common stock issued upon cashless exercise of warrants | $ | $ | ||||||
| Series D preferred stock deemed dividend | $ | $ | ||||||
| Related party note issued | $ | $ | ||||||
| Convertible debentures issued | $ | $ | ||||||
| Debt discount against derivative liability | $ | $ | ||||||
| Original issuance discounts on convertible debt | $ | $ | ||||||
| Original issuance discounts on loans payable | $ | $ | ||||||
| Fair value of Series E at issuance and net assets acquired in acquisition of SVC | $ | $ | ||||||
| Net assets acquired in reverse merger with SGSI | $ | $ | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
F-9
High Wire Networks, Inc. (fka Spectrum Global Solutions, Inc.
Notes to the consolidated financial statements
December 31, 2021
| 1. | Organization |
High Wire Networks, Inc., (f/k/a Spectrum Global Solutions, Inc.) (“High Wire”) was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, Spectrum reincorporated in the province of British Columbia, Canada.
On April 25, 2017, High Wire
entered into and closed on an Asset Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms
of the Asset Purchase Agreement, Spectrum purchased
On November 15, 2017, High Wire changed its name to “High Wire Enterprises, Inc.” and reincorporated in the state of Nevada.
On February 6, 2018, High Wire entered into and closed on a Stock Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Stock Purchase Agreement High Wire purchased all of the issued and outstanding capital stock and membership interests of ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”). Spectrum completed the acquisition on February 27, 2018.
On February 14, 2018, High
Wire entered into an agreement with InterCloud providing for the sale, transfer, conveyance and delivery to High Wire of the remaining
On May 18, 2018, High Wire transferred all of its ownership interests in and to its subsidiaries Carbon Commodity Corporation, Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., Mantra Wind Inc., Climate ESCO Ltd. and Mantra Energy Alternatives Ltd. to an entity controlled by Mantra’s former Chief Executive Officer, Larry Kristof. The new owner of the aforementioned entities assumed all liabilities and obligations with respect to such entities.
On January 4, 2019, High Wire entered into a Stock Purchase Agreement with InterCloud. Pursuant to the terms of the Purchase Agreement, InterCloud agreed to sell, and High Wire agreed to purchase, all of the issued and outstanding capital stock of TNS, Inc. (“TNS”), an Illinois corporation.
During September 2019, High Wire formed ADEX Canada, which is included in the ADEX Entities.
On September 30, 2020, High Wire sold its TNS subsidiary.
On December 31, 2020, High Wire sold its AWS subsidiary.
HWN, Inc., (d/b/a High Wire Network Solutions, Inc.) (“High Wire” or the “Company”) was incorporated in Delaware on January 20, 2017. The Company is a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. The Company’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.
High Wire and JTM Electrical
Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which High Wire owned
On June 16, 2021, the Company completed a merger with Spectrum. The merger was accounted for as a reverse merger (refer to Note 3, Reverse Merger and Acquisition, for additional detail). At the time of the reverse merger, Spectrum’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”).
F-10
On November 4, 2021, the Company closed on its acquisition of Secure Voice Corp (“SVC”). The closing of the acquisition was facilitated by the senior secured promissory note described (refer to Note 3, Reverse Merger and Acquisition, and Note 8, Convertible Debentures, for additional detail).
On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. For accounting purposes, HWN is the surviving entity and is referred to throughout as “HWN”, “High Wire”, or “the Company”.
On
February 15, 2022, HWN sold its
The Company’s AWS PR and Tropical subsidiaries are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. The Company’s ADEX Entities are a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications industry, service providers and enterprise customers domestically and internationally. The Company’s SVC subsidiary is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers.
| 2. | Significant Accounting Policies |
Basis of Presentation/Principles of Consolidation
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and SVC, as well as High Wire and its subsidiaries, the ADEX Entities, AWS PR, and Tropical. All subsidiaries are wholly-owned
On February 15, 2022, HWN
sold its
All inter-company balances and transactions have been eliminated.
Reverse Merger
On January 27, 2021, Spectrum Global Solutions, Inc. HW Merger Sub, Inc., HWN, Inc. and the stockholders of HWN, Inc. (the “Stockholders”) entered into an Agreement and Plan of Merger (the “Agreement”) whereby the Stockholders agreed to sell to the Company all of the capital stock of HWN, Inc. On June 16, 2021, the transaction contemplated by the Agreement closed, and HWN, Inc. became a wholly-owned subsidiary of Spectrum Global Solutions, Inc. As previously disclosed, as part of the consideration for the transaction, Spectrum Global Solutions, Inc. issued shares of a newly established Series D Preferred Stock.
The merger has been accounted for as a reverse merger in accordance with US GAAP. This determination was primarily based on High Wire’s business comprising the ongoing operations of the Company following the Merger, High Wire’s senior management comprising the senior management of the Company and High Wire’s stockholders having a majority of the voting power of the Company. For accounting purposes, Spectrum is considered the “acquired” company and High Wire is considered the “acquirer.” Accordingly, for accounting purposes, the Merger is treated as the equivalent of High Wire issuing stock for the net assets of Spectrum, accompanied by a recapitalization. The net assets of Spectrum have been remeasured at fair value and applied against the purchase price resulting in goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations prior to the Closing Date of the merger are those of High Wire, and Spectrum’s assets, liabilities and results of operations are consolidated with High Wire beginning on the Closing Date. The shares and corresponding capital amounts and earnings per share available to common stockholders, pre-merger, have been retroactively restated as shares reflecting the exchange ratio in the merger. The historical financial information and operating results of Spectrum prior to the merger have not been separately presented in these consolidated financial statements.
F-11
Impact of the COVID-19 Pandemic
The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
Global health concerns relating to the COVID-19 outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact the Company’s workforce and operations and the operations of its customers, suppliers and business partners. These measures may remain in place for a significant period of time and they are likely to continue to adversely affect the Company’s business, results of operations and financial condition.
The spread of COVID-19 has caused the Company to modify its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests of its employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.
The extent to which the COVID-19 outbreak impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may continue to experience materially adverse impacts to its business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a global pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. The Company does not yet know the full extent of the impacts on its business, its operations or the global economy as a whole. However, the effects could have a material impact on the Company’s results of operations, and the Company will continue to monitor the COVID-19 situation closely. As of November 2021, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine distribution, supply and effectiveness will impact when the negative economic effects as a result of COVID-19 will abate or end and the timing of such recovery may affect the Company’s financial condition.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
F-12
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Accounts Receivable
Trade accounts receivable
are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not
billed. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful
accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in
which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of
account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment
activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance
for doubtful accounts at December 31, 2021 and 2020 was $
Property and Equipment
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
| Computers and office equipment | |
| Vehicles | |
| Leasehold improvements | |
| Software | |
| Machinery and equipment |
Goodwill
The Company tests its goodwill for impairment at least annually on December 31st and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.
The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the years ended December 31, 2021 and 2020.
Intangible Assets
At December 31, 2021 and
2020, definite-lived intangible assets consist of tradenames and customer relationships which are being amortized over their estimated
useful lives of
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
F-13
Long-lived Assets
In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were no impairment charges recorded during the years ended December 31, 2021 and 2020.
Foreign Currency Translation
Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting foreign exchange gains and losses are recognized in income.
The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting foreign exchange gains or losses are recognized in income.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2021. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
F-14
Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The Company follows the guidance set forth within ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.
AWS PR received a tax notice
from the Puerto Rican government requesting payment of taxes related to 2014. The amount due as of June 30, 2021 was $
Prior to 2021, the Company had elected to be treated as a Subchapter S Corporation for income tax purposes, and as such recognized no income tax liability or benefit.
Revenue Recognition
Adoption of New Accounting Guidance on Revenue Recognition
The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Contract Types
The Company’s contracts fall under two main types: 1) fixed-price and 2) time-and-materials. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working permanently at customer locations and materials costs incurred by those employees.
A significant portion of the Company’s revenues come from customers with whom the Company has a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases this may be each day, or each week depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work.
F-15
Revenue Service Types
The following is a description of the Company’s revenue service types, which include professional services and construction:
| ● | Professional services are services provided to the clients where the Company delivers distinct contractual deliverables and/or services. Deliverables may include but are not limited to: engineering drawings, designs, reports and specification. Services may include, but are not limited to: consulting or professional staffing to support our client’s objectives. Consulting or professional staffing services may be provided remotely or on client premises and under their direction and supervision. |
| ● | Construction Services are services provided to the client where the Company may self-perform or subcontract services that require the physical construction of infrastructure or installation of equipment and materials. |
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by service type, contract type, contract duration, and timing of transfer of goods or services. See the below tables:
| Revenue by contract duration | Year Ended December 31, 2021 | Year Ended December 31, 2020 | ||||||
| Short-term | $ | $ | ||||||
| Long-term | ||||||||
| Total | $ | $ | ||||||
| Revenue by contract type | Year Ended December 31, 2021 | Year Ended December 31, 2020 | ||||||
| Fixed-price | $ | $ | ||||||
| Time-and-materials | - | |||||||
| Total | $ | $ | ||||||
The Company also disaggregates its revenue by operating segment and geographic location (refer to Note 16, Segment Disclosures, for additional information).
Accounts Receivable
Accounts receivable include amounts from work completed in which the Company has billed. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable.
Contract Assets and Liabilities
Contract assets include costs
and services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated
balance sheets. At December 31, 2021 and 2020, contract assets totaled $
Contract liabilities include
payment received for incomplete performance obligations and are included in contract liabilities on the consolidated balance sheets.
At December 31, 2021 and 2020, contract liabilities totaled $
Cost of Revenues
Cost of revenues includes all direct costs of providing services under the Company’s contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.
F-16
Research and Development Costs
Research and development costs are expensed as incurred.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”), using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
Loss per Share
The Company computes (loss)
per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted (loss) per
share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the (loss) available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted
method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased
from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
As of December 31, 2021 and 2020, respectively, the Company had
Leases
The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) on January 1, 2019.
The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the Company’s lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.
The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months as of January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.
Going Concern Assessment
Management assesses going concern uncertainty in the Company’s consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date of the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
F-17
The Company has generated
losses in 2021 and 2020 and High Wire has generated losses since its inception and has relied on cash on hand, sales of securities, external
bank lines of credit, and issuance of third-party and related party debt to support cash flow from operations. As of and for the year
ended December 31, 2021, the Company had an operating loss of $
Management has prepared estimates of operations for 2022 and believes that sufficient funds will be generated from operations to fund its operations and to service its debt obligations for one year from the date of the filing of the consolidated financial statements in the Company’s Annual Report on Form 10-K, which indicate improved operations and the Company’s ability to continue operations as a going concern.
The impact of COVID-19 on
the Company’s business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or
its timing on a return to more normal operations. Further, the recently enacted CARES Act provides for economic assistance loans through
the SBA. As of December 31, 2021, ADEX had $
The accompanying consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
Management believes that based on relevant conditions and events that are known and reasonably knowable that its forecasts for one year from the date of the filing of the consolidated financial statements in the Company’s Annual Report on Form 10-K indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these consolidated financial statements. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
Recent Accounting Pronouncements
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). In June 2016, the FASB issued ASU No. 2016-13. The amendments in ASU 2016-13, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (the “SEC”) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company is currently evaluating the potential impact of ASU 2016-13 on its consolidated financial statements.
ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). In December 2019, the FASB issued ASU 2019-12. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for the Company’s fiscal year beginning after December 15, 2021. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The Company is currently evaluating the potential impact of ASU 2019-12 on its consolidated financial statements.
ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments are effective for public companies for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.
ASU 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08). In October 2021, the FASB issued ASU 2021-08. This guidance amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. As a public business entity, this standard will become effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the potential impact ASU 2021-08 will have on its consolidated financial statements.
F-18
Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.
The Company provides credit
to customers on an uncollateralized basis after evaluating client creditworthiness. For the year ended December 31, 2021,
The Company’s customers
are primarily located within the domestic United States of America, Puerto Rico, and Canada. Revenues generated within the domestic United
States of America accounted for approximately
Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the years ended December 31, 2021 and 2020. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
The Company’s financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2021 and 2020 consisted of the following:
| Total fair value at December 31, 2021 | Quoted prices in active markets (Level 1) | Quoted prices in active markets (Level 2) | Quoted prices in active markets (Level 3) | |||||||||||||
| Description: | ||||||||||||||||
| Derivative liability (1) | $ | $ | $ | $ | ||||||||||||
| Total
fair value at December 31, 2020 | Quoted prices
in active markets (Level 1) | Quoted prices
in active markets (Level 2) | Quoted prices
in active markets (Level 3) | |||||||||||||
| Description: | ||||||||||||||||
| N/A | $ | $ | $ | $ | ||||||||||||
| (1) | The Company has estimated the fair value of these derivatives using the Monte-Carlo model. |
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 10, Derivative Liabilities, for additional information.
F-19
Derivative Liabilities
The Company accounts for
derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments
are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its
derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between
willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable
market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are
used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit
spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different
valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and
may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework
associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above.
As of December 31, 2021 and 2020, the Company had a derivative liability of $
Sequencing Policy
Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.
| 3. | Reverse Merger and Acquisition |
Reverse Merger
As noted in Note 2, on June
16, 2021, the Company consummated a reverse merger in which HWN, Inc. became a legal subsidiary of Spectrum Global Solutions, Inc., but
HWN, Inc. was deemed to be the accounting acquirer.
The purpose of the acquisition was to continue to increase revenue.
The acquisition was accounted for under the acquisition method of accounting which requires the consideration given, assets acquired, and liabilities assumed to be measured at fair value. In measuring the consideration transferred, since this was a reverse merger between a public company (as the legal acquirer) and a private company (as the accounting acquirer), the fair value of the legal acquirer’s public stock generally was more reliably determinable than the fair value of the accounting acquirer’s private stock. As such, the determination and measurement of the consideration transferred was based on the fair value of the legal acquirer’s stock rather than the fair value of the accounting acquirer’s stock. Further, since this was a reverse merger for accounting purposes, the consideration transferred includes the equity-based instruments retained by the legacy shareholders of Spectrum Global Solutions, Inc.
The fair value of the assets acquired, liabilities assumed and consideration transferred denoted below are final and based on the management’s best estimates using information that it has obtained as of the reporting date.
The fair value of the consideration transferred and liabilities assumed are as follows:
| Purchase consideration | Fair Value | |||
| Common stock | $ | |||
| Convertible debt | ||||
| Derivative liabilities | ||||
| Loans payable | ||||
| Loans payable, related parties | ||||
| Lease liabilities | ||||
| Fair value of stock options | ||||
| Fair value of warrants | ||||
| Fair value of Series A Preferred | ||||
| Fair value of Series D Preferred | ||||
| Total purchase price | $ | |||
F-20
The fair value of the net assets acquired (provisional) are as follows:
| Allocation of purchase consideration | ||||
| Working capital | $ | |||
| Other assets | ||||
| Contract assets | ||||
| Goodwill | ||||
| Customer lists | ||||
| Tradenames | ||||
| Total enterprise value | ||||
Acquisition of SVC
As noted in Note 2, on November
4, 2021 the Company closed on a Stock Purchase Agreement with Secure Voice Corp. (“SVC”) and Telecom Assets Corp. (the “Seller”)
whereby the Seller sold SVC to Spectrum, in exchange for $
The acquisition was accounted for under the acquisition method of accounting which requires the consideration given, assets acquired, and liabilities assumed to be measured at fair value. The fair value of the assets acquired, liabilities assumed and consideration transferred denoted below are provisional in nature and based on the management’s best estimates using information that it has obtained as of the reporting date. The Company is awaiting additional valuation information and expects to finalize the purchase price allocation before the end of the fiscal year.
The fair value of the consideration transferred (provisional), liabilities assumed (provisional) are as follows:
| Provisional | ||||
| Purchase consideration | Fair Value | |||
| Cash | $ | |||
| Series E preferred stock | ||||
| Assumed debt | ||||
| Total provisional purchase price | $ | |||
The fair value of the net assets acquired (provisional) are as follows:
| Allocation of purchase consideration | ||||
| Working capital | $ | ( | ) | |
| Fixed assets | ||||
| Goodwill | ||||
| Customer relationships | ||||
| Tradenames | ||||
| Total provisional enterprise value | ||||
The preliminary allocation
of consideration to the assets acquired and liabilities assumed at their estimated acquisition date fair values are considered preliminary
and may change within the permissible measurement period, not to exceed
Pro Forma
The following shows pro forma results for the years ended December 31, 2021 and 2020 as if the reverse merger and acquisition had occurred on January 1, 2020.
| Year December 31, 2021 | Year December 31, 2020 | |||||||||||||||
| As Reported | Pro Forma | As Reported | Pro Forma | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Net loss attributable to HWN, Inc. common shareholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss per common share, basic and diluted: | ( | ) | ( | ) | ||||||||||||
F-21
| 4. | Property and Equipment |
Property and equipment as of December 31, 2021 and 2020 consisted of the following:
| December 31 | December 31 | |||||||
| 2021 | 2020 | |||||||
| Computers and office equipment | $ | $ | ||||||
| Vehicles | - | |||||||
| Leasehold improvements | ||||||||
| Software | ||||||||
| Machinery and equipment | - | |||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Equipment, net | $ | $ | ||||||
During the years ended December
31, 2021 and 2020, the Company recorded depreciation expense of $
| 5. | Intangible Assets |
Intangible assets as of December 31, 2021 and 2020 consisted of the following:
| Cost | Accumulated Amortization | Impairment | Net carrying
value at December 31, 2021 | Net carrying
value at December 31, 2020 | ||||||||||||||||
| Customer relationship and lists | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| Trade names | ( | ) | ||||||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
During the years ended December
31, 2021 and 2020, the Company recorded amortization expense of $
The estimated future amortization expense for the next five years and thereafter is as follows:
| Year ending December 31, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
| 6. | Related Party Transactions |
Exchange of Shares of Common Stock for Series B Preferred Stock
On June 16, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company’s Chief Executive Officer, Mark Porter,
exchanged
F-22
Loans Payable to Related Parties
As of December 31, 2021 and 2020, the Company had outstanding the following loans payable to related parties:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Convertible promissory note issued to Keith Hayter, 10% interest, unsecured, matures August 31, 2022, debt premium of $988,917 | $ | $ | ||||||
| Promissory note issued to Mark Porter, 9% interest, unsecured, matures December 15, 2021 | ||||||||
| Promissory note issued to the James Marsh and Jeffrey Gardner, 5.5% interest, unsecured, due February 27, 2022 | * | |||||||
| Total | $ | $ | ||||||
| Less: Long-term portion of loans payable | ( | ) | ||||||
| Loans payable, current portion, net of debt discount | $ | $ | ||||||
| * | During the year ended December 31, 2021, this note was assigned to the Mark Munro 1996 Charitable Remainder UniTrust by Jeffrey Gardner and James Marsh. The assigned note was then exchanged for a convertible note on December 28, 2021 (refer to Note 8, Convertible Debentures, for additional detail). |
The Company’s loans
payable to related parties have an effective interest rate range of
Promissory note issued to Jeffrey Gardner
and James Marsh,
On February 17, 2019, the
Company issued a promissory note to Jeffrey Gardner and James Marsh with an original principal amount of $
On January 1, 2021, this note was assigned by Jeffrey Gardner and James Marsh to the Mark Munro 1996 Charitable Remainder UniTrust. As a result of the assignment, the note was no longer a related party note.
During the year ended December
31, 2021, the Company did not make any cash payments for principal. During the year ended December 31, 2020, the Company made cash payments
for principal of $
On December 28, 2021, the
note was exchanged for a convertible note (refer to Note 8, Convertible Debentures, for additional detail). At the time of the exchange,
the outstanding principal balance was $
Roger Ponder Related Party Reclassification
During September 2021, as a result of shares of, as a result of his resignation as a director and the potential shares to be issued about conversion of his debt and Series D preferred stock, the Company determined that Roger Ponder was no longer a related party. The effective date of the reclassification was June 16, 2021.
Convertible promissory note, Keith Hayter,
On June 15, 2021, in connection
with the merger transaction discussed in Note 3 and Acquisition, Reverse Merger, the Company assumed Spectrum’s convertible promissory
note issued to Keith Hayter. The note was originally issued on August 31, 2020 in the principal amount of $
During the period of June
16, 2021 through December 31, 2021, the holder of the note converted $
As of December 31, 2021,
the Company owed $
F-23
Promissory note, Mark Porter,
On June 1, 2021, the Company
issued a $
On December 15, 2021, this note matured and is now due on demand.
As of December 31, 2021,
the Company owed $
| 7. | Loans Payable |
As of December 31, 2021 and 2020, the Company had outstanding the following loans payable:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Promissory note issued to Cornerstone National Bank & Trust, | $ | $ | ||||||
| Promissory note issued to Dominion Capital., LLC., | - | |||||||
| Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures | - | |||||||
| Future receivables financing agreement with Pawn Funding, non-interest bearing, matures | - | |||||||
| EIDL Loan, | - | |||||||
| CARES Act Loans | - | |||||||
| Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand | - | |||||||
| Total | $ | $ | ||||||
| Less: Long-term portion of loans payable | ( | ) | ( | ) | ||||
| Loans payable, current portion, net of debt discount | $ | $ | ||||||
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Promissory note issued to Cornerstone National
Bank & Trust,
On October 21, 2019, the
Company issued a promissory note to Cornerstone National Bank & Trust with an original principal amount of $
During the year ended December
31, 2021, the Company made cash payments for principal of $
As of December 31, 2021,
the Company owed $
Loan with Cedar Advance LLC
On December 14, 2021, the
Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement
of Sale of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing
Parties sold to Cedar Advance future receivables in an aggregate amount equal to $
Pursuant to the terms of the Financing Agreement, the Company agreed to pay Cedar Advance $27,027 each week based upon an anticipated 25% of its future receivables until such time as $1,000,000 has been paid, a period Cedar Advance and the Financing Parties estimate to be approximately nine months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.
Additionally, in connection
with the Financing Agreement, the Company issued Cedar Advance a warrant to purchase
The warrant qualified for
derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The
initial fair value of the warrant of $
During the year ended December
31, 2021, the Company paid $
At December 31, 2021, the
Company owed $
Loan with Pawn Funding
On December 14, 2021, the
Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement
of Sale of Future Receipts (the “Financing Agreement”) with Pawn Funding. Under the Financing Agreement, the Financing Parties
sold to Pawn Funding future receivables in an aggregate amount equal to $
Additionally, in connection
with the Financing Agreement, the Company issued Pawn Funding a warrant to purchase
The warrant qualified for
derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The
initial fair value of the warrant of $
During the year ended December
31, 2021, the Company paid $
F-25
At December 31, 2021, the
Company owed $
Promissory note issued to Dominion Capital.,
LLC.,
On June 15, 2021,
During the period of June
16, 2021 through December 31, 2021, the Company made cash payments of $
As of December 31, 2021,
the Company owed $
Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s promissory note
issued to InterCloud Systems, Inc. The note was originally issued on February 27, 2018 in the principal amount of $
As of December 31, 2021,
the Company owed $
EIDL Loan
On June 15, 2021,
During the period of June
16, 2021 through December 31, 2021, the Company made cash payments of $
As of December 31, 2021,
the Company owed $
CARES Act Loans
On April 8, 2020 and March
31, 2021, High Wire received $
These loan agreements were pursuant to the CARES Act. The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act is eligible to be forgiven provided that (a) the Company uses the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. The amount of loan forgiveness will be reduced if, among other reasons, the Company does not maintain staffing or payroll levels. Principal and interest payments on any unforgiven portion of the PPP Funds will be deferred for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan.
On November 4, 2020, High Wire received approval for forgiveness of its $873,400 CARES Act Loan.
F-26
On August 6, 2021, High Wire received approval for forgiveness of its $873,465 CARES Act Loan. As a result, the Company recorded a gain on PPP loan forgiveness to the consolidated statement of operations for the year ended December 31, 2021.
As of December 31, 2021 and 2020, the aggregate balance of these loans was $2,010,000 and $0, respectively, and is included in loans payable on the consolidated balance sheets.
| 8. | Convertible Debentures |
As of December 31, 2021 and 2020, the Company had outstanding the following convertible debentures:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Convertible promissory note, Cobra Equities SPV, LLC, | $ | $ | ||||||
| Convertible promissory note, Cobra Equities SPV, LLC, | * | |||||||
| Convertible promissory note, Cobra Equities SPV, LLC, | * | |||||||
| Convertible promissory note, Jeffrey Gardner, | ||||||||
| Convertible promissory note, James Marsh, | ||||||||
| Convertible promissory note issued to Roger Ponder, | ** | |||||||
| Convertible promissory note, Dominion Capital, LLC, | ||||||||
| Convertible promissory note issued to the Mark Munro 1996 Charitable Remainder UniTrust, | ||||||||
| Total | ||||||||
| Less: Long-term portion of convertible debentures, net of debt discount | ( | ) | ||||||
| Convertible debentures, current portion, net of debt discount | $ | $ | ||||||
| * | On September 23, 2021, these notes were assigned from SCS, LLC to Cobra Equities SPV, LLC. |
| ** | During September 2021, as a result of shares of, as a result of his resignation as a director and the potential shares to be issued about conversion of his debt and Series D preferred stock, the Company determined that Roger Ponder was no longer a related party. The effective date of the reclassification was June 16, 2021. |
The Company’s convertible
debentures have an effective interest rate range of
Convertible promissory note, Cobra Equities
SPV, LLC,
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued
to Cobra Equities SPV, LLC. The note had been previously assigned to Cobra Equities SPV, LLC by another lender. The amount outstanding
as of June 15, 2021 was $
Interest accrues on the note at 18% per annum. The note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest VWAP for the 10 consecutive trading days immediately preceding the conversion.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
During the period of June 16, 2021 through December 31, 2021, the holder of the note converted $206,000 of principal and $3,620 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional detail). As a result of these conversions, the Company recorded a loss on settlement of debt of $268,770 to the consolidated statement of operations for the year ended December 31, 2021.
