HIGH WIRE NETWORKS, INC. - Quarter Report: 2023 June (Form 10-Q)

 

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 June 30, 2023

 

Or

 

☐ 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

 

High Wire Networks, Inc.

(Exact name of registrant as specified in its charter)

  

Delaware		81-5055489
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
30 North Lincoln Street, Batavia, Illinois		60510
(Address of principal executive offices)		(Zip Code)

 

952-974-4000

(Registrant’s telephone number, including area code)

  

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ YES ☐ 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		HWNI		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.

 

The registrant had 237,860,605 common shares issued and outstanding as of August 9, 2023.

 

 

 

Table of Contents

 

PART I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
PART II - OTHER INFORMATION		46
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	47
SIGNATURES		48

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The unaudited interim condensed 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.

 

High Wire Networks, Inc.

 

	Page
	Number
Condensed consolidated balance sheets as of June 30, 2023 (unaudited) and December 31, 2022	2
Condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022 (unaudited)	3
Condensed consolidated statements of stockholders’ deficit for the six months ended June 30, 2023 and 2022 (unaudited)	4
Condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 (unaudited)	5
Notes to unaudited condensed consolidated financial statements	6

 

 

High Wire Networks, Inc.

Condensed consolidated balance sheets

 

		June 30,				December 31,
		2023				2022
		(Unaudited)
ASSETS
Current assets:
Cash		$	1,203,464			$	649,027
Accounts receivable, net of allowance of $36,000			3,349,576				3,925,504
Prepaid expenses and other current assets			344,164				883,858
Current assets of discontinued operations			-				5,211,442
Total current assets			4,897,204				10,669,831
Property and equipment, net of accumulated depreciation of $373,480 and $294,763, respectively			1,326,432				1,549,609
Goodwill			5,406,319				8,028,106
Intangible assets, net of accumulated amortization of $2,010,304 and $1,670,556, respectively			4,398,385				4,738,134
Operating lease right-of-use assets			8,334				57,408
Noncurrent assets of discontinued operations			-				7,551,883
Total assets		$	16,036,674			$	32,594,971
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities			4,424,421				6,425,226
Contract liabilities			629,424				1,665,831
Loans payable to related parties			100,000				209,031
Current portion of loans payable, net of debt discount of $138,752 and $658,838, respectively			3,871,662				1,928,964
Current portion of convertible debentures			273,894				1,598,894
Factor financing			217,304				-
Current portion of derivative liabilities			1,510,605				4,720,805
Contingent consideration			100,000				100,000
Operating lease liabilities			10,742				74,266
Current liabilities of discontinued operations			-				4,836,776
Total current liabilities			11,138,052				21,559,793
Long-term liabilities:
Loans payable, net of current portion			-				185,513
Convertible debentures, net of current portion			-				1,625,000
Derivative liabilities, net of current portion			-				3,324,126
Noncurrent liabilities of discontinued operations			-				152,102
Total long-term liabilities			-				5,286,741
Total liabilities			11,138,052				26,846,534
Commitments and contingencies (Note 15)
Series A preferred stock; $0.00001 par value; 8,000,000 shares authorized; 0 and 300,000 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively			-				722,098
Series B preferred stock; $3,500 stated value; 1,000 shares authorized; 1,000 issued and outstanding as of June 30, 2023 and December 31, 2022			-				-
Series D preferred stock; $10,000 stated value; 1,590 shares authorized; 943 and 1,405 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively			8,006,469				11,641,142
Series E preferred stock; $10,000 stated value; 650 shares authorized; 311 and 526 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively			4,869,433				5,104,658
Total mezzanine equity			12,875,902				17,467,898
Stockholders’ deficit:
Common stock; $0.00001 par value; 1,000,000,000 shares authorized; 237,860,605 and 164,488,370 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively			2,379				1,645
Additional paid-in capital			29,564,102				20,338,364
Accumulated deficit			(37,543,761	)			(32,059,470	)
Total stockholders’ deficit			(7,977,280	)			(11,719,461	)
Total liabilities and stockholders’ deficit		$	16,036,674			$	32,594,971

 

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

 

High Wire Networks, Inc.

Condensed consolidated statements of operations

(Unaudited)

 

		For the three months ended								For the six months ended
		June 30,								June 30,
		2023				2022				2023				2022
Revenue		$	5,940,066			$	6,842,723			$	16,105,237			$	12,155,837
Operating expenses:
Cost of revenues			3,431,506				4,417,918				12,163,174				7,842,031
Depreciation and amortization			215,847				121,453				418,467				242,037
Salaries and wages			2,295,763				2,305,713				4,288,779				4,336,957
General and administrative			2,216,643				1,526,809				4,085,453				2,894,580
Total operating expenses			8,159,759				8,371,893				20,955,873				15,315,605
Loss from operations			(2,219,693	)			(1,529,170	)			(4,850,636	)			(3,159,768	)
Other (expenses) income:
Interest expense			(402,401	)			(332,276	)			(588,053	)			(585,505	)
Amortization of discounts on convertible debentures and loans payable			(328,828	)			(930,883	)			(837,392	)			(1,603,499	)
Gain on change in fair value of derivatives			181,627				8,119,963				3,322,031				11,992,302
Exchange loss			(6,573	)			(160	)			(8,029	)			(160	)
Liquidated damages related to escrow shares			(1,222,000	)			-				(1,222,000	)			-
Loss on settlement of debt			-				(906,258	)			-				(906,258	)
Initial derivative expense			-				(11,000	)			-				(11,000	)
Amortization of premiums on convertible debentures and loans payable to related parties			-				386,757				-				773,514
Other income			37,500				278,674				37,500				279,934
Total other (expense) income			(1,740,675	)			6,604,817				704,057				9,939,328
Net (loss) income from continuing operations before income taxes			(3,960,368	)			5,075,647				(4,146,579	)			6,779,560
Provision for income taxes			-				-				-				-
Net (loss) income from continuing operations			(3,960,368	)			5,075,647				(4,146,579	)			6,779,560
Net income (loss) from discontinued operations, net of taxes			-				289,406				(1,337,712	)			3,414,543
Less: net loss from discontinued operations attributable to noncontrolling interest			-				-				-				128,487
Net (loss) income attributable to High Wire Networks, Inc. common shareholders		$	(3,960,368	)		$	5,365,053			$	(5,484,291	)		$	10,322,590
(Loss) income per share attributable to High Wire Networks, Inc. common shareholders, basic:
Net (loss) income from continuing operations		$	(0.02	)		$	0.09			$	(0.02	)		$	0.13
Net income (loss) from discontinued operations, net of taxes		$	-			$	0.01			$	(0.01	)		$	0.07
Net (loss) income per share		$	(0.02	)		$	0.10			$	(0.03	)		$	0.20
(Loss) income per share attributable to High Wire Networks, Inc. common shareholders, diluted:
Net (loss) income from continuing operations		$	(0.02	)		$	0.07			$	(0.02	)		$	0.10
Net (loss) income from discontinued operations, net of taxes		$	-			$	-			$	(0.01	)		$	0.05
Net (loss) income per share		$	(0.02	)		$	0.07			$	(0.03	)		$	0.15
Weighted average common shares outstanding:
Basic			232,300,415				55,544,332				214,984,254				52,132,149
Diluted			232,300,415				74,147,812				214,984,254				70,735,629

 

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

 

 

High Wire Networks, Inc.

Condensed consolidated statements of stockholder’s deficit

(Unaudited)

 

		For the six months ended June 30, 2023
		Common stock								Additional paid-in				Accumulated				Noncontrolling
		Shares				$				capital				deficit				interest					Total
Balances, January 1, 2023			164,488,370			$	1,645			$	20,338,364			$	(32,059,470	)		$	-			$	(11,719,461	)
Issuance of common stock upon conversion of Series A preferred stock			3,750,000				38				722,060				-				-				722,098
Issuance of common stock pursuant to PIPE transaction			50,233,334				502				3,424,498				-				-				3,425,000
Issuance of common stock upon conversion of Series D preferred stock			6,511,628				65				1,445,155				-				-				1,445,220
Issuance of common stock to third-party vendors			2,800,000				28				242,172												242,200
Stock-based compensation			-				-				285,791				-				-				285,791
Net loss for the period			-				-				-				(1,523,923	)			-				(1,523,923	)
Ending balance, March 31, 2023			227,783,332			$	2,278			$	26,458,040			$	(33,583,393	)		$	-			$	(7,123,075	)
Issuance of common stock pursuant to PIPE transaction			1,100,000				11				74,989				-				-				75,000
Issuance of common stock upon conversion of Series D preferred stock			8,295,455				83				1,238,910				-				-				1,238,993
Issuance of common stock upon conversion of Series E preferred stock			681,818				7				235,217				-				-				235,224
Stock-based compensation			-				-				334,946				-				-				334,946
Liquidated damages related to escrow shares			-				-				1,222,000				-				-				1,222,000
Net loss for the period			-				-				-				(3,960,368	)			-				(3,960,368	)
Ending balance, June 30, 2023			237,860,605			$	2,379			$	29,564,102			$	(37,543,761	)		$	-			$	(7,977,280	)

 

		For the six months ended June 30, 2022
		Common stock									Additional paid-in				Accumulated				Noncontrolling
		Shares				$				capital				deficit				interest				Total
Balances, January 1, 2022			46,149,117			$	462			$	8,630,910			$	(13,024,382	)		$	1,949,701			$	(2,443,309	)
Issuance of common stock to upon conversion of convertible debentures			4,101,140				41				815,251				-				-				815,292
Issuance of common stock to upon conversion of Series D preferred stock			1,136,364				11				258,068				-				-				258,079
Stock-based compensation			-				-				299,034				-				-				299,034
Disposal of JTM			-				-				-				-				(1,949,701	)			(1,949,701	)
Net loss for the period			-				-				-				4,957,537				-				4,957,537
Ending balance, March 31, 2022			51,386,621			$	514			$	10,003,263			$	(8,066,845	)		$	-			$	1,936,932
Issuance of common stock upon conversion of convertible debentures			5,880,127				59				864,782				-				-				864,841
Stock-based compensation			-				-				296,691				-				-				296,691
Net income for the period			-				-				-				5,365,053				-				5,365,053
Ending balance, June 30, 2022			57,266,748			$	573			$	11,164,736			$	(2,701,792	)		$	-			$	8,463,517

 

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

 

 

High Wire Networks, Inc.

