SECURITIES AND EXCHANGE COMMISSION
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WYTEC INTERNATIONAL, INC.
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2023
Index to Report on Form 10-K
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PART I
Item 1. Business.
General
Wytec International, Inc., a Nevada corporation (“Wytec,” the “Company,” “we,” “us,” or “our”), is a designer and developer of patented small cell technology, which we call the “LPN-16,” and wide area networks designed to support 5G network deployments across the United States. Wytec offers in-building cellular (known as a distributed antenna system, “DAS”) and private Long-term Evolution (“private LTE”) solutions utilizing multiple vendors through Synnex Corporation, a leading distributor and solutions aggregator hosting more than 22,000 technology vendors. Concurrently, Wytec plans to commercialize a multichannel transmission product that integrates in-building cellular, private LTE, and gunshot detection services with its LPN-16 in the third quarter of 2024. Wytec was incorporated in November 2011 with the purchase of five (5) United States patents (all of which have since expired) directly related to local multipoint distribution service (“LMDS”) utilized in broadband wireless access technology and originally designed for digital television transmission. In June 2014, Wytec filed a provisional patent for its LPN-16 small cell technology. In December 2017, we were granted a patent for our LPN-16 by the United States Patent and Trademark Office (“USPTO”), patent number 9,807,032. The patent is described as an “Upgradeable, High Data Transfer Speed, Multichannel Transmission System” (“UHTMTS”).
In October 2019, Wytec participated in a Request for Proposal (the “RFP”) issued by the Laredo Independent School District (“ISD”) in Laredo, Texas involving in-building cellular enhancement solutions for the ISD. Wytec won the RFP and was awarded a contract with the Laredo ISD to provide its in-building cellular enhancement solutions to 42 buildings within the district (the “Laredo Contract”). Laredo ISD is a member of the Central Texas Purchasing Alliance (“CTPA”), an alliance of over 190 ISDs including Laredo ISD. Due to certain language in the Laredo Contract and pursuant to Section 791.001 of the Texas Government Code, all members of the CTPA became eligible to utilize the same winning bid as the Laredo ISD. The CTPA consists of more than 4,300 buildings, representing approximately 513,270,000 square feet of potential in-building solution projects. Wytec is now constructing its final in-building cellular solutions for the Laredo ISD and aligning itself to manage a more aggressive build-out within the CTPA over the coming three-year period. In addition to the current cellular enhancement solutions provided by Wytec to CTPA members, Wytec is in the process of developing an integrated solution consisting of in-building cellular, private LTE, and gunshot detection services. The integrated solution will include artificial intelligence (“AI”), machine learning (“ML”), and blockchain technologies capable of supporting advanced multi-sensor technology.
On October 15, 2023, we filed two provisional patents related to “multi-sensor technology” capable of detecting gunshot sound, motion, and chemicals to be integrated with Wytec’s current in-building cellular and private LTE solutions. We believe that these advanced solutions will be instrumental in providing the highest level of public safety within ISDs as well as on America’s city streets. In October 2023, we signed a development agreement with Lemko Corporation to manufacture the updated version of our LPN-16 with AI, ML, and blockchain technologies capable of supporting advanced multi-sensor technology. This agreement was signed in conjunction with our development of an integrated solution with Nextivity, Inc. (“Nextivity”) to enhance the in-building cellular solution, utilizing Nextivity’s Cel-Fi, we are able to sell to the over 190 ISD members of the CTPA as a result of the renewal of the Laredo Contract in September 2022, which allows CTPA members to purchase Wytec’s in-building cellular solution at the same RFP winning bid as set forth in the Laredo Contract. Although the Laredo Contract is for the purchase of in-building cellular services only, we believe it provides us with the opportunity to offer the next generation private LTE and gunshot detection solutions that we are currently developing. We plan to include gunshot and drug detection solutions in conjunction with our in-building cellular services as a part of a pilot project offered to over 40 of the CTPA members requesting to be included in the pilot program. Wytec is currently designing a high-definition video presentation to illustrate the combined benefit of an integrated solution to both cities and schools across America and internationally.
Substantial funding is available for school districts under the Infrastructure and Jobs Act (H.R. 3684), signed into law by President Biden on November 15, 2021. The Infrastructure and Jobs Act dedicates significant funds designed for multiple broadband initiatives and most recently school safety services particularly in underserved student populations within the United States.
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In the fourth quarter of 2023, we invested $600,000 in Insurance Resources, LLC, a South Dakota limited liability company (“IRLLC”). IRLLC is invested in technology that we are interested in utilizing for our in-building solutions.
Industry Overview
Since the 1990s, a series of intergovernmental summit meetings have been conducted to resolve what has been popularly defined as the “Digital Divide.” The Digital Divide refers to the gap between those able to benefit from the internet and those who are not. This movement has energized solutions in public safety policy, technology design, finance, and management allowing all U.S citizens equal connectivity to the latest broadband advancements. In 2021, the movement was further empowered by the massive economic and social disturbance of COVID-19. Thus, on March 11, 2021, the American Rescue Plan Act of 2021 was signed into law providing $1.9 trillion in funding to bridge the Digital Divide, with $122 billion being allocated for Elementary and Secondary Emergency Relief continuing the program started under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
As a result of the increased need for greater data capacity and school safety initiatives, there has been an emergence of new technologies to address public safety concerns as well as to support the aggressive growth of the Internet of Things (“IOT”) solutions. The next generation of wireless communication services, 5G, has been introduced to America’s future communications needs for supporting both wired and wireless broadband connectivity. For the U.S. cellular industry to meet this challenge, a radical change has occurred in network architecture introducing the concept of “densified” networks involving millions of small cells to be installed throughout the U.S. utility infrastructure utilizing America’s existing utility poles. Wytec is an owner of patented small cell technology called the LPN-16 designed to be installed on utility poles. We have most recently seen the aggressive emergence of AI, ML, and blockchain technologies. Wytec has embraced these technologies in its next generation LPN-16 small cell.
Today, 4G depends significantly on “Macro” cell towers for the majority of America’s cellular traffic. These towers, which are easily recognized across America’s landscape, stand several hundred feet in height and support antennas six to nine feet in length. These sizeable towers cost mobile operators billions of dollars to construct and millions more to operate. Macro towers were originally designed to support cellular signals in a radius of two to three miles or more and provide service for thousands of subscribers. This design is no longer adequate in meeting current consumer demand or the anticipated speeds of 5G.
To overcome this inadequacy, Wytec believes that 5G network architecture will need to densify coverage areas with the use of small cells, which are designed to be mounted on utility poles permitting the flexibility of placement throughout a city supporting citywide ubiquitous coverage. Small cells are designed with three primary objectives in mind: increase data capacity, reduce latency in support of IOT solutions, and reduce higher-power transmission signals thus reducing dangerous radiation transmission. Wytec believes that small cells will be the driving force behind 5G and the upcoming 6G services enabling faster speeds on current and future communication devices, including Smartphones and other smart devices. According to an article by PricewaterhouseCoopers International Limited, “5G networks can’t succeed without a small cell revolution.”
Connectivity for All
Wytec owns patented small cell technology known as the “LPN-16.” Its neutral-host design is its key differentiator from other small cell technologies, with its ability to support multiple spectrum (frequency) usage owned and utilized by multiple mobile operators simultaneously. We expect this multi-operator architecture to be overwhelmingly accepted by city governments due to the desire of multiple carriers to be located on the same utility pole to expand their 5G coverage. Carriers are also expected to avidly embrace Wytec’s solution due to a substantially reduced installation cost and speed of deployment.
Another key feature and differentiator of Wytec’s LPN-16 design is its ability to rapidly expand private LTE networks. Already, the City of San Antonio, in a recent article, has indicated a major initiative to deploy a citywide private network to be integrated with its school districts in support of greater distance learning capabilities and increased public safety. Though much of the funding support could rely on federal relief programs, Wytec believes that it can present a way of “self-funding” these needed initiatives through a collaboration involving existing ISDs’ federal funds (already in place), revenue derived from a private LTE network (owned by both the city and ISD), and private funding from the capital markets.
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Today, carriers dominate the mobile cellular industry, but due to 5G deployment requiring small cells to be installed on utility poles, city governments have significant influence over small cell deployments in accordance with “right of way” regulations requiring pole access. This legal authority of municipalities has had a major impact on the slow speed of 5G deployment throughout America’s cities. Without this legal authority, municipal governments fear that carriers could further dominate their presence by overcrowding America’s utility poles with small cells leaving both an eyesore and potential hazards. We believe that Wytec’s LPN-16 diminishes these concerns due to its multi-carrier features allowing for multiple operators to gain access to poles and utilize the network simultaneously.
Revenue Opportunities
In October 2019, Wytec, participated in a RFP issued by the Laredo ISD in Laredo, Texas involving in-building cellular enhancement for the ISD. Wytec won the RFP with the lowest bid and desired technology choice and was awarded the Laredo Contract consisting of 42 buildings within the district with a contract value of approximately $1M. Laredo ISD is a member of the CTPA consisting of 150 other ISDs. Due to language within the Laredo Contract under Section 791.001 of the Texas Government Code, all members of the CTPA became eligible to utilize the same winning bid as the Laredo ISD. The CTPA consists of more than 4,300 buildings, representing approximately 513,270,000 square feet. The Laredo ISD winning bid was $0.39 per square feet. In October 2022, the Laredo Contract was renewed and extended to October 2024 with the price per square foot increased to $1.54. Assuming all CTPA members took advantage of the $1.54 price per square foot updated pricing, Wytec could realize revenues of approximately $1.2 million through October 2024. Wytec is now building out its second school district under the benefit of Section 791.001 of the Texas Code and is aligning itself to manage a more aggressive build-out over the extended contract period.
In addition to Wytec’s revenue potential involving cellular enhancement and private LTE, the Company plans to utilize its LPN-16 technology to offer public-private partnerships (“PPP”) to municipalities to enable access to Mobile Virtual Network Operators (“MVNOs”), including both the cable industry and Wireless Internet Service Providers (“WISPs”). Today, cable operators are aggressively pursuing mobile cellular solutions due to their eroding subscriber base to the carriers. Cellular service is currently offered to cable operators through wholesale access by virtually all carriers, but cable operators struggle to achieve acceptable profit margins due the competitive nature of obtaining cellular customers. Wytec’s LPN-16 small cell, through its neutral host features, promotes equal cost benefits for both carriers and cable operators without favoring greater profit margins to one or the other. The Company anticipates wide acceptance of the LPN-16 by city governments due to its multi-carrier service availability. There are 450 cable operators aggressively pursuing MVNO services in the United States. This initiative by cable operators is anticipated to create a substantial revenue opportunity for Wytec.
As described above, we believe that Wytec’s LPN-16 small cell offers two significant revenue opportunities involving both a potential sale of the LPN-16 to private LTE clients (such as schools and cities) and as a 5G (Wytec owned) network to support PPP initiatives with municipalities to support wholesale clients such as carriers, cable operators, and WISPs. In a recent publication by Allied Market Research, studies suggest that the small cell 5G Market will reach $6.87 billion by 2026.
Wytec’s Network Infrastructure- Supporting Wytec Products/Services
The LPN-16, recognized by USPTO patent number 9,807,032, as expanded by USPTO patent number 10868775 B2, is an “Upgradeable, High Data Transfer Speed, Multichannel Transmission System.” The LPN-16 is a local area network system that includes modular, multi-frequency, multi-channel, upgradable transmission nodes. The transmission nodes can include one or more independent RF modules. However, due to the recent Federal Communications Commission (“FCC”) commercialization of the Citizens Broadband Radio Service (“CBRS”) spectrum, Wytec is able to expand its private LTE network configuration more rapidly to support other technologies such as DAS for public safety, gunshot detection, remote learning, and multiple other Internet of Things (“IOT”) applications. The LPN-16 provides transmission and network services for wireless data, wireless video, wireless voice, voice over internet protocol (“VoIP”), local portal for emergency services, mesh node from one transmission to the next, single channel transmission, multi-channel transmission, Wi-Fi access as well as a number of other similar services. We believe this range of services and the timeline of 5G networks needing small cell capabilities squarely places Wytec in the path of serving several substantial markets such as small cells as a service, outdoor Wi-Fi, the IOT, and a host of other related telecommunications services.
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We believe Wytec offers a powerful alternative to the in-building cellular enhancement market which consists of signal boosters, small cells, and related indoor DAS (“SmartDAS”). DAS is designed to strengthen cellular signals in facilities where materials interfere with cellular frequencies and diminish the quality of a cellular call or data usage. DAS may be deployed indoors (an “iDAS”) or outdoors (an “oDAS”), and is a way to deal with isolated spots of poor cellular coverage inside a large building by installing a network of relatively small antennas throughout the building to serve as repeaters. Traditional DAS requires the support of the carrier to allow access to their network and can take months to obtain and cost substantially more.
We believe that our SmartDAS solution, which costs about one third (1/3) of the cost of traditional DAS, is a viable alternative solution without the tedious and sometimes delayed support of the carriers. The Company has already deployed the service in more than 20 building facilities. Wytec has established valuable vendor relationships for in-building solutions with Nokia, Ericsson, Samsung, and Nextivity.
Wytec, with its preferred vendor relationships, plans to generate revenues deploying in-building, private LTE and public safety services in 2024.
Customer Concentration
During the year ended December 31, 2023, we received approximately 88% of our gross revenues from our cellular enhancement contract with the Laredo ISD in Bexar County, Texas. Total revenues for the year ended December 31, 2023 were $255,634, and revenues from the Laredo Contract during this period was $224,466. Purchase orders for other Alliance ISDs aggregate under this single contract, but we believe that the selling opportunities are far more varied than suggested by the revenue associated with the Laredo Contract because many different ISDs are available to purchase our products and services through the Laredo Contract without competitive bidding and other lengthy procedures. Accordingly, our customer base is already diversifying with the recent signing of a contract with the Round Rock ISD. Our terms for cellular enhancement services, as reflected in the Laredo Contract, are already pre-approved by the CTPA, which is comprised of over 190 school districts in central Texas. We have, however, only completed a few projects for private commercial enterprises (although we have installed cellular enhancement solutions on some notable buildings, such as the Johnson Space Center in Houston, Texas), and have not extensively pursued business in that sector of the market. The loss of our relationship with the CTPA would have a material adverse impact on our future results of operations, financial condition, and business performance.
In 2019, Wytec engaged Southwest Research Institute along with Bexar County, Texas to develop a private LTE network pilot utilizing the Nokia CBRS small cell technology. Wytec served as the general contractor of the pilot project and provided cellular wireless connection to a limited number of homes within the Southwest Independent School District (“SWISD”) within Bexar County, Texas. Upon completing the pilot project, SWISD determined that the government funds available to move forward with additional coverage of the SWISD would be better served by directing the funds to teachers rather than students and the pilot project was never expanded. Since this event, Wytec has now begun developing new technologies, such as gunshot detection, to be included in its in-building and private LTE services to enhance its service offerings.
We obtained Laredo as a customer for our cellular enhancement service prior to the Bexar County pilot project, and our service for Laredo is ongoing. We expect our customer base to gradually diversify among the various schools that seek cellular enhancement services for public safety and convenience reasons, and among other entities, including commercial enterprises that may also purchase our private LTE solution.
Agreement with Laredo School District
We entered into an In-Building Wireless Solution Agreement with Laredo on or about September 19, 2019. The Laredo Contract is the result of a RFP circulated by Laredo in 2019 for the design, installation, and maintenance of a cellular enhancement system for Laredo’s schools and school buildings. It contains detailed specifications and performance requirements for the system. We won the Laredo Contract through competitive bidding and submission of a comprehensive response to the RFP. The price of the system for Laredo is fixed by turnkey cost covenants by us in the Laredo Contract. We are required to provide ongoing maintenance services for the system. These services are promised by us at fixed turnkey prices in approved budgets at contract commencement. The Laredo Contract has an initial term of three years, subject to evaluation and renewal for up to two more years through September 19, 2024. Additional items not subject to the turnkey provisions can be ordered by Laredo or other ISDs that work under our contract by submission of purchase orders to us. Specified insurance certificates must be obtained and maintained during the term of the Laredo Contract. We are required to furnish standard minimum manufacturer’s warranties to Laredo, and Laredo does not waive any warranties, whether express or implied. Laredo has the right to terminate the Laredo Contract for “cause” or without “cause” at any time. The Laredo Contract provides that we indemnify Laredo for losses, costs or liabilities it may incur due to our performance of services or provision of goods. Laredo is not obligated to indemnify us. The Laredo Contract confers on Laredo the right to audit our project books and records, and contains a “No Arbitration” clause. It also prohibits conflicts of interest in any matter involving or affecting the projects.
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As a result of the Laredo RFP award, Wytec was chosen as the vendor of choice for the Round Rock ISD in Round Rock, Texas. Wytec is continuing to receive purchase orders from both Round Rock and Laredo ISDs for its in-building cellular solutions.
Memorandum of Understanding with Trabus Technologies
In March 2023, we entered into a Memorandum of Understanding (“MOU”) with Trabus Technologies to expand the capabilities of our patented LPN-16 to include a peer-to-peer technology developed and patented by Trabus Technologies. We believe that the new technology known as Spectrally Efficient Peer to Peer or “SEPP” will significantly enhance and rapidly expand Wytec’s small cell coverage due its ability to convert any cellular device into an additional transmitter instantaneously preventing any point of failure on Wytec’s private LTE network. The final agreement between Wytec and Trabus Technologies is expected to specify multiple phases of development prior to conducting a pilot project directed at an ISD and its surrounding city. Wytec plans to identify a pilot project upon concluding phase 2 of a proposed phase 3 development period to commercialize the enhanced LPN-16 technology before the end of 2024.
Competition
There are numerous existing and commercially available methods of providing both small cell technology and high-speed Internet to multi-tenant commercial and residential units. This makes the telecommunications industry highly competitive, rapidly evolving, and subject to rapid technology changes. Additionally, there are numerous telecommunications service companies that conduct extensive advertising campaigns to capture market share in this highly competitive market. We believe the principal competitive factor affecting our lines of business for LPN-16 is its “neutral host” feature allowing multiple carriers to host on one small cell. Additionally, Wytec’s business model invokes a universal placement strategy through its relationship with cities interested in universal support for its school districts. We believe this has placed Wytec in a unique position to incorporate a neutral host small cell that has universal placement throughout a city.
Small Cell Market. Fortune Business Insight expects the global small cell 5G network market size to reach $17,944.5 million by 2028, exhibiting a compounded annual growth rate of 54.4% during the forecast period. According to Fortune Business Insights, surging investments by governments in IT projects can have a tremendous impact on the market growth in the foreseeable future.