The Company owed $
F-27
Convertible promissory note, SCS Capital Partners,
LLC,
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued
to SCS, LLC. The note had been previously assigned to SCS, LLC by another lender. The amount outstanding as of June 15, 2021 was $
The interest on the outstanding
principal due under the note accrues at a rate of
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
On September 23, 2021, the
holder of the note assigned the note to Cobra Equities SPV, LLC (refer to the “Convertible promissory note, Cobra Equities SPV,
LLC,
Convertible promissory note, Cobra Equities
SPV, LLC,
On September 23, 2021, the
holder of the note described in the “Convertible promissory note, SCS Capital Partners, LLC,
The note matured on December 30, 2021 and is now due on demand.
At December 31, 2021, the
Company owed $
Convertible promissory note, SCS Capital Partners,
LLC,
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued
to SCS, LLC. The amount outstanding as of June 15, 2021 was $
The note was originally issued
on December 29, 2020 in the principal amount of $
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
During the period of June
16, 2021 through September 23, 2021, the Company made cash payments for principal of $
On September 23, 2021, the
holder of the note assigned the note to Cobra Equities SPV, LLC (refer to the “Convertible promissory note, Cobra Equities SPV,
LLC,
Convertible promissory note, Cobra Equities
SPV, LLC,
On September 23, 2021, the
holder of the note described in the “Convertible promissory note, SCS Capital Partners, LLC,
The note matured on December 31, 2021 and is now due on demand.
At December 31, 2021, the
Company owed $
F-28
Convertible promissory note, Cobra Equities
SPV, LLC,
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued
to IQ Financial Inc. and assigned to Cobra Equities SPV, LLC. The amount outstanding for Tranche 1 as of June 15, 2021 was $
The note was originally issued
to IQ Financial Inc. on January 27, 2021 in the aggregate principal amount of $
Convertible promissory note, Cobra Equities
SPV, LLC Tranche 1,
On January 28, 2021, Spectrum
received the first tranche of the note discussed in the “Convertible promissory note, Cobra Equities SPV, LLC,
The interest on the outstanding
principal due under the secured note accrues at a rate of
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
At December 31, 2021, the
Company owed $
Convertible promissory note, Cobra Equities
SPV, LLC Tranche 2,
On March 1, 2021, Spectrum
received the second tranche of the note discussed in the “Convertible promissory note, Cobra Equities SPV, LLC,
The interest on the outstanding principal due under the secured note accrues at a rate of 9% per annum. All principal and accrued but unpaid interest under the secured note is due on January 1, 2023. The holder may begin converting the note into shares of the Company’s common stock six months after issuance when it is Rule 144 eligible. The conversion price is fixed at $0.05 per share.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
During the period of June
16, 2021 through December 31, 2021, $
At December 31, 2021, the
Company owed $
Convertible promissory note, Jeffrey Gardner,
On June 15, 2021 the Company
issued to Jeffrey Gardner an unsecured convertible promissory note in the aggregate principal amount of $
F-29
The interest on the outstanding
principal due under the note accrues at a rate of
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
On September 15, 2021, this
note matured and is now due on demand. Additionally, the interest rate increased to
At December 31, 2021, the
Company owed $
Convertible promissory note, James Marsh,
On June 15, 2021 the Company
issued to James Marsh an unsecured convertible promissory note in the aggregate principal amount of $
The interest on the outstanding
principal due under the note accrues at a rate of
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
On September 15, 2021, this
note matured and is now due on demand. Additionally, the interest rate increased to
At December 31, 2021, the
Company owed $
Convertible promissory note, Roger Ponder,
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s convertible promissory
note issued to Roger Ponder. The note was originally issued on August 31, 2020 in the principal amount of $
As of December 31, 2021,
the Company owed $
Convertible promissory note, Dominion Capital,
LLC,
On November 3, 2021, the
Company closed on a private placement transaction (the “Transaction”) whereby it issued a senior secured convertible promissory
note with a principal amount of $
F-30
Additionally, the Company
issued to the investor a common stock purchase warrant to purchase up to
In connection with the Transaction, the Company agreed to file a registration statement registering the resale of the shares of common stock issuable upon conversion of the note within 30 days of the closing of the Transaction.
The embedded conversion option
and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives
and Hedging”. The initial fair value of the conversion feature of $
At December 31, 2021, the
Company owed $
Convertible promissory note issued to the
Mark Munro 1996 Charitable Remainder UniTrust,
On December 28, 2021, the
Mark Munro 1996 Charitable Remainder UniTrust, the holder of a note with a principal balance of $
The embedded conversion option
qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”.
The initial fair value of the conversion feature of $
At December 31, 2021, the
Company owed $
Convertible promissory note, Efrat Investments
LLC,
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued
to Efrat Investments, LLC. The amount outstanding as of June 15, 2021 was $
The note was originally issued
on September 14, 2020 in the aggregate principal amount of $
The interest on the outstanding
principal due under the note accrued at a rate of
The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
During the period of June 16, 2021 through December 31, 2021, the holder of the note converted $33,000 of principal into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2021 was $0. The Company recorded a gain on settlement of debt of $208,567 to the consolidated statement of operations for the year ended December 31, 2021.
During the period of June
16, 2021 through December 31, 2021, the holder of the warrants associated with the note converted the warrants on a cashless basis (refer
to Note 11, Common Stock, for additional information). As a result of the exercise, the Company recorded a loss on settlement of warrants
of $
F-31
| 9. | Factor Financing |
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a factor financing agreement between
ADEX and Bay View Funding. The amount outstanding as of June 15, 2021 was $
The agreement began on February
11, 2020 when, pursuant to an assignment and consent agreement, Bay View Funding purchased and received all of a previous lender’s
right, title, and interest in the loan and security agreement with Spectrum’s wholly-owned subsidiary, ADEX. In connection with
the agreement, Spectrum received $
Under
During the period of June
16, 2021 through December 31, 2021, the Company paid $
During the period of June
16, 2021 through December 31, 2021, the Company received an aggregate of $
| 10. | Derivative Liabilities |
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s derivative liabilities.
As of June 15, 2021, the derivative liability balance of $
The embedded conversion options
of the convertible debentures described in Note 8, Convertible Debentures, which were assumed as part of the merger transaction, contain
conversion features that qualify for embedded derivative classification. The fair value of the liability is re-measured at the end of
every reporting period and the change in fair value is reported in the statement of operations as a gain or loss on change in fair value
of derivatives. Derivative liabilities also include the fair value of the Company’s share purchase warrants and stock options discussed
in Note 13, Share Purchase Warrants and Stock Options. As of December 31, 2021, the derivative liability balance of $
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the period of June 16, 2021 through December 31, 2021:
| December 31, | ||||
| 2021 | ||||
| Balance at the beginning of the period | $ | |||
| Initial value of derivatives after reverse merger | ||||
| Change in fair value of embedded conversion option | ( | ) | ||
| Initial value of derivatives upon issuance | ||||
| Effect of debt extinguishment | ||||
| Conversion of derivative liability | ( | ) | ||
| Fair value of option derivative at issuance | ||||
| Discounts on new derivative in excess of note face value | ||||
| Fair value of warrant exercises | ( | ) | ||
| Balance at the end of the period | $ | |||
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using Monte-Carlo model based on various assumptions.
F-32
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
| Expected volatility | Risk-free interest rate | Expected dividend yield | Expected life (in years) | ||||||||
| At December 31, 2021 | % | | |||||||||
| 11. | Common Stock |
Authorized shares
The Company has
Issuance of shares for reverse merger
As a result of the reverse
merger on June 15, 2021, the Company issued
Issuance of shares pursuant to a Cobra Equities SPV, LLC convertible debenture
On June 16, 2021, the Company
issued
On July 15, 2021, the Company
issued
On August 12, 2021, the Company
issued
On September 23, 2021, the
Company issued
On October 6, 2021, the Company
issued
On October 25, 2021, the
Company issued
On November 4, 2021, the
Company issued
On November 24, 2021, the
Company issued
On December 15, 2021, the
Company issued
F-33
Issuance of shares pursuant to an Efrat Investments LLC convertible debenture
On June 17, 2021, the Company
issued
Issuance of shares pursuant to a related party convertible debenture
On September 22, 2021, the
Company issued
On November 8, 2021, the
Company issued
Issuance of Shares Pursuant to Conversion of Series A Preferred Stock
On June 24, 2021, the Company
issued
On August 12, 2021, the Company
issued
Issuance of Shares Pursuant to Conversion of Series D Preferred Stock
On December 16, 2021, the
Company issued
Issuance of shares pursuant to a Pawn Funding warrant
On June 29, 2021, the Company
issued
Issuance of shares pursuant to an Efrat Investments LLC warrant
On September 30, 2021, the
Company issued
Issuance of convertible debt to HWN shareholders
On June 16, 2021, the Company
issued $
| 12. | Preferred Stock |
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s Series A preferred
stock obligations. Additionally, the holders of Spectrum’s Series B preferred stock transferred their shares to the Company’s
Chief Executive Officer. Lastly, a new class of preferred stock, Series D, was designated and issued. At the time of the merger transaction,
the fair value of the Series A and Series B preferred stock was $
F-34
See below for a description of each of the Company’s outstanding classes of preferred stock, including historical and current information.
Series A
On November 15, 2017, Spectrum
created one series of the
On October 29, 2018, Spectrum made the first amendment to the Certificate of Designation of its Series A convertible preferred stock. This amendment updated the conversion price to be equal to the greater of 75% of the lowest VWAP during the ten trading day period immediately preceding the date a conversion notice is delivered or $120.00, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock.
On August 16, 2019, Spectrum made the second amendment to the Certificate of Designation of its Series A convertible preferred stock. As a result of this amendment, the Company recorded a deemed dividend in accordance with ASC 260-10-599-2.
On April 8, 2020, Spectrum
made the third amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price and
the conversion price floor to $
On June 18, 2020, Spectrum
made the fourth amendment to the Certificate of Designation of its Series A preferred stock, which lowered the fixed conversion price
to $
On January 27, 2021, Spectrum
made the fifth amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price to
$
Subsequent to the fifth amendment, the principal terms of the Series A preferred stock shares are as follows:
Voting rights – The Series A preferred stock shares do not have voting rights.
Dividend rights – The holders of the Series A preferred stock shares shall not be entitled to receive any dividends. No dividends (other than those payable solely in common stock) shall be paid on the common stock or any class or series of capital stock ranking junior, as to dividends, to the Series A preferred stock shares during any fiscal year of the Company until there shall have been paid or declared and set apart during that fiscal year for the holders of the Series A preferred stock shares a dividend in an amount per share equal to (i) the number of shares of common stock issuable upon conversion of the Series A preferred stock times (ii) the amount per share of the dividend to be paid on the common stock.
Conversion rights –
The holders of the Series A preferred stock shares have the right to convert each Series A preferred stock share and all accrued and
unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance of such share into
fully paid and nonassessable shares of common stock of the Company.
Liquidation rights – Upon the occurrence of any liquidation, each holder of Series A preferred stock shares then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, before any payment shall be made in respect of the common stock, or other series of preferred stock then in existence that is outstanding and junior to the Series A preferred stock shares upon liquidation, an amount per share of Series A preferred stock shares equal to the amount that would be receivable if the Series A preferred stock shares had been converted into common stock immediately prior to such liquidation distribution, plus, accrued and unpaid dividends.
F-35
On June 24, 2021, the Company
issued
On August 12, 2021, the Company
issued
As a result of the conversions,
on December 31, 2021, the fair value of the Series A Preferred Stock was $
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series A preferred stock shares as temporary equity or “mezzanine.”
Series B
On April 16, 2018, Spectrum
designated
Issue Price - The
stated price for the Series B preferred stock shares shall be $
Redemption - The Series B preferred stock shares are not redeemable.
Dividends - The holders of the Series B preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation
- The Corporation’s Series A preferred stock (the “Senior Preferred Stock) shall have a liquidation preference senior
to the Series B preferred stock. Upon any fundamental transaction, liquidation, dissolution or winding up of the Company, whether voluntary
or involuntary, the holders of the shares of the Series B preferred stock shares shall be entitled, after any distribution or payment
is made upon any shares of capital stock of the Company having a liquidation preference senior to the Series B preferred stock shares,
including the Senior Preferred Stock, but before any distribution or payment is made upon any shares of common stock or other capital
stock of the Company having a liquidation preference junior to the Series B preferred stock shares, to be paid in cash the sum of $
Voting - The holders of shares of Series B preferred stock shall be voted together with the shares of common stock such that the aggregate voting power of the Series B preferred stock is equal to 51% of the total voting power of the Company.
Conversion - There are no conversion rights.
F-36
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series B preferred stock shares as temporary equity or “mezzanine.”
Series D
On June 14, 2021, Spectrum
designated
On December 13, 2021, the
Company made the first amendment to the Certificate of Designation of its Series D preferred stock which changed the conversion right.
As a result of this amendment, the Company recorded a deemed dividend of $
Subsequent to the first amendment, the principal terms of the Series D preferred stock shares are as follows:
Issue Price - The
stated price for the Series D preferred stock shares shall be $
Redemption - The Series D preferred stock shares are not redeemable.
Dividends - The holders of the Series D preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation
- Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),
the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal
to $
Voting - Except as otherwise provided in the agreement or as required by law, the Series D shall be voted together with the shares of common stock, par value $0.00001 per share of the Corporation (“Common Stock”), and any other series of preferred stock then outstanding that have voting rights, and except as provided in Section 7, not as a separate class, at any annual or special meeting of stockholders of the Corporation, with respect to any question or matter upon which the holders of Common Stock have the right to vote, such that the voting power of each share of Series D is equal to the voting power of the shares of Common Stock that each such share of Series D would be convertible into pursuant to Section 6 if the Series D Conversion Date was the date of the vote. The Series D shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and may act by written consent in the same manner as the holders of Common Stock of the Corporation.
Conversion - Beginning ninety (90) days from the date of issuance, all or a portion of the Series D may be converted into Common Stock at the greater of the Fixed Price and the Average Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series D Conversion Date”), without any further action, all shares of Series D shall automatically convert into shares of Common Stock at the Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series D ( subject to adjustment for any reverse or forward split of the Common Stock).
Vote to Change the Terms of or Issuance of Series D - The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series D shall be required for any change to the Certificate of Designation, Preferences, Rights and Other Rights of the Series D.
On October 20, 2021, Keith
Hayter assigned
F-37
On December 16, 2021, the
Company issued
As of December 31, 2021,
the fair value of the Series D Preferred Stock was $
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series D preferred stock shares as temporary equity or “mezzanine.”
Series E
On December 20, 2021, the
Company designated
The principal terms of the Series E preferred stock shares are as follows:
Issue Price - The
stated price for the Series E preferred stock shares shall be $
Redemption - The Series E preferred stock shares are not redeemable.
Dividends - The holders of the Series E preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation
- Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”),
the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal
to $
Voting - Except
as otherwise provided herein or as required by law, the Series E shall be voted together with the shares of common stock, par value $
Conversion - Beginning ninety (90) days from the date of issuance, all or a portion of the Series E may be converted into Common Stock at the Fixed Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series E Conversion Date”), without any further action, all shares of Series E shall automatically convert into shares of Common Stock at the Fixed Price. “Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series E (subject to adjustment for any reverse or forward split of the Common Stock or similar occurrence).
Vote to Change the Terms
of or Issuance of Series E - The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting,
of the holders of not less than fifty-one (
As of December 31, 2021,
the fair value of the Series E Preferred Stock was $
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series E preferred stock shares as temporary equity or “mezzanine.”
F-38
| 13. | Share Purchase Warrants and Stock Options |
On June 15, 2021, in connection
with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s share purchase
warrants and stock options. As of June 15, 2021, the total fair value of Spectrum’s share purchase warrants and stock options was
$
The total fair value of the
Company’s share purchase warrants and stock options was $
The following table summarizes the activity of share purchase warrants for the period of December 31, 2020 through December 31, 2021:
| Number of warrants | Weighted average exercise price | Intrinsic value | ||||||||||
| Balance at December 31, 2020 | $ | $ | ||||||||||
| Assumed in merger transaction | ||||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Expired | ( | ) | ||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||
| Exercisable at December 31, 2021 | $ | $ | - | |||||||||
As of December 31, 2021, the following share purchase warrants were outstanding:
Number of warrants | Exercise price | Issuance Date | Expiry date | Remaining life | ||||||||||
The following table summarizes the activity of stock options for the period of December 31, 2020 through December 31, 2021:
| Number of stock options | Weighted average exercise price | Intrinsic value | ||||||||||
| Balance at December 31, 2020 | $ | $ | ||||||||||
| Assumed in merger transaction | ||||||||||||
| Issued | ||||||||||||
| Exercised | ||||||||||||
| Cancelled/expired | ( | ) | ||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||
| Exercisable at December 31, 2021 | $ | $ | ||||||||||
As of December 31, 2021, the following stock options were outstanding:
| Number of stock options | Exercise price | Issuance Date | Expiry date | Remaining Life | ||||||||||
The remaining stock-based
compensation expense on unvested stock options was $
F-39
| 14. | Leases |
The Company leases certain office space and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.
The following table sets forth the operating lease right of use (“ROU”) assets and liabilities as of December 31, 2021 and 2020:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Operating lease assets | $ | $ | ||||||
| Operating lease liabilities: | ||||||||
| Current operating lease liabilities | ||||||||
| Lonmg term operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
Expense related to leases
is recorded on a straight-line basis over the lease term, including rent holidays. During the years ended December 31, 2021 and 2020,
the Company recognized operating lease expense of $
Cash paid for amounts included
in the measurement of operating lease liabilities were $
The operating lease liabilities
as of December 31, 2021 reflect a weighted average discount rate of
| Year ending December 31, | ||||
| 2022 | $ | |||
| 2023 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total | $ | |||
| 15. | Commitments and Contingencies |
Leases
The Company leases certain of its properties under leases that expire on various dates through 2023. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years. Leases with an initial term of 12 months or less and immaterial leases are not recorded on the balance sheet (refer to Note 14, Leases, for amounts expensed during the years ended December 31, 2021 and 2020).
Legal proceedings
In the normal course of business or otherwise, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
On December 16, 2021, a former
employee filed a lawsuit against the Company and its Chief Executive Officer for unpaid commissions. The claim is for $
F-40
| 16. | Segment Disclosures |
During the year ended December 31, 2021, the Company
had
| ● | Technology. which is comprised of the ADEX Entities, AWS PR, SVC, Tropical, and HWN. |
| ● | High Wire, which consists of the rest of the Company’s operations. |
During the year ended December 31, 2020, the Company
had only
Factors used to identify
the Company’s reportable segments include the organizational structure of the Company and the financial information available for
evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s
operating segments have been broken out based on similar economic and other qualitative criteria.
Financial statement information by operating segment for the year ended December 31, 2021 is presented below:
| Year Ended December 31, 2021 | ||||||||||||
| High Wire | Technology | Total | ||||||||||
| Net sales | $ | $ | $ | |||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||
| Interest expense | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Total assets as of December 31, 2021 | ||||||||||||
Geographic information as of and for the year ended December 31, 2021 is presented below:
| Revenues For The Year Ended December 31, 2021 | Long-lived Assets as of December 31, 2021 | |||||||
| Puerto Rico and Canada | $ | $ | ||||||
| United States | ||||||||
| Consolidated total | ||||||||
F-41
| 17. | Income Taxes |
The Company’s pre-tax loss for the years ended December 31, 2021 and 2020 consisted of the following:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Domestic | $ | ( | ) | $ | ( | ) | ||
| Foreign | ||||||||
| Pre-tax Loss | $ | ( | ) | $ | ( | ) | ||
The provision for income taxes for the years ended December 31, 2021 and 2020 was as follows:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Foreign | ||||||||
| Total current | $ | $ | ||||||
| Deferred: | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Total deferred | ||||||||
| Total provision for income taxes | $ | $ | ||||||
The Company’s income
taxes were calculated on the basis of foreign pre-tax income and domestic pre-tax loss of $
The Company’s effective tax rate for the years ended December 31, 2021 and 2020 differed from the U.S. federal statutory rate as follows:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| % | % | |||||||
| Federal tax benefit at statutory rate | ( | ) | ||||||
| Permanent differences | ||||||||
| State tax benefit, net of Federal benefits | ||||||||
| Other | ||||||||
| Effect of foreign income taxed in rates other than the U.S. Federal statutory rate | ||||||||
| Net change in valuation allowance | ||||||||
| Provision | ||||||||
F-42
The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities were as follows:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Depreciation | ||||||||
| Total assets | ||||||||
| Total liabilities | ||||||||
| Less: Valuation allowance | ( | ) | ||||||
| Net deferred tax liabilities | $ | $ | ||||||
As of December 31, 2021 and
2020, the Company had federal net operating loss carryforwards (“NOL’s”) of $
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, provide for annual limitations on the utilization of net operating loss, capital loss and credit carryforwards if the Company were to undergo an ownership change, as defined in Section 382 of the Code. In general, an ownership change occurs whenever the percentage of the shares of a corporation owned, directly or indirectly, by 5-percent shareholders, as defined in Section 382 of the Code, increases by more than 50 percentage points over the lowest percentage of the shares of such corporation owned, directly or indirectly, by such 5-percent shareholders at any time over the preceding three years. In the event such ownership change occurs, the annual limitation may result in the expiration of net operating losses capital losses and credits prior to full utilization.
The Company has not completed a study to assess whether ownership change occurred as a result of the reverse merger. However, as a result of the reverse merger in 2021, the Company believes an ownership change under Sec. 382 may have occurred. As a result of this potential ownership change, certain of the Company’s net operating loss, capital loss and credit carryforwards could expire prior to full utilization. Additionally, further share issuances, such as the share issuances for debt conversions or acquisitions, may cause a change in ownership.
The Company performs an analysis each year to determine whether the expected future income will more likely than not be sufficient to realize the deferred tax assets. The Company’s recent operating results and projections of future income weighed heavily in the Company’s overall assessment.
The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of December 31, 2021 and 2020, there was no accrued interest and penalties related to uncertain tax positions.
The Company is subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Due to the Company’s net operating loss carryforwards all years remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. In addition, all of the net operating loss and credit carryforwards that may be used in future years are still subject to adjustment.
| 18. | Discontinued Operations |
On February 15, 2022, High
Wire sold its
The assets and liabilities of JTM as of December 31, 2021 and 2020 have been included within the consolidated balance sheets as current assets of discontinued operations, noncurrent assets of discontinued operations, current liabilities of discontinued operations, and noncurrent liabilities of discontinued operations.
The results of operations of JTM have been included within net income from discontinued operations, net of tax, on the statements of operations for the years ended December 31, 2021 and 2020.
F-43
The following table shows the balance sheet of the Company’s discontinued operations as of December 31, 2021 and 2020:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and deposits | ||||||||
| Current assets of discontinued operations | $ | $ | ||||||
| Noncurrent assets: | ||||||||
| Property and equipment, net of accumulated depreciation of $ | $ | $ | ||||||
| Goodwill | - | |||||||
| Intangible assets, net of accumulated amortization of $ | - | |||||||
| Noncurrent assets of discontinued operations | $ | $ | ||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Contract liabilities | ||||||||
| Loans payable | ||||||||
| Current liabilities of discontinued operations | $ | $ | ||||||
| Noncurrent liabilities: | ||||||||
| Loans payable, net of current portion | $ | $ | ||||||
| Noncurrent liabilities of discontinued operations | $ | $ | ||||||
The following table shows the statement of operations for the Company’s discontinued operations for the years ended December 31, 2021 and 2020:
| For the years ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses: | ||||||||
| Cost of revenues | ||||||||
| Depreciation and amortization | ||||||||
| Salaries and wages | ||||||||
| General and administrative | ||||||||
| Goodwill impairment | - | |||||||
| Intangible asset impairment | - | |||||||
| Total operating expenses | ||||||||
| Loss from operations | ||||||||
| Other (expenses) income: | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| PPP loan forgiveness | ||||||||
| Other income | ||||||||
| Total other expense | ||||||||
| Pre-tax loss from operations | ||||||||
| Provision for income taxes | ||||||||
| Net income from discontinued operations, net of tax | $ | $ | ||||||
F-44
| 19. | Subsequent Events |
Issuance of shares pursuant to a Cobra Equities SPV, LLC convertible debenture or assignment
On January 11, 2022, the
Company issued
On February 22, 2022, the
Company issued
On March 16, 2022, the Company
issued
On April 4, 2022, the Company
issued
Issuance of shares pursuant to a Series D Preferred Stock conversion
On February 7, 2022, the
Company issued
Sale of JTM
On February 15, 2022, High
Wire sold its
PPP loan forgiveness
On March 1, 2022, the Company’s
ADEX Subsidiary received notification that its $
Dominion Capital LLC Note Amendment
On March 20, 2022, Dominion
Capital LLC, amended the terms of the Company’s note payable to Dominion Capital LLC. The maturity date was amended from September
15, 2022 to February 15, 2023. The note amortization was also amended and the current amortization of principal and interest of $
Note Transfer Agreement
On April 1, 2022, Dominion
Capital LLC assigned its $
Mark Munro 1996 Charitable Remainder Unitrust Note Amendment
On April 11, 2022, the Mark Munro 1996 charitable Remainder Unitrust amended the terms of the Company’s convertible promissory note payable. The note maturity was amended from September 30, 2022 to April 30, 2024. Payment terms were also amended, and no payments are due until October 1, 2022. All other terms of the note remain the same.