Condensed consolidated statements of cash flows

(Unaudited) 

 

		For the six months ended
		June 30,
		2023				2022
Cash flows from operating activities:
Net (loss) income from continuing operations		$	(4,146,579	)		$	6,779,560
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Gain on change in fair value of derivative liabilities			(3,322,031	)			(11,992,302	)
Amortization of discounts on convertible debentures and loans payable			837,392				1,603,499
Amortization of premiums on convertible debentures and loans payable to related parties			-				(773,514	)
Depreciation and amortization			418,467				242,036
Amortization of operating lease right-of-use assets			49,074				58,783
Stock-based compensation related to stock options			620,737				595,725
Stock-based compensation related to third-party vendors			242,200				-
Liquidated damages related to escrow shares			1,222,000				-
Loss (gain) on disposal of subsidiary			1,434,392				(919,873	)
Loss on settlement of debt			-				906,258
Initial derivative expense			-				11,000
Changes in operating assets and liabilities:
Accounts receivable			575,928				(387,481	)
Prepaid expenses and other current assets			539,694				(535,639	)
Accounts payable and accrued liabilities			(1,278,875	)			1,063,436
Contract liabilities			(1,036,407	)			316,874
Operating lease liabilities			(63,524	)			(67,021	)
Net cash used in operating activities of continuing operations			(3,907,532	)			(3,098,659	)
Net cash (used in) provided by operating activities of discontinued operations			(995,089	)			2,974,869
Net cash used in operating activities			(4,902,621	)			(123,790	)
Cash flows from investing activities:
Purchase of equipment			-				(36,126	)
Cash received in connection with disposal of JTM			50,000				325,000
Net cash provided by investing activities			50,000				288,874
Cash flows from financing activities:
Proceeds from loans payable			5,145,400				1,454,965
Repayments of loans payable			(3,158,138	)			(1,466,759	)
Proceeds from factor financing			6,040,098				-
Repayments of factor financing			(5,822,794	)			-
Securities Purchase Agreement proceeds			3,500,000				-
Proceeds from convertible debentures			-				500,000
Net cash provided by financing activities of continuing operations			5,704,566				488,206
Net cash (used in) provided by financing activities of discontinued operations			(297,508	)			277,533
Net cash provided by financing activities			5,407,058				765,739
Net increase in cash			554,437				930,823
Cash, beginning of period			649,027				445,479
Cash, end of period		$	1,203,464			$	1,376,302
Supplemental disclosures of cash flow information:
Cash paid for interest		$	389,778			$	168,750
Cash paid for income taxes		$	-			$	-
Non-cash investing and financing activities:
Common stock issued for conversion of Series A preferred stock		$	722,098			$	-
Common stock issued for conversion of Series D preferred stock		$	2,684,213			$	258,079
Common stock issued for conversion of Series E preferred stock		$	235,224			$	-
Original issue discounts on loans payable		$	694,600			$	645,035
Common stock issued for conversion of convertible debentures		$	-			$	1,680,133
Receivable from JTM disposition		$	-			$	200,000

 

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

 

High Wire Networks, Inc.

Notes to the unaudited condensed consolidated financial statements

June 30, 2023

 

1.	Organization

 

HWN, Inc., (d/b/a High Wire Network Solutions, Inc.) (“HWN” or the “Company”) was incorporated in Delaware on January 20, 2017. The Company is a global provider of managed cybersecurity, managed networks, and tech enabled professional services delivered exclusively through a channel sales model. The Company’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.

 

HWN and JTM Electrical Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which High Wire owned 50% of JTM.

 

On June 16, 2021, the Company completed a merger with Spectrum Global Solutions, Inc. On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. (“High Wire” or, collectively with HWN, “the Company”). The merger was accounted for as a reverse merger. At the time of the reverse merger, High Wire’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”). For accounting purposes, HWN is the surviving entity.

 

High Wire was incorporated in the State of Nevada on January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On December 8, 2008, High Wire reincorporated in the province of British Columbia, Canada.

 

On November 4, 2021, the Company closed on its acquisition of Secure Voice Corp (“SVC”). The closing of the acquisition was facilitated by a senior secured promissory note.

 

On February 15, 2022, HWN sold its 50% interest in JTM, which qualified for discontinued operations treatment (refer to Note 18, Discontinued Operations, for additional detail).

 

On March 6, 2023, HWN divested the ADEX Entities (refer to Note 3, Disposal of Subsidiary, for additional detail). The divestiture of the ADEX Entities qualified for discontinued operations treatment (refer to Note 18, Discontinued Operations, for additional detail).

 

The Company’s AWS PR and Tropical subsidiaries are professional, multi-service line, telecommunications infrastructure companies that provide outsourced services to the wireless and wireline industry. The Company’s SVC subsidiary is a wholesale network services provider with network footprint and licenses in the Northeast and Southeast United States as well as Texas. This network carries VoIP and other traffic for other service providers.

 

2.	Significant Accounting Policies

 

Condensed Financial Statements

 

In the opinion of management, the accompanying unaudited condensed consolidated 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 unaudited condensed consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States. These unaudited condensed consolidated financial statements include the accounts of the Company as well as High Wire and its subsidiaries, AWS PR, Tropical, and SVC. All subsidiaries are wholly-owned.

 

All inter-company balances and transactions have been eliminated. 

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

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

 

Accounts Receivable

 

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for services performed but not billed. Management reviews a customer’s credit history before extending credit. The Company maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period. This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness, current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate made by management may also change. The allowance for doubtful accounts at each of June 30, 2023 and December 31, 2022 was $36,000.

 

Property and Equipment

 

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

 

Computers and office equipment		3-7 years straight-line basis
Vehicles		3-5 years straight-line basis
Leasehold improvements		5 years straight-line basis
Software		5 years straight-line basis
Machinery and equipment		5 years straight-line basis

 

Goodwill

 

The Company tests its goodwill for impairment at least annually on December 31 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 and six months ended June 30, 2023 and 2022.

 

 

Intangible Assets

 

At June 30, 2023 and December 31, 2022, definite-lived intangible assets consist of tradenames and customer relationships which are being amortized over their estimated useful lives of 10 years. 

 

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

 

For long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value. There were no impairment charges during the three and six months ended June 30, 2023 and 2022.

 

Long-lived Assets

 

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 during the three and six months ended June 30, 2023 and 2022.

 

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 United States, in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2020 to 2022. 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 the 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 740, “Income Taxes” 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 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.

 

Prior to 2021, the Company had elected to be treated as a Subchapter S Corporation for income tax purposes, and as such recognized no income tax liability or benefit.

 

Revenue Recognition

 

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

 

Contract Types

 

The Company’s contracts fall under two main types: 1) fixed-price and 2) time-and-materials. Fixed-price contracts are based on purchase order line items that are billed on individual invoices as the project progresses and milestones are reached. Time-and-materials contracts include employees working permanently at customer locations and materials costs incurred by those employees.

 

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

 

Performance Obligations

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types, the performance obligation is satisfied at different times. For professional services revenue, the performance obligation is met when the work is performed. In certain cases, this may be each day or each week, depending on the customer. For construction services, the performance obligation is met when the work is completed and the customer has approved the work.

 

 

Revenue Service Types

 

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

 

●

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 contract type. See the below table:

 

Revenue by contract type		Three months ended June 30, 2023				Three months ended June 30, 2022				Six months ended June 30, 2023				Six months ended June 30, 2022
Fixed-price		$	4,656,214			$	4,127,631			$	13,131,615			$	7,206,559
Time-and-materials			1,283,852				2,715,092				2,973,622				4,949,278
Total		$	5,940,066			$	6,842,723			$	16,105,237			$	12,155,837

 

The Company also disaggregates its revenue by operating segment and geographic location (refer to Note 16, Segment Disclosures, for additional information).

 

Accounts Receivable

 

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

 

Contract Assets and Liabilities

 

Contract assets include costs and services incurred on contracts with open performance obligations. These amounts are included in contract assets on the unaudited condensed consolidated balance sheets. At June 30, 2023 and December 31, 2022, the Company did not have any contract assets.

  

Contract liabilities include payment received for incomplete performance obligations and are included in contract liabilities on the unaudited condensed consolidated balance sheets. At June 30, 2023 and December 31, 2022, contract liabilities totaled $629,424 and $1,665,831, 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, 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”, 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, 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 Accounting Standards Update (“ASU”) 2018-07. In accordance with ASU 2016-09, the Company accounts for forfeitures as they occur.

 

The Company uses certain pricing models 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) Income per Share

 

The Company computes (loss) income 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) income 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 conversion of convertible debentures or preferred stock and the exercise of stock options or warrants. Diluted EPS excludes dilutive potential shares if their effect is anti-dilutive. As of June 30, 2023 and 2022, respectively, the Company had 97,968,651 and 136,973,361 common stock equivalents outstanding. As of June 30, 2022, 18,603,480 of the common stock equivalents were dilutive.

 

Leases

 

The Company adopted ASC 842, “Leases” on January 1, 2019.

 

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

 

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

 

 

Going Concern Assessment

 

Management assesses going concern uncertainty in the Company’s unaudited condensed consolidated financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the unaudited condensed consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.

 

The Company generated operating losses in the three and six months ended June 30, 2023 and 2022, and High Wire has generated operating losses since its inception and has relied on cash on hand, sales of securities, external bank lines of credit, and issuance of third-party and related party debt to support cash flow from operations. As of and for the six months ended June 30, 2023, the Company had an operating loss of $4,850,636, cash flows used in continuing operations of $3,907,532, and a working capital deficit of $6,240,848. 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 unaudited condensed consolidated financial statements.

   

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis under which the Company is expected to be able to realize its assets and satisfy its liabilities in the normal course of business.

 

Management believes that based on relevant conditions and events that are known and reasonably knowable, its forecasts of operations for one year from the date of the filing of the unaudited condensed consolidated financial statements in the Company’s Quarterly Report on Form 10-Q indicate improved operations and the Company’s ability to continue operations as a going concern. The Company has contingency plans to reduce or defer expenses and cash outlays should operations not improve in the look forward period. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of management to raise additional equity capital through private and public offerings of its common stock, and the attainment of profitable operations. These unaudited consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

  

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

 

Recent Accounting Pronouncements

 

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). In June 2016, the FASB issued ASU No. 2016-13. The amendments in ASU 2016-13, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (the “SEC”) and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company adopted ASU 2016-13 effective January 1, 2023. The adoption did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

  

 

ASU 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08). In October 2021, the FASB issued ASU 2021-08. This guidance amends ASC 805 to “require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.” Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. As a public business entity, this standard will become effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2021-08 effective January 1, 2023. The adoption did not have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable or were related to technical amendments or codification. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. 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. As of June 30, 2023, HWN had a cash balance in excess of provided insurance of $860,794.

 

The Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the six months ended June 30, 2023, three customers accounted for 26%, 21%, and 11%, respectively, of consolidated revenues for the period. In addition, amounts due from these customers represented 2%, 11%, and 16%, respectively, of trade accounts receivable as of June 30, 2023. For the six months ended June 30, 2022, two customers each accounted for 17% of consolidated revenues for the period. In addition, amounts due from each of these customers represented 25% of trade accounts receivable as of June 30, 2022.

 

The Company’s customers are primarily located within the domestic United States of America and Puerto Rico. Revenues generated within the domestic United States of America accounted for approximately 98% and 94% of consolidated revenues for the six months ended June 30, 2023 and 2022, respectively. Revenues generated from customers in Puerto Rico accounted for approximately 2% and 6% of consolidated revenues for the six months ended June, 2023 and 2022, respectively.

 

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 six months ended June 30, 2023 and 2022. 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 June 30, 2023 and December 31, 2022 consisted of the following:

 

		Total fair value at June 30, 2023				Quoted prices in active markets (Level 1)				Quoted prices in active markets (Level 2)				Quoted prices in active markets (Level 3)
Description:
Derivative liability (1)		$	1,510,605			$	-			$	-			$	1,510,605

 

		Total fair value at December 31, 2022				Quoted prices in active markets (Level 1)				Quoted prices in active markets (Level 2)				Quoted prices in active markets (Level 3)
Description:
Derivative liability (1)		$	8,044,931			$	-			$	-			$	8,044,931

 

(1)

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

 

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Refer to Note 10, Derivative Liabilities, for additional information.

 

Derivative Liabilities

 

The Company accounts for derivative instruments in accordance with ASC 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 June 30, 2023 and December 31, 2022, the Company had a derivative liability of $1,510,605 and $8,044,931, 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.