Competition by Service (Internet). There are a substantial number of local, regional, and national residential and commercial Internet Service Providers (“ISPs”) hosting data, voice, and texting services in the United States. Publicly traded brands such AT&T, Verizon, T-Mobile, Sprint, Cox Communications, Spectrum, Comcast, and Tower Stream all provide both commercial and/or residential cellular and wired Internet services. Although we have our own hybrid wired-wireless network for delivering our own branded version of 5G Internet services, we also provide, through wholesale agreements, a 4G LTE voice, text, and data service through four of the largest U.S. wireless carriers. These services have significant competition from the carriers providing similar services at less cost and using other communications technologies unavailable to us, as well as having substantial financial resources and brand awareness that we do not have. While some of these technologies and services are now operational, others are being developed or may be developed. As a 4G LTE MVNO, we compete for customers based principally on providing better and lower cost services.
Competition for Tower Site Location Rentals (Access). For the deployment of Wytec’s small cell, adequate access to rights-of-way on buildings and utility poles is necessary. There are a number of other local, regional, and national parties interested in building/utility pole space access. This includes the equipment used by various public utilities, including electric utilities, major cellular carriers, fiber optic companies, and cable companies, and may also include equipment placed by the municipality for public safety.
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Intellectual Property
In October 2017, Wytec was granted a patent for its LPN-16 technology by the USPTO, patent number 9,807,032. In December of 2020, Wytec was granted a second patent for additional claims to its LPN-16 and device by the USPTO, patent number 10868775 B2. In October 2023, Wytec filed two provisional patents related to upgrading its LPN-16 software to include AI, ML, and blockchain technologies. We may be subject to legal proceedings and claims in the ordinary course of business and third parties may sue us for intellectual property infringement or initiate proceedings to invalidate our intellectual property. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (if available on acceptable terms or at all), pay damages or curtail our product and service offerings. We may also need to redesign some of our products or services to avoid future infringement liability. Any of the foregoing could prevent us from competing effectively and could adversely affect our business.
Government Regulation
Wytec generally is subject to all of the governmental regulations that regulate businesses generally such as compliance with regulatory requirements of federal, state, and local agencies and authorities, including regulations concerning the environment, permits for certain activities, workplace safety, labor relations, employee rights, and government taxes. The adoption of any additional laws or regulations may decrease the growth of our business, decrease the demand for services and increase our cost of doing business. Changes in tax laws also could have a significant adverse effect on our operating results and financial condition.
Employees
As of December 31, 2023, we have five full-time employees and one part-time employee. Currently, there are no organized labor agreements or union agreements between us and our employees. Assuming we can earn additional revenue through organic growth, acquisitions and strategic alliances during 2024, we may need to hire additional employees. In the interim, we intend to use the services of independent consultants and contractors to perform various professional services when appropriate. We believe the use of third-party service providers may enhance our ability to control general and administrative expenses and operate efficiently.
Seasonality
Our operations are not expected to be materially affected by seasonality.
Item 1A Risks Factors
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-K. The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
The business, financial condition and operating results of the Company can be affected by several factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
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Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
Risks Related to Our Business and Marketplace
If we are unable to renew lease agreements for the locations where our equipment is installed, our business could be harmed. We constructed our first wireless network in Columbus, Ohio to include the installation of our millimeter wave equipment on select rooftops and other structures (our Diamond Ring) pursuant to lease or license agreements designed to send and receive wireless signals necessary for the operation of the network. While we have tested this network, we have not yet launched it for daily commercial operations and have not yet built any other networks, although we are currently doing several cellular enhancement installations, and are building a private LTE network for Bexar County, Texas. Nevertheless, we would typically seek five-year initial terms for our leases with three-to-five-year renewal options. Such renewal options are generally exercisable at our discretion before the expiration of the current term. If these leases are terminated or if the owners of these structures are unwilling to continue to enter into leases or licenses with us in the future, or breach those agreements with us, we would be forced to seek alternative arrangements with other building owners or providers. If we are unable to continue to obtain, retain, or renew such leases on satisfactory terms, our business would be harmed.
We have a history of operating losses and expect to continue incurring losses for the foreseeable future. Our current business was launched in 2011 and has incurred losses in each year of operation. We cannot anticipate when, if ever, our operations will become profitable. We expect to incur significant net losses as we invest in our technology, expand our markets and pursue our business strategy. We intend to invest significantly in our business before we expect cash flow from operations to be adequate to cover our operating expenses. If we are unable to execute our business strategy and grow our business, either as a result of the risks identified in this section or for any other reason, our business, prospects, financial condition and results of operations will be adversely affected and we may be unable to continue to operate as a going concern.
The private LTE services and LPN-16 telecommunications equipment and services that we are selling are relatively new in our portfolio, and the revenue model for them is uncertain. We do not have extensive experience in pricing and billing in-building cellular and private LTE services, nor have we yet deployed LPN-16 with our networks or charged anyone for its capabilities. There is a risk that we may not price and bill sufficiently for our products and services to earn a profit, especially in the early stages of our sale and installation of them. We may continue to incur operating losses even as our sales and revenue increase.
Our Link program was terminated, and we may have liability with respect to the remaining outstanding Links. Through January 2016, Wytec had been relying primarily on the sale of registered links and related equipment and services (“Links”) through Wylink, Inc., a former wholly owned subsidiary which we dissolved in 2020, for revenue and working capital. Wylink terminated the offer and sale of Links in January 2016, except for two sales in July 2016. From June 2016 to December 2017, Wytec had been offering to buy back Links in consideration for the issuance of its Series B Preferred Stock and warrants at $3.00 per unit (i.e., one share of Series B Preferred Stock and one warrant exercisable at $1.50 per share until December 31, 2018). Subsequently, in 2018, 2019 and 2022, Wytec has been making exchange offers for Links by offering shares of common stock and warrants for them. As of December 31, 2023, we had repurchased all but 22 outstanding Links that currently remain with third party owners. Those outstanding Links include 8 that are activated and 14 that are not yet and may not be activated. We are generally retaining activated (“live”) Links that are repurchased by us and letting pending Links lapse for the present. Once Links were sold, Wytec incurred substantial costs to provide equipment and make related lease payments on activated Links. We have recently shifted its focus to in-building cellular and private LTE services, respectively, and to its patented LPN-16 technology. Consequently, we do not plan to sell, lease, use, or activate any additional Links. Wytec has executed a plan to repurchase the Links connected to its registered Link program and in the process of purchasing the remaining 22 links in order to strengthen our balance sheet by having holders exchange them for equity. We may offer Link holders the opportunity to exchange such Links based on the reference price. We have recorded a current liability for “other payables” on our balance sheet for the remaining outstanding Links of $895,000 of which a total of $560,000 of the Links have been converted into common stock as of December 31, 2023, which results in an outstanding other payable balance of $335,000, We cannot assure that we will be able to retire the rest of the outstanding Links, or that we will not have claims asserted by Link holders against us for forced activations and lease renewals or refunds.
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Our success depends in part on the results of current and planned tests of our proprietary LPN-16 technology. Testing thus far has included environmental and radio frequency interference testing with our manufacturer and multiple speed tests utilizing an integrated 2.4GHz and 5GHz Qualcomm 802.11ac chipset which we completed in December 2014. Additional tests are expected to include proof of concept testing for network load balancing, public safety Band 14 and mobile network operator mobile data offloading, and WiFi and backhaul network testing. While we expect future tests of our LPN-16 to go well since preliminary testing of the technology in San Antonio, Texas was positive, the LPN-16 may not work as we have currently designed and constructed it, causing us material delays and harm. If the LPN-16 fails the upcoming tests or the tests are materially delayed, it could have a material adverse impact on our financial condition, operating results, and business performance. The timing of the commencement of the launch of the LPN-16 product line is currently uncertain, and may be delayed until we have more capital to fund it. We cannot assure that our LPN-16 or any other proprietary technology that we develop will be successful, will work as planned, or can be commercialized or monetized profitably.
If our planned comprehensive testing of the LPN-16 with Trabus Technologies does not yield favorable results, the execution of our business plan could be delayed or otherwise adversely effected. We are planning to conduct comprehensive trials in the near future with Trabus Technologies to test the efficacy of the LPN-16, and while we expect good results with respect to transmission speed, capacity, latency, clarity, and related performance parameters, we cannot assure that the actual results will not be less than expected. We cannot assure the date on which the trials will be conducted and completed. The trials with satisfactory results are a necessary predicate to commercializing and deploying our LPN-16 small cell technology. We cannot assure that performance results that will be experienced in the upcoming trials. If the results are not satisfactory, we will be delayed in the execution of our business plan, our costs will rise as we make necessary adjustments to the prototypes, and our anticipated revenue will be reduced or delayed.
We must adapt quickly to changes in technology. Telecommunications technology is a rapidly evolving technology. We must keep abreast of this technological evolution. To do so, we must continually improve the performance, features and reliability of our equipment and related products. If we fail to maintain a competitive level of technological expertise, then we will not be able to compete in our market.
We could be subject to reduced revenues, increased costs, liability claims, or harm to our competitive position as a result of cyber security threats or other security vulnerabilities. Cybersecurity risks and attacks continue to grow. Cybersecurity attacks are evolving and not always predictable. Any cyberattack, unauthorized intrusion, malicious software infiltration, network disruption, corruption of data, theft of private or other sensitive information, or inadvertent acts or omissions by our vendors or our own employees could result in the loss, disclosure, or misuse of confidential or proprietary information, and could lead to interruption of our operations or business, unauthorized release or use of information, compromise of data, damage to our reputation, damage to our customers or vendors, and increased costs to prevent, respond to, or mitigate any events. We may not have adequate insurance coverage to compensate us for losses from a security incident. Accordingly, the impact of a data security incident could have a material adverse effect on our business, results of operations, and financial condition.
Our revenues are concentrated in a small number of customers and they may decrease significantly if we were to lose one of these customers. Laredo ISD generated approximately 88% of our revenue during the year ended December 31, 2023 and 76% of revenue during the year ended December 31, 2022. Although we have preferred vendor status with the CTPA of which Laredo is a member, along with approximately 150 other school districts in Texas, the high concentration of revenue from a limited number of customers creates a risk that our revenue may decrease substantially if we were to lose any significant customer. We cannot assure that our current main customers will continue to purchase our products and services in the future.
Our inability to respond timely to technological advances could have an adverse effect on our business. We must be able to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. We can offer no assurance that we will be able to successfully use new technologies effectively or adapt our products and services in a timely manner to a competitive standard. If we are unable to adapt in a timely manner to changing technology, market conditions or customer requirements, then we may not be able to successfully compete in our market.
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Our ability to protect our intellectual property is uncertain. We assigned our five patents to our former subsidiary, Wytec, LLC, which was then managed and 50% owned by General Patent Corporation. General Patent Corporation (“GPC”), the oldest patent enforcement firm in the United States, represents clients on patent enforcement rights and licensing transactions on a contingency basis. GPC was the manager of Wytec, LLC until 2017, when it assigned all of its rights in Wytec, LLC back to us. After extensive research and analysis, GPC elected not to assert infringement claims for the patents on behalf of us and itself through Wytec, LLC. All five previous patents prior to 2017 have expired. In 2017, we re-acquired the 50% of Wytec, LLC that we did not already own, and became the manager of it. In 2014, we filed a new provisional patent application for our proprietary LPN-16 data transmission technology. On October 31, 2017, we received our first patent on the LPN-16 (patent number 9,807,032). In December of 2020, Wytec was granted a second patent (patent number 10868775 B2), for our additional claims to our original 2017 patent. In October of 2023, Wytec filed for two additional provisional patents to be integrated with its two previous patents while including both artificial intelligence (“AI”), machine learning (“ML”), and blockchain technologies. Although we have applied for additional patents and may continue to do so in the future, we cannot assure that these patents or any other patents that may be granted to us, if any, in the future will be enforceable. We will have limited resources to fight any infringements on our proprietary rights and if we are unable to protect our proprietary rights or if such rights infringe on the rights of others, our business would be materially adversely affected. The current manufacturer of our LPN-16 owns the intellectual property rights to certain software used in the device which has now expired and is no longer usable. Wytec plans to replace the software components with its own two provisional patents, filed in October 2023, designed with AI, ML, and blockchain technologies.
Our business may be adversely affected by competition. The telecommunications industry is highly competitive. Many of our current and potential competitors have financial, personnel and other resources, including brand name recognition, substantially greater than ours, as well as other competitive advantages over us. Certain competitors may be able to secure products from vendors on more favorable terms, devote greater resources to marketing and promotional campaigns, and adopt more aggressive pricing than we will. We cannot assure that we will be able to compete successfully against these competitors, which ultimately may have a materially adverse effect on our business, results of operations, financial condition, and potential products in the future.
Our business is subject to government regulation. Aspects of our telecommunication business are subject to and designed to comply with the regulations of the Federal Communications Commission (“FCC”). A change in those regulations or significant diminution of the right to access, use or license of the spectrum that we seek may have a material adverse effect on our operating results, financial condition, and business prospects and performance. We are also subject to regulations applicable to businesses generally, including without limitation those governing employment, construction, permit requirements, the environment, and health and safety, those governing the telecommunications industry, and the FCC. The adoption of any additional laws or regulations may decrease the growth of our business, decrease the demand for services and increase our cost of doing business. Changes in tax laws also could have a significant adverse effect on our operating results and financial condition.
We cannot assure that we will achieve profitability. We cannot assure that we will be able to operate profitably in the future. Profitability, if any, will depend in part upon our ability to successfully develop and market our proprietary telecommunications technology, and other products and services. We may not be able to successfully transition from our current stage of business to a stabilized operation having sufficient revenues to cover expenses. While attempting to make this transition, we will be subject to all the risks inherent in a small business, including the need to adequately service and expand our customer base and to maintain and enhance our current services.
We are exposed to various possible claims relating to our business and we may not have sufficient insurance to fully protect us. We cannot assure that we will not incur uninsured liabilities and losses because of the conduct of our business, even though we currently maintain insurance policies for liability and property insurance coverage, along with workmen’s compensation and related insurance. Should uninsured losses occur, our investors could lose their invested capital.
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We may incur additional indebtedness. We cannot assure that we will not incur additional debt in the future, that we will have sufficient funds to repay our indebtedness, or that we will not default on our debt, jeopardizing our business viability. Furthermore, we may not be able to borrow or raise additional capital in the future to meet our needs or to otherwise provide the capital necessary to conduct our business. We currently have debt as of December 31, 2023 of $710,000 of promissory notes due and payable on various dates through December 2024, $364,515 of convertible promissory notes due and payable through December 2024 and $21,609 of notes payable for equipment financing due and payable on various dates through December 2024.
We expect to incur losses for the near future. We project that we will incur development and administrative expenses and operate at a loss for the foreseeable future unless we are able to generate substantial revenues from our existing and planned proprietary products and services. We cannot be certain whether or when we will be able to achieve profitability because of the significant uncertainties with respect to our business.
We may incur cost overruns. We may incur substantial cost overruns in the development and deployment of our proprietary products and services. Management is not obligated to contribute capital to us. Unanticipated costs may force us to obtain additional capital or financing from other sources or may cause us to lose our entire investment in our business if we are unable to obtain the additional funds necessary to implement our business plan. We cannot assure that we will be able to obtain sufficient capital to successfully implement our business plan. If a greater investment is required in the business because of cost overruns, the probability of earning a profit or a return on investment in us is diminished.
We could be subject to liens. If we fail to pay for materials and services for our business on a timely basis, our assets could be subject to material men’s and workmen’s liens. We may also be subject to bank liens in the event that we default on loans from banks, if any.
We may face litigation in the future. We may incur substantial legal fees and costs in connection with future litigation, if any. The Company carries officers’ and directors’ liability insurance, as well as other forms of insurance customarily carried by companies such as Wytec, but we cannot assure that our insurance policies will be adequate to cover all of our litigation costs. There is also a risk that we could face litigation and regulatory claims that could have a material adverse effect on our financial condition, operating results, and business. For example, a former Link holder and current common stockholder of Wytec has requested a refund of her payments to Wytec. While we do not believe that this individual is entitled to a refund, Wytec has been amenable to refunding her, but not in excess of the amount she paid to Wytec. To date Wytec has refunded $80,000 to her, but she has not properly returned the shares of common stock so they may be canceled. If this individual commences litigation or we become involved in other litigation, there could be a material adverse effect on Wytec.
We may not have adequate funds to implement our business plan. We have limited capital available to us. Although we anticipate securing additional funding from the issuance of additional securities, we cannot assure that we will secure all or any of the funding we anticipate. If our entire original capital is fully expended and additional costs cannot be funded from borrowings or capital from other sources, then our financial condition, results of operations and business performance would be materially adversely affected. We cannot assure that we will have adequate capital or financing to conduct our business or to grow.
Our limited resources may prevent us from retaining key employees or inhibit our ability to hire and train a sufficient number of qualified management, professional, technical and regulatory personnel. Our success may also depend on our ability to attract and retain other qualified management and personnel familiar in telecommunications industry. Currently, we have a limited number of personnel that are required to perform various roles and duties as a result of our limited financial resources. We intend to use the services of independent consultants and contractors to perform various professional services, when appropriate to help conserve our capital. If and when we determine to acquire additional personnel, we will compete for such persons with other companies and other organizations, some of which have substantially greater capital resources than we do. We cannot provide any assurance that we will be successful in recruiting or retaining personnel of the requisite caliber or in adequate numbers to enable us to conduct our business.
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The loss of the services of any or our management or key executives could adversely affect our business. Our success is substantially dependent on the performance of our executive officers and key employees. The loss of an officer or director could have a material adverse impact on us. We are generally dependent upon our primary executive officer, William H. Gray, for the direction, management and daily supervision of our operations. We do not currently have any employment agreements with any members of our management team.
The consideration being paid to management has not been determined at arm’s-length. The common stock and cash consideration being paid by us to our management have not been determined based on arm’s-length negotiation. We may grant stock options and other equity incentives to our executive officers and directors, which may further dilute our shareholders’ ownership of us. While management believes that the consideration is fair for the work being performed, there is no assurance that the consideration to management reflects the true market value of its services.
Directors and officers have limited liability. As permitted by the Nevada General Corporation Law, our certificate of incorporation and by-laws limit the personal liability of our directors and officers and authorize our indemnification of them, but such provision does not eliminate or limit the liability of a director or officer in certain circumstances, such as for: (i) any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Nevada General Corporate Law; or (iv) for any transaction from which the director derived an improper personal benefit. If we were called upon to perform under our indemnification agreement, then the portion of our assets expended for such purpose would reduce the amount otherwise available for our business.