F-45
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| High Wire Networks, Inc. | ||
| Date: April 15, 2022 | By: | /s/ Mark W. Porter |
| Mark W. Porter | ||
| Chief Executive Officer | ||
| Date: April 15, 2022 | By: | /s/ Daniel J. Sullivan |
| Daniel J. Sullivan | ||
| Chief Financial 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.
| Name | Position | Date | ||
| /s/ Mark W. Porter | Chief Executive Officer and Chairman of the | April 15, 2022 | ||
| Mark W. Porter | Board of Directors | |||
| /s/ Daniel J. Sullivan | Chief Financial Officer (Principal Financial | April 15, 2022 | ||
| Daniel J. Sullivan | Officer and Principal Accounting Officer) | |||
| /s/ Stephen W. LaMarche | Director | April 15, 2022 | ||
| Stephen W. LaMarche | ||||
| /s/ Peter H. Kruse | Director | April 15, 2022 | ||
| Peter H. Kruse |
45
Exhibit Index
| * | Filed herewith. |
46
Exhibit 4
Description of Registrants Securities
Common Stock
Authorized Shares
The Company has 1,000,000,000 common shares authorized with a par value of $0.00001.
Preferred Stock
Series A
On November 15, 2017, the Company created one series of the 20,000,000 preferred shares it is authorized to issue, consisting of 8,000,000 shares, to be designated as Series A preferred stock.
On October 29, 2018, the Company made the first amendment to the Certificate of Designation of its Series A convertible preferred stock. This amendment updated the conversion price to be equal to the greater of 75% of the lowest VWAP during the ten trading day period immediately preceding the date a conversion notice is delivered or $120.00, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock.
On August 16, 2019, the Company made the second amendment to the Certificate of Designation of its Series A convertible preferred stock. As a result of this amendment, the Company recorded a deemed dividend in accordance with ASC 260-10-599-2.
On April 8, 2020, the Company made the third amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price and the conversion price floor to $3.00 per share.
On June 18, 2020the Company made the fourth amendment to the Certificate of Designation of its Series A preferred stock, which lowered the fixed conversion price to $0.20 per share and the conversion price floor to $0.01 per share.
On January 27, 2021, the Company made the fifth amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price to $0.0975 per share. Spectrum accounted for the amendment as an extinguishment and recorded a deemed dividend in accordance with ASC 260-10-599-2.
Subsequent to the fifth amendment, the principal terms of the Series A preferred stock shares are as follows:
Voting rights – The Series A preferred stock shares do not have voting rights.
Dividend rights – The holders of the Series A preferred stock shares shall not be entitled to receive any dividends. No dividends (other than those payable solely in common stock) shall be paid on the common stock or any class or series of capital stock ranking junior, as to dividends, to the Series A preferred stock shares during any fiscal year of the Company until there shall have been paid or declared and set apart during that fiscal year for the holders of the Series A preferred stock shares a dividend in an amount per share equal to (i) the number of shares of common stock issuable upon conversion of the Series A preferred stock times (ii) the amount per share of the dividend to be paid on the common stock.
Conversion rights – The holders of the Series A preferred stock shares have the right to convert each Series A preferred stock share and all accrued and unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance of such share into fully paid and nonassessable shares of common stock of the Company. The number of shares of common stock into which each share of the Series A preferred stock shares may be converted shall be determined by dividing the sum of the stated value of the Series A preferred stock shares ($1.00 per share) being converted and any accrued and unpaid dividends by the conversion price in effect at the time of the conversion. The Series A preferred stock shares may be converted at a fixed conversion price of $0.0975, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock. The conversion price has a floor of $0.01 per share.
Liquidation rights – Upon the occurrence of any liquidation, each holder of Series A preferred stock shares then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, before any payment shall be made in respect of the common stock, or other series of preferred stock then in existence that is outstanding and junior to the Series A preferred stock shares upon liquidation, an amount per share of Series A preferred stock shares equal to the amount that would be receivable if the Series A preferred stock shares had been converted into common stock immediately prior to such liquidation distribution, plus, accrued and unpaid dividends.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series A preferred stock shares as temporary equity or “mezzanine.”
Series B
On April 16, 2018, the Company designated 1,000 shares of Series B preferred stock with a stated value of $3,500 per share. The Series B preferred stock is neither redeemable nor convertible into common stock. The principal terms of the Series B preferred stock shares are as follows:
Issue Price - The stated price for the Series B preferred stock shares shall be $3,500 per share.
Redemption - The Series B preferred stock shares are not redeemable.
Dividends - The holders of the Series B preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation - The Corporation’s Series A preferred stock (the “Senior Preferred Stock) shall have a liquidation preference senior to the Series B preferred stock. Upon any fundamental transaction, liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of the Series B preferred stock shares shall be entitled, after any distribution or payment is made upon any shares of capital stock of the Company having a liquidation preference senior to the Series B preferred stock shares, including the Senior Preferred Stock, but before any distribution or payment is made upon any shares of common stock or other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shares, to be paid in cash the sum of $3,500 per share. If upon such liquidation, dissolution or winding up, the assets to be distributed among the Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock shall be insufficient to permit payment to said holders of such amounts, then all of the assets of the Company then remaining shall be distributed ratably among the Series B preferred stock holders and such other capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after provision is made for Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any, then-outstanding as provided above, the holders of common stock and other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shall be entitled to receive ratably all remaining assets of the Company to be distributed.
Voting - The holders of shares of Series B preferred stock shall be voted together with the shares of common stock such that the aggregate voting power of the Series B preferred stock is equal to 51% of the total voting power of the Company.
Conversion - There are no conversion rights.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series B preferred stock shares as temporary equity or “mezzanine.”
2
Series D
On June 14, 2021, the Company designated 1,590 shares of Series D preferred stock with a stated value of $10,000 per share. The Series D preferred stock is not redeemable.
On December 13, 2021, the Company made the first amendment to the Certificate of Designation of its Series A preferred stock which changed the conversion right. As a result of this amendment, the Company recorded a deemed dividend of $5,852,000 for the year ended December 31, 2021 in accordance with ASC 260-10-599-2.
Subsequent to the first amendment, the principal terms of the Series D preferred stock shares are as follows:
Issue Price - The stated price for the Series D preferred stock shares shall be $10,000 per share.
Redemption - The Series D preferred stock shares are not redeemable.
Dividends - The holders of the Series D preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation - Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to $10,000 for each share of Series D before any distribution or payment shall be made to the holders of any other securities of the Corporation and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Series D were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
Voting - Except as otherwise provided in the agreement or as required by law, the Series D shall be voted together with the shares of common stock, par value $0.00001 per share of the Corporation (“Common Stock”), and any other series of preferred stock then outstanding that have voting rights, and except as provided in Section 7, not as a separate class, at any annual or special meeting of stockholders of the Corporation, with respect to any question or matter upon which the holders of Common Stock have the right to vote, such that the voting power of each share of Series D is equal to the voting power of the shares of Common Stock that each such share of Series D would be convertible into pursuant to Section 6 if the Series D Conversion Date was the date of the vote. The Series D shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and may act by written consent in the same manner as the holders of Common Stock of the Corporation.
Conversion - Beginning ninety (90) days from the date of issuance, all or a portion of the Series D may be converted into Common Stock at the greater of the Fixed Price and the Average Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series D Conversion Date”), without any further action, all shares of Series D shall automatically convert into shares of Common Stock at the Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series D ( subject to adjustment for any reverse or forward split of the Common Stock).
Vote to Change the Terms of or Issuance of Series D - The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series D shall be required for any change to the Certificate of Designation, Preferences, Rights and Other Rights of the Series D.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series D preferred stock shares as temporary equity or “mezzanine.”
Series E
On December 20, 2021, the Company designated 650 shares of Series E preferred stock with a stated value of $10,000 per share. The Series E preferred stock is not redeemable.
3
The principal terms of the Series E preferred stock shares are as follows:
Issue Price - The stated price for the Series E preferred stock shares shall be $10,000 per share.
Redemption - The Series E preferred stock shares are not redeemable.
Dividends - The holders of the Series E preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation - Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to $10,000 for each share of Series E before any distribution or payment shall be made to the holders of any other securities of the Corporation and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Series E were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
Voting - Except as otherwise provided herein or as required by law, the Series E shall be voted together with the shares of common stock, par value $0.00001 per share of the Corporation (“Common Stock”), and any other series of preferred stock then outstanding that have voting rights, and except as provided in Section 7, below, not as a separate class, at any annual or special meeting of stockholders of the Corporation, with respect to any question or matter upon which the holders of Common Stock have the right to vote, such that the voting power of each share of Series E is equal to the voting power of the shares of Common Stock that each such share of Series E would be convertible into pursuant to Section 6 if the Series E Conversion Date was the date of the vote. The Series E shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and may act by written consent in the same manner as the holders of Common Stock of the Corporation.
Conversion - Beginning ninety (90) days from the date of issuance, all or a portion of the Series E may be converted into Common Stock at the Fixed Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series E Conversion Date”), without any further action, all shares of Series E shall automatically convert into shares of Common Stock at the Fixed Price. “Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series E (subject to adjustment for any reverse or forward split of the Common Stock or similar occurrence).
Vote to Change the Terms of or Issuance of Series E - The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series E shall be required for any change to the Certificate of Designation, Preferences, Rights and Other Rights of the Series E.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series E preferred stock shares as temporary equity or “mezzanine.”
4
Exhibit 21.1
Subsidiaries of High Wire Netowrks, Inc.
| Legal Name | Location of Organization | |
| AW Solutions Puerto Rico, LLC | Puerto Rico | |
| Tropical Communications, Inc. | Florida | |
| ADEX Corp. | New York | |
| ADEX Puerto Rico LLC | Puerto Rico | |
| ADEX Canada Ltd | Canada | |
| HWN, Inc. | Delaware | |
| Secure Voice Corporation | Delaware |
Exhibit 31.1
CERTIFICATION
I, Mark Porter, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of High Wire Networks, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 15, 2022 | By: | /s/ Mark Porter |
| Mark Porter | ||
Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Daniel Sullivan, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of High Wire Networks, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 15, 2022 | By: | /s/ Daniel Sullivan |
| Daniel Sullivan | ||
Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
Section 1350 CERTIFICATION
In connection with this Annual Report of High Wire Networks, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Porter, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: April 15, 2022 | By: | /s/ Mark Porter |
| Mark Porter | ||
Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
Section 1350 CERTIFICATION
In connection with this Annual Report of High Wire Networks, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel Sullivan, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: April 15, 2022 | By: | /s/ Daniel Sullivan |
| Daniel Sullivan | ||
Chief Financial Officer (Principal Financial Officer) |
Organization |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2021 | |||
| Organization and Going Concern [Abstract] | |||
| Organization |
High Wire Networks, Inc., (f/k/a Spectrum Global Solutions, Inc.) (“High Wire”) was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, Spectrum reincorporated in the province of British Columbia, Canada.
On April 25, 2017, High Wire entered into and closed on an Asset Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Asset Purchase Agreement, Spectrum purchased 80.1% of the assets associated with InterCloud’s AW Solutions, Inc., AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”) (collectively “AWS” or the “AWS Entities”) subsidiaries.
On November 15, 2017, High Wire changed its name to “High Wire Enterprises, Inc.” and reincorporated in the state of Nevada.
On February 6, 2018, High Wire entered into and closed on a Stock Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Stock Purchase Agreement High Wire purchased all of the issued and outstanding capital stock and membership interests of ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”). Spectrum completed the acquisition on February 27, 2018.
On February 14, 2018, High Wire entered into an agreement with InterCloud providing for the sale, transfer, conveyance and delivery to High Wire of the remaining 19.9% of the assets associated with InterCloud’s AWS business not already purchased by Spectrum.
On May 18, 2018, High Wire transferred all of its ownership interests in and to its subsidiaries Carbon Commodity Corporation, Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., Mantra Wind Inc., Climate ESCO Ltd. and Mantra Energy Alternatives Ltd. to an entity controlled by Mantra’s former Chief Executive Officer, Larry Kristof. The new owner of the aforementioned entities assumed all liabilities and obligations with respect to such entities.
On January 4, 2019, High Wire entered into a Stock Purchase Agreement with InterCloud. Pursuant to the terms of the Purchase Agreement, InterCloud agreed to sell, and High Wire agreed to purchase, all of the issued and outstanding capital stock of TNS, Inc. (“TNS”), an Illinois corporation.
During September 2019, High Wire formed ADEX Canada, which is included in the ADEX Entities.
On September 30, 2020, High Wire sold its TNS subsidiary.
On December 31, 2020, High Wire sold its AWS subsidiary.
HWN, Inc., (d/b/a High Wire Network Solutions, Inc.) (“High Wire” or the “Company”) was incorporated in Delaware on January 20, 2017. The Company is a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. The Company’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.
High Wire and JTM Electrical Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which High Wire owned 50% of JTM.
On June 16, 2021, the Company completed a merger with Spectrum. The merger was accounted for as a reverse merger (refer to Note 3, Reverse Merger and Acquisition, for additional detail). At the time of the reverse merger, Spectrum’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”).
On November 4, 2021, the Company closed on its acquisition of Secure Voice Corp (“SVC”). The closing of the acquisition was facilitated by the senior secured promissory note described (refer to Note 3, Reverse Merger and Acquisition, and Note 8, Convertible Debentures, for additional detail).
On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. For accounting purposes, HWN is the surviving entity and is referred to throughout as “HWN”, “High Wire”, or “the Company”.
On February 15, 2022, HWN sold its 50% interest in JTM (refer to Note 19, Subsequent Events, for additional detail). As of December 31, 2021, the Company classified JTM as held-for-sale. Additionally, the sale of High Wire’s 50% interest in JTM qualified for discontinued operations treatment (refer to Note 18, Discontinued Operations, for additional detail).
The Company’s AWS PR and Tropical subsidiaries are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. The Company’s ADEX Entities are a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications industry, service providers and enterprise customers domestically and internationally. The Company’s SVC subsidiary is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers. |
Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies |
Basis of Presentation/Principles of Consolidation
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and SVC, as well as High Wire and its subsidiaries, the ADEX Entities, AWS PR, and Tropical. All subsidiaries are wholly-owned
On February 15, 2022, HWN sold its 50% interest in JTM (refer to Note 19, Subsequent Events, for additional detail). The operations of JTM have been included as discontinued operations in the accompanying financial statements.
All inter-company balances and transactions have been eliminated.
Reverse Merger
On January 27, 2021, Spectrum Global Solutions, Inc. HW Merger Sub, Inc., HWN, Inc. and the stockholders of HWN, Inc. (the “Stockholders”) entered into an Agreement and Plan of Merger (the “Agreement”) whereby the Stockholders agreed to sell to the Company all of the capital stock of HWN, Inc. On June 16, 2021, the transaction contemplated by the Agreement closed, and HWN, Inc. became a wholly-owned subsidiary of Spectrum Global Solutions, Inc. As previously disclosed, as part of the consideration for the transaction, Spectrum Global Solutions, Inc. issued shares of a newly established Series D Preferred Stock.
The merger has been accounted for as a reverse merger in accordance with US GAAP. This determination was primarily based on High Wire’s business comprising the ongoing operations of the Company following the Merger, High Wire’s senior management comprising the senior management of the Company and High Wire’s stockholders having a majority of the voting power of the Company. For accounting purposes, Spectrum is considered the “acquired” company and High Wire is considered the “acquirer.” Accordingly, for accounting purposes, the Merger is treated as the equivalent of High Wire issuing stock for the net assets of Spectrum, accompanied by a recapitalization. The net assets of Spectrum have been remeasured at fair value and applied against the purchase price resulting in goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations prior to the Closing Date of the merger are those of High Wire, and Spectrum’s assets, liabilities and results of operations are consolidated with High Wire beginning on the Closing Date. The shares and corresponding capital amounts and earnings per share available to common stockholders, pre-merger, have been retroactively restated as shares reflecting the exchange ratio in the merger. The historical financial information and operating results of Spectrum prior to the merger have not been separately presented in these consolidated financial statements.
Impact of the COVID-19 Pandemic
The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
Global health concerns relating to the COVID-19 outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact the Company’s workforce and operations and the operations of its customers, suppliers and business partners. These measures may remain in place for a significant period of time and they are likely to continue to adversely affect the Company’s business, results of operations and financial condition.
The spread of COVID-19 has caused the Company to modify its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests of its employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.
The extent to which the COVID-19 outbreak impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may continue to experience materially adverse impacts to its business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a global pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. The Company does not yet know the full extent of the impacts on its business, its operations or the global economy as a whole. However, the effects could have a material impact on the Company’s results of operations, and the Company will continue to monitor the COVID-19 situation closely. As of November 2021, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine distribution, supply and effectiveness will impact when the negative economic effects as a result of COVID-19 will abate or end and the timing of such recovery may affect the Company’s financial condition.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts at December 31, 2021 and 2020 was $74,881 and $0, respectively.
Property and Equipment
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
Goodwill
The Company tests its goodwill for impairment at least annually on December 31st and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.
The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the years ended December 31, 2021 and 2020.
Intangible Assets
At December 31, 2021 and 2020, definite-lived intangible assets consist of tradenames and customer relationships which are being amortized over their estimated useful lives of 10 years.
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were no impairment charges during the years ended December 31, 2021 and 2020.
Long-lived Assets
In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were no impairment charges recorded during the years ended December 31, 2021 and 2020.
Foreign Currency Translation
Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting foreign exchange gains and losses are recognized in income.
The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting foreign exchange gains or losses are recognized in income.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2021. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The Company follows the guidance set forth within ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.
AWS PR received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014. The amount due as of June 30, 2021 was $156,711 plus penalties and interest of $140,319 for a total obligation due of $297,030. During June 2021, AWS PR was notified that the Puerto Rican government would settle the outstanding debt for $11,105, which the Company paid during July 2021.
Prior to 2021, the Company had elected to be treated as a Subchapter S Corporation for income tax purposes, and as such recognized no income tax liability or benefit.
Revenue Recognition
Adoption of New Accounting Guidance on Revenue Recognition
The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Contract Types
The Company’s contracts fall under two main types: 1) fixed-price and 2) time-and-materials. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working permanently at customer locations and materials costs incurred by those employees.
A significant portion of the Company’s revenues come from customers with whom the Company has a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases this may be each day, or each week depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work.
Revenue Service Types
The following is a description of the Company’s revenue service types, which include professional services and construction:
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by service type, contract type, contract duration, and timing of transfer of goods or services. See the below tables:
The Company also disaggregates its revenue by operating segment and geographic location (refer to Note 16, Segment Disclosures, for additional information).
Accounts Receivable
Accounts receivable include amounts from work completed in which the Company has billed. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable.
Contract Assets and Liabilities
Contract assets include costs and services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated balance sheets. At December 31, 2021 and 2020, contract assets totaled $0 and $60,862, respectively.
Contract liabilities include payment received for incomplete performance obligations and are included in contract liabilities on the consolidated balance sheets. At December 31, 2021 and 2020, contract liabilities totaled $633,771 and $184,450, respectively.
Cost of Revenues
Cost of revenues includes all direct costs of providing services under the Company’s contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.
Research and Development Costs
Research and development costs are expensed as incurred.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”), using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
Loss per Share
The Company computes (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted (loss) per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2021 and 2020, respectively, the Company had 133,801,817 and 0 common stock equivalents outstanding.
Leases
The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) on January 1, 2019.
The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the Company’s lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.
The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months as of January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.
Going Concern Assessment
Management assesses going concern uncertainty in the Company’s consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date of the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
The Company has generated losses in 2021 and 2020 and High Wire has generated losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cash flow from operations. As of and for the year ended December 31, 2021, the Company had an operating loss of $3,886,872 (before deducting losses attributable to noncontrolling interests, cash flows used in operations of $4,207,759 and a working capital deficit of $20,788,076.
Management has prepared estimates of operations for 2022 and believes that sufficient funds will be generated from operations to fund its operations and to service its debt obligations for one year from the date of the filing of the consolidated financial statements in the Company’s Annual Report on Form 10-K, which indicate improved operations and the Company’s ability to continue operations as a going concern.
The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on a return to more normal operations. Further, the recently enacted CARES Act provides for economic assistance loans through the SBA. As of December 31, 2021, ADEX had $2,010,000 of PPP loans outstanding from the SBA under the CARES Act. The PPP provides that the PPP loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. ADEX used the proceeds from the PPP loans for qualifying expenses and is applying for forgiveness of the PPP loans in accordance with the terms of the CARES Act.
The accompanying consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
Management believes that based on relevant conditions and events that are known and reasonably knowable that its forecasts for one year from the date of the filing of the consolidated financial statements in the Company’s Annual Report on Form 10-K indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these consolidated financial statements. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
Recent Accounting Pronouncements
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). In June 2016, the FASB issued ASU No. 2016-13. The amendments in ASU 2016-13, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (the “SEC”) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company is currently evaluating the potential impact of ASU 2016-13 on its consolidated financial statements.
ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). In December 2019, the FASB issued ASU 2019-12. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for the Company’s fiscal year beginning after December 15, 2021. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The Company is currently evaluating the potential impact of ASU 2019-12 on its consolidated financial statements.
ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments are effective for public companies for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.
ASU 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08). In October 2021, the FASB issued ASU 2021-08. This guidance amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. As a public business entity, this standard will become effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the potential impact ASU 2021-08 will have on its consolidated financial statements.
Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.
The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the year ended December 31, 2021, three customers accounted for 17%, 17%, and 13%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 6%, 7%, and 15%, respectively, of trade accounts receivable as of December 31, 2021. Two other customers accounted for 18% and 15%, respectively, of trade accounts receivable as of December 31, 2021. For the year ended December 31, 2020, four customers accounted for 31%, 14%, 12%, and 12%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 46%, 9%, 1%, and 0%, respectively, of trade accounts receivable as of December 31, 2020.
The Company’s customers are primarily located within the domestic United States of America, Puerto Rico, and Canada. Revenues generated within the domestic United States of America accounted for approximately 95% of consolidated revenues for the year ended December 31, 2021. Revenues generated from customers in Puerto Rico and Canada accounted for approximately 5% of consolidated revenues for the year ended December 31, 2021. Revenues generated within the domestic United States of America accounted for 100% of consolidated revenues for the year ended December 31, 2020.
Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the years ended December 31, 2021 and 2020. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
The Company’s financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2021 and 2020 consisted of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 10, Derivative Liabilities, for additional information.
Derivative Liabilities
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of December 31, 2021 and 2020, the Company had a derivative liability of $15,528,339 and $0, respectively
Sequencing Policy
Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy. |
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Reverse Merger and Acquisition |
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| Reverse Merger and Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reverse Merger and Acquisition |
Reverse Merger
As noted in Note 2, on June 16, 2021, the Company consummated a reverse merger in which HWN, Inc. became a legal subsidiary of Spectrum Global Solutions, Inc., but HWN, Inc. was deemed to be the accounting acquirer. HWN shareholders exchanged 100% of the common stock of HWN for 350 shares newly issued shares of the Company’s Series D preferred stock and 1,000 shares of the Company’s previously issued Series B preferred stock (formerly held by management of legacy Spectrum Global Solutions, Inc.).
The purpose of the acquisition was to continue to increase revenue.
The acquisition was accounted for under the acquisition method of accounting which requires the consideration given, assets acquired, and liabilities assumed to be measured at fair value. In measuring the consideration transferred, since this was a reverse merger between a public company (as the legal acquirer) and a private company (as the accounting acquirer), the fair value of the legal acquirer’s public stock generally was more reliably determinable than the fair value of the accounting acquirer’s private stock. As such, the determination and measurement of the consideration transferred was based on the fair value of the legal acquirer’s stock rather than the fair value of the accounting acquirer’s stock. Further, since this was a reverse merger for accounting purposes, the consideration transferred includes the equity-based instruments retained by the legacy shareholders of Spectrum Global Solutions, Inc.
The fair value of the assets acquired, liabilities assumed and consideration transferred denoted below are final and based on the management’s best estimates using information that it has obtained as of the reporting date.
The fair value of the consideration transferred and liabilities assumed are as follows:
The fair value of the net assets acquired (provisional) are as follows:
Acquisition of SVC
As noted in Note 2, on November 4, 2021 the Company closed on a Stock Purchase Agreement with Secure Voice Corp. (“SVC”) and Telecom Assets Corp. (the “Seller”) whereby the Seller sold SVC to Spectrum, in exchange for $2,500,000 in cash and up to $6,500,000 (less up to $2,000,000 in assumed liabilities) of a newly established series of convertible preferred stock of Spectrum (refer to the Series E section of Note 12, Preferred Stock, for additional detail). SVC is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers. The purpose of the acquisition was to continue to increase revenue. The closing of the acquisition was facilitated by the senior secured promissory note described in Note 8, Convertible Debentures.
