UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarter ended:
or
For the Transition Period from ___________ to____________
Commission File Number:
(Exact Name of registrant as specified in its charter)
| (State or other jurisdiction of | (IRS Employer I.D. No.) |
| incorporation) |
(Address of principal executive offices and Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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 ☐ | |
| 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 ☐
As of November 17, 2022, there were shares outstanding of the registrant’s common stock.
WYTEC INTERNATIONAL, INC.
FORM 10-Q
September 30, 2022
Table of Contents
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
WYTEC INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease, right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable, related party | ||||||||
| Other payable | ||||||||
| Operating lease, right-of-use obligation, current portion | ||||||||
| Contract liability | ||||||||
| Notes payable, current portion | ||||||||
| Promissory notes, shareholders, net of unamortized discount | ||||||||
| Short-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Operating lease, right-of-use obligation, long term portion | ||||||||
| Notes payable, long term portion | ||||||||
| Convertible promissory notes | ||||||||
| Promissory notes, shareholder | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note L) | ||||||||
| Stockholders' deficit: | ||||||||
| Preferred stock, $ par value shares authorized: | ||||||||
| Series A convertible preferred stock, par value $, shares designated, and shares issued, and shares outstanding | ||||||||
| Series B convertible preferred stock, par value $, shares designated, and shares issued, and shares outstanding | ||||||||
| Series C convertible preferred stock, par value $, shares designated, shares issued and shares outstanding | ||||||||
| Common stock, $ par value, shares authorized, and shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Repurchased shares | ( | ) | ( | ) | ||||
| Subscriptions receivable | ( | ) | ||||||
| Subscriptions payable | ||||||||
| Treasury stock: | ||||||||
| Series A convertible preferred stock, at cost, shares and shares | ( | ) | ( | ) | ||||
| Series B convertible preferred stock, at cost, shares and shares | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
See accompanying notes to unaudited financial statements
| 3 |
WYTEC INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit/(loss) | ( | ) | ( | ) | ||||||||||||
| Expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Net operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Paycheck Protection Program loan forgiveness | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic and fully diluted | ||||||||||||||||
| Net loss per share - basic and fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to unaudited financial statements
| 4 |
WYTEC INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
For the three and nine months ended September 30, 2022 and 2021
(Unaudited)
| Class A | Class B | Class C | Common | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Receipt of cash for common stock already issued | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Warrants issued to gain access to line of credit | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Warrants issued with promissory note | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Conversion of warrants to common stock | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2022 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common stock | ( | ) | ( | ) | – | – | – | |||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | ( | ) | ( | ) | – | – | |||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2022 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for link obligations | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2021 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| 5 |
| Class A Preferred Stock | Class B Preferred Stock | Class C Preferred Stock | Common Stock | Common Treasury Stock | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Conversion of Series B preferred stock to common stock | – | ( | ) | ( | ) | – | – | |||||||||||||||||||||||||||||||||
| Conversion of warrants | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash already received | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of Warrants for services | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Issuance of Warrants | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2021 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||
| Conversion of series A preferred stock to common stock | ( | ) | ( | ) | – | – | – | |||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | ( | ) | ( | ) | – | – | |||||||||||||||||||||||||||||||||
| Issuance of warrants in connection with conversion of other warrants | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Warrants exercised | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Cancellation of Treasury stock | – | – | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock | – | – | – | – | ||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | ( | ) | ( | ) | – | – | |||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2021 | – | – | – | – | – | |||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited financial statements
| 6 |
WYTEC INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
For the three and nine months ended September 30, 2022 and 2021
(Unaudited)
(Continued)
| Class A Preferred | Class B Preferred | Additional | Deposit for Future | Total | ||||||||||||||||||||||||||||||||||||||||
| Treasury Stock | Treasury Stock | Paid-in | Repurchased | Subscriptions | Subscriptions | Stock | Accumulated | Stockholders’ | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Payable | Receivable | Subscription | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| Receipt of cash for common stock already issued | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Warrants issued to gain access to line of credit | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Warrants issued with promissory note | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of warrants to common stock | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2022 | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Conversion of series A preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2022 | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock for services | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in exchange for link obligations | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2022 | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||
| 7 |
| Class A Preferred Treasury Stock | Class B Preferred Treasury Stock | Additional Paid-in | Repurchased | Subscriptions | Subscriptions | Deposit for Future Stock | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Payable | Receivable | Subscription | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Conversion of Series B preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of warrants | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash already received | – | – | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for cash | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Warrants for services | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Warrants | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2021 | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Conversion of series A preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants in connection with conversion of other warrants | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Warrants exercised | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Cancellation of Treasury stock | – | – | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock for services | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of series B preferred stock to common stock | – | – | ||||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended September 30, 2021 | – | – | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
