HWN, INC. - FORM 10-Q - May 17, 2021

Attached files

file	filename
EX-32.2 - CERTIFICATION - HWN, INC.	f10q0321ex32-2_spectrum.htm
EX-32.1 - CERTIFICATION - HWN, INC.	f10q0321ex32-1_spectrum.htm
EX-31.2 - CERTIFICATION - HWN, INC.	f10q0321ex31-2_spectrum.htm
EX-31.1 - CERTIFICATION - HWN, INC.	f10q0321ex31-1_spectrum.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-53461

SPECTRUM GLOBAL SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Nevada		26-0592672
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

980 N. Federal Highway, Suite

304, Boca Raton, Florida

33432

(Address of principal executive offices)

(Zip Code)

407-512-9102

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 ☐ 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	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ YES ☒ NO

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. ☐ YES ☐ NO

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		SGSI		OTCQB

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

23,574,625 common shares issued and outstanding as of May 12, 2021.

Table of Contents

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	49
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51
SIGNATURES		52

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The unaudited interim consolidated financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars, unless otherwise noted.

SPECTRUM GLOBAL SOLUTIONS, INC.

		Page
		Number

Condensed consolidated balance sheets as of March 31, 2021 (unaudited) and December 31, 2020		2

Condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 (unaudited)		3

Condensed consolidated statements of stockholders’ deficit for the three months ended March 31, 2021 and 2020 (unaudited)		4

Condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 (unaudited)		5

Notes to unaudited condensed consolidated financial statements		6

SPECTRUM GLOBAL SOLUTIONS, INC.

Condensed consolidated balance sheets

	March 31,			December 31,
ASSETS	2021			2020
	(Unaudited)
Current Assets:
Cash	$	415,457		$	580,800
Restricted cash		2,000,000			—
Accounts receivable, net of allowances of $38,881		2,627,082			2,481,124
Contract assets		258,712			167,649
Prepaid expenses and deposits		12,085			13,025
Total current assets		5,313,336			3,242,598

Property and equipment, net of accumulated depreciation of $284,265 and $283,489, respectively		13,410			14,186
Goodwill		331,223			331,223
Customer lists, net of accumulated amortization of $97,273 and $89,386, respectively		38,727			46,614
Tradenames, net accumulated amortization of $59,903 and $55,046, respectively		571,097			575,954
Operating lease right-of-use assets		108,537			116,817
Total assets	$	6,376,330		$	4,327,392

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
Accounts payable and accrued liabilities	$	1,806,182		$	2,369,477
Contract liabilities		368,686			287,775
Loans payable, current portion, net of debt discount of $180 and $38,874, respectively		357,696			532,381
Convertible debentures, current portion, net of discount of $254,543 and $301,957, respectively		741,058			1,002,463
Factor financing		1,999,668			1,914,611
Derivative liabilities, current portion		7,434,410			3,028,504
Warrant liability		100,000			100,000
Operating lease liabilities		114,509			122,838
Total current liabilities		12,922,209			9,358,049

Long-term liabilities:
Convertible loans payable to related parties		577,925			577,925
Loans payable, net of current portion		4,920,125			2,920,125
Convertible debentures, net of current portion, net of debt discount of $518,975 and $0, respectively		52,604			—
Derivative liabilities, net of current portion		3,697,830			362,000
Total long-term liabilities		9,248,484			3,860,050

Total liabilities		22,170,693			13,218,099

Commitments and Contingencies

Series A preferred stock; $0.00001 par value; 8,000,000 shares authorized; 899,427 issued and 496,101 and 606,835 outstanding as of March 31, 2021 and December 31, 2020, respectively		534,182			737,403
Series B preferred stock; $3,500 stated value; 1,000 shares authorized; 1,000 issued and outstanding as of March 31, 2021 and December 31, 2020		484,530			484,530
Total mezzanine equity		1,018,712			1,221,933

Stockholders' Deficit:
Common stock; $0.00001 par value; 1,000,000,000 shares authorized; 22,643,829 and 13,188,951 issued and 22,641,758 and 13,186,880 outstanding as of March 31, 2020 and December 31, 2019, respectively		226			132
Additional paid-in capital		41,599,773			38,292,653
Treasury stock, at cost		(277,436	)		(277,436	)
Common stock subscribed		74,742			74,742
Accumulated deficit		(58,210,380	)		(48,202,731	)
Total stockholders' deficit		(16,813,075	)		(10,112,640	)

Total liabilities and stockholders’ deficit	$	6,376,330		$	4,327,392

(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

SPECTRUM GLOBAL SOLUTIONS, INC.

Condensed consolidated statements of operations

(Unaudited)

	For the three months ended
	March 31,
	2021			2020


Revenue	$	4,065,989		$	5,216,346

Operating expenses:
Cost of revenues		3,355,670			4,491,199
Depreciation and amortization		13,520			13,961
General and administrative		693,691			778,179
Salaries and wages		554,427			871,811
Total operating expenses		4,617,308			6,155,150

Loss from operations		(551,319	)		(938,804	)

Other (expenses) income:
Interest expense		(94,704	)		(413,360	)
Loss on settlement of debt		(1,199,373	)		(190,902	)
Amortization of discounts on convertible debentures and loans payable		(175,855	)		(388,982	)
Loss on change in fair value of derivatives		(5,270,344	)		(813,630	)
Exchange loss		(5,706	)		—
Initial derivative expense		(2,470,000	)		—
Loss on contract cancellation		(164,950	)		—
Loss on settlement of warrants		(117,655	)		—
Loss on fair value of additional shares		(41,730	)		—
Default and debt extension fees		—			(60,489	)
Total other expense		(9,540,317	)		(1,867,363	)

Loss from continuing operations before taxes		(10,091,636	)		(2,806,167	)

Provision for income taxes		—			—

Net loss from continuing operations		(10,091,636	)		(2,806,167	)

Net loss from discontinued operations, net of tax		—			(725,535	)

Net loss attributable to Spectrum Global Solutions, Inc.		(10,091,636	)		(3,531,702	)

Less: deemed dividend - Series A preferred stock extinguishment		83,987			—

Net loss attributable to Spectrum Global Solutions, Inc. common shareholders	$	(10,007,649	)	$	(3,531,702	)

Loss per share attributable to Spectrum Global Solutions, Inc. common shareholders, basic and diluted:
Net loss from continuing operations	$	(0.53	)	$	(3.88	)
Net loss on discontinued operations, net of taxes	$	—		$	(1.00	)
Net loss per share	$	(0.53	)	$	(4.89	)

Weighted average common shares outstanding, basic and diluted		18,933,868			722,364

(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

SPECTRUM GLOBAL SOLUTIONS, INC.

Condensed consolidated statements of stockholder’s deficit

(Unaudited)

	For the three months ended March 31, 2021
	Common stock				Additional paid-in		Common stock		Treasury			Accumulated
	Shares		$		capital		subscribed		stock				deficit			Total

Balances, January 1, 2021		13,186,880	$	132	$	38,292,653	$	74,742	$	(277,436	)	$	(48,202,731	)	$	(10,112,640	)

Issuance of common stock to GS Capital Partners upon conversion of a convertible debenture		1,363,494		14		146,999		—		—			—			147,013
Issuance of common stock to FJ Vulis based on terms of a convertible debenture		642,000		6		41,724		—		—			—			41,730
Issuance of common stock to SCS, LLC upon conversion of a convertible debenture		919,356		9		286,830		—		—			—			286,839
Issuance of common stock to Cobra Equities upon conversion of a convertible debenture		2,389,202		24		1,090,876		—		—			—			1,090,900
Issuance of common stock to M2B Funding upon conversion of Series A preferred stock		1,135,734		11		119,224		—		—			—			119,235
Issuance of common stock to Efrat Investments upon conversion of a convertible debenture		750,000		7		324,742		—		—			—			324,749
Issuance of common stock to CCAG Investments upon exercise of warrants		1,015,505		10		441,734		—		—			—			441,744
Issuance of common stock to FJ Vulis upon exercise of warrants		989,587		10		375,044		—		—			—			375,054
Issuance of common stock to Oasis Capital LLC based on terms of an exchange agreement		250,000		3		164,947		—		—			—			164,950
Impact of note extinguishment		—		—		315,000		—		—			—			315,000
Deemed dividend - Series A preferred stock extinguishment		—		—		—		—		—			83,987			83,987
Net loss for the period		—		—		—		—		—			(10,091,636	)		(10,091,636	)

Ending balance, March 31, 2021		22,641,758	$	226	$	41,599,773	$	74,742	$	(277,436	)	$	(58,210,380	)	$	(16,813,075	)

	For the three months ended March 31, 2020
	Common stock				Additional paid-in		Common stock		Treasury			Accumulated
	Shares		$		capital		subscribed		stock				deficit			Total

Balances, January 1, 2020		195,715	$	2	$	25,255,291	$	74,742	$	(277,436	)	$	(30,492,435	)	$	(5,439,836	)

Issuance of common stock to M2B Funding upon conversion of Series A preferred stock		1,112		—		12,151		—		—			—			12,151
Issuance of common stock to CCAG Investments upon execution of convertible debenture agreements		9,755		—		51,500		—		—			—			51,500
Issuance of common stock to FJ Vulis upon execution of convertible debenture agreements		9,755		—		51,500		—		—			—			51,500
Issuance of common stock to Dominion Capital upon conversion of Series A preferred stock		2,778		—		30,379		—		—			—			30,379
Issuance of common stock to GS Capital Partners upon conversion of a convertible debenture		12,859		—		64,257		—		—			—			64,257
Common stock issued for related party receivable from WaveTech GmbH debt assumption		1,082,731		11		8,507,546		—		—			—			8,507,557
Stock-based compensation		—		—		201,938		—		—			—			201,938
Net loss for the period		—		—		—		—		—			(3,651,702	)		(3,651,702	)

Ending balance, March 31, 2020		1,314,705	$	13	$	34,174,562	$	74,742	$	(277,436	)	$	(34,144,137	)	$	(172,256	)

(The accompanying notes are an integral part of these unaudited condensed consolidated financial statements)

SPECTRUM GLOBAL SOLUTIONS, INC.

Condensed consolidated statements of cash flows

(Unaudited)

	For the three months ended
	March 31,
	2021			2020

Cash flows from operating activities:
Net loss	$	(10,091,636	)	$	(3,531,702	)

Adjustments to reconcile net loss to net cash used in operating activities:
Loss on change in fair value of derivative liability		5,270,344			813,630
Amortization of discounts on convertible debentures and loans payable		175,855			388,982
Depreciation and amortization		13,520			13,961
Amortization of operating right-of-use assets		8,280			30,395
Amortization of operating right-of-use liabilities		(8,329	)		(29,898	)
Stock-based compensation		165,965			201,938
Loss on settlement of debt		1,199,373			190,902
Loss on fair value of additional shares		41,730			-
Initial derivative expense		2,470,000			-
Loss on contract cancellation		164,950			-
Loss on settlement of warrants		117,655			-
Default and debt extensions fees		-			60,489
Changes in operating assets and liabilities:
Accounts receivable		(145,958	)		(141,757	)
Contract assets		(91,063	)		55,346
Prepaid expenses and deposits		940			7,548
Other assets		-			-
Accounts payable and accrued liabilities		79,223			88,860
Contract liabilities		80,911			21,504
Net cash used in operating activities of continuing operations		(548,240	)		(1,829,802	)
Net cash provided by operating activities of discontinued operations		-			1,553,071
Net cash used in operating activities		(548,240	)		(276,731	)

Cash flows from investing activities:
Net cash used in investing activities		-			-

Cash flows from financing activities:
Proceeds from loans payable		2,000,000			3,044,690
Repayments of loans payable		(181,129	)		(6,515,979	)
Proceeds from loans payable to related parties		-			299,972
Proceeds from convertible debentures		600,000			315,000
Repayments of convertible debentures		(121,031	)		(51,847	)
Proceeds from factoring financing		3,362,760			4,685,390
Repayments of factor financing		(3,277,703	)		(1,841,009	)
Net cash and restricted cash provided by (used in) financing activities		2,382,897			(63,783	)

Net increase (decrease) in cash and restricted cash		1,834,657			(340,514	)

Cash, beginning of period		580,800			375,141
Restricted cash, beginning of period		-			-
Cash and restricted cash, beginning of period	$	580,800		$	375,141

Cash, end of period		415,457			34,627
Restricted cash, end of period		2,000,000			-
Cash and restricted cash, end of period	$	2,415,457		$	34,627

Supplemental disclosures of cash flow information:
Cash paid for interest	$	15,085		$	56,847
Cash paid for income taxes	$	-		$	-

Non-cash investing and financing activities:
Common stock issued for conversion of convertible debentures	$	1,849,501		$	64,257
Original issue discounts	$	31,579		$	35,000
Common stock issued for conversion of Series A preferred stock	$	134,560		$	42,530
Addition to derivative liability due to issuance of stock options	$	553,535		$	44,700
Common stock issued upon cashless exercise of warrants	$	816,798		$	-
Common stock issued upon exchange agreement	$	164,950		$	-
Additional shares issued based on terms of convertible debentures	$	41,730		$	-
Deemed dividend - Series A preferred stock extinguishment	$	83,987
Original debt discount against derivative liability	$	600,000		$	315,000
Change in conversion terms of convertible loans payable to related parties	$	315,000		$	-
Addition to principal of convertible debenture due to defaults	$	-		$	12,758
Addition to principal of convertible debenture due to debt extension fee	$	-		$	47,731
Common stock issued upon conversion of WaveTech GmbH debt assumed by the Company	$	-		$	8,507,557
Issuance of common stock upon execution of convertible debenture agreements	$	-		$	103,000

(The accompanying notes are an integral part of these unaudited consolidated financial statements)

SPECTRUM GLOBAL SOLUTIONS, INC.

Notes to the unaudited condensed consolidated financial statements

March 31, 2021

1.	Organization and Going Concern

Spectrum Global Solutions, Inc., (the “Company”) (f/k/a Mantra Venture Group Ltd.) was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, the Company reincorporated in the province of British Columbia, Canada.

On April 25, 2017, the Company entered into and closed on an Asset Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Asset Purchase Agreement, the Company purchased 80.1% of the assets associated with InterCloud’s AW Solutions, Inc., AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”) (collectively “AWS” or the “AWS Entities”) subsidiaries.

On November 15, 2017, the Company changed its name to “Spectrum Global Solutions, Inc.” and reincorporated in the state of Nevada.

On February 14, 2018, the Company entered into an agreement with InterCloud providing for the sale, transfer, conveyance and delivery to the Company of the remaining 19.9% of the assets associated with InterCloud’s AWS business not already purchased by the Company.

On February 6, 2018, the Company entered into and closed on a Stock Purchase Agreement with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Stock Purchase Agreement, the Company purchased all of the issued and outstanding capital stock and membership interests of ADEX Corporation, ADEX Puerto Rico LLC, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”). The Company completed the acquisition on February 27, 2018.

On May 18, 2018, the Company transferred all of its ownership interests in and to its subsidiaries Carbon Commodity Corporation, Mantra China Limited, Mantra Media Corp., Mantra NextGen Power Inc., Mantra Wind Inc., Climate ESCO Ltd. and Mantra Energy Alternatives Ltd. to an entity controlled by the Company’s former Chief Executive Officer, Larry Kristof. The new owner of the aforementioned entities assumed all liabilities and obligations with respect to such entities.