The acquisition was accounted for under the acquisition method of accounting which requires the consideration given, assets acquired, and liabilities assumed to be measured at fair value. The fair value of the assets acquired, liabilities assumed and consideration transferred denoted below are provisional in nature and based on the management’s best estimates using information that it has obtained as of the reporting date. The Company is awaiting additional valuation information and expects to finalize the purchase price allocation before the end of the fiscal year.
The fair value of the consideration transferred (provisional), liabilities assumed (provisional) are as follows:
The fair value of the net assets acquired (provisional) are as follows:
The preliminary allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition date fair values are considered preliminary and may change within the permissible measurement period, not to exceed one year.
Pro Forma
The following shows pro forma results for the years ended December 31, 2021 and 2020 as if the reverse merger and acquisition had occurred on January 1, 2020.
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Property and Equipment |
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| Property and Equipment |
Property and equipment as of December 31, 2021 and 2020 consisted of the following:
During the years ended December 31, 2021 and 2020, the Company recorded depreciation expense of $52,959 and $11,819, respectively. |
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Intangible Assets |
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| Intangible Assets |
Intangible assets as of December 31, 2021 and 2020 consisted of the following:
During the years ended December 31, 2021 and 2020, the Company recorded amortization expense of $453,405 and $189,465, respectively.
The estimated future amortization expense for the next five years and thereafter is as follows:
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Related Party Transactions |
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| Related Party Transactions |
Exchange of Shares of Common Stock for Series B Preferred Stock
On June 16, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company’s Chief Executive Officer, Mark Porter, exchanged 350 shares of Series D Preferred Stock for 1,000 shares of Series B Preferred Stock from Roger Ponder and Keith Hayter, the former Chief Executive Officer and President, respectively, of Spectrum. This resulted in an increase to additional paid in capital of $1,271,000.
Loans Payable to Related Parties
As of December 31, 2021 and 2020, the Company had outstanding the following loans payable to related parties:
The Company’s loans payable to related parties have an effective interest rate range of 9.6% to 11.3%.
Promissory note issued to Jeffrey Gardner and James Marsh, 5.5% interest, matures February 27, 2022
On February 17, 2019, the Company issued a promissory note to Jeffrey Gardner and James Marsh with an original principal amount of $4,000,000. The note accrues interest at a rate of 5.5% per annum and the maturity date is February 27, 2022.
On January 1, 2021, this note was assigned by Jeffrey Gardner and James Marsh to the Mark Munro 1996 Charitable Remainder UniTrust. As a result of the assignment, the note was no longer a related party note.
During the year ended December 31, 2021, the Company did not make any cash payments for principal. During the year ended December 31, 2020, the Company made cash payments for principal of $321,487.
On December 28, 2021, the note was exchanged for a convertible note (refer to Note 8, Convertible Debentures, for additional detail). At the time of the exchange, the outstanding principal balance was $2,292,971.
Roger Ponder Related Party Reclassification
During September 2021, as a result of shares of, as a result of his resignation as a director and the potential shares to be issued about conversion of his debt and Series D preferred stock, the Company determined that Roger Ponder was no longer a related party. The effective date of the reclassification was June 16, 2021.
Convertible promissory note, Keith Hayter, 10% interest, unsecured, matures August 31, 2022
On June 15, 2021, in connection with the merger transaction discussed in Note 3 and Acquisition, Reverse Merger, the Company assumed Spectrum’s convertible promissory note issued to Keith Hayter. The note was originally issued on August 31, 2020 in the principal amount of $554,031. Interest accrues at 10% per annum. All principal and accrued but unpaid interest under the note is due on August 31, 2022. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.06 per share, subject to adjustment based on the terms of the note. The embedded conversion option does not qualify for derivative accounting. As a result of the conversion price being fixed at $0.06, the note has a conversion premium of $1,359,761, and the fair value of the note is $378,000.
During the period of June 16, 2021 through December 31, 2021, the holder of the note converted $200,000 of principal into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional detail ). As a result of these conversions, the Company recorded a loss on settlement of debt of $1,182,972 to the consolidated statement of operations for the year ended December 31, 2021.
As of December 31, 2021, the Company owed $354,031 pursuant to this agreement and will amortize the remaining premium of $988,917 over the remaining term of the note. The total liability as of December 31, 2021 was $1,342,949.
Promissory note, Mark Porter, 9% interest, unsecured, matures December 15, 2021
On June 1, 2021, the Company issued a $100,000 promissory note to the Chief Executive Officer of the Company in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition. The note is due on December 15, 2021 and bears interest at a rate of 9% per annum.
On December 15, 2021, this note matured and is now due on demand.
As of December 31, 2021, the Company owed $100,000 pursuant to this agreement. |
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Loans Payable |
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| Loans Payable |
As of December 31, 2021 and 2020, the Company had outstanding the following loans payable:
Promissory note issued to Cornerstone National Bank & Trust, 4.5% interest, matures October 9, 2024
On October 21, 2019, the Company issued a promissory note to Cornerstone National Bank & Trust with an original principal amount of $420,000. The note bears interest at a rate of 4.5% per annum and the maturity date is October 9, 2024. The Company is to make monthly payments of principal and interest of $5,851, with a final balloon payment of $139,033 due on October 9, 2024.
During the year ended December 31, 2021, the Company made cash payments for principal of $54,770. During the year ended December 31, 2020, the Company made cash payments for principal of $52,509.
As of December 31, 2021, the Company owed $304,186 pursuant to this agreement.
Loan with Cedar Advance LLC
On December 14, 2021, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing Parties sold to Cedar Advance future receivables in an aggregate amount equal to $1,000,000 for a purchase price of $800,000. The Company received cash of $776,000 and recorded a debt discount of $224,000.
Pursuant to the terms of the Financing Agreement, the Company agreed to pay Cedar Advance $27,027 each week based upon an anticipated 25% of its future receivables until such time as $1,000,000 has been paid, a period Cedar Advance and the Financing Parties estimate to be approximately nine months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.
Additionally, in connection with the Financing Agreement, the Company issued Cedar Advance a warrant to purchase 400,000 shares of the Company’s common stock at an exercise price of $0.25 per share. These warrants expire on December 14, 2024.
The warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the warrant of $102,696 resulted in an initial derivative expense of $102,696.
During the year ended December 31, 2021, the Company paid $54,054 of the original balance under the agreement.
At December 31, 2021, the Company owed $945,946 pursuant to this agreement and will record accretion equal to the debt discount of $191,370 over the remaining term of the note.
Loan with Pawn Funding
On December 14, 2021, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Pawn Funding. Under the Financing Agreement, the Financing Parties sold to Pawn Funding future receivables in an aggregate amount equal to $250,000 for a purchase price of $200,000. The Company received cash of $194,000 and recorded a debt discount of $56,000.
Pursuant to the terms of the Financing Agreement, the Company agreed to pay Pawn Funding $6,757 each week based upon an anticipated 25% of its future receivables until such time as $250,000 has been paid, a period Pawn Funding and the Financing Parties estimate to be approximately nine months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.
Additionally, in connection with the Financing Agreement, the Company issued Pawn Funding a warrant to purchase 200,000 shares of the Company’s common stock at an exercise price of $0.25 per share. These warrants expire on December 14, 2024.
The warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the warrant of $51,348 resulted in an initial derivative expense of $51,348.
During the year ended December 31, 2021, the Company paid $13,514 of the original balance under the agreement.
At December 31, 2021, the Company owed $236,486 pursuant to this agreement and will record accretion equal to the debt discount of $47,843 over the remaining term of the note.
Promissory note issued to Dominion Capital., LLC., 10% interest, unsecured, matures on September 30, 2022
On June 15, 2021, in connection with the acquisition of SVC discussed in Note 3, Reverse Merger and Acquisition, the Company assumed SVC’s promissory note issued to Dominion Capital, LLC. The note was originally issued on March 31, 2021 in the principal amount of $2,750,000. As of June 15, 2021, $1,650,000 remained outstanding. The note bears interest at a rate of 10% per annum and the maturity date is September 30, 2022.
During the period of June 16, 2021 through December 31, 2021, the Company made cash payments of $255,000.
As of December 31, 2021, the Company owed $1,552,500 pursuant to this agreement.
Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s promissory note issued to InterCloud Systems, Inc. The note was originally issued on February 27, 2018 in the principal amount of $500,000. As of June 15, 2021, $217,400 remained outstanding. The note is non-interest bearing and is due on demand.
As of December 31, 2021, the Company owed $217,400 pursuant to this agreement.
EIDL Loan
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed ADEX’s EIDL loan. The note was originally issued on October 10, 2022 in the principal amount of $150,000. As of June 15, 2021, $150,000 remained outstanding. The note bears interest at a rate of 3.75% per annum and the maturity date is October 12, 2050.
During the period of June 16, 2021 through December 31, 2021, the Company made cash payments of $716.
As of December 31, 2021, the Company owed $149,284 pursuant to this agreement.
CARES Act Loans
On April 8, 2020 and March 31, 2021, High Wire received $873,400 and $873,465, respectively. On June 15, 2021, in connection with the merger transaction described in Note 3, Reverse Merger and Acquisition, the Company assumed CARES Act Loans totaling $2,010,000 that were originally received by ADEX. Collectively, these amounts are the “PPP Funds.”
These loan agreements were pursuant to the CARES Act. The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act is eligible to be forgiven provided that (a) the Company uses the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. The amount of loan forgiveness will be reduced if, among other reasons, the Company does not maintain staffing or payroll levels. Principal and interest payments on any unforgiven portion of the PPP Funds will be deferred for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan.
On November 4, 2020, High Wire received approval for forgiveness of its $873,400 CARES Act Loan.
On August 6, 2021, High Wire received approval for forgiveness of its $873,465 CARES Act Loan. As a result, the Company recorded a gain on PPP loan forgiveness to the consolidated statement of operations for the year ended December 31, 2021.
As of December 31, 2021 and 2020, the aggregate balance of these loans was $2,010,000 and $0, respectively, and is included in loans payable on the consolidated balance sheets. |
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Convertible Debentures |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible Debentures |
As of December 31, 2021 and 2020, the Company had outstanding the following convertible debentures:
The Company’s convertible debentures have an effective interest rate range of 8.4% to 78.8%.
Convertible promissory note, Cobra Equities SPV, LLC, 18% interest, unsecured, matured June 1, 2019
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued to Cobra Equities SPV, LLC. The note had been previously assigned to Cobra Equities SPV, LLC by another lender. The amount outstanding as of June 15, 2021 was $406,000, with accrued interest of $16,030.
Interest accrues on the note at 18% per annum. The note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest VWAP for the 10 consecutive trading days immediately preceding the conversion.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
During the period of June 16, 2021 through December 31, 2021, the holder of the note converted $206,000 of principal and $3,620 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional detail). As a result of these conversions, the Company recorded a loss on settlement of debt of $268,770 to the consolidated statement of operations for the year ended December 31, 2021.
The Company owed $200,000 as of December 31, 2021.
Convertible promissory note, SCS Capital Partners, LLC, 12% interest, secured, matures December 30, 2021
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued to SCS, LLC. The note had been previously assigned to SCS, LLC by another lender. The amount outstanding as of June 15, 2021 was $235,989, with accrued interest of $16,763.
The interest on the outstanding principal due under the note accrues at a rate of 12% per annum. All principal and accrued but unpaid interest under the note is due on December 30, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.0275 per share. On or after the date of the closing of a subsequent offering, the fixed conversion price shall be 105% of the price of the common stock issued in the subsequent offering.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
On September 23, 2021, the holder of the note assigned the note to Cobra Equities SPV, LLC (refer to the “Convertible promissory note, Cobra Equities SPV, LLC, 12% interest, secured, due on demand” section of this note for additional detail).
Convertible promissory note, Cobra Equities SPV, LLC, 12% interest, secured, due on demand
On September 23, 2021, the holder of the note described in the “Convertible promissory note, SCS Capital Partners, LLC, 12% interest, secured, matures December 30, 2021” section of this note assigned the note to Cobra Equities SPV, LLC. The interest on the outstanding principal due under the note accrues at a rate of 12% per annum. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.0275 per share. On or after the date of the closing of a subsequent offering, the fixed conversion price shall be 105% of the price of the common stock issued in the subsequent offering.
During the period of September 23, 2021 through December 31, 2021, the holder of the note converted $146,942 of principal and $112,700 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional detail). As a result of these conversions, the Company recorded a loss on settlement of debt of $3,438,801 to the consolidated statement of operations for the year ended December 31, 2021.
The note matured on December 30, 2021 and is now due on demand.
At December 31, 2021, the Company owed $89,047 pursuant to this agreement.
Convertible promissory note, SCS Capital Partners, LLC, 10% interest, secured, matures December 31, 2021
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued to SCS, LLC. The amount outstanding as of June 15, 2021 was $219,941, with accrued interest of $7,991.
The note was originally issued on December 29, 2020 in the principal amount of $175,000. The interest on the outstanding principal due under the note accrues at a rate of 10% per annum. All principal and accrued but unpaid interest under the note is due on December 31, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.04 per share.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
During the period of June 16, 2021 through September 23, 2021, the Company made cash payments for principal of $94,260.
On September 23, 2021, the holder of the note assigned the note to Cobra Equities SPV, LLC (refer to the “Convertible promissory note, Cobra Equities SPV, LLC, 10% interest, secured, due on demand” section of this note for additional detail).
Convertible promissory note, Cobra Equities SPV, LLC, 10% interest, secured, due on demand
On September 23, 2021, the holder of the note described in the “Convertible promissory note, SCS Capital Partners, LLC, 10% interest, secured, matures December 31, 2021” section of this note assigned the note to Cobra Equities SPV, LLC. The interest on the outstanding principal due under the note accrues at a rate of 10% per annum. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.04 per share.
The note matured on December 31, 2021 and is now due on demand.
At December 31, 2021, the Company owed $125,680 pursuant to this agreement.
Convertible promissory note, Cobra Equities SPV, LLC, 9% interest, secured, matures January 1, 2023
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued to IQ Financial Inc. and assigned to Cobra Equities SPV, LLC. The amount outstanding for Tranche 1 as of June 15, 2021 was $289,473, with accrued interest of $11,202. The amount outstanding for Tranche 2 as of June 15, 2021 was $342,105, with accrued interest of $10,446.
The note was originally issued to IQ Financial Inc. on January 27, 2021 in the aggregate principal amount of $631,579. The note was assigned to Cobra Equities SPV, LLC on March 2, 2021. The funds were received in two disbursements – $275,000 on January 28, 2021 and $325,000 on March 1, 2021 (refer to the “Convertible promissory note, Cobra Equities SPV, LLC Tranche 1, 9% interest, secured, matures January 1, 2023” and “Convertible promissory note, Cobra Equities SPV, LLC Tranche 2, 9% interest, secured, matures January 1, 2023” sections below for additional detail.
Convertible promissory note, Cobra Equities SPV, LLC Tranche 1, 9% interest, secured, matures January 1, 2023
On January 28, 2021, Spectrum received the first tranche of the note discussed in the “Convertible promissory note, Cobra Equities SPV, LLC, 9% interest, secured, matures January 1, 2023” above. Spectrum received $275,000, with an original issue discount of $14,474.
The interest on the outstanding principal due under the secured note accrues at a rate of 9% per annum. All principal and accrued but unpaid interest under the secured note is due on January 1, 2023. The holder may begin converting the note into shares of the Company’s common stock six months after issuance when it is Rule 144 eligible. The conversion price is fixed at $0.05 per share.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
At December 31, 2021, the Company owed $289,474 pursuant to this agreement and will record accretion equal to the debt discount of $117,556 over the remaining term of the note.
Convertible promissory note, Cobra Equities SPV, LLC Tranche 2, 9% interest, secured, matures January 1, 2023
On March 1, 2021, Spectrum received the second tranche of the note discussed in the “Convertible promissory note, Cobra Equities SPV, LLC, 9% interest, secured, matures January 1, 2023” above. Spectrum received $325,000, with an original issue discount of $17,105.
The interest on the outstanding principal due under the secured note accrues at a rate of 9% per annum. All principal and accrued but unpaid interest under the secured note is due on January 1, 2023. The holder may begin converting the note into shares of the Company’s common stock six months after issuance when it is Rule 144 eligible. The conversion price is fixed at $0.05 per share.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
During the period of June 16, 2021 through December 31, 2021, $10,000 was added to the principal balance.
At December 31, 2021, the Company owed $352,105 pursuant to this agreement and will record accretion equal to the debt discount of $38,638 over the remaining term of the note.
Convertible promissory note, Jeffrey Gardner, 6% interest, unsecured, due on demand
On June 15, 2021 the Company issued to Jeffrey Gardner an unsecured convertible promissory note in the aggregate principal amount of $125,000 in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition.
The interest on the outstanding principal due under the note accrues at a rate of 6% per annum. All principal and accrued but unpaid interest under the note is due on September 15, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.075 per share.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
On September 15, 2021, this note matured and is now due on demand. Additionally, the interest rate increased to 18% per annum.
At December 31, 2021, the Company owed $125,000 pursuant to this agreement.
Convertible promissory note, James Marsh, 6% interest, unsecured, due on demand
On June 15, 2021 the Company issued to James Marsh an unsecured convertible promissory note in the aggregate principal amount of $125,000 in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition.
The interest on the outstanding principal due under the note accrues at a rate of 6% per annum. All principal and accrued but unpaid interest under the note is due on September 15, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.075 per share.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
On September 15, 2021, this note matured and is now due on demand. Additionally, the interest rate increased to 18% per annum.
At December 31, 2021, the Company owed $125,000 pursuant to this agreement.
Convertible promissory note, Roger Ponder, 10% interest, unsecured, matures August 31, 2022
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s convertible promissory note issued to Roger Ponder. The note was originally issued on August 31, 2020 in the principal amount of $23,894. Interest accrues at 10% per annum. All principal and accrued but unpaid interest under the note is due on August 31, 2022. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.06 per share, subject to adjustment based on the terms of the note. The embedded conversion option does not qualify for derivative accounting. As a result of the conversion price being fixed at $0.06, the note has a conversion premium of $58,349, and the fair value of the note is $19,000.
As of December 31, 2021, the Company owed $23,894 pursuant to this agreement and will amortize the remaining premium of $42,435 over the remaining term of the note. The total liability as of December 31, 2021 was $66,329.
Convertible promissory note, Dominion Capital, LLC, 9.9% interest, senior secured, matures December 29, 2023
On November 3, 2021, the Company closed on a private placement transaction (the “Transaction”) whereby it issued a senior secured convertible promissory note with a principal amount of $2,500,000 to an institutional investor for net proceeds of $2,375,000, a debt discount of $125,000. The note facilitated the acquisition of SVC discussed in Note 3, Reverse Merger and Acquisition. The note accrues interest at the rate of 9.9% per annum and is convertible into shares of the Company’s common stock at a fixed conversion price of $0.50 per share, subject to adjustment as set forth in the note. The note amortizes beginning ten months following issuance, in 18 monthly installments.
Additionally, the Company issued to the investor a common stock purchase warrant to purchase up to 5,400,000 shares of the Company’s common stock at an exercise price of $0.50 per share. The warrants expire on November 3, 2024.
In connection with the Transaction, the Company agreed to file a registration statement registering the resale of the shares of common stock issuable upon conversion of the note within 30 days of the closing of the Transaction.
The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $4,183,000 and the warrant of $2,788,020 resulted in an additional debt discount of $2,425,000 and an initial derivative expense of $4,596,020.
At December 31, 2021, the Company owed $2,500,000 pursuant to this agreement and will record accretion equal to the debt discount of $2,223,975 over the remaining term of the note.
Convertible promissory note issued to the Mark Munro 1996 Charitable Remainder UniTrust, 9% interest, unsecured, due September 1, 2022
On December 28, 2021, the Mark Munro 1996 Charitable Remainder UniTrust, the holder of a note with a principal balance of $2,292,971 described in Note 6, Loans Payable to Related Parties, exchanged the note for a new convertible promissory note in the principal amount of $2,750,000. The note bears interest at a rate of 9% per annum and is due on September 1, 2022. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.15 per share, subject to adjustment as set forth in the note. The note calls for monthly payments of $75,000 from April 2022 through August 2022, with a balloon payment of $2,375,000 due on September 1, 2022.
The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $5,129,000 resulted in loss on settlement of debt of of $5,129,000.
At December 31, 2021, the Company owed $2,750,000 pursuant to this agreement.
Convertible promissory note, Efrat Investments LLC, 10% interest, secured, matures October 5, 2021
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a convertible promissory note issued to Efrat Investments, LLC. The amount outstanding as of June 15, 2021 was $33,000, with accrued interest of $8,282.
The note was originally issued on September 14, 2020 in the aggregate principal amount of $165,000 for an aggregate purchase price of $146,000. The Company also assumed a warrant issued equal to the face amount of the note with a term of two years to purchase 1,650,000 shares of common stock at an exercise price of $0.10 per share.
The interest on the outstanding principal due under the note accrued at a rate of 10% per annum. All principal and accrued but unpaid interest under the note was due on October 5, 2021. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.05 per share.
The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.”
During the period of June 16, 2021 through December 31, 2021, the holder of the note converted $33,000 of principal into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2021 was $0. The Company recorded a gain on settlement of debt of $208,567 to the consolidated statement of operations for the year ended December 31, 2021.
During the period of June 16, 2021 through December 31, 2021, the holder of the warrants associated with the note converted the warrants on a cashless basis (refer to Note 11, Common Stock, for additional information). As a result of the exercise, the Company recorded a loss on settlement of warrants of $133,045 to the consolidated statement of operations for the year ended December 31, 2021. |
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Factor Financing |
12 Months Ended | |||
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Dec. 31, 2021 | ||||
| Factor Financing Disclosure [Abstract] | ||||
| Factor Financing |
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed a factor financing agreement between ADEX and Bay View Funding. The amount outstanding as of June 15, 2021 was $1,968,816.
The agreement began on February 11, 2020 when, pursuant to an assignment and consent agreement, Bay View Funding purchased and received all of a previous lender’s right, title, and interest in the loan and security agreement with Spectrum’s wholly-owned subsidiary, ADEX. In connection with the agreement, Spectrum received $3,024,532 from Bay View Funding. This money was used to pay off the amounts owed to the previous lender at the time of the assignment and consent agreement. The initial term of the factoring agreement is twelve months from the initial funding date.
Under the factoring agreement, Spectrum’s ADEX subsidiary may borrow up to the lesser of $5,000,000 or an amount equal to the sum of all undisputed purchased receivables multiplied by the advance percentage, less any funds in reserve. ADEX will pay to Bay View Funding a factoring fee upon purchase of receivables by Bay View Funding equal to 0.75% of the gross face value of the purchased receivable for the first 30 day period from the date said purchased receivable is first purchased by Bay View Funding, and a factoring fee of 0.35% per 15 days thereafter until the date said purchased receivable is paid in full or otherwise repurchased by ADEX or otherwise written off by Bay View Funding within the write off period. ADEX will also pay a finance fee to Bay View Funding on the outstanding advances under the agreement at a floating rate per annum equal to the Prime Rate plus 3%. The finance rate will increase or decrease monthly, on the first day of each month, by the amount of any increase or decrease in the Prime Rate, but at no time will the finance fee be less than 7.75%.
During the period of June 16, 2021 through December 31, 2021, the Company paid $315,039 in factoring fees. These amounts are included within general and administrative expenses on the consolidated statement of operations.
During the period of June 16, 2021 through December 31, 2021, the Company received an aggregate of $10,678,029 and repaid an aggregate of $9,259,775. The Company owed $3,387,070 under the agreement as of December 31, 2021. |
Derivative Liabilities |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Liabilities |
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s derivative liabilities. As of June 15, 2021, the derivative liability balance of $7,496,482 was comprised of $6,929,000 of derivatives related to Spectrum’s convertible debentures, and $567,482 of derivatives related to Spectrum’s share purchase warrants and stock options. Not all of the Company’s stock options qualify for derivative treatment.
The embedded conversion options of the convertible debentures described in Note 8, Convertible Debentures, which were assumed as part of the merger transaction, contain conversion features that qualify for embedded derivative classification. The fair value of the liability is re-measured at the end of every reporting period and the change in fair value is reported in the statement of operations as a gain or loss on change in fair value of derivatives. Derivative liabilities also include the fair value of the Company’s share purchase warrants and stock options discussed in Note 13, Share Purchase Warrants and Stock Options. As of December 31, 2021, the derivative liability balance of $15,528,339 was comprised of $14,050,806 of derivatives related to the Company’s convertible debentures, and $1,477,533 of derivatives related to the Company’s share purchase warrants and stock options.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the period of June 16, 2021 through December 31, 2021:
The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using Monte-Carlo model based on various assumptions.
Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:
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Common Stock |
12 Months Ended | ||
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Dec. 31, 2021 | |||
| Stockholders' Equity Note [Abstract] | |||
| Common Stock |
Authorized shares
The Company has 1,000,000,000 common shares authorized with a par value of $0.00001.
Issuance of shares for reverse merger
As a result of the reverse merger on June 15, 2021, the Company issued 25,474,625 shares of common stock.
Issuance of shares pursuant to a Cobra Equities SPV, LLC convertible debenture
On June 16, 2021, the Company issued 1,086,917 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $116,000 of principal and $2,300 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures. The shares had a fair value of $306,510, resulting in a loss on debt conversion of $188,211.