See accompanying notes to unaudited financial statements
| 8 |
WYTEC INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of debt issuance costs | ||||||||
| Stock based compensation | ||||||||
| Paycheck Protection Program loan forgiveness | ( |
) | ||||||
| Non-cash lease expense | ||||||||
| Decrease (increase) in operating assets | ||||||||
| Accounts receivable | ( |
) | ( |
) | ||||
| Inventory | ( |
) | ||||||
| Prepaid expenses and other assets | ||||||||
| Increase (decrease) in operating liabilities | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable, related party | ||||||||
| Contract liability | ( |
) | ( |
) | ||||
| Operating lease liability | ( |
) | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | ( |
) | ||||||
| Net cash used in investing activities | ( |
) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of unsecured promissory note | ||||||||
| Proceeds from issuance of secured convertible promissory notes | ||||||||
| Proceeds from Paycheck Protection Program loan | ||||||||
| Proceeds from promissory notes, shareholders | ||||||||
| Payments on notes payable | ( |
) | ( |
) | ||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from subscription receivables | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) in cash | ( |
) | ( |
) | ||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Exchange of link obligations into common shares | $ | $ | ||||||
| Conversion of series B preferred stock to common stock | $ | $ | ||||||
| Conversion of series A preferred stock to common stock | $ | $ | ||||||
| Issuance of common stock in lieu of interest payment | $ | $ | ||||||
| Issuance of detachable warrants with debt | $ | $ | ||||||
| Issuance of warrants to gain access to line of credit | $ | $ | ||||||
See accompanying notes to unaudited financial statements
| 9 |
WYTEC INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K filed with the SEC on April 6, 2022. The results for the nine months ended September 30, 2022, are not necessarily indicative of the results to be expected for the year ending December 31, 2022. These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.
Description of Business: Wytec International, Inc. (“Wytec,” “we,” “our,” “us,” or the “Company”), a Nevada corporation, designs, manufactures, and installs carrier-class Wi-Fi Solutions in the 70 and 80 gigahertz licensed frequency program to local government, Mobile Service Operations, National Telecommunications Operators, and corporate enterprises. Wytec is also involved in the sale of wired and wireless services, including products, wireless data cards, back-office platform and rate plans to their commercial and enterprise clients and has been engaged in the sale of Federal Communications Commission (“FCC”) registered links participating in the 70 and 80 gigahertz licensed frequency program (the “Program”). The Program allows qualified individuals to own a segment of the “backhaul” infrastructure of Wytec’s city-wide business deployment.
Basis of Accounting: The accompanying financial statements have been prepared by the Company’s management in accordance with U. S. generally accepted accounting principles (“GAAP”) and applied on a consistent basis.
Revenue and Cost Recognition. Revenue is recognized by applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.
The Company earns revenues from contracts with customers for (i) sales and installation of cellular enhancement equipment and (ii) support agreements. Revenue from the sale and installation of cellular enhancement equipment is recognized either when the installation is completed or as the Company installs the cellular enhancement equipment, depending on the complexity of the system, such as the degree of customization of the equipment being installed, and the agreement with the customer. The less complex systems installed by the Company where management believes the installed equipment has an alternative use, due to the standard nature of the equipment sourced from our vendors that can be used in other projects, revenue from such contacts is recognized for completed installations upon customer acceptance. This assessment, at contract inception, is a management judgment based on the combination of equipment ordered, the services performed and whether or not material effort, within the context of the contract, would be required to rework the equipment for another project, and the term and terms of the contract with the customer. For example, such contracts are usually completed within 30-45 days. In larger more complex projects where the Company is creating an asset for the customer with no alternative use and has an enforceable right to payment for performance prior to contract completion, we recognize revenue utilizing the percentage of completion method. This method measures completion based on management’s estimate of total costs to complete each contract because management considers total costs to be the best available measure of progress on the contract.
Support agreements entered into with customers are generally for a period of one year, during which the Company stands ready to provide service and support for installed systems at the customer site. Support agreement amounts are billed in advance to the customer, as agreed in the contract, and recorded as a contract liability. During the period, the Company provides unspecified firmware upgrades to installed client equipment as they are available. Management estimates that straight line recognition of revenue over the period of the support agreement contract is a faithful representation of the pattern of delivery on the Company’s obligation under these agreements.
| 10 |
Sales tax is recorded on a net basis and excluded from revenue.
Allowance for Doubtful Accounts: The allowance
for doubtful accounts is evaluated on a regular basis through periodic reviews of the collectability of the receivables in light of historical
experience, adverse situations that may affect our customers' ability to repay, and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Accounts
receivable are determined to be past due based on how recently payments have been received and those considered uncollectible are charged
against the allowance account in the period they are deemed uncollectible.
Operating Leases Right-of-use Assets and Operating Lease Obligations: If we determine that an arrangement is or contains a lease, we recognize a right-of-use (ROU) asset and lease obligation at the commencement date of the lease. ROU assets represent our right to use an underlying asset for the lease term and lease obligations represent our lease payments arising from the lease. Operating lease ROU assets and obligations are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Stock Based Compensation: Stock-based compensation expense attributable to equity awards granted to employees and non-employees is measured at the grant date based on the fair value of the award. For employee awards, the expense is recognized on a straight-line basis over the requisite service period for awards that actually vest, which is generally the period from the grant date to the end of the vesting period. For non-employee awards, the expense for awards that actually vest is recognized based on when the goods or services are provided.
