UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period 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 incorporation) | (IRS Employer Identification Number) |
(Address of principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| Warrants, each whole Warrant entitling the holder to purchase one share of Common Stock at an exercise price of $11.50 | AVCTW | The Nasdaq Stock Market LLC |
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
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for the past 90 days. ☒
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| Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated | Smaller reporting company | Emerging growth company |
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As of May 9, 2022,
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
TABLE OF CONTENTS
| Page | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Unaudited Condensed Consolidated Financial Statements | 1-27 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 36 |
| Item 4. | Controls and Procedures | 37 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 38 |
| Item 1A. | Risk Factors | 38 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 39 |
| Item 3. | Defaults Upon Senior Securities | 39 |
| Item 4. | Mine Safety Disclosures | 39 |
| Item 5. | Other Information | 39 |
| Item 6. | Exhibits | 40 |
| SIGNATURES | 41 | |
i
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data, or as otherwise noted)
(Unaudited)
| March 31, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Trade receivables, net (including related party amounts of $ | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Assets held for sale - current (See Note 5) | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Assets held for sale - noncurrent (See Note 5) | ||||||||
| Other noncurrent assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses (including related party amounts of $ | $ | $ | ||||||
| Series B Preferred Stock liability, $ | ||||||||
| Deferred revenue (including related party amounts of $ | ||||||||
| Current portion of notes payable and capital leases | ||||||||
| Subordinated promissory note - related party | ||||||||
| Liabilities associated with assets held for sale - current (See Note 5) | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities | ||||||||
| Notes payable and capital leases (net of current portion and deferred financing fees) | ||||||||
| Warrant liabilities | ||||||||
| Liabilities associated with assets held for sale - noncurrent (See Note 5) | ||||||||
| Other liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingent liabilities (see note 15) | ||||||||
| Stockholders’ (deficit) equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ (deficit) equity | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
1
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data, or as otherwise noted)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, 2022 |
March 31, 2021 |
|||||||
| Revenues: | ||||||||
| Cloud subscription and software (including related party amounts of $ |
$ | $ | ||||||
| Managed and professional services | ||||||||
| Total revenues | ||||||||
| Cost of revenue (including related party amounts of $ |
||||||||
| Gross profit | ( |
) | ( |
) | ||||
| Research and development (including related party amounts of $ |
||||||||
| Selling, general and administrative (including related party amounts of $ |
||||||||
| Loss from continuing operations | ( |
) | ( |
) | ||||
| Other (expense) income | ||||||||
| Change in fair value of warrant liabilities | ( |
) | ||||||
| Interest expense - related parties | ( |
) | ( |
) | ||||
| Interest expense | ( |
) | ( |
) | ||||
| Other expense | ( |
) | ( |
) | ||||
| Total other expenses | ( |
) | ( |
) | ||||
| Net loss from continuing operations before income taxes | ( |
) | ( |
) | ||||
| Provision for income taxes | ( |
) | ( |
) | ||||
| Net loss from continuing operations, net of tax | ( |
) | ( |
) | ||||
| Net income (loss) on discontinued operations, net of tax (Notes 1 and 5) | ( |
) | ||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Basic and diluted loss per common share | ||||||||
| Loss from continuing operations | $ | ( |
) | $ | ( |
) | ||
| Income (loss) from discontinued operations | ( |
) | ||||||
| Loss per common share | $ | ( |
) | $ | ( |
) | ||
| Weighted average shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(In thousands, except share and per share data, or as otherwise noted)
(Unaudited)
| For the period January 1, 2021 through March 31, 2021 | ||||||||||||||||||||
| Additional | Stockholders’ | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance, January 1, 2021 | $ | | $ | $ | ( | ) | $ | |||||||||||||
| Cumulative effect of accounting change related to adoption of Accounting Standard Update No. 2020-06 | - | ( | ) | ( | ) | |||||||||||||||
| Debenture discount relative to fair value of warrants | - | |||||||||||||||||||
| Vested and delivered RSUs | ||||||||||||||||||||
| Shares repurchased for tax withholding | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| For the period January 1, 2022 through March 31, 2022 | ||||||||||||||||||||
| Additional | Stockholders’ | |||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance, January 1, 2022 | $ | | $ | $ | ( | ) | $ | |||||||||||||
| Common stock issued on conversion of Penny Warrants | ||||||||||||||||||||
| Vested and delivered RSUs | ||||||||||||||||||||
| Shares repurchased for tax withholding | - | ( | ) | ( | ) | |||||||||||||||
| Share-based compensation | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Cash Flows from Continuing Operations | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss from continuing operations to net cash used in continuing operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of Convertible Debenture discount | ||||||||
| Interest on convertible debt paid-in-kind | ||||||||
| Share-based compensation | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Amortization of deferred financing costs and issue discount | ||||||||
| Noncash financing fees | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Other current liabilities | ||||||||
| Deferred revenue | ||||||||
| Other | ( | ) | ||||||
| Net cash used in continuing operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Continuing Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Deferred development costs | ( | ) | ||||||
| Net cash used in continuing investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Continuing Financing Activities: | ||||||||
| Payment of taxes from withheld shares | ( | ) | ( | ) | ||||
| Debt repayments | ( | ) | ( | ) | ||||
| Repayment of promissory note - related party | ( | ) | ||||||
| Proceeds from issuance of Convertible Debentures (See Note 8) | ||||||||
| Proceeds from issuance of securities (See Note 8) | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Payment of deferred financing fees | ( | ) | ||||||
| Net cash (used in) provided by continuing financing activities | ( | ) | ||||||
| Cash Flows from Discontinued Operations | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ||||||
| Net cash provided by discontinued operations | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental Disclosures about Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental Schedule of Noncash Investing and Financing Activities | ||||||||
| Fair value of Penny Warrants related to the issuance of Convertible Debentures | ||||||||
| Capital expenditures included in accounts payable and accrued expenses | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
AMERICAN VIRTUAL CLOUD TECHNOLOGIES,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
1. Organization, Business Operations and Certain Recent Developments
American Virtual Cloud Technologies, Inc. (“AVCT,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware on April 7, 2016.
On April 7, 2020 (the “Computex Closing Date”), AVCT (formerly known as Pensare Acquisition Corp.) consummated a business combination transaction (the “Computex Business Combination”) in which it acquired Stratos Management Systems, Inc. (“Computex”), an operating company that does business as Computex Technology Solutions. In connection with the closing of the Computex Business Combination, the Company changed its name to American Virtual Cloud Technologies, Inc.
On December 1, 2020 (the “Kandy Closing Date”), the Company acquired the Kandy Communications business (hereafter referred to as “Kandy”) from Ribbon Communications, Inc. and certain of its affiliates (“Ribbon”), by acquiring certain assets, assuming certain liabilities of Kandy from Ribbon and acquiring all of the outstanding interests of Kandy Communications LLC.
For accounting purposes, both Computex and Kandy were considered the acquirees, and the Company was considered the acquirer. The acquisitions were accounted for using the acquisition method of accounting.
On September 16, 2021, the Company announced that as a result of a decision by the Company’s Board of Directors to explore strategic alternatives previously announced on April 7, 2021, the Board had authorized the Company to focus its strategy on acquisitions and organic growth in its cloud technologies business as well as to explore strategic opportunities for its IT solutions business, including the divestiture of Computex. The Company believed that such changes would allow it to optimize resource allocation, focus on core competencies, and improve its ability to invest in areas of maximal growth potential.
On January 27, 2022, the Company announced that
it had executed a definitive agreement to sell Computex, which would complete the Company’s transition to a pure-play cloud communications
and collaboration company, centered on the Kandy platform. As a result, Computex was classified as held for sale as of December 31, 2021
and, beginning in December 2021, we began classifying the operations of Computex within discontinued operations. Also, in connection
with the planned sale of Computex, we recorded a noncash goodwill impairment charge of $
Additionally, during the fourth quarter of 2021,
the first quarter of 2022 and April 2022, the Company completed the sale of certain securities, including the sale of common stock, preferred
stock and warrants. In connection with the sale of these securities, the Company also completed certain share registrations. Two of the
six series of warrants were exercised in full soon after they were issued resulting in proceeds of approximately $
Unless otherwise noted, the discussion in these Notes to our condensed consolidated financial statements refers to our continuing operations. Refer to Note 5, Assets held for sale and operations classified as discontinued operations, for additional information.
5
AMERICAN VIRTUAL CLOUD TECHNOLOGIES,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Nature of Continuing and Discontinued Operations
The Kandy cloud communications platform is a cloud-based, real-time communications platform, offering proprietary unified communications as a service (“UCaaS”), communications platform as a service (“CPaaS”), Microsoft Teams Direct Routing as a Service (“DRaaS”), and SIP Trunking as a Service capabilities. Kandy is one of the largest pure-play providers of UCaaS, CPaaS and Direct Routing as a Service (DRaaS) for enterprise customers.
As a provider of cloud-based enterprise services, Kandy deploys a global carrier grade cloud communications platform that supports the digital and cloud transformation of mid-market and enterprise customers across virtually any device, on virtually any network, in virtually any location. The Kandy platform is based on a powerful, proprietary multi-tenant, highly scalable, and secure cloud platform that includes pre-built customer engagement tools, based on web real-time communications technology (“WebRTC technology”) that enables frictionless communications. Further, we support rapid service creation and multiple go to market models including white labelling, multi-tier channel distribution, enterprise direct, and self-service via our SaaS (software as a service) web portals.