On January 4, 2019, the Company entered into a Stock Purchase Agreement with InterCloud. Pursuant to the terms of the Purchase Agreement, InterCloud agreed to sell, and the Company agreed to purchase, all of the issued and outstanding capital stock of TNS, Inc. (“TNS”), an Illinois corporation.

During September 2019, the Company formed ADEX Canada, which is included in the ADEX Entities.

On September 30, 2020, the Company sold its TNS subsidiary.

On December 31, 2020, the Company sold its AWS subsidiary.

As a result of the sale of AWS, the remaining subsidiaries from the Company’s former AWS Entities, AWS PR and Tropical, are now broken out separately.

The Company’s AWS PR and Tropical subsidiaries are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. The Company’s ADEX Entities are a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications industry, service providers and enterprise customers domestically and internationally.

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The recently acquired AWS and ADEX businesses have also incurred losses and experienced negative cash flows from operations during their most recent fiscal years. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. As of March 31, 2021, the Company had an accumulated deficit of $58,210,380, and a working capital deficit of $7,608,873. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be no certainty that these sources will provide the additional funds required for the next twelve months.

2.	Significant Accounting Policies

Condensed Financial Statements

The accompanying unaudited interim consolidated financial statements of the Company should be read in conjunction with the consolidated financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company’s Form 10-K for the year ended December 31, 2020. In the opinion of management, the accompanying financial statements reflect all adjustments of a recurring nature considered necessary to present fairly the Company’s financial position and the results of its operations and its cash flows for the periods shown.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. The results of operations and cash flows for the periods shown are not necessarily indicative of the results to be expected for the full year.

Basis of Presentation/Principles of Consolidation

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries, the ADEX Entities, AWS PR, and Tropical. All subsidiaries are wholly-owned.

During the year ended December 31, 2020, the Company sold its AWS and TNS subsidiaries. The operations of AWS and TNS (from the date of acquisition, January 4, 2019) have been included as discontinued operations in the accompanying financial statements.

All inter-company balances and transactions have been eliminated.

Impact of the COVID-19 Pandemic

The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.

Global health concerns relating to the COVID-19 outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact the Company’s workforce and operations and the operations of its customers, suppliers and business partners. These measures may remain in place for a significant period of time and they are likely to continue to adversely affect the Company’s business, results of operations and financial condition.

The spread of COVID-19 has caused the Company to modify its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests of its employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.

The extent to which the COVID-19 outbreak impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, the Company may continue to experience materially adverse impacts to its business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a global pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. The Company does not yet know the full extent of the impacts on its business, its operations or the global economy as a whole. However, the effects could have a material impact on the Company’s results of operations, and the Company will continue to monitor the COVID-19 situation closely. As of May 2021, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine distribution, supply and effectiveness will impact when the negative economic effects as a result of COVID-19 will abate or end and the timing of such recovery may affect the Company’s financial condition.

Reverse Stock Split

On April 14, 2020, the Company filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of the state of Nevada to effect a 1-for-300 reverse stock split with respect to the outstanding shares of the Company’s common stock. The Certificate of Amendment became effective on April 14, 2020 with the state of Nevada, and on April 20, 2020, Financial Industry Regulatory Authority, Inc. (FINRA) made the announcement of the reverse stock split.

The reverse stock split was previously approved by the board of directors and the majority of stockholders of the Company. The reverse stock split was deemed effective at the open of business on April 21, 2020. As a result of the reverse stock split, every three hundred (300) shares of outstanding common stock of the Company as of April 14, 2020 were converted into one (1) share of common stock. Fractional shares resulting from the reverse stock split will be rounded up to the next whole number.

All common share, warrant, stock option, and per share information in the consolidated financial statements gives retroactive effect to the 1-for-300 reverse stock split. There was no change to the number of authorized shares of common stock or preferred stock of the Company as a result of the reverse stock split. The par value of the Company’s common stock was unchanged at $0.00001 per share post-split.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

Restricted Cash

As of March 31, 2021, the Company had $2,000,000 of restricted cash related to the CARES Act Loan discussed in Note 6, Loans Payable. The Company is unable to use these funds until ADEX’s original $2,692,125 CARES Act Loan is forgiven.

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts at March 31, 2021 and December 31, 2020 was $38,881.

Property and Equipment

Property and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following annual rates:

Automotive	3-5 years straight-line basis
Computer equipment and software	3-7 years straight-line basis
Leasehold improvements	5 years straight-line basis
Office equipment and furniture	5 years straight-line basis

Goodwill

Goodwill was initially generated through the acquisitions of the AWS Entities in 2017, the ADEX Entities in 2018, and TNS in 2019, as the total consideration paid exceeded the fair value of the net assets acquired.

The Company tests its goodwill for impairment at least annually on December 31st and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s consolidated financial results.

The Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital used to discount future cash flows to their present value. There were no impairment charges during the three months ended March 31, 2021 and 2020.

Intangible Assets

At March 31, 2021 and December 31, 2020, definite-lived intangible assets primarily consist of tradenames and customer relationships which are being amortized over their estimated useful lives ranging from 5-35 years.

The Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized, they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.

For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were no impairment charges during the three months ended March 31, 2021 and 2020.

Long-lived Assets

In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. There were no impairment charges recorded during the three months ended March 31, 2021 and 2020.

Foreign Currency Translation

Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting foreign exchange gains and losses are recognized in income.

The Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. The resulting foreign exchange gains or losses are recognized in income.

Income Taxes

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

The Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines it’s filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010 to 2020. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.

Significant management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.

The Company follows the guidance set forth within ASC Topic 740, “Income Taxes” (“ASC Topic 740”) which prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would be recorded as a component of current income tax expense.

The Company received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014. The amount due as of March 31, 2021 was $156,711 plus penalties and interest of $140,314 for a total obligation due of $297,025. The amount due as of December 31, 2020 was $156,711 plus penalties and interest of $129,967 for a total obligation due of $286,678. This tax assessment was included in accrued expenses at March 31, 2021 and December 31, 2020.

Revenue Recognition

Adoption of New Accounting Guidance on Revenue Recognition

The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.

Contract Types

The Company’s contracts fall under three main types: 1) unit-price, 2) fixed-price, and 3) time-and-materials. Unit-price contracts relate to services being performed and paid on a unit basis, such as per mile of construction completed. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working permanently at customer locations and materials costs incurred by those employees.

A significant portion of the Company’s revenues come from customers with whom the Company has a master service agreement (“MSA”). These MSA’s generally contain customer specific service requirements.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases this may be each day, or each week depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work. Contract assets include unbilled amounts for costs of services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated balance sheets. Contract liabilities include costs incurred and are included in contract liabilities on the consolidated balance sheets.

Revenue Service Types

The following is a description of the Company’s revenue service types, which include professional services and construction:

●

Professional services are services provided to the clients where the Company delivers distinct contractual deliverables and/or services. Deliverables may include but are not limited to: engineering drawings, designs, reports and specification. Services may include, but are not limited to: consulting or professional staffing to support our client’s objectives. Consulting or professional staffing services may be provided remotely or on client premises and under their direction and supervision.

●

Construction Services are services provided to the client where the Company may self-perform or subcontract services that require the physical construction of infrastructure or installation of equipment and materials.

Disaggregation of Revenues

The Company disaggregates its revenue from contracts with customers by service type, contract type, contract duration, and timing of transfer of goods or services. See the below tables:

Revenue by service type	Three months ended March 31, 2021		Three months ended March 31, 2020
Professional Services	$	3,667,071	$	4,917,734
Construction		398,918		298,612
Total	$	4,065,989	$	5,216,346

Revenue by contract duration	Three months ended March 31, 2021		Three months ended March 31, 2020
Short-term	$	94,997	$	27,592
Long-term		3,970,992		5,188,754
Total	$	4,065,989	$	5,216,346

Revenue by contract type	Three months ended March 31, 2021		Three months ended March 31, 2020
Unit-price	$	36,482	$	112,221
Fixed-price		362,436		186,391
Time-and-materials		3,667,071		4,917,734
Total	$	4,065,989	$	5,216,346

The Company also disaggregates its revenue by operating segment and geographic location (refer to Note 15, Segment Disclosures, for additional information).

Accounts Receivable

Accounts receivable include amounts from work completed in which the Company has billed. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable.

Contract Assets and Liabilities

Contract assets include costs and services incurred on contracts with open performance obligations. These amounts are included in contract assets on the consolidated balance sheets. At March 31, 2021 and December 31, 2020, contract assets totaled $258,712 and $167,649, respectively.

Contract liabilities include payment received for incomplete performance obligations and are included in contract liabilities on the consolidated balance sheets. At March 31, 2021 and December 31, 2020, contract liabilities totaled $368,686 and $287,775, respectively.

Cost of Revenues

Cost of revenues includes all direct costs of providing services under the Company’s contracts, including costs for direct labor provided by employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct materials, insurance claims and other direct costs.

Research and Development Costs

Research and development costs are expensed as incurred.

Stock-based Compensation

The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”), using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASU 2018-07.

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.

Loss per Share

The Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted loss per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of March 31, 2021 and December 31, 2020, respectively, the Company had 47,241,908 and 53,429,108 common stock equivalents outstanding.

Leases

The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842") on January 1, 2019.

The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the Company’s lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.

The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months as of January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, unamortized lease incentives provided by lessors, and restructuring liabilities, Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur. The Company has elected not to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or result of operations.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.

The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the three months ended March 31, 2021, three customers accounted for 27%, 19% and 13%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 21%, 29% and 17%, respectively, of trade accounts receivable as of March 31, 2021. For the three months ended March 31, 2020, three customers accounted for 43%, 17% and 10%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 54%, 4% and 13%, respectively, of trade accounts receivable as of March 31, 2020.

The Company’s customers are primarily located within the domestic United States of America, Puerto Rico, and Canada. Revenues generated within the domestic United States of America accounted for approximately 91% of consolidated revenues for the three months ended March 31, 2021. Revenues generated from customers in Puerto Rico and Canada accounted for approximately 9% of consolidated revenues for the three months ended March 31, 2021. Revenues generated within the domestic United States of America accounted for approximately 97% of consolidated revenues for the three months ended March 31, 2020. Revenues generated from customers in Puerto Rico and Canada accounted for approximately 3% of consolidated revenues for the three months ended March 31, 2020.

Fair Value Measurements

The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy is defined as follows:

Level 1 – quoted prices for identical instruments in active markets;

Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and

Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Financial instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the three months ended March 31, 2021 or the year ended December 31, 2020. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

The Company’s financial assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2021 and December 31, 2020 consisted of the following:

		Total fair value at March 31, 2021				Quoted prices in active markets (Level 1)				Quoted prices in active markets (Level 2)				Quoted prices in active markets (Level 3)
Derivative liability (1)		$	11,132,240			$	-			$	-			$	11,132,240

		Total fair value at December 31, 2020				Quoted prices in active markets (Level 1)				Quoted prices in active markets (Level 2)				Quoted prices in active markets (Level 3)
Derivative liability (1)		$	3,390,504			$	-			$	-			$	3,390,504

(1)	The Company has estimated the fair value of these derivatives using the Monte-Carlo model.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 9, Derivative Liabilities, for additional information.

Derivative Liabilities

The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of March 31, 2021 and December 31, 2020, the Company had a derivative liability of $11,132,240 and $3,390,504, respectively.

Sequencing Policy

Under ASC 815-40-35, the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuance of securities to the Company’s employees or directors are not subject to the sequencing policy.

Reclassifications

Certain balances in previously issued consolidated financial statements have been reclassified to be consistent with the current period presentation. The reclassification had no impact on total financial position, net income, or stockholders’ equity.

3.	Property and Equipment

Property and equipment as of March 31, 2021 and December 31, 2020 consisted of the following:

	March 31,			December 31,
	2021			2020
Computers and office equipment	$	217,155		$	217,155
Vehicles		58,635			58,635
Leasehold improvements		21,885			21,885
Total		297,675			297,675

Less: accumulated depreciation		(284,265	)		(283,489	)

Equipment, net	$	13,410		$	14,186

During the three months ended March 31, 2021 and 2020, the Company recorded depreciation expense of $776 and $1,217, respectively.

4.	Intangible Assets

Intangible assets as of March 31, 2021 and December 31, 2020 consisted of the following:

	Cost		Accumulated Amortization		Impairment		Net carrying value at March 31, 2021		Net carrying value at December 31, 2020
Customer relationship and lists	$	136,000	$	97,273	$	-	$	38,727	$	46,614
Trade names		631,000		59,903		-		571,097		575,954

Total intangible assets	$	767,000	$	157,176	$	-	$	609,824	$	622,568

During the three months ended March 31, 2021 and 2020, the Company recorded amortization expense of $12,744 and $12,744, respectively.

The estimated future amortization expense for the next five years and thereafter is as follows:

Year ending December 31,
2021	$	38,232
2022		34,494
2023		19,428
2024		19,428
2025		19,428
Thereafter		478,814
Total	$	609,824

5.	Related Party Transactions

Exchange of Shares of Common Stock for Series B Preferred Stock

On April 23, 2018, each of Roger Ponder, the Company’s Chief Executive Officer, and Keith Hayter, the Company’s President, exchanged certain shares of common stock of the Company held by each of them for shares of the newly designated Series B preferred stock. Mr. Ponder exchanged 542,500 shares of common stock for an aggregate of 500 shares of Series B preferred stock, and Mr. Hayter exchanged 542,500 shares of common stock for an aggregate of 500 shares of Series B preferred stock. The Company recorded the fair value of the Series B preferred stock of $484,530 as mezzanine equity and reduced common shares and additional paid in capital an equal amount (refer to Note 11, Preferred Stock, for additional information).

If the High Wire Networks, Inc. (“High Wire”) transaction as proposed closes, the Series B preferred stock shares will be exchanged for 1,500 shares of Class D stock (refer to Note 14, Commitments and Contingencies, for additional detail).

InterCloud Related Party Reclassification

During May 2019, as a result of shares of common stock issued to InterCloud as a result of conversions of convertible debentures, the Company determined that InterCloud was a related party. As of December 31, 2020, due to additional shares issued by the Company, the Company determined that InterCloud was no longer a related party. The effective date of the reclassification was January 1, 2019.

Loans Payable to Related Parties

As of March 31, 2021 and December 31, 2020, the Company had outstanding the following loans payable to related parties:

	March 31,		December 31,
	2021		2020
Convertible promissory note issued to Keith Hayter, 10% interest, unsecured, matures August 31, 2022	$	554,031	$	554,031
Convertible promissory note issued to Roger Ponder, 10% interest, unsecured, matures August 31, 2022		23,894		23,894
Total	$	577,925	$	577,925

The Company’s loans payable to related parties have an effective interest rate of 11.2%.

Promissory note issued to Roger Ponder, 10% interest, unsecured, matured on November 30, 2018 and extended to November 30, 2019

On November 30, 2017, the Company received $18,858 pursuant to a promissory note issued to the Chief Executive Officer of the Company. The note issued was unsecured, was due on November 30, 2018 and bore interest at a rate of 10% per annum. On November 30, 2018, the lender agreed to extend the maturity of the loan to November 30, 2019. The Company accounted for the modification in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as a modification and no gain or loss was recognized.

The note matured on November 30, 2019 and was due on demand.

On August 31, 2020, the holder of the note exchanged this note for a new note (refer to the “Convertible promissory note, Roger Ponder, 10% interest, unsecured, matures August 31, 2022” section of this note for additional detail).

