WYTEC INTERNATIONAL INC - FORM 10-Q

Attached files

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EX-32.2 - CERTIFICATION - WYTEC INTERNATIONAL INC	wytec_ex3202.htm
EX-32.1 - CERTIFICATION - WYTEC INTERNATIONAL INC	wytec_ex3201.htm
EX-31.2 - CERTIFICATION - WYTEC INTERNATIONAL INC	wytec_ex3102.htm
EX-31.1 - CERTIFICATION - WYTEC INTERNATIONAL INC	wytec_ex3101.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended: September 30, 2020

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___________ to____________

Commission File Number: 001-39478

Wytec International, Inc.

(Exact Name of registrant as specified in its charter)

Nevada	46-0720717
(State or other jurisdiction of	(IRS Employer I.D. No.)
incorporation)

19206 Huebner Rd., Suite 202

San Antonio, TX 78258

(Address of principal executive offices and Zip Code)

(210) 233-8980

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer o	Accelerated filer o
	Non-accelerated filer x	Smaller reporting company x
	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ý

As of November 3, 2020, there were 5,525,291 outstanding of the registrant’s common stock.

WYTEC INTERNATIONAL, INC.

FORM 10-Q

September 30, 2020

Table of Contents

		Page
PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	3

	Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	3

	Consolidated Statements of Operations for the Nine Months ended September 30, 2020 and September 30, 2019 (unaudited)	4

	Consolidated Statements of Stockholders’ Equity (Deficit) for the Nine Months ended September 30, 2020 and September 30, 2019 (unaudited)	5

	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2020 and September 30, 2019 (unaudited)	7

	Notes to Consolidated Financial Statements (unaudited)	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22

ITEM 4.	CONTROLS AND PROCEDURES	22

PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	24

ITEM 1A.	RISK FACTORS	24

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	24

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	24

ITEM 4.	MINE SAFETY DISCLOSURES	24

ITEM 5.	OTHER INFORMATION	24

ITEM 6.	EXHIBITS	25

	SIGNATURES	26

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

WYTEC INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2020			2019
Assets

Current assets:
Cash	$	290,884		$	619,104
Accounts receivable		38,214			93,800
Inventory		1,098			–
Work in process		71,378			–
Prepaid expenses and other current assets		2,391			13,286
Total current assets		403,965			726,190

Property and equipment, net		64,504			80,273

Operating lease, right-of-use assets		151,704			386,742

Total assets	$	620,173		$	1,193,205

Liabilities and Stockholders' Deficit

Current liabilities:
Accounts payable and accrued expenses	$	147,590		$	68,614
Accounts payable, related party		103,024			76,280
Other payable		895,000			895,000
Operating lease, right-of-use obligation, current portion		91,368			150,909
Note payable, current portion		140,000			–
Long-term debt, net of unamortized discount, current portion		573,735			–
Total current liabilities		1,950,717			1,190,803

Long-term liabilities:
Operating lease, right-of-use obligation, long term portion		68,778			237,042
Note payable, long term portion		178,158			–
		246,936			237,042

Total liabilities		2,197,653			1,427,845

Stockholders' deficit:
Preferred stock, $0.001 par value 20,000,000 shares authorized:
Series A convertible preferred stock, par $.001, 4,100,000 shares designated, 2,520,000 and 2,560,000 shares issued and 2,420,000 shares and 2,460,000 shares outstanding		2,520			2,560
Series B convertible preferred stock, par $.001, 6,650,000 shares designated, 3,652,451 shares and 3,735,784 shares issued, 3,651,249 shares and 3,691,249 shares outstanding		3,652			3,735
Series C convertible preferred stock, par $.001, 1,000 shares designated, 1,000 issued and 1,000 outstanding		1			1
Common stock, $0.001 par value, 495,000,000 shares authorized, 29,762,702 shares and 29,564,014 shares issued, 5,504,291 shares and 5,429,566 shares outstanding		29,762			29,564
Additional paid-in capital		25,874,719			25,207,137
Accumulated deficit		(21,803,842	)		(20,118,169	)
Treasury stock:
Common stock, at cost, 24,174,448 shares and 24,134,448 shares		(5,325,042	)		(5,100,218	)
Series A convertible preferred stock, at cost, 100,000 shares and 100,000 shares		(179,368	)		(179,368	)
Series B convertible preferred stock, at cost, 84,535 shares and 44,535 shares		(179,882	)		(79,882	)
Total stockholders' deficit		(1,577,480	)		(234,640	)

Total liabilities and stockholders' deficit	$	620,173		$	1,193,205

See accompanying notes to unaudited consolidated financial statements

WYTEC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019

Revenue	$	111,625		$	131,942		$	444,390		$	259,730
Cost of sales		50,340			67,708			361,087			173,674

Gross profit (loss)		61,285			64,234			83,303			86,056

Expenses:
Selling, general and administrative		472,464			554,491			1,675,332			1,952,049
Research and development		5,852			–			10,577			4,500
Depreciation and amortization		9,229			27,513			28,808			126,515
Operating expenses, net		487,545			582,004			1,714,717			2,083,064

Net operating loss		(426,260	)		(517,770	)		(1,631,414	)		(1,997,008	)

Other income (expense):
Interest income		9			23			40			106
Interest expense		(23,617	)		(38	)		(54,309	)		(38	)
Total other income (expense)		(23,608	)		(15	)		(54,269	)		68

Net loss	$	(449,868	)	$	(517,785	)	$	(1,685,683	)	$	(1,996,940	)

Weighted average number of common shares outstanding - basic and fully diluted		5,482,206			5,192,045			5,469,502			5,071,058

Net loss per share - basic and fully diluted	$	(0.08	)	$	(0.10	)	$	(0.31	)	$	(0.39	)

See accompanying notes to unaudited consolidated financial statements

WYTEC INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)