Our cloud-based, real-time communications platform enables service providers, enterprises, software vendors, systems integrators, partners and developers to enrich their applications and their services with real-time contextual communications empowering the API (Application Programming Interface) economy. With Kandy’s platform, companies of various sizes and types can quickly embed real-time communications capabilities into their existing applications and business processes, providing a more engaging user experience.
While the cloud communications business is focused on highly complex, medium and large enterprise deployments, the customer experience is augmented by our managed services capabilities. In addition, our strategic partnerships with companies such as AT&T, IBM, and Etisalat give us access to a marquee customer base and the ability to sell end to end solutions.
Computex, classified within discontinued operations, is a leading multi-brand technology solutions provider to large global customers, providing a comprehensive and integrated set of technology solutions, through its extensive hardware, software and value-added service offerings.
Covid-19
The novel strain of coronavirus (“COVID-19”) continues to significantly impact local, regional, and global economies, businesses, supply chains, production and sales across a range of industries. The extent of its impact on our operational and financial performance is uncertain and difficult to predict and we remain cautious about the global recovery.
To protect the health and safety of our employees, our daily execution has evolved into a largely virtual model. However, we have found ways to continue to engage with and assist our customers and partners as they work to navigate the current environment. We will continue to monitor the current environment and may take further actions that may be required by federal, state or local authorities or that we determine to be in the interests of our employees, customers, and partners.
2. Liquidity
Historically, the Company’s primary sources of liquidity have been cash and cash equivalents, cash flows from operations (when available) and cash flows from financing activities, including funding under credit agreements. From time to time, the Company may also choose to access the debt and equity markets to fund acquisitions to diversify its capital sources. The Company’s current principal capital requirements are to fund working capital and make investments in line with its business strategy.
6
AMERICAN VIRTUAL CLOUD TECHNOLOGIES,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
On December 2, 2021, the Company entered into
the Credit Agreement with Monroe for a $
On January 27, 2022, the Company announced that it had executed a definitive agreement to sell Computex, which would complete the Company’s transition to a pure-play cloud communications and collaboration company, centered on its Kandy platform. On March 15, 2022, the sale of Computex was consummated. Net proceeds from the sale of Computex, after payment of closing and certain other obligations are being used for working capital and general business purposes.
In addition, as more fully discussed in Note 8, in November and December
2021, the Company completed the sale of certain securities, including the sale of common stock,
Series A Preferred Stock and certain warrants. The Company also completed certain share registrations. Certain of the warrants were exercised
soon after they were issued, thereby providing additional capital. During the three months ended March 31, 2022, the Company sold
additional securities for net cash proceeds of approximately $
As of March 31, 2022, the Company had unrestricted
cash of $
The Company believes that cash on hand, as well as proceeds from planned equity and executed debt offerings will provide sufficient liquidity to fund operations for at least one year after the date the financial statements are issued. However, there is no assurance that future funding will be available if and when required or on terms acceptable to the Company. This projection is based on the Company’s current expectations regarding product sales and service, cost structure, cash burn rate and other operating assumptions.
3. Summary of Significant Accounting Policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on April 15, 2022. The interim results for the period ended March 31, 2022 are not necessarily indicative of the results expected for the year ending December 31, 2022 or any future interim periods.
7
AMERICAN VIRTUAL CLOUD TECHNOLOGIES,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
The Company has reclassified certain prior period amounts, including the results of discontinued operations and reportable segment information, to conform to the current period presentation. Unless otherwise indicated, amounts provided in these Notes pertain to the Company’s continuing operations. See Note 5, Assets held for sale and operations classified as discontinued, for additional information.
Principles of consolidation
The accompanying condensed consolidated financial statements include the accounts of AVCT and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with GAAP 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 sales (or revenues) and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that estimates made as of the date of the financial statements could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly from those estimates. Significant accounting estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, revenue recognition, allowance for doubtful accounts, accounting for warrants, recognition and measurement of income tax assets, valuation of share-based compensation, discount related to the fair value of warrants, and the valuation of net assets acquired.
Significant accounting policies
The significant accounting policies used in preparing these condensed consolidated financial statements were applied on a basis consistent with those reflected in our consolidated financial statements that are included in the annual report on Form 10-K for the year ended December 31, 2021 that was filed with the SEC on April 15, 2022.
Series A, Series B, Series C, Series D and Monroe Warrants as well as the February 2022 Warrants
As more fully discussed and defined in Note 8, in November and December 2021, the Company issued certain Series A, Series B, Series C, Series D and Monroe Warrants in a series of transactions. Also as discussed and defined in Note 8, during the three months ended March 31, 2022, the Company issued the February 2022 Warrants. Such warrants were determined to qualify for treatment under ASC 480, Distinguishing Liabilities from Equity (“ASC 480”).
Concentration of business and credit risk
Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist primarily of cash and trade receivables. Cash held by the Company in financial institutions
regularly exceeds the federally insured limit of $
Four customers individually accounted for
Three customers individually accounted for
8
AMERICAN VIRTUAL CLOUD TECHNOLOGIES,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Fair value of financial instruments
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.
ASC Topic 820, Fair Value Measurements and Disclosures provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:
| ● | Level 1 — inputs are based upon unadjusted quoted prices for identical assets or liabilities traded in active markets. | |
| ● | Level 2 — inputs are based upon quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ● | Level 3 — inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. |
Assets measured at fair value on a non-recurring basis include goodwill, and tangible and intangible assets. Such assets are reviewed annually for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (Level 3).
The carrying amounts of the Company’s financial instruments, which include trade receivables, deposits, accounts payable and accrued expenses and debt at floating interest rates, approximate their fair values, principally due to their short-term nature, maturities or nature of interest rates.
The fair values of warrant liabilities are reflected on the condensed consolidated balance sheets as “Warrant Liabilities.”
The fair values of certain warrants issued in 2017 (the “2017 Private Placement Warrants”) and the warrants underlying certain unit purchase options issued in 2017 (the “2017 EBC Warrants”) were determined using the Black-Scholes model in which the following weighted average assumptions were used for the valuations performed as of March 31, 2022:
| ○ | stock price volatility –
|
| ○ | exercise price – $ |
| ○ | discount rate – |
| ○ | remaining useful life – |
| ○ | stock price – $ |
For the valuation methodologies and significant assumptions used in the valuations of other warrants, see Note 8. The warrant liabilities are considered to be Level 2 valuations.
9
AMERICAN VIRTUAL CLOUD TECHNOLOGIES,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Change in Segment reporting
Effective January 1, 2021, the Company identified two operating segments, Computex and Kandy, pursuant to ASC 280, Segment Reporting, consistent with the information that was presented to the Chief Operating Decision Maker (“CODM”). With the sale of Computex during the three months ended March 31, 2022, the Company began operating as one reportable segment beginning in the second quarter of 2022. Refer to Note 14 for additional information on segments.
Emerging growth company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b) (1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. Private companies are those companies that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised, it adopts the new or revised standard at the time private companies adopt the new or revised standard, unless it chooses to early-adopt the new or revised accounting standard. Therefore, the Company’s financial statements may not be comparable to certain public companies.
4. Recently Issued and Adopted Accounting Standards
Recently issued accounting standards
In February 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (ASC 842), as amended by multiple updates, hereafter ASC 842. ASC 842 requires lessees to recognize, on the balance sheet, a lease liability and a lease asset for all leases, including operating leases with a lease term greater than 12 months and requires lessors to classify leases as either sales-type, direct financing or operating. ASC 842 also expands the required quantitative and qualitative disclosures surrounding leases. As long as the Company is an emerging growth company, the current effective date of adoption is fiscal year 2023, which is the required date of adoption for private companies. Early adoption is permitted. While the Company continues to assess the effects of adoption, it currently believes the most significant effects relate to the recognition, on the consolidated balance sheet, of right-of-use assets and lease liabilities related to operating leases.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of changes in equity, statements of operations and statements of cash flows.
Recently adopted accounting standards
Effective July 1, 2021, the Company adopted ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 of goodwill impairment tests. The adoption did not materially impact the Company’s consolidated financial statements.
10
AMERICAN VIRTUAL CLOUD TECHNOLOGIES,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU No. 2021-04”), which provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. Under ASU 2021-04, an entity is required to treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option, that remains equity classified, as an exchange of the original instrument for a new instrument. ASU 2021-04 also provides guidance on the measurement of the effect of a modification or exchange and requires entities to recognize the effect of any such modification or exchange on the basis of the substance of the transaction.
Entities were required to apply the amendments prospectively to modifications or exchanges that occur on or after the effective date. ASU No. 2021-04 was effective for the Company on January 1, 2022. The adoption had no significant impact on the Company’s financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. It clarifies that single-member limited liability companies and similar disregarded entities that are not subject to income tax are not required to recognize an allocation of consolidated income tax expense in their separate financial statements, but they could elect to do so.
ASU No. 2019-12 allows companies to treat tax law changes as intraperiod items, rather than as discrete items within the interim period. The adoption of ASU No. 2019-12, which was effective for the Company during the three months ended March 31, 2022, had no significant impact on the Company’s financial statements.
5. Assets held for sale and operations classified as discontinued operations
On September 16, 2021, the Company issued a press release announcing that as a result of a decision by the Company’s Board of Directors to explore strategic alternatives previously announced on April 7, 2021, the Board had authorized the Company to focus its strategy on acquisitions and organic growth in its cloud technologies business as well as to explore strategic opportunities for its IT solutions business, including the divestiture of Computex. The Company believed that the change would allow the Company to optimize resource allocation, focus on core competencies, and improve its ability to invest in areas of maximal growth potential.