 

 

3.	Disposal of Subsidiary

 

On March 6, 2023, the Company entered into a stock purchase agreement, by and among ADEX Corporation, ADEX Canada LTD., ADEX Puerto Rico, LLC and ADEXCOMM, and ADEX Acquisition Corp., pursuant to which the Company sold to ADEX Acquisition Corp. its legacy staffing business in a transaction valued at approximately $11,500,000, comprised primarily of the elimination of approximately $10,000,000 of debt, representing monthly debt payments of approximately $325,000, and the cancellation of 140 shares of the Company’s Series D preferred stock. The sale of ADEX Corporation closed simultaneously with the signing of the agreement.

 

The Company considered whether or not this transaction would cause the ADEX Entities to qualify for discontinued operations treatment. The Company determined that the sale of the ADEX Entities qualifies for discontinued operations treatment during the period ended June 30, 2023 due to the size of their operations and because the sale represents a strategic shift (refer to Note 18, Discontinued Operations, for additional detail).

 

In connection with the sale, the Company recorded a loss on disposal of subsidiary of $1,434,392 to the unaudited condensed consolidated statement of operations for the six months ended June 30, 2023. Additionally, the ADEX Entities had net income of $96,680 during the period of January 1, 2023 through March 6, 2023. The net of these amounts is included within net (loss) income from discontinued operations, net of taxes on the unaudited condensed consolidated statement of operations.

 

4.	Property and Equipment

 

Property and equipment as of June 30, 2023 and 2022 consisted of the following:

 

		June 30,				December 31
		2023				2022
Computers and office equipment		$	167,401			$	167,401
Vehicles			11,938				11,938
Leasehold improvements			6,113				6,113
Software			675,660				820,120
Machinery and equipment			838,800				838,800
Total			1,699,912				1,844,372
Less: accumulated depreciation			(373,480	)			(294,763	)
Equipment, net		$	1,326,432			$	1,549,609

 

During the six months ended June 30, 2023 and 2022, the Company recorded depreciation expense of $78,718 and $65,371, respectively.

  

5.	Intangible Assets

 

Intangible assets as of June 30, 2023 and 2022 consisted of the following:

 

		Cost				Accumulated Amortization				Impairment				Net carrying value at June 30, 2023				Net carrying value at December 31, 2022
Customer relationship and lists		$	5,266,705			$	(1,540,311	)		$	-			$	3,726,394			$	4,006,705
Trade names			1,141,984				(469,993	)			-				671,991				731,429
Total intangible assets		$	6,408,689			$	(2,010,304	)		$	-			$	4,398,385			$	4,738,134

 

During the six months ended June 30, 2023 and 2022, the Company recorded amortization expense of $339,749 and $176,666, respectively.

 

 

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

 

Year ending December 31,
2023			339,749
2024			679,497
2025			679,497
2026			679,497
2027			679,497
Thereafter			1,340,648
Total		$	4,398,385

 

6.	Related Party Transactions

 

Loans Payable to Related Parties

 

As of June 30, 2023 and December 31, 2022, the Company had outstanding the following loans payable to related parties:

 

		June 30,				December 31,
		2023				2022
Promissory note issued to Mark Porter, 9% interest, unsecured, matured December 15, 2021, due on demand		$	100,000			$	100,000
Convertible promissory note issued to Keith Hayter, 10% interest, unsecured, matures March 31, 2023			-				109,031
Total		$	100,000			$	209,031

 

Promissory note, Mark Porter, 9% interest, unsecured, matures December 15, 2021

 

On June 1, 2021, the Company issued a $100,000 promissory note to the Chief Executive Officer of the Company in connection with the 2021 merger transaction. The note was originally due on December 15, 2021 and bears interest at a rate of 9% per annum.

 

On December 15, 2021, this note matured and is now due on demand.

 

As of June 30, 2023, the Company owed $100,000 pursuant to this agreement.

 

 

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

 

On June 15, 2021, in connection with the 2021 merger transaction, the Company assumed High Wire’s convertible promissory note issued to Keith Hayter. The note was originally issued on August 31, 2020 in the principal amount of $554,031. Interest accrued at 10% per annum. All principal and accrued but unpaid interest under the note was originally due on August 31, 2022. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.06 per share, subject to adjustment based on the terms of the note. The embedded conversion option did not qualify for derivative accounting. As a result of the conversion price being fixed at $0.06, the note had an original conversion premium of $1,359,761, and the fair value of the note was $378,000.

 

During the period of June 16, 2021 through December 31, 2021, the holder of the note converted $200,000 of principal into shares of the Company’s common stock.

 

For the three and six months ended June 30, 2022, the Company recorded $370,844 and $741,688, respectively, of amortization of premium to the unaudited condensed consolidated statement of operations.

 

During the year ended December 31, 2022, the holder of the note converted $245,000 of principal into shares of the Company’s common stock.

  

On September 30, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to October 31, 2022. The terms of the note were unchanged.

 

On October 31, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to November 30, 2022. The terms of the note were unchanged.

 

On December 31, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to March 31, 2023. The terms of the note were unchanged.

 

As of January 1, 2023, the holder was no longer considered a related party.

 

On January 1, 2023, the note was exchanged by the holder for a new unsecured promissory note with no conversion feature (refer to Note 7, Loans Payable, for additional detail). The amount exchanged was the outstanding principal and accrued interest of $109,031 and $126,806, respectively).

 

 

7.	Loans Payable

 

As of June 30, 2023 and December 31, 2022, the Company had outstanding the following loans payable:

 

		June 30,				December 31,
		2023				2022
Unsecured promissory note, Keith Hayter, 15% interest, matures August 31, 2023		$	160,837			$	-
Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures February 16, 2024, net of debt discount of $39,395			1,072,042				-
Future receivables financing agreement with Pawn Funding, non-interest bearing, matures February 22, 2024, net of debt discount of $29,696			1,107,008				-
Future receivables financing agreement with Slate Advance LLC, non-interest bearing, matures December 22, 2023, net of debt discount of $69,661			1,314,375				-
Promissory note issued to InterCloud Systems, Inc., non-interest bearing, unsecured and due on demand			217,400				217,400
Promissory note, Jeffrey Gardner, 12% interest, unsecured, matures April 15, 2023			-				-
Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures July 28, 2023			-				-
Future receivables financing agreement with Pawn Funding, non-interest bearing, matures August 4, 2023			-				-
Promissory note issued to Cornerstone National Bank & Trust, 4.5% interest, unsecured, matures on October 9, 2024			-				245,765
Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures August 17, 2023, net of debt discount of $329,419			-				825,656
Future receivables financing agreement with Pawn Funding, non-interest bearing, matures August 17, 2023, net of debt discount of $329,419			-				825,656
Total		$	3,871,662			$	2,114,477
Less: Current portion of loans payable, net of debt discount			(3,871,662	)			(1,928,964	)
Loans payable, net of current portion		$	-			$	185,513

 

The Company’s loans payable have an effective interest rate range of 6.5% to 139.1%.

 

Unsecured promissory note, Keith Hayter, 15% interest, matures August 31, 2023

 

On January 1, 2023, Keith Hayter, formerly a related party, exchanged a convertible promissory note for an unsecured promissory note with no conversion feature. The principal amount of the new note is $235,837, which was the outstanding principal and accrued interest of the exchanged note as of that date. Interest accrues at 15% per annum. All principal and accrued but unpaid interest under the note is due on August 31, 2023.

 

During the six months ended June 30, 2023, the Company made cash payments for principal of $75,000.

 

As of June 30, 2023, the Company owed $160,837 pursuant to this agreement.

 

Promissory note, Jeffrey Gardner, 12% interest, unsecured, matures April 15, 2023

 

On January 16, 2023, the Company issued a $330,000 promissory note to Jeffrey Gardner. The note had a maturity date of April 15, 2023 and bore interest at a rate of 12% per annum. The Company received cash proceeds of $300,000 and recorded a debt discount of $30,000.

 

During the six months ended June 30, 2023, the Company made cash payments for principal and accrued interest of $330,000 and $20,000, respectively. As a result of these payments, the amount owed at June 30, 2023 was $0.

 

 

Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures July 28, 2023

 

On February 9, 2023, 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 $725,000 for a purchase price of $500,000. The Company received cash of $475,000 and recorded a debt discount of $250,000.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Cedar Advance $30,208 each week based upon an anticipated 25% of its future receivables until such time as $725,000 has been paid, a period Cedar Advance and the Financing Parties estimated to be approximately six months. The Financing Agreement also contained customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

 

During the six months ended June 30, 2023, the Company paid $725,000 of the original balance under the agreement. Of that amount, $332,292 was paid using proceeds from the May 2023 loan with Cedar Advance discussed below. As a result of these payments, the amount owed at June 30, 2023 was $0.

  

Future receivables financing agreement with Pawn Funding, non-interest bearing, matures August 4, 2023

 

On February 16, 2023, 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 $725,000 for a purchase price of $500,000. The Company received cash of $475,000 and recorded a debt discount of $250,000.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Pawn Funding $15,104 each week based upon an anticipated 25% of its future receivables until such time as $362,500 has been paid, a period Pawn Funding and the Financing Parties estimated to be approximately six months. The Financing Agreement also contained customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

 

During the six months ended June 30, 2023, the Company paid $725,000 of the original balance under the agreement. Of that amount, $362,500 was paid using proceeds from the May 2023 loan with Pawn Funding discussed below. As a result of these payments, the amount owed at June 30, 2023 was $0.

 

Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures February 16, 2024

 

On May 15, 2023, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing Parties sold to Cedar Advance future receivables in an aggregate amount equal to $1,280,000 for a purchase price of $1,228,800. The Company received cash of $1,228,800 and recorded a debt discount of $51,200.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Cedar Advance $43,840 each week, including interest, based upon an anticipated 25% of its future receivables until such time as $1,753,600 has been paid, a period Cedar Advance and the Financing Parties estimate to be approximately nine months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

 

 

During the six months ended June 30, 2023, the Company paid $168,563 of the original balance under the agreement, along with $138,317 of interest.

 

As of June 30, 2023, the Company owed $1,111,437 pursuant to this agreement and will record accretion equal to the debt discount of $39,395 over the remaining term of the note.

  

Future receivables financing agreement with Pawn Funding, non-interest bearing, matures February 22, 2024

 

On May 15, 2023, 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 $1,280,000 for a purchase price of $1,280,000. The Company received cash of $1,241,600 and recorded a debt discount of $38,400.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Pawn Funding $43,840 each week, including interest, based upon an anticipated 25% of its future receivables until such time as $1,753,600 has been paid, a period Pawn Funding and the Financing Parties estimate to be approximately nine months. The Financing Agreement also contains customary affirmative and negative covenants, representations and warranties, and default and termination provisions.

 

During the six months ended June 30, 2023, the Company paid $143,296 of the original balance under the agreement, along with $119,744 of interest.

 

As of June 30, 2023, the Company owed $1,136,704 pursuant to this agreement and will record accretion equal to the debt discount of $29,696 over the remaining term of the note.

 

Future receivables financing agreement with Slate Advance LLC, non-interest bearing, matures December 22, 2023

 

On June 9, 2023, 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 Slate Advance. Under the Financing Agreement, the Financing Parties sold to Slate Advance future receivables in an aggregate amount equal to $1,500,000 for a purchase price of $1,425,000. The Company received cash of $1,425,000 and recorded a debt discount of $75,000.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Slate Advance $75,000 each week, including interest, based upon an anticipated 25% of its future receivables until such time as $2,100,000 has been paid, a period Slate 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 six months ended June 30, 2023, the Company paid $115,964 of the original balance under the agreement, along with $109,036 of interest.