Global and regional economic conditions could materially adversely affect our business, results of operations, financial condition and growth. Adverse macroeconomic conditions, including inflation, slower growth, or recession, new or increased tariffs, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations could materially adversely affect demand for our products and services. In addition, consumer confidence and spending could be adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other economic factors.
In addition to an adverse impact on demand for our products, uncertainty about, or a decline in, global or regional economic conditions could have a significant impact on our suppliers, contract manufacturers, logistics providers, distributors, cellular network carriers and other channel partners. Potential effects include financial instability; inability to obtain credit to finance operations and purchases of our products; and insolvency.
A downturn in the economic environment could also lead to increased credit and collectability risk on our trade receivables; the failure of derivative counterparties and other financial institutions; limitations on our liquidity, which is currently minimal; and declines in the fair value of our financial instruments. These and other economic factors could materially adversely affect our business, results of operations, financial condition, and growth.
Our ability to compete successfully depends heavily on our ability to ensure a continuing and timely introduction of innovative new products, services and technologies to the marketplace.
We could be subject to changes in our tax rates, the adoption of new U.S. or state tax legislation or exposure to additional tax liabilities. We are subject to taxes in the U.S. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. Our effective tax rates could be affected by changes in the mix of earnings in states with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. We are also subject to the examination of our tax returns and other tax matters by the U.S. Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes. We cannot assure the outcome of these examinations.
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Impact of supply chain issues on Wytec’s business. Wytec expects delays in the commencement of various installations because of material and equipment shipping delays as a result of supply chain issues that began during the COVID-19 pandemic. Until the disruption to commerce at all levels of industry subsides, we expect that we will continue to experience delays in our supply chain. Although we are taking measures to mitigate the effect of these supply chain issues on our business as much as possible, we are unable to predict the overall impact of continued delays in our receipt of necessary materials and equipment on us at this time.
Risks Related to Our Common Stock
No market for our common stock currently exists, and an active trading market may not develop or be sustained. Our stock price may fluctuate significantly. There is currently no public market for our common stock. We intend to apply to have our common stock quoted and traded on the OTC-QX Market or the NASDAQ Capital Market. We cannot assure that our application for listing our common stock for trading on the NASDAQ Capital Market will be accepted. In order to have our common stock quoted for public trading on the OTC-QX Market, which is an over-the-counter market, not an exchange, we must have a market maker registered with FINRA to sponsor our application for a trading symbol for that over-the-counter market. We cannot assure that we will find a market maker to sponsor our common stock for public trading. An active trading market for our common stock may not develop or may not be sustained in the future. The lack of an active market may make it more difficult for stockholders to sell our shares and could lead to our share price and trading volume being depressed or volatile. We cannot predict the prices at which our common stock may trade. The market price of the common stock may fluctuate widely and decline, depending on many factors, some of which may be beyond our control.
Your percentage ownership in us may be diluted in the future. Our board of directors has the authority to cause us to issue additional securities and convertible securities at such prices and on such terms as it determines in its discretion without the consent of the stockholders, including without limitation common stock, preferred stock, warrants, stock options, and convertible notes. Consequently, our shareholders are subject to the risk that their ownership in us will be substantially diluted in the future.
Our president owns voting control of us. For so long as any shares of our Series C Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, have the right to vote in an amount equal to 51% of the total vote with respect to all matters submitted to a vote of the shareholders of Wytec. Since our president is the owner of all of our outstanding shares of Series C Preferred Stock, he beneficially owns at least 51% of the outstanding votes with respect to our capital stock. Accordingly, the president of Wytec is able to exercise significant control over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may not be in the best interests of all of our shareholders.
We may not pay dividends in the future. Any return on investment may be limited to the value of our common stock. We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition, and other business and economic factors affecting us at such time as our board of directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and marketing. Prospective investors seeking or needing dividend income should therefore not purchase our common stock. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if our stock price appreciates.
Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline. If our stockholders sell substantial amounts of our common stock in the public market if one ever develops, or upon the expiration of any statutory holding period under Rule 144 or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang”, in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
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Our stock price may be volatile. The market price of our common stock may be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control. In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock in general.
Item 1B. Unresolved Staff Comments.
None.
Item 1C Cybersecurity.
Risk Management and Strategy
In the ordinary course of our day-to-day business, we receive, process, use, store, and share digitally data, including user data as well as confidential, sensitive, proprietary, and personal information. Maintaining the integrity and availability of our information technology systems and this information, as well as appropriate limitations on access and confidentiality of such information, is important to our operations and business strategy.
To this end, we have implemented a Security Incident Response Plan (“SIRP”) designed to assess, identify, and manage risks from potential unauthorized occurrences on or through our information technology systems that may result in adverse effects on the confidentiality, integrity, and availability of these systems and the data residing in them. Our SIRP is managed and monitored by a dedicated security/information systems team and includes mechanisms, controls, technologies, systems, policies, and other processes designed to prevent or mitigate data loss, theft, misuse, or other security incidents or vulnerabilities affecting the systems and data residing in them.
Our SIRP is as follows:
| 1. | Preparation—perform a risk assessment and identify sensitive assets. Our team includes an outside security/information systems team that provides managed services on a regular basis. |
| 2. | Identification—monitor information technology systems and detect deviations from normal operations and see if they represent actual security incidents. When an incident is discovered, collect additional evidence, establish its type and severity, and document the incident. |
| 3. | Containment—perform short-term containment, for example by isolating the network segment that is under attack; then focus on long-term containment, which involves temporary fixes to allow systems to be used in production, while rebuilding clean systems. |
| 4. | Eradication—remove malware from all affected systems, identify the root cause of the attack, and take action to prevent similar attacks in the future. |
| 5. | Recovery—bring affected production systems back online carefully, to prevent additional attacks. Test, verify, and monitor affected systems to ensure they are back to normal activity. |
| 6. | Lessons learned—no later than two weeks from the end of the incident, perform a retrospective of the incident. Prepare complete documentation of the incident, investigate the incident further, understand what was done to contain it, and determine whether anything in the incident response process could be improved. |
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Governance
The audit committee of our board of directors (the “Audit Committee”) is responsible for overseeing cybersecurity risk and periodically updates our board of directors on such matters. The Audit Committee receives periodic updates from management regarding cybersecurity matters, and is notified between such updates regarding any significant new cybersecurity threats or incidents. We do not believe that there are currently any known risks from cybersecurity threats that are reasonably likely to materially affect us or our business strategy, results of operations, or financial condition.
Item 2. Properties.
We currently lease approximately 3,395 square feet of office space at 19206 Huebner Road, Suite 202, San Antonio, Texas 78258 and 2,210 square feet of office space at 19206 Huebner Road, Suite 201, San Antonio, Texas 78258 for approximately $6,100 per month.
Item 3. Legal Proceedings.
None.
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.
Market Information
Our common stock has not yet been approved for trading on FINRA’s Over-the-Counter QB Market (OTC:QX) or any other trading market or exchange.
The Company is authorized to issue 495,000,000 shares of common stock, par value $0.001 per share. The Company is also authorized to issue 20,000,000 shares of preferred stock, par value $0.001 per share, 4,100,000 of which have been designated as Series A Preferred Stock, 100,000 of which are issued and none of which are outstanding as of December 31, 2023, 6,650,000 of which have been designated as Series B Preferred Stock, 44,535 of which are issued and none of which are outstanding as of December 31, 2023, and 1,000 of which have been designated as Series C Preferred Stock, 1,000 of which are issued and outstanding as of December 31, 2023.
As of December 31, 2023, there were 940 record holders of our common stock, not including shares held in “street name” in brokerage accounts which is unknown. As of December 31, 2023, there were 13,288,692 shares of our common stock issued and outstanding.
We have never declared or paid dividends on our Common Stock and have no plan to do so in the immediate future.
Equity Compensation Plan and Information
During 2023, the board of directors of the Company approved a compensation plan for the directors of the Company pursuant to which each quarter, commencing for the fourth quarter of 2023, each director will receive $18,750 of shares of the Company’s common stock in consideration for such director’s valuable services as a director of the Company (i) based on the most recent valuation report received by the Company for its common stock if the Company’s common stock is not quoted on the NASDAQ Capital Market or equivalent or higher public securities trading market (each a “Trading Market”) during the applicable quarter or (ii) based on the average closing price that is quoted on a Trading Market (if more than one, the one with the then highest trading volume) during the applicable quarter if the Company’s common stock is quoted on a Trading Market at any time during applicable quarter. For services provided during the fourth quarter of 2023, each director received 1,673 shares of the Company’s common stock.
During 2023, the board of directors of the Company also authorized the issuance to each director of the Company of $18,750 of shares of the Company’s common stock, based on the most recent valuation report received by the Company for its common stock, for each quarter of valuable services provided to the Company by such director from the date of such director’s appointment through September 30, 2023 for a total of 261,603 shares of common stock.
In October 2023, the director of operations and corporate secretary of the Company received 25,000 common stock purchase warrants exercisable on a cash or cashless basis at an exercise price of $5.00 per until October 11, 2026 in consideration for her services to the Company.
We have not yet, but may in the future, establish a management equity incentive plan pursuant to which stock options and restricted stock awards may be authorized and granted to the executive officers, directors, employees, and key consultants of Wytec.
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Recent Sales of Unregistered Equity Securities
During the fourth quarter of 2023, the Company issued a total of $890,000 of 9.5% secured convertible promissory notes (the “Notes”) to a total of four investors pursuant to a private placement in accordance with Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). If the Notes have not otherwise been automatically converted into shares of the Company’s common stock, the noteholders may convert all or a portion of their outstanding Notes into shares of the Company’s common stock at a rate equal to $5.00 per share and, immediately upon the conversion, the converting noteholders will be issued a number of new warrants from the Company equal to the dollar amount of the conversion divided by $5.00 exercisable until December 31, 2024 at an exercise price equal to the greater of (i) five dollars ($5.00) or (ii) eighty-five percent (85%) of the 10-day moving average of the Company’s public trading price if the Company’s securities are trading on a public securities trading market.
Warrants
As of December 31, 2023, we have outstanding 2,925,596 warrants to purchase our common stock all of which are exercisable until various dates through October 11, 2026. The warrants are exercisable at the following amounts and rates: 2,000,000 are exercisable on a cash or cashless basis at an exercise price of $1.00 per share, 92,500 are exercisable on a cash or cashless basis at an exercise price of $2.50 per share, 226,075 are exercisable on a cash or cashless basis at an exercise price of $5.00 per share, 72,107 are exercisable on a cash or cashless basis at an exercise price of the greater of (i) $5.00 per share or (ii) 85% of the average closing price of our common stock, as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately prior to the date of exercise, and 534,914 are exercisable for cash at an exercise price of the greater of (i) $5.00 per share or (ii) 85% of the average closing price of our common stock, as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately prior to the date of exercise.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statements
This Form 10-K contains financial projections and other “forward-looking statements,” as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others, statements concerning the potential for revenues and expenses and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statements by looking for words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” and variations of such words or other words that convey uncertainty of future events or outcomes in this Form 10-K.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. The most important facts that could prevent us from achieving our stated goals include, but are not limited to, the following:
| (a) | volatility or decline of our stock price; | |
| (b) | potential fluctuation in quarterly results; | |
| (c) | our failure to earn revenues or profits; | |
| (d) | inadequate capital to continue business; |
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| (e) | insufficient revenues to cover operating costs; | |
| (f) | barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; | |
| (g) | dilution experienced by our shareholders in their ownership of the Company because of the issuance of additional securities by us, or the exercise of warrants or conversion of outstanding convertible securities; | |
| (h) | inability to complete research and development of our technology with minimal revenue; | |
| (i) | lack of demand for our products and services; | |
| (j) | loss of customers | |
| (k) | rapid and significant changes in markets; | |
| (l) | technological innovations causing our technology to become obsolete; | |
| (m) | increased competition from existing competitors and new entrants in the market; | |
| (n) | litigation with or legal claims and allegations by outside parties; | |
| (o) | inability to start or acquire new businesses, or lack of success of new businesses started or acquired by us, if any; | |
| (p) | inability to effectively develop or commercialize our technology; and | |
| (q) | inability to obtain patent or other protection for our proprietary intellectual property. |
Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this Form 10-K. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our audited financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking statements and information that involves risks and uncertainties.
Overview of Current Operations
Wytec International, Inc., a Nevada corporation (“Wytec,” the “Company,” “we,” “us,” or “our”), is a designer and developer of small cell technology and wide area networks designed to support 5G network deployments across the United States. Currently we offer in-building cellular (known as a distributed antenna system, “DAS”) and private Long-term Evolution “private LTE” solutions utilizing multiple vendors through a channel agreement with Synnex Corporation, a leading distributor and solutions aggregator hosting more than 22,000 technology vendors across the world. Concurrently, Wytec is the owner of patented small cell technology, which we call the “LPN-16,” designed to support dense citywide 5G network coverage. Small cell technology is purported by PricewaterhouseCoopers International Limited to be the key component to 5G deployment.
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In September 2023, we engaged Trabus Technologies to begin Wytec’s artificial intelligence (“AI”), machine learning (“ML”), and blockchain software development in preparation for a series of state and federal pilot projects to be conducted across the United States which are expected to commence in the second or third quarter of 2024. In October 2023, Wytec filed two provisional patent applications with the United States Patent and Trademark Office (“USPTO”) to enhance its LPN-16 small cell to include AI, ML, and blockchain technologies capable of supporting advanced multi-sensor technology.
In October 2023, Wytec signed a development agreement with Lemko Corporation to manufacture the updated version of our LPN-16 with AI, ML, and blockchain technologies. This agreement was signed in conjunction with our development of an integrated solution with the Nextivity Corporation (“Nextivity”) to enhance the in-building solution, utilizing Nextivity’s Cel-Fi, we currently sell to the over 190 Independent School District (“ISD”) members of the Central Texas Purchasing Alliance (“CTPA”). Wytec plans to include gunshot and drug detection solutions in conjunction with its in-building cellular services as a part of a pilot project offered to over 40 of the CTPA members requesting to be included in the pilot program.
We expect 5G to have a transformative impact on the economy and we believe that 5G citywide deployments will rely substantially on small cell technology to facilitate this impact. We believe our LPN-16 small cell can solve many of the long-term challenges faced by operators needing access to implement their 5G initiatives. It can also assist cities challenged with on-going technology upgrades, network growth demands, political hurdles, and new business models needed to realize the benefits of a 5G network. In addition to aligning with technical and governmental issues, the LPN-16 is designed to meet the standards for 5G deployment and, for operator needs, adheres to the Federal Communications Commission (“FCC”) policy initiatives addressing public safety and First Responder initiatives. Specifically, the FCC’s Report and Order 14-153, Acceleration of Broadband Deployment by Improving Wireless Facilities Siting Policies, adopts rules to help spur wireless broadband deployment by facilitating the sharing of wireless transmission equipment using “neutral host” functionality to simultaneously support multiple providers. The LPN-16 was specifically designed to support neutral host features and performance. The FCC’s goal of “shared used” and “neutral host” seeks to expand coverage and capacity more quickly, reduce costs, and promote access to infrastructure which reduces barriers to deployment and incentivize the sharing of resources, rather than relying on new builds for every stakeholder, thereby safeguarding environmental, aesthetic, historic and local land-use values.
We have implemented an aggressive intellectual property strategy and continue to pursue patent protection for new innovations. In addition to the LPN-16 covered by our current patent, we have identified additional upgrades and additions to the LPN-16 which further tie it to the goals and timelines of Wytec’s 5G development business model, FCC policy initiatives, and customer business usage which we believe could lead to additional patentable property. We intend to file for patent protection on these developments. Our strategy is to continually monitor the costs and benefits of our patent applications and pursue those that will best protect our business and expand the core value of the Company.
We have recruited and hired a seasoned management team with both private and public company experience and relevant technical and industry experience to develop and execute our operating plan. In addition, we have identified key engineering resources for intellectual property development, antenna development, and hardware, software, and firmware engineering, as well as integration and testing that we believe will allow us to continue to expand our technology and intellectual property.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the estimated recoverable amounts of trade accounts receivable, impairment of long-lived assets, revenue recognition and deferred tax assets. We believe the following critical accounting policies require more significant judgment and estimates used in the preparation of the financial statements.
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Revenue and Cost Recognition. Wytec International, Inc. follows the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.
Our contracts for the sale of Cel-Fi systems generally include the performance obligation to sale and install (including testing, commissioning and integration services) equipment. The performance obligation is deemed satisfied once the equipment has been installed, placed in service and customer signs off on their acceptance, at a point in time.
Revenue is recorded and recognized when installation is complete. Maintenance and monitoring rates are pre-set based upon the building’s square footage. Cost of sales includes all equipment and labor that is connected to a project and all other costs are general and administrative. Laredo Independent School District projects are subject to contracted rates
Network service revenues are recognized each month as services are rendered.
The Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated, and will pass on the warranties from its vendors, if any, which generally covers this one year period. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated. At December 31, 2023, the Company has estimated no product warranty accrual given the Company’s de minimis historical financial warranty experience.
Warrants: The Company estimates and applies its judgement when determining the inputs to the Black Scholes calculation that is used to calculate the expense for the warrants issued. The volatility used is based on historical volatilities of selected peer group companies. Management estimated the fair value of the underlying common stock by utilizing the discounted cash flow method and prior transaction method approaches. Management estimates the average volatility considering current and future expected market conditions. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Each issuance is individually valued according to this procedure as of the date of issuance.
Results of Operations for the Years Ended December 31, 2023 and 2022
Revenues for the year ended December 31, 2023 were $255,634 compared to revenues of $413,858 for the year ended December 31, 2022, which resulted in a decrease of $158,224, or 38%. Our revenues decreased in 2023 compared to 2022 due to a decrease in revenue from our Cel-Fi services. Revenues from the sale and installation of Cel-Fi systems, including fixed wireless, SmartDAS, and 4G LTE, totaled $225,388 in 2023 and $386,325 in 2022, which resulted in a decrease of $160,937. Our revenues increased from network and other services including fixed wireless services, which totaled $30,246 in 2023 and $27,533 in 2022, representing an increase of $2,713. The revenue increase in network services was predominately due to an increase in monitoring and maintenance services provided.
Cost of sales for the year ended December 31, 2023 was $170,904, a decrease of $168,892 or 50%, from $339,796 for the year ended December 31, 2022. Our cost of sales decreased primarily due to decreased costs related predominately to the decrease in revenues related to our contract with Laredo and Wytec had increased inventory in 2022 due to long lead times from China for project installations set for the first six (6) months of 2023.