On January 26, 2022, the Company entered into
an asset purchase agreement to sell substantially all of the assets of its Computex business. Net sale proceeds received for the sale
of substantially all of the assets and liabilities of Computex was $
At December 31, 2021, the assets and liabilities
of Computex were classified as held for sale, and the related revenues and expenses are classified as discontinued operations in the accompanying
condensed consolidated statements of operations. During 2021, in connection with the planned sale of Computex, the Company compared the
expected sales proceeds less costs to sell with the carrying value of the reporting unit and in connection therewith recorded a noncash
goodwill impairment charge of $
11
AMERICAN VIRTUAL CLOUD TECHNOLOGIES,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Assets and liabilities classified as held for sale at December 31, 2021 consisted of the following:
| December 31, 2021 | ||||
| Current assets: | ||||
| Cash | $ | |||
| Prepaid expenses | ||||
| Trade receivables (net allowance of $ | ||||
| Inventory | ||||
| Assets held for sale - current | ||||
| Noncurrent assets: | ||||
| Property and equipment, net | ||||
| Goodwill | ||||
| Other intangible assets, net | ||||
| Other noncurrent assets | ||||
| Assets held for sale - noncurrent | ||||
| Total assets held for sale | $ | |||
| Current liabilities: | ||||
| Accounts payable and accrued expenses | $ | |||
| Deferred revenue | ||||
| Liabilities associated with assets held for sale - current | ||||
| Long-term liabilities | ||||
| Other liabilities | ||||
| Liabilities associated with assets held for sale - noncurrent | ||||
| Total liabilities associated with assets held for sale | $ | |||
Revenues and expenses classified as discontinued operations consist of the following:
| Three Months Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Revenues: | ||||||||
| Hardware | $ | $ | ||||||
| Third party software and maintenance | ||||||||
| Managed and professional services | ||||||||
| Other | ||||||||
| Total revenues | ||||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Selling, general and administrative | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (expense) income | ||||||||
| Gain on sale of Computex | ||||||||
| Interest expense | ( | ) | ||||||
| Other expense | ( | ) | ||||||
| Total other income (expenses) | ( | ) | ||||||
| Income (loss) from discontinued operations before income taxes | ( | ) | ||||||
| Income tax provision on discontinued operations | ( | ) | ( | ) | ||||
| Net income (loss) from discontinued operations | $ | $ | ( | ) | ||||
12
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
6. Accounts payable and accrued expenses
Accounts payable and accrued expenses were as follows as of March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation, benefits and related accruals | ||||||||
| Accrued professional fees | ||||||||
| Due to related parties | ||||||||
| Third party interest accrual | ||||||||
| Other | ||||||||
| $ | $ | |||||||
7. Long-Term Debt
Credit Agreement
On December 2, 2021, the Company entered into a $27,000 term loan facility (the “Credit Facility”) under a Credit Agreement (the “Credit Agreement”) with Monroe Capital Management Advisors, LLC and certain affiliated entities (“Monroe”), proceeds of which were used, in part, to repay amounts owing under a prior credit agreement, which the Company had assumed when it acquired Computex.
On March 1, 2022, all amounts owing under the Credit Agreement was repaid in full, including related accrued interest and other charges.
The Credit Facility was scheduled to mature on
the earlier of (i) December 2, 2022 and (ii) the date on which the Computex Sale was consummated. As part of the Credit Agreement, the
Company was required to comply with certain sales milestone terms, conditions and timeframes in connection with the then-pending sale
of Computex. In connection with such sales milestone requirements, the Company paid amendment fees of $
Loans under the Credit Facility previously bore
interest at a rate equal to, at the Company’s option, either the Base Rate for the interest period in effect for such borrowing
plus
In connection with the closing of the Credit Facility
and pursuant to a Subscription Agreement (the “Subscription Agreement”), the Company issued, to certain funds affiliated with
Monroe, warrants to purchase, in the aggregate, up to initially
13
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Total long-term debt consisted of the following:
| March 31, 2022 | December 31, 2021 | |||||||
| Term Note payable to Monroe; guaranteed interest of $ | $ | $ | ||||||
| Capital lease obligations | ||||||||
| Total long-term debt | ||||||||
| Less: unamortized debt issuance costs | $ | ( | ) | |||||
| Total notes payable and line of credit, net of unamortized debt issuance costs | ||||||||
| Less: current maturities of notes payable and line of credit | ( | ) | ( | ) | ||||
| Long-term debt, net of current maturities and unamortized debt issuance costs | $ | $ | ||||||
Subordinated promissory note – related party
On September 16, 2021,
The amended maturity date of the 2021 Note was
scheduled to be the earliest of (a) September 16, 2022, (b) the Company’s consummation of primary sales of registered equity securities
resulting in the receipt of gross proceeds of not less than $
Subordinated promissory note - other
On April 7, 2020, the Company issued a subordinated promissory note of $500 (the “2020 Note”) in partial settlement of a deferred underwriting fee of $3,000. The remaining $2,500 was settled via the issuance of debentures. The 2020 Note, which previously bore interest at the rate of 12.00% per annum and had a maturity date of September 30, 2021, was repaid on November 5, 2021 along with interest accrued as of that date.
8. Stockholders’ (Deficit) Equity, Related Warrants, Debentures and Guaranty
Preferred stock —
During the three months ended March 31, 2022, the
Board of Directors created and established a new series of preferred stock, designated as “Series B Convertible Preferred Stock”
(the “Series B Preferred”). The authorized number of shares of the Series B Preferred was established at
Common stock — The Company
is authorized to issue
14
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Recent sales of securities
The November Purchase Agreement
On November 2, 2021, the Company entered into
a securities purchase agreement (the “November Purchase Agreement”) with a buyer for the purchase and sale of
At the date of issuance, the Series A Warrants
had an exercise price of $
As summarized in the table below, in connection
with the Company’s consummation of the Credit Agreement, the exercise price of the A&B Warrants were subsequently reduced to
$
The December 2021 securities sale
On December 15, 2021, the Company consummated
the sale of certain securities pursuant to a securities purchase agreement, dated as of December 13, 2021 between the Company and an investor
( the “Buyer”).
The Series D Warrants had an initial exercise
price of $
15
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
The Series A Preferred shares were convertible
into shares of the Company’s common stock at the election of the holders at any time at an initial conversion price of $
In December 2021, the holders of the Series A
Preferred exercised their conversion rights and the Series A Preferred Shares were converted to
February 2022 Purchase Agreement
On February 28, 2022, the Company entered into
a securities purchase agreement (the “February 2022 Purchase Agreement”) with a buyer for the purchase and sale of (i) an
aggregate of up to
Pursuant to the February 2022 Purchase Agreement,
an aggregate of
On March 1, 2022, the Company consummated the Initial Closing in which the Company issued to the buyer (i) 16,125 Series B Preferred with a stated value of $1,000 per share, initially convertible into up to 16,125,000 shares of the Company’s common stock at a conversion price of $1.00 per share, and (ii) the February 2022 Warrants that are initially exercisable for up to 16,125,000 shares of the Company’s common stock, in a registered direct offering.
As a result of the issuance of the Series B Preferred
shares and February 2022 Warrants, the exercise price of the Series A Warrants, the Series B Warrants and the Series D Warrants previously
issued by the Company to an affiliate of the buyer was automatically adjusted to $
16
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
The
Series B Preferred is convertible into shares of the Company’s common stock at the election of the holder at any time at an initial
conversion price of $
Based on an evaluation of ASC 480, the Company has classified the Series B Preferred as stock settled debt and therefore recorded the instrument as a liability on the issuance date, as the instrument is mandatorily redeemable and thus (1) embodies an unconditional obligation (2) requires the Company to settle the unconditional obligation in cash or by issuing a variable number of its common shares and (3) is based on a monetary amount known at inception.
The February 2022 Warrants
have an exercise price of $
Pursuant to the requirement
to redeem the Series B Preferred in 12 equal monthly instalments, a total of $
Pursuant to the February 2022 Purchase Agreement, the Company agreed to seek the approval of its stockholders for the issuance of all securities to be issued pursuant to the February 2022 Purchase Agreement, in compliance with the rules of the Nasdaq Capital Market (the “Stockholder Approval”). It was a condition to the Initial Closing that the Company enter into voting agreements (the “February 2022 Voting Agreements”) with certain significant stockholders of the Company (each, a “Significant Stockholder”), pursuant to which each Significant Stockholder agreed, with respect to all of the voting securities of the Company that such Significant Stockholder beneficially owns as of the date thereof or thereafter, to vote in favor of the Stockholder Approval.
The Series B Preferred and February 2022 Warrants (and underlying shares of the Company’s common stock) were offered, and will be issued, pursuant to a Prospectus Supplement, dated February 28, 2022, to the Prospectus included in the Company’s Registration Statement on Form S-3 (Registration No. 333- 258136), originally filed with the SEC on July 23, 2021, as amended, which became effective on August 27, 2021.