 

As of June 30, 2023, the Company owed $1,384,036 pursuant to this agreement and will record accretion equal to the debt discount of $69,661 over the remaining term of the note.

 

 

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

 

On June 15, 2021, in connection with the 2021 merger transaction, the Company assumed High Wire’s promissory note issued to InterCloud Systems, Inc. The note was originally issued on February 27, 2018 in the principal amount of $500,000. As of June 15, 2021, $217,400 remained outstanding. The note is non-interest bearing and is due on demand.

 

As of June 30, 2023, the Company owed $217,400 pursuant to this agreement. 

 

Promissory note issued to Cornerstone National Bank & Trust, 4.5% interest, matures October 9, 2024

 

On October 21, 2019, the Company issued a promissory note to Cornerstone National Bank & Trust with an original principal amount of $420,000. The note bore interest at a rate of 4.5% per annum and the maturity date was October 9, 2024. The Company was to make monthly payments of principal and interest of $5,851, with a final balloon payment of $139,033 due on October 9, 2024.

  

During the year ended December 31, 2022, the Company made cash payments for principal of $58,422.

  

During the six months ended June 30, 2023, the remaining principal balance of $245,765 was paid using proceeds from factor financing. As a result of these payments, the amount owed at June 30, 2023 was $0.

 

Future receivables financing agreement with Cedar Advance LLC, non-interest bearing, matures August 17, 2023

 

On November 9, 2022, the Company, together with its subsidiaries (collectively with the Company, the “Financing Parties”), entered into an Agreement of Sale of Future Receipts (the “Financing Agreement”) with Cedar Advance LLC. Under the Financing Agreement, the Financing Parties sold to Cedar Advance future receivables in an aggregate amount equal to $1,399,900 for a purchase price of $1,000,000. The Company received cash of $960,000 and recorded a debt discount of $439,900.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Cedar Advance $34,975 each week based upon an anticipated 25% of its future receivables until such time as $1,399,900 has been paid, a period Cedar Advance and the Financing Parties estimated to be approximately nine months. The Financing Agreement also contained customary affirmative and negative covenants, representations and warranties, and default and termination provisions. The effective interest rate is 78%.

  

During the year ended December 31, 2022, the Company paid $244,825 of the original balance under the agreement.

  

During the period of January 1, 2023 and March 6, 2023, the Company paid $314,775 of the original balance under the agreement. As a result of these payments, the Company owed $840,330 as of March 6, 2023.

 

On March 6, 2023, in connection with the divestiture of the ADEX Entities, the buyer assumed this note (refer to Note 3, Disposal of Subsidiary, for additional detail).

 

 

Future receivables financing agreement with Pawn Funding, non-interest bearing, matures August 17, 2023

 

On November 9, 2022, 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 $1,399,900 for a purchase price of $1,000,000. The Company received cash of $960,000 and recorded a debt discount of $439,900.

 

Pursuant to the terms of the Financing Agreement, the Company agreed to pay Pawn Funding $34,975 each week based upon an anticipated 25% of its future receivables until such time as $1,399,900 has been paid, a period Pawn Funding and the Financing Parties estimated to be approximately nine months. The Financing Agreement also contained customary affirmative and negative covenants, representations and warranties, and default and termination provisions. The effective interest rate is 78%.

 

During the year ended December 31, 2022, the Company paid $244,825 of the original balance under the agreement.

 

During the period of January 1, 2023 and March 6, 2023, the Company paid $314,775 of the original balance under the agreement. As a result of these payments, the Company owed $840,330 as of March 6, 2023.

 

On March 6, 2023, in connection with the divestiture of the ADEX Entities, the buyer assumed this note (refer to Note 3, Disposal of Subsidiary, for additional detail).

 

8.

Convertible Debentures

 

As of June 30, 2023 and December 31, 2022, the Company had outstanding the following convertible debentures:

 

		June 30,				December 31,
		2023				2022
Convertible promissory note, Jeffrey Gardner, 6% interest, unsecured, matured September 15, 2021, due on demand		$	125,000			$	125,000
Convertible promissory note, James Marsh, 6% interest, unsecured, matured September 15, 2021, due on demand			125,000				125,000
Convertible promissory note issued to Roger Ponder, 10% interest, unsecured, matures September 30, 2023			23,894				23,894
Convertible promissory note issued to the Mark Munro 1996 Charitable Remainder UniTrust, 9% interest, unsecured, due April 30, 2024			-				2,450,000
Convertible promissory note, FJ Vulis and Associates LLC, 12% interest, secured, matures May 11, 2023			-				500,000
Total			273,894				3,223,894
Less: Current portion of convertible debentures, net of debt discount/premium			(273,894	)			(1,598,894	)
Convertible debentures, net of current portion, net of debt discount		$	-			$	1,625,000

 

The Company’s convertible debentures have an effective interest rate range of 11.2% to 18.8%.

 

Convertible promissory note, Jeffrey Gardner, 6% interest, unsecured, due on demand

 

On June 15, 2021 the Company issued to Jeffrey Gardner an unsecured convertible promissory note in the aggregate principal amount of $125,000 in connection with the 2021 merger transaction.

 

 

The interest on the outstanding principal due under the note accrues at a rate of 6% per annum. All principal and accrued but unpaid interest under the note is due on September 15, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.075 per share.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.” 

 

On September 15, 2021, this note matured and is now due on demand. Additionally, the interest rate increased to 18% per annum.

 

As of June 30, 2023, the Company owed $125,000 pursuant to this agreement.

 

Convertible promissory note, James Marsh, 6% interest, unsecured, due on demand

 

On June 15, 2021 the Company issued to James Marsh an unsecured convertible promissory note in the aggregate principal amount of $125,000 in connection with the 2021 merger transaction.

 

The interest on the outstanding principal due under the note accrues at a rate of 6% per annum. All principal and accrued but unpaid interest under the note are due on September 15, 2021. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.075 per share.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging.” 

 

On September 15, 2021, this note matured and is now due on demand. Additionally, the interest rate increased to 18% per annum.

 

As of June 30, 2023, the Company owed $125,000 pursuant to this agreement.

 

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

 

On June 15, 2021, in connection with the 2021 merger transaction, the Company assumed High Wire’s convertible promissory note issued to Roger Ponder. The note was originally issued on August 31, 2020 in the principal amount of $23,894. Interest accrues at 10% per annum. All principal and accrued but unpaid interest under the note are due on August 31, 2022. The note is convertible into shares of the Company’s common stock at a fixed conversion price of $0.06 per share, subject to adjustment based on the terms of the note. The embedded conversion option does not qualify for derivative accounting. As a result of the conversion price being fixed at $0.06, the note has a conversion premium of $58,349, and the fair value of the note is $19,000.

  

On September 30, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to December 31, 2022. The terms of the note were unchanged.

 

On December 31, 2022, the Company and the holder of the note mutually agreed to extend the maturity date to March 31, 2023. The terms of the note were unchanged.

 

 

On March 31, 2023, the Company and the holder of the note mutually agreed to extend the maturity date to June 30, 2023. The terms of the note were unchanged.

 

On June 30, 2023, the Company and the holder of the note mutually agreed to extend the maturity date to September 30, 2023. The terms of the note were unchanged.

 

As of June 30, 2023, the Company owed $23,894 pursuant to this agreement.

   

Convertible promissory note issued to the Mark Munro 1996 Charitable Remainder UniTrust, 9% interest, unsecured, due April 30, 2024

 

On December 28, 2021, the Mark Munro 1996 Charitable Remainder UniTrust, the holder of a note with a principal balance of $2,292,971 described in Note 6, Loans Payable to Related Parties, exchanged the note for a new convertible promissory note in the principal amount of $2,750,000. The note bore interest at a rate of 9% per annum and was due on September 1, 2022. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.15 per share, subject to adjustment as set forth in the note. The note called for monthly payments of $75,000 from April 2022 through August 2022, with a balloon payment of $2,375,000 due on September 1, 2022.

 

The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $5,129,000 resulted in loss on settlement of debt of $5,129,000.

 

On April 11, 2022, the Mark Munro 1996 charitable Remainder Unitrust amended the terms of the Company’s convertible promissory note payable. The note maturity was amended from September 30, 2022 to April 30, 2024. Payment terms were also amended, and no payments were due until October 1, 2022. All other terms of the note remained the same.

 

On September 30, 2022, the holder of the note agreed to defer payment due under the note to October 30, 2022. In exchange, the Company paid a fee of $5,000. Additionally, interest was to accrue at a rate of 18% per annum until the note was current on payments.

 

During the year ended December 31, 2022, the Company made cash payments of $300,000.

 

As of March 6, 2023, the Company owed $2,450,000 pursuant to this agreement.

 

On March 6, 2023, in connection with the divestiture of the ADEX Entities, the buyer assumed this note (refer to Note 3, Disposal of Subsidiary, for additional detail).

 

Convertible promissory note, FJ Vulis and Associates LLC, 12% interest, secured, matures May 11, 2023

 

On May 11, 2022, the Company issued to FJ Vulis and Associates LLC a secured convertible redeemable note in the aggregate principal amount of $500,000. The interest on the outstanding principal due under the note accrued at a rate of 12% per annum. All principal and accrued but unpaid interest under the note were due on May 11, 2023. The note was convertible into shares of the Company’s common stock at a fixed conversion price of $0.065 per share. In any event of default, or if the Company’s common stock has a closing price of less than $0.013 per share, the fixed price was to be removed.

 

The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $511,000 resulted in a debt discount of $500,000 and an initial derivative expense of $11,000.

 

On October 28, 2022, the Company executed an agreement with FJ Vulis and Associates, LLC whereby FJ Vulis and Associates, LLC agreed to extend its option to call for payment of the principal amount and accrued interest of its convertible debenture from November 7, 2022 to December 22, 2022.

 

 

On December 22, 2022, the Company executed an agreement with FJ Vulis and Associates, LLC whereby FJ Vulis and Associates, LLC agreed to extend its option to call for payment of the principal amount and accrued interest of its convertible debenture from December 22, 2022 to February 6, 2023.

 

On February 6, 2023, the Company executed an agreement with FJ Vulis and Associates, LLC whereby FJ Vulis and Associates, LLC agreed to extend its option to call for payment of the principal amount and accrued interest of its convertible debenture from February 6, 2023 to March 3, 2023. In exchange, the Company agreement to pay FJ Vulis and Associates a one-time extension fee of $30,000.

 

As of March 6, 2023, the Company owed $500,000 pursuant to this agreement.

 

On March 6, 2023, in connection with the divestiture of the ADEX Entities, the buyer assumed this note (refer to Note 3, Disposal of Subsidiary, for additional detail).

 

9.

Factor Financing

 

On February 22, 2023, ADEX, a former subsidiary of the Company, entered into an amendment to its factor financing agreement, pursuant to which ADEX agreed to sell and assign and Bay View Funding agreed to buy and accept, certain accounts receivable owing to ADEX. The amendment amended the agreement to include the Company’s HWN and SVC subsidiaries. Under the terms of the Amendment, upon the receipt and acceptance of each assignment of accounts receivable, Bay View Funding will pay ADEX, HWN and SVC, individually and together, ninety percent (90%) of the face value of the assigned accounts receivable, up to maximum total borrowings of $9,000,000 outstanding at any point in time. ADEX, HWN and SVC additionally granted Bay View Funding a continuing security interest in, and lien upon, all accounts receivable, inventory, fixed assets, general intangibles, and other assets. 