	Class A						Class B						Class C								Common
	Preferred Stock						Preferred Stock						Preferred Stock				Common Stock				Treasury Stock
	Shares			Amount			Shares			Amount			Shares		Amount		Shares		Amount		Shares		Amount
Balance, December 31, 2019		2,560,000		$	2,560			3,735,784		$	3,735			1,000	$	1		29,564,014	$	29,564		24,134,448	$	(5,100,218	)

Issuance of common stock for services		–			–			–			–			–		–		10,554		11		–		–

Issuance of common stock for cash		–			–			–			–			–		–		20,000		20		–		–

Issuance of Warrants for Service		–			–			–			–			–		–		–		–		–		–

Issuance of detachable warrants with Debt		–			–			–			–			–		–		–		–		–		–

Net loss for the three months ended March 31, 2020		–			–			–			–			–		–		–		–		–		–

Balance, March 31, 2020		2,560,000		$	2,560			3,735,784		$	3,735			1,000	$	1		29,594,568	$	29,595		24,134,448	$	(5,100,218	)

Conversion of series A preferred stock to common stock		(40,000	)		(40	)		–			–			–		–		40,000		40		–		–

Repurchase of Series B preferred and common stock, in exchange for note payable		–			–			–			–			–		–		–		–		40,000		(100,000	)

Net loss for the three months ended June 30, 2020		–			–			–			–			–		–		–		–		–		–

Balance, June 30, 2020		2,520,000		$	2,520			3,735,784		$	3,735			1,000	$	1		29,634,568	$	29,635		24,174,448	$	(5,200,218	)

Issuance of common stock for services		–			–			–			–			–		–		2,296		2		–		–

Issuance of common stock		–			–			–			–			–		–		41,375		41		–		–

Conversion of warrants		–			–			–			–			–		–		500		1		–		–

Conversion of series B preferred stock to common stock		–			–			(83,333	)		(83	)		–		–		83,333		83		–		–

Dissolution of subsidiaries		–			–			–			–			–		–		–		–		–		(124,824	)

Net loss for the three months ended September 30, 2020		–			–			–			–			–		–		–		–		–		–

Balance, September 30, 2020		2,520,000		$	2,520			3,652,451		$	3,652			1,000	$	1		29,762,072	$	29,762		24,174,448	$	(5,325,042	)

Balance, December 31, 2018		2,560,000		$	2,560			3,735,784		$	3,735			1,000	$	1		29,106,868	$	29,107		24,134,448	$	(5,100,218	)

Issuance of common stock		–			–			–			–			–		–		28,140		28		–		–

Net loss for the three months ended March 31, 2019		–			–			–			–			–		–		–		–		–		–

Balance, March 31, 2019		2,560,000		$	2,560			3,735,784		$	3,735			1,000	$	1		29,135,008	$	29,135		24,134,448	$	(5,100,218	)

Issuance of common stock		–			–			–			–			–		–		149,210		149		–		–

Net loss for the three months ended June 30, 2019		–			–			–			–			–		–		–		–		–		–

Balance, June 30, 2019		2,560,000		$	2,560			3,735,784		$	3,735			1,000	$	1		29,284,218	$	29,284		24,134,448	$	(5,100,218	)

Issuance of common stock		–			–			–			–			–		–		86,635		87		–		–

Conversion of warrants		–			–			–			–			–		–		13,538		14		–		–

Net loss for the three months ended September 30, 2019		–			–			–			–			–		–		–		–		–		–

Balance, September 30, 2019		2,560,000		$	2,560			3,735,784		$	3,735			1,000	$	1		29,384,391	$	29,385		24,134,448	$	(5,100,218	)

See accompanying notes to unaudited consolidated financial statements

WYTEC INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited) (Continued)

	Class A Preferred					Class B Preferred					Additional					Total Stockholders’
	Treasury Stock					Treasury Stock					Paid-in		Accumulated			Equity
	Shares		Amount			Shares		Amount			Capital		Deficit			(Deficit)
Balance, December 31, 2019		100,000	$	(179,368	)		44,535	$	(79,882	)	$	25,207,137	$	(20,118,169	)	$	(234,640	)

Issuance of common stock for services		–		–			–		–			52,759		–			52,770

Issuance of common stock for cash		–		–			–		–			99,980		–			100,000

Issuance of Warrants for Service		–		–			–		–			89,155		–			89,155

Issuance of detachable warrants with Debt		–		–			–		–			80,053		–			80,053

Net loss for the three months ended March 31, 2020		–		–			–		–			–		(874,164	)		(874,164	)

Balance, March 31, 2020		100,000	$	(179,368	)		44,535	$	(79,882	)	$	25,529,084	$	(20,992,333	)	$	(786,826	)

Conversion of series A preferred stock to common stock		–		–			–		–			–		–			–

Repurchase of Series B preferred and common stock, in exchange for note payable		–		–			40,000		(100,000	)		–		–			(200,000	)

Net loss for the three months ended June 30, 2020		–		–			–		–			–		(361,641	)		(361,641	)

Balance, June 30, 2020		100,000	$	(179,368	)		84,535	$	(179,882	)	$	25,529,084	$	(21,353,974	)	$	(1,348,467	)

Issuance of common stock for services		–		–			–		–			11,478					11,480

Issuance of common stock		–		–			–		–			206,834		–			206,875

Conversion of warrants		–		–			–		–			2,499		–			2,500

Conversion of series B preferred stock to common stock		–		–			–		–			–		–			–

Dissolution of subsidiaries		–		–			–		–			124,824		–			–

Net loss for the three months ended September 30, 2020		–		–			–		–			–		(449,868	)		(449,868	)

Balance, September 30, 2020		100,000	$	(179,368	)		84,535	$	(179,882	)	$	25,874,719	$	(21,803,842	)	$	(1,577,480	)

Balance, December 31, 2018		100,000	$	(179,368	)		44,535	$	(79,882	)	$	23,131,864	$	(17,264,788	)	$	543,011