Pursuant
to an engagement letter dated October 16, 2021 between the Company and the Placement Agent, the Company engaged the Placement Agent to
act as the Company’s placement agent in connection with the offering and agreed to pay the Placement Agent’s fees of
17
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Warrant Summary
The following table summarizes certain required and other disclosures and the status, as of March 31, 2022, of the warrants issued in November and December 2021 and those issued during the three months ended March 31, 2022.
| Series A Warrants |
Series B Warrants |
Series C Warrants |
Monroe Warrants |
Series D Warrants |
February 2022 Warrants | |||||||
| Date issued | ||||||||||||
| Number of warrants issued at inception | |
|||||||||||
| Issued in connection with | 2,500,000 shares of common stock |
|||||||||||
| Exercise price on issuance date | $ |
$ |
$ |
$ |
$ |
$ | ||||||
| Exercise price modified after issue date? | ||||||||||||
| Date of most recent modification, if modified | modified |
modified | ||||||||||
| Assuming no antidilution triggers occur, maximum number of warrants issuable as of the most recent modification date, if modified | modified |
modified | ||||||||||
| Most recent modified exercise price, if modified | modified |
modified | ||||||||||
| Maturity date of warrant | ||||||||||||
| Underlying shares registered? | ||||||||||||
| Fair value per warrant as of issuance date | $ |
$ |
$ |
$ |
$ |
$ | ||||||
| Fair value per warrant as of most recent modification date, if modified | modified |
modified | ||||||||||
| Amounts and dates of warrants exercised as of 3/31/22 | 700,000 on 12/29/21 833,334 on 12/30/21 |
|
|
| ||||||||
| Fair value per warrant on exercise date(s) | $1.00 on 12/29/21 $1.00 on 12/30/21 |
|||||||||||
| Warrants exercisable as of 3/31/22 | ||||||||||||
| Valuation basis | Simulation |
Simulation |
||||||||||
| Fair value per warrant as of 3/31/22, if outstanding | ||||||||||||
| Assumptions used in estimating fair values as of 3/31/22: | ||||||||||||
| ◦ stock price volatility | ||||||||||||
| ◦ exercise price | ||||||||||||
| ◦ discount rate | ||||||||||||
| ◦ remaining useful life (in years) | ||||||||||||
| ◦ stock price |
| (1) | The Company has the right to force the Buyer to exercise the Series
B Warrant in the event shares of the Company’s common stock trade at or above $ |
18
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
| (2) | The Company has the right to force the Buyer to exercise the Series
D Warrant in the event the volume weighted average closing price of the Company’s common stock is at or above $ |
| (3) | The number of shares of the Company’s common stock issuable upon
exercise of the Monroe Warrants is subject to adjustment for certain issuances (or deemed issuances) of the Company’s common stock at
a price per share below $ |
| (4) | For each exercise of the Series B Warrant, the Series A warrants
were increased. Accordingly, because |
| (5) | In connection with the February 2022 Purchase Agreement, which
was consummated on March 1, 2022 (and which includes the February 2022 Warrants), the holders of the Series A and Series D Warrants agreed
to waive any further anti-dilution adjustment of such warrants below $ |
Registration rights agreements
In connection with the November and December sales of securities and the Credit Agreement with Monroe, the Company entered into certain registration rights agreements with the investors to register the common stock underlying the warrants by specified dates and to use reasonable best efforts to cause such registration statements to be declared effective under the Securities Act of 1933, as amended (the “Securities Act”), as soon as practicable, thereafter, subject to certain fees if the shares were not registered by certain dates. As of February 9, 2022, all such shares were registered.
On April 7, 2020, the Company, Pensare Sponsor Group, LLC (the “Sponsor”) and certain other initial stockholders of the Company, as well as Stratos Management Systems Holdings, LLC, (“Holdings”), and certain other Investors (as defined below), entered into a Registration Rights Agreement (the “2020 Registration Rights Agreement”). The 2020 Registration Rights Agreement amended, restated and replaced a previous registration rights agreement entered into among AVCT, the Sponsor and certain other initial stockholders of AVCT on July 27, 2017. Pursuant to the terms of the 2020 Registration Rights Agreement, the holders of certain of the Company’s securities, including holders of the Company’s founders’ shares, shares of common stock underlying the Company’s private warrants, shares of common stock underlying the securities issued in the 2020 Private Placement (as defined below) are entitled to certain registration rights under the Securities Act and applicable state securities laws with respect to such shares of common stock, including up to eight demand registrations in the aggregate and customary “piggy-back” registration rights.
Convertible Debentures, related warrants and guaranty
On April 7, 2020, the Company consummated the
sale, in a private placement (the “2020 Private Placement”), of units of securities of the Company (“Units”) to
certain investors (each, an “Investor”), as contemplated by the terms of the previously disclosed Securities Purchase Agreement,
dated as of April 3, 2020 (the “Securities Purchase Agreement”). Each Unit consisted of (i) $
In addition, in connection with the acquisition
of Kandy on December 1, 2020 and pursuant to the terms of the Kandy purchase agreement, the Company, in December 2020, issued
Debentures
The Debentures issued on April 7, 2020 had an aggregate principal amount of approximately $43,169 (including $3,000 in aggregate principal amount issued as part of Units sold to MasTec, Inc. (“Mastec”), then a greater than five percent stockholder of the Company, and $20,000 in aggregate principal of which was part of Units issued to Holdings pursuant to the terms of the Computex Business Combination agreement and approximately $8,566 in aggregate principal amount of which was issued to the Sponsor as part of Units issued in exchange for the cancellation of indebtedness previously incurred by the Company to the Sponsor).
19
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
The Debentures previously bore interest at a rate
of
Each Debenture was convertible, in whole or in
part, at any time at the option of the holder thereof into that number of shares of common stock calculated by dividing the principal
amount being converted, together with all accrued but unpaid interest thereon, by the applicable conversion price, initially $
Pursuant to the terms of the Debentures, on September
8, 2021, the Debentures and related accrued interest were mandatorily converted to
Penny Warrants
The Penny Warrants issued on April 7, 2020 entitled the holders to purchase an aggregate of up to 4,316,936 shares of the Company’s common stock (including warrants to purchase up to 2,000,000 shares, 856,600 shares, and 300,000 shares issued to Holdings, the Sponsor and MasTec Inc., respectively, as part of the Units issued to them), at an exercise price of $0.01 per share.
The Penny Warrants issued in December 2020, as
part of the Units sold, entitled the holders to purchase an aggregate of up to
The Penny Warrants issued between January 1, 2021
and May 27, 2021, as part of the Units sold during that period, entitled the holders to purchase an aggregate of up to
The Penny Warrants are exercisable at any time through the fifth anniversary of the date of issuance. The number of shares issuable upon exercise of each Penny Warrant is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like.
Starting in 2021 and pursuant to the terms of
the Penny Warrant agreements, holders of
20
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Derivative consideration and other disclosures relating to the Debentures and Penny Warrants
Based on ASC 815, Derivatives and Hedging,
the convertible feature of the Debentures issued on April 7, 2020 was not considered a derivative and therefore was not recorded in liabilities,
as part of the Debentures, and was not bifurcated. However, an embedded beneficial conversion feature was previously assessed in relation
to the Debentures issued in December 2020 and was previously recorded in equity at its intrinsic value with a corresponding debt discount
recorded to the Debentures at December 31, 2020. The beneficial conversion feature on such Debentures, which was evaluated in accordance
with ASC 470-20 “Debt with Conversion and Other Options” was determined to be $
Both the Penny Warrants issued on April 7, 2020 as well as the Penny Warrants issued on and after the Kandy acquisition date had qualified as derivatives, but satisfied the criteria for classification as equity instruments, and were bifurcated from the host contract (the Convertible Debentures) and recorded in equity at their relative fair values with a corresponding debt discount recorded to the Debentures.
Prior to the conversion of the Debentures to common
stock, the discount (consisting of the relative fair value of the warrants) was being expensed as interest over the then term of the Debentures
to increase the carrying value to face value. However, effective September 8, 2021, the remaining unamortized discount was transferred
to additional paid in capital in connection with the conversion of the Debentures to shares of common stock. During the three months ended
March 31, 2021, the Company recorded accretion of the discount of $
9. Related Party Transactions
Services provided by Navigation Capital Partners, Inc.
Effective
In addition, the Company’s then President,
Kevin Keough, and Mr. Robert Willis, a Company director and Vice Chairman of Capital Markets, provided such services to the Company via
Navigation. Accordingly, Mr. Keough and Mr. Willis did not receive any direct compensation from the Company between July 21, 2021 (the
effective date of their appointment) and April 21, 2022. Instead, Mr. Keough and Mr. Willis were compensated by Navigation. In consideration
for such services provided by Navigation to the Company, Navigation was granted
On April 21, 2022, the agreement with Navigation was terminated and
therefore, the RSUs were forfeited prior to any being vested. The unpaid balance of $
Services provided by True North Advisory LLC
On January 21, 2022, the Company entered into a Services Agreement (the “Services Agreement”) with True North Advisory LLC (“True North”), a company affiliated with Michael Tessler, the Chairman of the Company’s board of directors.
Pursuant to the Services Agreement, among other things, True North
provides strategic advice with respect to the Company’s business as requested by the Company from time to time, for a fee of $
21
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Transactions with Ribbon
Pursuant to a transition services agreement entered
into with Ribbon in connection with the acquisition of Kandy, accounts payable and accrued expenses as of March 31, 2022 and December
31, 2021 include $
Included in the consolidated statement of operations are certain revenues for services provided to Ribbon, certain expenses for services provided by Ribbon and certain expenses for rental of office space from Ribbon. The expenses for services provided by Ribbon relate primarily to service fees for certain services provided as part of the transition services agreement and purchases of certain software support. The following summarizes such revenue and expenses:
| Three Months Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Revenue earned from Ribbon | $ | $ | ||||||
| Service fees charged by Ribbon: | ||||||||
| Cost of revenue | $ | - | $ | |||||
| Research and development | - | |||||||
| Selling, general and administrative expenses | ||||||||
| Rent and services purchased from Ribbon: | ||||||||
| Cost of revenue | ||||||||
| Selling, general and administrative expenses | ||||||||
Certain Debentures
Certain Debenture interest is separately identified as related party amounts on the condensed consolidated statements of operations. As indicated in Note 8, the Debentures were converted to common stock on September 8, 2021. Accordingly, there were no Debentures outstanding as of March 31, 2022.