On July 15, 2021, the Company issued 688,069 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $90,000 of principal and $1,320 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures. The shares had a fair value of $171,880, resulting in a loss on debt conversion of $80,560.
On August 12, 2021, the Company issued 1,363,636 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $37,500 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures. The shares had a fair value of $353,864, resulting in a loss on debt conversion of $316,364.
On September 23, 2021, the Company issued 1,272,727 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $35,000 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures. The shares had a fair value of $458,182, resulting in a loss on debt conversion of $423,182.
On October 6, 2021, the Company issued 1,761,527 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $12,442 of principal and $36,000 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures. The shares had a fair value of $880,587, resulting in a loss on debt conversion of $832,145.
On October 25, 2021, the Company issued 1,254,545 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $33,000 of principal and $1,500 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures. The shares had a fair value of $721,363, resulting in a loss on debt conversion of $686,863.
On November 4, 2021, the Company issued 1,181,818 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $32,500 of principal pursuant to the convertible debenture described in Note 8, Convertible Debentures. The shares had a fair value of $583,227, resulting in a loss on debt conversion of $550,727.
On November 24, 2021, the Company issued 1,345,455 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $35,500 of principal and $1,500 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures. The shares had a fair value of $390,182, resulting in a loss on debt conversion of $353,182.
On December 15, 2021, the Company issued 1,261,818 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $33,500 of principal and $1,200 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures. The shares had a fair value of $311,038, resulting in a loss on debt conversion of $276,338.
Issuance of shares pursuant to an Efrat Investments LLC convertible debenture
On June 17, 2021, the Company issued 660,000 shares of common stock to Efrat Investments LLC upon the conversion of $33,000 of principal and $8,307 of accrued interest pursuant to the convertible debenture described in Note 8, Convertible Debentures. There was also a derivative of $330,000 associated with the note. The shares had a fair value of $223,740, resulting in a gain of debt conversion of $160,567.
Issuance of shares pursuant to a related party convertible debenture
On September 22, 2021, the Company issued 1,500,000 shares of common stock to Keith Hayter upon the conversion of $90,000 of principal pursuant to the related party convertible debenture described in Note 6, Loans Payable to Related Parties. The shares had a fair value of $521,250, resulting in a loss on debt conversion of $431,250.
On November 8, 2021, the Company issued 1,833,333 shares of common stock to Keith Hayter upon the conversion of $110,000 of principal pursuant to the related party convertible debenture described in Note 6, Loans Payable to Related Parties. The shares had a fair value of $861,667, resulting in a loss on debt conversion of $751,667.
Issuance of Shares Pursuant to Conversion of Series A Preferred Stock
On June 24, 2021, the Company issued 985,651 shares of common stock to Dominion Capital upon the conversion of 96,101 shares of Series A preferred stock with a stated value of $1 per share. The shares had a fair value of $209,016, which was the carrying value of the Series A preferred converted.
On August 12, 2021, the Company issued 1,025,641 shares of common stock to Dominion Capital upon the conversion of 100,000 shares of Series A preferred stock with a stated value of $1 per share. The shares had a fair value of $206,410, which was the carrying value of the Series A preferred converted.
Issuance of Shares Pursuant to Conversion of Series D Preferred Stock
On December 16, 2021, the Company issued 2,045,454 shares of common stock to SCS, LLC upon the conversion of 45 shares of Series D preferred stock with a stated value of $10,000 per share. The shares had a fair value of $464,543, which was the carrying value of the Series D preferred converted.
Issuance of shares pursuant to a Pawn Funding warrant
On June 29, 2021, the Company issued 69,281 shares of common stock to Pawn Funding upon the cashless exercise of a warrant. The Company recognized a gain on settlement of warrants of $5,072.
Issuance of shares pursuant to an Efrat Investments LLC warrant
On September 30, 2021, the Company issued 1,338,620 shares of common stock to Efrat Investments LLC upon the cashless exercise of a warrant. The Company recognized a loss on settlement of warrants of $133,045.
Issuance of convertible debt to HWN shareholders
On June 16, 2021, the Company issued $250,000 aggregate principal amount of convertible notes to Jeffrey Gardner and James Marsh., who are shareholders of HWN. The debt had a fair value of $486,400, which was recorded as a reduction to retained earnings. |
Preferred Stock |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2021 | |||
| Equity [Abstract] | |||
| Preferred Stock |
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s Series A preferred stock obligations. Additionally, the holders of Spectrum’s Series B preferred stock transferred their shares to the Company’s Chief Executive Officer. Lastly, a new class of preferred stock, Series D, was designated and issued. At the time of the merger transaction, the fair value of the Series A and Series B preferred stock was $1,024,000 and $0, respectively. The fair value of the Series D preferred stock which was received in the exchange was $1,271,000, which was recorded as additional paid in capital.
See below for a description of each of the Company’s outstanding classes of preferred stock, including historical and current information.
Series A
On November 15, 2017, Spectrum created one series of the 20,000,000 preferred shares it is authorized to issue, consisting of 8,000,000 shares, to be designated as Series A preferred stock.
On October 29, 2018, Spectrum made the first amendment to the Certificate of Designation of its Series A convertible preferred stock. This amendment updated the conversion price to be equal to the greater of 75% of the lowest VWAP during the ten trading day period immediately preceding the date a conversion notice is delivered or $120.00, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock.
On August 16, 2019, Spectrum made the second amendment to the Certificate of Designation of its Series A convertible preferred stock. As a result of this amendment, the Company recorded a deemed dividend in accordance with ASC 260-10-599-2.
On April 8, 2020, Spectrum made the third amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price and the conversion price floor to $3.00 per share.
On June 18, 2020, Spectrum made the fourth amendment to the Certificate of Designation of its Series A preferred stock, which lowered the fixed conversion price to $0.20 per share and the conversion price floor to $0.01 per share.
On January 27, 2021, Spectrum made the fifth amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price to $0.0975 per share. Spectrum accounted for the amendment as an extinguishment and recorded a deemed dividend in accordance with ASC 260-10-599-2.
Subsequent to the fifth amendment, the principal terms of the Series A preferred stock shares are as follows:
Voting rights – The Series A preferred stock shares do not have voting rights.
Dividend rights – The holders of the Series A preferred stock shares shall not be entitled to receive any dividends. No dividends (other than those payable solely in common stock) shall be paid on the common stock or any class or series of capital stock ranking junior, as to dividends, to the Series A preferred stock shares during any fiscal year of the Company until there shall have been paid or declared and set apart during that fiscal year for the holders of the Series A preferred stock shares a dividend in an amount per share equal to (i) the number of shares of common stock issuable upon conversion of the Series A preferred stock times (ii) the amount per share of the dividend to be paid on the common stock.
Conversion rights – The holders of the Series A preferred stock shares have the right to convert each Series A preferred stock share and all accrued and unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance of such share into fully paid and nonassessable shares of common stock of the Company. The number of shares of common stock into which each share of the Series A preferred stock shares may be converted shall be determined by dividing the sum of the stated value of the Series A preferred stock shares ($1.00 per share) being converted and any accrued and unpaid dividends by the conversion price in effect at the time of the conversion. The Series A preferred stock shares may be converted at a fixed conversion price of $0.0975, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock. The conversion price has a floor of $0.01 per share.
Liquidation rights – Upon the occurrence of any liquidation, each holder of Series A preferred stock shares then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, before any payment shall be made in respect of the common stock, or other series of preferred stock then in existence that is outstanding and junior to the Series A preferred stock shares upon liquidation, an amount per share of Series A preferred stock shares equal to the amount that would be receivable if the Series A preferred stock shares had been converted into common stock immediately prior to such liquidation distribution, plus, accrued and unpaid dividends.
On June 24, 2021, the Company issued 985,651 shares of common stock to Dominion Capital upon the conversion of 96,101 shares of Series A preferred stock with a stated value of $1 per share. The shares had a fair value of $209,016, which was the carrying value of the Series A preferred converted.
On August 12, 2021, the Company issued 1,025,641 shares of common stock to Dominion Capital upon the conversion of 100,000 shares of Series A preferred stock with a stated value of $1 per share. The shares had a fair value of $206,410, which was the carrying value of the Series A preferred converted.
As a result of the conversions, on December 31, 2021, the fair value of the Series A Preferred Stock was $619,229.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series A preferred stock shares as temporary equity or “mezzanine.”
Series B
On April 16, 2018, Spectrum designated 1,000 shares of Series B preferred stock with a stated value of $3,500 per share. The Series B preferred stock is neither redeemable nor convertible into common stock. The principal terms of the Series B preferred stock shares are as follows:
Issue Price - The stated price for the Series B preferred stock shares shall be $3,500 per share.
Redemption - The Series B preferred stock shares are not redeemable.
Dividends - The holders of the Series B preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation - The Corporation’s Series A preferred stock (the “Senior Preferred Stock) shall have a liquidation preference senior to the Series B preferred stock. Upon any fundamental transaction, liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of the Series B preferred stock shares shall be entitled, after any distribution or payment is made upon any shares of capital stock of the Company having a liquidation preference senior to the Series B preferred stock shares, including the Senior Preferred Stock, but before any distribution or payment is made upon any shares of common stock or other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shares, to be paid in cash the sum of $3,500 per share. If upon such liquidation, dissolution or winding up, the assets to be distributed among the Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock shall be insufficient to permit payment to said holders of such amounts, then all of the assets of the Company then remaining shall be distributed ratably among the Series B preferred stock holders and such other capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after provision is made for Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any, then-outstanding as provided above, the holders of common stock and other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shall be entitled to receive ratably all remaining assets of the Company to be distributed.
Voting - The holders of shares of Series B preferred stock shall be voted together with the shares of common stock such that the aggregate voting power of the Series B preferred stock is equal to 51% of the total voting power of the Company.
Conversion - There are no conversion rights.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series B preferred stock shares as temporary equity or “mezzanine.”
Series D
On June 14, 2021, Spectrum designated 1,590 shares of Series D preferred stock with a stated value of $10,000 per share. The Series D preferred stock is not redeemable.
On December 13, 2021, the Company made the first amendment to the Certificate of Designation of its Series D preferred stock which changed the conversion right. As a result of this amendment, the Company recorded a deemed dividend of $5,852,000 for the year ended December 31, 2021 in accordance with ASC 260-10-599-2.
Subsequent to the first amendment, the principal terms of the Series D preferred stock shares are as follows:
Issue Price - The stated price for the Series D preferred stock shares shall be $10,000 per share.
Redemption - The Series D preferred stock shares are not redeemable.
Dividends - The holders of the Series D preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation - Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to $10,000 for each share of Series D before any distribution or payment shall be made to the holders of any other securities of the Corporation and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Series D were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
Voting - Except as otherwise provided in the agreement or as required by law, the Series D shall be voted together with the shares of common stock, par value $0.00001 per share of the Corporation (“Common Stock”), and any other series of preferred stock then outstanding that have voting rights, and except as provided in Section 7, not as a separate class, at any annual or special meeting of stockholders of the Corporation, with respect to any question or matter upon which the holders of Common Stock have the right to vote, such that the voting power of each share of Series D is equal to the voting power of the shares of Common Stock that each such share of Series D would be convertible into pursuant to Section 6 if the Series D Conversion Date was the date of the vote. The Series D shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and may act by written consent in the same manner as the holders of Common Stock of the Corporation.
Conversion - Beginning ninety (90) days from the date of issuance, all or a portion of the Series D may be converted into Common Stock at the greater of the Fixed Price and the Average Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series D Conversion Date”), without any further action, all shares of Series D shall automatically convert into shares of Common Stock at the Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series D ( subject to adjustment for any reverse or forward split of the Common Stock).
Vote to Change the Terms of or Issuance of Series D - The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series D shall be required for any change to the Certificate of Designation, Preferences, Rights and Other Rights of the Series D.
On October 20, 2021, Keith Hayter assigned 140 shares of Series D preferred stock to Cobra Equities SPV, LLC.
On December 16, 2021, the Company issued 2,045,454 shares of common stock to SCS, LLC upon the conversion of 45 shares of Series D preferred stock with a stated value of $10,000 per share. The shares had a fair value of $464,543, which was the carrying value of the Series D preferred converted.
As of December 31, 2021, the fair value of the Series D Preferred Stock was $6,658,457.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series D preferred stock shares as temporary equity or “mezzanine.”
Series E
On December 20, 2021, the Company designated 650 shares of Series E preferred stock with a stated value of $10,000 per share. The Series E preferred stock is not redeemable.
The principal terms of the Series E preferred stock shares are as follows:
Issue Price - The stated price for the Series E preferred stock shares shall be $10,000 per share.
Redemption - The Series E preferred stock shares are not redeemable.
Dividends - The holders of the Series E preferred stock shares shall not be entitled to receive any dividends.
Preference of Liquidation - Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to $10,000 for each share of Series E before any distribution or payment shall be made to the holders of any other securities of the Corporation and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Series E were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
Voting - Except as otherwise provided herein or as required by law, the Series E shall be voted together with the shares of common stock, par value $0.00001 per share of the Corporation (“Common Stock”), and any other series of preferred stock then outstanding that have voting rights, and except as provided in Section 7, below, not as a separate class, at any annual or special meeting of stockholders of the Corporation, with respect to any question or matter upon which the holders of Common Stock have the right to vote, such that the voting power of each share of Series E is equal to the voting power of the shares of Common Stock that each such share of Series E would be convertible into pursuant to Section 6 if the Series E Conversion Date was the date of the vote. The Series E shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and may act by written consent in the same manner as the holders of Common Stock of the Corporation.
Conversion - Beginning ninety (90) days from the date of issuance, all or a portion of the Series E may be converted into Common Stock at the Fixed Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series E Conversion Date”), without any further action, all shares of Series E shall automatically convert into shares of Common Stock at the Fixed Price. “Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series E (subject to adjustment for any reverse or forward split of the Common Stock or similar occurrence).
Vote to Change the Terms of or Issuance of Series E - The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series E shall be required for any change to the Certificate of Designation, Preferences, Rights and Other Rights of the Series E.
As of December 31, 2021, the fair value of the Series E Preferred Stock was $6,313,817.
In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series E preferred stock shares as temporary equity or “mezzanine.” |
Share Purchase Warrants and Stock Options |
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| Share Purchase Warrants and Stock Options [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share Purchase Warrants and Stock Options |
On June 15, 2021, in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed Spectrum’s share purchase warrants and stock options. As of June 15, 2021, the total fair value of Spectrum’s share purchase warrants and stock options was $567,402.
The total fair value of the Company’s share purchase warrants and stock options was $1,477,533 as of December 31, 2021. This amount is included in derivative liabilities on the consolidated balance sheet. The valuation methodology, including the assumptions used in the valuation, are discussed in Note 10, Derivative Liabilities. The weighted-average remaining life on the share purchase warrants as of December 31, 2021 was 2.9 years. The weighted-average remaining life on the stock options as of December 31, 2021 was 4.5 years. The stock options outstanding at December 31, 2021 were not subject to any vesting terms with the exception of those issued during August and November 2021.
The following table summarizes the activity of share purchase warrants for the period of December 31, 2020 through December 31, 2021:
As of December 31, 2021, the following share purchase warrants were outstanding:
The following table summarizes the activity of stock options for the period of December 31, 2020 through December 31, 2021:
As of December 31, 2021, the following stock options were outstanding:
The remaining stock-based compensation expense on unvested stock options was $2,069,363 as of December 31, 2021. |
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Leases |
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| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases |
The Company leases certain office space and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.
The following table sets forth the operating lease right of use (“ROU”) assets and liabilities as of December 31, 2021 and 2020:
Expense related to leases is recorded on a straight-line basis over the lease term, including rent holidays. During the years ended December 31, 2021 and 2020, the Company recognized operating lease expense of $161,577 and $100,544, respectively. Operating lease costs are included within selling, administrative and other expenses on the consolidated statements of income and comprehensive income. During the year ended December 31, 2021, short-term lease costs were $34,400. The Company did not incur any short-term lease costs during the year ended December 31, 2020.
Cash paid for amounts included in the measurement of operating lease liabilities were $155,259 and $93,792, respectively, for the years ended December 31, 2021 and 2020. These amounts are included in operating activities in the consolidated statements of cash flows. During the years ended December 31, 2021, the Company reduced its operating lease liabilities by $119,031 and $77,450, respectively, for cash paid.
The operating lease liabilities as of December 31, 2021 reflect a weighted average discount rate of 19%. The weighted average remaining term of the leases is 1.5 years. Remaining lease payments as of December 31, 2021 are as follows:
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Commitments and Contingencies |
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|---|---|---|---|
Dec. 31, 2021 | |||
| Commitments and Contingencies Disclosure [Abstract] | |||
| Commitments and Contingencies |
Leases
The Company leases certain of its properties under leases that expire on various dates through 2023. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years. Leases with an initial term of 12 months or less and immaterial leases are not recorded on the balance sheet (refer to Note 14, Leases, for amounts expensed during the years ended December 31, 2021 and 2020).
Legal proceedings
In the normal course of business or otherwise, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.
On December 16, 2021, a former employee filed a lawsuit against the Company and its Chief Executive Officer for unpaid commissions. The claim is for $100,000. On March 7, 2022, the Company filed a response and counterclaim against the former employee. The Company believes it will prevail and has not recorded a loss contingency as of December 31, 2021. |
Segment Disclosures |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Disclosures |
During the year ended December 31, 2021, the Company had two operating segments including:
During the year ended December 31, 2020, the Company had only one operating segment, comprised of the operations of High Wire.
Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates the High Wire reporting segment in one geographical area (the United States) and the ADEX/AWS PR/SVC/Tropical/HWN operating segment in three geographical areas (the United States, Puerto Rico, and Canada).
Financial statement information by operating segment for the year ended December 31, 2021 is presented below:
Geographic information as of and for the year ended December 31, 2021 is presented below:
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Income Taxes |
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| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes |
The Company’s pre-tax loss for the years ended December 31, 2021 and 2020 consisted of the following:
The provision for income taxes for the years ended December 31, 2021 and 2020 was as follows:
The Company’s income taxes were calculated on the basis of foreign pre-tax income and domestic pre-tax loss of $256,549 and $13,934,179, respectively, for the year ended December 31, 2021. During 2020, the Company had elected to be treated as a Subchapter S Corporation for income tax purposes, and as such recognized no income tax liability or benefit.
The Company’s effective tax rate for the years ended December 31, 2021 and 2020 differed from the U.S. federal statutory rate as follows:
The tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities were as follows:
As of December 31, 2021 and 2020, the Company had federal net operating loss carryforwards (“NOL’s”) of $27,447,714 and $0, respectively that will be available to reduce future taxable income, if any. These NOL’s begin to expire in 2027. The NOL was acquired in the reverse merger and there is more likely than not a Section 382 limitation. Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, provide for annual limitations on the utilization of net operating loss, capital loss and credit carryforwards if the Company were to undergo an ownership change, as defined in Section 382 of the Code. In general, an ownership change occurs whenever the percentage of the shares of a corporation owned, directly or indirectly, by 5-percent shareholders, as defined in Section 382 of the Code, increases by more than 50 percentage points over the lowest percentage of the shares of such corporation owned, directly or indirectly, by such 5-percent shareholders at any time over the preceding three years. In the event such ownership change occurs, the annual limitation may result in the expiration of net operating losses capital losses and credits prior to full utilization.
The Company has not completed a study to assess whether ownership change occurred as a result of the reverse merger. However, as a result of the reverse merger in 2021, the Company believes an ownership change under Sec. 382 may have occurred. As a result of this potential ownership change, certain of the Company’s net operating loss, capital loss and credit carryforwards could expire prior to full utilization. Additionally, further share issuances, such as the share issuances for debt conversions or acquisitions, may cause a change in ownership.
The Company performs an analysis each year to determine whether the expected future income will more likely than not be sufficient to realize the deferred tax assets. The Company’s recent operating results and projections of future income weighed heavily in the Company’s overall assessment.
The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters as a component of income tax expense. As of December 31, 2021 and 2020, there was no accrued interest and penalties related to uncertain tax positions.
The Company is subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Due to the Company’s net operating loss carryforwards all years remain open to examination by the major domestic taxing jurisdictions to which the Company is subject. In addition, all of the net operating loss and credit carryforwards that may be used in future years are still subject to adjustment. |
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Discontinued Operations |
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| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations |
On February 15, 2022, High Wire sold its 50% interest in JTM. As of December 31, 2021, the Company classified JTM as held-for-sale. Additionally, the sale of High Wire’s 50% interest in JTM qualified for discontinued operations treatment.
The assets and liabilities of JTM as of December 31, 2021 and 2020 have been included within the consolidated balance sheets as current assets of discontinued operations, noncurrent assets of discontinued operations, current liabilities of discontinued operations, and noncurrent liabilities of discontinued operations.
The results of operations of JTM have been included within net income from discontinued operations, net of tax, on the statements of operations for the years ended December 31, 2021 and 2020.
The following table shows the balance sheet of the Company’s discontinued operations as of December 31, 2021 and 2020:
The following table shows the statement of operations for the Company’s discontinued operations for the years ended December 31, 2021 and 2020:
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Subsequent Events |
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| Subsequent Events [Abstract] | |||
| Subsequent Events |
Issuance of shares pursuant to a Cobra Equities SPV, LLC convertible debenture or assignment
On January 11, 2022, the Company issued 1,261,818 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $33,600 of assigned principal and $1,100 of assigned accrued interest pursuant a convertible debenture.
On February 22, 2022, the Company issued 1,160,000 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $31,900 of assigned principal pursuant a convertible debenture.
On March 16, 2022, the Company issued 1,679,322 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $45,000 of assigned principal and $1,181 of assigned accrued interest pursuant a convertible debenture.
On April 4, 2022, the Company issued 1,515,152 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $150,000 of assigned principal pursuant a convertible debenture.
Issuance of shares pursuant to a Series D Preferred Stock conversion
On February 7, 2022, the Company issued 1,136,364 shares of common stock to SCS, LLC upon the conversion of 25 shares of Series D preferred stock with a stated value of $10,000 per share.
Sale of JTM
On February 15, 2022, High Wire sold its 50% interest in JTM for $525,000, to be paid with an initial payment of $200,000 and thirteen monthly payments of $25,000.
PPP loan forgiveness
On March 1, 2022, the Company’s ADEX Subsidiary received notification that its $2,000,000 PPP loan had been forgiven by the Small Business Administration.
Dominion Capital LLC Note Amendment
On March 20, 2022, Dominion Capital LLC, amended the terms of the Company’s note payable to Dominion Capital LLC. The maturity date was amended from September 15, 2022 to February 15, 2023. The note amortization was also amended and the current amortization of principal and interest of $150,000 per month were reduced to $0 through July 15, 2022 and resume from August 15, 2022 through February 15, 2023.
Note Transfer Agreement
On April 1, 2022, Dominion Capital LLC assigned its $2,500,000 convertible promissory note from the Company to Cobra Equities SPV, LLC. The terms of the note remain the same.
Mark Munro 1996 Charitable Remainder Unitrust Note Amendment
On April 11, 2022, the Mark Munro 1996 charitable Remainder Unitrust amended the terms of the Company’s convertible promissory note payable. The note maturity was amended from September 30, 2022 to April 30, 2024. Payment terms were also amended, and no payments are due until October 1, 2022. All other terms of the note remain the same. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation/Principles of Consolidation | Basis of Presentation/Principles of Consolidation
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and SVC, as well as High Wire and its subsidiaries, the ADEX Entities, AWS PR, and Tropical. All subsidiaries are wholly-owned
On February 15, 2022, HWN sold its 50% interest in JTM (refer to Note 19, Subsequent Events, for additional detail). The operations of JTM have been included as discontinued operations in the accompanying financial statements.
All inter-company balances and transactions have been eliminated.
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| Reverse Merger | Reverse Merger
On January 27, 2021, Spectrum Global Solutions, Inc. HW Merger Sub, Inc., HWN, Inc. and the stockholders of HWN, Inc. (the “Stockholders”) entered into an Agreement and Plan of Merger (the “Agreement”) whereby the Stockholders agreed to sell to the Company all of the capital stock of HWN, Inc. On June 16, 2021, the transaction contemplated by the Agreement closed, and HWN, Inc. became a wholly-owned subsidiary of Spectrum Global Solutions, Inc. As previously disclosed, as part of the consideration for the transaction, Spectrum Global Solutions, Inc. issued shares of a newly established Series D Preferred Stock.
The merger has been accounted for as a reverse merger in accordance with US GAAP. This determination was primarily based on High Wire’s business comprising the ongoing operations of the Company following the Merger, High Wire’s senior management comprising the senior management of the Company and High Wire’s stockholders having a majority of the voting power of the Company. For accounting purposes, Spectrum is considered the “acquired” company and High Wire is considered the “acquirer.” Accordingly, for accounting purposes, the Merger is treated as the equivalent of High Wire issuing stock for the net assets of Spectrum, accompanied by a recapitalization. The net assets of Spectrum have been remeasured at fair value and applied against the purchase price resulting in goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations prior to the Closing Date of the merger are those of High Wire, and Spectrum’s assets, liabilities and results of operations are consolidated with High Wire beginning on the Closing Date. The shares and corresponding capital amounts and earnings per share available to common stockholders, pre-merger, have been retroactively restated as shares reflecting the exchange ratio in the merger. The historical financial information and operating results of Spectrum prior to the merger have not been separately presented in these consolidated financial statements.