Issuance of common stock		–		–			–		–			115,023		–			115,051

Net loss for the three months ended March 31, 2019		–		–			–		–			–		(625,982	)		(625,982	)

Balance, March 31, 2019		100,000	$	(179,368	)		44,535	$	(79,882	)	$	23,246,887	$	(17,890,770	)	$	32,080

Issuance of common stock		–		–			–		–			704,618		–			704,767

Net loss for the three months ended June 30, 2019		–		–			–		–			–		(853,173	)		(853,173	)

Balance, June 30, 2019		100,000	$	(179,368	)		44,535	$	(79,882	)	$	23,951,505	$	(18,743,943	)	$	(116,326	)

Issuance of common stock		–		–			–		–			490,579		–			490,666

Conversion of warrants		–		–			–		–			67,676		–			67,690

Net loss for the three months ended September 30, 2019		–		–			–		–			–		(517,785	)		(517,785	)

Balance, September 30, 2019		100,000	$	(179,368	)		44,535	$	(79,882	)	$	24,509,760	$	(19,261,728	)	$	(75,755	)

See accompanying notes to unaudited consolidated financial statements

WYTEC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months
	Ended September 30,
	2020			2019

Cash flows from operating activities
Net loss	$	(1,685,683	)	$	(1,996,940	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		28,807			126,515
Amortization of debt discount		28,788			–
Stock based compensation		153,405			10,260
Non-cash lease expense		100,538			94,350
Decrease (increase) in operating assets
Accounts receivable		55,881			(106,110	)
Inventory		(1,098	)		–
Work in Process		(71,378	)		–
Prepaid expenses and other assets		10,606			(47,093	)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses		78,977			(55,856	)
Accounts payable, related party		26,744			–
Operating lease liability		(93,304	)		(95,233	)
Net cash used in operating activities		(1,367,717	)		(2,070,107	)

Cash flows from investing activities
Purchase of equipment		(13,039	)		–
Net cash used in investing activities		(13,039	)		–

Cash flows from financing activities
Payments on stock repurchase note payable		(60,000	)		–
Proceeds from issuance of debt		803,158			–
Proceeds from exercise of warrants		2,500			528,698
Proceeds from issuance of common stock		306,878			555,406
Net cash provided by financing activities		1,052,536			1,084,104

Net decrease in cash		(328,220	)		(986,003	)
Cash - beginning of period		619,104			1,721,135
Cash - end of period	$	290,884		$	735,132

Supplemental disclosures:
Interest paid	$	–		$	38
Income taxes paid	$	–		$	–

Non-cash investing and financing activities:
Conversion of series A preferred stock to common stock	$	40		$	–
Conversion of series B preferred stock to common stock	$	83			–
Cancellation and renegotiation of leases	$	134,616		$	–
Issuance of Stock Repurchase Note Payable	$	200,000		$	–
Issuance of detachable warrants with Debt	$	80,053		$	–
Issuance of common stock in exchange for registered link and equipment	$	–		$	25,000
Issuance of common stock in lieu of deferred revenue	$	–		$	105,000
ROU assets and operating lease obligations recognized	$	–		$	408,649

See accompanying notes to unaudited consolidated financial statements

WYTEC INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The interim consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K filed with the SEC on June 29, 2020. The results for the nine months ended September 30, 2020, are not necessarily indicative of the results to be expected for the year ended December 31, 2020. These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.

Description of Business: Wytec International, Inc. (“Wytec,” “we,” “our,” “us,” or the “Company”), a Nevada corporation, designs, manufactures, and installs carrier-class Wi-Fi Solutions in the 70 and 80 gigahertz licensed frequency program to local government, Mobile Service Operations, National Telecommunications Operators, and corporate enterprises. Wytec is also involved in the sale of wired and wireless services, including products, wireless data cards, back office platform and rate plans to their commercial and enterprise clients and 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 allows qualified individuals to own a segment of the “backhaul” infrastructure of Wytec’s city-wide business deployment.

On or about August 20, 2020, Capaciti Networks, Inc., our former subsidiary, was dissolved and on or about September 22, 2020, Wylink, Inc., our former subsidiary, was dissolved. No consideration was exchanged in either transaction. As a result of the dissolutions, we acquired the net assets and liabilities of both Wylink, Inc, and Capaciti Networks, Inc. and their operations continue as part of the Company.

Basis of Accounting: The accompanying financial statements have been prepared by the Company’s management in accordance with U. S. generally accepted accounting principles (“GAAP”) and applied on a consistent basis.

Revenue and Cost Recognition. Revenue is recognized by applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.

The Company earns revenues from contracts with customers for (i) sales and installation of cellular enhancement equipment and (ii) support agreements. Revenue from the sale and installation of cellular enhancement equipment is recognized either when the installation is completed or as the company installs the cellular enhancement equipment, depending on the complexity of the system, such as the degree of customization of the equipment being installed, and the agreement with the customer. The less complex systems installed by the Company where management believes the installed equipment has an alternative use, due to the standard nature of the equipment sourced from our vendors that can be used in other projects, revenue from such contacts is recognized for completed installations upon customer acceptance. This assessment, at contract inception, is a management judgment based on the combination of equipment ordered, the services performed and whether or not material effort, within the context of the contract, would be required to rework the equipment for another project, and the term and terms of the contract with the customer. For example, such contracts are usually completed within 30-45 days. In larger more complex projects where the Company is creating an asset for the customer with no alternative use and has an enforceable right to payment for performance prior to contract completion, we recognize revenue utilizing the percentage of completion method. This method measures completion based on management’s estimate of total costs to complete each contract because management considers total costs to be the best available measure of progress on the contract.

Support agreements entered into with customers are generally for a period of one year, during which the Company stands ready to provide service and support for installed systems at the customer site. Support agreement amounts are billed in advance to the customer, as agreed in the contract, and recorded as a contract liability. During the period, the Company provides unspecified firmware upgrades to installed client equipment as they are available. Management estimates that straight line recognition of revenue over the period of the support agreement contract is a faithful representation of the pattern of delivery on the Company’s obligation under these agreements.