The 2021 Note
The 2021 Note, which was secured by a related
party, is discussed in Note 7 and is separately identified on the condensed consolidated balance sheet at December 31, 2021. The related
interest expense for the three months ended March 31, 2022 of $
22
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
10. Revenue Recognition
In the following tables, revenue is disaggregated by geographies and by verticals (or sector).
| Three Months Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Geography | ||||||||
| Domestic | $ | $ | ||||||
| International | ||||||||
| Total revenues | $ | $ | ||||||
| Revenues by Verticals (or Sector) | ||||||||
| Finance | $ | $ | ||||||
| Manufacturing and logistics | ||||||||
| Public sector | ||||||||
| Technology service providers | ||||||||
| Total revenues | $ | $ | ||||||
Revenues by geography, in the table above, is generally based on the “ship-to address,” with the exception of certain services that may be performed at, or on behalf of, multiple locations, which are categorized based on the “bill-to address.”
Contract liabilities and remaining performance obligations
The Company’s contract liabilities are reported
in a net position on a contract-by-contract basis at the end of each reporting period. At March 31, 2022 and December 31, 2021, the contract
liability balance (deferred revenue) was $
11. Share-Based Compensation
The American Virtual Cloud Technologies, Inc. 2020 Equity Incentive Plan (the “Plan”) provides for the issuance of stock options, stock appreciation rights, RSUs and other share-based awards. Stock options have a maximum term of ten years from the grant date.
As of March 31, 2022, a total of
23
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
The following summarizes RSU activity between January 1, 2022 and March 31, 2022:
| Weighted Average | ||||||||
| Number | Grant Date | |||||||
| of RSUs | Fair Value | |||||||
| Outstanding at January 1, 2022 | $ | |||||||
| Granted | $ | |||||||
| Vested and delivered | ( | ) | $ | |||||
| Vested, not delivered | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Unvested RSUs at March 31, 2022 | $ | |||||||
| Three Months Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Cost of revenue | $ | $ | ||||||
| Research and development | ||||||||
| Selling, general and administrative expenses | ||||||||
| $ | $ | |||||||
Selling, general and administrative expenses for
the three months ended March 31, 2022, in the table above, include $
12. Reconciliation of Net Loss per Common Share
Basic and diluted net loss per common share was calculated as follows:
| Three Months Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Loss from continuing operations, net of tax | $ | ( | ) | $ | ( | ) | ||
| Income (loss) from discontinued operations, net of tax | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding, basic and diluted | ||||||||
| Basic and diluted (loss) income per common share | ||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | ||
| Discontinued operations | ( | ) | ||||||
| Net loss per common share | $ | ( | ) | $ | ( | ) | ||
24
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
Since their inclusion would have been antidilutive, excluded from the computation of diluted net loss per share, were the following, were they to be converted:
| Three Months Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Series A Warrants | ||||||||
| Series D Warrants | ||||||||
| February 2022 Warrants | - | |||||||
| Monroe Warrants | ||||||||
| Public Warrants | ||||||||
| 2017 Private Placement and 2017 EBC Warrants | ||||||||
| Penny Warrants | ||||||||
| Shares underlying certain unit purchase options (issued in 2017) | ||||||||
| Unvested RSUs | ||||||||
| Vested, not delivered RSUs | ||||||||
| Shares underlying Debentures | ||||||||
13. Income Taxes
The Company's effective tax rate for the three
months ended March 31, 2022 and March 31, 2021 was -
25
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
14. Segments
The Company’s reportable segments during the three months ended March 31, 2022 were Computex and Kandy. Computex is a leading multi-brand technology solutions provider to large global customers, providing a comprehensive and integrated set of technology solutions, through its extensive hardware, software and value-added service offerings. As previously indicated, Computex was sold in March 2022, and therefore its results are classified within discontinued operations.
Kandy is a provider of cloud-based enterprise services that deploys a carrier grade proprietary cloud communication platform that supports UCaaS and CPaaS for mid-market and enterprise customers across a proprietary multi-tenant, highly scalable cloud platform. The Kandy platform also includes pre-built customer engagement tools, based on WebRTC technology, known as Kandy Wrappers. Kandy provides white-labeled services to a variety of customers including communications service providers and systems integrators.
Presented below is certain information by reportable segment. The Company uses the same accounting policies for each reportable segment as it uses for the Company as a whole. The chief operating decision makers evaluate the performance of each reportable segment based on revenue and a measure that approximates income/loss from operations. There was no intersegment revenue during the three months ended March 31, 2022 and 2021. Revenues presented in the table below are from external customers only. Certain corporate expenses are not allocated to the segments. Such corporate expenses consist primarily of executive and certain other compensation, professional and legal fees, insurance, interest and other financing expenses.
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||||||||||||
| Computex | Kandy | Consolidated | Computex | Kandy | Consolidated | |||||||||||||||||||
| Discontinued | Continuing | Discontinued | Continuing | |||||||||||||||||||||
| Operations | Operations | Operations | Operations | |||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Hardware | $ | $ | $ | $ | $ | |||||||||||||||||||
| Third party software and maintenance | ||||||||||||||||||||||||
| Managed and professional services | ||||||||||||||||||||||||
| Cloud subscription and software | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Research and development | ||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Selling, general and administrative - Corporate | ( | ) | ( | ) | ||||||||||||||||||||
| Loss from operations per condensed consolidated statement of operations | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| March 31, 2022 | ||||||||||||||||
| Computex | Kandy | Corporate | Consolidated | |||||||||||||
| Goodwill | $ | $ | $ | $ | ||||||||||||
| Long-lived assets | ||||||||||||||||
| Total assets | ||||||||||||||||
| December 31, 2021 | ||||||||||||||||
| Computex | Kandy | Corporate | Consolidated | |||||||||||||
| (Held for sale) | ||||||||||||||||
| Goodwill | $ | $ | $ | $ | ||||||||||||
| Long-lived assets | ||||||||||||||||
| Total assets | ||||||||||||||||
26
AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(In thousands, except share and per share data, or as otherwise noted)
March 31, 2022
(Unaudited)
| March 31, 2022 | ||||||||||||||||
| Computex | Kandy | Corporate | Consolidated | |||||||||||||
| (Held for sale) | ||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | ||||||||||||
15. Commitments and Contingencies
Registration Rights
See Note 8 for a discussion of certain registration rights.
Contingencies
From time to time, the Company may be involved in various legal proceedings and claims in the ordinary course of business. As of March 31, 2022, and through the filing date of this report, the Company does not believe the resolution of any legal proceedings or claims of which it is aware or any potential actions will have a material effect on its financial position, results of operations or cash flows.
16. Subsequent Events
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the consolidated financial statements are issued.
April 2022 Purchase Agreement
On April 14, 2022, the Company entered into a
securities purchase agreement (the “April 2022 Purchase Agreement”) with an affiliate of a buyer that owns greater than
The Convertible Notes rank senior to all outstanding and future indebtedness of the Company and are secured by a first priority perfected security interest in all of the existing and future assets of the Company and its direct and indirect Subsidiaries, including a pledge of all of the capital stock of certain Subsidiaries.
Services provided by Saw Holdings, LLC
Effective April 1, 2022, the Company entered into a Consulting Agreement (the “Consulting Agreement”) with Saw Holdings, LLC (“Saw Holdings”), a company affiliated with Robert Willis, a member of the Company’s board of directors.
Pursuant to the Consulting Agreement, Saw Holdings
is providing consulting and capital markets advisory services to the Company for a fee of $
Other than as disclosed in this Note and as may be disclosed elsewhere in the Notes to the financial statements, there have been no subsequent events that require adjustment or disclosure in the condensed consolidated financial statements.
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report to “we,” “us,” “our,” or the “Company” refer to American Virtual Cloud Technologies, Inc. (or “AVCT”) and its wholly-owned subsidiaries. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements (including the notes thereto) contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risk and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performances, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performances or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to Part II, Item 1A of this Quarterly report and the Risk Factors section of our Annual Report on Form 10-K filed on April 15, 2022 with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a Delaware-incorporated entity with operating locations in Ottawa, North Carolina and Mexico City as of March 31, 2022.
On April 7, 2020, AVCT (formerly known as Pensare Acquisition Corp.), consummated a business combination transaction (the “Computex Business Combination”) in which it acquired Stratos Management Systems, Inc. (“Computex”), an operating company that does business as Computex Technology Solutions. In connection with the Computex Business Combination, the Company changed its name to American Virtual Cloud Technologies, Inc.
On December 1, 2020, we acquired the Kandy Communications business (hereafter referred to as “Kandy”) from Ribbon Communications, Inc. and certain of its affiliates (“Ribbon”), by acquiring certain assets and assuming certain liabilities of Kandy from Ribbon and acquiring all of the outstanding interests of Kandy Communications LLC. Kandy, a provider of cloud-based enterprise services, globally deploys a white-label, carrier-grade cloud-based platform for unified communications as a service (“UCaaS”), communications platform as a service (“CPaaS”), Microsoft Teams Direct Routing as a Service (“DRaaS”), and SIP Trunking as a Service capabilities for mid-market and enterprise customers across a proprietary multi-tenant, highly scalable cloud platform. The Kandy platform also includes pre-built customer engagement tools, based on web real-time communications technology (“WebRTC technology”), known as Kandy Wrappers, and provides white-labeled services to a variety of customers including communications service providers and systems integrators. With Kandy, companies can quickly embed real-time communications capabilities into their existing applications and business processes.