Convertible promissory note, Roger Ponder, 10% interest, unsecured, matures August 31, 2022

On August 31, 2020, Roger Ponder exchanged one note into a new convertible promissory note with a principal amount of $23,894. Interest accrues on the new note at 10% per annum. All principal and accrued but unpaid interest under the note is due on August 31, 2022. The note is convertible into shares of the Company’s common stock at 80% of the lowest trading price in the 5 trading days prior to the conversion date. The conversion price has a floor of $0.01 per share.

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature was $16,000. The Company accounted for this assignment in accordance with ASC 470-50 “Modifications and Extinguishments.” As a result, the Company recorded a loss on settlement of debt of $16,000 to the consolidated statement of operations for the year ended December 31, 2020.

On January 14, 2021, the Company entered into an agreement with the holder whereby the conversion price was updated to $0.06 per share, subject to adjustment based on the terms of the note. The Company accounted for the change in conversion price in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as an extinguishment. As a result of the extinguishment, the embedded conversion option no longer qualified for derivative accounting. The fair value of the embedded conversion option on the date of the amendment was $13,000. This amount was added to additional paid in capital during the three months ended March 31, 2021.

As of March 31, 2021, the Company owed $23,894 pursuant to this agreement.

Promissory note issued to Keith Hayter, 10% interest, unsecured, matured on November 30, 2018 and extended to November 30, 2019

On November 30, 2017, the Company received $130,000 pursuant to a promissory note issued to the President of the Company. The note issued was unsecured, due on November 30, 2018 and bore interest at a rate of 10% per annum. On November 30, 2018, the lender agreed to extend the maturity of the loan to November 30, 2019. The Company accounted for the modification in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as a modification and no gain or loss was recognized.

The note matured on November 30, 2019 and was due on demand.

On August 31, 2020, the holder of the note exchanged this note for a new note (refer to the “Convertible promissory note, Keith Hayter, 10% interest, unsecured, matures August 31, 2022” section of this note for additional detail).

Promissory note issued to Keith Hayter, 10% and 8% interest, unsecured, matured April 13, 2020

On April 13, 2018, the Company received $85,000 pursuant to a promissory note issued to the President of the Company. The note issued was unsecured, due on April 13, 2019 and bore interest at a rate of 8% per annum. At December 31, 2018, the amount of $85,000 was owed. On April 13, 2019, the note was amended to a maturity date of April 13, 2020 and an interest rate of 10%. The Company accounted for the modification in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as a modification and no gain or loss was recognized.

The note matured on April 13, 2020 and was due on demand.

Promissory note issued to Keith Hayter, 8% interest, unsecured, matured October 1, 2019

On August 21, 2018, the Company received $80,000 pursuant to a promissory note issued to the President of the Company. The note issued was unsecured, was due on August 20, 2019 and bore interest at a rate of 8% per annum. On August 20, 2019, the note was amended to a maturity date of October 1, 2019 and an interest rate of 10%. The Company accounted for the modification in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as a modification and no gain or loss was recognized.

The note matured on October 1, 2019 and was due on demand.

Promissory note issued to Keith Hayter, 10% interest, unsecured, matures August 11, 2020

On August 12, 2019, the Company received $170,000 pursuant to a promissory note issued to the President of the Company. The note issued was unsecured, was due on August 11, 2020 and bore interest at a rate of 10% per annum.

Convertible promissory note, Keith Hayter, 10% interest, unsecured, matures August 31, 2022

On August 31, 2020, Keith Hayter exchanged four notes into a new convertible promissory note with a principal amount of $554,031. Interest accrues on the new note at 10% per annum. All principal and accrued but unpaid interest under the note is due on August 31, 2022. The note is convertible into shares of the Company’s common stock at 80% of the lowest trading price in the 5 trading days prior to the conversion date. The conversion price has a floor of $0.01 per share.

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature was $362,000. The Company accounted for this assignment in accordance with ASC 470-50 “Modifications and Extinguishments.” As a result, the Company recorded a loss on settlement of debt of $362,000 to the consolidated statement of operations for the year ended December 31, 2020.

On January 14, 2021, the Company entered into an agreement with the holder whereby the conversion price was updated to $0.06 per share, subject to adjustment based on the terms of the note. The Company accounted for the change in conversion price in accordance with ASC 470-50 “Modifications and Extinguishments”. In accordance with ASC 470-50, the Company accounted for the extension as an extinguishment. As a result of the extinguishment, the embedded conversion option no longer qualified for derivative accounting. The fair value of the embedded conversion option on the date of the amendment was $302,000. This amount was added to additional paid in capital during the three months ended March 31, 2021.

As of March 31, 2021, the Company owed $554,031 pursuant to this agreement.

6.	Loans Payable

As of March 31, 2021 and December 31, 2020, the Company had outstanding the following loans payable:

	March 31,			December 31,
	2021			2020
Promissory note issued to J. Thacker, non-interest bearing, unsecured and due on demand	$	41,361		$	41,361
Promissory note issued to S. Kahn, non-interest bearing, unsecured and due on demand		7,760			7,760
Promissory note issued to 0738856 BC ltd non-interest bearing, unsecured and due on demand		2,636			2,636
Promissory note issued to 0738856 BC Ltd, non-interest bearing, unsecured and due on demand		15,000			15,000
Promissory note issued to Bluekey Energy, non-interest bearing, unsecured and due on demand		7,500			7,500
Subscription amount due to T. Warkentin non-interest bearing, unsecured and due on demand		50,000			50,000
Promissory note issued to Old Main Capital LLC, 10% interest, unsecured and due on demand		12,000			12,000
Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand		217,400			217,400
Future receivables financing agreement with Pawn Funding, non-interest bearing, matures April 16, 2021, net of debt discount of $180 and $1,072		4,039			18,334
Future receivables financing agreement with Cedar Advance Funding, non-interest bearing, matures April 27, 2021, net of debt discount of $37,807		-			160,390
CARES Act Loans		4,920,125			2,920,125
Total		5,277,821			3,452,506

Less: Long-term portion of loans payable		(4,920,125	)		(2,920,125	)

Loans payable, current portion, net of debt discount	$	357,696		$	532,381

During May 2019, as a result of shares of common stock issued to InterCloud as a result of conversions of convertible debentures, the Company determined that InterCloud was a related party. During the year ended December 31, 2020, due to additional shares issued by the Company, the Company determined that InterCloud was no longer a related party. The effective date of the reclassification was January 1, 2019.

Promissory note issued to J. Thacker, non-interest bearing, unsecured and due on demand

The Company owed $41,361 ($53,300 Canadian dollars) to a non-related party as of March 31, 2021 and December 31, 2020. This promissory note is non-interest bearing, unsecured, and due on demand.

Promissory note issued to S. Kahn, non-interest bearing, unsecured and due on demand

The Company owed $7,760 ($10,000 Canadian dollars) to a non-related party as of March 31, 2021 and December 31, 2020. This promissory note is non-interest bearing, unsecured, and due on demand.

Promissory note issued to 0738856 BC ltd non-interest bearing, unsecured and due on demand

The Company owed $2,636 ($3,400 Canadian dollars) to a non-related party as of March 31, 2021 and December 31, 2020. This promissory note is non-interest bearing, unsecured, and due on demand.

Promissory note issued to 0738856 BC Ltd, non-interest bearing, unsecured and due on demand

The Company owed $15,000 to a non-related party as of March 31, 2021 and December 31, 2020. This promissory note is non-interest bearing, unsecured, and due on demand.

Promissory note issued to Bluekey Energy, non-interest bearing, unsecured and due on demand

The Company owed $7,500 to a non-related party as of March 31, 2021 and December 31, 2020. This promissory note is non-interest bearing, unsecured, and due on demand.

Subscription amount due to T. Warkentin non-interest bearing, unsecured and due on demand

In March 2012, the Company received $50,000 for the subscription of 167 shares of the Company’s common stock. During the year ended May 31, 2013, the Company and the subscriber agreed that the shares would not be issued and that the subscription would be returned. The subscription has been reclassified as a non-interest bearing demand loan until the funds are refunded to the subscriber. The Company owed $50,000 as of March 31, 2021 and December 31, 2020.

Promissory note issued to Old Main Capital LLC, 10% interest, unsecured and due on demand

On April 12, 2017, received $12,000 pursuant to a promissory note. The note issued is unsecured, due on demand and bears interest at a rate of 10% per annum. The Company owed $12,000 as of March 31, 2021 and December 31, 2020.

Loan with Pawn Funding

On December 10, 2019, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Pawn Funding. Under the Financing Agreement, the Financing Parties sold to Pawn Funding future receivables in an aggregate amount equal to $135,000 for a purchase price of $100,000. The Company received cash of $97,000 and recorded a debt discount of $38,000.

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Pawn Funding $4,219 each week based upon an anticipated 15% of its future receivables until such time as $135,000 has been paid, a period Pawn Funding and the Financing Parties estimate to be approximately eight months. In the event that the Financing Agreement is paid off earlier than eight months, there is to be a discount to the sum owed. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

On April 10, 2020, the weekly payment amount was reduced from $4,219 to $1,266. The final payment is now estimated to be due on April 16, 2021.

On July 14, 2020, in connection with the reduction of the weekly payment amount, the Company issued to Pawn Funding a warrant to purchase up to 200,000 shares of the Company’s common stock at an exercise price of $0.18 per share. The warrant expires on July 1, 2021.

During the year ended December 31, 2020, the Company paid $107,156 of the original balance under the agreement. During the three months ended March 31, 2021, the Company paid $15,188 of the original balance under the agreement.

At March 31, 2021, the Company owed $4,219 pursuant to this agreement and will record accretion equal to the debt discount of $180 over the remaining term of the note.

During the period of April 1, 2021 through May 12, 2021, the Company repaid the remaining $4,219 of principal (refer to Note 17, Subsequent Events, for additional detail).

Loan with Cedar Advance LLC

On September 29, 2020, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing Parties sold to Cedar Advance future receivables in an aggregate amount equal to $349,750 for a purchase price of $250,000. The Company received cash of $242,500 and recorded a debt discount of $107,250.

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Cedar Advance $11,658 each week based upon an anticipated 25% of its future receivables until such time as $349,750 has been paid, a period Cedar Advance and the Financing Parties estimate to be approximately seven months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

During the year ended December 31, 2020, the Company paid $151,558 of the original balance under the agreement.

During January 2021, the Company made four weekly payments of $11,658 on the note described in Note 7, Loans Payable. On January 28, 2021, the Company made a final payment of $119,308 in full settlement of the note. Total cash payments during this period were $165,942, with a discount of $32,250 as a result of the Company paying the note off early. As a result of these payments, the amount owed at March 31, 2021 was $0. The Company recorded a gain on settlement of debt of $9,393 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand

In connection with the acquisition of ADEX from InterCloud, $500,000 of the purchase price was retained by the Company to satisfy any outstanding liabilities of ADEX incurred prior to the closing date.

During the year ended December 31, 2019, the Company repaid $57,600 of this amount.

As of March 31, 2021, principal of $217,400 remains outstanding.

CARES Act Loans

On April 27, 2020 and October 14, 2020, the Company’s ADEX subsidiary received $2,692,125 and $150,000 respectively (the “PPP Funds”). On May 12, 2020, the Company’s AWS PR subsidiary received $78,000 in PPP Funds. ADEX entered into loan agreements with Heritage Bank of Commerce and AWS PR entered into a loan agreement with Banco Popular de Puerto Rico.

Additionally, on April 21, 2020 and May 14, 2020, the Company’s former AWS and TNS subsidiaries received $682,400 and $108,658, respectively, in PPP Funds. AWS entered into a loan agreement with Iberia Bank and TNS entered into a loan agreement with TCF National Bank. In connection with the sales of these subsidiaries, these CARES Act Loans were assumed by the purchasers.

On March 29, 2021, ADEX received an additional $2,000,000 CARES Act Loan. The Company is unable to use these funds until ADEX’s original $2,692,125 CARES Act Loan is forgiven. The $2,000,000 is currently in restricted cash on the unaudited condensed consolidation balance sheet as of March 31, 2021.

These loan agreements were pursuant to the CARES Act. The CARES Act was established in order to enable small businesses to pay employees during the economic slowdown caused by COVID-19 by providing forgivable loans to qualifying businesses for up to 2.5 times their average monthly payroll costs. The amount borrowed under the CARES Act is eligible to be forgiven provided that (a) the Company uses the PPP Funds during the eight week period after receipt thereof, and (b) the PPP Funds are only used to cover payroll costs (including benefits), rent, mortgage interest, and utility costs. The amount of loan forgiveness will be reduced if, among other reasons, the Company does not maintain staffing or payroll levels. Principal and interest payments on any unforgiven portion of the PPP Funds (the “PPP Loan”) will be deferred for six months and will accrue interest at a fixed annual rate of 1.0% and carry a two year maturity date. There is no prepayment penalty on the CARES Act Loan.

As of March 31, 2021 and December 31, 2020, the aggregate balance of these loans was $4,920,125 and $2,920,125, respectively, and is included in loans payable on the unaudited condensed consolidated balance sheets.

On April 21, 2021, AWS PR received approval for forgiveness of its CARES Act Loan (refer to Note 17, Subsequent Events, for additional detail).

As of the date of this report, ADEX has applied to have their first two CARES Act Loans forgiven and are awaiting a decision from the SBA.

7.	Convertible Debentures

As of March 31, 2021 and December 31, 2020, the Company had outstanding the following convertible debentures:

	March 31,			December 31,
	2021			2020
Convertible promissory note, Cobra Equities SPV, LLC, 18% interest, unsecured, matured June 1, 2019	$	490,362	*	$	594,362
Convertible promissory note, Efrat Investments LLC, 10% interest, secured, matures October 5, 2021, net of debt discount of $74,911 and $132,000		3,089			-
Convertible promissory note, SCS Capital Partners, LLC, 12% interest, secured, matures December 30, 2021		235,989			257,442
Convertible promissory note, SCS Capital Partners, LLC, 10% interest, secured, matures December 31, 2021, net of debt discount of $119,632 and $169,957		11,618			5,043
Convertible promissory note, IQ Financial Inc., Tranche 1, 9% interest, secured, matures January 1, 2023, net of debt discount of $256,319		33,155			-
Convertible promissory note, IQ Financial Inc., Tranche 2, 9% interest, secured, matures January 1, 2023, net of debt discount of $322,656		19,449			-
Convertible promissory note, SCS, LLC, 24% interest, unsecured, matured March 30, 2020, due on demand		-			51,788
Convertible promissory note, GS Capital Partners, LLC, 8% interest, secured. matures October 24 2020		-			54,500
Convertible promissory note, Crown Bridge Partners, LLC, 10% interest, unsecured, matured November 21, 2020		-			39,328
Total		793,662			1,002,463

Less: Long-term portion of convertible debentures, net of debt discount		(52,604	)		-

Convertible debentures, current portion, net of debt discount	$	741,058		$	1,002,463

During the three months ended March 31, 2021, this note was assigned to Cobra Equities SPV, LLC by Barn 11.

The Company’s convertible debentures have an effective interest rate range of 12.8% to 174.5%.