Selling and general and administrative expenses were $2,999,384 for the year ended December 31, 2023 compared to $1,932,595 for the year ended December 31, 2022, which resulted in an increase of $1,066,789 or 55%. The increase in our selling and general and administrative expenses was largely due to the issuance of common stock for board member compensation in 2023 which did not occur in 2022. Salaries and wages expenses were $772,295 for the year ended December 31, 2023 compared to $863,051 for the year ended December 31, 2022, which resulted in a decrease of $90,756 or 11%. The decrease in salaries and wages is due to fewer employees employed by the Company during 2023.
| 20 |
Research and development costs were $131,759 for the year ended December 31, 2023 compared to $-0- of research and development costs for the year ended December 31, 2022, which resulted in an increase of $131,759. The increase in research and development costs is due to an increase in expenses incurred in the development of our LPN-16.
Depreciation expense was $42,355 for the year ended December 31, 2023 compared to $48,205 for the year ended December 31, 2022, resulting in a decrease of $5,850 or 12%. The decrease in depreciation expense is principally due to fewer asset additions in the last two to three years.
Liquidity and Capital Resources
While we have raised capital to meet our working capital and financing needs in the past, additional financing will be required in order to meet our current and projected cash requirements for operations. As of December 31, 2023, we had a working capital deficit of $1,502,330. As of December 31, 2023, $335,000 of our current liabilities is defined as other payable due to link sales that have been funded by the customers, for which obligations to the customers have not yet been completely performed, or the link has not yet been repurchased by the Company. During 2019 deferred revenue was reclassified to other payable due to the Company exiting the business of installing registered links and related equipment and services (“Links”). The Company intends to relieve the liability through a combination of common stock and cash.
We estimate that we could need approximately $3,500,000 of capital or financing over the next twelve months to fund our planned operations, including the commercialization of our LPN-16 for supporting our private LTE services and paying down $1,114,515 of existing note payables that is expected to come due in the next twelve months as well as to pay out the $335,000 included in other payables for monies due to Link holders. Until the $335,000 is converted to common stock, the amounts are due on demand and, therefore, while unlikely to be demanded, the monies are included as an outflow over the next twelve months. Additionally, Wytec will look to extend or convert into common stock the debt of $1,074,515 that comes due in 2024, however, until negotiated, it is included as a cash need for the next twelve months. Approximately $2,048,183 of the cash needs relates to operational needs, including paying down current accounts payable of approximately $515,000, current portions of notes taken on equipment of $21,609, accrued interest of $129,574, and $1,382,000 of operations, that cannot be extended.
We anticipate that we will incur operating losses in the next twelve months. Our prospective customers budgetary allowances and funding, must be considered while considering the risks, expenses, and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.
Cash Flow from Operating Activities
Cash flows used in operating activities during the year ended December 31, 2023 were $1,858,322 compared to $1,337,945 during the year ended December 31, 2022.
Cash Flow from Investing Activities
Our investing activities consist principally of the investment in Insurance Resources LLC.
The company purchased equipment totaling $848 in 2022 consisting primarily of computer equipment. There were no equipment purchases in 2023. However, during the year ended December 31, 2023, the Company made a $600,000 investment in another company. No such investment was made during the year ended December 31, 2022.
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Cash Flow from Financing Activities
Cash flows provided from financing activities during the year ended December 31, 2023 were $2,929,334 compared to $1,162,467 during the year ended December 31, 2022. During the year ended December 31, 2023, we issued $605,866 in common stock from the exercise of warrants and during the year ended December 31, 2022, we issued $25,000 in common stock. During the year ended December 31, 2023, we also obtained financing for $2,376,515 while during the year ended December 31, 2022, we obtained financing for $1,030,000 and received $140,970 for common stock issued in 2021.
Satisfaction of Our Cash Obligations for the Next Twelve Months
As of December 31, 2023, our cash balance was $564,760. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, including revenue from our installation contracts with the Texas school districts, private placements of our capital stock, exercise of warrants, third party financing, and/or traditional bank financing. We anticipate sales-generated income during that same period, but do not anticipate generating sufficient revenue to meet our working capital requirements. Consequently, we intend to attempt to find sources of additional capital in the future to fund our growth and expansion through additional equity or debt financing or credit facilities. There is no assurance that we will be able to meet our working capital requirements through the private placement of equity or debt or from any other source.
Other Funding Arrangements
On September 28, 2023, (the “Effective Date”), we entered into a Share Purchase Agreement (the “SPA”) with Gem Global Yield LLC SCS (“GEM” or the “Purchaser”) and Gem Yield Bahamas Limited (“GYBL”). Pursuant to the SPA, we may sell to the Purchaser from time to time up to $100,000,000 (the “Aggregate Limit”) in shares of our common stock during the 36 month period after the first day on which the Company’s common stock trades on a nationally recognized United States stock exchange or any other exchange platform in the world (the “Public Listing Date”). Pursuant to the SPA, after the Public Listing Date, the Company may issue a draw down notice pursuant to which the Company may sell the Purchaser an amount of shares that shall not exceed 400% of the average daily trading volume for the 30 days immediately preceding the date on which the Company delivers the draw down notice. The per share price shall equal 90% of the average applicable Daily Closing Price (as defined in the SPA) of the Company’s common stock during the applicable Draw Down Pricing Period (as defined in the SPA). Notwithstanding the foregoing, within five trading days after the Public Listing Date, the Company may issue a draw down notice for an amount up to $10,000,000 of the Aggregate Limit. Unless earlier terminated as provided in the SPA, the SPA terminates automatically on the earliest of (i) thirty-six (36) consecutive months after the Public Listing Date; (ii) thirty-six (36) months from the Effective Date (as may be extended as provided in the SPA), and (iii) the date the Purchaser shall have purchased the Aggregate Limit.
Pursuant to the SPA, in consideration for these services, we agreed to pay GYBL the following consideration: (i) a commitment fee equal to two (2) percent of the Aggregate Limit (the “Commitment Fee”) payable in cash from the proceeds of the Draw Downs (as defined in the SPA) or in freely tradeable shares of common stock of the Company valued at the Daily Closing Price (as defined in the SPA) at the time of each Draw Down (as defined in the SPA), at the option of Wytec, deliverable as described in the SPA so long as the entire Commitment Fee is paid on or before the first anniversary of the Public Listing Date and (ii) a warrant granting GYBL the right to purchase shares of our common stock having an expiration date that is the third anniversary of the Public Listing Date at the exercise price and upon the terms set forth more fully in the SPA, up to the number of shares of common stock that is equal to 3.7% of the total number of shares of common stock outstanding calculated on a fully diluted basis as of the Public Listing Date (the “Warrant”). The Commitment Fee will not be payable and the Warrant will not be issuable if the Company’s common stock does not become publicly listed.
Pursuant to a Registration Rights Agreement, dated September 28, 2023, between us and the Purchaser and GYBL (the “Registration Rights Agreement”), no later thirty (30) calendar days after the Public Listing Date, we are obligated to file a registration statement with the Securities and Exchange Commission (“SEC”) to register the shares of common stock issuable pursuant to the SPA. Pursuant to the Registration Rights Agreement, we are obligated to have the registration statement declared effective by the SEC on the earlier of (A) the 45th calendar day after the date on which the registration statement is filed with the SEC and (B) the fifth business day after the date the Company is notified by the SEC that the registration statement will not be reviewed.
| 22 |
Other Payable
During 2019, $895,000 of deferred revenue, related to amounts billed and collected before services related to Links previously sold by the Company had been completed, was reclassified to other payable due to the Company’s exiting the business of installing Links. During 2022, a total of $560,000 of this obligation to Link holders was relieved through the issuance of common stock pursuant to a Link buy-back offering, leaving a balance of $335,000 at December 31, 2023. The Company intends to relieve the remaining amount of this liability through a combination of exchanges for common stock and cash.
Repurchase of Registered Links
During 2019, the Company refunded the purchase price of one Link for a total cash payment of $35,000, for the return of the Link and elimination of related obligations. Wytec, at its sole discretion, has at times refunded the purchase price of Links before the Links were installed and absent the acceptance of repurchase under a Link buy-back offering. This action resulted in a corresponding reduction of unearned revenue. During 2022 and 2023, no Link refunds were given.
Going Concern
Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $31,109,214 at December 31, 2023, and have reported negative cash flows from operations. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months from the date of this report. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive nature in which we operate.
Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, we cannot assure that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.
Recently Issued Accounting Standards
We have reviewed the standards issued by the Financial Accounting Standards Board (“FASB”) through December 31, 2023 and which are not yet effective. The following is a list of pronouncements that the Company will adopt:
Effective as of January 1, 2023, the Company adopted the provisions of ASU 2016-03: Financial Instruments – Credit Losses (Topic 326). The new standard was issued in June 2016. The standard was issued with the intent of overhauling the processes of measuring credit losses on most financial assets carried at amortized costs, among others. The adoption of this standard did not have a material impact on the Company’s financial statements.
| 23 |
Item 8. Financial Statements and Supplementary Data
WYTEC INTERNATIONAL, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022
CONTENTS
| 24 |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Wytec International, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Wytec International, Inc. (the "Company") as of December 31, 2023, the related statements of operations, stockholders’ deficit and cash flows, for the year then ended, and the related notes to the financial statements (collectively, the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company has suffered recurring losses from operations and its total liabilities exceed its total assets. This raises substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters 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) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. We determined that there are no critical audit matters.
/s/
We have served as the Company's auditor since 2023.
March 28, 2024
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Wytec International, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Wytec International, Inc. (the “Company”) as of December 31, 2022, and the related statements of operations, stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters 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) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
www.malonebailey.com
We have served as the Company's auditor since 2022.
August 10, 2023
| F-2 |
WYTEC INTERNATIONAL, INC.
BALANCE SHEETS
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Investment in limited liability company | ||||||||
| Operating lease, right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable, related party | ||||||||
| Other payable | ||||||||
| Operating lease, right-of-use obligation, current portion | ||||||||
| Contract liability | ||||||||
| Notes payable, current portion | ||||||||
| Convertible promissory notes, shareholders | ||||||||
| Convertible promissory notes | ||||||||
| Promissory notes, shareholders | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Operating lease, right-of-use obligation, long term portion | ||||||||
| Notes payable, long term portion | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note M) | ||||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, par value $per share, shares authorized: | ||||||||
| Series A convertible preferred stock, par value $ per share, shares designated, shares issued and shares outstanding at December 31, 2023 and 2022 | ||||||||
| Series B convertible preferred stock, par value $ per share, shares designated, shares issued and shares outstanding at December 31, 2023 and 2022 | ||||||||
| Series C convertible preferred stock, par value $ per share, shares designated, shares issued and shares outstanding at December 31, 2023 and 2022 | ||||||||
| Common stock, par value $per share, shares authorized, and shares issued and outstanding at December 31, 2023 and 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Repurchased shares | ( | ) | ( | ) | ||||
| Subscriptions payable | ||||||||
| Treasury stock: | ||||||||
| Series A convertible preferred stock, at cost, shares and shares | ( | ) | ( | ) | ||||
| Series B convertible preferred stock, at cost, shares and shares | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
See accompanying notes to the financial statements.
| F-3 |
WYTEC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Research and development | ||||||||
| Depreciation and amortization | ||||||||
| Operating expenses, net | ||||||||
| Net operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Other income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - basic and fully diluted | ||||||||
| Net loss per share - basic and fully diluted | $ | ) | $ | ) | ||||
See accompanying notes to the financial statements.
| F-4 |
WYTEC INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
| Class A | Class B | Class C | Common | Class A Preferred | ||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Treasury Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||
| Receipt of cash for common stock already issued | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for link obligations | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||
| Warrants issued to gain access to line of credit | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Warrants issued with promissory note | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Conversion of warrants to common stock | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common stock | ( | ) | ( | ) | – | – | – | – | ||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | ( | ) | ( | ) | – | – | – | ||||||||||||||||||||||||||||||||||
| Extension of warrants | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2022 | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Conversion of note payable into common stock | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||
| Cancellation of subscription payable | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Warrants exercised for cash | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||
| Cashless warrants exercised | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||
| Extension of warrants | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Warrants issued as compensation | – | – | – | |||||||||||||||||||||||||||||||||||||||
| Stock issued for board member compensation | – | – | – | – | – | |||||||||||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2023 | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| F-5 |
WYTEC INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
Class B Preferred Treasury Stock | Additional Paid-in | Repurchased | Subscriptions | Subscriptions | Deposit for Future Stock | Accumulated | Total Stockholders' Equity | |||||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Payable | Receivable | Subscription | Deficit | (Deficit) | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Issuance of common stock for services | – | |||||||||||||||||||||||||||||||||||
| Receipt of cash for common stock already issued | – | |||||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for link obligations | – | |||||||||||||||||||||||||||||||||||
| Warrants issued to gain access to line of credit | – | |||||||||||||||||||||||||||||||||||
| Warrants issued with promissory note | – | |||||||||||||||||||||||||||||||||||
| Conversion of warrants to common stock | – | |||||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common stock | – | |||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | |||||||||||||||||||||||||||||||||||
| Extension of warrants | – | |||||||||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2022 | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Conversion of note payable into common stock | – | |||||||||||||||||||||||||||||||||||
| Cancellation of subscription payable | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Warrants exercised for cash | – | |||||||||||||||||||||||||||||||||||
| Cashless warrants exercised | – | ( | ) | |||||||||||||||||||||||||||||||||
| Extension of warrants | – | |||||||||||||||||||||||||||||||||||
| Warrants issued as compensation | – | |||||||||||||||||||||||||||||||||||
| Stock issued for board member compensation | – | |||||||||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2023 | – | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | ( | ) | |||||||||||||||||||||
See accompanying notes to the financial statements.
| F-6 |
WYTEC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
| For the Year | ||||||||
| Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of debt issuance costs | ||||||||
| Reversal of stock based compensation | ( | ) | ||||||
| Warrant expense | ||||||||
| Stock based compensation | ||||||||
| Non-cash lease expense | ||||||||
| Decrease (increase) in operating assets | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ||||||
| Increase (decrease) in operating liabilities | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accounts payable, related party | ( | ) | ||||||
| Contract liability | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of investment | ( | ) | ||||||
| Purchase of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of unsecured promissory note | ||||||||
| Proceeds from promissory notes, shareholders | ||||||||
| Proceeds from issuance of convertible promissory notes | ||||||||
| Proceeds from convertible promissory notes, shareholders | ||||||||
| Payments on promissory notes, shareholders | ( | ) | ||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from previously issued common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of series B preferred stock to common stock | $ | $ | ||||||
| Conversion of series A preferred stock to common stock | $ | $ | ||||||
| Conversion of non-convertible promissory notes, shareholders to convertible promissory notes | $ | $ | ||||||
| Conversion of accrued interest and note payable into common stock | $ | $ | ||||||
| Issuance of detachable warrants with Debt | $ | $ | ||||||
| Issuance of warrants to gain access to line of credit | $ | $ | ||||||
| Exchange of link obligations into common shares | $ | $ | ||||||
| Conversion of accrued interest into note payable | $ | $ | ||||||
See accompanying notes to the financial statements.
| F-7 |
WYTEC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A – SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Wytec International, Inc. (“Wytec,” “we,” “our,” “us,” or the “Company”), a Nevada corporation, designs, manufactures, and installs carrier-class Wi-Fi solutions in the 70 and 80 gigahertz licensed frequency program to local government, Mobile Service Operations, National Telecommunications Operators, and corporate enterprises. Wytec was previously involved in the sale of wired and wireless services, including products, wireless data cards, back-office platform and rate plans to their commercial and enterprise clients and has been engaged in the sale of Federal Communications Commission (“FCC”) registered links participating in the 70 and 80 gigahertz licensed frequency program (the “Program”). The Program allowed qualified individuals to own a segment of the “backhaul” infrastructure of Wytec’s city-wide business deployment.
Basis of Accounting: The accompanying financial statements have been prepared by the Company’s management in accordance with U. S. generally accepted accounting principles (“GAAP”) and applied on a consistent basis.
Revenue and Cost Recognition. Revenue is recognized by applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.
The Company earns revenues from contracts with customers for sales and installation of cellular enhancement equipment and support agreements. Revenue from the sale and installation of cellular enhancement equipment is recognized either when the installation is completed or as the Company installs the cellular enhancement equipment, depending on the complexity of the system, such as the degree of customization of the equipment being installed, and the agreement with the customer. Revenue from the installation of systems which management believes have an alternative use is recognized upon customer acceptance. This assessment, at contract inception, is based on the combination of equipment ordered, the services performed and whether or not material effort, within the context of the contract, would be required to rework the equipment for another project. For example, such contracts are usually completed within 30-45 days. In larger more complex projects where the Company is creating an asset for the customer with no alternative use and has an enforceable right to payment for performance prior to contract completion, we recognize revenue utilizing the percentage of completion method. This method measures completion based on management’s estimate of total costs to complete each contract because management considers total costs to be the best available measure of progress on the contract. During 2023 and 2022, all sales and installation revenue was recognized when the installation was completed.
Support agreements entered into with customers are generally for a period of one year, during which the Company stands ready to provide service and support for installed systems at the customer site. Support agreement amounts are billed in advance to the customer, as agreed in the contract, and recorded as a contract liability. During the period, the Company provides unspecified firmware upgrades to installed client equipment as they are available. Management estimates that straight line recognition of revenue over the period of the support agreement contract is representative of the pattern of delivery on the Company’s obligation under these agreements.
The Company has applied the practical expedient that permits the Company to recognize revenue without regard to significant financing components based on the Company’s expectations about the transfer of services and the receipt of payment from customers. The effect of this practical expedient is not material to the Company’s financial statements.
Sales tax is recorded on a net basis and excluded from revenue.
Cash and Cash Equivalents: The Company considers all bank deposits and short-term securities with an original purchase maturity of three months or less to be cash equivalents.
Inventory: Inventory is stated at the lower of cost and selling price less costs to complete and sell. Specific identification is used to track inventory and record cost of goods sold when the inventory is sold.
| F-8 |
Allowance for Credit Losses: The allowance
for credit losses is evaluated on a regular basis through periodic reviews of the collectability of the receivables in light of historical
experience, adverse situations that may affect our customers' ability to repay, and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accounts
receivable are determined to be past due based on how recently payments have been received and those considered uncollectible are charged
against the allowance account in the period they are deemed uncollectible.
Property and Equipment: Property and equipment
are stated at cost. Depreciation is computed using the estimated useful lives of the related assets, generally ranging from
Operating Leases Right-of-use Assets and Operating Lease Obligations: If we determine that an arrangement is or contains a lease, we recognize a right-of-use (“ROU”) asset and lease obligation at the commencement date of the lease. ROU assets represent our right to use an underlying asset for the lease term and lease obligations represent our lease payments arising from the lease. Operating lease ROU assets and obligations are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Impairment of Long-lived Assets: The Company reviews the carrying value of construction in process and property and equipment for impairment whenever events and circumstances indicate that the carrying value of the assets may not be recoverable from the estimated future cash flows expected to result from their use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of long-lived assets. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors. Useful lives are periodically evaluated to determine whether events or circumstances have occurred which indicate the need to revise the useful lives.