Sales tax is recorded on a net basis and excluded from revenue.

Allowance for Doubtful Accounts: The allowance for doubtful accounts is evaluated on a regular basis through periodic reviews of the collectability of the receivables in light of historical experience, adverse situations that may affect our customers' ability to repay, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accounts receivable are determined to be past due based on how recently payments have been received and those considered uncollectible are charged against the allowance account in the period they are deemed uncollectible. No allowance for trade accounts receivable was determined to be necessary at September 30, 2020 and December 31, 2019.

Operating Leases Right-of-use Assets and Operating Lease Obligations: In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)." This update requires that a lessee recognize in the statement of financial position a liability to make lease obligations and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease obligations. Similar to current guidance, the update continues to differentiate between finance leases and operating leases, however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. The guidance became effective for us on January 1, 2019.

We adopted obligations on these provisions on January 1, 2019 using the optional transition method that permits us to apply the new disclosure requirements in 2019 and continue to present comparative period information as required under FASB ASC Topic 840, "Leases." We did not have a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to exclude leases with an initial term of 12 months or less from the right-of-use assets and obligations. Adoption of the standards had no impact on results of operations or liquidity.

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.

Inventories: Inventories are stated at the lower of cost (determined on the first-in, first-out basis) or market. Inventory consists of equipment held for installation and work in process. Work in process contains both equipment costs and direct labor charges. Inventories are reviewed periodically to determine impairment and identify excess and obsolete equipment. A valuation allowance is provided for obsolete and slow-moving inventory to write cost down to net realizable value (market), if necessary. No allowance was determined to be necessary at September 30, 2020 and December 31, 2019.

NOTE B – GOING CONCERN

Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $21,803,842 at September 30, 2020, 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. 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. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, there can be no assurance that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time. Management expects to continue to seek additional funding through private or public equity sources and will seek debt financing.

NOTE C – REVENUE AND ACCOUNTS RECEIVABLE

The Company recognizes revenue in accordance with its accounting policy. The Company invoices customers and recognizes accounts receivable in an amount equivalent to which it has an unconditional right and expects to receive aligned with the agreement with the customer. The Company has contracted payment terms with its customer of net 15 days. The Company recognized revenue from performance obligations satisfied as of a point in time and over time as disaggregated in the table below.

Timing of Revenue Recognition

	For the Nine Months Ended
	September 30,		September 30,
	2020		2019

Point in Time	$	444,322	$	259,730
Over Time		68		–
	$	444,390	$	259,730

Due to the Company billing service agreements in advance and recognizing revenue for service agreements over time as more fully described in its accounting policy the Company carries a contract liability balance proportional to the time remaining on each customer agreement. The Company issues invoices to customers for completed work as performance obligations satisfied as of a point in time are fulfilled and does not carry a contract asset balance for these performance obligations.

Contract Assets and Liabilities

	September 30,			December 31,
	2020			2019
Contract Liability	$	(751	)	$	–
	$	(751	)	$	–

The Company’s contracts for support services are typically for terms of one year or less. The aggregate amount of contract performance obligation as of September 30, 2020 and December 31, 2019 that the Company expects to recognize over the next year is $751 and $0, respectively.

The Company is under no obligation and is not in the practice of providing customers with returns, rebates, discounts, or refunds and has not in an amount material to the financial statements. The Company, accordingly, does not recognize these obligations at the time of revenue recognition. The Company may receive consideration from customers who enter into support agreements in the future for incremental services provided to such customers. Those services are delivered as of a point in time when the customer requests the service. Future consideration as described is excluded from the transaction price calculated for support agreement performance obligations.

The Company has applied the practical expedient that permits the Company to recognize revenue without regard to significant financing components based on the Company’s expectations about the transfer of services and the receipt of payment from customers. The effect of this practical expedient is not material to the Company’s financial statements.

NOTE D – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Property and Equipment

	September 30,			December 31,
	2020			2019
Telecommunication equipment and computers	$	1,105,939		$	1,092,901
Less: accumulated depreciation		(1,041,435	)		(1,012,628	)
	$	64,504		$	80,273

Depreciation expense for the nine months ended September 30, 2020 and 2019 was $28,808 and $126,515, respectively.

NOTE E – DEBT

As of September 30, 2020, the Company’s debt consists of the following:

$200,000 of 0% unsecured notes payable due March 2021	$	140,000
$625,000 of 7% unsecured notes payable due August 2021, net of unamortized discount of $51,265		573,735
$178,158 of 1% unsecured notes payable due April 2022		178,158
	$	891,893

In February 2020, we issued a note in the amount of $625,000 bearing simple interest at a rate of 7% per annum to one investor due August 2021. The note contains a feature that allows the Company to extend the maturity date up to six months, twice, in the Company’s sole discretion. This note was issued along with 62,500 common stock purchase warrants that were determined to have a fair market value of $80,053 on the issuance date, which was recorded as a debt discount and amortized over the term of the notes, with $28,788 amortized in the nine months ended September 2020 and reported in the statement of operations as interest expense.

In April 2020, we entered into a Repurchase and General Release Agreement with one shareholder pursuant to which we issued a note payable in the amount of $200,000 bearing no interest and due on September 30, 2020. The note is payable in $10,000 monthly installments with the balance payable on the maturity date. The note contains a feature that allows the Company to extend the maturity date of the note 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 balance of the note will be due. During the quarter, the Company extended the maturity date of the note under the terms of the note to March 2021. The Company made payments in the amount of $60,000 on the note during the period and the balance as of September 30, 2020 is $140,000.

In April 2020, we received a loan pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the amount of $178,158. The loan bears interest at a fixed rate of 1% per annum after a six-month deferral period. The loan contains a feature pursuant to which the Small Business Administration (“SBA”) will forgive the balance of the loan under statutory authority and conditions set forth in the CARES Act. We anticipate forgiveness of 100% of the loan balance, but any portion not forgiven will be due in April 2022.