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| Impact of the COVID-19 Pandemic | Impact of the COVID-19 Pandemic
The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
Global health concerns relating to the COVID-19 outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact the Company’s workforce and operations and the operations of its customers, suppliers and business partners. These measures may remain in place for a significant period of time and they are likely to continue to adversely affect the Company’s business, results of operations and financial condition.
The spread of COVID-19 has caused the Company to modify its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests of its employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.
The extent to which the COVID-19 outbreak impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may continue to experience materially adverse impacts to its business as a result of its global economic impact, including any recession that has occurred or may occur in the future.
There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a global pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. The Company does not yet know the full extent of the impacts on its business, its operations or the global economy as a whole. However, the effects could have a material impact on the Company’s results of operations, and the Company will continue to monitor the COVID-19 situation closely. As of November 2021, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine distribution, supply and effectiveness will impact when the negative economic effects as a result of COVID-19 will abate or end and the timing of such recovery may affect the Company’s financial condition.
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| Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
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| Cash and Cash Equivalents | Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
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| Accounts Receivable | Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts at December 31, 2021 and 2020 was $74,881 and $0, respectively.
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| Property and Equipment | Property and Equipment
Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:
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| Goodwill | Goodwill
The Company tests its goodwill for impairment at least annually on December 31st and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.
The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the years ended December 31, 2021 and 2020.
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| Intangible Assets | Intangible Assets
At December 31, 2021 and 2020, definite-lived intangible assets consist of tradenames and customer relationships which are being amortized over their estimated useful lives of 10 years.
The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives. For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. |
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| Long-lived Assets | Long-lived Assets
In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were no impairment charges recorded during the years ended December 31, 2021 and 2020.
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| Foreign Currency Translation | Foreign Currency Translation
Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting foreign exchange gains and losses are recognized in income.
The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting foreign exchange gains or losses are recognized in income.
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| Income Taxes | Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2021. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The Company follows the guidance set forth within ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.
AWS PR received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014. The amount due as of June 30, 2021 was $156,711 plus penalties and interest of $140,319 for a total obligation due of $297,030. During June 2021, AWS PR was notified that the Puerto Rican government would settle the outstanding debt for $11,105, which the Company paid during July 2021.
Prior to 2021, the Company had elected to be treated as a Subchapter S Corporation for income tax purposes, and as such recognized no income tax liability or benefit.
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| Revenue Recognition | Revenue Recognition
Adoption of New Accounting Guidance on Revenue Recognition
The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Contract Types
The Company’s contracts fall under two main types: 1) fixed-price and 2) time-and-materials. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working permanently at customer locations and materials costs incurred by those employees.
A significant portion of the Company’s revenues come from customers with whom the Company has a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases this may be each day, or each week depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work.
Revenue Service Types
The following is a description of the Company’s revenue service types, which include professional services and construction:
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by service type, contract type, contract duration, and timing of transfer of goods or services. See the below tables:
The Company also disaggregates its revenue by operating segment and geographic location (refer to Note 16, Segment Disclosures, for additional information).
Accounts Receivable
Accounts receivable include amounts from work completed in which the Company has billed. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable.
Contract Assets and Liabilities
Contract assets include costs and services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated balance sheets. At December 31, 2021 and 2020, contract assets totaled $0 and $60,862, respectively.
Contract liabilities include payment received for incomplete performance obligations and are included in contract liabilities on the consolidated balance sheets. At December 31, 2021 and 2020, contract liabilities totaled $633,771 and $184,450, respectively.
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| Cost of Revenues | Cost of Revenues
Cost of revenues includes all direct costs of providing services under the Company’s contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.
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| Research and Development Costs | Research and Development Costs
Research and development costs are expensed as incurred.
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| Stock-based Compensation | Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”), using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
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| Loss per Share | Loss per Share
The Company computes (loss) per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted (loss) per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2021 and 2020, respectively, the Company had 133,801,817 and 0 common stock equivalents outstanding.
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| Leases | Leases
The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) on January 1, 2019.
The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the Company’s lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.
The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months as of January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.
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| Going Concern Assessment | Going Concern Assessment
Management assesses going concern uncertainty in the Company’s consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date of the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
The Company has generated losses in 2021 and 2020 and High Wire has generated losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cash flow from operations. As of and for the year ended December 31, 2021, the Company had an operating loss of $3,886,872 (before deducting losses attributable to noncontrolling interests, cash flows used in operations of $4,207,759 and a working capital deficit of $20,788,076.
Management has prepared estimates of operations for 2022 and believes that sufficient funds will be generated from operations to fund its operations and to service its debt obligations for one year from the date of the filing of the consolidated financial statements in the Company’s Annual Report on Form 10-K, which indicate improved operations and the Company’s ability to continue operations as a going concern.
The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on a return to more normal operations. Further, the recently enacted CARES Act provides for economic assistance loans through the SBA. As of December 31, 2021, ADEX had $2,010,000 of PPP loans outstanding from the SBA under the CARES Act. The PPP provides that the PPP loans may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. ADEX used the proceeds from the PPP loans for qualifying expenses and is applying for forgiveness of the PPP loans in accordance with the terms of the CARES Act.
The accompanying consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.
Management believes that based on relevant conditions and events that are known and reasonably knowable that its forecasts for one year from the date of the filing of the consolidated financial statements in the Company’s Annual Report on Form 10-K indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these consolidated financial statements. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). In June 2016, the FASB issued ASU No. 2016-13. The amendments in ASU 2016-13, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (the “SEC”) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company is currently evaluating the potential impact of ASU 2016-13 on its consolidated financial statements.
ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). In December 2019, the FASB issued ASU 2019-12. The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for the Company’s fiscal year beginning after December 15, 2021. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The Company is currently evaluating the potential impact of ASU 2019-12 on its consolidated financial statements.
ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments are effective for public companies for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.
ASU 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08). In October 2021, the FASB issued ASU 2021-08. This guidance amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. As a public business entity, this standard will become effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the potential impact ASU 2021-08 will have on its consolidated financial statements.
Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.
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| Concentrations of Credit Risk | Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.
The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the year ended December 31, 2021, three customers accounted for 17%, 17%, and 13%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 6%, 7%, and 15%, respectively, of trade accounts receivable as of December 31, 2021. Two other customers accounted for 18% and 15%, respectively, of trade accounts receivable as of December 31, 2021. For the year ended December 31, 2020, four customers accounted for 31%, 14%, 12%, and 12%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 46%, 9%, 1%, and 0%, respectively, of trade accounts receivable as of December 31, 2020.
The Company’s customers are primarily located within the domestic United States of America, Puerto Rico, and Canada. Revenues generated within the domestic United States of America accounted for approximately 95% of consolidated revenues for the year ended December 31, 2021. Revenues generated from customers in Puerto Rico and Canada accounted for approximately 5% of consolidated revenues for the year ended December 31, 2021. Revenues generated within the domestic United States of America accounted for 100% of consolidated revenues for the year ended December 31, 2020.
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| Fair Value Measurements | Fair Value Measurements
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the years ended December 31, 2021 and 2020. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
The Company’s financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2021 and 2020 consisted of the following:
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 10, Derivative Liabilities, for additional information.
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| Derivative Liabilities | Derivative Liabilities
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of December 31, 2021 and 2020, the Company had a derivative liability of $15,528,339 and $0, respectively
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| Sequencing Policy | Sequencing Policy
Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy. |
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Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment estimated useful lives |
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| Schedule of disaggregates its revenue from contracts with customers by service type |
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| Schedule of financial assets and liabilities fair value measured on a recurring basis |
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Reverse Merger and Acquisition (Tables) |
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| Reverse Merger and Acquisition [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of estimates and valuations of management |
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| Schedule of estimated acquisition date fair values |
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Property and Equipment (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment |
|
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Intangible Assets (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of intangible assets |
|
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| Schedule of estimated future amortization expense |
|
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Related Party Transactions (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of outstanding loans payable to related parties |
|
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Loans Payable (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of loans payable |
|
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Convertible Debentures (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of convertible promissory note |
|
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Derivative Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of changes in the fair value of the Company's Level 3 financial liabilities |
|
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| Schedule of fair value measurement |
|
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Share Purchase Warrants and Stock Options (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share Purchase Warrants And Stock Options [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of share purchase warrants |
|
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| Schedule of share purchase warrants outstanding |
|
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| Schedule of activity of stock options |
|
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| Schedule of stock options outstanding |
|
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Leases (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of operating leases related to assets and liabilities |
|
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| Schedule of operating lease liabilities |
|
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Segment Disclosures (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of information by operating segment |
|
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| Schedule of geographic information |
|
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Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of pre-tax loss |
|
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| Schedule of provision for income taxes |
|
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| Schedule of effective income tax rate |
|
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| Schedule of deferred tax assets and liabilities |
|
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Discontinued Operations (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of balance sheet of the Company’s discontinued operations |
|
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| Schedule of statement of operations for the Company’s discontinued operations |
|
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Organization (Details) |
1 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Feb. 15, 2022 |
Dec. 31, 2021 |
Feb. 14, 2018 |
Apr. 25, 2017 |
|
| Organization (Details) [Line Items] | ||||
| Interest percentage | 50.00% | |||
| Financial Support, Purchase Agreement of Financial Assets [Member] | ||||
| Organization (Details) [Line Items] | ||||
| Purchased assets percentage | 19.90% | 80.10% | ||
| Business acquisition, percentage | 50.00% | |||
| Financial Support, Purchase Agreement of Financial Assets [Member] | Subsequent Event [Member] | ||||
| Organization (Details) [Line Items] | ||||
| Interest percentage | 50.00% |
Significant Accounting Policies (Details) - Schedule of disaggregates its revenue from contracts with customers by service type - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Short-Term [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Revenue | $ 161,209 | $ 56,509 |
| Long-Term [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Revenue | 27,045,480 | 9,852,648 |
| Revenue by Service Type [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Revenue | 27,206,689 | 9,909,157 |
| Revenue by Contract Type [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Revenue | 17,290,122 | 9,909,157 |
| Time-and-Materials [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Revenue | 9,916,567 | |
| Revenue by Contract Duration [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Revenue | $ 27,206,689 | $ 9,909,157 |
Reverse Merger and Acquisition (Details) - USD ($) |
12 Months Ended | ||
|---|---|---|---|
Nov. 04, 2021 |
Jun. 16, 2021 |
Dec. 31, 2021 |
|
| Reverse Merger and Acquisition (Details) [Line Items] | |||
| Merger transaction, description | HWN shareholders exchanged 100% of the common stock of HWN for 350 shares newly issued shares of the Company’s Series D preferred stock and 1,000 shares of the Company’s previously issued Series B preferred stock (formerly held by management of legacy Spectrum Global Solutions, Inc.). | ||
| Cash | $ 2,500,000 | ||
| Fair value exceed period | 1 year | ||
| Maximum [Member] | |||
| Reverse Merger and Acquisition (Details) [Line Items] | |||
| Assumed liabilities | 6,500,000 | ||
| Minimum [Member] | |||
| Reverse Merger and Acquisition (Details) [Line Items] | |||
| Assumed liabilities | $ 2,000,000 |
Reverse Merger and Acquisition (Details) - Schedule of estimates and valuations of management |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| Schedule of estimates and valuations of management [Abstract] | |
| Common stock | $ 5,561,975 |
| Convertible debt | 1,049,638 |
| Derivative liabilities | 6,929,000 |
| Loans payable | 2,377,400 |
| Loans payable, related parties | 2,447,252 |
| Lease liabilities | 106,615 |
| Fair value of stock options | 204,715 |
| Fair value of warrants | 362,687 |
| Fair value of Series A Preferred | 1,024,000 |
| Fair value of Series D Preferred | 1,271,000 |
| Total purchase price | 21,334,282 |
| Working capital | 781,470 |
| Other assets | 12,893 |
| Contract assets | 426,647 |
| Goodwill | 13,667,934 |
| Customer lists | 4,720,863 |
| Tradenames | 1,724,475 |
| Total enterprise value | 21,334,282 |
| Cash | 2,500,000 |
| Series E preferred stock | 6,313,817 |
| Assumed debt | 1,650,000 |
| Total provisional purchase price | 10,463,817 |
| Working capital | (1,110,703) |
| Fixed assets | 838,800 |
| Goodwill | 6,295,674 |
| Customer relationships | 3,885,979 |
| Tradenames | 554,067 |
| Total provisional enterprise value | $ 10,463,817 |
Reverse Merger and Acquisition (Details) - Schedule of estimated acquisition date fair values - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| As Reported [Member] | ||
| Condensed Income Statements, Captions [Line Items] | ||
| Revenue | $ 27,206,689 | $ 9,909,157 |
| Net loss attributable to HWN, Inc. common shareholders | $ (19,191,952) | (693,083) |
| Loss per common share, basic and diluted: (in Dollars per share) | $ (1) | |
| Pro Forma [Member] | ||
| Condensed Income Statements, Captions [Line Items] | ||
| Revenue | $ 39,354,718 | 36,461,635 |
| Net loss attributable to HWN, Inc. common shareholders | $ (26,160,463) | $ (15,565,886) |
| Loss per common share, basic and diluted: (in Dollars per share) | $ (1.37) | |
Property and Equipment (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 52,959 | $ 11,819 |
Property and Equipment (Details) - Schedule of property and equipment - Property, Plant and Equipment [Member] - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total | $ 1,440,189 | $ 422,300 |
| Less: accumulated depreciation | (160,674) | (21,974) |
| Equipment, net | 1,279,515 | 400,326 |
| Computers and office equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 141,100 | 43,283 |
| Vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 11,938 | |
| Leasehold improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 6,113 | 6,113 |
| Software [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | 442,238 | $ 372,904 |
| Machinery and equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total | $ 838,800 |
Intangible Assets (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Amortization expense | $ 453,405 | $ 189,465 |
Intangible Assets (Details) - Schedule of intangible assets - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Finite-Lived Intangible Assets [Line Items] | ||
| Cost | $ 12,854,329 | |
| Accumulated Amortization | (1,224,261) | |
| Impairment | ||
| Net carrying value | 11,630,068 | $ 1,198,089 |
| Customer relationship and lists [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Cost | 9,987,873 | |
| Accumulated Amortization | (871,070) | |
| Impairment | ||
| Net carrying value | 9,116,803 | 840,346 |
| Trade names [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Cost | 2,866,456 | |
| Accumulated Amortization | (353,191) | |
| Impairment | ||
| Net carrying value | $ 2,513,265 | $ 357,743 |
Intangible Assets (Details) - Schedule of estimated future amortization expense |
Dec. 31, 2021
USD ($)
|
|---|---|
| Schedule of estimated future amortization expense [Abstract] | |
| 2022 | $ 1,070,567 |
| 2023 | 1,070,567 |
| 2024 | 1,070,567 |
| 2025 | 1,070,567 |
| 2026 | 1,070,567 |
| Thereafter | 6,277,233 |
| Total | $ 11,630,068 |
Related Party Transactions (Details) - USD ($) |
1 Months Ended | 6 Months Ended | 12 Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 15, 2021 |
Jun. 16, 2021 |
Jun. 01, 2021 |
Mar. 01, 2021 |
Feb. 17, 2019 |
Aug. 31, 2022 |
Feb. 27, 2022 |
Jun. 15, 2021 |
Aug. 31, 2020 |
Dec. 31, 2021 |
Dec. 31, 2021 |
Dec. 28, 2021 |
Dec. 31, 2020 |
|
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Increase to additional paid in capital | $ 1,271,000 | ||||||||||||
| Bearing interest rate, per annum | 9.00% | 9.00% | |||||||||||
| Principal amount | $ 4,000,000 | $ 2,292,971 | $ 321,487 | ||||||||||
| Interest accrued percentage | 5.50% | ||||||||||||
| Fixed conversion price per share (in Dollars per share) | $ 0.06 | ||||||||||||
| Conversion price per share (in Dollars per share) | $ 0.06 | ||||||||||||
| Amount of conversion premium | $ 1,359,761 | ||||||||||||
| Fair value of note | $ 378,000 | ||||||||||||
| Principal shares value | $ 200,000 | ||||||||||||
| Settlement of debt | $ 1,182,972 | ||||||||||||
| Pursuant to agreement amount | 354,031 | ||||||||||||
| Remaining premium | 988,917 | ||||||||||||
| Total liability | 1,342,949 | ||||||||||||
| Pursuant agreement | $ 100,000 | ||||||||||||
| Maturity date | Feb. 27, 2022 | Aug. 31, 2022 | |||||||||||
| Minimum [Member] | |||||||||||||
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Effective interest rate | 9.60% | ||||||||||||
| Maximum [Member] | |||||||||||||
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Effective interest rate | 11.30% | ||||||||||||
| Series D Preferred Stock [Member] | |||||||||||||
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Common stock exchanged, shares (in Shares) | 350 | ||||||||||||
| Series B Preferred Stock [Member] | |||||||||||||
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Common stock aggregate, shares (in Shares) | 1,000 | ||||||||||||
| Subsequent Event [Member] | |||||||||||||
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Bearing interest rate, per annum | 5.50% | ||||||||||||
| Chief Executive Officer [Member] | |||||||||||||
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Proceeds from issuance of promissory notes | $ 100,000 | ||||||||||||
| President [Member] | |||||||||||||
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Bearing interest rate, per annum | 9.00% | ||||||||||||
| Roger Ponder [Member] | |||||||||||||
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Bearing interest rate, per annum | 10.00% | ||||||||||||
| Interest accrued percentage | 10.00% | ||||||||||||
| Principal amount | $ 554,031 | ||||||||||||
| Debt convertible promissory note, description | All principal and accrued but unpaid interest under the note is due on August 31, 2022. | ||||||||||||
| Roger Ponder [Member] | Subsequent Event [Member] | |||||||||||||
| Related Party Transactions (Details) [Line Items] | |||||||||||||
| Bearing interest rate, per annum | 10.00% | ||||||||||||
Related Party Transactions (Details) - Schedule of outstanding loans payable to related parties - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|||
|---|---|---|---|---|---|
| Related Party Transaction [Line Items] | |||||
| Total | $ 1,442,949 | $ 2,292,972 | |||
| Less: Long-term portion of loans payable | (1,735,114) | ||||
| Loans payable, current portion, net of debt discount | 1,442,949 | 557,858 | |||
| Convertible promissory note issued to Keith Hayter [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Total | 1,342,949 | ||||
| Promissory note issued to Mark Porter [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Total | 100,000 | ||||
| Promissory note issued to the James Marsh and Jeffrey Gardner [Member] | |||||
| Related Party Transaction [Line Items] | |||||
| Total | [1] | $ 2,292,972 | |||
| |||||
Loans Payable (Details) - USD ($) |
1 Months Ended | 7 Months Ended | 12 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 14, 2021 |
Dec. 14, 2021 |
Jun. 15, 2021 |
Oct. 21, 2019 |
Dec. 31, 2021 |
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 28, 2021 |
Mar. 31, 2021 |
Apr. 08, 2020 |
Feb. 17, 2019 |
Feb. 27, 2018 |
|
| Loans Payable (Details) [Line Items] | ||||||||||||
| Interest rate | 5.50% | |||||||||||
| Principal amount | $ 321,487 | $ 2,292,971 | $ 4,000,000 | |||||||||
| Cash payments | $ 255,000 | |||||||||||
| Purchase price | $ 1,000,000 | |||||||||||