Income Taxes: The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets and liabilities are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.
Stock Based Compensation: The Company measures stock-based compensation expense for stock awards at the grant date, based on the fair value-based measurement of the award, and the expense is recorded over the related service period, generally the vesting period, net of estimated forfeitures. The Company calculates the fair value-based measurement of warrants using the Black-Scholes valuation model and the simplified method and recognizes expense using the straight-line attribution approach.”
| F-9 |
Estimating the fair value of share-based awards requires the input of subjective assumptions, including the estimated fair value of the Company’s common stock, the expected life of the warrants and stock price volatility. The fair value of the Company’s common stock is determined by the Board reasonably and in good faith with an independent valuation review, which requires judgmental inputs and assumptions such as cash flow projections, peer company comparisons, market data, growth rates and discount rate.
The expected term of the warrant is estimated using the contractual life as the Company has no historical information from which to develop reasonable expectations about future exercise patterns. For stock price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of warrants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected term of the option. The expected dividend yield is 0% because the Company has not historically paid, and does not expect, for the foreseeable future, to pay a dividend on its common stock.
Fair Value of Financial Instruments: The Company’s financial instruments include cash and cash equivalents, accounts receivable, investments, accounts payable, accrued expenses, convertible promissory notes and notes payable. The recorded values of these financial instruments approximate their fair values based on their short-term nature. The carrying value of long-term notes payable approximates fair value since the related rates of interest approximate market rates.
The Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 820, “Fair Value Measurements and Disclosures”. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a three-level valuation hierarchy for disclosures of fair value measurements, defined as follows:
Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3: inputs to the valuation methodology are unobservable and significant to the fair value
Cost Method Investment: Investments made by the Company are currently classified as cost method investment, or investments that do not hold any significant influence or control and do not have a readily-determinable fair value. As the investment does not have a readily-determinable fair value and as the investment is not into an investment fund, the measurement alternate approach, in accordance with ASC 321, is used to measure the fair value of the investment. The measurement alternate approach is defined as cost, less impairment, adjusted (increased or decreased) for information about fair value of the investment from observable price changes, whenever those occur.
Concentrations of Credit Risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company maintains cash deposits with financial institutions and limits the amount of credit exposure to any one financial institution. Deposits with financial institutions may on occasion exceed the federally insured limits. The Company periodically assesses the financial institutions and believes the risk of any loss is minimal.
Government Regulations: The Company is subject to federal, state and local provisions regulating the discharge of materials into the environment. Management believes that its current practices and procedures for the control and disposition of such wastes comply with applicable federal, state and local requirements.
| F-10 |
Use of Estimates: The preparation of the financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the expense for warrants issued for services (see Note I for further details on estimates used to calculate warrant expense). Actual results could differ from those estimates.
Recent Accounting Pronouncements:
Effective as of January 1, 2022, the Company early adopted the provisions of ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity). The modified retrospective adoption of the new accounting principle did not have a material effect on the Company’s financial statements. As a result of the adoption of this new accounting principle, the Company was not required to separate any embedded conversion features in the Company’s convertible debt issued subsequent to January 1, 2022.
Effective January 1, 2022, the Company adopted ASU 2021-04: Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) on a prospective basis. The new standard was issued in April 2021 with one aspect being the intent of standardizing the application of accounting for modification of warrants. The adoption of this ASU did not have material impact on the Company’s financial statements.
Effective as of January 1, 2023, the Company adopted the provisions of ASU 2016-03: Financial Instruments – Credit Losses (Topic 326). The new standard was issued in June 2016. The standard was issued with the intent of overhauling the processes of measuring credit losses on most financial assets carried at amortized costs, among others. The adoption of this standard did not have a material impact on the Company’s financial statements.
NOTE B – GOING CONCERN
The financial statements are prepared in accordance
with U.S. GAAP applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal
course of business. The Company has incurred continuous losses from operations, has an accumulated deficit of $
Since inception, operations have primarily been funded through private equity financing. Management expects to continue to seek additional funding through private or public equity sources and will seek debt financing. The Company’s ability to continue as a going concern is ultimately dependent on its ability to generate sufficient cash from operations to meet cash needs and/or to raise funds to finance ongoing operations and repay debt. There can be no assurance that the Company will be successful in these efforts. These factors, among others, indicate substantial doubt that the Company will be able to continue as a going concern for a period of one year from the filing of these financial statements. Management plans to raise additional funding through a capital raise associated with a public offering and/or additional private capital raises.
| F-11 |
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary should it be unable to continue as a going concern.
NOTE C – REVENUE AND ACCOUNTS RECEIVABLE
The Company recognizes revenue in accordance with its accounting policy. The Company invoices customers and recognizes accounts receivable in an amount equivalent to which it has an unconditional right and expects to receive aligned with the agreement with the customer. The Company has contracted payment terms with its customer of net 30 days. The Company recognized revenue from performance obligations satisfied as of a point in time and over time as disaggregated in the table below.
Timing of Revenue Recognition
| For the Year Ended | ||||||||
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Point in Time | $ | $ | ||||||
| Over Time | ||||||||
| $ | $ | |||||||
The Company earns revenues from in-building cellular
systems and network services. Revenues from the sale and installation of in-building cellular systems, including fixed wireless, SmartDAS,
and 4G LTE, totaled $
Revenues from network and other services totaled
$
Due to the Company billing service agreements in advance and recognizing revenue for service agreements over time as more fully described in its accounting policy, the Company carries a contract liability balance proportional to the time remaining on each customer agreement. The Company issues invoices to customers for completed work as performance obligations satisfied as of a point in time are fulfilled and does not carry a contract asset balance for these performance obligations.
The Company’s contracts for support services
are typically for terms of one year or less. The aggregate amount of contract performance obligation as of December 31, 2023 that the
Company expects to recognize over the next year is $
| F-12 |
The Company is under no obligation and is not in the practice of providing customers with returns, rebates, discounts, or refunds. The Company, accordingly, does not recognize these obligations at the time of revenue recognition. The Company may receive future consideration from customers who enter into support agreements. Those services are delivered as of a point in time when the customer requests the service. Future consideration as described is excluded from the transaction price calculated for support agreement performance obligations.
The Company has applied the practical expedient that permits the Company to recognize revenue without regard to significant financing components based on the Company’s expectations about the transfer of services and the receipt of payment from customers. The effect of this practical expedient is not material to the Company’s financial statements.
NOTE D – INVESTMENT IN LIMITED LIABILITY COMPANY
The Company made an investment into another company
in the amount of $
NOTE E – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Telecommunication equipment and computers | $ | $ | ||||||
| Vehicle | ||||||||
| Office furniture and fixtures | ||||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||||
| $ | $ | |||||||
Depreciation expense for the year ended December 31, 2023 and 2022
was $
| F-13 |
NOTE F – DEBT
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Notes payable to a financial institution, at 8.75% per annum, with the equipment purchased pledged as collateral and varying due dates through November 2024 | $ | $ | ||||||
| Unsecured promissory note payable to a director, of the Company, at 7% per annum, due in August 2024 | ||||||||
| Unsecured promissory note payable to the president, at 5% per annum, due in October 2024 | ||||||||
| Secured convertible promissory notes payable to various investors, at 9.5% per annum, due on December 31, 2023, converted to common stock | ||||||||
| Secured convertible promissory notes payable to various investors, at 9.5% per annum, due on December 31, 2024 | ||||||||
| Unsecured promissory note payable to a shareholder, at 9.5% per annum, due on June 30, 2024 | ||||||||
| Unsecured promissory note payable to the president of the Company, at 7% per annum, due on March 30, 2024, repaid | ||||||||
| Unsecured promissory note to a director of the Company converted into a convertible promissory note, at 9.5% per annum, due on December 31, 2023, converted to common stock | ||||||||
| Convertible promissory note payable to a shareholder and affiliate of a director of the Company, at 9.5% per annum, due on December 31, 2023, converted to common stock | ||||||||
| Unsecured convertible promissory note payable to a shareholder, at 9.5% per annum, due on December 31, 2023, converted to common stock | ||||||||
| Unsecured promissory note payable to the president of the Company, at 7% per annum, due on March 31, 2024 | ||||||||
| Unsecured promissory notes payable to a director of the Company, at 7% per annum, due on December 31, 2023, converted to common stock | ||||||||
| $ | $ | |||||||
| F-14 |
In February 2020, we issued a note in the amount
of $
In October 2021, the president of the Company
loaned the Company $
In June 2022, we commenced an offering of up to
$
In September 2022, the president of the Company
loaned the Company $
In October 2022, we entered into an exchange agreement
(the “Stuart Agreement”) with Mr. Christopher Stuart, a director of the Company, pursuant to which Mr. Stuart exchanged $
| F-15 |
In October 2022, we entered into an exchange agreement
(the “ERI Agreement”) with Eagle Rock Investments, L.L.C., a limited liability company of which a majority of the outstanding
equity is owned by Christopher Stuart, a director of the Company (“ERI”), pursuant to which ERI exchanged $
In November 2022, we borrowed $
The note was converted into common stock and common stock purchase warrants during the year ended December 31, 2023.
In November and December 2022, we borrowed a
total of $
In January 2023, the president of the Company
loaned the Company $
| F-16 |
In February 2023, we commenced an offering of
up to $25,000,000 of 9.5% secured convertible promissory notes (“2023 Notes”) pursuant to a private placement in accordance
with Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (the “2023 Offering”). The 2023 Notes together
with all accrued and unpaid interest will be payable on or before December 31, 2024 and will be secured by a perfected recorded first
priority security interest in the Company’s LPN-16 patent. If the Company’s common stock is listed on the NASDAQ Capital Markets
on or before the maturity date, the outstanding Notes will automatically be converted into shares of the Company’s common stock
at a rate equal to the price per share in the public offering. If the Notes have not otherwise been automatically converted into shares
of the Company’s common stock, the noteholders (“2023 Noteholders”) will have the option, on or before the maturity
date, to convert all or a portion of their outstanding 2023 Notes into shares of the Company’s common stock at a rate equal to $5.00
per share and, immediately upon the conversion, the converting Noteholders will be issued a number of new warrants from the Company equal
to the dollar amount of the conversion divided by $5.00 (the “2023 Warrants”). The 2023 Warrants will be exercisable until
December 31, 2024 at an exercise price equal to the greater of (i) five dollars ($5.00) or (ii) eighty-five percent (85%) of the 10-day
moving average of the Company’s public trading price if the Company’s securities are trading on a public securities trading
market. As of December 31, 2023, the Company has issued a total of $
Future minimum payments consist of the following:
| December 31, | ||||
| 2024 | $ | |||
| Total future payments | $ | |||
NOTE G – REPURCHASE AGREEMENT
In April 2020, we entered into a Repurchase and
General Release Agreement with one shareholder pursuant to which we promised to pay the amount of $200,000 due on December 31, 2020 in
exchange for shares of common stock and shares of Series B Preferred Stock (which shares automatically converted into
shares of common stock in April 2022). The agreement stated that the Company was to make $10,000 monthly installments with the balance
payable on the maturity date. The agreement contains a feature that allows the Company to extend the maturity date of the amount payable
to March 31, 2021 in the Company’s sole discretion, and if the Company exercises this option, the $10,000 monthly installments will
continue until the extended maturity date on which date the remaining balance will be due. During the quarter ended December 31, 2020,
the Company extended the maturity date under the terms of the agreement to March 2021. The Company made payments in the amount of $80,000
during the period, however, the shareholder has not properly returned the shares so they may be canceled. As the shares had not been properly
returned, the Company is not obligated, per the agreement, to pay any monies and the $80,000 was paid in good faith that the shares would
be returned. The Company is pursuing action against the shareholder to get the shares returned or get the monies paid returned. Until
such time, the $
NOTE H – LEASES
Short Term Leases
The Company leases facilities on a month to month
basis. Total lease expense related to this short term lease for the year ended December 31, 2023 and 2022, totaled $
Operating Leases
The Company leased facilities and office equipment
under various operating leases, which generally are expected to be renewed or replaced by other leases. However, all of these leases were
cancelled as of June 30, 2023. For the year ended December 31, 2023 and 2022, operating lease expense totaled $
| F-17 |
NOTE I – WARRANTS
The Company has common stock purchase warrants
outstanding at December 31, 2023 to purchase
To calculate the fair value of stock warrants at the date of grant, we use the Black-Scholes option pricing model. The volatility used is based on historical volatilities of selected peer group companies. Management estimated the fair value of the underlying common stock by utilizing the discounted cash flow method and the prior transaction method approaches and determined a fair value of $5.00. Management estimates the average volatility considering current and future expected market conditions. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Each issuance is individually valued according to this procedure as of the date of issue with maturity dates through December 31, 2024, volatility estimates between 10.87% to 35.40% and risk-free rates 4.73% to 5.60% in the period.
In January 2022, the Company issued warrants
to purchase up to
During February 2022, a total of common
stock purchase warrants were exercised by one investor for a total of shares of Wytec’s common stock at an exercise price
of $5.00 per share or a total of $
During February 2022, the Company issued
| F-18 |
In July 2022, the Company entered into a rescission
agreement (the “Rescission Agreement”) with a consultant in order to rescind and terminate that certain consulting agreement
by and between the Company and the consultant, dated October 1, 2021 (the “Consulting Agreement”). Pursuant to the Consulting
Agreement, the Company issued common stock purchase warrants to the consultant at an exercise price of $
In December 2022, the Company extended the expiration date of all warrants expiring on December 31, 2022 to December 31, 2023. Due to the modification of the warrants, the difference between the fair value of the modified warrants and the fair value of the warrants immediately before modification was recorded as warrant expense, which was only applicable to service warrants. Total incremental increase in the warrants was $ which was recorded as stock compensation expense which is included in the general and administrative expenses in the accompanying statement of operations for the year ended December 31, 2022.
During June 2023, the Company issued
During July 2023, the Company issued
During September 2023, the Company issued
During October 2023, the Company issued
common stock purchase warrants as compensation to the director of operations of the Company. The total cost of the warrants was $
During November 2023, the Company issued
During December 2023, the Company issued
During December 2023, the Company issued
During December 2023, the Company issued
During December 2023, the Company issued
| F-19 |
During December 2023, the Company issued
During December 2023, the Company issued
In December 2023, the Company extended the expiration date of all warrants expiring on December 31, 2023 to January 31, 2024. Due to the modification of the warrants, the difference between the fair value of the modified warrants and the fair value of the warrants immediately before modification was recorded as a warrant expense, which was only applicable to service warrants. Total incremental increase in the warrants was $, which was recorded as stock compensation expense and is included in the general and administrative expenses in the accompanying statement of operations for the year ended December 31, 2023.
During December 2023, Warrants,
2023 Warrants, and other common stock purchase warrants were exercised by several investors for a total of shares of Wytec’s
common stock at an exercise price of $5.00 per share or a total of $
During December 2023, a total of common stock purchase warrants were exercised by several investors for a total of shares of Wytec’s common stock on a cashless basis.
The following is a summary of activity and outstanding common stock warrants:
| # of Warrants | ||||
| Balance, December 31, 2021 | ||||
| Warrants granted | ||||
| Warrants exercised | ( | ) | ||
| Warrants expired | ( | ) | ||
| Balance, December 31, 2022 | ||||
| Warrants granted | ||||
| Warrants exercised | ( | ) | ||
| Warrants cancelled | ||||
| Balance, December 31, 2023 | ||||
| Exercisable, December 31, 2023 | ||||
As of December 31, 2023, the outstanding and exercisable warrants have a weighted average remaining term of year and year, respectively. As of December 31, 2023 and 2022, the warrants have a weighted average exercise price of $ and $, respectively.
| F-20 |
NOTE J – STOCKHOLDERS’ EQUITY
Holders of common stock are entitled to one vote per share. The common stock does not have cumulative voting rights in the election of directors. Accordingly, the holders of a majority of the outstanding shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferential rights with respect to any series of preferred stock that may be issued, holders of the common stock are entitled to receive ratably such dividends as may be declared by the board of directors on the common stock out of funds legally available therefore and, in the event of liquidation, dissolution or winding-up of affairs, are entitled to share equally and ratably in all the remaining assets and funds.
Series A preferred stock is nonvoting capital stock but may be converted into voting common stock. Each share of series A preferred stock is convertible at the option of the holder at any time after the issuance into one share of common stock, subject to adjustment from time to time in the event (i) the Company subdivides or combines its outstanding common stock into a greater or smaller number of shares, including stock splits and stock dividends; or (ii) of a reorganization or reclassification of common stock, the consolidation or merger with or into another company, the sale, conveyance or other transfer of substantially all of the Company assets to another corporation or other similar event, whereby securities or other assets are issuable or distributable to the holders of the outstanding common stock upon the occurrence of any such event; or (iii) of the issuance to the holders of Company common stock of securities convertible into, or exchangeable for, such shares of common stock.
Each outstanding share of series A preferred stock will automatically convert into one share of common stock (a) if the common stock commences public trading on the NASDAQ capital market or better, (b) if the series A preferred stockholder receives distributions from the net profits pool equal to the original purchase price paid for their registered links, or (c) five years after the date of issuance of the series A preferred stock. The Company does not have any other right to require a conversion of the series A preferred stock into common stock. The Company does not have the option to redeem outstanding shares of series A preferred stock. A holder of the series A preferred stock has no preemptive rights to subscribe for any additional shares of any class of stock or for any issue of bonds, notes or other securities convertible into any class of stock. In the event of a liquidation, dissolution or winding-up whether voluntary or otherwise, after payment of debts and other liabilities, the holders of the series A preferred stock will be entitled to receive from the remaining net assets, before any distribution to the holders of the common stock, the amount of $1.50 per share. After payment of the liquidation preference to the holders of series A preferred stock and payment of any other distributions that may be required with respect to any other series of preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock and the holders of the series A preferred stock on an as-if converted basis.
The series B preferred stock is voting capital stock. The holders of the series B preferred stock will vote on an as-converted basis with the common stock on all matters submitted to a vote of the shareholders. The holders of the series B preferred stock are not entitled to any dividends unless and until the series B preferred stock is converted into common stock. Each share of series B preferred stock is convertible at the option of the holder at any time after issuance into one share of common stock, subject to adjustment from time to time in the event (i) the Company subdivides or combines into outstanding common stock into a greater or smaller number of shares, including stock splits and stock dividends; or (ii) of a reorganization or reclassification of common stock, the consolidation or merger with or into another company, the sale, conveyance or other transfer of substantially all of the Company assets to another corporation or other similar event, whereby securities or other assets are issuable or distributable to the holders of the outstanding common stock upon the occurrence of any such event; or (iii) of the issuance by us to the holders of common stock of securities convertible into, or exchangeable for, such shares of common stock.