 

Under the factoring agreement, HWN and SVC may borrow up to the lesser of $4,000,000 or an amount equal to the sum of all undisputed purchased receivables multiplied by the advance percentage, less any funds in reserve. HWN and SVC will pay to Bay View Funding a factoring fee upon purchase of receivables by Bay View Funding equal to 0.45% 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 0.25% per 15 days thereafter until the date said purchased receivable is paid in full or otherwise repurchased by HWN and SVC or otherwise written off by Bay View Funding within the write off period. HWN and SVC 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 1.75%. 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 9.25%.

 

The Company used proceeds from the amended agreement to pay the remaining principal on the promissory note outstanding to Cornerstone National Bank & Trust discussed in Note 7, Loans Payable.

 

On March 6, 2023, in connection with the divestiture of the ADEX Entities, the amounts owed and related to ADEX accounts receivable were assumed by the buyer (refer to Note 3, Disposal of Subsidiary, for additional detail).

 

During the six months ended June 30, 2023, the Company paid $100,939 in factoring fees. These amounts are included within general and administrative expenses on the unaudited condensed consolidated statement of operations.

 

During the six months ended June 30, 2023, the Company received an aggregate of $6,040,098 and repaid an aggregate of $5,882,794.

 

The Company owed $217,304 under the agreement as of June 30, 2023.

 

10.	Derivative Liabilities

 

On June 15, 2021, in connection with the 2021 merger transaction, the Company assumed High Wire’s derivative liabilities. As of June 15, 2021, the derivative liability balance of $7,496,482 was comprised of $6,929,000 of derivatives related to High Wire’s convertible debentures, and $567,482 of derivatives related to High Wire’s share purchase warrants and stock options. Not all of the Company’s stock options qualify for derivative treatment.

 

The embedded conversion options of the convertible debentures described in Note 8, Convertible Debentures, which were assumed as part of the merger transaction, contain conversion features that qualify for embedded derivative classification. The fair value of the liability is re-measured at the end of every reporting period and the change in fair value is reported in the statement of operations as a gain or loss on change in fair value of derivatives. Derivative liabilities also include the fair value of the Company’s share purchase warrants and stock options discussed in Note 13, Share Purchase Warrants and Stock Options. As of June 30, 2023, the derivative liability balance of $1,510,605 was comprised of $249,528 of derivatives related to the Company’s convertible debentures, and $1,261,077 of derivatives related to the Company’s share purchase warrants and stock options. As of December 31, 2022, the derivative liability balance of $8,044,931 was comprised of $6,141,282 of derivatives related to the Company’s convertible debentures, and $1,903,649 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 six months ended June 30, 2023:

 

		June 30,
		2023
Balance at the beginning of the period		$	8,044,931
Change in fair value of embedded conversion option			(3,322,031	)
Divestiture of the ADEX Entities			(3,212,295	)
Balance at the end of the period			1,510,605

 

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 June 30, 2023		122 - 218	%		4.13 - 5.40	%			0	%		0.25 - 4.39
At December 31, 2022		122 - 269	%		3.99 - 4.73	%			0	%		0.25 - 4.88

 

11.	Common Stock

 

Authorized shares

 

The Company has 1,000,000,000 common shares authorized with a par value of $0.00001.

  

Issuance of shares pursuant to conversion of Series A preferred stock

 

On January 5, 2023, the Company issued 3,750,000 shares of common stock to Dominion Capital upon the conversion of 300,000 shares of Series A preferred stock with a stated value of $1 per share. The shares had a carrying value of $722,098. Subsequent to the conversion, there were 0 remaining shares of Series A preferred stock outstanding.

 

Issuance of shares pursuant to conversion of Series D preferred stock

 

On January 20, 2023, the Company issued 6,511,628 shares of common stock to Cobra Equities SPV, LLC upon the conversion of 140 shares of Series D preferred stock with a stated value of $10,000 per share. The shares had a fair value of $1,445,220, which was the carrying value of the Series D preferred converted.

 

On May 24, 2023, the Company issued 8,295,455 shares of common stock to the Mark E Munro Charitable Remainder Unitrust 1996 upon the conversion of 182.5 shares of Series D preferred stock with a stated value of $10,000 per share. The shares had a fair value of $1,238,993, which was the carrying value of the Series D preferred converted.

 

Issuance of shares pursuant to conversion of Series E preferred stock

 

On June 5, 2023, the Company issued 681,818 shares of common stock to Oscar Steiner upon the conversion of 15 shares of Series E preferred stock with a stated value of $10,000 per share. The shares had a fair value of $235,224, which was the carrying value of the Series E preferred converted.

 

 

Issuance of shares pursuant to consulting agreements

 

On February 20, 2023, the Company issued 800,000 shares of common stock to Ocean Street Partners in connection with a consulting agreement. The shares had a fair value of $69,200.

 

On February 20, 2023, the Company issued 2,000,000 shares of common stock to Capital Market Access LLC in connection with a consulting agreement. The shares had a fair value of $173,000. Additionally, the Company issued to Capital Market Access LLC options to purchase 600,000 shares of its common stock with an exercise price of $0.30. These options vest equally every three months from the date of grant.

 

Securities Purchase Agreement

 

On November 18, 2022, the Company entered into a Securities Purchase Agreement with several accredited investors (the “Investors”) for the offering, sale, and issuance (the “Offering”) by the Company of an aggregate of 133,333,333 shares of its common stock at a price per share of $0.075. Maximum gross proceeds in the offering are $10,000,000. The shares issued to Investors are subject to Subscription Agreements in connection with the Offering. Additionally, for any shares purchased under the Securities Purchase Agreement, the Company is required to deposit a number of shares into escrow equal to 10% of the shares purchased. This 10% of shares is related to the Agreement’s Uplisting of Common Stock provision, which requires the Company to use its reasonable best efforts to apply for uplisting to the New York Stock Exchange or The Nasdaq Capital Market by April 15, 2023.

 

The Company has used and intends to continue to use the proceeds from the Offering to retire outstanding convertible debt, for working capital, and other general corporate purposes.

 

The shares issued in the Offering have not been registered under the Securities Act and are instead being offered pursuant to the exemption provided in Section 4(a)(2) thereof and/or Rule 506(b) of Regulation D promulgated thereunder, based on the Investors being “accredited investors” within the meaning of said Regulation D.

 

The shares issued as part of the Offering are subject to Lockup Leak-out Agreements, under which the Investors are unable to transfer or sell their shares within six months of the closing date (the “lockup period”). After that date, the Investors can sell up to 10% of their shares every 30-day period for the subsequent six months (the “leak-out” period). These sales cannot represent more than 10% of the daily trading volume of the Company’s common stock. After the first anniversary of the Securities Purchase Agreement there are no further restrictions.

 

As of June 30, 2023, the Company had received an aggregate of $9,700,000 as part of the Offering (see below for a breakout of the current year issuances).

 

Issuances of shares pursuant to a Securities Purchase Agreement

 

On January 6, 2023, the Company issued an aggregate of 8,666,667 shares of common stock to Investors in exchange for aggregate cash proceeds of $650,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 866,667 shares into escrow.

 

On January 17, 2023, the Company issued an aggregate of 10,000,000 shares of common stock to Investors in exchange for aggregate cash proceeds of $750,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 1,000,000 shares into escrow.

 

 

On February 3, 2023, the Company issued an aggregate of 2,666,667 shares of common stock to Investors in exchange for aggregate cash proceeds of $200,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 266,667 shares into escrow.

 

On March 17, 2023, the Company issued an aggregate of 3,333,333 shares of common stock to Investors in exchange for aggregate cash proceeds of $250,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 333,333 shares into escrow.

 

On March 22, 2023, the Company issued an aggregate of 16,000,000 shares of common stock to Investors in exchange for aggregate cash proceeds of $1,200,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 1,600,000 shares into escrow.

 

On March 23, 2023, the Company issued an aggregate of 5,000,000 shares of common stock to Investors in exchange for aggregate cash proceeds of $375,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 500,000 shares into escrow.

 

On April 21, 2023, the Company issued an aggregate of 1,000,000 shares of common stock to Investors in exchange for aggregate cash proceeds of $75,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 100,000 shares into escrow.

 

Failure to apply for uplisting

 

As of April 15, 2023, the Company had not yet applied for uplisting to either the New York Stock Exchange or The Nasdaq Capital Market. As a result, the Company recorded liquidated damages related to escrow shares during the three and six months ended of $1,222,000. This amount was calculated by taking the aggregate of 13,000,001 shares of common stock deposited into escrow and multiplying it by the closing price of the Company’s common stock of $0.094 on April 14, 2023, the most recent trading day as of April 15, 2023.

 

12.	Preferred Stock

 

On June 15, 2021, in connection with the 2021 merger transaction, the Company assumed High Wire’s Series A preferred stock obligations. Additionally, the holders of High Wire’s Series B preferred stock transferred their shares to the Company’s Chief Executive Officer. Lastly, a new class of preferred stock, Series D, was designated and issued. At the time of the merger transaction, the fair value of the Series A and Series B preferred stock was $1,024,000 and $0, respectively. The fair value of the Series D preferred stock which was received in the exchange was $1,271,000, which was recorded as additional paid in capital.

 

See below for a description of each of the Company’s outstanding classes of preferred stock, including historical and current information.

 

Series A

  

On November 15, 2017, High Wire 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, High Wire 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, High Wire made the second amendment to the Certificate of Designation of its Series A convertible preferred stock. As a result of this amendment, the Company recorded a deemed dividend in accordance with ASC 260-10-599-2.

 

On April 8, 2020, High Wire 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, High Wire 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, High Wire 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. High Wire accounted for the amendment as an extinguishment and recorded a deemed dividend in accordance with ASC 260-10-599-2.

 

On December 30, 2022, High Wire made the sixth amendment to the Certificate of Designation of its Series A preferred stock which lowered the fixed conversion price to $0.08 per share in exchange for the remaining holder forfeiting their 5,400,000 outstanding share purchase warrants.

 

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

 

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

 

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

 

Conversion rights – The holders of the Series A preferred stock shares have the right to convert each Series A preferred stock share and all accrued and unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance of such share into fully paid and nonassessable shares of common stock of the Company. The number of shares of common stock into which each share of the Series A preferred stock shares may be converted shall be determined by dividing the sum of the stated value of the Series A preferred stock shares ($1.00 per share) being converted and any accrued and unpaid dividends by the conversion price in effect at the time of the conversion. The Series A preferred stock shares may be converted at a fixed conversion price of $0.08, subject to adjustment for any subdivision or combination of the Company’s outstanding shares of common stock. The conversion price has a floor of $0.01 per share.

 

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

 

On June 24, 2021, the Company issued 985,651 shares of common stock to Dominion Capital upon the conversion of 96,101 shares of Series A preferred stock with a stated value of $1 per share. The shares had a fair value of $209,016, which was the carrying value of the Series A preferred converted.

  

On August 12, 2021, the Company issued 1,025,641 shares of common stock to Dominion Capital upon the conversion of 100,000 shares of Series A preferred stock with a stated value of $1 per share. The shares had a fair value of $206,410, which was the carrying value of the Series A preferred converted.

 

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

 

On January 5, 2023, the holder of the Company’s Series A preferred stock converted the remaining 300,000 shares into shares of the Company’s common stock (refer to Note 11, Common Stock, for additional detail).

 

 

Series B

 

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

 

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

 

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

 

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

  

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

 

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

 

Conversion — There are no conversion rights.