Convertible promissory note, Barn 11, 18% interest, unsecured, matured June 1, 2019

On February 21, 2018, the Company issued a convertible note with a principal amount of $500,000 and a warrant with a term of three years to purchase up to 417 shares of common stock of the Company at an exercise price of $480.00 per share to Barn 11. The exercise price of the warrant was to reduce to 85% of the closing price of the Company’s common stock if the closing price of the Company’s common stock was less than $480.00 on July 31, 2018. The note was due on January 15, 2019, and in February 2019, the maturity date was extended to June 1, 2019, and bears interest at 6% per annum. The note was convertible into common shares of the Company at a conversion price equal to the lower of 80% of the lowest volume-weighted average price during the 5 trading days immediately preceding the date of conversion and $300.00 (the “Floor”), unless the note was in default, at which time the Floor terminated.

On June 1, 2019, the Company was in default on the note. As a result of the default, a 15% premium was added to the balance owed, including all accrued interest. Subsequent to the default, the new principal balance of the note was $619,362, with interest accruing at 18% per annum. Additionally, $466,000 was added to the derivative liability balance in connection with the default. The conversion price subsequent to the default was changed to 60% of the lowest VWAP for the 10 consecutive trading days immediately preceding the conversion.

The Company owed $594,362 as of December 31, 2020.

On January 27, 2021, Barn 11 assigned the full outstanding amount of principal and accrued interest to a third party, Cobra Equities SPV, LLC (refer to the “Convertible promissory note, Cobra Equities SPV, LLC, 18% interest, unsecured, matured June 1, 2019” section of this note for further detail).

Convertible promissory note, Cobra Equities SPV, LLC, 18% interest, unsecured, matured June 1, 2019

On January 27, 2021, Cobra Equities SPV, LLC was assigned by Barn 11 the full outstanding amount principal and accrued of the note described in the “Convertible promissory note, Barn 11, 18% interest, unsecured, matured June 1, 2019” section of this note. In connection with the assignment, Cobra Equities SPV, LLC become the holder of the initial holder’s interest in the note and all related documents to the note transaction. At the time of the assignment, the principal balance of the note was $594,362 and there was accrued interest totaling $213,238.

Interest accrues on the note at 18% per annum. The note is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest VWAP for the 10 consecutive trading days immediately preceding the conversion. The warrants issued to Barn 11 with the original note expired on February 21, 2021.

During the three months ended March 31, 2021, the holder of the assigned note converted $104,000 of principal and $235,000 of accrued interest into shares of the Company’s common stock (refer to Note 10, Common Stock, for additional detail). As a result of these conversions, the Company recorded a loss on settlement of debt of $751,900 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

The Company owed $490,362 as of March 31, 2021.

Convertible promissory note, Dominion Capital, 12% interest, unsecured, matured October 17, 2020

On April 17, 2019, Dominion Capital exchanged two notes into a new note (the “Exchange Note”) with a principal amount of $1,571,134. Interest accrues on the new note at 12% per annum. All principal and accrued interest under the Exchange Note is due on October 17, 2020 and is convertible into shares of the Company’s common stock. The conversion price in effect on the date such conversion is effected shall be equal to (i) initially, $30.00 or (ii) on or after the date of the closing of the next public or private offering of equity or equity-linked securities of the Company in which the Company receives gross proceeds in an amount greater than $100,000, one hundred and five percent (105%) of the price of the common stock issuable in the offering. While during the first six months that the Exchange Note is outstanding, only interest payments are due to the holder, beginning in October 2019, and on each monthly anniversary thereafter until maturity, amortization payments are due for principal and interest due under the Exchange Note. The Exchange Note includes customary events of default, including non-payment of the principal or accrued interest due on the Exchange Note. Upon an event of default, all obligations under the Exchange Note will become immediately due and payable. The Holder was granted a right to participate in future financing transactions of the Company while the Exchange Note remains outstanding.

As a result of the beneficial conversion feature associated with the Dominion notes, $314,228 was added to additional paid-in capital during the year ended December 31, 2019. In connection with the exchange, the Company recorded a loss on settlement of debt of $904,469 on the consolidated statement of operations for the year ended December 31, 2019.

The Company was to begin making principal payments in equal installments beginning on October 1, 2019. On October 22, 2019, the Company reached an agreement with Dominion Capital to postpone the principal payments. In exchange for the extension, the Company will pay to Dominion Capital an extension fee equal to 14% of the postponed payments. As a result of this agreement, the Company added $47,731 of principal to the note during the year ended December 31, 2019 and $108,146 of principal to the note during the year ended December 31, 2020. These amounts are included in default and debt extension fees in the consolidated statement of operations for the years ended December 31, 2020 and 2019.

On April 2, 2020 the Company paid a $20,000 modification fee in order to avoid an event of default under the note and receive payment forbearance for a period of 30 days.

On September 30, 2020, in connection with a stock purchase agreement, the Company entered into an amendment with Dominion and WaveTech Group, Inc. The parties agreed that as of the date of the amendment the outstanding principal and accrued interest was $1,141,769. The Company and WaveTech Group Inc. each agreed that the final payment of $1,141,769 due on October 1, 2020 be amended so that the Company and WaveTech Group Inc. be required to make payments of $570,885 on or before each of October 1, 2020 and November 1, 2020. As a result of this amendment, the amount owed by the Company to Dominion was reduced by the $570,885 of payments that WaveTech Group Inc. is responsible for. On September 30, 2020, the Company made the first payment of $285,442 under the terms of the amendment. On October 30, 2020, Dominion agreed to accept a payment of $35,000 from the Company and postpone the final payment until December 1, 2020.

During the year ended December 31, 2020 the Company paid $853,537 of principal.

On December 1, 2020, the holder of the note assigned the full outstanding amount to a third party, SCS Capital Partners, LLC (refer to the “Convertible promissory note, SCS Capital Partners, LLC, 12% interest, secured, matures December 30, 2021” section of this note for further detail).

In connection with the assignment, the Company recorded a loss on settlement of debt of $399,306 to the consolidated statement of operations for the year ended December 31, 2020.

Convertible promissory note issued in connection with the acquisition of TNS, Inc.

On January 4, 2019, as part of the acquisition of TNS, the Company issued to InterCloud a convertible promissory note in the aggregate principal amount of $620,000 (the “Note”). The interest on the outstanding principal due under the Note accrued at a rate of 6% per annum. All principal and accrued interest under the Note was due January 30, 2020, and was convertible, at any time at InterCloud’s election, into shares of common stock of the Company at a conversion price equal to the greater of 75% of the lowest volume-weighted average price during the 10 trading days immediately preceding the date of conversion and $30.00.

The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $189,000 resulted in a discount to the note payable of $144,000.

On January 28, 2019, the holder of the convertible promissory note entered into agreement to sell and assign a total of $620,000 of the $620,000 outstanding principal to two third parties, with $186,000 and $434,000 of principal assigned to each party (refer to the “Convertible promissory note, Michael Roeske, 6% interest, unsecured, matures December 31, 2020” and “Convertible promissory note, Joel Raven, 6% interest, unsecured, matures December 31, 2020” sections of this note for further detail). The Company approved and is bound by the assignment and sale agreement.

Convertible promissory note, Michael Roeske, 6% interest, unsecured, matures December 31, 2020

On January 28, 2019, InterCloud assigned $186,000 of the note issued in connection with the acquisition of TNS to Michael Roeske. The note accrues interest at a rate of 6% per annum and had a maturity date of January 30, 2020.

During the year ended December 31, 2019, Mr. Roeske converted $70,000 of principal of the note into shares of the Company’s common stock.

On February 14, 2020, the Company and Mr. Roeske entered into an amendment which revised the maturity date to December 31, 2020. Additional, per the amendment, as cash deposits were received by TNS in the ordinary course of business, a portion of such cash deposits could have been directed to Mr. Roeske. These payments would reduce the outstanding obligations of the Company to Mr. Roeske.

During the year ended December 31, 2020, the Company remitted $37,200 to Mr. Roeske in accordance with the amendment.

On September 8, 2020, Mr. Roeske returned the shares issued in 2019. These shares were then canceled and $70,000 was added back to the outstanding principal of the note. The Company recorded a loss on return of common stock of $69,820 to the consolidated statement of operations for the year ended December 31, 2020.

On September 30, 2020, the Company entered into a stock purchase agreement whereby the outstanding balance of $148,800 was assigned to the purchaser.

Convertible promissory note, Joel Raven, 6% interest, unsecured, matures December 31, 2020

On January 28, 2019, InterCloud assigned $434,000 of the note issued in connection with the acquisition of TNS to Joel Raven. The note accrued interest at a rate of 6% per annum and had a maturity date of January 30, 2020.

During the year ended December 31, 2019, Mr. Raven converted $70,000 of principal of the note into shares of the Company’s common stock.

On February 14, 2020, the Company and Mr. Raven entered into an amendment which revised the maturity date to December 31, 2020. Additional, per the amendment, as cash deposits were received by TNS in the ordinary course of business, a portion of such cash deposits could have been directed to Mr. Raven. These payments would reduce the outstanding obligations of the Company to Mr. Raven.

During the year ended December 31, 2020, the Company remitted $86,800 to Mr. Raven in accordance with the amendment.

On September 8, 2020, Mr. Raven returned the shares issued in 2019. These shares were then canceled and $70,000 was added back to the outstanding principal of the note. The Company recorded a loss on return of common stock of $69,821 to the consolidated statement of operations for the year ended December 31, 2020.

On September 30, 2020, the Company entered into a stock purchase agreement whereby the outstanding balance of $347,200 was assigned to the purchaser.

Convertible promissory note, GS Capital Partners, LLC, 8% interest, secured, matures August 2, 2020

On August 2, 2019, the Company entered into and closed on a Securities Purchase Agreement with GS Capital Partners, LLC, pursuant to which the Company issued to GS Capital Partners, LLC a senior secured convertible promissory note in the aggregate principal amount of $123,000 for an aggregate purchase price of $112,000.

The interest on the outstanding principal due under the secured note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the secured note was originally due on August 2, 2020. The secured note was convertible into shares of the Company’s common stock at 71% of the average of the three lowest VWAPs in the 12 trading days prior to and including the conversion date. The conversion price had a floor of $3.00 per share that was removed as a result of the Company’s common stock closing below $3.90 per share.

On July 28, 2020, GS Capital Partners, LLC returned 226,800 shares of common stock related to prior conversions to the Company. These shares were then cancelled. As a result of these shares being returned, $75,096 of principal was added back to the note. Additionally, the maturity date of the note was extended.

During the year ended December 31, 2020, the holder of the note converted $123,000 of principal and $13,429 of accrued interest into shares of the Company’s common stock. As a result of these conversions, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $948,292 to the consolidated statement of operations for the year ended December 31, 2020.

Convertible promissory note, GS Capital Partners, LLC, 8% interest, unsecured, matures October 24, 2020

On October 24, 2019, the Company entered into and closed on a Securities Purchase Agreement with GS Capital Partners, LLC, pursuant to which the Company issued to GS Capital Partners, LLC a convertible promissory note in the aggregate principal amount of $123,000 for an aggregate purchase price of $112,000.

The interest on the outstanding principal due under the note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the note was due on October 24, 2020. The note was convertible into shares of the Company’s common stock at 71% of the average of the three lowest VWAPs in the 12 trading days prior to and including the conversion date. The conversion price had a floor of $3.00 per share that was removed as a result of the Company’s common stock closing below $3.90 per share.

During the year ended December 31, 2020, the holder of the note converted $68,500 of principal and $6,148 of accrued interest into shares of the Company’s common stock. As a result of these conversions, the Company recorded a loss on settlement of debt of $82,185 to the consolidated statement of operations for the year ended December 31, 2020.

At December 31, 2020, the Company owed $54,500 pursuant to this agreement.

During the three months ended March 31, 2021, the holder of the note converted $54,500 of principal and $5,346 of accrued interest into shares of the Company’s common stock (refer to Note 10, Common Stock, for additional information). As a result of these conversions, the amount owed at March 31, 2021 was $0. The Company recorded a loss on settlement of debt of $42,519 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

Convertible promissory note, SCS, LLC, 8% interest, unsecured, matured March 30, 2020

On September 1, 2019, the Company entered into and closed on a Securities Purchase Agreement with SCS, LLC, pursuant to which the Company issued to SCS, LLC an unsecured convertible promissory note in the aggregate principal amount of $51,030 in exchange for rent.

The interest on the outstanding principal due under the unsecured note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the secured note was originally due on March 30, 2020. The secured note was convertible into shares of the Company’s common stock at 75% of the lowest average VWAP in the 15 trading days prior to the conversion date.

The note matured on March 30, 2020 and was in default. As a result of the default, the note balance was increased by 25% of outstanding principal, resulting in additional principal of $12,758. The interest also increased from 8% per annum to 24% per annum.

During the year ended December 31, 2020, the holder of the note converted $12,000 of principal and $720 of accrued interest into shares of the Company’s common stock (refer to Note 10, Common Stock, for additional information). As a result of these conversions, the Company recorded a loss on settlement of debt of $7,013 to the consolidated statement of operations for the year ended December 31, 2020.

At December 31, 2020, the Company owed $51,788 pursuant to this agreement.

During the three months ended March 31, 2021, the holder of the note converted $39,030 of principal and $2,341 of accrued interest into shares of the Company’s common stock (refer to Note 10, Common Stock, for additional information). As a result of these conversions, the amount owed at March 31, 2021 was $0. The Company recorded a loss on settlement of debt of $221,097 to the consolidated statement of operations for the year ended December 31, 2020.

In connection with the final conversion, the holder of the note forgave the $12,758 of principal that had been added to the note after the default.

Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures September 17, 2020

On September 17, 2019, the Company entered into and closed on a Securities Purchase Agreement with Power Up Lending Group LTD. (“Power Up Lending”), pursuant to which the Company issued to Power Up Lending a convertible promissory note in the aggregate principal amount of $148,000 for an aggregate purchase price of $135,000. The Company received the cash on October 1, 2019.

The interest on the outstanding principal due under the note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the note was originally due on September 17, 2020. The note was convertible into shares of the Company’s common stock at 70% of the average of the three lowest VWAPs in the 15 trading days prior to and including the conversion date.

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $159,000 resulted in an additional discount to the note payable of $135,000, for a total debt discount of $148,000. The remaining $24,000 of the initial fair value of the conversion feature was recorded as initial derivative expense on the consolidated statement of operations for the year ended December 31, 2019.

During the year ended December 31, 2020, the holder of the note converted $148,000 of principal and $5,520 of accrued interest into shares of the Company’s common stock (refer to Note 10, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $262,732 to the consolidated statement of operations for the year ended December 31, 2020.

Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures January 22, 2021

On October 22, 2019, the Company entered into and closed on a Securities Purchase Agreement with Power Up Lending Group LTD. (“Power Up Lending”), pursuant to which the Company issued to Power Up Lending a convertible promissory note in the aggregate principal amount of $68,500 for an aggregate purchase price of $60,000.

The interest on the outstanding principal due under the note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the note was originally due on January 22, 2021. The note was convertible into shares of the Company’s common stock at 70% of the average of the three lowest VWAPs in the 15 trading days prior to and including the conversion date.

During the year ended December 31, 2020, the holder of the note converted $68,500 of principal and $2,540 of accrued interest into shares of the Company’s common stock (refer to Note 10, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $42,342 to the consolidated statement of operations for the year ended December 31, 2020.

Convertible promissory note, Power Up Lending Group LTD., 8% interest, unsecured, matures February 26, 2021

On November 27, 2019, the Company entered into and closed on a Securities Purchase Agreement with Power Up Lending Group LTD. (“Power Up Lending”), pursuant to which the Company issued to Power Up Lending a convertible promissory note in the aggregate principal amount of $58,000 for an aggregate purchase price of $50,000.