Each outstanding share of series B preferred stock will automatically convert into one share of common stock at a conversion rate equal to the lesser of $3.00 per share or 75% of the average closing price of the Company’s common stock as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately after the first day of public trading of common stock if common stock commences public trading on the NASDAQ capital market or better, but in any event no less than $2.50 per share or at $3.00 per share five years after the date of issuance of the series B preferred stock. In the event of a liquidation, dissolution or winding-up whether voluntary or otherwise, after payment of debts and other liabilities, the holders of the series B preferred stock will be entitled to receive from the remaining net assets, before any distribution to the holders of the common stock, and pari pasu with the payment of a liquidation preference of $1.50 per share to the holders of the series A preferred stock, the amount of $3.00 per share. After payment of the liquidation preference to the holders of the series A preferred stock and the series B preferred stock, and payment of any other distribution that may be required with respect to any other series of preferred stock, the remaining assets, if any, will be distributed ratably to the holders of the common stock, the holders of the series A preferred stock, and the holders of the series B preferred stock on an as-if converted basis.
| F-21 |
The series C preferred stock is voting capital stock. For so long as any shares of the series C preferred stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right, on or after July 20, 2016, to vote in an amount equal to 51% of the total vote (representing a super majority voting power) with respect to all matters submitted to a vote of the shareholders of Wytec. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of series C preferred stock. For example, if there are 10,000 shares of our common stock issued and outstanding at the time of such shareholder vote, the holders of the series C preferred stock, voting separately as a class, will have the right to vote an aggregate of 10,408 shares, out of a total number of 20,408 shares voting.
Additionally, the Company is prohibited from adopting any amendments to the Company’s bylaws or articles of incorporation, as amended, making any changes to the certificate of designation establishing the series C preferred stock, or effecting any reclassification of the series C preferred stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of series C preferred stock. The Company may, however, by any means authorized by law and without any vote of the holders of shares of series C preferred stock, make technical, corrective, administrative or similar changes to such certificate of designation that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of series C preferred stock.
The holders of the series C preferred stock are not entitled to any dividends. Holders of the series C preferred stock have no conversion rights. The shares of the series C preferred stock shall be automatically redeemed by us at their par value of $0.001 per share on the date that Mr. Gray ceases, for any reason, to serve as officer, director or consultant of Wytec. A holder of the series C preferred stock has no preemptive rights to subscribe for any additional shares of any class of stock of Wytec or for any issue of bonds, notes or other securities convertible into any class of stock of Wytec. The holders of the Series C preferred stock are not entitled to any liquidation preference.
In October 2022, the president of the Company entered into an agreement, as amended in November 2022, to exchange 1,000 shares of the Company’s Series C Preferred Stock owned by him for shares of the Company’s common stock. The exchange will close on the earlier of the effective date of the initial public offering of the Company’s common stock on the NASDAQ Capital Markets or October 6, 2025.
In accordance with authoritative literature the Company accounted for the exchange as a modification of the original series C certificate of designation. The Company determined there was no incremental compensation expense associated with the exchange.
During the fourth quarter of 2021, the Company
issued stock at a value of $
During the first quarter of 2022, the Company
issued a total of shares of common stock for the exercise of common stock purchase warrants at an exercise price of $5.00
per share for total proceeds of $
During the
third quarter of 2022, the Company issued shares of common stock pursuant to the Recession Agreement. The shares were valued at
$5.00 per share for a total of $
During the
third quarter of 2022, the Company issued shares of common stock in consideration for the exchange of 17 registered links which
satisfied $
Effective April 22, 2022, shares of Series A Preferred Stock were automatically converted into a total of shares of common stock in accordance with the applicable Certificate of Designation.
Effective April 22, 2022, shares of Series B Preferred Stock were automatically converted into a total of shares of common stock in accordance with the applicable Certificate of Designation.
| F-22 |
During the second quarter of 2023, the Company
converted $
During the second quarter of 2023, the Company cancelled the subscription payable shares owed pursuant to the Consulting Agreement. The subscription payable shares were originally recorded upon the signing of the Consulting Agreement, but were never issued. Subsequently, the Company entered into the Recession Agreement which rescinded and terminated the Consulting Agreement. Accordingly, the subscription payable shares have been removed.
During the third quarter of 2023, the Company
converted $
During the fourth quarter of 2023, the Company
converted $
During the fourth quarter of 2023, the Company
issued a total of shares of common stock for the exercise of Warrants, 2023 Warrants, and other common stock
purchase warrants at an exercise price of $
During December 2023, a total of common stock purchase warrants were exercised by several investors for a total of shares of Wytec’s common stock on a cashless basis.
During December 2023, the Company issued a total of shares to the Company’s directors as compensation valued at $ for current and past services performed.
NOTE K – INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows at:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Other | ||||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
The Company has net operating loss carryforwards
for tax purposes of approximately $
| F-23 |
The Company does
The federal income tax benefit expected by the application of the corporate income tax rates to pre-tax net loss differs from the actual benefit recognized due to the valuation allowance recorded for 2023 and 2022.
The U.S. Statutory Tax Rate is
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Pre-tax GAAP loss at U.S. Statutory rate | $ | ( |
) | $ | ( |
) | ||
| Change in valuation allowance | ||||||||
| Income tax expense | $ | $ | ||||||
NOTE L – RELATED PARTY TRANSACTIONS
The Company has an accounts payable balance owed
to Richardson & Associates in the amount of $
In 2021, ERI loaned the Company a total of $
In August 2023, ERI purchased $
In January 2022, the Company issued warrants
to purchase up to
In February 2020, Mr. Christopher Stuart, a director
of the Company, purchased 12.5 units, each unit consisting of $
| F-24 |
In February 2022, Mr. Stuart purchased for
$
In November and December 2022, we borrowed a
total of $
In August 2023, Mr. Stuart purchased $
In October 2021, the president of the Company
loaned the Company $
In September 2022, the president
of the Company loaned the Company $
| F-25 |
In October 2022, the president of the Company entered into an agreement, as amended in November 2022, to exchange shares of the Company’s Series C Preferred Stock owned by him for shares of the Company’s common stock. The exchange will close on the earlier of the effective date of the initial public offering of the Company’s common stock on the NASDAQ Capital Markets or October 6, 2025.
In January 2023, the president
of the Company loaned $
NOTE M – CONCENTRATIONS
The Company derived $
NOTE N – COMMITMENTS AND CONTINGENCIES
We are party to various legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceedings that management believes could have a material adverse effect on our financial statements.
The other payable of $
In October 2022, the president of the Company entered into an agreement, as amended in November 2022, to exchange 1,000 shares of the Company’s Series C Preferred Stock owned by him for shares of the Company’s common stock. The exchange will close on the earlier of the effective date of the initial public offering of the Company’s common stock on the NASDAQ Capital Markets or October 6, 2025.
See Note C in regards to commitments related to contracts with customers. See Note H in regards to commitments related to leases.
NOTE O – SUBSEQUENT EVENTS
In January 2024, Robert Cook was appointed as a director and as a member and chairman of Wytec’s audit committee.
In January 2024, the Company converted $191,515 of 2023 Notes along with $11,530 of accrued interest into a total of 40,609 shares of common stock. Additionally, 40,609 2023 Warrants were issued along with the common stock.
In January 2024, a total of 94,607 common stock purchase warrants were exercised by Mr. Christopher Stuart, a director of the Company, on a cashless basis for a total of 52,509 shares of the Company’s common stock.
In January 2024, a total of 51,875 common stock purchase warrants were exercised by ERI on a cashless basis for a total of 28,737 shares of the Company’s common stock.
| F-26 |
In January 2024, a total of 175,572 stock purchase warrants were exercised by seven investors on a cashless basis for a total of 116,508 shares of the Company’s common stock.
In January 2024, the Company issued a total of 59,504 shares of the Company’s common stock for the exercise of 5,731 Warrants, 41,200 2023 Warrants and, 12,573 other common stock purchase warrants by a total of six investors at an exercise price of $5.00 per share for total proceeds of $297,520.
In January 2024, the Company extended the expiration date of 85,784 common stock purchase warrants owned by Mr. Christopher Stuart and 71,233 common stock purchase warrants owned by ERI from January 31, 2024 to December 31, 2024.
In February 2024, the Company amended and restated that certain warrant issued to Ms. Erica Perez, the director of operations and corporate secretary of the Company, to purchase up to 25,000 shares of the Company’s common stock in order to correct the expiration date to October 11, 2026.
In February 2024, the Company amended that certain unsecured promissory in the original principal amount of $625,000, dated February 25, 2020, as amended on August 13, 2022, in order to allow the Company to extend the maturity date of this note by seven (7) additional six month periods instead of five (5) additional six month periods.
In February 2024, the Company converted $25,000 of 2023 Notes along with $1,867 of accrued interest into a total of 5,373 shares of common stock. Additionally, 5,373 2023 Warrants were issued along with the common stock, which were valued at $26,813, which was recorded as additional paid in capital.
In March 2024, the Company converted $90,000 of 2023 Notes along with $6,577 of accrued interest into a total of 19,316 shares of common stock. Additionally, 19,316 2023 Warrants were issued along with the common stock, which were valued at $14,934, which was recorded as additional paid in capital.
| F-27 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer during the year ended December 31, 2023, William Gray, and our principal financial officer during the year ended December 31, 2023, Karen Stegall, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15I under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on that evaluation, Mr. Gray and Ms. Stegall have concluded that our disclosure controls and procedures are not effective, which are discussed below in more detail, in timely alerting them to material information relating to us required to be included in our periodic SEC filings and in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting as identified below under the heading “Management’s Report on Internal Control over Financial Reporting.” Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework of 2013. Based upon this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2023 for the following reasons.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management identified the following material weaknesses:
| (1) | We had inadequate segregation of duties over both financial reporting and closing activities. | |
| (2) | We had inadequate resources in the accounting department. |
| 25 |
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
No Attestation Report by Independent Registered Accountant
The effectiveness of our internal control over financial reporting as of December 31, 2023 and December 31, 2022 have not been audited by our independent registered public accounting firm by virtue of our exemption from such requirement as a smaller reporting company.
Item 9B. Other Information.
During the three months ended December 31, 2023, no director or officer
of the Company
| 26 |
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.
The members of the board of directors of the Company will serve until the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the board of directors. Officers are elected by the board of directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the board. Information as to the directors and executive officers of the Company is as follows:
| Name | Age | Position | ||
| William H. Gray | 73 | Chairman of the Board, Chief Executive Officer, and President | ||
| Karen Stegall | 52 | Interim Chief Financial Officer | ||
| Erica Perez | 44 | Secretary and Director | ||
| Robert Cook | 77 | Director | ||
| Christopher Stuart | 71 | Director | ||
| Dr. Samuel Khoury | 69 | Director |
William H. Gray has been the chairman and chief executive officer of Wytec since November 2011, the president of Wytec since April 2020, a director of Competitive Companies, Inc., a Nevada corporation and the former parent company of Wytec (“CCI”), since November 2008, and the chief executive officer, president, and chief financial officer of CCI since February 10, 2009. Mr. Gray was the president of Wytec from November 2011 to September 2019, the chief financial officer of Wytec from November 2011 to January 2020, the interim chief financial officer from May 2021 to January 2022, and the corporate secretary of Wytec from November 2011 to April 2014 and again from November 2015 to February 2019. Mr. Gray was the secretary of CCI from February 2009 to April 2014 and again since July 2015. Mr. Gray has over 19 years of experience in the planning, development, and implementation of wide area networks in both wired and wireless configurations. As the president and chief executive officer of Wireless Wisconsin, LLC, a wholly owned subsidiary of CCI, he developed one of the state’s first ISPs to enter into the internet industry by forming and developing a statewide telecommunications network in the state of Wisconsin starting in 1995. Wireless Wisconsin, LLC later became one of the first ISPs to become a competitive local exchange carrier in the state of Wisconsin.
Karen Stegall has been the interim chief financial officer of Wytec since January 2022 and was a staff accountant with Wytec from July 2021. Prior to joining Wytec, Ms. Stegall was the accounting manager for LBJ Fleet Services Inc., a heavy haul trucking company, from October 2016 to June 2021. From December 2012 to April 2016, she was the accounting manager and office manager for Bennett Building Systems, a general contractor commercial construction company. From January 2011 to December 2012, she was an auditor and sales associate with Greenwood & Sons. From February 2003 to December 2009, Ms. Stegall was the accounting manager for CMAC Inc., M2 Corporation, Applied Technical Resources, and Interlink Logistics Technologies Inc. in Alpharetta, Georgia. From August 2002 to January 2003, she was the office manager, bookkeeper, and purchaser for Bridges Grading and Hauling in Canton, Georgia. From May 2001 to August 2002, Ms. Stegall was the controller of Gate Savers of Atlanta in Kennesaw, Georgia. From April 1989 to September 1996, Ms. Stegall served in the United States Navy as a data processor for military intelligence. From September 1994 until her honorable discharge in September 1996, she was a petty officer 3rd class (DP3).
Erica Perez has been the corporate secretary of Wytec since September 2021 and a director of Wytec since November 2021. She has also been the director of operations of Wytec since January 2020 and was the technical systems administrator from January 2014 to January 2020. From 2005 to 2014, Ms. Perez worked for Present Carpet Supply Co. in various positions, including business manager, installations manager, and administrative assistant. Ms. Perez earned an Associate of Applied Science degree in wide area telecommunications from Victoria College in 2003.
| 27 |
Robert Cook has been a director of Wytec since January 2024 and was a director and member and chairman of the Audit Committee of Wytec from January 2022 to March 2023. He has over 30 years of executive management experience in a variety of industries. Since May 2020, Mr. Cook has worked as an independent consultant. From 2015 until May 2020, he served as the chief executive officer and chief financial officer of Tecomate Holdings, LLC, a wildlife product and TV production company. From 2013 to 2014, Mr. Cook served as the president and chief financial officer of Solid Green Holdings, a product development and construction firm, in Austin, Texas. From 2011 to 2013, he served as senior director, strategy & implementation at Goodman Networks, in Plano, Texas, a project management and construction company. From 2008 to 2011, he served as senior controls manager for South Texas at Goodman Networks, in San Antonio, Texas. From 2005 to 2007, Mr. Cook served as the president of RCI Consulting in San Antonio, Texas. From 2006 to 2007, he served as the chief financial officer of Conner Steel Products, Ltd, in San Angelo, Texas, an oil and gas equipment manufacturer, where he was responsible for accounting and finance, planning, budgeting, cash management and mergers and acquisitions. From 2002 to 2005, he served as the president and chief executive officer of Amerivision Communications, Inc., a telecom provider, Oklahoma City, Oklahoma. Mr. Cook has also been the chief executive officer of US Intelco Holdings, Inc. (now Verisign), a telecom service company, in Olympia, Washington; the president and chief executive officer of Sevis Systems, a software development company, in San Antonio, Texas; president, chief financial officer, and chief operating officer of Interstellar Telecom in New Braunfels, Texas; vice president, general manager and vice president of business development & government relations for ICG Communications in San Antonio, Texas; and vice president of revenue and chief operating officer of SM Telecorp, a telecom provider, in San Marcos, Texas. Mr. Cook has also served on numerous boards of directors, including; chairman of Sevis Systems (from 1998 to 2020); director of Tecomate Holdings (from 2015 to 2020); director of Interstellar Telecom (from 2001 to 2002); chairman of US Intelco Holdings (from 1990 to 1995); vice chairman of IT Networks (from 1992 to 1995); director of the National Exchange Carrier Association (from 1987 to 1992); chairman of the Texas Exchange Carrier Association (from 1990 to 1992); and director of Alamo City Technologies (from 1990 to 1991). He was also an advisory board member of Zyant Technology (from 2004 to 2005). Mr. Cook received a Bachelor of Business Administration in accounting and finance from Angelo State University in 1974, a Master of Business Administration in management from Angelo State University in 1976, and a Master of Business Administration in accounting from Angelo State University in 1976.
Christopher Stuart has been a director of Wytec since December 2021. He began his career in the construction industry at Buquet & Leblanc in 1977, where he went on to become an owner of the company in 1986 until 2003. In 2003, Mr. Stuart founded Stuart & Company, a contracting firm, of which he was the chief executive officer until 2018. In 2007, he co-founded Louisiana Rooming Contractor, which he sold to his business partner in 2017. Since 2018, Mr. Stuart has been a consultant in the construction industry in Louisiana and in 2019, he founded Eagle Rock Investments, L.L.C. Mr. Stuart earned his Bachelor of Science degree in construction engineering from Louisiana State University in 1974. In 1975, he received his second lieutenant commission in the U.S. Army. Mr. Stuart served two years active duty and 12 years active reserve in the U.S. Army and in 1989 was honorably discharged as a Captain.
Dr. Samuel Khoury has been a director of Wytec since December 2021. He specializes in the valuations of advanced and novel technologies in several industries and has been the president of Inavisis, Inc., a company he also founded, since 1999. Inavisis is a company that leverages intellectual property. From 1998 to 1999, he was the president of Consor, a consulting firm specializing in valuation of trademarks and technology. From 1982 to 1998, Dr. Khoury was an intellectual asset manager at the Dow Chemical Company. Dr. Khoury received a Master of Business Administration from University of Wisconsin, Milwaukee in 1985, a doctorate in polymer chemistry from Worcester Polytechnic Institute, Massachusetts in 1982, a Master of Science in chemistry from Fort Hays State University in 1977, and a Bachelor of Science in Chemistry from American University of Beirut, Lebanon in 1975.
No officer or director is required to make any specific amount or percentage of his business time available to us. Each of our officers intends to devote such amount of his or her time to our affairs as is required or deemed appropriate by us.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the board of directors following the next annual meeting of stockholders and until their successors have been elected and qualified.
| 28 |
Involvement in Certain Legal Proceedings
To our knowledge, during the last ten years, none of our directors, executive officers, promoters or control persons have:
| · | had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| · | been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses; | |
| · | been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; | |
| · | been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated; and | |
| · | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Limitation of Liability and Indemnification of Officers and Directors
Under Nevada General Corporation Law and our articles of incorporation, our directors will have no personal liability to us or our stockholders for monetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care.” This provision does not apply to the directors’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.