 

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

 

Series D

 

On June 14, 2021, High Wire designated 1,590 shares of Series D preferred stock with a stated value of $10,000 per share. The Series D preferred stock is not redeemable.

 

On December 13, 2021, the Company made the first amendment to the Certificate of Designation of its Series D preferred stock which changed the conversion right. As a result of this amendment, the Company recorded a deemed dividend of $5,852,000 for the year ended December 31, 2021 in accordance with ASC 260-10-599-2.

 

Subsequent to the first amendment, the principal terms of the Series D preferred stock shares are as follows:

 

Issue Price — The stated price for the Series D preferred stock shares shall be $10,000 per share.

 

Redemption — The Series D preferred stock shares are not redeemable.

  

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

 

  

Preference of Liquidation — Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to $10,000 for each share of Series D before any distribution or payment shall be made to the holders of any other securities of the Corporation and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Series D were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.

 

Voting — Except as otherwise provided in the agreement or as required by law, the Series D shall be voted together with the shares of common stock, par value $0.00001 per share of the Corporation (“Common Stock”), and any other series of preferred stock then outstanding that have voting rights, and except as provided in Section 7, not as a separate class, at any annual or special meeting of stockholders of the Corporation, with respect to any question or matter upon which the holders of Common Stock have the right to vote, such that the voting power of each share of Series D is equal to the voting power of the shares of Common Stock that each such share of Series D would be convertible into pursuant to Section 6 if the Series D Conversion Date was the date of the vote. The Series D shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and may act by written consent in the same manner as the holders of Common Stock of the Corporation.

 

Conversion — Beginning ninety (90) days from the date of issuance, all or a portion of the Series D may be converted into Common Stock at the greater of the Fixed Price and the Average Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series D Conversion Date”), without any further action, all shares of Series D shall automatically convert into shares of Common Stock at the Fixed Price, which is defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series D ( subject to adjustment for any reverse or forward split of the Common Stock). The Series D shares were issued on June 16, 2021, and the closing price of the Company’s common stock was $0.225 on June 15, 2021. The Average Price is defined as the average closing price of the Company’s common stock for the 10 trading days immediately preceding, but not including, the conversion date.

 

Vote to Change the Terms of or Issuance of Series D — The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series D shall be required for any change to the Certificate of Designation, Preferences, Rights and Other Rights of the Series D.

 

On October 20, 2021, Keith Hayter assigned 140 shares of Series D preferred stock to Cobra Equities SPV, LLC.

 

On December 16, 2021, the Company issued 2,045,454 shares of common stock to SCS, LLC upon the conversion of 45 shares of Series D preferred stock with a stated value of $10,000 per share. The shares had a fair value of $464,543, which was the carrying value of the Series D preferred converted.

  

On February 7, 2022, the Company issued 1,136,364 shares of common stock to SCS, LLC upon the conversion of 25 shares of Series D preferred stock with a stated value of $10,000 per share. The shares had a fair value of $258,080, which was the carrying value of the Series D preferred converted.

 

On October 11, 2022, Mark Porter assigned 25 shares of Series D preferred stock to FJ Vulis and Associates, LLC.

 

On October 11, 2022, the Company issued 1,179,245 shares of common stock to FJ Vulis and Associates, LLC upon the conversion of 25 shares of Series D preferred stock with a stated value of $10,000 per share. The shares had a fair value of $258,080, which was the carrying value of the Series D preferred converted.

  

On December 23, 2022, the Company issued an additional 810 shares of its Series D preferred stock. As a result of this issuance, the Company recorded stock compensation of $5,498,845 to the consolidated statement of operations for the year ended December 31, 2022.

 

 

On January 20, 2023, the Company issued 6,511,628 shares of common stock to Cobra Equities SPV, LLC upon the conversion of 140 shares of Series D preferred stock with a stated value of $10,000 per share. The shares had a fair value of $1,445,220, which was the carrying value of the Series D preferred converted. 

 

On March 6, 2023, in connection with the divestiture of the ADEX Entities, 140 shares of Series D preferred stock were canceled (refer to Note 3, Disposal of Subsidiary, for additional detail).

 

On May 24, 2023, the Company issued 8,295,455 shares of common stock to the Mark E Munro Charitable Remainder Unitrust 1996 upon the conversion of 182.5 shares of Series D preferred stock with a stated value of $10,000 per share. The shares had a fair value of $1,238,993, which was the carrying value of the Series D preferred converted.

 

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

 

As of June 30, 2023, the carrying value of the Series D Preferred Stock was $8,006,469. This amount is recorded within mezzanine equity on the unaudited condensed consolidated balance sheets.

  

Series E

 

On December 20, 2021, the Company designated 650 shares of Series E preferred stock with a stated value of $10,000 per share. The Series E preferred stock is not redeemable.

 

The principal terms of the Series E preferred stock shares are as follows:

 

Issue Price — The stated price for the Series E preferred stock shares shall be $10,000 per share.

 

Redemption — The Series E preferred stock shares are not redeemable.

  

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

  

Preference of Liquidation — Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall (i) first be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to $10,000 for each share of Series E before any distribution or payment shall be made to the holders of any other securities of the Corporation and (ii) then be entitled to receive out of the assets, whether capital or surplus, of the Corporation the same amount that a holder of Common Stock would receive if the Series E were fully converted (disregarding for such purposes any conversion limitations hereunder) to Common Stock which amounts shall be paid pari passu with all holders of Common Stock. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.

 

Voting — Except as otherwise provided herein or as required by law, the Series E shall be voted together with the shares of common stock, par value $0.00001 per share of the Corporation (“Common Stock”), and any other series of preferred stock then outstanding that have voting rights, and except as provided in Section 7, below, not as a separate class, at any annual or special meeting of stockholders of the Corporation, with respect to any question or matter upon which the holders of Common Stock have the right to vote, such that the voting power of each share of Series E is equal to the voting power of the shares of Common Stock that each such share of Series E would be convertible into pursuant to Section 6 if the Series E Conversion Date was the date of the vote. The Series E shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation and may act by written consent in the same manner as the holders of Common Stock of the Corporation.

 

  

Conversion — Beginning ninety (90) days from the date of issuance, all or a portion of the Series E may be converted into Common Stock at the Fixed Price (as defined below). On the business day immediately preceding the listing of the Common Stock on a national securities exchange (the “Automatic Series E Conversion Date”), without any further action, all shares of Series E shall automatically convert into shares of Common Stock at the Fixed Price. “Fixed Price” shall be defined as the closing price of the Common Stock on the trading day immediately preceding the date of issuance of the Series E (subject to adjustment for any reverse or forward split of the Common Stock or similar occurrence). The Series E shares were issued on December 30, 2021, and the closing price of the Company’s common stock was $0.23075 on December 29, 2021.

 

Vote to Change the Terms of or Issuance of Series E — The affirmative vote at a meeting duly called for such purpose, or written consent without a meeting, of the holders of not less than fifty-one (51%) of the then outstanding shares of Series E shall be required for any change to the Certificate of Designation, Preferences, Rights and Other Rights of the Series E.

 

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

 

On December 5, 2022, the Company issued 5,658,250 shares of common stock to a holder upon the conversion of 124.4815 shares of Series E preferred stock with a stated value of $10,000 per share. The shares had a fair value of $1,209,159, which was the carrying value of the Series D preferred converted.

 

On April 17, 2023, 200 shares of Series E preferred stock were canceled in connection with conditions for an earnout related to the acquisition of SVC not being met.

 

On June 5, 2023, the Company issued 681,818 shares of common stock to Oscar Steiner upon the conversion of 15 shares of Series E preferred stock with a stated value of $10,000 per share. The shares had a fair value of $235,224, which was the carrying value of the Series E preferred converted.

 

As of June 30, 2023, the carrying value of the Series E Preferred Stock was $4,869,433. This amount is recorded within mezzanine equity on the unaudited condensed consolidated balance sheets.

 

13.	Share Purchase Warrants and Stock Options

 

On June 15, 2021, in connection with the 2021 merger transaction, the Company assumed High Wire’s share purchase warrants and stock options. As of June 15, 2021, the total fair value of High Wire’s share purchase warrants and stock options was $567,402.

 

The total fair value of the Company’s share purchase warrants and stock options was $1,261,077 as of June 30, 2023. This amount is included in derivative liabilities on the unaudited condensed consolidated balance sheet. The valuation methodology, including the assumptions used in the valuation, are discussed in Note 10, Derivative Liabilities. The weighted-average remaining life on the share purchase warrants as of June 30, 2023 was 4.3 years. The weighted-average remaining life on the stock options as of June 30, 2023 was 4.0 years. With the exception of those issued during February 2021 and June 2021, the stock options outstanding at June 30, 2023 were subject to vesting terms.

 

The following table summarizes the activity of share purchase warrants for the period of December 31, 2022 through June 30, 2023:

 

		Number of warrants				Weighted average exercise price				Intrinsic value
Balance at December 31, 2022			13,100,000			$	0.11			$	-
Granted			-				-
Exercised			-				-
Expired/forfeited			-				-
Outstanding at June 30, 2023			13,100,000			$	0.11			$	-
Exercisable at June 30, 2023			13,100,000			$	0.11			$	-

 

 

As of June 30, 2023, the following share purchase warrants were outstanding:

 

Number of warrants				Exercise price				Issuance Date		Expiry date		Remaining life
	200,000				0.25			12/14/2021		12/14/2024			1.46
	400,000				0.25			12/14/2021		12/14/2024			1.46
	12,500,000				0.10			11/18/2022		11/18/2027			4.39
	13,100,000

 

The following table summarizes the activity of stock options for the period of December 31, 2022 through June 30, 2023:

 

		Number of stock options				Weighted average exercise price				Intrinsic value
Balance at December 31, 2022			12,034,280			$	0.26			$	89,238
Issued			12,452,426				0.12
Exercised			-				-
Cancelled/expired/forfeited			-				-
Outstanding at June 30, 2023			24,486,706			$	0.19			$	23,045
Exercisable at June 30, 2023			14,591,227			$	0.25			$	-

 

As of June 30, 2023, the following stock options were outstanding:

 

Number of stock options				Exercise price				Issuance Date		Expiry date		Remaining Life
	961,330				0.58			2/23/2021		2/23/2026			2.65
	3,318,584				0.25			6/16/2021		6/16/2026			2.96
	100,603				0.25			8/11/2021		8/11/2026			3.12
	5,767,429				0.25			8/18/2021		8/18/2026			3.14
	185,254				0.54			11/3/2021		11/3/2026			3.35
	120,128				0.19			3/21/2022		3/21/2027			3.73
	95,238				0.11			5/16/2022		5/16/2027			3.88
	1,485,714				0.09			9/28/2022		9/28/2027			4.25
	894,737				0.10			2/8/2023		2/8/2028			4.61
	600,000				0.30			2/8/2023		2/8/2028			4.61
	1,704,348				0.12			2/27/2023		2/27/2028			4.67
	8,022,000				0.11			5/17/2023		5/17/2028			4.88
	1,231,341				0.11			5/30/2023		5/30/2028			4.92
	24,486,706

 

The remaining stock-based compensation expense on unvested stock options was $881,737 as of June 30, 2023. The stock options granted during 2023 were to employees, officers, directors, and consultants.

 

  

14.

Leases

 

The Company leases certain office space and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The depreciable lives of operating lease assets and leasehold improvements are limited by the expected lease term. The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.