The interest on the outstanding principal due under the note accrued at a rate of 8% per annum. All principal and accrued but unpaid interest under the note was due on February 26, 2021. The note was convertible into shares of the Company’s common stock at 70% of the average of the three lowest VWAPs in the 15 trading days prior to and including the conversion date.

During the year ended December 31, 2020, the holder of the note converted $58,000 of principal and $3,656 of accrued interest into shares of the Company’s common stock (refer to Note 10, Common Stock, for additional information). As a result of these conversions, the amount owed at December 31, 2020 was $0. The Company recorded a loss on settlement of debt of $69,438 to the consolidated statement of operations for the year ended December 31, 2020.

Convertible promissory note, Crown Bridge Partners, LLC, 10% interest, unsecured, matured November 21, 2020

On November 12, 2019, the Company entered into and closed on a Securities Purchase Agreement with Crown Bridge Partners, LLC, pursuant to which the Company issued to Crown Bridge Partners, LLC a convertible promissory note in the aggregate principal amount of $225,000 for an aggregate purchase price of $202,500. The Company received the first tranche of $75,000 on November 21, 2019 for an aggregate purchase price of $65,500. The Company also issued a warrant equal to the face amount of the note with a term of three years to purchase 2,500 shares of common stock at an exercise price of $30.00 per share.

The interest on the outstanding principal due under the first tranche of the note accrued at a rate of 10% per annum. All principal and accrued but unpaid interest under the first tranche of the note was due on November 21, 2020. The first tranche of the note was convertible into shares of the Company’s common stock at 60% of the average of the three lowest VWAPs in the 20 trading days prior to and including the conversion date.

The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion option feature of $138,000 and warrant feature of $20,138 resulted in an additional discount to the note payable of $65,500, for a total debt discount of $75,000. The remaining $92,638 of the initial fair value of the conversion feature was recorded as initial derivative expense on the consolidated statement of operations for the year ended December 31, 2019.

The first tranche of the note matured on November 21, 2020. The holder of the note accepted guaranteed interest of 15% in lieu of a default.

During the year ended December 31, 2020, the holder of the note converted $35,672 of principal and $6,000 of accrued interest into shares of the Company’s common stock. As a result of these conversions, the Company recorded a loss on settlement of debt of $101,629 to the consolidated statement of operations for the year ended December 31, 2020.

At December 31, 2020, the Company owed $39,328 pursuant to the first tranche of this agreement.

On January 29, 2021, the Company repaid the outstanding principal and accrued interest related to the first tranche of the note. The total payment amount of $47,561 consisted of $39,328 of principal and $8,233 of accrued interest. The Company recorded a gain on settlement of debt of $94,000 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

Convertible promissory note, Efrat Investments LLC, 10% interest, secured, matures October 5, 2021

On September 14, 2020 the Company issued to Efrat Investments LLC a secured convertible promissory note in the aggregate principal amount of $165,000 for an aggregate purchase price of $146,000. The Company received the funds on October 5, 2020. The Company also issued a warrant equal to the face amount of the note with a term of two years to purchase 1,650,000 shares of common stock at an exercise price of $0.10 per share.

The interest on the outstanding principal due under the note accrues at a rate of 10% per annum. All principal and accrued but unpaid interest under the note is due on October 5, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.05 per share.

The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion option feature of $325,000 and warrant feature of $81,923 resulted in an additional discount to the note payable of $146,000, for a total debt discount of $165,000. The remaining $260,923 of the initial fair value of the conversion feature and warrant were recorded as initial derivative expense on the consolidated statement of operations for the year ended December 31, 2020.

The terms of the note dictated that principal payments of $16,500 be made monthly on the 1^st of the month beginning on November 1, 2020. During the year ended December 31, 2020, the Company paid $33,000 of principal. During the three months ended March 31, 2021, the Company paid $16,500 of principal.

During the three months ended March 31, 2021, in lieu of continuing the $16,500 monthly payments, the holder of the note converted $37,500 of principal into shares of the Company’s common stock (refer to Note 10, Common Stock, for additional detail). As a result of these conversions, the Company recorded a loss on settlement of debt of $287,250 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

At March 31, 2021, the Company owed $78,000 pursuant to this agreement and will record accretion equal to the debt discount of $74,911 over the remaining term of the note.

Convertible promissory note, SCS Capital Partners, LLC, 12% interest, secured, matures December 30, 2021

On December 1, 2020, Dominion Capital LLC assigned the note described in the “Convertible promissory note, Dominion Capital, 12% interest, unsecured, matured October 17, 2020” section of this note to SCS Capital Partners, LLC. The Company issued to SCS Capital Partners, LLC a new secured convertible promissory note in the principal amount of $257,442.

The interest on the outstanding principal due under the note accrues at a rate of 12% per annum. All principal and accrued but unpaid interest under the note is due on December 30, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.0275 per share. On or after the date of the closing of a subsequent offering, the fixed conversion price shall be 105% of the price of the common stock issued in the subsequent offering.

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature was $425,300. This amount was included in the loss on settlement of debt recorded as a result of the assignment.

During the three months ended March 31, 2021, the Company paid $21,453 of principal.

At March 31, 2021, the Company owed $235,989 pursuant to this agreement.

Convertible promissory note, SCS Capital Partners, LLC, 10% interest, secured, matures December 31, 2021

On December 29, 2020, the Company issued to SCS Capital Partners, LLC a secured convertible promissory note in the principal amount of $175,000 for a purchase price of $150,000, resulting in an original issue discount of $25,000.

The interest on the outstanding principal due under the note accrues at a rate of 10% per annum. All principal and accrued but unpaid interest under the note is due on December 31, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.04 per share.

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $465,000 resulted in an additional discount to the note payable of $150,000, for a total debt discount of $175,000. Additionally, the Company recorded an initial derivative expense of $315,000 to the consolidated statement of operations for the year ended December 31, 2020.

During the three months ended March 31, 2021, the Company paid $43,750 of principal.

At March 31, 2021, the Company owed $131,250 pursuant to this agreement and will record accretion equal to the debt discount of $119,632 over the remaining term of the note.

During the period of April 1, 2021 through May 12, 2021, the note was amended to increase the principal amount as additional funds were received (refer to Note 17, Subsequent Events, for additional detail).

Convertible promissory note, IQ Financial Inc., 9% interest, secured, matures January 1, 2023

On January 27, 2021, the Company entered into and closed on a convertible note purchase agreement with IQ Financial Inc., pursuant to which the Company issued to IQ Financial Inc. a secured convertible promissory note in the aggregate principal amount of $631,579 for an aggregate purchase price of $600,000. The Company received the funds in two disbursements – $275,000 on January 28, 2021 and $325,000 on March 1, 2021 (refer to the “Convertible promissory note, IQ Financial Inc. Tranche 1, 9% interest, secured, matures January 1, 2023” and “Convertible promissory note, IQ Financial Inc. Tranche 2, 9% interest, secured, matures January 1, 2023” sections below for additional detail.

Convertible promissory note, IQ Financial Inc. Tranche 1, 9% interest, secured, matures January 1, 2023

On January 28, 2021, the Company received the first tranche of the note discussed in the “Convertible promissory note, IQ Financial Inc., 9% interest, secured, matures January 1, 2023” above. The Company received $275,000, with an original issue discount of $14,474.

The interest on the outstanding principal due under the secured note accrues at a rate of 9% per annum. All principal and accrued but unpaid interest under the secured note is due on January 1, 2023. The holder may begin converting the note into shares of the Company’s common stock six months after issuance when it is Rule 144 eligible. The conversion price is fixed at $0.05 per share.

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $689,000 resulted in an additional discount to the note payable of $275,000, for a total debt discount of $289,474. Additionally, the Company recorded an initial derivative expense of $414,000 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

At March 31, 2021, the Company owed $289,474 pursuant to this agreement and will record accretion equal to the debt discount of $256,319 over the remaining term of the note.

Convertible promissory note, IQ Financial Inc. Tranche 2, 9% interest, secured, matures January 1, 2023

On March 1, 2021, the Company received the second tranche of the note discussed in the “Convertible promissory note, IQ Financial Inc., 9% interest, secured, matures January 1, 2023” above. The Company received $325,000, with an original issue discount of $17,105.

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $2,381,000 resulted in an additional discount to the note payable of $325,000, for a total debt discount of $342,474. Additionally, the Company recorded an initial derivative expense of $2,056,000 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

At March 31, 2021, the Company owed $342,105 pursuant to this agreement and will record accretion equal to the debt discount of $322,656 over the remaining term of the note.

Convertible promissory note, CCAG Investments, LLC, 20% interest, secured, matures June 30, 2020

On February 7, 2020, the Company entered into and closed on a Securities Purchase Agreement with CCAG Investments, LLC, pursuant to which the Company issued to CCAG Investments, LLC a secured convertible redeemable note in the aggregate principal amount of $175,000 for an aggregate purchase price of $157,500, resulting in an original issue discount of $17,500. The Company also issued a warrant equal to 50% of the face amount of the note with a term of three years to purchase 9,723 shares of common stock at an initial exercise price of $9.00 per share.

The interest on the outstanding principal due under the note accrued at a rate of 20% per annum. All principal and accrued but unpaid under the secured note was originally due on June 30, 2020. The note was convertible into shares of the Company’s common stock at 70% of the average of the three lowest VWAPs in the 12 trading days prior to and including the conversion date.

In connection with the issuance of the note, the Company also issued to CCAG Investments, LLC 9,755 shares of common stock.

The embedded conversion option and warrants issued qualified for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature and warrants issued was $42,000 and $64,000, resulting in an additional discount to the note payable of $106,000. The shares issued with the note were valued at $51,500, for a total debt discount of $175,000.

The Company had the option of repaying 120% of the principal balance if paid within 90 days of issuance, or 125% of the principal if paid greater than 90 days after issuance.

During the year ended December 31, 2020, the Company repaid 120% of the principal balance. The total payment was $218,534, which included accrued interest of $8,534. The Company recorded a loss on settlement of debt of $127,654 to the consolidated statement of operations for the year ended December 31, 2020.

Under the terms of the agreement, if the shares issued upon execution of the note are no longer worth $87,500 at the time of the shares becoming eligible for resale pursuant to Rule 144, the Company shall issue additional shares to the holder in an amount holding a market value to equal the difference between the value of these shares and $87,500. The 9,755 shares became eligible for resale pursuant to Rule 144 during August 2020 and the value was less than $87,500. As a result, the Company began issuing additional shares to the holder (refer to Note 10, Common Stock, for additional detail). During the year ended December 31, 2020, the Company issued an aggregate of 1,542,000 shares to the holder and recorded a loss on fair value of additional shares of $109,706 to the consolidated statement of operations for the year ended December 31, 2020.

On February 3, 2021, the Company issued 1,015,505 shares of common stock to CCAG Investments, LLC upon the cashless exercise of the warrant associated with the convertible debenture (refer to Note 10, Common Stock, for additional detail). In connection with the exercise, the Company recorded a loss on settlement of warrants of $59,853 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

Convertible promissory note, FJ Vulis and Associates, LLC, 20% interest, secured, matures June 30, 2020

On February 7, 2020, the Company entered into and closed on a Securities Purchase Agreement with FJ Vulis and Associates, LLC, pursuant to which the Company issued to FJ Vulis and Associates, LLC a secured convertible redeemable note in the aggregate principal amount of $175,000 for an aggregate purchase price of $157,500, resulting in an original issue discount of $17,500. The Company also issued a warrant equal to 50% of the face amount of the note with a term of three years to purchase 9,723 shares of common stock at an initial exercise price of $9.00 per share.

In connection with the issuance of the note, the Company also issued to FJ Vulis and Associates, LLC 9,755 shares of common stock.

The Company had the option of repaying 120% of the principal balance if paid within 90 days of issuance, or 125% of the principal if paid greater than 90 days after issuance.

During the year ended December 31, 2020, the Company repaid 120% of the principal balance. The total payment was $218,247, which included accrued interest of $8,247. The Company recorded a loss on settlement of debt of $127,654 to the consolidated statement of operations for the year ended December 31, 2020.

Under the terms of the agreement, if the shares issued upon execution of the note are no longer worth $87,500 at the time of the shares becoming eligible for resale pursuant to Rule 144, the Company shall issue additional shares to the holder in an amount holding a market value to equal the difference between the value of these shares and $87,500. The 9,755 shares became eligible for resale pursuant to Rule 144 during August 2020 and the value was less than $87,500. As a result, the Company began issuing additional shares to the holder (refer to Note 10, Common Stock, for additional detail). During the year ended December 31, 2020, the Company issued an aggregate of 900,000 shares to the holder and recorded a loss on fair value of additional shares of $68,040 to the consolidated statement of operations for the year ended December 31, 2020.

On February 9, 2021, the Company issued 989,587 shares of common stock to FJ Vulis and Associates, LLC upon the cashless exercise of the warrant associated with the convertible debenture (refer to Note 10, Common Stock, for additional detail). In connection with the exercise, the Company recorded a loss on settlement of warrants of $57,802 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

During the three months ended March 31, 2021, the Company issued an aggregate of 642,000 shares to the holder and recorded a loss on fair value of additional shares of $41,730 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

8.	Factor Financing

On February 11, 2020, pursuant to an assignment and consent agreement, Bay View Funding purchased and received all of Heritage’s right, title, and interest in the loan and security agreement with the Company’s wholly-owned subsidiary, ADEX, discussed in Note 6, Loans Payable. In connection with the agreement, the Company received $3,024,532 from Bay View Funding. This money was used to pay off the amounts owed to Heritage at the time of the assignment and consent agreement. The initial term of the factoring agreement is twelve months from the initial funding date.

Under the factoring agreement, the Company’s ADEX subsidiary may borrow up to the lesser of $5,000,000 or an amount equal to the sum of all undisputed purchased receivables multiplied by the advance percentage, less any funds in reserve. ADEX will pay to Bay View Funding a factoring fee upon purchase of receivables by Bay View Funding equal to 0.75% of the gross face value of the purchased receivable for the first 30 day period from the date said purchased receivable is first purchased by Bay View Funding, and a factoring fee of 0.35% per 15 days thereafter until the date said purchased receivable is paid in full or otherwise repurchased by ADEX or otherwise written off by Bay View Funding within the write off period. ADEX will also pay a finance fee to Bay View Funding on the outstanding advances under the agreement at a floating rate per annum equal to the Prime Rate plus 3%. The finance rate will increase or decrease monthly, on the first day of each month, by the amount of any increase or decrease in the Prime Rate, but at no time will the finance fee be less than 7.75%.

During the three months ended March 31, 2021 and 2020, the Company paid $99,879 and $27,543, respectively, in factoring fees. These amounts are included within general and administrative expenses on the consolidated statement of operations. In addition, during the three months ended March 31, 2021 and 2020, the Company incurred finance charges of $0 and $22,090, respectively. Finance charges are included within interest expense on the consolidated statement of operations.

On February 11, 2021, the initial term of the factor financing expired. The agreement has been extended on a month to month basis.

During the year ended December 31, 2020, the Company received an aggregate of $16,563,092, including the initial proceeds of $3,024,532, and repaid an aggregate of $14,648,481. During the three months ended March 31, 2021, the Company received an aggregate of $3,362,760 and repaid an aggregate of $3,277,703. The Company owed $1,999,668 under the agreement as of March 31, 2021.