| Cash | $ 508,395 | $ 508,395 | $ 184,677 | |||||||||
| Debt financing agreement, description | Pursuant to the terms of the Financing Agreement, the Company agreed to pay Cedar Advance $27,027 each week based upon an anticipated 25% of its future receivables until such time as $1,000,000 has been paid, a period Cedar Advance and the Financing Parties estimate to be approximately nine months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions. Additionally, in connection with the Financing Agreement, the Company issued Cedar Advance a warrant to purchase 400,000 shares of the Company’s common stock at an exercise price of $0.25 per share. These warrants expire on December 14, 2024. The warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the warrant of $102,696 resulted in an initial derivative expense of $102,696. During the year ended December 31, 2021, the Company paid $54,054 of the original balance under the agreement. At December 31, 2021, the Company owed $945,946 pursuant to this agreement and will record accretion equal to the debt discount of $191,370 over the remaining term of the note. Loan with Pawn Funding On December 14, 2021, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Pawn Funding. Under the Financing Agreement, the Financing Parties sold to Pawn Funding future receivables in an aggregate amount equal to $250,000 for a purchase price of $200,000. The Company received cash of $194,000 and recorded a debt discount of $56,000. Pursuant to the terms of the Financing Agreement, the Company agreed to pay Pawn Funding $6,757 each week based upon an anticipated 25% of its future receivables until such time as $250,000 has been paid, a period Pawn Funding and the Financing Parties estimate to be approximately nine months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions. | |||||||||||
| Exercise price (in Dollars per share) | $ 0.5 | $ 0.5 | ||||||||||
| Initial fair value of warrant | $ 102,696 | $ 102,696 | ||||||||||
| initial derivative expense | 102,696 | 102,696 | ||||||||||
| Original balance under agreement | 54,054 | 54,054 | ||||||||||
| Company owed pursuant agreement | 945,946 | 945,946 | ||||||||||
| Debt discount | $ 191,370 | $ 191,370 | ||||||||||
| Aggregate amount | $ 250,000 | |||||||||||
| Purchase price | 200,000 | |||||||||||
| Company received cash | 194,000 | |||||||||||
| Debt discount recorded | 56,000 | |||||||||||
| Financing term description | Pursuant to the terms of the Financing Agreement, the Company agreed to pay Pawn Funding $6,757 each week based upon an anticipated 25% of its future receivables until such time as $250,000 has been paid, a period Pawn Funding and the Financing Parties estimate to be approximately nine months. | |||||||||||
| Pawn funding warrant to purchase (in Shares) | 200,000 | 200,000 | ||||||||||
| Common stock exercise price (in Dollars per share) | $ 0.25 | |||||||||||
| Matures | Sep. 30, 2022 | |||||||||||
| Promissory note issued description | in connection with the acquisition of SVC discussed in Note 3, Reverse Merger and Acquisition, the Company assumed SVC’s promissory note issued to Dominion Capital, LLC. The note was originally issued on March 31, 2021 in the principal amount of $2,750,000. As of June 15, 2021, $1,650,000 remained outstanding. The note bears interest at a rate of 10% per annum and the maturity date is September 30, 2022. | |||||||||||
| Description of loan payable | On June 15, 2021, in connection with the merger transaction described in Note 3, Reverse Merger and Acquisition, the Company assumed CARES Act Loans totaling $2,010,000 that were originally received by ADEX. Collectively, these amounts are the “PPP Funds.” | |||||||||||
| Financing Agreement [Member] | ||||||||||||
| Loans Payable (Details) [Line Items] | ||||||||||||
| Purchase price | 800,000 | |||||||||||
| Cash | 776,000 | 776,000 | ||||||||||
| Debt discount | $ 224,000 | $ 224,000 | ||||||||||
| Warrants expire | Dec. 14, 2024 | |||||||||||
| Loan with Cedar Advance LLC [Member] | ||||||||||||
| Loans Payable (Details) [Line Items] | ||||||||||||
| Warrant to purchase (in Shares) | 400,000 | 400,000 | ||||||||||
| Exercise price (in Dollars per share) | $ 0.25 | $ 0.25 | ||||||||||
| Loan with Pawn Funding [Member] | ||||||||||||
| Loans Payable (Details) [Line Items] | ||||||||||||
| Initial fair value of warrant | $ 51,348 | $ 51,348 | ||||||||||
| initial derivative expense | 51,348 | 51,348 | ||||||||||
| Original balance under agreement | 13,514 | 13,514 | ||||||||||
| Company owed pursuant agreement | 236,486 | 236,486 | ||||||||||
| Debt discount | $ 47,843 | $ 47,843 | ||||||||||
| Warrants expire | Dec. 14, 2024 | |||||||||||
| Promissory Note Two [Member] | ||||||||||||
| Loans Payable (Details) [Line Items] | ||||||||||||
| Interest rate | 4.50% | 4.50% | ||||||||||
| Principal amount | $ 420,000 | |||||||||||
| Accrued interest rate | 4.50% | |||||||||||
| Principal and interest | $ 5,851 | |||||||||||
| Final balloon payment | $ 139,033 | |||||||||||
| Cash payments | $ 54,770 | $ 52,509 | ||||||||||
| Owed value | $ 304,186 | $ 304,186 | ||||||||||
| Interest rate | 10.00% | 10.00% | ||||||||||
| Due Date | Oct. 09, 2024 | |||||||||||
| Promissory note issued to Dominion Capital [Member] | ||||||||||||
| Loans Payable (Details) [Line Items] | ||||||||||||
| Company owed pursuant agreement | $ 1,552,500 | $ 1,552,500 | ||||||||||
| Interest rate | 10.00% | 10.00% | ||||||||||
| Promissory Note Issued to InterCloud Systems, Inc. [Member] | ||||||||||||
| Loans Payable (Details) [Line Items] | ||||||||||||
| Principal amount | $ 500,000 | |||||||||||
| Owed value | $ 217,400 | $ 217,400 | ||||||||||
| Interest rate | 3.75% | 3.75% | ||||||||||
| Outstanding principal | $ 217,400 | |||||||||||
| EIDL Loan [Member] | ||||||||||||
| Loans Payable (Details) [Line Items] | ||||||||||||
| Cash payments | $ 716 | |||||||||||
| Owed value | $ 149,284 | $ 149,284 | ||||||||||
| Reverse merger and acquisition description | in connection with the merger transaction discussed in Note 3, Reverse Merger and Acquisition, the Company assumed ADEX’s EIDL loan. The note was originally issued on October 10, 2022 in the principal amount of $150,000. As of June 15, 2021, $150,000 remained outstanding. The note bears interest at a rate of 3.75% per annum and the maturity date is October 12, 2050. | |||||||||||
| CARES Act Loans [Member] | ||||||||||||
| Loans Payable (Details) [Line Items] | ||||||||||||
| Loan received | $ 873,465 | $ 873,400 | ||||||||||
Loans Payable (Details) - Schedule of loans payable - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Dividends Payable [Line Items] | ||
| Loans payable | $ 5,176,590 | $ 358,343 |
| Less: Long-term portion of loans payable | (2,402,969) | (344,941) |
| Loans payable, current portion, net of debt discount | 2,773,621 | 13,402 |
| Promissory note issued to Cornerstone National Bank & Trust [Member] | ||
| Dividends Payable [Line Items] | ||
| Loans payable | 304,187 | $ 358,343 |
| Promissory note issued to Dominion Capital., LLC [Member] | ||
| Dividends Payable [Line Items] | ||
| Loans payable | 1,552,500 | |
| Future receivables financing agreement with Cedar Advance LLC [Member] | ||
| Dividends Payable [Line Items] | ||
| Loans payable | 754,575 | |
| Future receivables financing agreement with Pawn Funding [Member] | ||
| Dividends Payable [Line Items] | ||
| Loans payable | 188,644 | |
| EIDL Loan [Member] | ||
| Dividends Payable [Line Items] | ||
| Loans payable | 149,284 | |
| CARES Act Loans [Member] | ||
| Dividends Payable [Line Items] | ||
| Loans payable | 2,010,000 | |
| Promissory note issued to InterCloud Systems, Inc. [Member] | ||
| Dividends Payable [Line Items] | ||
| Loans payable | $ 217,400 |
Loans Payable (Details) - Schedule of loans payable (Parentheticals) |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| Promissory note issued to Cornerstone National Bank & Trust [Member] | |
| Dividends Payable [Line Items] | |
| Interest bearing, maturity date | Oct. 09, 2024 |
| Interest rate | 4.50% |
| Promissory note issued to Dominion Capital., LLC [Member] | |
| Dividends Payable [Line Items] | |
| Interest bearing, maturity date | Sep. 30, 2022 |
| Interest rate | 10.00% |
| Future receivables financing agreement with Cedar Advance LLC [Member] | |
| Dividends Payable [Line Items] | |
| Interest bearing, maturity date | Aug. 31, 2022 |
| Debt discount | $ 191,371 |
| Future receivables financing agreement with Pawn Funding [Member] | |
| Dividends Payable [Line Items] | |
| Interest bearing, maturity date | Aug. 31, 2022 |
| Debt discount | $ 47,843 |
| EIDL Loan [Member] | |
| Dividends Payable [Line Items] | |
| Interest bearing, maturity date | Oct. 12, 2050 |
| Interest rate | 3.75% |
Convertible Debentures (Details) - USD ($) |
1 Months Ended | 7 Months Ended | 12 Months Ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 15, 2021 |
Dec. 14, 2021 |
Nov. 03, 2021 |
Mar. 01, 2021 |
Jan. 28, 2021 |
Jan. 27, 2021 |
Sep. 14, 2020 |
Feb. 17, 2019 |
Dec. 28, 2021 |
Sep. 23, 2021 |
Jun. 15, 2021 |
Dec. 29, 2020 |
Aug. 31, 2020 |
Dec. 31, 2021 |
Dec. 31, 2021 |
Dec. 31, 2020 |
Sep. 15, 2021 |
Jun. 16, 2021 |
Jun. 18, 2020 |
|
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 12.00% | ||||||||||||||||||
| Principal amount | $ 10,000 | ||||||||||||||||||
| Debt Instrument, description | On June 15, 2021, in connection with the merger transaction described in Note 3, Reverse Merger and Acquisition, the Company assumed CARES Act Loans totaling $2,010,000 that were originally received by ADEX. Collectively, these amounts are the “PPP Funds.” | ||||||||||||||||||
| Modification Fee, description | During the period of September 23, 2021 through December 31, 2021, the holder of the note converted $146,942 of principal and $112,700 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional detail). As a result of these conversions, the Company recorded a loss on settlement of debt of $3,438,801 to the consolidated statement of operations for the year ended December 31, 2021 | ||||||||||||||||||
| Exercise price (in Dollars per share) | $ 0.0275 | $ 0.01 | |||||||||||||||||
| Fixed conversion percentage | 105.00% | ||||||||||||||||||
| Promissory note interest rate | 9.00% | 9.00% | |||||||||||||||||
| Secured intrest | 9.00% | 9.00% | |||||||||||||||||
| Aggregate principal amount | $ 250,000 | ||||||||||||||||||
| Convertible, net of discount | $ 239,214 | $ 239,214 | $ 0 | ||||||||||||||||
| Debt discount | $ 56,000 | ||||||||||||||||||
| Debt instrument, interest rate | 5.50% | ||||||||||||||||||
| Due date | Feb. 27, 2022 | Aug. 31, 2022 | |||||||||||||||||
| Fair value | $ 1,049,638 | $ 1,049,638 | |||||||||||||||||
| Fair value warrant | 362,687 | ||||||||||||||||||
| Initial derivative expense | $ 4,750,064 | ||||||||||||||||||
| Warrant term | 2 years 10 months 24 days | 2 years 10 months 24 days | |||||||||||||||||
| Loss on settlement of warrants | $ (127,973) | ||||||||||||||||||
| Minimum [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Effective interest rate | 8.40% | 8.40% | |||||||||||||||||
| Maximum [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Effective interest rate | 78.80% | 78.80% | |||||||||||||||||
| Jeffrey Gardner [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Accrued rate per annum | 6.00% | ||||||||||||||||||
| Exercise price (in Dollars per share) | $ 0.075 | $ 0.075 | |||||||||||||||||
| Debt instrument, interest rate | 18.00% | ||||||||||||||||||
| Jeffrey Gardner [Member] | Convertible promissory note [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Owned amount | $ 125,000 | ||||||||||||||||||
| James Marsh [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Owned amount | $ 125,000 | ||||||||||||||||||
| Accrued rate per annum | 6.00% | ||||||||||||||||||
| Exercise price (in Dollars per share) | 0.075 | $ 0.075 | |||||||||||||||||
| Aggregate principal amount | $ 125,000 | ||||||||||||||||||
| Debt instrument, interest rate | 18.00% | ||||||||||||||||||
| Roger Ponder [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Owned amount | $ 23,894 | ||||||||||||||||||
| Promissory note interest rate | 10.00% | ||||||||||||||||||
| Aggregate principal amount | $ 23,894 | ||||||||||||||||||
| Debt instrument, interest rate | 10.00% | ||||||||||||||||||
| Conversion price per share (in Dollars per share) | 0.06 | $ 0.06 | |||||||||||||||||
| Shares Issued, Price Per Share (in Dollars per share) | $ 0.06 | $ 0.06 | |||||||||||||||||
| Conversion premium | $ 58,349 | $ 58,349 | |||||||||||||||||
| Fair value | $ 19,000 | 19,000 | |||||||||||||||||
| Remaining premium | 42,435 | ||||||||||||||||||
| Total liability | $ 66,329 | ||||||||||||||||||
| Debt convertible promissory note, description | All principal and accrued but unpaid interest under the note is due on August 31, 2022. | ||||||||||||||||||
| Efrat Investments, LLC [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 10.00% | ||||||||||||||||||
| Loss on settlement of warrants | $ (133,045) | ||||||||||||||||||
| Cobra Equities SPV, LLC [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 12.00% | 18.00% | |||||||||||||||||
| Principal amount | $ 406,000 | ||||||||||||||||||
| Accrued interest | 16,030 | ||||||||||||||||||
| Debt Instrument, description | Interest accrues on the note at 18% per annum. The note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest VWAP for the 10 consecutive trading days immediately preceding the conversion. | ||||||||||||||||||
| Modification Fee, description | During the period of June 16, 2021 through December 31, 2021, the holder of the note converted $206,000 of principal and $3,620 of accrued interest into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional detail). As a result of these conversions, the Company recorded a loss on settlement of debt of $268,770 to the consolidated statement of operations for the year ended December 31, 2021. | ||||||||||||||||||
| Owned amount | $ 200,000 | ||||||||||||||||||
| SCS Capital Partners, LLC [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 12.00% | 12.00% | |||||||||||||||||
| Principal amount | 235,989 | ||||||||||||||||||
| Accrued interest | 16,763 | ||||||||||||||||||
| Accrued rate per annum | 12.00% | ||||||||||||||||||
| Exercise price (in Dollars per share) | $ 0.0275 | $ 0.0275 | |||||||||||||||||
| Fixed conversion percentage | 105.00% | 105.00% | |||||||||||||||||
| SCS Capital Partners, LLC Two [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 10.00% | 10.00% | |||||||||||||||||
| Accrued rate per annum | 10.00% | ||||||||||||||||||
| Exercise price (in Dollars per share) | $ 0.04 | ||||||||||||||||||
| Outstanding principal due, percentage | 12.00% | ||||||||||||||||||
| Cobra Equities SPV, LLC Two [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 10.00% | ||||||||||||||||||
| Accrued rate per annum | 10.00% | ||||||||||||||||||
| Exercise price (in Dollars per share) | $ 0.04 | $ 0.04 | |||||||||||||||||
| Promissory note interest rate | 10.00% | ||||||||||||||||||
| IQ Financial Inc. [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Owned amount | $ 289,474 | ||||||||||||||||||
| Face owed amount | $ 117,556 | $ 117,556 | |||||||||||||||||
| Promissory note interest rate | 9.00% | ||||||||||||||||||
| Convertible promissory note, description | The funds were received in two disbursements – $275,000 on January 28, 2021 and $325,000 on March 1, 2021 (refer to the “Convertible promissory note, Cobra Equities SPV, LLC Tranche 1, 9% interest, secured, matures January 1, 2023” and “Convertible promissory note, Cobra Equities SPV, LLC Tranche 2, 9% interest, secured, matures January 1, 2023” sections below for additional detail. | ||||||||||||||||||
| Company received notes | $ 275,000 | ||||||||||||||||||
| Convertible, net of discount | $ 14,474 | ||||||||||||||||||
| Accrues rate | 9.00% | 9.00% | |||||||||||||||||
| Fixed price per share (in Dollars per share) | $ 0.05 | $ 0.05 | |||||||||||||||||
| Cobra Equities SPV, LLC Tranche 1 [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 9.00% | ||||||||||||||||||
| Cobra Equities SPV, LLC Tranche 2 [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 9.00% | ||||||||||||||||||
| Jeffrey Gardner [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 6.00% | ||||||||||||||||||
| James Marsh [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 6.00% | ||||||||||||||||||
| Roger Ponder [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 10.00% | ||||||||||||||||||
| Dominion Capital, LLC [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 9.90% | ||||||||||||||||||
| Owned amount | $ 2,500,000 | ||||||||||||||||||
| Accrued rate per annum | 9.90% | ||||||||||||||||||
| Debt discount | $ 2,223,975 | $ 2,223,975 | |||||||||||||||||
| Fixed price per share (in Dollars per share) | $ 0.5 | ||||||||||||||||||
| Debt discount | $ 125,000 | ||||||||||||||||||
| Aggregate principal amount | 2,500,000 | ||||||||||||||||||
| Net proceeds | $ 2,375,000 | ||||||||||||||||||
| Additional stock purchased (in Shares) | 5,400,000 | ||||||||||||||||||
| Exercise price per share (in Dollars per share) | $ 0.5 | $ 0.5 | |||||||||||||||||
| Warrants expire date | Nov. 03, 2024 | ||||||||||||||||||
| Fair value conversion price | $ 4,183,000 | ||||||||||||||||||
| Fair value warrant | 2,788,020 | ||||||||||||||||||
| Additional debt discount | 2,425,000 | ||||||||||||||||||
| Initial derivative expense | 4,596,020 | ||||||||||||||||||
| Mark Munro 1996 Charitable Remainder UniTrust [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible promissory note percentage | 9.00% | ||||||||||||||||||
| Owned amount | 2,750,000 | ||||||||||||||||||
| Aggregate principal amount | $ 2,750,000 | ||||||||||||||||||
| Fair value conversion price | 5,129,000 | ||||||||||||||||||
| Initial derivative expense | $ 5,129,000 | ||||||||||||||||||
| Principle balance | $ 2,292,971 | ||||||||||||||||||
| Payment Description | The note bears interest at a rate of 9% per annum and is due on September 1, 2022. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.15 per share, subject to adjustment as set forth in the note. The note calls for monthly payments of $75,000 from April 2022 through August 2022, with a balloon payment of $2,375,000 due on September 1, 2022. | ||||||||||||||||||
| Efrat Investments, LLC [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Accrued interest | 8,282 | ||||||||||||||||||
| Principal and accrued but unpaid interest, description | During the period of June 16, 2021 through December 31, 2021, the holder of the note converted $33,000 of principal into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2021 was $0. The Company recorded a gain on settlement of debt of $208,567 to the consolidated statement of operations for the year ended December 31, 2021. | ||||||||||||||||||
| Efrat Investments, LLC [Member] | Convertible Note Six [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Accrued rate per annum | 10.00% | ||||||||||||||||||
| Fixed price per share (in Dollars per share) | $ 0.05 | ||||||||||||||||||
| Warrant term | 2 years | ||||||||||||||||||
| Purchase shares of common stock | $ 1,650,000 | ||||||||||||||||||
| Debt convertible promissory note, description | All principal and accrued but unpaid interest under the note was due on October 5, 2021. | ||||||||||||||||||
| Convertible Note Three [Member] | SCS, LLC [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Face owed amount | $ 89,047 | $ 89,047 | |||||||||||||||||
| Convertible Note Seven[Member] | SCS Capital Partners, LLC Two [Member] | Securities Purchase Agreement One [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Principal amount | 219,941 | $ 175,000 | |||||||||||||||||
| Accrued interest | 7,991 | ||||||||||||||||||
| Convertible Note [Member] | SCS Capital Partners, LLC Two [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Principal amount | 94,260 | ||||||||||||||||||
| Convertible Note [Member] | Cobra Equities SPV, LLC Two [Member] | Securities Purchase Agreement One [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Owned amount | $ 125,680 | ||||||||||||||||||
| Convertible Note One [Member] | SCS, LLC One [Member] | Securities Purchase Agreement One [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Debt instrument of purchase price | 289,473 | ||||||||||||||||||
| Original issue discount | 11,202 | ||||||||||||||||||
| Notes payable | 342,105 | ||||||||||||||||||
| Debt discount | 10,446 | ||||||||||||||||||
| Aggregate principal amount | $ 631,579 | ||||||||||||||||||
| Convertible Note Nine [Member] | Efrat Investments, LLC [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Aggregate principal amount | 165,000 | ||||||||||||||||||
| Aggregate purchase price | $ 146,000 | ||||||||||||||||||
| Convertible Note Nine [Member] | IQ Financial Inc. [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Convertible, net of discount | $ 17,105 | ||||||||||||||||||
| Notes receivable | $ 325,000 | ||||||||||||||||||
| Convertible Note Eight [Member] | IQ Financial Inc. [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Debt Instrument, description | The interest on the outstanding principal due under the secured note accrues at a rate of 9% per annum. All principal and accrued but unpaid interest under the secured note is due on January 1, 2023. The holder may begin converting the note into shares of the Company’s common stock six months after issuance when it is Rule 144 eligible. The conversion price is fixed at $0.05 per share. | ||||||||||||||||||
| Convertible Note Eight [Member] | CCAG Investments, LLC [Member] | Jeffrey Gardner [Member] | Securities Purchase Agreement One [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Aggregate principal amount | 125,000 | ||||||||||||||||||
| Convertible Note Eleven [Member] | IQ Financial Inc. [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Owned amount | $ 352,105 | ||||||||||||||||||
| Debt discount | $ 38,638 | ||||||||||||||||||
| Convertible Note Ten [Member] | Efrat Investments, LLC [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Principal amount | $ 33,000 | ||||||||||||||||||
| Convertible Note Six [Member] | Efrat Investments, LLC [Member] | |||||||||||||||||||
| Convertible Debentures (Details) [Line Items] | |||||||||||||||||||
| Exercise price per share (in Dollars per share) | $ 0.1 | ||||||||||||||||||
Convertible Debentures (Details) - Schedule of convertible promissory note - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|||||
|---|---|---|---|---|---|---|---|
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | $ 4,132,931 | ||||||
| Less: Long-term portion of convertible debentures, net of debt discount | (208,374) | ||||||
| Convertible debentures, current portion, net of debt discount | 3,924,557 | ||||||
| Cobra Equities SPV, LLC [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | 200,000 | ||||||
| Cobra Equities SPV, LLC One [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | 89,047 | [1] | |||||
| Cobra Equities SPV, LLC Two [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | 125,680 | [1] | |||||
| Cobra Equities SPV, LLC Three [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | 171,918 | ||||||
| Cobra Equities SPV, LLC Four [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | 203,932 | ||||||
| Jeffrey Gardner [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | 125,000 | ||||||
| James Marsh [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | 125,000 | ||||||
| Roger Ponder [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | 66,329 | [2] | |||||
| Dominion Capital, LLC [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | 276,025 | ||||||
| Mark Munro 1996 Charitable Remainder UniTrust [Member] | |||||||
| Convertible Debentures (Details) - Schedule of convertible promissory note [Line Items] | |||||||
| Total | $ 2,750,000 | ||||||
| |||||||
Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| Cobra Equities SPV, LLC [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 18.00% |
| Debt instrument maturity date | Jun. 01, 2019 |
| Cobra Equities SPV, LLC One [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 12.00% |
| Cobra Equities SPV, LLC Two [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 10.00% |
| Cobra Equities SPV, LLC Three [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 19.00% |
| Debt instrument maturity date | Jan. 01, 2023 |
| Convertible debentures, net of discount (in Dollars) | $ 117,556 |
| Cobra Equities SPV, LLC Four [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 29.00% |
| Debt instrument maturity date | Jan. 01, 2023 |
| Convertible debentures, net of discount (in Dollars) | $ 148,173 |
| Jeffrey Gardner [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 6.00% |
| Debt instrument maturity date | Sep. 15, 2021 |
| James Marsh [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 6.00% |
| Debt instrument maturity date | Sep. 15, 2021 |
| Roger Ponder [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 10.00% |
| Debt instrument maturity date | Aug. 31, 2022 |
| Debt Premium (in Dollars) | $ 42,435 |
| Dominion Capital, LLC [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 9.90% |
| Debt instrument maturity date | Dec. 29, 2023 |
| Convertible debentures, net of discount (in Dollars) | $ 2,223,975 |
| Mark Munro 1996 Charitable Remainder UniTrust [Member] | |
| Convertible Debentures (Details) - Schedule of convertible promissory note (Parentheticals) [Line Items] | |
| Debt instrument, interest rate | 9.00% |
| Debt instrument maturity date | Sep. 01, 2022 |
Factor Financing (Details) - USD ($) |
1 Months Ended | 7 Months Ended | 12 Months Ended | |
|---|---|---|---|---|
Feb. 11, 2020 |
Jun. 15, 2021 |
Dec. 31, 2021 |
Dec. 31, 2021 |
|
| Factor Financing (Details) [Line Items] | ||||
| Outstanding amount | $ 1,968,816 | |||
| Amount from bay view funding | $ 3,024,532 | |||
| Factoring fees | $ 315,039 | |||
| Debt received | 10,678,029 | $ 10,678,029 | ||
| Aggregate of repaid | 9,259,775 | |||
| Company owed amount | $ 3,387,070 | $ 3,387,070 | ||
| ADEX [Member] | ||||
| Factor Financing (Details) [Line Items] | ||||
| Factor agreement, description | the factoring agreement, Spectrum’s ADEX subsidiary may borrow up to the lesser of $5,000,000 or an amount equal to the sum of all undisputed purchased receivables multiplied by the advance percentage, less any funds in reserve. ADEX will pay to Bay View Funding a factoring fee upon purchase of receivables by Bay View Funding equal to 0.75% of the gross face value of the purchased receivable for the first 30 day period from the date said purchased receivable is first purchased by Bay View Funding, and a factoring fee of 0.35% per 15 days thereafter until the date said purchased receivable is paid in full or otherwise repurchased by ADEX or otherwise written off by Bay View Funding within the write off period. ADEX will also pay a finance fee to Bay View Funding on the outstanding advances under the agreement at a floating rate per annum equal to the Prime Rate plus 3%. The finance rate will increase or decrease monthly, on the first day of each month, by the amount of any increase or decrease in the Prime Rate, but at no time will the finance fee be less than 7.75%. |
Derivative Liabilities (Details) - USD ($) |
1 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 15, 2021 |
Dec. 31, 2021 |
|
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||
| Derivative liability | $ 7,496,482 | $ 15,528,339 |
| Derivative comprised | 6,929,000 | 14,050,806 |
| Share purchase warrants | $ 567,482 | |
| Convertible debenture | $ 1,477,533 |