The fair value of the Company’s equity is approved by the Company’s Board of Directors as of the date stock-based awards are granted. In estimating the fair value of our stock, the Company uses a third-party valuation specialist and considers methodologies and factors it believes are material to the valuation process, including the prior transaction method and the discounted cash flow method of equity valuation. The Company believes the combination of these methodologies and factors provides an appropriate estimate of the expected fair value of the Company and reflects the best estimate of the fair value of the Company’s common stock at each grant date.
Recently Issued Accounting Pronouncements: Effective as of January 1, 2022, the Company early adopted the provisions of ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity). The modified retrospective adoption of the new accounting principle did not have a material effect on the financial statements. As a result of the adoption of this new accounting principle, the Company did not have to separate any embedded conversion feature in our new newly issued convertible notes.
NOTE B – GOING CONCERN
Our financial statements are prepared using
accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the
realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from
operations, have an accumulated deficit of $
| 11 |
Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, there can be no assurance that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time. Management expects to continue to seek additional funding through private or public equity sources and will seek debt financing.
NOTE C – REVENUE AND ACCOUNTS RECEIVABLE
The Company recognizes revenue in accordance with its accounting policy. The Company invoices customers and recognizes accounts receivable in an amount equivalent to which it has an unconditional right and expects to receive aligned with the agreement with the customer. The Company has contracted payment terms with its customer of net 30 days. The Company recognized revenue from performance obligations satisfied as of a point in time and over time as disaggregated in the table below.
Timing of Revenue Recognition
| For the Three Month Period Ended | For the Nine Month Period Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Point in Time | $ | $ | $ | $ | ||||||||||||
| Over Time | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Due to the Company billing service agreements in advance and recognizing revenue for service agreements over time as more fully described in its accounting policy the Company carries a contract liability balance proportional to the time remaining on each customer agreement. The Company issues invoices to customers for completed work as performance obligations satisfied as of a point in time are fulfilled and does not carry a contract asset balance for these performance obligations.
The Company earns revenues from Cel-fi systems
and network services. Revenues from the sale and installation of Cel-fi systems, including fixed wireless, SmartDAS, and 4G LTE, totaled
$
Revenues from network and other services totaled
$
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Contract Assets and Liabilities
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Contract Liability | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
The Company’s contracts for support services
are typically for terms of one year or less. The aggregate amount of contract performance obligation as of September 30, 2022 and December
31, 2021 that the Company expects to recognize over the next year is $
The Company is under no obligation and is not in the practice of providing customers with returns, rebates, discounts, or refunds and has not in an amount material to the financial statements. The Company, accordingly, does not recognize these obligations at the time of revenue recognition. The Company may receive consideration from customers who enter into support agreements in the future for incremental services provided to such customers. Those services are delivered as of a point in time when the customer requests the service. Future consideration as described is excluded from the transaction price calculated for support agreement performance obligations.
The Company has applied the practical expedient that permits the Company to recognize revenue without regard to significant financing components based on the Company’s expectations about the transfer of services and the receipt of payment from customers. The effect of this practical expedient is not material to the Company’s financial statements.
NOTE D – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Telecommunication equipment and computers | $ | $ | ||||||
| Vehicle | ||||||||
| Office furniture and fixtures | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation expense for the nine months ended September 30, 2022 and
September 30, 2021 was $
| 13 |
NOTE E – DEBT
The Company’s debt consists of the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Various unsecured promissory notes payable due to a shareholder and affiliate of a director of the Company, all carry simple interest of 7% per annum, due at various times between February 2023 and November 2023 | $ | $ | ||||||
| Unsecured promissory note payable due to an investor, carries simple interest of 9.5% per annum, due December 31, 2023 | ||||||||
| Notes payable to a financial institution, interest rates of 8.75% per annum, with the equipment purchased pledged as collateral and varying due dates through November 2024 | ||||||||
| Unsecured promissory note payable due to a director of the Company, simple interest rate of 7% per annum, due August 2023, net of unamortized debt discount of $19,001 | ||||||||
| Various unsecured promissory notes payable due to a director of the Company, all carry simple interest of 7% per annum, due at various times between March 2023 and August 2023 | ||||||||
| Unsecured promissory note payable due to the president of the Company, carries simple interest of 5% per annum, due October 2023 | ||||||||
| Unsecured promissory note payable to the president of the Company, carries simple interest of 7% per annum, due March 2023 | ||||||||
| Secured convertible promissory notes due to various investors, all carry simple interest of 9.50% and are due on December 31, 2023 | ||||||||
| $625,000 7% unsecured note payable due to a director of the Company in February 2023 | ||||||||
| Total Debt, net of unamortized discount | $ | $ | ||||||
In February 2020, we issued a note in the amount
of $
| 14 |
On June 18, 2021, Eagle Rock Investments LLC (“ERI”),
a shareholder and affiliate of Christopher Stuart, a director of the Company, advanced funds in the amount
of $
In August and September 2021, ERI loaned a total
of $
In October 2021, the president of the Company
loaned $
In February 2022, the Company commenced a private
placement pursuant to Rule 506(b) of Regulation D promulgated under Section 4(a)(2) of the Securities Act of 1933, as amended, of a unit
(“Unit”) consisting of a $175,000 7% promissory note with a maturity date of
On April 14, 2022, Christopher Stuart, a director
of the Company, loaned the Company $
On June 10, 2022, ERI loaned the Company $
In June 2022, we commenced an offering of up to
$
In July 2022, the Company borrowed $
In September 2022, the president of the Company
loaned the Company $
| 15 |
In September 2022, Christopher Stuart, a director
of the Company, loaned the Company $
On September 30, 2022, we extended our Note offering to October 30, 2022. See Note M regarding the further extension of our Note offering.