The effect of this provision in our articles of incorporation is to eliminate the rights of Wytec and our stockholders (through stockholder’s derivative suits on behalf of Wytec) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (vi) above. This provision does not limit nor eliminate the rights of Wytec or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director’s duty of care. In addition, our Articles of Incorporation provide that if Nevada law is amended to authorize the future elimination or limitation of the liability of a director, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the law, as amended. Nevada General Corporation Law grants corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law. Our bylaws provide for indemnification of such persons to the full extent allowable under applicable law. These provisions will not alter the liability of the directors under federal securities laws.
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We intend to enter into agreements to indemnify our directors and officers, in addition to the indemnification provided for in our bylaws. These agreements, among other things, indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines, and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of Wytec, arising out of such person’s services as a director or officer of Wytec, any subsidiary of Wytec or any other company or enterprise to which the person provides services at the request of Wytec. We believe that these provisions and agreements are necessary to attract and retain qualified directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Wytec pursuant to the foregoing provisions, Wytec has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Board Committees
The board of directors (the “Board”) has analyzed the independence of each director and has concluded that currently three directors, Christopher Stuart, Dr. Sam Khoury, and Robert Cook, are considered independent directors in accordance with the director independence standards of the Financial Industry Regulatory Authority (“FINRA”) the NYSE Amex Equities or the NASDAQ Capital Market.
The Board has three standing committees: Audit, Compensation, and Corporate Governance/Nominating. The membership of each of the committees of the Board is comprised of independent directors, with each of the committees having a chairman, each of whom is an independent director. Our non-management members of the Board will meet in executive session at each regular Board meeting. The charter of each committee will be available on our website at www.wytecintl.com.
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. Management is responsible for the day-to-day management of the risks we face, while the Board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board is responsible for satisfying itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
Our Board has discretion to determine whether to separate or combine the roles of chairman of the Board and chief executive officer. Mr. Gray has served in both roles since 2011, and our Board continues to believe that his combined role is most advantageous to the Company and its stockholders.
In addition to Mr. Gray’s leadership, the Board maintains effective independent oversight through a number of governance practices, including, establishing the right “tone at the top” and full and open communication between executive management and the Board. Mr. Gray communicates frequently with members of the Board to discuss strategy and challenges facing our company. Each quarter, the Board receives presentations from senior management on matters involving our key areas of operations.
Audit Committee
We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Audit Committee’s responsibilities include, among other things: (i) selecting and retaining an independent registered public accounting firm to act as our independent auditors, setting the compensation for our independent auditors, overseeing the work done by our independent auditors and terminating our independent auditors, if necessary, (ii) periodically evaluating the qualifications, performance and independence of our independent auditors, (iii) pre-approving all auditing and permitted non-audit services to be provided by our independent auditors, (iv) reviewing with management and our independent auditors our annual audited financial statements and our quarterly reports prior to filing such reports with the Securities and Exchange Commission, or the SEC, including the results of our independent auditors’ review of our quarterly financial statements, and (v) reviewing with management and our independent auditors significant financial reporting issues and judgments made in connection with the preparation of our financial statements. The Audit Committee also prepares the Audit Committee report that is required to be included in our annual proxy statement pursuant to the rules of the SEC. Our Audit Committee consists of three members. The chairman of the Audit Committee is Robert Cook and Christopher Stuart and Dr. Samuel Khoury are members of the Audit Committee.
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Compensation Committee
We have a separately designated Compensation Committee. The purpose of the Compensation Committee is to discharge the Board’s responsibilities relating to compensation of our directors and executive officers. The Compensation Committee has responsibility for, among other things, (i) recommending to the Board for approval the overall compensation philosophy for our company and periodically reviewing the overall compensation philosophy for all employees to ensure it is appropriate and does not incentivize unnecessary and excessive risk taking, (ii) reviewing annually and making recommendations to the Board for approval, as necessary or appropriate, with respect to our compensation plans, (iii) based on an annual review, determining and approving, or at the discretion of the Compensation Committee, recommending to the Board for determination and approval, the compensation and other terms of employment of each of our officers, (iv) reviewing and making recommendations to the Board with respect to the compensation of directors, (v) overseeing our regulatory compliance with respect to compensation matters, (vi) reviewing and discussing with management, prior to the filing of our annual proxy statement or annual report on Form 10-K, our disclosure relating to executive compensation, including our Compensation Discussion and Analysis and executive and director compensation tables as required by SEC rules, and (vii) preparing an annual report regarding executive compensation for inclusion in our annual proxy statement or our annual report on Form 10-K. The Compensation Committee has the power to form one or more subcommittees, each of which may take such actions as may be delegated by the Compensation Committee.
We have adopted a compensation committee charter, which grants the Compensation Committee authority to select, retain, compensate, oversee and terminate any compensation consultant to be used to assist in the evaluation of director, chief executive officer, officer and our other compensation and benefit plans and to approve the compensation consultant’s fees and other retention terms. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any internal or external legal, accounting or other advisors and consultants retained by the Compensation Committee. The Compensation Committee may also select or retain advice and assistance from an internal or external legal, accounting or other advisor as the Compensation Committee determines to be necessary or advisable in connection with the discharge of its duties and responsibilities and will have the direct responsibility to appoint, compensate and oversee any such advisor.
Our Compensation Committee currently consists of two members. The chairman of the Compensation Committee is Christopher Stuart and Dr. Samuel Khoury is a member of the Compensation Committee. The Board has determined that all of the members are “independent” under Nasdaq Listing Rule 5602(a)(2).
Corporate Governance/Nominating Committee
The Corporate Governance/Nominating Committee has responsibility for assisting the Board in, among other things, (i) effecting Board organization, membership and function, including identifying qualified board nominees, (ii) effecting the organization, membership and function of the committees of the Board, including the composition of the committees of the Board and recommending qualified candidates for the committees of the Board, (iii) evaluating and providing successor planning for the chief executive officer and our other executive officers, (iv) identifying and evaluating candidates for director in accordance with certain general and specific criteria, (v) developing and recommending to the Board Corporate Governance Guidelines and any changes thereto, setting forth the corporate governance principles applicable to us, and overseeing compliance with the our Corporate Governance Guidelines, and (vi) reviewing potential conflicts of interest involving directors and determining whether such directors may vote on issues as to which there may be a conflict. The Corporate Governance/Nominating Committee is responsible for identifying and evaluating candidates for director. Potential nominees are identified by the Board based on the criteria, skills and qualifications that are deemed appropriate by the Corporate Governance/Nominating Committee. The Corporate Governance/Nominating Committee believes that candidates for director should have certain minimum qualifications, including high character and integrity, an inquiring mind and vision, willingness to ask hard questions, ability to work well with others, freedom from conflicts of interest, willingness to devote sufficient time to the Company’s affairs, diligence in fulfilling his or her responsibilities and the capacity and desire to represent the best interests of the Company and our stockholders as a whole and not primarily a special interest group or constituency. While our nominating criteria does not prescribe specific diversity standards, the Corporate Governance/Nominating Committee and its independent members seek to identify nominees that have a variety of perspectives, professional experience, education, difference in viewpoints and skills, and personal qualities that will result in a well-rounded Board. We have adopted a corporate governance/nominating committee charter which following the consummation of this offering will be posted on our investor website.
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The Corporate Governance/Nominating Committee currently consists of two members. Dr. Samuel Khoury is the chairman of the Corporate Governance/Nominating Committee and Christopher Stuart is a member of the Corporate Governance/Nominating Committee. The Board has determined that all of the members are “independent” under Nasdaq Listing Rule 5605(a)(2).
The Board or management has not established any specific minimum qualifications that a candidate for director must meet in order to be recommended for board membership. Rather, the Board or management will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the Board’s current expectations with respect to each such criterion and decide regarding whether a candidate should be recommended to the stockholders for election as a director. During 2023, the Company received no recommendation for directors from its stockholders.
Report of the Audit Committee
Our Board’s Audit Committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2023 with senior management. The Audit Committee has also discussed with Horne LLP our independent auditor, the matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (“PCAOB”) and received the written disclosures and the letter from Horne LLP required by the applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with the Board’s Audit Committee concerning independence and have discussed with the independent registered public accounting firm its independence.
| THE FULL BOARD OF DIRECTORS | THE AUDIT COMMITTEE |
| William H. Gray | Robert Cook, Chairman |
| Erica Perez | Christopher Stuart |
| Robert Cook | Dr. Samuel Khoury |
| Christopher Stuart | |
| Dr. Samuel Khoury |
Notwithstanding anything to the contrary set forth in any of our previous or future filings under the United States Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that might incorporate this report in future filings with the SEC, in whole or in part, the foregoing report shall not be deemed to be incorporated by reference into any such filing.
Code of Conduct
We have adopted a code of conduct that applies to all of our directors, officers, and employees. The text of the code of conduct has been posted on our internet website and can be viewed at www.wytecintl.com. Any waiver of the provisions of the Code of Conduct for executive officers and directors may be made only by the Audit Committee and, in the case of a waiver for members of the Audit Committee, by the Board. Any such waivers will be promptly disclosed to our shareholders.
Item 11. Executive Compensation.
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis describes the material elements of compensation for the executive officers identified in the Summary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future.
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Processes and Procedures for Compensation Decisions
Our compensation committee is responsible for the executive compensation programs for our executive officers and reports to the Board on its discussions, decisions, and other actions. Our chief executive officer makes recommendations to our compensation committee, attends committee meetings, and is involved in the determination of compensation for the respective executive officers that report to him, except that our chief executive officer does not make recommendations as to his own compensation. Additionally, our chief executive officer makes recommendations to our compensation committee regarding short- and long-term compensation for all executive officers (other than himself) based on our results, an individual executive officer’s contribution toward these results, and performance toward individual goal achievement. Our compensation committee then reviews the recommendations and other data and makes decisions as to total compensation for each executive officer other than the chief executive officer, as well as each individual compensation component. Our compensation committee makes recommendations to the Board regarding compensation for our chief executive officer. The independent members of the Board make the final decisions regarding executive compensation for our chief executive officer.
The compensation committee is authorized to retain the services of one or more executive compensation advisors, as it sees fit, in connection with the establishment of our compensation programs and related policies.
Compensation Program Objectives and Rewards
Our compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, working toward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following this philosophy, in determining executive compensation, we consider all relevant factors, such as the competition for talent, our desire to link pay with performance in the future, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork and performance, and each executive’s total compensation package. We strive to accomplish these objectives by compensating all executives with total compensation packages consisting of a combination of competitive base salary and, once we grow more and increase our staff, incentive compensation. Because of our small size and staff to date, we have not yet adopted a management equity incentive plan, nor have we yet used equity incentives as part of our management compensation policy.
While we have not hired at the executive level significantly since inception because our business has not grown sufficiently to justify increasing staff, we expect to grow and hire in the future. The majority of our Named Executive Officers have been with us for many years and their compensation has basically been static, based primarily on levels at which we can afford to retain them, and their responsibilities and individual contributions. To date, we have not applied a formal compensation program to determine the compensation of the Named Executives. In the future, as we and our management team expand, we expect that our compensation committee will adopt a management equity incentive plan that will apply the compensation philosophy and policies described in this section.
The primary purpose of the compensation and benefits described below is to attract, retain and motivate highly talented individuals when we do hire, who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitive marketplace. Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each Named Executive Officer are subject to the annual review of the Board. The following is a brief description of the key elements of our planned executive compensation structure.
| · | Base salary and benefits are designed to attract and retain employees over time. | |
| · | Incentive compensation awards are designed to focus employees on the business objectives for a particular year. | |
| · | Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’ control that they believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of several years, growth in our profitability and other elements. | |
| · | Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as it competes for talented employees in a marketplace where such protections are commonly offered. We currently have not given separation benefits to any of our Name Executive Officers. |
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Benchmarking
We have not yet adopted benchmarking but may do so in the future. When making compensation decisions, our board of directors may compare each element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includes both publicly traded and privately-held companies. Our Board believes that while such peer group benchmarks are a point of reference for measurement, they are not necessarily a determining factor in setting executive compensation as each executive officer’s compensation relative to the benchmark varies based on scope of responsibility and time in the position. We have not yet formally established our peer group for this purpose.
The Elements of Wytec’s Compensation Program
Base Salary
Executive officer base salaries are based on job responsibilities and individual contribution. Our Board reviews the base salaries of our executive officers, including our Named Executive Officers, considering factors such as corporate progress toward achieving objectives (without reference to any specific performance-related targets) and individual performance experience and expertise. None of our Named Executive Officers have employment agreements with us. Additional factors reviewed by the Board in determining appropriate base salary levels and raises include subjective factors related to corporate and individual performance.
Incentive Compensation Awards
Although our executive officers have been paid bonuses on a case-by-case basis, our Board has not yet established a formal compensation policy for the determination of bonuses. If our revenue grows and bonuses become affordable and justifiable, we expect to use the following parameters in justifying and quantifying bonuses for our Named Executive Officers and other officers of Wytec: (1) the growth in our revenue, (2) the growth in our earnings before interest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price. Our Board has not adopted specific performance goals and target bonus amounts for any of its fiscal years, but may do so in the future.
Equity Incentive Awards
Our Board has not yet adopted a management equity incentive plan and no stock options or other equity incentive awards have yet been made to any of our Named Executives or other officers or employees of Wytec other than a limited number of stock issuances made to two Named Executive and seven other employees of Wytec on December 20, 2020 and a warrant issuance made to one Named Executive in October 2023 which were not issued pursuant to a formal plan. As stated previously, in the future we plan to adopt a formal management equity incentive plan pursuant to which we plan to grant stock options and make restricted stock awards to members of management, which would not be assignable during the executive’s life, except for certain gifts to family members or trusts that benefit family members. These equity incentive awards, we believe, would motivate our employees to work to improve our business and stock price performance, thereby further linking the interests of our senior management and our stockholders. The Board will consider several factors in determining whether awards are granted to an executive officer, including those previously described, as well as the executive’s position, his or her performance and responsibilities, and the number of options or other awards, if any, currently held by the officer and their vesting schedule. Our policy will prohibit backdating options or granting them retroactively.
Benefits and Prerequisites
At this stage of our business, we have limited benefits and no prerequisites for our employees other than health, dental, and life insurance, sick pay, and vacation benefits that are generally comparable to those offered by other small private and public companies or as may be required by applicable state employment laws. We recently established a 401(k) Plan for our Named Executive Officers and other employees. Under the 401(k) Plan, participating U.S. employees may defer a portion of their pre-tax earnings, up to the IRS annual contribution limit ($19,500 for calendar year 2022). We do not match employee contributions.
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Separation and Change in Control Arrangements
We do not have any employment agreements with our Named Executive Officers or any other executive officer or employee of Wytec. None of them are eligible for specific benefits or payments if their employment or engagement terminates in a separation or if there is a change of control.
Our Anticipated Compensation Program
We are currently in the process of determining the compensation programs we anticipate implementing for our senior executives, including our Named Executive Officers.
Executive Officer Compensation
The following table summarizes compensation paid or accrued by us for the years ended December 31, 2022 and December 31, 2023 for services rendered in all capacities by our chief executive officer and our other most highly compensated executive officers during the fiscal years ended December 31, 2022 and December 31, 2023.
| Name and Principal Position (1) | Year | Salary | Bonus | Stock Awards | Option/ Warrant Awards ($) | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All Other Compensation | Total | ||||||||||||||||||||
| William H, Gray, | 2022 | $ | 275,000 | $ | – | $ | – | – | $ | – | $ | – | $ | – | $ | 275,000 | |||||||||||||
| Chief Executive Officer and (4) President (2) | 2023 | $ | 275,000 | $ | 1,000 | $ | 910,802 | (7) | – | $ | – | $ | – | $ | – | $ | 1,186,802 | ||||||||||||
| Erica Perez, | 2022 | $ | 97,000 | $ | – | $ | – | – | $ | – | $ | – | $ | – | $ | 97,000 | |||||||||||||
| Corporate Secretary (5)(6) | 2023 | $ | 97,000 | $ | 1,000 | $ | 171,807 | (7) | 60,196 | (7) | $ | – | $ | – | $ | – | $ | 330,003 | |||||||||||
| Karen Stegall, | 2022 | $ | 75,000 | $ | – | $ | – | – | $ | – | $ | – | $ | – | $ | 75,000 | |||||||||||||
| Interim Chief Financial Officer (3) | 2023 | $ | 75,000 | $ | 1,000 | $ | – | – | $ | – | $ | – | $ | – | $ | 76,000 | |||||||||||||
_____________
| (1) | All current officers serve at will without employment contracts. |
| (2) | Mr. Gray stepped down as the interim chief financial officer of Wytec on January 7, 2022. |
| (3) | Ms. Stegall was appointed as the interim chief financial officer of the Company, effective January 7, 2022. |
| (4) | Mr. Gray received 178,410 shares of the Company’s common stock for his services as a director of the Company from November 8, 2011 to September 30, 2023 and 1,673 shares of Company’s common stock for his services as a director of the Company from October 1, 2023 to December 31, 2023. |
| (5) | Ms. Perez received 30,661 shares of the Company’s common stock for her services as a director of the Company from September 15, 2021 to September 30, 2023 and 1,673 shares of Company’s common stock for her services as a director of the Company from October 1, 2023 to December 31, 2023. |
| (6) | In consideration for her services as the director of operations of the Company, Ms. Perez received 25,000 common stock purchase warrants with an exercise price of $5.00 per share exercisable on a cash or cashless basis until October 11, 2026. |
| (7) | This represents the fair value of the award as of the grant date in accordance with FASB ASC Topic 718. |
Employment Agreements
We have not entered into any employment agreements with our executive officers to date, and do not intend to enter into employment agreements with them at this time.
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Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the total outstanding incentive equity awards as of December 31, 2023, for each named executive officer:
| Name | Number of Securities Underlying Unexercised Options/Warrants - Number Exercisable |
Number of Underlying Unexercised Securities Options/Warrants - Number Unexercisable |
Option/Warrant exercise price ($) |
Option/Warrant expiration date | ||||||||||
| William H. Gray, Chief Executive Officer and President | 2,000,000 (1) | — | $1.00 | December 31, 2025 | ||||||||||
| Erica Perez, Corporate Secretary | 25,000 (2) | — | $5.00 | October 11, 2026 | ||||||||||
| Karen Stegall, Interim Chief Financial Officer | — | — | — | — | ||||||||||
_____________
| (1) | On September 21, 2028, Mr. Gray received 2,000,000 common stock purchase warrants with an exercise price of $1.00 per share exercisable on a cash or cashless basis until December 31, 2025. |
| (2) | On October 11, 2023, Ms. Perez received 25,000 common stock purchase warrants with an exercise price of $5.00 per share exercisable on a cash or cashless basis until October 11, 2026. |
Option Exercises and Stock Vested
None of our executive officers exercised any stock options or acquired stock through vesting of an equity award during the fiscal year ended December 31, 2023.