 

The following table sets forth the operating lease right of use (“ROU”) assets and liabilities as of June 30, 2023 and December 31, 2022:

 

		June 30,				December 31,
		2023				2022
Operating lease assets		$	8,334			$	57,408
Operating lease liabilities:		$	10,742			$	74,266

 

Expense related to leases is recorded on a straight-line basis over the lease term, including rent holidays. During the three and six months ended June 30, 2023, the Company recognized operating lease expense of $25,136 and $50,272, respectively. During the three and six months ended June 30, 2022, the Company recognized operating lease expense of $33,460 and $66,921, respectively. Operating lease costs are included within selling, administrative and other expenses on the unaudited condensed consolidated statements of operations. During each of the three months ended June 30, 2023 and 2022, short-term lease costs were $15,877. During each of the six months ended June 30, 2023 and 2022, short-term lease costs were $31,754.

 

Cash paid for amounts included in the measurement of operating lease liabilities were $32,361 and $64,722, respectively, for the three and six months ended June 30, 2023. Cash paid for amounts included in the measurement of operating lease liabilities were $37,579 and $75,158, respectively, for the three and six months ended June 30, 2022. These amounts are included in operating activities in the unaudited condensed consolidated statements of cash flows. During the three and six months ended June 30, 2023, the Company reduced its operating lease liabilities by $31,960 and $63,524, respectively, for cash paid. During the three and six months ended June 30, 2022, the Company reduced its operating lease liabilities by $34,158 and $67,021, respectively, for cash paid.

 

The operating lease liabilities as of June 30, 2023 reflect a discount rate of 5%. The remaining term of the lease is 0.1 years. Remaining lease payments as of June 30, 2023 are as follows: 

 

Year ending December 31,
2023			10,787
Less: imputed interest			(45	)
Total		$	10,742

 

15.	Commitments and Contingencies

 

Leases

 

The Company leases certain of its properties under leases that expire on various dates through 2023. Some of these agreements include escalation clauses and provide for renewal options ranging from one to five years. Leases with an initial term of 12 months or less and immaterial leases are not recorded on the balance sheet (refer to Note 14, Leases, for amounts expensed during the three and six months ended June 30, 2023 and 2022).

 

 

Legal proceedings

 

In the normal course of business or otherwise, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.

 

Entry into material definitive agreement with John Peterson

 

On June 30, 2023, the Company entered into an agreement (the “Agreement”) with John Peterson, pursuant to which John Peterson sold and the Company purchased certain intellectual property assets (the “Assets”). As consideration for the Assets, the Company has agreed to pay to John Peterson $100,000, subject to certain conditions described in the Agreement, which $100,000 will be paid in $25,000 installments based on the completion of certain milestones as set forth in the Agreement. In addition, Peterson is entitled to receive 20% ownership of a new entity that will be formed for the purposes of holding the Assets. The Agreement also provides that Peterson shall receive a $2 million liquidation preference for up to 18 months after the closing of the Agreement, during which time any liquidity event related to the Assets, will result in Peterson receiving the first $2 million of proceeds from liquidation of the entity that owns the Assets, should the valuation of such Assets be less than $20 million. As part of the Agreement, Peterson will become an employee of the Company.

 

As of June 30, 2023, the new entity had not yet been formed and John Peterson had not yet started as an employee of the Company (refer to Note 19, Subsequent Events, for subsequent activity related to the Agreement).

 

16.	Segment Disclosures

 

During the three and six months ended June 30, 2023, the Company had two operating segments including:

 

●

Technology, which is comprised of AWS PR, SVC, Tropical, and HWN.

 

●

High Wire, 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 High Wire reporting segment in one geographical area (the United States) and the AWS PR/SVC/Tropical/HWN operating segment in two geographical areas (the United States and Puerto Rico).

 

Financial statement information by operating segment for the three and six months ended June 30, 2023 is presented below: 

 

		Three Months Ended June 30, 2023												Six Months Ended June 30, 2023
		High Wire				Technology				Total				High Wire				Technology				Total
Net sales		$	-			$	5,940,066			$	5,940,066			$	-			$	16,105,237			$	16,105,237
Operating loss			(653,221	)			(1,566,472	)			(2,219,693	)			(1,723,399	)			(3,127,237	)			(4,850,636	)
Interest expense			34,820				367,581				402,401				217,306				370,747				588,053
Depreciation and amortization			-				215,847				215,847				-				418,467				418,467
Total assets as of June 30, 2023			34,392				16,002,282				16,036,674				34,392				16,002,282				16,036,674

 

Geographic information as of and for the three and six months ended June 30, 2023 is presented below:

 

		Revenues
		Three Months Ended June 30, 2023				Six Months Ended June 30, 2023				Long-lived Assets as of June 30, 2023
Puerto Rico		$	127,649			$	351,835			$	2,761
United States			5,812,417				15,753,402				11,136,709
Consolidated total			5,940,066				16,105,237				11,139,470

 

 

Financial statement information by operating segment for the three and six months ended June 30, 2022 is presented below: 

 

		Three Months Ended June 30, 2022												Six Months Ended June 30, 2022
		High Wire				Technology				Total				High Wire				Technology				Total
Net sales		$	-			$	6,842,723			$	6,842,723			$	-			$	12,155,837			$	12,155,837
Operating loss			(975,003	)			(554,167	)			(1,529,170	)			(2,089,343	)			(1,070,425	)			(3,159,768	)
Interest expense			314,605				17,671				332,276				497,255				88,250				585,505
Depreciation and amortization			-				121,453				121,453				-				242,037				242,037
Total assets as of December 31, 2022			606,752				19,224,894				19,831,646				606,752				19,224,894				19,831,646

 

Geographic information as of December 31, 2022 and for the three and six months ended June 30, 2022 is presented below:

 

		Revenues
		Three Months Ended June 30, 2022				Six Months Ended June 30, 2022				Long-lived Assets as of December 31, 2022
Puerto Rico		$	409,055			$	748,980			$	5,338
United States			6,433,668				11,406,857				14,367,919
Consolidated total			6,842,723				12,155,837				14,373,257

 

17.	Earnings Per Share

 

The following table shows the computation of basic and diluted earnings per share for the three and six months ended June 30, 2023 and 2022:

 

		For the three months ended								For the six months ended
		June 30,								June 30,
		2023				2022				2023				2022
Numerator:
Net (loss) income attributable to High Wire Networks, Inc. common shareholders		$	(3,960,368	)		$	5,365,053			$	(5,484,291	)		$	10,322,590
Denominator
Weighted average common shares outstanding, basic			232,300,415				55,544,332				214,984,254				52,132,149
Effect of dilutive securities			-				18,603,480				-				18,603,480
Weighted average common shares outstanding, diluted			232,300,415				74,147,812				214,984,254				70,735,629
(Loss) income per share attributable to High Wire Networks, Inc. common shareholders, basic:
Net (loss) income from continuing operations		$	(0.02	)		$	0.09			$	(0.02	)		$	0.13
Net income (loss) from discontinued operations, net of taxes		$	-			$	0.01			$	(0.01	)		$	0.07
Net (loss) income per share		$	(0.02	)		$	0.10			$	(0.03	)		$	0.20
(Loss) income per share attributable to High Wire Networks, Inc. common shareholders, diluted:
Net (loss) income from continuing operations		$	(0.02	)		$	0.07			$	(0.02	)		$	0.10
Net (loss) income from discontinued operations, net of taxes		$	-			$	-			$	(0.01	)		$	0.05
Net (loss) income per share		$	(0.02	)		$	0.07			$	(0.03	)		$	0.15

 

 

18.	Discontinued Operations

 

On February 15, 2022, HWN sold its 50% interest in JTM, which qualified for discontinued operations treatment.

 

The results of operations of JTM have been included within net (loss) income from discontinued operations, net of taxes, on the unaudited condensed consolidated statements of operations for the six months ended June 30, 2022.

  

On March 6, 2023, HWN divested the ADEX Entities (refer to Note 3, Disposal of Subsidiary, for additional detail). The divestiture of the ADEX Entities qualified for discontinued operations treatment.

 

The assets and liabilities of the ADEX Entities as of December 31, 2022 have been included within the consolidated balance sheet as current assets of discontinued operations, noncurrent assets of discontinued operations, current liabilities of discontinued operations, and noncurrent liabilities of discontinued operations.

  

The results of operations of the ADEX Entities have been included within net (loss) income from discontinued operations, net of taxes, on the unaudited condensed consolidated statements of operations for the three months June 30, 2022 and the six months ended June 30, 2023 and 2022.

 

The following table shows the balance sheet of the Company’s discontinued operations as of December 31, 2022:

 

		December 31, 2022
Current assets:
Cash		$	237,542
Accounts receivable			4,822,531
Contract assets			-
Prepaid expenses and deposits			151,369
Current assets of discontinued operations		$	5,211,442
Noncurrent assets:
Goodwill		$	1,841,040
Intangible assets, net of accumulated amortization of $752,865			5,692,473
Operating lease right-of-use assets			18,370
Noncurrent assets of discontinued operations		$	7,551,883
Current liabilities:
Accounts payable and accrued liabilities		$	716,620
Contract liabilities			405,478
Current portion of loans payable			5,729
Factor financing			3,689,593
Current portion of operating lease liabilities			19,356
Current liabilities of discontinued operations		$	4,836,776
Noncurrent liabilities:
Loans payable, net of current portion		$	152,102
Noncurrent liabilities of discontinued operations		$	152,102

 

 

The following table shows the statements of operations for the Company’s discontinued operations for the three months ended June 30, 2022 and the six months ended June 30, 2023 and 2022:

 

		For the three months ended				For the six months ended
		June 30,				June 30,
		2022				2023				2022
Revenue		$	6,891,819			$	4,759,216			$	14,384,246
Operating expenses:
Cost of revenues			5,380,764				3,824,134				11,457,316
Depreciation and amortization			107,418				107,627				214,836
Salaries and wages			363,308				197,456				742,447
General and administrative			748,054				532,396				1,470,451
Total operating expenses			6,599,544				4,661,613				13,885,050
Income from operations			292,275				97,603				499,196
Other (expenses) income:
Loss (gain) on disposal of subsidiary			-				(1,434,392	)			919,873
Exchange loss			(2,869	)			(923	)			(3,055	)
Interest expense			-				-				(1,471	)
PPP loan forgiveness			-				-				2,000,000
Total other (expense) income			(2,869	)			(1,435,315	)			2,915,347
Pre-tax (loss) income from operations			289,406				(1,337,712	)			3,414,543
Provision for income taxes			-				-				-
Net (loss) income from discontinued operations, net of taxes		$	289,406			$	(1,337,712	)		$	3,414,543

 

19.	Subsequent Events

 

Material definitive agreement with John Peterson

 

As discussed in Note 15, Commitments and Contingencies, the Company entered into a material definitive agreement with John Peterson on June 30, 2023. On July 17, 2023, the Company appointed John Peterson as Chief Product Officer. Additionally, on August 4, 2023, the Company formed a new entity – incorporated as Overwatch Cyberlab, Inc. – which is 80% owned by the Company and 20% owned by John Peterson.

 

 

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 condensed 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.

  

All references to “common stock” refer to the common shares in our capital stock.

 

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

 

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

 

Description of Business

 

Business Overview

 

HWN, Inc., (d/b/a High Wire Network Solutions, Inc.) (“HWN”) was incorporated in Delaware on January 20, 2017. HWN is a global provider of managed cybersecurity, managed networks, and tech enabled professional services delivered exclusively through a channel sales model. Our Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment. HWN has continuously operated under the High Wire Networks brand for 23 years.