Derivative Liabilities (Details) - Schedule of changes in the fair value of the Company's Level 3 financial liabilities |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| Schedule of changes in the fair value of the Company's Level 3 financial liabilities [Abstract] | |
| Balance at the beginning of the period | |
| Initial value of derivatives after reverse merger | 7,496,482 |
| Change in fair value of embedded conversion option | (166,188) |
| Initial value of derivatives upon issuance | 1,808,000 |
| Effect of debt extinguishment | 5,129,000 |
| Conversion of derivative liability | (3,932,335) |
| Fair value of option derivative at issuance | 3,448,864 |
| Discounts on new derivative in excess of note face value | 2,375,000 |
| Fair value of warrant exercises | (630,484) |
| Balance at the end of the period | $ 15,528,339 |
Derivative Liabilities (Details) - Schedule of fair value measurement |
12 Months Ended |
|---|---|
Dec. 31, 2021 | |
| Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
| Expected dividend yield | 0.00% |
| Minimum [Member] | |
| Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
| Expected volatility | 110.00% |
| Risk-free interest rate | 0.06% |
| Expected life (in years) | 3 months |
| Maximum [Member] | |
| Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
| Expected volatility | 257.00% |
| Risk-free interest rate | 0.97% |
| Expected life (in years) | 2 years 11 months 12 days |
Common Stock (Details) - USD ($) |
1 Months Ended | 12 Months Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 15, 2021 |
Nov. 08, 2021 |
Nov. 04, 2021 |
Oct. 06, 2021 |
Aug. 12, 2021 |
Jul. 15, 2021 |
Jun. 16, 2021 |
Dec. 16, 2021 |
Nov. 24, 2021 |
Oct. 25, 2021 |
Sep. 30, 2021 |
Sep. 30, 2021 |
Sep. 23, 2021 |
Sep. 22, 2021 |
Jun. 29, 2021 |
Jun. 24, 2021 |
Jun. 17, 2021 |
Dec. 31, 2021 |
Dec. 28, 2021 |
Jun. 15, 2021 |
Dec. 31, 2020 |
Feb. 17, 2019 |
|
| Common Stock (Details) [Line Items] | ||||||||||||||||||||||
| Shares of common stock (in Shares) | 25,474,625 | |||||||||||||||||||||
| Common stock, shares issued (in Shares) | 1,338,620 | 69,281 | ||||||||||||||||||||
| Conversion of principal amount | $ 2,292,971 | $ 321,487 | $ 4,000,000 | |||||||||||||||||||
| Fair value | $ 486,400 | |||||||||||||||||||||
| Gain on settlement of warrants | $ 133,045 | $ 5,072 | ||||||||||||||||||||
| Aggregate principal amount | $ 250,000 | |||||||||||||||||||||
| Common Stock [Member] | ||||||||||||||||||||||
| Common Stock (Details) [Line Items] | ||||||||||||||||||||||
| Common stock, shares authorized (in Shares) | 1,000,000,000 | |||||||||||||||||||||
| Common stock price (in Dollars per share) | $ 0.00001 | |||||||||||||||||||||
| Cobra Equities SPV, LLC [Member] | Common Stock [Member] | ||||||||||||||||||||||
| Common Stock (Details) [Line Items] | ||||||||||||||||||||||
| Common stock, shares issued (in Shares) | 1,261,818 | 1,181,818 | 1,761,527 | 1,363,636 | 688,069 | 1,086,917 | 1,345,455 | 1,272,727 | ||||||||||||||
| Conversion of principal amount | $ 33,500 | $ 32,500 | $ 12,442 | $ 90,000 | $ 116,000 | $ 35,500 | ||||||||||||||||
| Accrued interest | 1,200 | $ 37,500 | 1,320 | 2,300 | 1,500 | $ 35,000 | ||||||||||||||||
| Fair value | 311,038 | 583,227 | 353,864 | 171,880 | 306,510 | 390,182 | 458,182 | |||||||||||||||
| Loss on debt conversion | $ 276,338 | $ 550,727 | $ 316,364 | $ 80,560 | $ 188,211 | $ 353,182 | $ 423,182 | |||||||||||||||
| Efrat Investments, LLC [Member] | Common Stock [Member] | ||||||||||||||||||||||
| Common Stock (Details) [Line Items] | ||||||||||||||||||||||
| Common stock, shares issued (in Shares) | 660,000 | |||||||||||||||||||||
| Conversion of principal amount | $ 33,000 | |||||||||||||||||||||
| Fair value | 223,740 | |||||||||||||||||||||
| Accured interest | 8,307 | |||||||||||||||||||||
| Derivative value | 330,000 | |||||||||||||||||||||
| Gain of debt conversion | $ 160,567 | |||||||||||||||||||||
| Keith Hayter [Member] | Common Stock [Member] | ||||||||||||||||||||||
| Common Stock (Details) [Line Items] | ||||||||||||||||||||||
| Common stock, shares issued (in Shares) | 1,833,333 | 1,500,000 | ||||||||||||||||||||
| Conversion of principal amount | $ 110,000 | $ 90,000 | ||||||||||||||||||||
| Fair value | 861,667 | 521,250 | ||||||||||||||||||||
| Loss on debt conversion | $ 751,667 | $ 431,250 | ||||||||||||||||||||
| Series A Preferred Stock [Member] | ||||||||||||||||||||||
| Common Stock (Details) [Line Items] | ||||||||||||||||||||||
| Common stock, shares issued (in Shares) | 1,025,641 | 985,651 | ||||||||||||||||||||
| Fair value | $ 206,410 | $ 209,016 | ||||||||||||||||||||
| Conversion of shares (in Shares) | 100,000 | 96,101 | ||||||||||||||||||||
| Stated value per share (in Dollars per share) | $ 1 | $ 1 | ||||||||||||||||||||
| Series D Preferred Stock [Member] | ||||||||||||||||||||||
| Common Stock (Details) [Line Items] | ||||||||||||||||||||||
| Common stock, shares issued (in Shares) | 2,045,454 | |||||||||||||||||||||
| Fair value | $ 464,543 | |||||||||||||||||||||
| Conversion of shares (in Shares) | 45 | |||||||||||||||||||||
| Stated value per share (in Dollars per share) | $ 10,000 | |||||||||||||||||||||
| Cobra Equities SPV, LLC [Member] | ||||||||||||||||||||||
| Common Stock (Details) [Line Items] | ||||||||||||||||||||||
| Accured interest | $ 16,030 | |||||||||||||||||||||
| Cobra Equities SPV, LLC [Member] | Common Stock [Member] | ||||||||||||||||||||||
| Common Stock (Details) [Line Items] | ||||||||||||||||||||||
| Common stock, shares issued (in Shares) | 1,254,545 | |||||||||||||||||||||
| Conversion of principal amount | $ 33,000 | |||||||||||||||||||||
| Accrued interest | 1,500 | |||||||||||||||||||||
| Fair value | 880,587 | 721,363 | ||||||||||||||||||||
| Loss on debt conversion | 832,145 | $ 686,863 | ||||||||||||||||||||
| Accrued interest | $ 36,000 | |||||||||||||||||||||
Preferred Stock (Details) - USD ($) |
1 Months Ended | 12 Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 12, 2021 |
Jun. 24, 2021 |
Oct. 29, 2018 |
Dec. 31, 2021 |
Dec. 20, 2021 |
Dec. 16, 2021 |
Oct. 20, 2021 |
Sep. 23, 2021 |
Jun. 15, 2021 |
Jun. 14, 2021 |
Jan. 27, 2021 |
Dec. 31, 2020 |
Jun. 18, 2020 |
Apr. 08, 2020 |
Apr. 16, 2018 |
Nov. 15, 2017 |
|
| Preferred Stock (Textual) | ||||||||||||||||
| Conversion price | $ 0.0275 | $ 0.01 | ||||||||||||||
| Common stock shares issued (in Shares) | 46,151,188 | 1,886 | ||||||||||||||
| Stated value per share | $ 3,500 | |||||||||||||||
| Series B preferred stock voting, description | Voting - The holders of shares of Series B preferred stock shall be voted together with the shares of common stock such that the aggregate voting power of the Series B preferred stock is equal to 51% of the total voting power of the Company. | |||||||||||||||
| Deemed dividend (in Dollars) | $ 5,852,000 | |||||||||||||||
| Common stock, par value | $ 0.00001 | $ 0.0000001 | ||||||||||||||
| Percentage of conversion | 51.00% | |||||||||||||||
| Series A Preferred Stock [Member] | ||||||||||||||||
| Preferred Stock (Textual) | ||||||||||||||||
| Fair value (in Dollars) | $ 1,024,000 | |||||||||||||||
| Preferred stock, shares authorized (in Shares) | 8,000,000 | 8,000,000 | 20,000,000 | |||||||||||||
| Preferred stock shares designated (in Shares) | 8,000,000 | |||||||||||||||
| Preferred stock conversion, description | On October 29, 2018, Spectrum made the first amendment to the Certificate of Designation of its Series A convertible preferred stock. This amendment updated the conversion price to be equal to the greater of 75% of the lowest VWAP during the ten trading day period immediately preceding the date a conversion notice is delivered or $120.00, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock. | |||||||||||||||
| Conversion price | $ 0.0975 | $ 0.2 | $ 3 | |||||||||||||
| Conversion rights, description | The number of shares of common stock into which each share of the Series A preferred stock shares may be converted shall be determined by dividing the sum of the stated value of the Series A preferred stock shares ($1.00 per share) being converted and any accrued and unpaid dividends by the conversion price in effect at the time of the conversion. The Series A preferred stock shares may be converted at a fixed conversion price of $0.0975, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock. The conversion price has a floor of $0.01 per share. | |||||||||||||||
| Common stock shares issued (in Shares) | 1,025,641 | |||||||||||||||
| Conversion shares (in Shares) | 100,000 | 96,101 | ||||||||||||||
| Stated value per share | $ 1 | $ 1 | ||||||||||||||
| Fair value (in Dollars) | $ 206,410 | $ 209,016 | $ 619,229 | |||||||||||||
| Preferred stock, stated value | $ 0.00001 | $ 0.00001 | ||||||||||||||
| Series B preferred stock [Member] | ||||||||||||||||
| Preferred Stock (Textual) | ||||||||||||||||
| Fair value (in Dollars) | 0 | |||||||||||||||
| Preferred stock, shares authorized (in Shares) | 1,000 | 1,000 | ||||||||||||||
| Preferred stock shares designated (in Shares) | 1,000 | |||||||||||||||
| Stated value per share | $ 3,500 | $ 3,500 | ||||||||||||||
| Preferred stock, stated value | $ 3,500 | $ 3,500 | ||||||||||||||
| Series D preferred stock [Member] | ||||||||||||||||
| Preferred Stock (Textual) | ||||||||||||||||
| Fair value (in Dollars) | $ 1,271,000 | |||||||||||||||
| Preferred stock, shares authorized (in Shares) | 1,590 | 1,590 | ||||||||||||||
| Preferred stock shares designated (in Shares) | 140 | 1,590 | ||||||||||||||
| Common stock shares issued (in Shares) | 2,045,454 | |||||||||||||||
| Fair value (in Dollars) | $ 6,658,457 | $ 464,543 | ||||||||||||||
| Stated value per share | $ 10,000 | $ 10,000 | $ 10,000 | |||||||||||||
| Preferred stock, stated value | $ 10,000 | $ 10,000 | ||||||||||||||
| Conversion of shares (in Shares) | 45 | |||||||||||||||
| Dominion Capital [Member] | ||||||||||||||||
| Preferred Stock (Textual) | ||||||||||||||||
| Common stock shares issued (in Shares) | 985,651 | |||||||||||||||
| Series E preferred stock [Member] | ||||||||||||||||
| Preferred Stock (Textual) | ||||||||||||||||
| Fair value (in Dollars) | $ 6,313,817 | |||||||||||||||
| Preferred stock, shares authorized (in Shares) | 650 | 650 | ||||||||||||||
| Preferred stock shares designated (in Shares) | 650 | |||||||||||||||
| Stated value per share | $ 10,000 | $ 10,000 | ||||||||||||||
| Preferred stock, stated value | $ 10,000 | $ 10,000 | ||||||||||||||
| Amount for each shares (in Dollars) | $ 10,000 | |||||||||||||||
Share Purchase Warrants and Stock Options (Details) - USD ($) |
1 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 15, 2021 |
Dec. 31, 2021 |
|
| Share Purchase Warrants (Textual) | ||
| Share purchase warrants | $ 567,402 | |
| Fair value warrants | $ 1,477,533 | |
| Share purchase warrants | 2 years 10 months 24 days | |
| Weighted-average remaining life | 4 years 6 months | |
| Unvested stock options | $ 2,069,363 |
Share Purchase Warrants and Stock Options (Details) - Schedule of share purchase warrants |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
$ / shares
shares
| |
| Schedule of share purchase warrants [Abstract] | |
| Number of warrants, Beginning Balance | shares | |
| Weighted average exercise price, Beginning Balance | $ / shares | |
| Intrinsic value, Beginning Balance | $ | |
| Number of warrants, Assumed in merger transaction | shares | 1,852,882 |
| Weighted average exercise price, Assumed in merger transaction | $ / shares | $ 0.73 |
| Number of warrants, Granted | shares | 6,000,000 |
| Weighted average exercise price, Granted | $ / shares | $ 0.48 |
| Number of warrants, Exercised | shares | (1,850,000) |
| Weighted average exercise price, Exercised | $ / shares | $ 0.11 |
| Number of warrants, Expired | shares | (382) |
| Weighted average exercise price, Expired | $ / shares | $ 324 |
| Number of warrants, Ending Balance | shares | 6,002,500 |
| Weighted average exercise price, Ending Balance | $ / shares | $ 0.5 |
| Intrinsic value, Ending Balance | $ | |
| Number of warrants, Exercisable | shares | 6,002,500 |
| Weighted average exercise price, Exercisable | $ / shares | $ 0.5 |
Share Purchase Warrants and Stock Options (Details) - Schedule of share purchase warrants outstanding |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
shares
| |
| Class of Warrant or Right [Line Items] | |
| Number of warrants | 6,002,500 |
| Warrant Expiry Date One [Member] | |
| Class of Warrant or Right [Line Items] | |
| Number of warrants | 2,500 |
| Exercise Price | 30 |
| Issuance date | 11/21/2019 |
| Expiry date | 11/21/2022 |
| Remaining life | 10 months 20 days |
| Warrant Expiry Date Two [Member] | |
| Class of Warrant or Right [Line Items] | |
| Number of warrants | 5,400,000 |
| Exercise Price | 0.5 |
| Issuance date | 11/3/2021 |
| Expiry date | 11/3/2024 |
| Remaining life | 2 years 10 months 2 days |
| Warrant Expiry Date Three [Member] | |
| Class of Warrant or Right [Line Items] | |
| Number of warrants | 200,000 |
| Exercise Price | 0.25 |
| Issuance date | 12/14/2021 |
| Expiry date | 12/14/2024 |
| Remaining life | 2 years 11 months 15 days |
| Warrant Expiry Date Four [Member] | |
| Class of Warrant or Right [Line Items] | |
| Number of warrants | 400,000 |
| Exercise Price | 0.25 |
| Issuance date | 12/14/2021 |
| Expiry date | 12/14/2024 |
| Remaining life | 2 years 11 months 15 days |
Share Purchase Warrants and Stock Options (Details) - Schedule of activity of stock options |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
$ / shares
shares
| |
| Schedule of activity of stock options [Abstract] | |
| Number of stock options, Beginning Balance | |
| Weighted average exercise price, Beginning Balance (in Dollars per share) | $ / shares | |
| Intrinsic value, Beginning Balance (in Dollars) | $ | |
| Number of stock options, Assumed in merger transaction | 966,330 |
| Weighted average exercise price, Assumed in merger transaction (in Dollars per share) | $ / shares | $ 0.62 |
| Number of stock options, Issued | 9,929,987 |
| Weighted average exercise price, Issued (in Dollars per share) | $ / shares | $ 0.26 |
| Number of stock options, Exercised | |
| Weighted average exercise price, Exercised | |
| Number of stock options, Cancelled/expired | (52,078) |
| Weighted average exercise price, Cancelled/expired (in Dollars per share) | $ / shares | $ 1.09 |
| Number of stock options, Ending Balance | 10,844,239 |
| Weighted average exercise price, Ending Balance (in Dollars per share) | $ / shares | $ 0.29 |
| Intrinsic value, Ending Balance (in Dollars) | $ | |
| Number of stock options, Exercisable | 6,345,879 |
| Weighted average exercise price, Exercisable (in Dollars per share) | $ / shares | $ 0.3 |
| Intrinsic value, Exercisable (in Dollars) | $ |
Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
$ / shares
shares
| |
| Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding [Line Items] | |
| Number of stock options | 10,844,239 |
| Stock Options Two [Member] | |
| Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding [Line Items] | |
| Number of stock options | 323,763 |
| Exercise price | $ / shares | $ 0.58 |
| Issuance Date | Feb. 23, 2021 |
| Expiry date | Feb. 23, 2026 |
| Remaining Life | 4 years 1 month 24 days |
| Stock Options Three [Member] | |
| Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding [Line Items] | |
| Number of stock options | 482,393 |
| Exercise price | $ / shares | $ 0.58 |
| Issuance Date | Feb. 23, 2021 |
| Expiry date | Feb. 23, 2026 |
| Remaining Life | 4 years 1 month 24 days |
| Stock Options Four [Member] | |
| Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding [Line Items] | |
| Number of stock options | 77,587 |
| Exercise price | $ / shares | $ 0.58 |
| Issuance Date | Feb. 23, 2021 |
| Expiry date | Feb. 23, 2026 |
| Remaining Life | 4 years 1 month 24 days |
| Stock Options Five [Member] | |
| Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding [Line Items] | |
| Number of stock options | 77,587 |
| Exercise price | $ / shares | $ 0.58 |
| Issuance Date | Feb. 23, 2021 |
| Expiry date | Feb. 23, 2026 |
| Remaining Life | 4 years 1 month 24 days |
| Stock Options Six [Member] | |
| Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding [Line Items] | |
| Number of stock options | 3,318,584 |
| Exercise price | $ / shares | $ 0.25 |
| Issuance Date | Jun. 16, 2021 |
| Expiry date | Jun. 16, 2026 |
| Remaining Life | 4 years 5 months 15 days |
| Stock Options Seven [Member] | |
| Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding [Line Items] | |
| Number of stock options | 100,603 |
| Exercise price | $ / shares | $ 0.25 |
| Issuance Date | Aug. 11, 2021 |
| Expiry date | Aug. 11, 2026 |
| Remaining Life | 4 years 7 months 9 days |
| Stock Options Eight [Member] | |
| Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding [Line Items] | |
| Number of stock options | 6,278,468 |
| Exercise price | $ / shares | $ 0.25 |
| Issuance Date | Aug. 18, 2021 |
| Expiry date | Aug. 18, 2026 |
| Remaining Life | 4 years 7 months 17 days |
| Stock Options Nine [Member] | |
| Share Purchase Warrants and Stock Options (Details) - Schedule of stock options outstanding [Line Items] | |
| Number of stock options | 185,254 |
| Exercise price | $ / shares | $ 0.54 |
| Issuance Date | Nov. 03, 2021 |
| Expiry date | Nov. 03, 2026 |
| Remaining Life | 4 years 10 months 2 days |
Leases (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Leases (Textual) | ||
| Operating lease expense | $ 161,577 | $ 100,544 |
| Short-term lease costs | 34,400 | |
| Measurement of operating lease liabilities | 155,259 | $ 93,792 |
| Right of use operating lease liabilities | 119,031 | |
| Operating lease liabilities cash paid | $ 77,450 | |
| Weighted average discount rate | 19.00% | |
| Weighted average remaining term | 1 year 6 months | |
Leases (Details) - Schedule of operating leases related to assets and liabilities - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Schedule of operating leases related to assets and liabilities [Abstract] | ||
| Operating lease assets | $ 227,132 | $ 239,489 |
| Current operating lease liabilities | 142,925 | 86,510 |
| Lonmg term operating lease liabilities | 126,044 | 196,594 |
| Total operating lease liabilities | $ 268,969 | $ 283,104 |
Leases (Details) - Schedule of operating lease liabilities |
Dec. 31, 2021
USD ($)
|
|---|---|
| Schedule of operating lease liabilities [Abstract] | |
| 2022 | $ 207,767 |
| 2023 | 96,839 |
| Total lease payments | 304,606 |
| Less: imputed interest | (35,637) |
| Total | $ 268,969 |
Commitments and Contingencies (Details) |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| Commitments and Contingencies Disclosure [Abstract] | |
| Lease term, description | The Company leases certain of its properties under leases that expire on various dates through 2023. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years. Leases with an initial term of 12 months or less and immaterial leases are not recorded on the balance sheet (refer to Note 14, Leases, for amounts expensed during the years ended December 31, 2021 and 2020). |
| Claim of legal proceeding | $ 100,000 |
Segment Disclosures (Details) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Segment Reporting [Abstract] | ||
| Number of operating segments | 2 | 1 |
| Segment reporting, description | The Company operates the High Wire reporting segment in one geographical area (the United States) and the ADEX/AWS PR/SVC/Tropical/HWN operating segment in three geographical areas (the United States, Puerto Rico, and Canada). | |
Segment Disclosures (Details) - Schedule of information by operating segment |
12 Months Ended |
|---|---|
|
Dec. 31, 2021
USD ($)
| |
| High Wire [Member] | |
| Segment Reporting Information [Line Items] | |
| Net sales | |
| Operating loss | (2,184,740) |
| Interest expense | 293,359 |
| Depreciation and amortization | |
| Total assets | 506,835 |
| Technology [Member] | |
| Segment Reporting Information [Line Items] | |
| Net sales | 27,206,689 |
| Operating loss | (1,489,689) |
| Interest expense | 244,920 |
| Depreciation and amortization | 506,364 |
| Total assets | 43,314,747 |
| Construction [Member] | |
| Segment Reporting Information [Line Items] | |
| Net sales | 27,206,689 |
| Operating loss | (3,674,429) |
| Interest expense | 538,279 |
| Depreciation and amortization | 506,364 |
| Total assets | $ 43,821,582 |
Segment Disclosures (Details) - Schedule of geographic information - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Revenues | $ 27,206,689 | $ 9,909,157 |
| Long-lived Assets | 34,832,755 | |
| Puerto Rico and Canada [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Revenues | 1,226,594 | |
| Long-lived Assets | 11,082 | |
| United States [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Revenues | 25,980,095 | |
| Long-lived Assets | $ 34,821,673 | |
Income Taxes (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Income Tax Disclosure [Abstract] | ||
| Foreign pre tax income | $ 256,549 | |
| Domestic pre tax loss | 13,934,179 | |
| Operating loss carryforwards | $ 27,447,714 | $ 0 |
Income Taxes (Details) - Schedule of pre-tax loss - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of pre-tax loss [Abstract] | ||
| Domestic | $ (13,934,179) | $ (710,003) |
| Foreign | 256,549 | |
| Pre-tax Loss | $ (13,677,630) | $ (710,003) |
Income Taxes (Details) - Schedule of provision for income taxes - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of provision for income taxes [Abstract] | ||
| Federal | ||
| State | ||
| Foreign | ||
| Total current | ||
| Federal | ||
| State | ||
| Total deferred | ||
| Total provision for income taxes | ||
Income Taxes (Details) - Schedule of effective income tax rate |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of effective income tax rate [Abstract] | ||
| Federal tax benefit at statutory rate | (21.00%) | |
| Permanent differences | 20.00% | |
| State tax benefit, net of Federal benefits | ||
| Other | ||
| Effect of foreign income taxed in rates other than the U.S. Federal statutory rate | ||
| Net change in valuation allowance | 1.00% | |
| Provision | ||
Income Taxes (Details) - Schedule of deferred tax assets and liabilities - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Schedule of deferred tax assets and liabilities [Abstract] | ||
| Net operating loss carryforwards | $ 27,447,714 | |
| Depreciation | 3,634 | |
| Total assets | 27,451,348 | |
| Total liabilities | ||
| Less: Valuation allowance | (27,451,348) | |
| Net deferred tax liabilities |
Discontinued Operations (Details) - JTM [Member] |
Feb. 15, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Discontinued Operations (Details) [Line Items] | ||
| Owned percentage | 50.00% | |
| Subsequent Event [Member] | ||
| Discontinued Operations (Details) [Line Items] | ||
| Owned percentage | 50.00% |
Discontinued Operations (Details) - Schedule of balance sheet of the Company’s discontinued operations - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Current assets: | ||
| Cash | $ 809,917 | $ 251,771 |
| Accounts receivable | 1,067,995 | 1,229,761 |
| Contract assets | 147,568 | |
| Prepaid expenses and deposits | 57,915 | 63,368 |
| Current assets of discontinued operations | 2,083,395 | 1,544,900 |
| Noncurrent assets: | ||
| Property and equipment, net of accumulated depreciation of $73,733 and $51,237, respectively | 52,618 | 75,115 |
| Goodwill | 875,201 | |
| Intangible assets, net of accumulated amortization of $96,882 | 203,055 | |
| Noncurrent assets of discontinued operations | 52,618 | 1,153,371 |
| Current liabilities: | ||
| Accounts payable and accrued liabilities | 402,142 | 659,937 |
| Contract liabilities | 4,700 | 30,000 |
| Loans payable | 12,362 | 52,051 |
| Current liabilities of discontinued operations | 419,204 | 741,988 |
| Noncurrent liabilities: | ||
| Loans payable, net of current portion | 33,496 | 250,800 |
| Noncurrent liabilities of discontinued operations | $ 33,496 | $ 250,800 |
Discontinued Operations (Details) - Schedule of balance sheet of the Company’s discontinued operations (Parentheticals) - USD ($) |
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
| Schedule of balance sheet of the Company’s discontinued operations [Abstract] | ||
| Accumulated depreciation | $ 73,733 | $ 51,237 |
| Net of accumulated amortization | $ 96,882 |
Discontinued Operations (Details) - Schedule of statement of operations for the Company’s discontinued operations - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Schedule of statement of operations for the Company’s discontinued operations [Abstract] | ||
| Revenue | $ 9,509,419 | $ 5,847,787 |
| Operating expenses: | ||
| Cost of revenues | 7,043,944 | 4,943,433 |
| Depreciation and amortization | 49,597 | 75,318 |
| Salaries and wages | 366,654 | 302,685 |
| General and administrative | 567,346 | 493,092 |
| Goodwill impairment | 875,201 | |
| Intangible asset impairment | 175,954 | |
| Total operating expenses | 9,078,696 | 5,814,528 |
| Loss from operations | 430,723 | 33,259 |
| Other (expenses) income: | ||
| Interest expense | (6,168) | (250) |
| PPP loan forgiveness | 250,800 | |
| Other income | 829 | |
| Total other expense | 244,632 | 579 |
| Pre-tax loss from operations | 675,355 | 33,838 |
| Provision for income taxes | ||
| Net income from discontinued operations, net of tax | $ 675,355 | $ 33,838 |
Subsequent Events (Details) - USD ($) |
1 Months Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 04, 2022 |
Feb. 07, 2022 |
Jan. 11, 2022 |
Mar. 16, 2022 |
Feb. 22, 2022 |
Feb. 15, 2022 |
Dec. 16, 2021 |
Sep. 30, 2021 |
Jun. 29, 2021 |
Jul. 15, 2022 |
Apr. 01, 2022 |
Mar. 20, 2022 |
Mar. 01, 2022 |
Dec. 31, 2021 |
Jun. 14, 2021 |
Apr. 16, 2018 |
|
| Subsequent Events (Details) [Line Items] | ||||||||||||||||
| Conversion price (in Shares) | 1,338,620 | 69,281 | ||||||||||||||
| Preference stock per value (in Dollars per share) | $ 3,500 | |||||||||||||||
| Current amortization of principal and interest | $ 150,000 | |||||||||||||||
| Series D Preferred Stock [Member] | ||||||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||||||
| Conversion price (in Shares) | 2,045,454 | |||||||||||||||
| Preference stock per value (in Dollars per share) | $ 10,000 | $ 10,000 | $ 10,000 | |||||||||||||
| Subsequent Event [Member] | ||||||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||||||
| Loan amount | $ 2,000,000 | |||||||||||||||
| Reduced amount | $ 0 | |||||||||||||||
| Convertible promissory note | $ 2,500,000 | |||||||||||||||
| Cobra Equities SPV, LLC [Member] | Subsequent Event [Member] | ||||||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||||||
| Issued shares (in Shares) | 1,515,152 | 1,261,818 | 1,679,322 | 1,160,000 | ||||||||||||
| Conversion of principal amount | $ 150,000 | $ 33,600 | $ 45,000 | $ 31,900 | ||||||||||||
| Accrued interest | $ 1,100 | $ 1,181 | ||||||||||||||
| SCS, LLC [Member] | Subsequent Event [Member] | Series D Preferred Stock [Member] | ||||||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||||||
| Issued shares (in Shares) | 1,136,364 | |||||||||||||||
| Conversion price (in Shares) | 25 | |||||||||||||||
| Preference stock per value (in Dollars per share) | $ 10,000 | |||||||||||||||
| JTM [Member] | ||||||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||||||
| Ownership percentage | 50.00% | |||||||||||||||
| JTM [Member] | Subsequent Event [Member] | ||||||||||||||||
| Subsequent Events (Details) [Line Items] | ||||||||||||||||
| Ownership percentage | 50.00% | |||||||||||||||
| Interest amount | $ 525,000 | |||||||||||||||
| Initial payment amount | 200,000 | |||||||||||||||
| Monthly payments | $ 25,000 | |||||||||||||||