The total future payments regarding debt are as follows:
| September 30, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Total future payments | ||||
| Less Debt Discount: | $ | ( | ) | |
| Total Debt, net of unamortized discount | $ | |||
NOTE F – REPURCHASE AGREEMENT
In April 2020, we entered into a Repurchase and
General Release Agreement with one shareholder pursuant to which we promised to pay the amount of $200,000 due on December 31, 2020. The
agreement stated that the Company was to make $10,000 monthly installments with the balance payable on the maturity date. The agreement
contains a feature that allows the Company to extend the maturity date of the amount payable to March 31, 2021 in the Company’s
sole discretion, and if the Company exercises this option, the $10,000 monthly installments will continue until the extended maturity
date on which date the remaining balance will be due. During the quarter ended December 31, 2020, the Company extended the maturity date
under the terms of the agreement to March 2021. The Company made payments in the amount of $80,000 during the period of April 2020 thru
November 2020, however, the shareholder has not returned the shares so they may be canceled. As the shares had not been returned, the
Company is not obligated per the agreement to pay any monies and the $80,000 was paid in good faith that the shares would be returned.
The Company is pursuing action against the shareholder to get the shares returned or get the monies paid returned. Until such time, the
$
NOTE G – LEASES
The Company leases facilities and office equipment
under various operating leases, which generally are expected to be renewed or replaced by other leases. For the three-month periods ended
September 30, 2022 and 2021, operating lease expense totaled $
The weighted average remaining lease term is
| 16 |
Future minimum lease payments as of September 30, 2022 are as follows:
| September 30, 2023 | $ | |||
| September 30, 2024 | ||||
| Total minimum lease payments | ||||
| Less: imputed interest | ( |
) | ||
| Present value of minimum lease payments | $ | |||
| Less: current portion of lease obligation | ||||
| Long-term lease obligation | $ |
NOTE H – WARRANTS
The Company has common stock purchase warrants
outstanding at September 30, 2022 to purchase
To calculate the fair value of stock warrants at the date of grant, we use the Black-Scholes option pricing model. The volatility used is based on historical volatilities of selected peer group companies. Management estimated the fair value of the underlying common stock by utilizing the discounted cash flow method and the prior transaction method approaches and determined a fair value of $5.08. Management estimates the average volatility considering current and future expected market conditions. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Each issuance is individually valued according to this procedure as of the date of issue with maturity dates between December 31, 2022 and December 31, 2024, volatility estimates between 37% to 67% and risk-free rates 0.58% to 1.8% in the period.
In January 2022, the Company issued warrants
to purchase up to
During February 2022, a total of common
stock purchase warrants were exercised by one investor for a total of shares of Wytec’s common stock at an exercise price
of $5.00 per share or a total of $
| 17 |
In July 2022, the Company entered into a rescission
agreement (the “Rescission Agreement”) with a consultant in order to rescind and terminate that certain consulting agreement
by and between the Company and the consultant, dated October 1, 2021 (the “Consulting Agreement”). Pursuant to the Consulting
Agreement, the Company issued common stock purchase warrants to the consultant at an exercise price of $
The following is a summary of activity and outstanding common stock warrants:
| # of Warrants | ||||
| Balance, December 31, 2021 | ||||
| Warrants granted | ||||
| Warrants exercised | ( | ) | ||
| Warrants expired or cancelled | ( | ) | ||
| Balance, September 30, 2022 | ||||
| Exercisable, September 30, 2022 | ||||
As of September 30, 2022, the outstanding and exercisable warrants have a weighted average remaining term of 0.27 years and years, respectively.
NOTE I – STOCKHOLDERS’ EQUITY
During the fourth quarter of 2021, the Company
issued stock at a value of $
During the first quarter of 2022, the Company
issued a total of shares of common stock for the exercise of common stock purchase warrants at an exercise price of $5.00
per share for total proceeds of $
During the third quarter of 2022, the Company
issued common shares pursuant to a recession agreement. The shares were
valued at $5.08 per share for a total of $
During the third quarter of 2022, the Company
issued shares of common stock in consideration for the exchange of 17 registered links which satisfied $
Effective April 22, 2022, shares of Series A Preferred Stock were automatically converted into a total of shares of common stock due to the five (5) year term from issuance for automatic conversion, as stated in the applicable Certificate of Designation, being met.