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Kandy
As a provider of cloud-based enterprise services, Kandy deploys a global carrier grade cloud communications platform that supports the digital and cloud transformation of mid-market and enterprise customers across virtually any device, on virtually any network, in virtually any location. The Kandy platform is based on a powerful, proprietary multi-tenant, highly scalable, and secure cloud platform that includes pre-built customer engagement tools, based on WebRTC technology that enables frictionless communications. Further, we support rapid service creation and multiple go to market models including white labelling, multi-tier channel distribution, enterprise direct, and self-service via our SaaS (software as a service) web portals.
Our cloud-based, real-time communications platform, enables service providers, enterprises, software vendors, systems integrators, partners and developers to enrich their applications and their services with real-time contextual communications empowering the API (Application Programming Interface) economy. With Kandy’s platform, companies of various sizes and types can quickly embed real-time communications capabilities into their existing applications and business processes, providing a more engaging user experience.
While the cloud communications business is focused on highly complex, medium and large enterprise deployments, the customer experience is augmented by our managed services capabilities. In addition, our strategic partnerships with companies such as AT&T, IBM, and Etisalat give us access to a marquee customer base and the ability to sell end to end solutions.
Computex
On September 16, 2021, the Company announced that as a result of a decision by the Company’s Board of Directors to explore strategic alternatives previously announced on April 7, 2021, the Board had authorized the Company to focus its strategy on acquisitions and organic growth in its cloud technologies business as well as to explore strategic opportunities for its IT solutions business, including the divestiture of Computex. The Company believed that the change would allow it to optimize resource allocation, focus on core competencies, and improve its ability to invest in areas of maximal growth potential.
On January 27, 2022, the Company announced that it had executed a definitive agreement to sell Computex and on March 15, 2022, the sale of Computex was consummated, completing the Company’s transition to a pure-play cloud communications and collaboration company, centered on the Kandy platform. As a result, Computex was classified as held for sale as of December 31, 2021 and its operations are classified as discontinued operations in the condensed consolidated statement of operations. During fiscal year 2021, we recorded a noncash goodwill impairment charge of $32.1 million due to the planned sale of Computex at that time, which represented the excess of the carrying value of the Computex reporting unit over the expected sale proceeds less costs to sell. Net proceeds from the sale of Computex after payment of closing obligations and certain indebtedness, are being used for working capital and general business purposes.
In the condensed consolidated financial statements, the results of operations of Computex for current and prior periods are separated and classified as discontinued operations. This management’s discussion and analysis of financial condition and results of operations primarily focuses on the Company’s continuing operations and so, unless otherwise indicated, amounts discussed herein, pertain to the Company’s continuing operations.
Other Recent developments
On December 2, 2021, the Company entered into a credit agreement (the “Credit Agreement”)with Monroe Capital Management Advisors, LLC and certain affiliated entities (“Monroe”) for a $27.0 million credit facility, Then, in the first quarter of 2022, using proceeds from a securities sale executed on March 1, 2022, along with cash on hand, all amounts owing under the Credit Agreement were repaid.
Additionally, as more fully discussed in Note 8 and Note 16 of the Notes to the condensed consolidated financial statements, during the fourth quarter of fiscal year 2021, the first quarter of 2022 and April 2022, the Company completed the sale of certain securities, including the sale of common stock, preferred stock and warrants. In connection with the sale of these securities, the Company also completed certain share registrations. Two of the six series of warrants were exercised in full soon after they were issued resulting in proceeds of approximately $5.0 million during fiscal year 2021.
29
Growth strategy
The acquisition of Kandy has given us the opportunity to provide a full suite of UCaaS and CPaaS products to serve the rapidly growing cloud communications market. Customers today demand a highly reliable, secure, and scalable communications platform along with a world class customer experience.
With demand for cloud technology increasing, we believe that the already sizable total addressable market (TAM) for cloud communications is on track to continue to expand and we believe that we are positioned to monetize mega trends in enterprise cloud communications, gain market share as a premier white-label cloud communications provider.
Certain areas of our growth plan, which also includes continued investment in research and development, are as follows:
| ● | Channel (white label) - Target technology providers, such as Service Providers (SPs), Resellers, Independent Software Vendors (ISVs), and System Integrators (SIs) through |
| ○ |
Partners that are looking to white label or resell cloud technologies, which we believe offer significant opportunity to grow revenue with existing partners while identifying new ones.
| |
| ○ | Strategic Alliances with companies looking to co-invest to monetize cloud communication technology; and |
| ● | Organically - By targeting select vertical markets with high growth potential for example, government, retail, financial, & healthcare | |
| ● | Inorganically - By making selective acquisitions to expand the use of the Kandy platform and distribution channels. |
Key trends affecting our results of operations
The following are key trends that we believe can positively impact our results of operations:
| ● | The acceleration of digital transformation |
| ● | The change in how people work, including the “work from anywhere” mindset |
| ● | The increased complexity in mid & large enterprises and the desire by enterprises for integrated internal and external communications for UCaaS, CPaaS, and DRaas |
| ● | The demand for services similar to Teams, Zoom and WebEx, and partners that can add to and/or complement such tools and players |
| ● | The trend towards CPaaS technology – Product developers & Independent Software Vendors (ISVs) are increasingly seen as the influencers |
| ● | The general trend towards movement to the cloud |
30
| ● | The recognition that certain IT services provide the opportunity of funding via recurring payments over a period of time, rather than large upfront payments |
| ● | The increasing use of multi-cloud strategies, whereby cloud architectures and cloud-enabled frameworks, whether public, private, or hybrid, provide the core foundation of modern IT |
| ● | The explosive growth in remote workforce needs. |
Covid-19
COVID-19 continues to significantly impact local, regional, and global economies, businesses, supply chains, production and sales across a range of industries. The extent of its impact on our operational and financial performance is uncertain and difficult to predict and we remain cautious about the global recovery. To protect the health and safety of our employees, our daily execution has evolved into a largely virtual model. However, we have found ways to continue to engage with and assist our customers and partners as they work to navigate the current environment. We will continue to monitor the current environment and may take further actions that may be required by federal, state or local authorities or that we determine to be in the interests of our employees, customers, and partners.
Nature of revenue categories discussed below:
Cloud subscription and software revenue represent subscriptions to the Company’s cloud-based technology platform as well as revenue from the Company’s on-premise software.
Professional and managed services revenue include services provided to our customers to assist them with the integration of our products to their network.
Financial statement presentation and results of operations
The consolidated financial statements of the Company include the accounts of AVCT and its wholly-owned subsidiaries. In the discussion that follows, we will refer to the three months ended March 31, 2022 and 2021 as the “1st quarter of 2022” and the “1st quarter of 2021,” respectively).
1st quarter of 2022 versus the 1st quarter of 2021
| 1st Quarter of | ||||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Cloud subscription and software | $ | 3,803 | $ | 3,138 | ||||
| Managed and professional services | 291 | 375 | ||||||
| Total revenues | 4,094 | 3,513 | ||||||
| Cost of revenue | 4,836 | 3,684 | ||||||
| Gross profit | (742 | ) | (171 | ) | ||||
| Research and development | 4,510 | 4,494 | ||||||
| Selling, general and administrative | 7,074 | 7,138 | ||||||
| Loss from continuing operations | (12,326 | ) | (11,803 | ) | ||||
| Other (expense) income | ||||||||
| Change in fair value of warrant liabilities | 6,911 | (3,558 | ) | |||||
| Interest expense (1) | (9,168 | ) | (5,628 | ) | ||||
| Other expense | (37 | ) | (16 | ) | ||||
| Total other expenses | (2,294 | ) | (9,202 | ) | ||||
| Net loss from continuing operations before income taxes | (14,620 | ) | (21,005 | ) | ||||
| Provision for income taxes | (6 | ) | (3 | ) | ||||
| Net loss from continuing operations, net of tax | (14,626 | ) | (21,008 | ) | ||||
| Net income (loss) on discontinued operations, net of tax | 748 | (1,619 | ) | |||||
| Net loss | $ | (13,878 | ) | $ | (22,627 | ) | ||
| (1) | Interest expense in the 1st quarter of 2022 and 2021 include related party interest of $764 and $4,845, respectively. |
Net loss from continuing operations, net of tax
Net loss from continuing operations, net of tax for the 1st quarter of 2022 was $14.6 million compared with $21.0 million in the 1st quarter of 2021. Discussed below are the revenue and expense factors that primarily contributed to the quarter over quarter change.
Cloud subscription and software revenue
Cloud subscription and software revenue, which represents revenue from subscriptions to the Company’s cloud-based technology platform as well as revenue from the Company’s on-premise software, was $3.8 million in the 1st quarter of 2022 compared to $3.1 million in the 1st quarter of 2021, an increase of 21.2%. The increase is primarily attributable to an increase in UCaaS seats by 4 of our customers.
Managed and professional services revenue
Managed and professional services revenues was essentially flat at $0.3 million in the 1st quarter of 2022 compared to $0.4 million in the 1st quarter of 2021
31
Total revenue, cost of revenue and gross margin
Aggregate revenue for the two categories of product lines together was $4.1 million in the 1st quarter of 2022, an increase of 16.5% compared with the 1st quarter of 2021.
Cost of revenue increased $1.1 million from $3.7 million in the 1st quarter of 2021 to $4.8 million in the 1st quarter of 2022, primarily as a result of a $1.1 million increase in platform software support and a $0.5 million increase in employee-related costs, partially offset by a $0.3 million decrease in professional fees and a $0.3 million decrease in amortization of intangibles.
The aggregate gross margin in both quarters was negative as the Company continues to ramp up operations as part of its strategic investment in the Kandy platform. Direct expenses primarily consist of labor costs and costs of software support, both of which are primarily fixed.