9.	Derivative Liabilities

The embedded conversion options of the convertible debentures described in Note 7, Convertible Debentures, contain conversion features that qualify for embedded derivative classification. The fair value of the liability is re-measured at the end of every reporting period and the change in fair value is reported in the statement of operations as a gain or loss on change in fair value of derivatives. Derivative liabilities also include the fair value of the Company’s share purchase warrants and stock options discussed in Note 12, Share Purchase Warrants and Stock Options. As of March 31, 2021, the derivative liability balance of $11,132,240 was comprised of $10,039,000 of derivatives related to the Company’s convertible debentures, and $1,093,240 of derivatives related to the Company’s share purchase warrants and stock options As of December 31, 2020, the derivative liability balance of $3,390,504 was comprised of $3,252,000 of derivatives related to the Company’s convertible debentures, and $138,504 of derivatives related to the Company’s share purchase warrants and stock options.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities for the three months ended March 31, 2021 and the year ended December 31, 2020:

	March 31,			December 31,
	2021			2020
Balance at the beginning of the period	$	3,390,504		$	992,733
Change in fair value of embedded conversion option		5,270,344			662,968
Conversion of derivative liability		(44,000	)		(180,000	)
Repayment of convertible note		(94,000	)		(36,000	)
Fair value of stock option derivatives at issuance		553,535			44,700
Original discount limited to proceeds of notes		600,000			380,000
Fair value of derivative liabilities in excess of notes proceeds received		2,470,000			494,000
Fair value of warrant exercises		(699,143	)		-
Impact of note extinguishment		(315,000	)		803,300
Fair value of warrant derivatives at issuance		-			228,803
Balance at the end of the period	$	11,132,240		$	3,390,504

The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values were determined by using Monte-Carlo model based on various assumptions.

Significant changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows the assumptions used in the calculations:

	Expected volatility			Risk-free interest rate			Expected dividend yield			Expected life (in years)
At December 31, 2020		249 - 325	%		0.09 - 0.13	%		0	%		0.25 - 2.76
At March 31, 2021		273 - 340	%		0.03 - 0.26	%		0	%		0.25 - 2.45

10.

Common Stock

Authorized Shares

On November 15, 2017, the Company revised its authorized share capital to increase the number of authorized common shares from 275,000,000 common shares with a par value of $0.00001, to 750,000,000 common shares with a par value of $0.00001. On March 6, 2019, the Company revised its authorized share capital to increase the number of authorized common shares from 750,000,000 common shares with a par value of $0.00001, to 1,000,000,000 common shares with a par value of $0.00001. The reverse stock split discussed in Note 2, Significant Accounting Policies, did not change the number of authorized shares of the Company’s common stock.

Treasury Stock

The Company holds 2,071 common shares in treasury at a cost of $277,436.

Issuance of shares pursuant to a GS Capital Partners, LLC convertible debenture

On January 11, 2021, the Company issued 668,787 shares of common stock to GS Capital Partners, LLC upon the conversion of $29,000 of principal and $2,803 of accrued interest pursuant to the convertible debenture described in Note 7, Convertible Debentures.

On January 25, 2021, the Company issued 694,707 shares of common stock to GS Capital Partners, LLC upon the conversion of $25,500 of principal and $2,543 of accrued interest pursuant to the convertible debenture described in Note 7, Convertible Debentures.

Additional Shares Issued Pursuant to Convertible Debentures

On January 18, 2021, the Company issued 642,000 shares of common stock to FJ Vulis and Associates, LLC, pursuant to the terms of a convertible debenture described in Note 7, Convertible Debentures.

Issuance of shares pursuant to an SCS, LLC convertible debenture

On February 1, 2021, the Company issued 919,356 shares of common stock to SCS, LLC upon the conversion of $39,030 of principal and $2,341 of accrued interest pursuant to the convertible debenture described in Note 7, Convertible Debentures.

Issuance of shares pursuant to a Cobra Equities SPV, LLC convertible debenture

On February 1, 2021, the Company issued 760,234 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $26,000 of accrued interest pursuant to the convertible debenture described in Note 7, Convertible Debentures.

On February 19, 2021, the Company issued 809,524 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $136,000 of accrued interest pursuant to the convertible debenture described in Note 7, Convertible Debentures.

On March 15, 2021, the Company issued 819,444 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $104,000 of principal and $73,000 of accrued interest pursuant to the convertible debenture described in Note 7, Convertible Debentures.

Issuance of shares pursuant to an Efrat Investments LLC convertible debenture

On February 2, 2021, the Company issued 750,000 shares of common stock to Efrat Investments LLC upon the conversion of $37,500 of principal pursuant to the convertible debenture described in Note 7, Convertible Debentures.

Issuance of Shares Pursuant to Conversion of Series A Preferred Stock

On January 28, 2021, the Company issued 397,272 shares of common stock to M2B Funding upon the conversion of 38,734 shares of Series A preferred stock with a stated value of $1 per share.

On February 9, 2021, the Company issued 738,462 shares of common stock to M2B Funding upon the conversion of 72,000 shares of Series A preferred stock with a stated value of $1 per share.

Issuance of shares pursuant to a CCAG Investments, LLC warrant

On February 3, 2021, the Company issued 1,015,505 shares of common stock to CCAG Investments, LLC upon the cashless exercise of a warrant described in Note 7, Convertible Debentures.

Issuance of shares pursuant to a FJ Vulis and Associates, LLC warrant

On February 9, 2021, the Company issued 989,587 shares of common stock to FJ Vulis and Associates, LLC upon the cashless exercise of a warrant described in Note 7, Convertible Debentures.

Issuance of shares pursuant to exchange agreement with Oasis Capital, LLC

On February 22, 2021, the Company issued 250,000 shares of common stock to Oasis Capital, LLC pursuant to an exchange agreement described in Note 14, Commitments and Contingencies.

11.

Preferred Stock

Series A

On November 15, 2017, the Company created one series of the 20,000,000 preferred shares it is authorized to issue, consisting of 8,000,000 shares, to be designated as Series A preferred stock.

On October 29, 2018, the Company made the first amendment to the Certificate of Designation of its Series A convertible preferred stock. This amendment updated the conversion price to be equal to the greater of 75% of the lowest VWAP during the ten trading day period immediately preceding the date a conversion notice is delivered or $120.00, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock.

On August 16, 2019, the Company made the second amendment to the Certificate of Designation of its Series A convertible preferred stock. As a result of this amendment, the Company recorded a deemed dividend of $488,072 for the year ended December 31, 2019 in accordance with ASC 260-10-599-2.

On April 8, 2020, the Company made the third amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price and the conversion price floor to $3.00 per share.

On June 18, 2020, the Company made the fourth amendment to the Certificate of Designation of its Series A preferred stock, which lowered the fixed conversion price to $0.20 per share and the conversion price floor to $0.01 per share.

On January 27, 2021, the Company made the fifth amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price to $0.0975 per share. The Company accounted for the amendment as an extinguishment and recorded a deemed dividend of $83,987 for the three months ended March 31, 2021 in accordance with ASC 260-10-599-2.

Subsequent to the fifth amendment, the principal terms of the Series A preferred stock shares were as follows:

Voting rights – The Series A preferred stock shares do not have voting rights.

Dividend rights – The holders of the Series A preferred stock shares shall not be entitled to receive any dividends. No dividends (other than those payable solely in common stock) shall be paid on the common stock or any class or series of capital stock ranking junior, as to dividends, to the Series A preferred stock shares during any fiscal year of the Company until there shall have been paid or declared and set apart during that fiscal year for the holders of the Series A preferred stock shares a dividend in an amount per share equal to (i) the number of shares of common stock issuable upon conversion of the Series A preferred stock times (ii) the amount per share of the dividend to be paid on the common stock.

Conversion rights – The holders of the Series A preferred stock shares have the right to convert each Series A preferred stock share and all accrued and unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance of such share into fully paid and nonassessable shares of common stock of the Company. The number of shares of common stock into which each share of the Series A preferred stock shares may be converted shall be determined by dividing the sum of the stated value of the Series A preferred stock shares ($1.00 per share) being converted and any accrued and unpaid dividends by the conversion price in effect at the time of the conversion. The Series A preferred stock shares may be converted at a fixed conversion price of $0.0975, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock. The conversion price has a floor of $0.01 per share.

Liquidation rights – Upon the occurrence of any liquidation, each holder of Series A preferred stock shares then outstanding shall be entitled to receive, out of the assets of the Company available for distribution to its stockholders, before any payment shall be made in respect of the common stock, or other series of preferred stock then in existence that is outstanding and junior to the Series A preferred stock shares upon liquidation, an amount per share of Series A preferred stock shares equal to the amount that would be receivable if the Series A preferred stock shares had been converted into common stock immediately prior to such liquidation distribution, plus, accrued and unpaid dividends.

In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series A preferred stock shares as temporary equity or “mezzanine.”

Holders of Series A preferred stock shares began converting into shares of common stock during May 2018.

Series B

On April 16, 2018, the Company designated 1,000 shares of Series B preferred stock of the Company with a stated value of $3,500 per share. The Series B preferred stock is neither redeemable nor convertible into common stock. The principal terms of the Series B preferred stock shares are as follows:

Issue Price - The stated price for the Series B preferred stock shares shall be $3,500 per share.

Redemption - The Series B preferred stock shares are not redeemable.

Dividends - The holders of the Series B preferred stock shares shall not be entitled to receive any dividends.

Preference of Liquidation - The Corporation’s Series A preferred stock (the “Senior Preferred Stock) shall have a liquidation preference senior to the Series B preferred stock. Upon any fundamental transaction, liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of the shares of the Series B preferred stock shares shall be entitled, after any distribution or payment is made upon any shares of capital stock of the Company having a liquidation preference senior to the Series B preferred stock shares, including the Senior Preferred Stock, but before any distribution or payment is made upon any shares of common stock or other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shares, to be paid in cash the sum of $3,500 per share. If upon such liquidation, dissolution or winding up, the assets to be distributed among the Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock shall be insufficient to permit payment to said holders of such amounts, then all of the assets of the Company then remaining shall be distributed ratably among the Series B preferred stock holders and such other capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any. Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after provision is made for Series B preferred stock holders and all other shares of capital stock of the Company having the same liquidation preference as the Series B preferred stock, if any, then-outstanding as provided above, the holders of common stock and other capital stock of the Company having a liquidation preference junior to the Series B preferred stock shall be entitled to receive ratably all remaining assets of the Company to be distributed.

Voting - The holders of shares of Series B preferred stock shall be voted together with the shares of common stock such that the aggregate voting power of the Series B preferred stock is equal to 51% of the total voting power of the Company.

Conversion - There are no conversion rights.

In accordance with ASC 480 Distinguishing Liabilities from Equity, the Company has classified the Series B preferred stock shares as temporary equity or “mezzanine.”

If the High Wire transaction as proposed closes, the Series B preferred stock shares will be exchanged for 1,500 shares of Class D stock (refer to Note 14, Commitments and Contingencies, for additional detail).

Series C

On November 14, 2019, the Company designated 9,000,000 shares of Series C preferred stock of the Company with a stated value of $0.00001 per share. The principal terms of the Series C preferred stock shares subsequent to Amendment Number 1 of the share purchase agreement with WaveTech GmbH were as follows:

Issue Price - The stated price for the Series C preferred stock shall be $0.00001 per share.

Redemption - The Series C preferred stock shares are not redeemable.

Dividends - The holders of the Series C preferred stock shares shall not be entitled to receive any dividends.

Preference of Liquidation - Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “liquidation”), the Series C preferred stock shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to $0.00001 for each share of Series C preferred stock before any distribution or payment shall be made to the holders of any junior securities and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Series C preferred stock were fully converted (disregarding for such purposes any conversion limitations hereunder) to common stock which amounts shall be paid pari passu with all holders of common stock.

Voting - Except as otherwise provided herein or as required by law, the Series C preferred stock shall be voted together with the shares of common stock, par value $0.00001 per share of the Company and any other series of preferred stock then outstanding, and not as a separate class, at any annual or special meeting of stockholders of the Company, with respect to any question or matter upon which the holders of common stock have the right to vote, such that the voting power of each share of Series C preferred stock is equal to the voting power of the shares of common stock that each such share of Series C preferred stock is convertible into pursuant hereto. The Series C preferred stock shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Company, and may act by written consent in the same manner as the holders of common stock of the Company.

Conversion - on the second business day following the earlier of (i) the reverse split of the Company’s common stock, (ii) the listing of the Company on a national securities exchange and (iii) the six-month anniversary of the closing date (as defined below) (the “Series C Conversion Date”), without any further action, all outstanding shares of Series C shall automatically convert into an aggregate number of shares of the Company’s common stock equal to the greater of (i) $90,000,000 (the “Aggregate Value”)/Strike Price (as defined below), or (ii) the Aggregate Value/$9.75 (as adjusted for any reverse stock split or similar adjustment that may occur prior to the Series C Conversion Date). Provided, however, if a Triggering Event (as defined below) occurs, the Aggregate Value shall be reduced by the amount of any Losses (as defined below).

For purposes hereof, a “Triggering Event” shall include any liability arising from a breach of the representations or warranties of WaveTech GmbH (as defined below) contained in the share purchase agreement dated July 15, 2019 and all amendments thereto (as amended, the “SPA”), by and between the Company and WaveTech GmbH, a corporation organized under the laws of the Republic of Germany. “Closing Date” shall have the meaning ascribed to the term in the SPA. “Strike Price” shall mean the closing price per share of the Company’s common stock on the trading day immediately preceding the Series C Conversion Date.

On April 14, 2020, the Company entered into Amendment Number 2 of the share purchase agreement with WaveTech GmbH. Amendment Number 2 replaced the conversion terms of the Series C preferred stock included with Amendment Number 1 with the following:

Conversion. On the second business day following the earlier of (i) the later of (A) April 30, 2020, or such later date as may be determined by the Board, and (B) a reverse split of the common stock. (ii) the listing of the Company on a national securities exchange and (iii) the six-month anniversary of the issuance of shares of Series C to such holder (such earliest date. the “Series C Conversion Date”), without any further action, all outstanding shares of Series C shall automatically convert into an aggregate number of shares of common stock equal to $90,000,000 (the “Aggregate Value”)/Strike Price (as defined below). Provided, however, if a Triggering Event (as defined below) occurs, the Aggregate Value shall be reduced by the amount of any losses (as defined below). “Strike Price” shall mean the closing price per share of the Company’s common stock on the trading day immediately preceding the Series C Conversion Date.

For purposes hereof, a “Triggering Event” shall include any liability arising from a breach by WaveTech GmbH, a corporation organized under the laws of the Republic of Germany, of any of its representations or warranties contained in that certain Share Purchase Agreement (the “SPA”), by and between the Corporation and WaveTech GmbH. “Losses” shall have the meaning set forth in the SPA.