 

HWN and JTM Electrical Contractors, Inc. (“JTM”), an Illinois Corporation, entered into an operating agreement through which High Wire owned 50% of JTM. On February 15, 2022, HWN sold its 50% interest in JTM.

 

 

On June 16, 2021, we completed a merger with Spectrum Global Solutions, Inc. On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. (“High Wire”). The merger was accounted for as a reverse merger. At the time of the reverse merger, High Wire’s subsidiaries included ADEX Corporation, ADEX Puerto Rico LLC, ADEX Canada, ADEX Towers, Inc. and ADEX Telecom, Inc. (collectively “ADEX” or the “ADEX Entities”), AW Solutions Puerto Rico, LLC (“AWS PR”), and Tropical Communications, Inc. (“Tropical”). For accounting purposes, HWN is the surviving entity. On March 6, 2023, HWN divested the ADEX Entities.

 

On November 4, 2021, we closed on the acquisition of Secure Voice Corp (“SVC”). The closing of the acquisition was facilitated by a senior secured promissory note which has been repaid.

 

Our AWS PR and Tropical subsidiaries are professional services organizations that deliver services for Enterprise clients as well as wireline and wireless carriers. These subsidiaries are operated as part of our Technology segment. Our SVC subsidiary is a wholesale network services provider with network footprint in the Northeast United States. This network carries VoIP and other traffic for other service providers.

 

We provide the following categories of offerings to our customers:

 

●

Security: High Wire’s award-winning Overwatch Managed Security offers organizations end-to-end protection for networks, data, endpoints, and users via multiyear recurring revenue contracts in this fast-growing technology segment. This segment is nearly 100% recurring revenue with multi-year contracts.  Overwatch delivers services through Managed Service Providers (MSPs), strategic partnerships and alliances, Value Added Resellers (VARs), Distributors, and Network Service Providers.

 

●

Technology Solutions: We provide technology enabled professional and managed services for a wide array of clients exclusively through our channel partner relationships with the largest technology companies in the world. We deliver in the Enterprise, Wireline Carrier, Wireless Carrier, Network Backbone Carriers, State and Local Government, Federal Government, and Data Center market segments. We deliver services for most of the Fortune 500 alongside our channel partners. We deliver a wide array of services across a wide variety of technologies that include Wi-Fi, networking, SD-WAN, Distributed Antenna Systems, Wireless Carrier Networking, Fiber Backhaul, and many more. We provide planning, installation, project management, and ongoing support for break/fix services. We operate 24/7/365 around the world. We leverage our own technology platform, Workview, to deliver these services cost effectively and in a highly efficient and scalable manner.

 

Our Technology Solutions division is supported by our subsidiaries: HWN, Inc.; AW Solutions Puerto Rico, LLC and Tropical Communications, Inc. (collectively known as “AWS” or the “AWS Entities”); and SVC.

 

Our Operating Units

 

Our company is comprised of the following:

 

	●	Managed Services: The Managed Services Segment encompasses all of our recurring revenue businesses including our Overwatch Managed Security, all network managed services, all managed services performed under a Statement of Work (SoW), and our SVC revenue.
	●	Technology Solutions: The Technology Solutions group is all service and project revenue generally globally by HWN, Tropical, and AWS PR. These business perform professional services for the Enterprise, SMB, Data Center, Carrier Wireline, Carrier Wireless, and Network Service Provider markets.

 

 

Results of Operations for the Three-Month Periods Ended June 30, 2023 and 2022

 

Our operating results for the three-month periods ended June 30, 2023 and 2022 are summarized as follows:

 

		For the three months ended
		June 30,
		2023				2022				Difference
Revenues		$	5,940,066			$	6,842,723			$	(902,657	)
Operating expenses			8,159,759				8,371,893				(212,134	)
Loss from operations			(2,219,693	)			(1,529,170	)			(690,523	)
Total other (expense) income			(1,740,675	)			6,604,817				(8,345,492	)
Net income from discontinued operations, net of taxes			-				289,406				(289,406	)
Net loss from discontinued operations attributable to noncontrolling interest			-				-				-
Net (loss) income attributable to common stockholders			(3,960,368	)			5,365,053				(9,325,421	)

 

Revenues

 

Our revenue decreased from $6,842,723 for the three months ended June 30, 2022 to $5,940,066 for the three months ended June 30, 2023. The decrease is primarily related to SVC revenue of $858,859 for the three months ended June 30, 2023, a decrease of $1,245,964 compared to $2,104,823 for the three months ended June 30, 2022. The decrease in revenue for SVC was primarily related to new regulations that went into place during 2022 and led to decreased traffic from SVC’s customer base. The decrease was partially offset by a $766,792 increase in revenue for HWN.

   

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 June 30, 2023, our operating expenses were $8,159,759, compared to operating expenses of $8,371,893 for the same period of 2022. The decrease of $212,134 is primarily related to a $986,412 decrease in cost of revenues as a result of the decrease in sales discussed above. This decrease was partially offset by a $689,834 increase in general and administrative expenses due to additional headcount, including certain chief officer positions and expansion and investment in our Overwatch division support.

 

Other (Expense) Income

 

During the three months ended June 30, 2023, we had other expense of $1,740,675, compared to other income of $6,604,817 for the same period of 2022. The change of $8,345,492 is primarily related to a decrease in the gain on change in fair value of derivatives of $7,938,336 and the $1,222,000 of liquidated damages related to escrow shares. This was partially offset by a decrease in amortization of discounts on convertible debentures and loans payable of $602,055.

 

Net (Loss) Income

 

For the three months ended June 30, 2023, we had a net loss attributable to High Wire Networks, Inc. common shareholders of $3,960,368, compared to net income of $5,365,053 in the same period of 2022. 

 

 

Results of Operations for the Six-Month Periods Ended June 30, 2023 and 2022

 

Our operating results for the six-month periods ended June 30, 2023 and 2022 are summarized as follows:

 

		For the six months ended
		June 30,
		2023				2022				Difference
Revenues		$	16,105,237			$	12,155,837			$	3,949,400
Operating expenses			20,955,873				15,315,605				5,640,268
Loss from operations			(4,850,636	)			(3,159,768	)			(1,690,868	)
Total other income			704,057				9,939,328				(9,235,271	)
Net (loss) income from discontinued operations, net of taxes			(1,337,712	)			3,414,543				(4,752,255	)
Net loss from discontinued operations attributable to noncontrolling interest			-				128,487				(128,487	)
Net (loss) income attributable to common stockholders			(5,484,291	)			10,322,590				(15,806,881	)

  

Revenues

 

Our revenue increased from $12,155,837 for the six months ended June 30, 2022 to $16,105,237 for the six months ended June 30, 2023. The increase is primarily related to HWN revenue of $13,675,687 for the six months ended June 30, 2023, an increase of $6,611,892 compared to $7,063,795 for the six months ended June 30, 2022. The increase in HWN revenue was primarily related to an increase in recurring revenue as a result of bringing on new customers, along with an increase in project revenue. The increase in revenue was partially offset by decreases in revenue for AWS PR, TROP, and SVC.

   

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 six months ended June 30, 2023, our operating expenses were $20,955,873, compared to operating expenses of $15,315,605 for the same period of 2022. The increase of $5,640,268 is primarily related to a $4,321,143 increase in cost of revenues as a result of the increase in sales discussed above, combined with a $1,190,873 increase in general and administrative expenses due to additional headcount, including certain chief officer positions and expansion and investment in our Overwatch division support.

 

Other Income

 

During the six months ended June 30, 2023, we had other income of $704,057, compared to other income of $9,939,328 for the same period of 2022. The decrease of $9,235,271 is primarily related to a decrease in the gain on change in fair value of derivatives of $8,670,271 and the $1,222,000 of liquidated damages related to escrow shares. This was partially offset by a decrease in amortization of discounts on convertible debentures and loans payable of $766,107.

 

Net (Loss) Income

 

For the six months ended June 30, 2023, we had a net loss attributable to High Wire Networks, Inc. common shareholders of $5,484,291, compared to net income of $10,322,590 in the same period of 2022. 

 

Liquidity and Capital Resources

 

As of June 30, 2023, our total current assets were $4,897,204 and our total current liabilities were $11,138,052, resulting in a working capital deficit of $6,240,848, compared to a working capital deficit of $10,889,962 as of December 31, 2022.

 

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

 

		For the six months ended
		June 30,
		2023				2022
Net cash used in operating activities		$	(4,902,621	)		$	(123,790	)
Net cash provided by investing activities		$	50,000			$	288,874
Net cash provided by financing activities		$	5,407,058			$	765,739
Net increase in cash		$	554,437			$	930,823

 

For the six months ended June 30, 2023, cash increased $554,437, compared to an increase in cash of $930,823 for the same period of 2022. Net cash provided by financing activities included proceeds from Securities Purchase Agreements of $3,500,000 and net proceeds from loans payable of $1,987,262. Net cash used in operating activities included the net loss from continuing operations of $4,146,579, as well as a net cash outflow from changes in operating assets and liabilities of $1,263,184 and a gain on change in fair value of derivative liabilities of $3,322,031.

 

As of June 30, 2023, we had cash of $1,203,464 compared to $649,027 as of December 31, 2022.

  

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 June 30, 2023, our disclosure controls and procedures are not designed at a reasonable assurance level and are not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:

 

a)

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

 

b)

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

 

c)

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 June 30, 2023 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

 

In the second quarter of 2023, we issued securities in the following transactions, each of which was exempt from the registration requirements of the Securities Act. Except for the shares of our common stock that were issued upon the conversion of our convertible debt securities or the grants of shares of common stock under our 2012 Performance Incentive Plan, all of the below-referenced securities were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act and are deemed to be restricted securities for purposes of the Securities Act. There were no underwriters or placement agents employed in connection with any of these transactions. Use of the exemption provided in Section 4(2) for transactions not involving a public offering is based on the following facts:

 

	●	Neither we nor any person acting on our behalf solicited any offer to buy or sell securities by any form of general solicitation or advertising.
	●	The recipients were either accredited or otherwise sophisticated individuals who had such knowledge and experience in business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities.

 

	●	The recipients had access to business and financial information concerning our company.
	●	All securities issued were issued with a restrictive legend and may only be disposed of pursuant to an effective registration or exemption from registration in compliance with federal and state securities laws.

 

The shares of our common stock that were issued upon the conversion of our convertible debt securities were issued pursuant to the exemption from registration under Section 3(a)(9) of the Securities Act and are deemed to be restricted securities for purposes of the Securities Act.

 

On April 21, 2023, we issued an aggregate of 1,000,000 shares of our common stock to Investors in exchange for aggregate cash proceeds of $75,000 pursuant to a Securities Purchase Agreement. The Company deposited an additional 100,000 shares into escrow.

 

On May 24, 2023, we issued 8,295,455 shares of our common stock to the Mark E Munro Charitable Remainder Unitrust 1996 upon the conversion of 182.5 shares of Series D preferred stock with a stated value of $10,000 per share.

 

On June 5, 2023, we issued 681,818 shares of our common stock to Oscar Steiner upon the conversion of 15 shares of Series E preferred stock with a stated value of $10,000 per share.

 

 

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
31.1*		Certification of the Principal Executive 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.
31.2*		Certification of the 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.
32.1*		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of the 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.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Label Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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.

 

	High Wire Networks, Inc.
Date: August 14, 2023	By:	/s/ Mark W. Porter
		Mark W. Porter
		Chief Executive Officer

 

	High Wire Networks, Inc.
Date: August 14, 2023	By:	/s/ Curt Smith
		Curt Smith
		Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer

 

 

48