Effective April 22, 2022, shares of Series B Preferred Stock were automatically converted into a total of shares of common stock due to the five (5) year term from issuance for automatic conversion, as stated in the applicable Certificate of Designation, being met.
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NOTE J – RELATED PARTY TRANSACTIONS
The Company has an account payable balance owed
to Richardson & Associates in the amount of $
In 2021, ERI loaned the Company a total of $
In January 2022, the Company issued
In June 2022, ERI loaned the Company an additional
$
In February 2020, Christopher Stuart, a director
of the Company, purchased 12.5 units, each unit consisting of $
In February 2022, Mr. Stuart purchased the Unit offered by the Company in its private placement pursuant to Rule 506(b) of Regulation D promulgated under Section 4(a)(2) of the Securities Act of 1933, as amended, commenced by the Company in February 2022. See Note E for a description of the Unit.
In April 2022, Mr. Stuart loaned the Company $
In October 2021, the president of the Company
loaned $
In September 2022, the president of the Company
loaned the Company $
In September 2022, Christopher Stuart, a director
of the Company, loaned the Company $
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NOTE K – CUSTOMER CONCENTRATIONS
The Company derived $
NOTE L – COMMITMENTS AND CONTINGENCIES
We are party to various legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceedings that management believes could have a material adverse effect on our financial statements.
The other payable of $
See Note C in regards to commitments related to contracts with customers.
NOTE M – SUBSEQUENT EVENTS
In October 2022, the president of the Company entered into an agreement, as amended in November 2022, to exchange 1,000 shares of the Company’s Series C Preferred Stock owned by him for 3,000,000 shares of the Company’s common stock. The exchange will close on the earlier of the effective date of the initial public offering of the Company’s common stock on the NASDAQ Capital Markets or October 6, 2025.
In October 2022, we entered into an exchange agreement (the “Stuart Agreement”) with Christopher Stuart, a director of the Company, pursuant to which Mr. Stuart exchanged $385,658 of promissory notes ($375,000 principal and $10,658 accrued but unpaid interest) for a convertible promissory in the principal amount of $385,658 (the “New Stuart Note”) bearing interest at a rate of 9.5% per annum, due and payable on or before December 31, 2023. If Wytec’s common stock is listed on the NASDAQ Capital Markets on or before the maturity date, the New Stuart Note will automatically be converted into shares of Wytec’s common stock at a rate equal to the price per share in the public offering. If the New Stuart Note has not otherwise been automatically converted into shares of Wytec’s common stock, Mr. Stuart will have the option, on or before the maturity date, to convert all or a portion of the outstanding New Stuart Note into shares of Wytec’s common stock at a rate equal to $5.00 per share and, immediately upon the conversion, Stuart will be issued a number of new warrants from Wytec equal to the dollar amount of the conversion divided by $5.00 (the “Warrants”). The Warrants will be exercisable until December 31, 2023 at an exercise price equal to the greater of (i) five dollars ($5.00) or (ii) eighty-five percent (85%) of the 10-day moving average of Wytec’s public trading price if Wytec’s securities are trading on a public securities trading market.
In October 2022, we entered into an exchange agreement (the “ERI Agreement”) with ERI, pursuant to which ERI exchanged $320,242 of promissory notes ($300,000 principal and $20,242 accrued but unpaid interest) for a convertible promissory in the principal amount of $320,242 (the “New ERI Note”) bearing interest at a rate of 9.5% per annum, due and payable on or before December 31, 2023. If Wytec’s common stock is listed on the NASDAQ Capital Markets on or before the maturity date, the New ERI Note will automatically be converted into shares of Wytec’s common stock at a rate equal to the price per share in the public offering. If the New ERI Note has not otherwise been automatically converted into shares of Wytec’s common stock, ERI will have the option, on or before the maturity date, to convert all or a portion of the outstanding New ERI Note into shares of Wytec’s common stock at a rate equal to $5.00 per share and, immediately upon the conversion, ERI will be issued a number of new Warrants from Wytec equal to the dollar amount of the conversion divided by $5.00.
On October 30, 2022, we extended our Note offering to January 28, 2023. See Note E for a description of the Notes and the offering.