Employee Benefit Plans
We have not yet, but may in the future, establish a management equity incentive plan pursuant to which stock options and restricted stock awards may be authorized and granted to the executive officers, directors, employees, and key consultants of Wytec. In the event we establish the equity incentive plan, we expect to authorize approximately 10,000,000 shares or more for future issuance.
Director Compensation
In November 2023, the Board adopted a compensation plan for the directors of the Company pursuant to which each quarter, commencing for the fourth quarter of 2023, each director will receive $18,750 of shares of the Company’s common stock in consideration for such director’s valuable services as a director of the Company (i) based on the most recent valuation report received by the Company for its common stock if the Company’s common stock is not quoted on the NASDAQ Capital Market or equivalent or higher public securities trading market (each a “Trading Market”) during the applicable quarter or (ii) based on the average closing price that is quoted on a Trading Market (if more than one, the one with the then highest trading volume) during the applicable quarter if the Company’s common stock is quoted on a Trading Market at any time during applicable quarter.
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The following table sets forth the compensation our non-executive directors received for their respective services rendered to us as directors during the year ended December 31, 2023.
None of our directors received any compensation for their respective services rendered to us as directors during the year ended December 31, 2022.
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Option Awards ($)(1) | All Other Compensation ($) | Total ($) | |||||||||||||||
| Christopher Stuart (2) | – | $ | 150,204 | – | – | $ | 150,204 | |||||||||||||
| Sam Khoury (3) | – | $ | 150,204 | – | – | $ | 150,204 | |||||||||||||
| Mark J. Richardson (4) | – | – | – | – | – | |||||||||||||||
| Gary Stein (5) | – | – | – | – | – | |||||||||||||||
_____________
| (1) | This represents the fair value of the award as of the grant date in accordance with FASB ASC Topic 718. |
| (2) | Mr. Stuart received 26,291 shares of the Company’s common stock for his services as a director of the Company from December 31, 2021 to September 30, 2023 and 1,673 shares of Company’s common stock for his services as a director of the Company from October 1, 2023 to December 31, 2023. |
| (3) | Dr. Khoury received 26,291 shares of the Company’s common stock for his services as a director of the Company from December 31, 2021 to September 30, 2023 and 1,673 shares of Company’s common stock for his services as a director of the Company from October 1, 2023 to December 31, 2023. |
| (4) | Mr. Richardson resigned as a director of the Company on November 6, 2023. |
| (5) | Mr. Stein resigned as a director of the Company on December 20, 2023. |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table presents information, to the best of our knowledge, about the beneficial ownership of our common stock on January 31, 2024, held by those persons known to beneficially own more than 5% of our capital stock and by our directors and executive officers. The percentage of beneficial ownership for the following table is based on 13,560,422 shares of common stock outstanding as of January 31, 2024.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes (unless footnoted) shares of common stock that the stockholder has a right to acquire within 60 days after January 31, 2024, through the exercise of any option, warrant, or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.
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| Name of Officer, Director or Shareholder (1) | Number of Common Shares | Percent Beneficially Owned (2) | ||||||
| William Gray, Chairman, Chief Executive Officer, and President (3) | 2,190,197 | 14.08% | ||||||
| Erica Perez, Secretary and Director (4) | 61,694 | * | ||||||
| Mark J. Richardson, Former Director (5) | 0 | 0 | ||||||
| Gary Stein, Former Director (6) | 0 | 0 | ||||||
| Robert Cook, Director (7) | 0 | 0 | ||||||
| Christopher Stuart, Director (8) | 877,187 | 6.37% | ||||||
| Sam Khoury, Director | 27,964 | * | ||||||
| Karen Stegall, interim Chief Financial Officer | 0 | 0 | ||||||
| All Officers and Directors as a Group (8 persons) | 3,157,042 | 19.98% | ||||||
_____________
*Beneficial ownership of less than one percent.
| (1) | As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). The address of each person is in the care of the Company. |
| (2) | Figures are rounded to the nearest hundredth of a percent. |
| (3) | Includes 2,000,000 common stock purchase warrants owned by Mr. Gray which are exercisable at an exercise price of $1.00 per share until December 31, 2025. Does not include 1,000 shares of our Series C Preferred Stock issued to Mr. Gray on July 20, 2016. The shares were issued as $100 in compensation expense. The Series C Preferred Stock has a par value of $0.001 and the equivalent of 51% of the shareholder votes. The Series C Preferred Stock is not convertible into the Company’s common stock and has no rights to dividends and virtually no rights to liquidation preference. The liquidation preference of each share of the Series C Preferred Stock is its par value. |
| (4) | Includes 25,000 common stock purchase warrants owned by Ms. Perez which are exercisable at an exercise price of $5.00 per share until October 11, 2026. |
| (5) | Mr. Richardson resigned as a director of Wytec, effective November 6, 2023. |
| (6) | Mr. Stein resigned as a director of Wytec, effective December 29, 2023. |
| (7) | Mr. Cook was appointed as a director of Wytec, effective January 4, 2024. |
| (8) | Includes 213,748 shares of common stock owned by Eagle Rock Investments, L.L.C., a limited liability company of which Mr. Stuart owns a majority of the outstanding equity (“ERI”). Includes 17,500 common stock purchase warrants owned by Mr. Stuart which are exercisable on a cash or cashless basis at an exercise price of $5.00 per share until December 31, 2024; 85,784 common stock purchase warrants owned by Mr. Stuart which are exercisable at any time until December 31, 2024 at an exercise price per share of $5.00 per share, provided, that ten (10) days after the common stock of the Company commences trading on the NASDAQ Capital Market or equivalent or higher public securities trading market (the “Measurement Date”), the amount per share payable to exercise the Warrants will thereafter be the greater of (i) $5.00 or (ii) 85% of the average closing price that is quoted on said trading market (if more than one, the one with the then highest trading volume), during the ten (10) consecutive trading days immediately prior to the Measurement Date (the “Adjustable Strike Price”); 20,640 common stock purchase warrants owned by Mr. Stuart which are exercisable at any time until December 31, 2024 at an exercise price per share of $5.00 or the Adjustable Strike Price; 71,233 common stock purchase warrants owned by ERI which are exercisable at any time until January 31, 2024 at an exercise price per share of $5.00 per share or the Adjustable Strike Price; and 20,640 common stock purchase warrants owned by ERI which are exercisable at any time until December 31, 2024 at an exercise price per share of $5.00 per share or the Adjustable Strike Price. |
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Item 13. Certain Relationships and Related Transactions, and Director Independence.
The Board has analyzed the independence of each director and has concluded that currently three directors, Christopher Stuart, Dr. Sam Khoury, and Gary Stein, are considered independent directors in accordance with the director independence standards of the Financial Industry Regulatory Authority (“FINRA”) the NYSE Amex Equities or the NASDAQ Capital Market.
The Company has an accounts payable balance owed to Richardson & Associates in the amount of $253,771 as of December 31, 2023, and $238,484 as of December 31, 2022. The Company incurred expense of $15,287.45 and $62,060 with Richardson & Associates as of the year ended December 31, 2023 and 2022, respectively. Mark Richardson is the owner of Richardson & Associates and he was a director of Wytec International, Inc. from September 2019 to November 2023.
In 2021, ERI loaned the Company a total of $250,000 and made a line of credit in the amount of $250,000 available to the Company until December 31, 2022. In June 2022, ERI loaned the Company an additional $50,000 pursuant an unsecured promissory note. In October 2022, we entered into the ERI Agreement with ERI, pursuant to which ERI exchanged the two above referenced promissory notes ($300,000 principal and $20,242 accrued but unpaid interest) for a convertible promissory note in the principal amount of $320,242. The line of credit also expired with no amounts drawn upon it. This convertible promissory note, along with associated accrued interest, was converted into shares of common stock and common stock purchase warrants during the year ended December 31, 2023 for a total of 71,233 shares and 71,233 warrants.
In January 2022, the Company issued 40,000 warrants to purchase up to 40,000 shares of Wytec’s common stock on a cash or cashless basis to ERI in consideration for making the $250,000 line of credit available to Wytec. These warrants were exercised on a cashless basis for 22,159 shares of the Company’s common stock in January 2024.
In August 2023, ERI purchased $100,000 of 9.5% secured convertible promissory notes pursuant to the Company’s 2023 private placement of up $25,000,000 of 9.5% secured convertible promissory notes. This note, along with associated accrued interest, was converted into shares of common stock and common stock purchase warrant during the year ended December 31, 2023 for a total of 20,640 shares and 20,640 warrants.
In February 2020, Christopher Stuart, a director of the Company, purchased 12.5 units, each unit consisting of $50,000 7% promissory notes and five thousand common stock purchase warrants pursuant to a prior private placement made by the Company. The accrued interest on the 7% promissory note was credited to ERI and converted into units every six months at the conversion rate of $5.00 per unit, each unit consisting of one share of common stock and one common stock purchase warrant, pursuant to the Company’s prior private placement of units or a total of 13,125 units through August 31, 2021. In December 2021, ERI exercised 8,750 of these common stock purchase warrants at an exercise price of $5.00 per share or a total $43,750 for 8,750 shares of the Company’s common stock. The note, as amended, contains a feature that allows the Company to extend the maturity date up to six months, seven times, in the Company’s sole discretion. The Company has exercised six extensions extending the maturity date of the note to August 13, 2024. In January 2024, Mr. Stuart exercised the warrants he received in February 2020 as part of the prior private placement on a cashless basis for 34,623 shares of the Company’s common stock.
In February 2022, Mr. Stuart purchased for $175,000 the unit, consisting of a $175,000 7% promissory note with a maturity date of August 31, 2023 and 17,500 common stock purchase warrants exercisable on a cash or cashless basis until December 31, 2024 at an exercise price of $5.00 per share, offered by the Company in its private placement pursuant to Rule 506(b) of Regulation D promulgated under Section 4(a)(2) of the Securities Act of 1933, as amended, commenced by the Company in February 2022. The Unit In April 2022, Mr. Stuart loaned the Company $100,000 pursuant to an unsecured promissory note and, in September 2022, Mr. Stuart loaned the Company an additional $100,000 pursuant to an unsecured promissory note. In October 2022, we entered into the Stuart Agreement with Mr. Stuart pursuant to which Mr. Stuart exchanged the three above referenced promissory notes ($375,000 principal and $10,658 accrued but unpaid interest) for a convertible promissory note in the principal amount of $385,658. See NOTE E - DEBT for a description of the Stuart Agreement. This note, along with associated accrued interest, was converted into common shares during the year ended December 31, 2023 for a total of 85,784 shares. This convertible promissory note, along with associated accrued interest, was converted into shares of common stock and common stock purchase warrants during the year ended December 31, 2023 for a total of 85,784 shares and 85,784 warrants.
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In November 2022, Mr. Stuart loaned the Company $50,000 pursuant to an unsecured promissory note, as amended in December 2023 to allow us to extend the maturity date of the note by up to three additional six month periods instead of two additional six month periods as set forth in the original note in consideration for permitting the optional conversion of the note and possible issuance of warrants as below described. The note bears simple interest at a rate of 7% per annum and initially matured on June 30, 2023. The Company exercised one extension extending the maturity date of the note to December 31, 2023. In accordance with the December 2023 amendment, Mr. Stuart has the option to elect at any time until the maturity date to convert all or any portion of the outstanding principal and accrued interest on this promissory note into shares of our common stock at a rate equal to $5.00 per share and immediately upon the conversion, Mr. Stuart will be issued a number of new warrants from Wytec equal to the dollar amount of the conversion divided by $5.00. The warrants will be exercisable on a cash or cashless basis until December 31, 2023 at an exercise price equal to the greater of (i) five dollars ($5.00) or (ii) eighty-five percent (85%) of the 10-day moving average of Wytec’s public trading price if Wytec’s securities are trading on a public securities trading market. This note, along with associated accrued interest, was converted into shares of common stock and common stock purchase warrants during the year ended December 31, 2023 for a total of 10,738 shares and 10,738 warrants. These warrants were exercised on a cashless basis for 5,948 shares of the Company’s common stock in January 2024.
In December 2022, Mr. Stuart loaned the Company $100,000 pursuant to an unsecured promissory note, as amended in December 2023 to allow us to extend the maturity date of the note by up to three additional six month periods instead of two additional six month periods as set forth in the original note in consideration for permitting the optional conversion of the note and the possible issuance of warrants as below described. The note bears simple interest at a rate of 7% per annum and initially matured on June 30, 2023. The Company exercised one extension extending the maturity date of the note to December 31, 2023. In accordance with the December 2023 amendment, Mr. Stuart has the option to elect at any time until the maturity date to convert all or any portion of the outstanding principal and accrued interest on this promissory note into shares of our common stock at a rate equal to $5.00 per share and immediately upon the conversion, Mr. Stuart will be issued a number of new warrants from Wytec equal to the dollar amount of the conversion divided by $5.00. The warrants will be exercisable on a cash or cashless basis until December 31, 2023 at an exercise price equal to the greater of (i) five dollars ($5.00) or (ii) eighty-five percent (85%) of the 10-day moving average of Wytec’s public trading price if Wytec’s securities are trading on a public securities trading market. This note, along with associated accrued interest, was converted into shares of common stock and common stock purchase warrants during the year ended December 31, 2023 for a total of 21,369 shares and 21,369 warrants. These warrants were exercised on a cashless basis for 11,838 shares of the Company’s common stock in January 2024.
In August 2023, Mr. Stuart purchased $100,000 of 9.5% secured convertible promissory notes pursuant to the Company’s 2023 private placement of up $25,000,000 of 9.5% secured convertible promissory notes. This note, along with associated accrued interest, was converted into shares of common stock and common stock purchase warrants during the year ended December 31, 2023 for a total of 20,640 shares and 20,640 warrants.
In October 2021, the president of the Company loaned $10,000 to the Company pursuant to an unsecured promissory note initially due on October 21, 2023. The note bears simple interest at a rate of 5% per annum and was amended October 20, 2022 to extend the maturity date to October 21, 2023 and in November 2023 to extend the maturity date to October 21, 2024. The maturity date of the note, as amended, may be extended by an additional six months in the sole discretion of the Company up to two times. The note bears simple interest at a rate of 5% per annum.
In September 2022, the president of the Company loaned the Company $25,000 pursuant to an unsecured promissory note initially due on March 30, 2023. The note bears simple interest at a rate of 7% per annum. The maturity date of the note may be extended by an additional six months in the sole discretion of the Company up to two times. The Company has exercised both extensions extending the maturity date of the note to March 30, 2024. This note, along with associated accrued interest, was paid back during the year ended December 31, 2023.
In October 2022, the president of the Company entered into an agreement, as amended in November 2022, to exchange 1,000 shares of the Company’s Series C Preferred Stock owned by him for 3,000,000 shares of the Company’s common stock. The exchange will close on the earlier of the effective date of the initial public offering of the Company’s common stock on the NASDAQ Capital Markets or October 6, 2025.
In January 2023, the president of the Company loaned $25,000 to the Company pursuant to an unsecured promissory note. The note bears simple interest at a rate of 7% per annum and expires on March 31, 2024. The maturity date of the note may be extended by an additional six months in the sole discretion of the Company up to two times.
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Item 14. Principal Accounting Fees and Services.
Audit Fees
The aggregate fees billed for professional services rendered by HORNE LLP for the audit of our annual financial statements and review of the financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements was $150,000 for the year ended December 31, 2023 and $0 for the year ended December 31, 2022.
The aggregate fees billed for professional services rendered by MaloneBailey, LLP for the audit of our annual financial statements and review of the financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements was $0 for the year ended December 31, 2023 and $150,000 for the year ended December 31, 2022.
Audit-Related Fees
Fees billed for audit-related services rendered by HORNE LLP were $11,900 for 2023 and $0 for 2022.
Fees billed for audit-related services rendered by MaloneBailey, LLP were $0 for 2023 and $16,000 for 2022.
Tax Fees
No fees were billed for tax services rendered by HORNE LLP for 2023 or 2022.
No fees were billed for tax services rendered by MaloneBailey, LLP for 2023 or 2022.
All Other Fees
No other fees were billed.
Pre-Approval Policies and Procedures of Audit and Non-Audit Services of Independent Registered Public Accounting Firm
The policy of our Audit Committee is to pre-approve, typically at the beginning of our fiscal year, all audit and non-audit services, other than de minimis non-audit services, to be provided by an independent registered public accounting firm. These services may include, among others, audit services, audit-related services, tax services, and other services and such services are generally subject to a specific budget. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. As part of the Audit Committee’s review, the Audit Committee will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management. At Audit Committee meetings throughout the year, the auditor and management may present subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at the beginning of the year.
The Audit Committee has considered the provision of non-audit services provided by our independent registered public accounting firm to be compatible with maintaining their independence. All audit and permissible non-audit services provided by our independent registered public accounting firm were approved by our Audit Committee.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
| (a) | The following documents are filed as a part of this report on Form 10-K: |
| 1. | The financial statements listed in the “Index to Financial Statements” at page F-1 are filed as part of this report. | |
| 2. | Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. | |
| 3. | Exhibits included or incorporated herein: See index to Exhibits. |
| (b) | Exhibits |
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| 14.1 | Code of Conduct (1) |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act |
| 101.INS | Inline XBRL Instance Document |
| 101.SCH | Inline XBRL Schema Document |
| 101.CAL | Inline XBRL Calculation Linkbase Document |
| 101DEF | Inline XBRL Definition Linkbase Document |
| 101.LAB | Inline XBRL Label Linkbase Document |
| 101.PRE | Inline XBRL Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted in inline XBRL, and included in exhibit 101). |
__________________
| (1) | Incorporated by reference from the original filing of the Registration Statement on January 10, 2017. |
| (2) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated September 21, 2018. |
| (3) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated January 4, 2021. |
| (4) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated January 3, 2024. |
| (5) | Incorporated by reference to the Form 10-K filed with the Securities and Exchange Commission on June 25, 2021. |
| (6) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, filed on October 13, 2022. |
| (7) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, filed on November 28, 2023. |
| (8) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, filed on December 6, 2023. |
| (9) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, filed on February 5, 2024. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WYTEC INTERNATIONAL, INC. | |||
| Date: March 29, 2024 | By: | /s/ William Gray | |
| William Gray, Chief Executive Officer | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ William Gray | Chief Executive Officer, President, | March 29, 2024 | ||
| William Gray | Principal Executive Officer, and Chairman | |||
| /s/ Karen Stegall | Interim Chief Financial Officer and Principal | March 29, 2024 | ||
| Karen Stegall | Accounting Officer |
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