The following is a summary of principal maturities during the next five years:

2020 (three months remaining)	$	30,000
2021		735,000
2022		178,158
	$	943,158

NOTE F – LEASES

The Company leases facilities and office equipment under various operating leases, which generally are expected to be renewed or replaced by other leases. For the nine-month periods ended September 30, 2020 and 2019, operating lease expense totaled $115,363 and $130,443, respectively. For the three-month periods ended September 30, 2020 and 2019, operating lease expense totaled $24,474 and $35,599, respectively.

The weighted average remaining lease term is 2.57 years and weighted average discount rate is 5.5% as of September 30, 2020.

Future minimum lease payments as of September 30, 2020 are as follows:

2020 (three months remaining)	$	25,194
2021		85,695
2022		24,695
2023		23,536
2024		6,930
Thereafter		7,200
Total minimum lease payments		173,250
Less: imputed interest		(13,104	)

Present value of minimum lease payments		160,146
Less: current portion of least obligation		(91,368	)
Long-term lease obligation	$	68,778

NOTE G – WARRANTS

The Company has common stock purchase warrants outstanding at September 30, 2020 to purchase 2,409,675 shares of common stock exercisable until various dates through December 31, 2022. The warrants are exercisable at the following amounts and rates: 2,000,000 of which are exercisable at an exercise price of $1.00 per share and 155,000 of which are exercisable at an exercise price of $5.00 per share, and 254,675 of which are exercisable at an exercise price of the greater of $5.00 per share or (ii) 85% of the average closing price of our common stock, as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately prior to the date of exercise.

To calculate the fair value of stock warrants at the date of grant, we use the Black-Scholes option pricing model. The volatility used is based on historical volatilities of selected peer group companies. Management estimates the average volatility considering current and future expected market conditions. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Each issuance is individually valued according to this procedure as of the date of issue with maturity dates between December 31, 2021 and December 31, 2022, volatility estimates between 35% to 44% and risk-free rates 0.38% to 1.44% in the period.

On February 25, 2020, we issued a note in the amount of $625,000 bearing simple interest at a rate of 7% per annum to one shareholder. This note was issued along with 62,500 common stock purchase warrants that were determined to have a fair market value of $80,053 on the issuance date, which was recorded as a debt discount and amortized over the term of the notes, with $12,680 amortized in the current quarter, and $28,788 in the nine months ended September 30, 2020.

On March 3, 2020, we issued 92,500 warrants for services rendered with a fair market value on the issuance date of $89,155 recorded as an expense in the period.

On March 13, 2020, we issued 20,000 common stock purchase warrants to two investors as part of our offering of units, each unit consisting of one share of our common stock and one common stock purchase warrant.

There were no warrants issued in the second quarter of 2020.

During the third quarter we issued 41,375 common stock purchase warrants to six investors as part of our offering of units, each unit consisting of one share of our common stock and one common stock purchase warrant.

The following is a summary of activity and outstanding common stock warrants:

	# of Warrants
Balance, December 31, 2019		2,383,256

Warrants granted		216,375
Warrants exercised		(500	)
Warrants expired		(189,456	)

Outstanding, September 30, 2020		2,409,675

Exercisable, September 30, 2020		2,409,675

NOTE H – 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.

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 on the first to occur of the following: (i) on the date that Mr. Gray ceases, for any reason, to serve as officer, director or consultant of Wytec, or (ii) on the date that our shares of common stock first trade on any national securities exchange provided that the listing rules of any such exchange prohibit preferential voting rights of a class of securities of Wytec, or listing on any such national securities exchange is conditioned upon the elimination of the preferential voting rights of the series C preferred stock set forth in the certificate of designation. A holder of the series C preferred stock has no preemptive rights to subscribe for any additional shares of any class of stock of Wytec or for any issue of bonds, notes or other securities convertible into any class of stock of Wytec. The holders of the Series C Preferred Stock are not entitled to any liquidation preference.

In January 2020, the Company issued 554 shares of common stock to one vendor for services rendered at fair value of $2,770.

In March 2020, the Company issued 20,000 shares of common stock to two investors for cash at $5.00 per share as part of the Company’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.

In February 2020, the Company issued 10,000 shares of common stock at fair value of $50,000 to one employee pursuant to a severance agreement.

In April 2020, the Company issued 40,000 shares of common stock in consideration for the conversion of 40,000 shares of Series A Preferred Stock by one shareholder.

In April 2020, the Company entered into a Repurchase and General Release Agreement with one investor to repurchase 40,000 shares of common stock and 40,000 shares of series B preferred stock at $2.50 per share in exchange for a note payable in the amount of $200,000 bearing no interest and due on March 31, 2021 as extended under the terms of the note. No portion of the agreement with the investor was treated as an expense. The shares are held in treasury stock until cancelled or reissued by the Company.

In July 2020, the Company issued 12,000 shares of common stock to two investors for cash at $5.00 per share as part of the Company’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.

In August 2020, the Company issued 25,000 shares of common stock to four investors for cash at $5.00 per share as part of the Company’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.

In September 2020, the Company issued 4,375 shares of common stock to one investor in lieu of making an accrued interest payment in cash at $5.00 per share as part of the Company’s offering of units, each unit consisting of one share of the Company’s common stock and one common stock purchase warrant.

In September 2020, one investor exercised 500 common stock purchase warrants for which the Company issued 500 shares of common stock for cash at $5.00 per share.

During the quarter, the Company issued 2,296 shares of common stock to one vendor for services rendered at fair value of $11,484.

NOTE J – RELATED PARTY TRANSACTIONS

The Company has an accounts payable balance owed to Richardson & Associates in the amount of $103,024 as of September 30, 2020, and $76,280 as of December 31, 2019. The Company incurred expense of $47,285 and $79,934 with Richardson & Associates as of the nine months ended September 30, 2020 and September 30, 2019, respectively. Mark Richardson is the owner of Richardson & Associates and he was appointed as a director of Wytec International, Inc. in September 2019.