In November 2022, we borrowed $30,000 from a lender pursuant to an unsecured convertible promissory note. The promissory note bears simple interest at a rate of 9.5% per annum and matures on December 31, 2023. The maturity date of the promissory note may be extended by an additional six months in our sole discretion up to two times. The lender will have the right to elect at any time until the maturity date, but no later than two (2) business days after the effective date of the initial public offering (“IPO”) of our common stock, to convert all or any portion of the outstanding principal and accrued interest on this promissory note into such number of fully paid and nonassessable shares of our common stock as is determined by dividing the dollar amount of the conversion by the initial IPO price per share of our common stock.
| 20 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Wytec International, Inc. (hereinafter, with its subsidiary, “Wytec,” “Company,” “us,” “we” or “our”), the industry in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” and variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause the Company’s actual results to be materially different from any future results expressed or implied by the Company in those statements. The most important factors that could prevent the Company from achieving its stated goals include, but are not limited to, the following:
| (a) | volatility or decline of our stock price; |
| (b) | potential fluctuation in quarterly results; |
| (c) | failure to earn revenues or profits; |
| (d) | inadequate capital to continue our business; |
| (e) | insufficient revenues to cover operating costs; |
| (f) | barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; |
| (g) | dilution experienced by our shareholders in their ownership of the Company because of the issuance of additional securities by us, or the exercise of warrants or conversion of outstanding convertible securities; |
| (h) | inability to complete research and development of our technology with little or no current revenue; |
| (i) | lack of demand for our products and services; |
| (j) | loss of customers; |
| (k) | rapid and significant changes in markets; |
| (l) | technological innovations causing our technology to become obsolete; |
| (m) | increased competition from existing competitors and new entrants in the market; |
| (n) | litigation with or legal claims and allegations by outside parties; |
| (o) | inability to start or acquire new businesses, or lack of success of new businesses started or acquired by us, if any; |
| (p) | inability to effectively develop or commercialize our technology; and |
| (q) | inability to obtain patent or other protection for our proprietary intellectual property. |
| 21 |
Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this Form 10-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our unaudited financial statements and notes to those statements. In addition to historical information, the following discussion and other parts of this annual report contain forward-looking statements and information that involves risks and uncertainties.
Overview of Current Operations
Wytec International, Inc., a Nevada corporation (“Wytec,” the “Company.” “we,” “us,” or “our”) is the developer of a technology called the “LPN-16,” consisting of chipsets, software, hardware designs and antennas that enable strengthened Wi-Fi and cellular transmission within a concentrated coverage area of approximately 500 feet in circumference. The hardware consists of a chassis or framework approximately 32 inches in height with a radius of approximately 12 inches. It is designed to be installed on a utility pole to private dense network coverage. The unit, referred to as an outdoor “small cell”, is designed to increase Wi-Fi and cellular capacity and signal strength by placing a large number of them in densely populated areas as compared to the traditional macro site cellular towers covering a much larger area of approximately two (2) miles. The growth of small cells is in response to delivering substantially greater speeds to smartphones and other smart devices in preparation for the next generation of cellular technology now referred to as 5G.
When Wytec was first founded, we obtained five (5) United States patents (the “Patents”) related to Local Multipoint Distribution Service (“LMDS”) originally designed for digital television transmission, and later discovered to be useful in wireless broadband technology. Today Wytec utilizes Millimeter and Microwave spectrum as a wireless point to point backhaul for transmitting to its LPN-16 technology. This configuration is in place today and has become the center piece of Wytec’s private LTE initiatives requested by large commercial buildings, school districts and municipalities. Wytec’s ultimate configuration includes the extension of its private LTE design into the offering of its Mobile Virtual Network Operator (MVNO) wholesale services to both cable and Wireless Internet Service Providers (“WISPs”) throughout the United States. The Company believes that its MVNO services will become the foundation for supporting true 5G services in the U.S. as defined by the International Telecommunications Union (“ITU”), the standard for all previous mobile generations from 1G to 4G.
The 5G network is expected to have a transformative impact as it connects people with devices, data, transport systems and cities in a smart networked communications environment. The 5G network will rely substantially on small cell technology to achieve its goals. To facilitate this, operators need reliable connections with strong signal integrity, significant bandwidth and low latency. Small cells bring improved connectivity (speeds, reliability, and low latency) to the edge of existing macro networks, serving all morphologies from urban to rural markets.
We believe the LPN-16 small cell can solve many of the long-term challenges faced by operators deploying small cells who need access to backhaul, lower total cost of ownership and easier site acquisition and access. It can also assist cities wrestling with the on-going technology upgrades, network growth demands, political hurdles and new business models needed to realize the benefits of a 5G network. In addition to aligning with technical and governmental issues, the LPN-16 is designed to meet the standards for 5G deployment and, for operator needs, adheres to the Federal Communications Commission (“FCC”) policy initiatives addressing public safety and First Responder initiatives. Specifically, the FCC’s Report and Order 14-153, Acceleration of Broadband Deployment by Improving Wireless Facilities Siting Policies, adopts rules to help spur wireless broadband deployment by facilitating the sharing of wireless transmission equipment using “neutral host” functionality to simultaneously support multiple providers. The LPN-16 was specifically designed to support neutral host features and performance. The FCC’s goal of “shared used” and “neutral host” seeks to expand coverage and capacity more quickly, reduce costs and promote access to infrastructure which reduces barriers to deployment and incentivize the sharing of resources, rather than relying on new builds for every stakeholder, thereby safeguarding environmental, aesthetic, historic and local land-use values.
| 22 |
We have implemented an aggressive intellectual property strategy and continue to pursue patent protection for new innovations. In addition to the LPN-16 invention covered by our current patent, we have identified additional upgrades and additions to the LPN-16 which further tie it to the goals and timelines of Wytec’s 5G development business model, FCC policy initiatives and customer business usage which we believe could lead to additional patentable property. We intend to file for patent protection on these developments. Our strategy is to continually monitor the costs and benefits of our patent applications and pursue those that will best protect our business and expand the core value of the Company.