Additionally, Amendment Number 2 adjusted the amount of common stock issued on the Series C Conversion Date as follows:

If on the earlier of (a) the tenth (l0th) business day prior to the listing of the Company on a national securities exchange (“Uplisting”), or (b) December 15, 2020, the aggregate value of the shares of common stock issued upon conversion of the Series C (the “Conversion Shares”) is less than 95% of the aggregate value of the Conversion Shares on the Series C Conversion Date (such difference in value, the “First Value Differential”), then the Company shall make a pro-rata issuance of additional shares of common stock to each holder in an aggregate amount equal to the First Value Differential (such additional shares, the “First True-Up Shares”). In the event (i) an Uplisting does not occur until sometime in 2021, and (ii) on such date in 2021 as the Board may determine, but in no event later than the tenth (10th) business day prior to the Uplisting (the “Second True-Up Date”), the aggregate value of the Conversion Shares as of the Second True-Up Date is less than 95% of the aggregate value of the Conversion Shares as of December 15, 2020 (such difference in value, the “Second Value Differential”), the Company shall, at the Board’s discretion, make a pro-rata issuance of additional shares of common stock to each holder in an aggregate amount equal to the Second Value Differential (such additional shares, the “Second True-Up Shares”). To the extent any shares of Series C are issued after the Series C Conversion Date, then the holder(s) of such shares shall receive the same number of Conversion Shares such holder(s) would have received had they held the Series C on the Series C Conversion Date.

On September 29, 2020, the Company amended the Series C preferred stock certificate of designation. In connection with the amendment, the designated shares amount was reduced to 8,888,888 shares.

On September 30, 2020, the Company sold its interest in WaveTech GmbH. As a result of the sale, the Series C shares will not be issued.

12.

Share Purchase Warrants and Stock Options

From time to time, the Company issues share purchase warrants and stock options, which are classified as liabilities. The total fair value of the Company’s share purchase warrants and stock options was $1,093,240 and $138,504 as of March 31, 2021 and December 31, 2020, respectively. This amount is included in derivative liabilities on the consolidated balance sheets. The valuation methodology, including the assumptions used in the valuation, are discussed in Note 9, Derivative Liabilities. The weighted-average remaining life on the share purchase warrants as of March 31, 2021 and December 31, 2020 was 2.3 years and 2.0 years, respectively. The weighted-average remaining life on the stock options as of March 31, 2021 and December 31, 2020 was 4.9 years and 0.9 years, respectively. The stock options outstanding at March 31, 2021 and December 31, 2020 were not subject to any vesting terms.

The following table summarizes the activity of share purchase warrants for the three months ended March 31, 2021:

	Number of warrants			Weighted average exercise price		Intrinsic value
Balance at December 31, 2020		4,812,996		$	39.72	$	14,583
Issued		-			-
Exercised		(2,430,556	)*		0.07
Expired		(527,893	)		360.09
Balance at March 31, 2021		1,854,547		$	0.48	$	465,000

During the three months ended March 31, 2021, CCAG Investments, LLC and FJ Vulis and Associates, LLC exercised the warrants described in Note 7, Convertible Debentures. Both CCAG Investments, LLC and FJ Vulis and Associates, LLC were issued $87,500 worth of warrants at an initial exercise price per share of the lower of $9.00 and the lowest daily traded price of the Company’s common stock on the day the shares purchased under the warrant agreement would become rule 144 eligible, resulting in 9,723 warrants for each party on the date of issuance. The warrant shares issued to CCAG Investments, LLC and FJ Vulis and Associates, LLC became rule 144 eligible on August 7, 2020, when the lowest traded price of the Company’s common stock was $0.07. Because the lowest daily traded price of the Company’s common stock on that date was lower than $9.00, the outstanding warrants increased to a combined 2,430,556. On February 3, 2021 and February 9, 2021, CCAG Investments, LLC and FJ Vulis and Associates, LLC executed a cashless exercise of their warrants in full and were issued 1,015,505 and 989,587 shares, respectively.

As of March 31, 2021, the following share purchase warrants were outstanding:

Number of warrants		Exercise price		Issuance Date	Expiry date	Remaining life
	1,667		300.00	5/17/2018	5/17/2021		0.38
	380		324.00	10/10/2018	10/10/2021		0.78
	2,500		30.00	11/21/2019	11/21/2022		1.89
	200,000		0.18	7/14/2020	7/1/2021		0.50
	1,650,000		0.10	10/5/2020	10/5/2023		2.76
	1,854,547

The following table summarizes the activity of stock options for the three months ended March 31, 2021:

	Number of stock options			Weighted average exercise price		Intrinsic value
Balance at December 31, 2020		5,000		$	9.00	$	-
Issued		961,330	*		0.58
Expired		-			-
Balance at March 31, 2021		966,330		$	0.62	$	-

On February 23, 2021, the Company granted 961,330 non-qualified stock options to Roger M. Ponder, Keith W. Hayter, and two consultants. Mr. Ponder and Mr. Hayter received grants 323,763 and 482,393 stock options, respectively. The consultants each received grants of 77,587 stock options. The stock options were issued in settlement of amounts owed as of December 31, 2020. The stock options have an exercise price of $0.58 per share and vested immediately upon issuance.

As of March 31, 2021, the following stock options were outstanding:

Number of stock options		Exercise price		Issuance Date	Expiry date
	5,000		9.00	11/25/2019	11/25/2021
	323,763		0.58	2/23/2021	2/23/2026
	482,393		0.58	2/23/2021	2/23/2026
	77,587		0.58	2/23/2021	2/23/2026
	77,587		0.58	2/23/2021	2/23/2026
	966,330

13.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases, which introduced a lessee model that requires the majority of leases to be recognized on the balance sheet. On January 1, 2019, the Company adopted the ASU using the modified retrospective transition approach and elected the transition option to recognize the adjustment in the period of adoption rather than in the earliest period presented. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $269,341 as of January 1, 2019. During the year ended December 31, 2019, non-cash right of use assets recorded in exchange for non-cash operating lease liabilities was $316,600. The Company leases certain office space and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The Company used the incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.

The following table sets forth the operating lease right of use (“ROU”) assets and liabilities as of March 31, 2021 and December 31, 2020:

	March 31,		December 31,
	2021		2020
Operating lease assets	$	108,537	$	116,817

Operating lease liabilities:
Current operating lease liabilities		114,509		122,838
Total operating lease liabilities	$	114,509	$	122,838

Expense related to leases is recorded on a straight-line basis over the lease term, including rent holidays.

During the three months ended March 31, 2021 and 2020, the Company recognized operating lease expense of $23,582 and $52,308, respectively. Operating lease costs are included within selling, administrative and other expenses on the consolidated statements of operations. During the three months ended March 31, 2021 and 2020, short-term lease costs were $15,877 and $50,073, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities was $23,632 and $51,799 for the three months ended March 31, 2021 and 2020, respectively, and this amount is included in operating activities in the consolidated statements of cash flows. During the three months ended March 31, 2021 and 2020, respectively, the Company reduced its operating lease liabilities by $8,329 and $31,662 for cash paid.

The operating lease liabilities as of March 31, 2021 reflect a weighted average discount rate of 51%. The weighted average remaining term of the leases is 1.87 years. Remaining lease payments as of March 31, 2021 are as follows:

Year ending December 31,
2021		72,282
2022		86,681
2023		21,330
Total lease payments		180,293
Less: imputed interest		(65,784	)
Total	$	114,509

14.

Commitments and Contingencies

Leases

The Company leases certain of its properties under leases that expire on various dates through 2023. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years. Leases with an initial term of 12 months or less and immaterial leases are not recorded on the balance sheet (refer to Note 13, Leases, for amounts expensed during the three months ended March 31, 2021 and 2020).

Oasis Capital, LLC Equity Purchase Agreement and Registration Rights Agreement

On August 29, 2019, the Company entered into an equity purchase agreement and registration rights agreement with Oasis Capital, LLC, a Puerto Rico limited liability Company. Under the terms of the equity purchase agreement, Oasis Capital agreed to purchase from the Company up to $2,500,000 of the Company’s common stock upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the SEC and subject to certain limitations and conditions set forth in the equity purchase agreement.

Following effectiveness of the Registration Statement, and subject to certain limitations and conditions set forth in the equity purchase agreement, the Company shall have the discretion to deliver put notices to Oasis Capital and Oasis Capital will be obligated to purchase shares of the Company’s common stock, par value $0.00001 per share based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to Oasis Capital in each put notice shall not exceed the lesser of $250,000 or two hundred percent (200%) of the average daily trading volume of the Company’s common stock during the ten (10) trading days preceding the put. Pursuant to the equity purchase agreement, Oasis Capital and its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s common stock to Oasis Capital that would result in Oasis Capital’s beneficial ownership of the Company’s outstanding common stock exceeding 9.99%. The price of each put share shall be equal to eighty five percent (85%) of the market price (as defined in the equity purchase agreement). Puts may be delivered by the Company to Oasis Capital until the earlier of (i) the date on which Oasis Capital has purchased an aggregate of $2,500,000 worth of common stock under the terms of the equity purchase agreement, (ii) August 29, 2022, or (iii) written notice of termination delivered by the Company to Oasis Capital, subject to certain equity conditions set forth in the equity purchase agreement.

As of February 19, 2021, the Company had not received the funds described in the equity purchase agreement and has not filed the Registration Statement with the SEC.

On February 19, 2021, the Company entered into an exchange agreement with Oasis Capital, LLC which terminated the obligations of the August 29, 2019 agreement discussed above.

In exchange for 250,000 shares of the Company’s common stock, which were issued on February 22, 2021, Oasis Capital LLC surrendered the note and all other documents and agreements, including any warrants, contained in the original agreement. As a result of the exchange agreement, the Company recorded a loss on contract cancellation of $164,950 to the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.

Proposed merger with High Wire

On January 27, 2021, the Company, HW Merger Sub, Inc., High Wire Networks, Inc. (“High Wire”) and the stockholders of High Wire (the “Stockholders”) entered into an Agreement and Plan of Merger (the “Agreement”) whereby the Stockholders agreed to sell to the Company all of the capital stock of High Wire. The closing of the transaction contemplated by the Agreement is subject to certain closing conditions, as set forth in the Agreement. Following such closing, HW will be a wholly-owned subsidiary of the Company.

In connection with the Company’s purchase of the capital stock of High Wire, the Company will issue to the Stockholders shares of a newly established Series D Preferred Stock of the Company, and a convertible note in the aggregate principal amount of $350,000.

The newly established Series D Preferred Stock will not be redeemable, will vote on an as-converted basis with the Company’s common stock, will have a liquidation preference of $10,000 per share, and be convertible beginning ninety (90) days from the date of issuance, at the greater of the Fixed Price and the Average Price. On the earlier of the (i) two hundred (200) day anniversary of the date of issuance and (ii) the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series D Conversion Date”), all remaining outstanding shares of Series D shall automatically convert into an aggregate number of shares of Common Stock equal to $15,900,000 divided by the greater of the Fixed Price and the Average Price. “Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series D. “Average Price” shall mean the average closing price of the Company’s common stock for the ten trading days immediately preceding, but not including, the conversion date.

As of the date of this report, all but one of the closing conditions of the merger have been satisfied or waived by the parties. The lone remaining closing condition concerns a pending Paycheck Protection Program Loan Forgiveness Application submitted by one of the Company’s subsidiaries. Closing the merger after Small Business Administration (SBA) forgiveness prevents a change of control event under SBA rules that would jeopardize the forgiveness and impact the Company’s statement of operations for 2021. The Company submitted its forgiveness application in accordance with Paycheck Protection Program rules and expects forgiveness to be received in the second quarter of 2021.

15.

Segment Disclosures

During the three months ended March 31, 2021 and 2020, the Company had two operating segments including:

●

ADEX/AWS PR/TROP, which is comprised of the ADEX Entities, AWS PR, and Tropical.

●

Spectrum Global Solutions (SGS), which consists of the rest of the Company’s operations.

Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates the SGS reporting segment in one geographical area (the United States) and the ADEX/AWS PR/TROP operating segment in three geographical areas (the United States, Puerto Rico and Canada).

Financial statement information by operating segment for the three months ended March 31, 2021 is presented below:

	Three Months Ended March 31, 2021
	Spectrum Global			ADEX/AWS PR/TROP			Total
Net sales	$	-		$	4,065,989		$	4,065,989
Operating loss		(438,559	)		(112,760	)		(551,319	)
Interest expense		93,193			1,511			94,704
Depreciation and amortization		-			13,520			13,520
Total assets as of March 31, 2021		113,755			6,262,575			6,376,330

Geographic information as of and for the three months ended March 31, 2021 is presented below:

	Revenues For The Three Months Ended March 31, 2021		Long-lived Assets as of March 31, 2021
Puerto Rico and Canada	$	384,360	$	13,410
United States		3,681,629		1,049,584
Consolidated total		4,065,989		1,062,994

Financial statement information by operating segment for the three months ended March 31, 2020 and as of December 31, 2020 is presented below:

	Three Months Ended March 31, 2020
	Spectrum Global			AWS/ADEX			Total
Net sales	$	-		$	5,216,346		$	5,216,346
Operating loss		(745,563	)		(193,241	)		(938,804	)
Interest expense		341,226			72,134			413,360
Depreciation and amortization		-			13,961			13,961
Total assets as of December 31, 2020		63,667			4,263,725			4,327,392

Geographic information for the three months ended March 31, 2020 and as of December 31, 2020 is presented below:

	Revenues For The Three Months Ended March 31, 2020		Long-lived Assets as of December 31, 2020
Puerto Rico and Canada	$	178,637	$	14,186
United States		5,037,709		1,070,608
Consolidated total		5,216,346		1,084,794

16.

Discontinued Operations

During the year ended December 31, 2020, the Company disposed of its TNS and AWS subsidiaries. The Company determined that both sales qualified for discontinued operations treatment.

The results of operations of TNS and AWS have been included within loss on discontinued operations, net of tax on the unaudited condensed consolidated statement of operations for the three months ended March 31, 2020.

The following table shows the statement of operations for the Company’s discontinued operations for the three months ended March 31, 2020:

	For the three months ended
	March 31, 2020

Revenue	$	1,914,133

Operating expenses:
Cost of revenues		2,128,627
Depreciation and amortization		83,212
Salaries and wages		257,092
General and administrative		167,950
Total operating expenses		2,636,881

Loss from operations		(722,748	)

Other (expenses) income:
Interest expense		(2,787	)
Total other expense		(2,787	)

Pre-tax loss from operations		(725,535	)

Provision for income taxes		-

Loss on discontinued operations, net of tax	$	(725,535	)

17.

Subsequent Events

Proposed acquisition

On April 13, 2021, the Company, SVC, Inc., Secure Voice Corp. (“SVC”) and Telecom Assets Corp. (the “Seller”) entered into a Stock Purchase Agreement (the “Agreement”) whereby the Seller agreed to sell SVC to the Company, in exchange for $2,500,000 in cash and up to $6,500,000 (less up to $2,000,000 in assumed liabilities) of a newly established series of convertible preferred stock of the Company. The closing of the transaction contemplated by the Agreement is subject to certain closing conditions, as set forth in the Agreement.

The business being purchased by the Company is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers. A transition services agreement will be entered into in order to begin the integration process prior to the closing of the transaction.

Issuance of shares pursuant to a Cobra Equities SPV, LLC convertible debenture

On April 15, 2021, the Company issued 932,867 shares of common stock to Cobra Equities SPV, LLC upon the conversion of $106,000 of principal and $6,000 of accrued interest pursuant to a convertible debenture.

CARES Act Loan forgiveness

On April 21, 2021, AWS PR received approval for forgiveness of its $78,000 CARES Act Loan.