NOTE K – CONCENTRATIONS

The Company derived $365,692, 82%, and $0, 0%, of revenue in the nine months ended September 2020 and September 2019, respectively, from a single customer. The Company derived $0, 0%, and $70,585, 28%, and $0, 0%, and $61,781, 24%, and $0, 0%, and $40,864, 16%, of revenue in the nine months ended September 2020 and September 2019, respectively, from three additional customers. We continue to endeavor to diversify our customer base and make efforts to mitigate the risk associated with excess concentration of sales from a limited number of customers.

NOTE L – SUBSEQUENT EVENTS

During the fourth quarter of 2020, Wytec issued 21,000 shares of common stock and 21,000 common stock purchase warrants to seven investors for which Wytec has received $105,000 pursuant to Wytec’s offering of units under Rule 506(c) of Regulation D of the Securities Act, as amended, each unit consisting of one share of common stock and one common stock purchase warrant at a purchase price of $5.00 per unit. These warrants are exercisable for cash until December 31, 2021 at an exercise price equal to the greater of (i) $5.00 or (ii) 85% of the average closing price of our common stock as quoted on the public securities trading market on which our common stock is then traded with the highest volume, for ten (10) consecutive trading days immediately prior to the date of exercise.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Wytec International, Inc. (hereinafter, with its subsidiary, “Wytec,” “Company,” “us,” “we” or “our”), the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” and variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause the Company’s actual results to be materially different from any future results expressed or implied by the Company in those statements. The most important factors that could prevent the Company from achieving its stated goals include, but are not limited to, the following:

(a)

volatility or decline of our stock price;

(b)

potential fluctuation in quarterly results;

(c)

failure to earn revenues or profits;

(d)

inadequate capital to continue our business;

(e)

insufficient revenues to cover operating costs;

(f)

barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;

(g)

dilution experienced by our shareholders in their ownership of the Company because of the issuance of additional securities by us, or the exercise of warrants or conversion of outstanding convertible securities;

(h)

inability to complete research and development of our technology with little or no current revenue;

(i)

lack of demand for our products and services;

(j)

loss of customers;

(k)

rapid and significant changes in markets;

(l)

technological innovations causing our technology to become obsolete;

(m)

increased competition from existing competitors and new entrants in the market;

(n)

litigation with or legal claims and allegations by outside parties;

(o)

inability to start or acquire new businesses, or lack of success of new businesses started or acquired by us, if any;

(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-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking statements and information that involves risks and uncertainties.

Overview of Current Operations

Wytec International, Inc., a Nevada corporation (“Wytec,” the “Company.” “we,” “us,” or “our”) is the developer of a technology called the “LPN-16,” consisting of chipsets, software, hardware designs and antennas that enable strengthened Wi-Fi and cellular transmission within a concentrated coverage area of approximately 500 feet in circumference. The hardware consists of a chassis or framework approximately 32 inches in height with a radius of approximately 12 inches. It is designed to be installed on a utility pole to private dense network coverage. The unit, referred to as an outdoor “small cell”, is designed to increase Wi-Fi and cellular capacity and signal strength by placing a large number of them in densely populated areas as compared to the traditional macro site cellular towers covering a much larger area of approximately two (2) miles. The growth of small cells is in response to delivering substantially greater speeds to smartphones and other smart devices in preparation for the next generation of cellular technology now referred to as 5G.

When Wytec was first founded, we obtained five (5) United States patents (the “Patents”) related to Local Multipoint Distribution Service (“LMDS”) originally designed for digital television transmission, and later discovered to be useful in wireless broadband technology. Today Wytec utilizes Millimeter and Microwave spectrum as a wireless point to point backhaul for transmitting to its LPN-16 technology. This configuration is in place today and has become the center piece of Wytec’s private LTE initiatives requested by large commercial buildings, school districts and municipalities. Wytec’s ultimate configuration includes the extension of its private LTE design into the offering of its Mobile Virtual Network Operator (MVNO) wholesale services to both cable and Wireless Internet Service Providers (“WISPs”) throughout the United States. The Company believes that its MVNO services will become the foundation for supporting true 5G services in the U.S. as defined by the International Telecommunications Union (“ITU”), the standard for all previous mobile generations from 1G to 4G.

The 5G network is expected to have a transformative impact as it connects people with devices, data, transport systems and cities in a smart networked communications environment. The 5G network will rely substantially on small cell technology to achieve its goals. To facilitate this, operators need reliable connections with strong signal integrity, significant bandwidth and low latency. Small cells bring improved connectivity (speeds, reliability, and low latency) to the edge of existing macro networks, serving all morphologies from urban to rural markets.

We believe the LPN-16 small cell can solve many of the long-term challenges faced by operators deploying small cells who need access to backhaul, lower total cost of ownership and easier site acquisition and access. It can also assist cities wrestling with the on-going technology upgrades, network growth demands, political hurdles and new business models needed to realize the benefits of a 5G network. In addition to aligning with technical and governmental issues, the LPN-16 is designed to meet the standards for 5G deployment and, for operator needs, adheres to the Federal Communications Commission (“FCC”) policy initiatives addressing public safety and First Responder initiatives. Specifically, the FCC’s Report and Order 14-153, Acceleration of Broadband Deployment by Improving Wireless Facilities Siting Policies, adopts rules to help spur wireless broadband deployment by facilitating the sharing of wireless transmission equipment using “neutral host” functionality to simultaneously support multiple providers. The LPN-16 was specifically designed to support neutral host features and performance. The FCC’s goal of “shared used” and “neutral host” seeks to expand coverage and capacity more quickly, reduce costs and promote access to infrastructure which reduces barriers to deployment and incentivize the sharing of resources, rather than relying on new builds for every stakeholder, thereby safeguarding environmental, aesthetic, historic and local land-use values.