We have recruited and hired a seasoned management team with both private and public company experience and relevant technical and industry experience to develop and execute our operating plan. In addition, we have identified key engineering resources for intellectual property development, antenna development, hardware, software, and firmware engineering, as well as integration and testing that will allow us to continue to expand our technology and intellectual property.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of the estimated recoverable amounts of trade accounts receivable, impairment of long-lived assets, revenue recognition and deferred tax assets. We believe the following critical accounting policies require more significant judgment and estimates used in the preparation of the financial statements.
Revenue and Cost Recognition. Wytec International, Inc. follows the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “Revenue from Contracts with Customers (Topic 606).” The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contract with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation.
Our contracts for the sale of Cel-Fi systems generally include the performance obligation to sell and install (including testing, commissioning and integration services) equipment. The performance obligation is deemed satisfied once the equipment has been installed, placed in service and customer signs off on their acceptance, at a point in time.
Network service revenues are recognized each month as services are rendered.
The Company generally provides a one-year warranty on its products for materials and workmanship but may provide multiple year warranties as negotiated, and will pass on the warranties from its vendors, if any, which generally covers this one-year period. In accordance with ASC 450-20-25, the Company accrues for product warranties when the loss is probable and can be reasonably estimated. At September 30, 2022, the Company has estimated no product warranty accrual given the Company’s de minimis historical financial warranty experience.
Recording revenue is due to timing of when installation occurs and revenue is recognized when installation is complete. Maintenance and monitoring rates are pre-set based upon square footage of building. Cost of sales is all equipment and labor that is connected to a project anything else is general and administrative. Rates for LISD are under contract as to what can charged based upon square footage.
Warrants: Significant estimation and judgement is used when determining the inputs to the Black Scholes calculation that is used to calculate the expense for the warrants issued. The volatility used is based on historical volatilities of selected peer group companies. Management estimated the fair value of the underlying common stock by utilizing the discounted cash flow method and prior transaction method approaches. Management estimates the average volatility considering current and future expected market conditions. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Each issuance is individually valued according to this procedure as of the date of issuance.
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Results of Operations for the Nine Months Ended September 30, 2022 and 2021 and Three Months Ended September 30, 2022 and 2021
Revenue for the nine months ended September 30, 2022 and 2021 was $382,374 and $392,375, respectively. This decrease in revenue of $10,001 or 3% was primarily due to decreases in revenue from our Cel-Fi systems. Revenue for the three months ended September 30, 2022 and 2021 was $175,138 and $77,999, respectively. This decrease in revenue of $97,139, or 125%, was primarily due to a decrease in revenue from our Cel-fi systems.
Cost of sales for the nine months ended September 30, 2022 and 2021 was $415,641 and $330,733, respectively. This increase of $84,908, or 26%, is due to the increase in costs incurred related to the sales of our Cel-fi systems. Cost of sales for the three months ended September 30, 2022 and 2021 was $235,062 and $62,481, respectively. This increase of $172,581, or 276%, was due to the increase in costs incurred related to the sales of our Cel-fi systems and improved efficiencies in operations.
General and administrative expenses were $512,648 for the three months ended September 30, 2022, as compared to $552,415 for the three months ended September 30, 2021, which resulted in a decrease of $39,767 or 7% compared to the same period in 2021. Contributing factors to the decrease include a decrease in professional fees expense of $104,976 and a decrease in fees of $56,933, offset by an increase in stock compensation of $127,000 during the three months ended September 30, 2022 compared to the same period in 2021. General and administrative expenses were $1,414,423 for the nine months ended September 30, 2022, as compared to $1,478,420 for the nine months ended September 30, 2021, which resulted in a decrease of $63,997 or 4% compared to the same period in 2021. Contributing factors to the decrease include a decrease in fees of $40,525, a decrease in compensation of $61,134, a decrease in warrant expense of $68,120, and a decrease in rent expense of $21,146, which was offset by an increase in stock compensation of $127,000 for the nine months ended September 30, 2022 compared to the same period in 2021. The remaining decrease is attributable to cost savings from reduced operating expense to ensure cash needs are met.
We estimate that we will need approximately $3,000,000 of capital or financing over the next twelve months to fund our planned operations, which we plan to satisfy as described below under “Satisfaction of our Cash Needs for the Next 12 Months.”
We anticipate that we will incur operating losses in the next twelve months. Our revenue is not expected to exceed our investment and operating costs in the next twelve months. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of operations. To address these risks, we must, among other things, seek growth opportunities through investment and acquisitions, implement and successfully execute our business strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. We cannot assure that we will be successful in, addressing such risks, and the failure to do so could have a material adverse effect on our business prospects, financial condition and results of operations.