Additional principal amounts for a convertible promissory note to SCS Capital Partners, LLC

On April 26, 2021, the Company entered into an amendment with SCS Capital Partners, LLC regarding a promissory note originally issued on December 29, 2020 in the principal amount of $175,000. In connection with the amendment, $137,500 was added to the principal balance of the note. The Company received additional funds totaling $125,000, with $62,500 of cash received on both April 30, 2021 and May 3, 2021, with an addition to the debt discount of $12,500. No other terms of the convertible promissory note were changed as a result of the amendment.

Repayment of loan with Pawn Funding

During the period of April 1, 2021 through May 12, 2021, the Company repaid the remaining $4,219 of principal outstanding to Pawn Funding.

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

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plan”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited consolidated financial statements are stated in United States dollars ($) and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “$” refer to United States dollars and all references to “common stock” refer to the common shares in our capital stock.

Unless specifically set forth to the contrary, when used in this report the terms “we”, “our”, the “Company” and similar terms refer to Spectrum Global Solutions, Inc., a Nevada corporation, and its consolidated subsidiaries.

The information that appears on our website at www.SpectrumGlobalSolutions.com is not part of this report.

Description of Business

On February 5, 2018, we completed our corporate jurisdiction continuation from the jurisdiction of the Province of British Columbia to the jurisdiction of the State of Nevada in accordance with the Articles of Conversion and the Articles of Incorporation filed with the Nevada Secretary of State. Our principal offices are located at 980 N. Federal Highway, Suite 304, Boca Raton, Florida 33432. Our telephone number is (407) 512-9102. On January 2, 2018, we changed our fiscal year end to December 31.

Our telecommunications and technology division, which was acquired on April 25, 2017, is supported by its subsidiaries: AW Solutions Puerto Rico, LLC and Tropical Communications, Inc. (collectively known as “AWS” or the “AWS Entities”) and ADEX CORP and ADEX Puerto Rico LLC (acquired February 27, 2018) and ADEX Canada (formed in September 2019), (collectively known as “ADEX” or the “ADEX Entities”). The AWS Entities provide a broad range of professional services and solutions to top tier communication carriers and Fortune 1000 enterprise customers. The telecommunication division offers carriers, service providers and enterprise customers professional contracting services, to include: infrastructure audits; site acquisition; architectural, structural and civil design and analysis; construction management; construction; installation; warehousing and logistics; maintenance services, that support the build-out and upgrade and operation of some of the most advanced networks, small cell, Wi-Fi, fiber and distributed antenna system (DAS) networks. We believe the expansion and migration of these next-generation networks, our long-term relationships supported by multiyear Master Service Agreements (MSA) and multi-year service contracts with major wireless, commercial wireline and wireless operators, DAS operators, tower companies, original equipment manufacturers (OEM’s) and prime contractor/project management organization provides us a significant opportunity as a long term leading and well respected industry leader in this marketplace. ADEX is a leading outsource provider of engineering and installation services, professional services, staffing solutions and other services which include consulting to the telecommunications and technology industry, service providers and Enterprise customers. ADEX’s managed solutions diversifies the ability to service customers domestically and internationally throughout the project lifecycle. ADEX customers include many leading wireless and wireline telecommunications providers, cable broadband MSOs and Original Equipment Manufacturers (“OEM”). On a weekly basis, we deploy hundreds of telecommunication professionals in support of its customers. We believe that our global footprint of support is a differentiating factor for national and international-based customers needing a broad range of technical expertise for management of their legacy and next generation networks. Our company seeks to assist our customers throughout the entire life cycle of a network deployment via our comprehensive suite of managed solutions that include Consulting and Professional Staffing services to service providers as well as Enterprise customers, Network Implementation, Network Installation, Network Upgrades, Rebuilds, Design, Engineering and Integration Wireless Network Support, Wireless Network Integration, Wireless and Wireline Equipment Installation & Commissioning, Wireless Site Development & Construction Management, Network Engineering, Project Management, Disaster Recovery design engineering and integration.

We provide the following categories of offerings to our customers:

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Telecommunications and Technology: We provide a comprehensive technology platform and array of professional services and solutions to our clients that are applicable across multiple platforms and technologies to include but not limited to: Wi-Fi , Wi-Max and wide-area networks, fiber networks (ISP/OSP), DAS networks (iDAS/oDAS), small cell distributed networks, public safety networks and enterprise networks for incumbent local exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators (MSOs), tower and network aggregators, utility entities, government and enterprise customers. Our services teams support the deployment of new networks and technologies, as well as expand, maintain and decommission existing networks.

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High Wire Networks, Inc. (“High Wire”), which is under a definitive agreement to merge with us, is a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. High Wire’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.

As of the date of this report, all but one of the closing conditions of the merger have been satisfied or waived by the parties. The lone remaining closing condition concerns a pending Paycheck Protection Program Loan Forgiveness Application submitted by one of our subsidiaries. Closing the merger after Small Business Administration (SBA) forgiveness prevents a change of control event under SBA rules that would jeopardize the forgiveness and impact our statement of operations for 2021. We submitted our forgiveness application in accordance with Paycheck Protection Program rules and expect forgiveness to be received in the second quarter of 2021.

Our Operating Units

Our company is comprised of the following:

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The AWS Entities. The AWS Entities are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. The AWS Entities services include network systems design, site acquisition services, asset audits, architectural and engineering services, program management, construction management and inspection, construction, installation, maintenance and other technical services. The AWS Entities provide in-field design, computer aided design and drawing services (CADD), fiber and DAS deployments for facilities and outdoor environments. In December 2020 we divested our AW Solutions, Inc subsidiary at a time when it had already begun to wind down operations.

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The ADEX Entities. The ADEX Entities are a leading outsource provider of engineering and installation services, staffing solutions and other services which include consulting to the telecommunications and technology industry, service providers and enterprise customers domestically and internationally. ADEX seeks to assist its customers throughout the entire life cycle of a network deployment via its comprehensive suite of managed solutions that include consulting and professional staffing services to service providers as well as enterprise customers, network implementation, network installation, network upgrades, rebuilds, design, engineering and integration wireless network support, wireless network integration, wireless and wireline equipment installation and commissioning, wireless site development and construction management, network engineering, project management, disaster recovery design engineering and integration.

Impact of the COVID-19 Pandemic

The extent to which the coronavirus (“COVID-19”) outbreak and measures taken in response thereto impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.

Global health concerns relating to the COVID-19 outbreak have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty. Risks related to consumers and businesses lowering or changing spending, which impact domestic and international spend. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact our workforce and operations and the operations of its customers, suppliers and business partners. These measures may remain in place for a significant period of time and they are likely to continue to adversely affect our business, results of operations and financial condition.

The spread of COVID-19 has caused us to modify our company’s business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities.

The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a global pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations, and we will continue to monitor the COVID-19 situation closely. As of May 2021, multiple variants of the COVID-19 virus are circulating globally that are highly transmissible, and there is uncertainty around vaccine effectiveness on the new strains of the virus. Uncertainty around vaccine distribution, supply and effectiveness will impact when the negative economic effects as a result of COVID-19 will abate or end and the timing of such recovery may affect our financial condition.

Results of Operations for the Three Month Periods Ended March 31, 2021 and March 31, 2020

Our operating results for the three month periods ended March 31, 2021 and 2020 are summarized as follows:

	Three Months Ended
	March 31, 2021			March 31, 2020			Difference

Revenue	$	4,065,989		$	5,216,346		$	(1,150,357	)
Operating expenses		4,617,308			6,155,150			(1,537,842	)
Other expense		(9,540,317	)		(1,867,363	)		(7,672,954	)
Loss on discontinued operations, net of tax		-			(725,535	)		725,535
Net loss		(10,091,636	)		(3,531,702	)		(6,559,934	)

Revenues

Our revenue decreased from $5,216,346 for the three months ended March 31, 2020 to $4,065,989 for the three months ended March 31, 2021. The decrease is primarily related to a $1,395,451 decrease in sales for our ADEX subsidiary. Sales to ADEX’s largest customer for the three months ended March 30, 2021 decreased $1,437,472 in the three months ended March 31, 2021. Another three customers saw combined decreases of $661,090 in the three months ended March 31, 2021 compared to the same period of 2020. These decreases were partially offset by a combined increase of $716,266 in sales to two ADEX customers during the three months ended March 31, 2021 compared to the same period of 2020.

Additionally, our operations, as well as the operations of many of our customers, were impacted by the ongoing COVID-19 pandemic, which negatively impacted our revenues for both periods. We anticipate that as the COVID-19 restrictions are removed, revenues should begin to increase.

If the High Wire transaction as proposed closes, we anticipate significantly higher revenues in the remainder of 2021 and beyond.

A significant portion of our services are performed under master service agreements and other arrangements with customers that extend for periods of one or more years. We are currently party to numerous master service agreements, and typically have multiple agreements with each of our customers. Master Service Agreements (MSAs) generally contain customer-specified service requirements, such as discreet pricing for individual tasks. To the extent that such contracts specify exclusivity, there are often a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service providers, perform work with the customer’s own employees and use other service providers when jointly placing facilities with another utility. In most cases, a customer may terminate an agreement for convenience with written notice. The remainder of our services are provided pursuant to contracts for specific projects. Long-term contracts relate to specific projects with terms in excess of one year from the contract date. Short-term contracts for specific projects are generally three to four months in duration. The percentage of revenue from long-term contracts varies between periods depending on the mix of work performed under our contracts.

Operating Expenses

During the three months ended March 31, 2021, our operating expenses were $4,617,308, compared to operating expenses of $6,155,150 for the same period of 2020. The decrease of $1,537,842 is primarily related to a $1,135,529 decrease in cost of revenues as a result of the decrease in sales as discussed above.

If the High Wire transaction as proposed closes, we anticipate significantly higher operating expenses in the remainder of 2021 and beyond.

Other Expense

During the three months ended March 31, 2021, we had other expense of $9,540,317, compared to other expense of $1,867,363 for the same period of 2020. The increase of $7,991,610 is primarily related to increases in the loss on settlement of debt, loss on change in fair value of derivatives, and initial derivative expense of $1,008,471, $4,456,714, and $2,470,000, respectively.

Net Loss

For the three months ended March 31, 2021, we incurred a net loss of $10,091,636, compared to a net loss of $3,531,702 for the same period in 2020.

Liquidity and Capital Resources

As of March 31, 2021, our total current assets were $5,313,336 and our total current liabilities were $12,922,209, resulting in a working capital deficit of $7,608,873, compared to a working capital deficit of $6,115,451 as of December 31, 2020.

We suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. In this regard, we have historically raised additional capital through equity offerings and loan transactions.

Cash Flows

	Three months ended March 31,
	2021			2020

Net cash used in operating activities	$	(548,240	)	$	(276,731	)
Net cash used in investing activities		-			-
Net cash and restricted cash provided by (used in) financing activities		2,382,897			(63,783	)
Change in cash and restricted cash	$	1,834,657		$	(340,514	)

For the three months ended March 31, 2021, cash and restricted cash increased $2,415,457, compared to a decrease in cash and restricted cash of $340,514 for the same period of 2020. The increase was primarily related to the cash provided by financing activities of $2,382,897 during the three months ended March 31, 2021. Of that amount, $2,000,000 related to a new CARES Act Loan obtained by ADEX. These funds are included in restricted cash on the unaudited condensed consolidated balance sheet as of March 31, 2021.

In order to improve our liquidity, we intend to pursue additional equity financing from private placement sales of our equity securities or shareholders’ loans. Issuances of additional shares will result in dilution to our existing shareholders. There is no assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses in order to preserve our liquidity.

As of March 31, 2021, we had cash and restricted cash of $2,415,457 compared to $580,800 as of December 31, 2020.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Inflation

The effect of inflation on our revenue and operating results has not been significant.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

Our management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on management’s evaluation, our Chief Executive Officer concluded that, as a result of the material weaknesses described below, as of March 31, 2021, our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:

Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis;

we do not have any formally adopted internal controls surrounding our cash and financial reporting procedures; and

the lack of the quantity of resources to implement an appropriate level of review controls to properly evaluate the completeness and accuracy of transactions entered into by our company.

We are committed to improving our financial organization. In addition, we will look to increase our personnel resources and technical accounting expertise within the accounting function to resolve non-routine or complex accounting matters.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2021 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

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

Item 1A. Risk Factors

As a “smaller reporting company,” we are not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Since the beginning of the three month period ended March 31, 2021, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in an annual report on Form 10-K, in a quarterly report on Form 10-Q or in a current report on Form 8-K, or are listed below.

On January 11, 2021, we issued 668,787 shares of our common stock to GS Capital Partners, LLC upon the conversion of $29,000 of principal and $2,803 of accrued interest pursuant to a convertible debenture.

On January 18, 2021, we issued 642,000 shares of our common stock to FJ Vulis and Associates, LLC, pursuant to the terms of a convertible debenture.

On January 25, 2021, we issued 694,707 shares of our common stock to GS Capital Partners, LLC upon the conversion of $25,500 of principal and $2,543 of accrued interest pursuant to a convertible debenture.

On January 28, 2021, we issued 397,272 shares of our common stock to M2B Funding upon the conversion of 38,734 shares of Series A preferred stock with a stated value of $1 per share.

On February 1, 2021, we issued 919,356 shares of our common stock to SCS, LLC upon the conversion of $39,030 of principal and $2,341 of accrued interest pursuant to a convertible debenture.

On February 1, 2021, we issued 760,234 shares of our common stock to Cobra Equities SPV, LLC upon the conversion of $26,000 of accrued interest pursuant to a convertible debenture.

On February 2, 2021, we issued 750,000 shares of our common stock to Efrat Investments LLC upon the conversion of $37,500 of principal pursuant to a convertible debenture.

On February 3, 2021, we issued 1,015,505 shares of our common stock to CCAG Investments, LLC upon the cashless exercise of a warrant.

On February 9, 2021, we issued 738,462 shares of our common stock to M2B Funding upon the conversion of 72,000 shares of Series A preferred stock with a stated value of $1 per share.

On February 9, 2021, we issued 989,587 shares of our common stock to FJ Vulis and Associates, LLC upon the cashless exercise of a warrant.

On February 19, 2021, we issued 809,524 shares of our common stock to Cobra Equities SPV, LLC upon the conversion of $136,000 of accrued interest pursuant to a convertible debenture.

On February 22, 2021, we issued 250,000 shares of our common stock to Oasis Capital, LLC pursuant to an exchange agreement.

On March 15, 2021, we issued 819,444 shares of our common stock to Cobra Equities SPV, LLC upon the conversion of $104,000 of principal and $73,000 of accrued interest pursuant to a convertible debenture.

The above issuances of our securities were not registered under the Securities Act and the Company relied on an exemption from registration provided by rule 506 of Regulation D promulgated under the Securities Act for such issuances.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit #		Exhibit Description
31*		Certification of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32*		Certifications of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 SCH		XBRL Taxonomy Extension Schema Document

101 CAL		XBRL Taxonomy Calculation Linkbase Document

101 LAB		XBRL Taxonomy Labels Linkbase Document

101 PRE		XBRL Taxonomy Presentation Linkbase Document

101 DEF		XBRL Taxonomy Extension Definition Linkbase Document

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.

	SPECTRUM GLOBAL SOLUTIONS, INC.

Date: May 17, 2021	By:	/s/ Mark W. Porter
		Mark W. Porter
		Chief Executive Officer

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.

	SPECTRUM GLOBAL SOLUTIONS, INC.

Date: May 17, 2021	By:	/s/ Daniel J. Sullivan
		Daniel J. Sullivan
		Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer

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