We have implemented an aggressive intellectual property strategy and continue to pursue patent protection for new innovations. In addition to the LPN-16 invention covered by our current patent, we have identified additional upgrades and additions to the LPN-16 which further tie it to the goals and timelines of Wytec’s 5G development business model, FCC policy initiatives and customer business usage which we believe could lead to additional patentable property. We intend to file for patent protection on these developments. Our strategy is to continually monitor the costs and benefits of our patent applications and pursue those that will best protect our business and expand the core value of the Company.

We have recruited and hired a seasoned management team with both private and public company experience and relevant technical and industry experience to develop and execute our operating plan. In addition, we have identified key engineering resources for intellectual property development, antenna development, hardware, software, and firmware engineering, as well as integration and testing that will allow us to continue to expand our technology and intellectual property.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the estimated recoverable amounts of trade accounts receivable, impairment of long-lived assets, revenue recognition and deferred tax assets. We believe the following critical accounting policies require more significant judgment and estimates used in the preparation of the financial statements.

We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the collectability of our trade accounts receivable balances. If we determine that the financial conditions of any of our customers deteriorated, whether due to customer specific or general economic issues, increases in the allowance may be made. Accounts receivable are written off when all collection attempts have failed.

Effective January 1, 2018, Wytec International, Inc. adopted the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” 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. We implemented this standard using the modified retrospective method. While adoption of this standard required additional disclosures, adoption did not have a material impact on our consolidated financial statements and no adjustments were made to prior periods.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)." This update requires that a lessee recognize in the statement of financial position a liability to make lease obligations and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease obligations. Similar to current guidance, the update continues to differentiate between finance leases and operating leases, however, this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. The updated guidance leaves the accounting for leases by lessors largely unchanged from existing GAAP. The guidance became effective for us on January 1, 2019. As a lessee, this standard primarily impacted our accounting for leased facilities and office equipment, for which we recognized right-of-use assets of $151,704 and a corresponding lease obligation of $160,146 on our consolidated balance sheet as of September 30, 2020.

Income taxes are accounted for under the asset and liability method. Under this method, to the extent that we believe that the deferred tax asset is not likely to be recovered, a valuation allowance is provided. In making this determination, we consider estimated future taxable income and taxable timing differences expected in the future. Actual results may differ from those estimates.

Results of Operations for the Nine Months Ended September 30, 2020 and 2019 and Three Months Ended September 30, 2020 and 2019

Revenue for the nine months ended September 30, 2020 and 2019 was $444,390 and $259,730, respectively. This increase in revenue of $184,660 or 71% was primarily due to increases in revenue from our Cel-fi systems. Revenue for the three months ended September 30, 2020 and 2019 was $111,625 and $131,942, respectively. This decrease in revenue of $20,317, or 15%, was primarily due to decreases in revenue from our Cel-fi systems.

Cost of sales for the nine months ended September 30, 2020 and 2019 was $361,007 and $173,674, respectively. This increase of $187,333, or 108%, was due to the increase in costs incurred related to the sales of our Cel-fi systems. Cost of sales for the three months ended September 30, 2020 and 2019 was $50,259 and $67,708, respectively. This decrease of $17,449, or 26%, was due to the decrease in costs incurred related to the sales of our Cel-fi systems.

General and administrative expenses were $1,675,332 for the nine months ended September 30, 2020, as compared to $1,952,049 for the nine months ended September 30, 2019, this resulted in a decrease of $276,717 or 14% compared to the same period in 2019. Contributing factors to the decrease include a decrease in G&A expense allocation of $194,225, or 778%, a decrease in consulting expense of $135,052, or 3,624%, a decrease in payroll taxes of $65,658, a decrease in outside services of $65,293, or 45%, in the nine months ended September 30, 2020 compared to the same period in 2019. General and administrative expenses were $472,464 for the three months ended September 30, 2020, as compared to $554,491 for the three months ended September 30, 2019. This resulted in a decrease of $82,027 or 15% compared to the same period in 2019. Contributing factors to the decrease include a decrease in G&A expense allocation of $153,879, or 617%, and a reduction in outside services of $165,567 or 102% for the three months ended September 30, 2020 as compared to the same period in 2019.Where a percentage is not listed, the comparison period expense category is $0 and the calculation is not meaningful.

We estimate that we will need approximately $3,000,000 of capital or financing over the next twelve months to fund our planned operations, which we plan to satisfy as described below under “Satisfaction of our Cash Needs for the Next 12 Months.”

We anticipate that we will incur operating losses in the next twelve months. Our revenue is not expected to exceed our investment and operating costs in the next twelve months. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in, addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.

Cash Flow from Operating Activities

Cash flows used in operating activities during the nine months ended September 30, 2020 were $1,367,717 compared to $2,070,107 during the nine months ended September 30, 2019. This decrease of $702,390 was primarily due to changes in net loss during the nine months ended September 30, 2020 to the same period in 2019.

Cash Flow from Investing Activities

Cash flows used by investing activities during the nine months ended September 30, 2020 were $13,039 compared to the cash flows used by investing activities of $0 during the nine months ended September 30, 2019. Capital expenditures totaled $13,039 and $0 during the nine months ended September 30, 2020 and September 30, 2019, respectively.

Cash Flow from Financing Activities

Cash flows provided by financing activities during the nine months ended September 30, 2020 were $1,052,536 compared to $1,084,104 during the nine months ended September 30, 2019. These receipts represent proceeds from the sale of the Company’s common stock and from the issuance of debt.

Satisfaction of Our Cash Obligations for the Next 12 Months.

As of September 30, 2020, our cash balance was $290,884. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, private placements of our capital stock, third party financing, and/or traditional bank financing. We anticipate sales-generated income during that same period of time, but do not anticipate generating sufficient revenue to meet our working capital requirements. Consequently, we intend to attempt to find sources of additional capital in the future to fund our growth and expansion through additional equity or debt financing or credit facilities. There is no assurance that we will be able to meet our working capital requirements through the private placement of equity or debt or from any other source.