Cash Flow from Operating Activities
Cash flows used in operating activities during the nine months ended September 30, 2022 were $1,109,635 compared to $1,309,259 during the nine months ended September 30, 2021. This decrease of $199,624 of cash used was primarily due to changes in net loss during the nine months ended September 30, 2022 to the same period in 2021.
Cash Flow from Investing Activities
Cash flows used by investing activities during the nine months ended September 30, 2022 were $848 compared to the cash flows used by investing activities of $-0- during the nine months ended September 30, 2021. Capital expenditures totaled $848 and $-0- during the nine months ended September 30, 2022 and September 30, 2021, respectively.
Cash Flow from Financing Activities
Cash flows provided by financing activities during the nine months ended September 30, 2022 were $950,843 compared to $876,606 during the nine months ended September 30, 2021. This increase of $74,237 was primarily due to an increase in proceeds from the sale of shares of the Company’s common stock and the exercise of warrants, and the issuance of debt during the nine months ended September 30, 2022 as compared to same period in 2021.
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Satisfaction of Our Cash Obligations for the Next 12 Months.
As of September 30, 2022, our cash balance was $110,434. Our plan for satisfying our cash requirements for the next twelve months is through sales-generated income, private placements of our capital stock, third party financing, an initial public offering, and/or traditional bank financing. We anticipate sales-generated income during that same period of time, but do not anticipate generating sufficient revenue to meet our working capital requirements. Consequently, we intend to attempt to find sources of additional capital in the future to fund our growth and expansion through additional equity or debt financing or credit facilities. There is no assurance that we will be able to meet our working capital requirements through the private placement of equity or debt or from any other source.
Other Payable
Other Payable of $335,000 consists of amounts billed and collected before services related to registered links previously sold by the Company (“Registered Links”) have been completed. During 2019, $895,000 of deferred revenue was reclassified to other payables due to the Company exiting the business of installing registered links. Since that time, a total of $560,000 of the amount was exchanged for a total of 119,000 shares of the Company’s common stock. The Company intends to settle the remaining liability through a combination of exchanges for common and preferred stock and cash.
Going Concern
Our financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplate the realization of assets and liquidation of liabilities in the normal course of business. We have incurred continuous losses from operations, have an accumulated deficit of $27,309,735 at September 30, 2022, and have reported negative cash flows from operations. In addition, we do not currently have the cash resources to meet our operating commitments for the next twelve months from the date of this report. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern must be considered in light of the problems, expenses, and complications frequently encountered by entrance into established markets and the competitive nature in which we operate.
Our ability to continue as a going concern is dependent on our ability to generate sufficient cash from operations to meet our cash needs and/or to raise funds to finance ongoing operations and repay debt. However, there can be no assurance that we will be successful in our efforts to raise additional debt or equity capital and/or that our cash generated by our operations will be adequate to meet our needs. These factors, among others, indicate that we may be unable to continue as a going concern for a reasonable period of time.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Recently Issued Accounting Standards
We have reviewed the standards issued by the Financial Accounting Standards Board (“FASB”) through September 30, 2022 and which are not yet effective. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption. The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncement will have a material impact on its financial statements.
Effective as of January 1, 2022, the Company early adopted the provisions of ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity). The modified retrospective adoption of the new accounting principle did not have a material effect on the financial statements. As a result of the adoption of this new accounting principle, the Company did not separate any embedded conversion feature in our new newly issued convertible notes.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and our principal financial officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15I under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on that evaluation, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures are not effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings and in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in internal control over financial reporting. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The Company may be involved in legal actions and claims arising in the ordinary course of business from time to time. As of the date of the report, there are no legal matters of which management is aware.
Item 1A. Risk Factors.
During the quarter ended September 30, 2022, there have been no material changes from the risk factors previously in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities.
During the third quarter of 2022, the Company issued a total of $210,000 of 9.5% secured convertible promissory notes to three investors pursuant to a private placement in accordance with Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).
During the third quarter of 2022, at total of 17 Registered Links were exchanged for a total of 119,000 shares of the Company’s common stock issued to nine investors in accordance with Rule 506(b) of Regulation D of the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information.
None.
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Item 6. Exhibits.
| (1) | Incorporated by reference from the Company’s Registration Statement on Form S-1 and its amendments, originally filed on January 10, 2017. |
| (2) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated September 21, 2018. |
| (3) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated January 4, 2021. |
| (4) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission, dated January 8, 2021. |
| (5) | Incorporated by reference to the Form 10-K filed with the Securities and Exchange Commission on June 25, 2021. |
| (6) | Incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on October 13, 2022. |
| * | Filed herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WYTEC INTERNATIONAL, INC.
By: /s/ William H. Gray
William H. Gray, Chief Executive Officer and
President (Principal Executive Officer)
By: /s/ Karen Stegall
Karen Stegall, interim Chief Financial Officer
(Principal Accounting Officer)
Date: November 18, 2022
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