Research and development
The Company began recognizing research and development expenses when it acquired Kandy in December 2020. In both the 1st quarter of 2022 and the 1st quarter of 2021, research and development expenses was $4.5 million. Research and development expenses consists of costs related to certain proprietary software incurred in an agile software environment with releases broken down into several iterations called sprints involving short cycles of development (typically 4-6 weeks in duration) in which the research and development teams create potentially shippable products. Currently, such costs are expensed as incurred, and include personnel-related costs, depreciation related to engineering and test equipment, allocated costs of facilities and information technology, outside services and consultants, supplies, software tools and product certification.
Selling, general and administrative expenses
Selling, general and administrative expenses for the 1st quarter of 2022 and the 1st quarter of 2021 consisted of the components in the following table (in thousands):
| 1st Quarter of | Increase | |||||||||||
| 2022 | 2021 | (decrease) | ||||||||||
| Salaries, benefits, subcontracting & personnel administration costs | $ | 3,527 | $ | 4,449 | $ | (922 | ) | |||||
| Building occupancy costs, utilities, office supplies & repairs and maintenance | 249 | 130 | 119 | |||||||||
| Sales and marketing | 637 | 452 | 185 | |||||||||
| Professional fees | 1,713 | 1,336 | 377 | |||||||||
| Insurance | 653 | 449 | 204 | |||||||||
| Other | 295 | 322 | (27 | ) | ||||||||
| $ | 7,074 | $ | 7,138 | $ | (64 | ) | ||||||
Selling, general and administrative expenses was $7.1 million in both the 1st quarter of 2022 and the 1st quarter of 2021.
The decrease in salaries and related costs was a result of a reduction in corporate headcount, due to a reduction in executive and other headcount, partially offset by an increase in salaries at the Kandy business unit due to an increase in headcount. Corporate salaries and related costs decreased $1.7 million, while such costs at the Kandy business unit increased $0.7 million. Professional fees increased due to increased financing activities, in the 1st quarter of 2022, that required the services of legal and other professionals.
32
Change in fair value of warrant liabilities
The change in the fair value of warrant liabilities in the 1st quarter of 2022 and 2021 represent mark-to-market fair value adjustments related to certain warrants, and primarily fluctuate due to changes in and the volatility of the Company’s stock price. Such changes primarily result from changes in the Company’s stock price. The income statement amounts in the 1st quarter of 2022 and 2021 consisted of the following:
| 1st Quarter of | ||||||||
| 2022 | 2021 | |||||||
| Expense (income) | ||||||||
| Series A Warrants | $ | (3,603 | ) | $ | - | |||
| Series D Warrants | (157 | ) | - | |||||
| Monroe Warrants | (1,808 | ) | - | |||||
| February 2022 Warrants | 645 | |||||||
| 2017 Private Placement and EBC Warrants | (1,988 | ) | 3,558 | |||||
| $ | (6,911 | ) | $ | 3,558 | ||||
Interest expense
Interest expense in the 1st quarter of 2022 increased $3.6 million from $5.6 million in the 1st quarter of 2021 to $9.2 million in the 1st quarter of 2022, primarily as a result of interest and financing fees related to the Credit Agreement entered into on December 2, 2021. The Credit Agreement is more fully discussed in Note 7 of the Notes to the condensed consolidated financial statements. All amounts owing under the Credit Agreement were paid on March 1, 2022.
Interest expense consisted of the following (in thousands):
| 1st Quarter of | ||||||||
| 2022 | 2021 | |||||||
| Interest expense and financing fees - Credit Agreement | $ | 6,870 | $ | - | ||||
| Amortization of deferred financing costs and issue discount - February 2022 Warrants | 1,431 | - | ||||||
| Interest and extension fee on related party promissory note | 764 | - | ||||||
| Amortization of debenture discount | - | 2,954 | ||||||
| Debenture interest paid-in-kind | - | 2,657 | ||||||
| Other | 103 | 17 | ||||||
| $ | 9,168 | $ | 5,628 | |||||
The paid-in-kind interest and amortization of debenture discount in the 1st quarter of 2021, in the table above, related to Debentures that were fully converted to common stock during the 3rd quarter of 2021 (on September 8, 2021), but which prior to conversion, bore interest at the rate of 10.00% per annum compounded quarterly.
Net income (loss) on discontinued operations, net of tax
Net income on discontinued operations, net of tax, for the 1st quarter of 2022 was $0.7 million compared with a net loss on discontinued operations, net of tax, for the 1st quarter of 2021 of $1.6 million. The change from a net loss in the 1st quarter of 2021 to net income in the 1st quarter of 2022 was due to the gain on sale of Computex of $4.3 million that was recorded in the 1st quarter of 2022, partially offset by a $1.7 million increase in selling, general and administration expenses and a $0.6 million decrease in gross profit. The increase in selling, general and administrative expenses in the 1st quarter of 2022 was primarily due to severance and certain other employee compensation that were incurred as a result of the sale of Computex.
Benefit/provision for income taxes
The Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of existing deferred tax assets. A significant component of objective negative evidence identified during management’s evaluation was the three-year cumulative loss for the March 31, 2022 and March 31, 2021 periods. Such objective negative evidence outweighed the positive evidence identified by the Company. On the basis of this evaluation, the Company maintained a full valuation allowance as of March 31, 2022 and March 31, 2021. Based on the Company’s evaluation, it was determined that no uncertain tax positions existed as of March 31, 2022 or March 31, 2021.
33
Liquidity and Capital Resources
Overview
Historically, the Company’s primary sources of liquidity have been cash and cash equivalents, cash flows from operations (when available) and cash flows from financing activities, including funding under the Prior Credit Agreement. From time to time, the Company may also choose to access the debt and equity markets to fund acquisitions to diversify its capital sources. The Company’s current principal capital requirements are to fund working capital and make investments in line with its business strategy. At March 31, 2022, the Company had unrestricted cash of $21.1 million in its operating bank account. The cash balance at December 31, 2021 was $31.1 million. At March 31, 2022, there was a positive working capital balance of $14.0 million (excess of current assets over current liabilities) compared with a working capital deficit (excess of current liabilities over current assets) of $7.6 million at December 31, 2021, primarily as a result of the classification of certain debt as current, primarily, the Credit Agreement and a promissory note. The positive working capital of $14.0 million as of March 31, 2022 reflects an improvement over the working capital deficit of $7.6 million as of December 31, 2021, primarily as a result of the payoff, in the 1st quarter of 2022, of the amounts owing under the Credit Agreement, which were partly paid off from the issuance of equity securities and long-term liabilities.
The cash balances and working capital were impacted by the following events or actions, which together contributed to the net improvement in working capital discussed above:
| ● | A cash capital raise of $24.0 million via the sale of units (consisting of convertible debentures (“Debentures”) and certain penny warrants) to fund expansion, capital expenditures and working capital. Pursuant to the terms of the Debentures, on September 8, 2021, the Debentures with related accrued interest were converted to shares of common stock. See Note 8 of the Notes to the condensed consolidated financial statements for additional information. |
| ● | The entry into and subsequent repayment of the Credit Agreement with Monroe. Such Credit Agreement was entered into on December 2, 2021, for a $27 million term loan facility, to fund working capital, other general business activities and pay off amounts owing under a prior credit agreement that the Company previously assumed when it acquired Computex. The payoff of amounts owing under the prior credit agreement, which consisted of a line of credit balance and a term loan, was $12.8 million, in aggregate. Interest on the Credit agreement was payable monthly at the rate of 12% per annum. However, the lenders under the Credit Agreement were guaranteed a minimum return of $7.3 million. On March 1, 2022, all amounts under the Credit Agreement were repaid, including the unpaid amounts of the minimum return, and the Credit Agreement was terminated. |
| ● | The issuance and repayment of a $5.0 million subordinated promissory note (the “2021 Note”), which was entered into on September 16, 2021, was secured by an affiliate of a shareholder that owns more than five percent of the Company’s common stock and was repaid on March 15, 2022. The 2021 Note, which had a minimum return of 25%, became due on March 1, 2022, due to the Company’s sale of registered equity securities and the early pay-off of the Credit Agreement. However, for a waiver fee of $250,000, the lender extended the maturity date to May 1, 2022, and on March 15, 2022, the 2020 Note was paid in full using proceeds received from the sale of Computex. |
| ● | The receipt of gross proceeds of $5.0 million (before deduction of offering costs), in November 2021, from the sale to an institutional investor in a registered direct offering, of 2,500,000 shares (the “Registered Shares”) of common stock at a purchase price of $2.00 per share. At the closing of such sale, the Company issued to the buyer, in addition to the 2,500,000 shares of the Company’s common stock: (i) a warrant to purchase up to 5,000,000 shares of the Company’s common stock (the “Series A Warrant”) and (ii) a warrant to purchase up to 2,500,000 shares of the Company’s common stock (the “Series B Warrant”). The Series A Warrant and the Series B Warrant were each exercisable at an initial exercise price of $2.00. However, the number of such warrants were later increased, the exercise price of each was reduced to $1.50 per share and the buyer received warrants to purchase 1,500,000 shares of the Company’s common stock (the “Series C Warrants”) at an exercise price of $0.001 per share. Subsequent to December 31, 2021, the exercise price of the Series A and Series B Warrants were reduced to $1.00 per share (with a proportional increase to the number of shares of the Company’s common stock issuable upon exercise of such warrants). See Note 8 of the Notes to the condensed consolidated financial statements for further discussion of the Series A and Series B warrants, including a discussion of the modifications that occurred during 2021. In December, the Company received an additional $5.0 million in gross proceeds from the subsequent exercise of the Series B Warrants. |
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| ● | The repayment of a subordinated note of $0.5 million along with related accrued interest in November 2021. |
| ● | The receipt of gross proceeds of $25.0 million (before deduction of offering costs), in December 2021, from the sale of securities consisting of 7,840,000 shares of common stock, 12,456 units of convertible preferred stock and certain Series D Warrants to purchase up to 15,625,000 shares of the Company’s common stock at an exercise price of $2.00 per share. See Note 8 of the Notes to the condensed consolidated financial statements for further discussion of such securities. |
| ● | The receipt of gross proceeds of $15.0 million on March 1, 2022, representing the first tranche of a sale of securities in connection with a February 28, 2022 securities purchase agreement (the “February 2022 Purchase Agreement”) entered into with a buyer. See Note 8 of the Notes to the condensed consolidated financial statements for further discussion of such securities. |
Subsequent to March 31, 2022, cash on hand and working capital was positively impacted by the sale in April 2022 of additional securities, which resulted in net cash proceeds of $9.9 million. See Note 16 of the Notes to the condensed consolidated financial statements for further discussion of such securities.