Other Payable

Other Payable of $895,000 consists of amounts billed and collected before services related to registered links previously sold by the Company (“Registered Links”) have been completed. During 2019, deferred revenue was reclassified to Other Payable due by the Company which has exited the business of installing Registered Links. The Company intends to settle the liability through a combination of exchanges for common and preferred stock and cash.

Going Concern

Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $21,803,842 at September 30, 2020, and have reported negative cash flows from operations. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive nature in which we operate.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Recently Issued Accounting Standards

We have reviewed the standards issued by the Financial Accounting Standards Board (“FASB”) through September 30, 2020 and which are not yet effective. None of the standards will have a material impact on our financial statements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

Our chief executive officer and chief financial officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2020. Specifically, our disclosure controls and procedures were not effective in timely alerting our management to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings and ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief financial officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure, for the following reasons:

·		The Company does not have an independent board of directors or audit committee or adequate segregation of duties;
·		A significant portion of our financial reporting is prepared by our financial consultant;
·		We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of the Company; and
·		Inadequate closing process to ensure all material misstatements are corrected in the financial statements

We have begun to rectify these weaknesses by hiring additional personnel and will create an independent board of directors once we have additional resources to do so. We have also begun the interview process and the acceptance of bids for the implementation and monitoring of the required SOX guidelines.

Internal Control Over Financial Reporting

Our chief executive officer and chief financial officer are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Due to the matter identified above, we have identified the design and effectiveness of our internal control over financial reporting to not be effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The Company may be involved in legal actions and claims arising in the ordinary course of business from time to time. As of the date of the report, there are no legal matters of which management is aware.

Item 1A. Risk Factors.

During the quarter ended September 30, 2020, there have been no material changes from the risk factors previously in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019.

Item 2. Unregistered Sales of Equity Securities.

In July 2020, the Company issued a total of 12,000 shares of common stock and 12,000 common stock purchase warrants to two investors pursuant to the Company’s private placement of units (“Units”), each Unit consisting of one share of common stock and one common stock purchase warrant, in accordance with Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”)..

In August 2020, the Company issued a total of 25,000 shares of common stock and 25,000 common stock purchase warrants to four investors pursuant to the Company’s private placement of Units in accordance with Rule 506(c) of the Securities Act.

In September 2020, the Company issued 4,375 shares of common stock and 4,375 common stock purchase warrants to one investor pursuant to the Company’s private placement of Units in lieu of making an accrued interest payment in cash in accordance with Rule 506(c) of Regulation D of the Securities Act.

In September 2020, one investor exercised 500 common stock purchase warrants for which the Company issued 500 shares of common stock in accordance with Rule 506 (b) of Regulation D of the Securities Act.

During the quarter, the Company issued a total of 2,296 shares of common stock to one vendor for services rendered in accordance with Rule 506 (b) of Regulation D of the Securities Act.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit		Description

3.1		Articles of Incorporation, dated November 7, 2011 (1)
3.2		Amendment to Articles of Incorporation, dated January 14, 2014 (1)
3.3		Amendment to Articles of Incorporation, dated June 13, 2014 (1)
3.4		Bylaws (1)
4.1		Certificate of Designation for Series A Preferred Stock, dated February 14, 2014 (1)
4.2		Certificate of Designation for Series B Preferred Stock, dated June 13, 2014 (1)
4.3		Amendment to Certificate of Designation for Series B Preferred Stock, dated October 22, 2014 (1)
4.4		Amendment to Certificate of Designation for Series B Preferred Stock, dated March 4, 2015 (1)
4.5		Certificate of Designation for Series C Preferred Stock, dated July 26, 2016 (1)
4.6		Warrant issued by Wytec International, Inc. to Tina Bagley (4)
4.7		Warrant issued by Wytec International, Inc. to William H. Gray (5)
10.1		Separation and Distribution Agreement by and between Wytec International, Inc. and Competitive Companies, Inc. (1)
10.2		License Agreement by and between Wytec International, Inc. and Competitive Companies, Inc. (1)
10.3		Revolving Line of Credit Note by and between Wytec International, Inc. and Competitive Companies, Inc.(1)
10.4		Stock Purchase Agreement by and among Wytec International, Inc., Competitive Companies, Inc., and Capaciti Networks, Inc., dated November 17, 2016 (1)
10.5		Amendment to Stock Purchase Agreement by and among Wytec International, Inc., Competitive Companies, Inc., and Capaciti Networks, Inc., as of November 17, 2016 (2)
10.6		Separation and Release Agreement, executed on April 26, 2018 (4)
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		XBRL Instance Document *
101.SCH		XBRL Schema Document *
101.CAL		XBRL Calculation Linkbase Document *
101.DEF		XBRL Definition Linkbase Document *
101.LAB		XBRL Label Linkbase Document *
101.PRE		XBRL Presentation Linkbase Document *

(1)	Incorporated by reference from the Company’s Registration Statement on Form S-1 and its amendments, originally filed on January 10, 2017.

(2)	Incorporated by reference from the filing of Amendment No. 2 to the Registration Statement on Form S-1 on August 7, 2017.

(3)	Incorporated by reference to the Form 8K filed with the Securities and Exchange Commission, dated January 18, 2018.

(4) Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated May 2, 2018.

(5) Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated September 21, 2018.

Filed herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WYTEC INTERNATIONAL, INC.

By: /s/ William H. Gray

William H. Gray, Chairman, Chief Executive Officer,

and President (Principal Executive Officer)

By: /s/ Donna Ward

Donna Ward, Director and Chief Financial Officer

(Principal Accounting Officer)

Date: November 9, 2020

WYTEC INTERNATIONAL INC - FORM 10-Q - November 9, 2020

Attached files

WYTEC INTERNATIONAL INC Reports