In July 2021, prior to the sale of the securities discussed above, the Company filed a registration statement on Form S-3 containing the following two prospectuses:
| ● | a base prospectus for the sale and issuance by us of up to $100 million of our common stock, preferred stock, warrants, subscriptions rights, debt securities and/or units; and |
| ● | a resale prospectus covering the resale by certain selling stockholders of up to 67,797,774 shares of common stock. |
The Company believes that current cash balances as well as proceeds from debt and equity offerings will provide sufficient liquidity to fund operations for at least one year after the date the financial statements are issued. However, there is no assurance that future funding will be available if and when required or at terms acceptable to the Company. This projection is based on the Company’s current expectations regarding product sales and service, cost structure, cash burn rate and other operating assumptions.
Cash flows (1st quarter 2022 and 1st quarter 2021)
Operating activities
Net cash used in continuing operating activities was $24.5 million and $8.9 million in the 1st quarter of 2022 and 2021, respectively, and primarily consisted of cash used in Kandy’s operating activities, including its research and development activities, interest and certain financing costs, professional fees and other corporate support. The increase in the 1st quarter of 2022 was impacted by cash interest and other financing costs of $7.7 million primarily related to the Credit Agreement that was repaid in the 1st quarter of 2022.
Investing activities
Cash used in continuing investing activities was $0.9 million and $0.2 million in the 1st quarter of 2022 and 2021, respectively, which consisted of capital spending. For the 1st quarter of 2022, this included expenditure on an enterprise resource planning and customer relationship management system (commonly called ERP and CRM systems).
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Financing activities
Cash used in continuing financing activities was $17.5 million in the 1st quarter of 2022 and consisted of debt repayments of $27.0 million and payment of deferred financing fees of $0.4 million, partially offset by proceeds of $15.0 million from the issuance of securities.
Cash provided by continuing financing activities was $13.7 million in the 1st quarter of 2021 and consisted primarily of $14.5 million from the issuance of Debentures, partially offset by $0.8 million of tax payment for withheld shares associated with vested restricted stock units issued under the Company’s equity incentive plan.
Cash flows from discontinued operations
Net cash used in discontinued operating activities was $3.3 million in the 1st quarter of 2022 and was impacted by certain severance and other related employee compensation that were incurred as a result of the sale of Computex. Net cash provided by discontinued operating activities was $2.3 million in the 1st quarter of 2021 and was impacted by positive cash flows related to accounts receivable and accounts payable.
Net cash provided by discontinued investing activities was $31.9 million in the 1st quarter of 2022 and consisted primarily of proceeds received from the sale of Computex. Net cash used in discontinued investing activities was $0.2 million in the 1st quarter of 2021 and consisted of capital spending.
Net cash used in discontinued financing activities was $1.5 million in the 1st quarter of 2021, which primarily consisted of debt repayments.
Off-Balance Sheet Arrangements
On March 31, 2022, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and had not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Critical Accounting Policies, Judgements and Estimates
There were no significant changes to our critical accounting policies and estimates from those disclosed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements Issued and Adopted
See Note 4 of the Notes to the condensed consolidated financial statements.
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.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the quarter ended March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we are named as a defendant in legal actions arising from our normal business activities. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, prospects, financial condition, cash flows or results of our operations.
ITEM 1A. RISK FACTORS.
Factors that could cause our actual results to differ materially from those in this quarterly report are any of the risks described in our Annual Report on Form 10-K, filed with the SEC on April 15, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations, financial condition or cash flows. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business. As of the date of this quarterly report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K, filed with the SEC on April 15, 2022, other than the additional and amended and restated risk factors set forth below and except as may otherwise be disclosed in this quarterly report. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
The Nasdaq may delist our securities from quotation on its exchange which could limit investors’ ability to trade in our securities and subject us to additional trading restrictions.
Our common stock and public warrants are currently listed on the Nasdaq. There can be no assurance that we will continue to be able to meet the Nasdaq’s listing standards with respect to our securities. For example, our common stock has recently been trading below the Nasdaq’s minimum bid price of $1.00 per share. If our stock continues to trade below such amount, we may receive a notice of noncompliance from the Nasdaq. We intend to continue to monitor the bid price of our common stock. If our common stock does not trade at a level that is likely to maintain compliance with the Nasdaq requirements, our board of directors may consider options that may be available to achieve compliance, including a reverse stock split, which could have negative implications, and would require stockholder approval. If the Nasdaq delists our common stock from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant material adverse consequences including:
| ● | a limited availability of market quotations for our securities; |
| ● | reduced liquidity with respect to our securities; |
| ● | a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock; |
| ● | a limited amount of news and analyst coverage for our company; and |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our common stock and public warrants are currently listed on the Nasdaq, our common stock and public warrants are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on the Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.
A substantial number of shares of our Common Stock may be issued pursuant to the conversion terms of the Convertible Notes and our Series B convertible preferred stock, which could cause the price of our Common Stock to decline.
The Convertible Notes are convertible into shares of our Common Stock at an initial conversion price of $0.99 per share, for an aggregate of approximately 12,121,212 shares (based on $12,000,000 in aggregate principal amount initially outstanding), without taking into account the limitations on the conversion of the Convertible Notes, which amount may be increased based on certain provisions of the Convertible Notes, including the conversion price applicable to the payment of monthly installment payments and the anti-dilution provisions of the Convertible Notes. Likewise, our 16,125 outstanding shares of Series B convertible preferred stock (the “Series B Preferred”), and additional shares of Series B Preferred we may issue in the future, are convertible into shares of Common Stock at an initial conversion price of $1.00 per share, based on the stated value of the Series B Preferred of $1,000 per share. The conversion price of the Series B Preferred may be reduced, and additional shares of Common Stock may otherwise be issuable upon conversion of the Series B Preferred, pursuant to the terms thereof. The issuance of any of these shares will dilute our other equity holders, which could cause the price of our Common Stock to decline.
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The requirement that we repay the Convertible Notes and interest thereon and redeem the Series B Preferred in cash could adversely affect our business plan, liquidity, financial condition, and results of operations.
If not converted, we are required to repay principal amounts outstanding under the Convertible Notes and interest thereon in cash. Likewise, we may be required to redeem some or all of the outstanding shares of Series B Preferred for cash under certain circumstances. These obligations could have important consequences on our business. In particular, they could:
| ● | limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate; | |
| ● | increase our vulnerability to general adverse economic and industry conditions; and | |
| ● | place us at a competitive disadvantage compared to our competitors. |
No assurances can be given that we will be successful in making the required payments under the Convertible Notes. If we are unable to make the required cash payments, there could be a default under the Convertible Notes. In such event, or if a default otherwise occurs under the Convertible Notes, including as a result of our failure to comply with the financial or other covenants contained therein:
| ● | the holders of the Convertible Notes could cause the Convertible Notes to accrue interest at the rate of 15% per annum and/or declare all outstanding principal and interest to be due and payable; | |
| ● | the holders of the Convertible Notes could foreclose against our assets; and/or | |
| ● | we could be forced into bankruptcy or liquidation. |
Restrictive covenants under the Convertible Notes and the terms of the Series B Preferred could limit our growth and our ability to finance our operations, fund our capital needs, respond to changing conditions and engage in other business activities that may be in our best interests.
The Convertible Notes and the certificate of designations of the Series B Preferred contain a number of affirmative and negative covenants regarding matters such as the payment of dividends, maintenance of our properties and assets, transactions with affiliates, and our ability to issue other indebtedness.
Our ability to comply with these covenants may be adversely affected by events beyond our control, and we cannot assure you that we can maintain compliance with these covenants. The financial covenants could limit our ability to make needed expenditures or otherwise conduct necessary or desirable business activities.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Other than as previously disclosed on a current report on Form 8-K, none.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
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ITEM 6. EXHIBITS
| * | Furnished herewith. |
| ** | Filed herewith. |
| (1) | Incorporated by reference to an exhibit to the Current Report on Form 8-K filed by the Company on February 1, 2022. |
| (2) | Incorporated by reference to an exhibit to the Current Report on Form 8-K filed by the Company February 25, 2022. |
| (3) | Incorporated by reference to an exhibit to the Current Report on Form 8-K filed by the Company February 28, 2022. |
| (4) | Incorporated by reference to an exhibit to the Current Report on Form 8-K filed by the Company March 2, 2022. |
| (5) | Incorporated by reference to an exhibit to the Current Report on Form 8-K filed by the Company March 16, 2022. |
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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.
| AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC. | ||
| Date: May 16, 2022 | /s/ Darrell J. Mays | |
| Name: | Darrell J. Mays | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| /s/ Thomas H. King | ||
| Name: | Thomas H. King | |
| Title | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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