The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JULY 31, 2018 and 2017
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Hammer Fiber Optics Holdings Corp. (“the Company”) is an alternative telecommunications carrier formed to provide high capacity broadband through a wireless access network. Hammer Fiber Optics Holdings Corp. is the parent company and sole shareholder of Hammer Wireless Corporation and Hammer Fiber Optic Investments Ltd. The financial statements for Hammer Fiber Optics Holdings Corp. and its wholly-owned subsidiary are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated.
NOTE 2 – CORPORATE HISTORY AND BACKGROUND ON MERGER
The Company was originally incorporated in the State of Nevada on September 23, 2010, under the name Recursos Montana S.A. The Company’s principal activity was an exploration stage company engaged in the acquisition of mineral properties then owned by the Company.
On February 2, 2015, the Company entered into a Share Exchange Agreement with Tanaris Power Holdings, Inc., whereby the Company acquired 100% of Tanaris Power Holdings, Inc. issued and outstanding common stock in exchange for shares of the Company’s common stock equal to 51% of the issued and outstanding common stock of the Company. Tanaris Power Holdings, Inc. was the owner of certain rights in connection with the marketing and sale of smart lithium-ion batteries and battery technologies for various industrial vehicles markets and related applications. On March 6, 2015, the Company amended its Articles of Incorporation to change its name to Tanaris Power Holdings, Inc.
On April 25, 2016, Tanaris Power Holdings, Inc., a Nevada corporation entered into s Share Exchange Agreement (the “Share Exchange Agreement”) with Hammer Fiber Optics Investments, Ltd., a Delaware corporation (“HFOI”), and the controlling stockholders of HFOI (the “HFOI Shareholders”). Pursuant to the Share Exchange Agreement, the Company acquired 20,000,000 shares of common stock of HFOI from the HFOI shareholders (the “HFOI Shares”) and in exchange, the Company issued to the HFOI Shareholders 50,000,000 (post-Merger) restricted shares of its common stock (the “HMMR Shares”). As a result of the Share Exchange Agreement, HFOI shall become a wholly owned subsidiary of the Company.
On April 13, 2016, the Board of Directors (BOD) approved a Plan of Merger (the “Plan of Merger”) under Nevada Revised Statuses (NRS) Section 92A.180 to merge (the “Merger”) with our wholly-owned subsidiary HFO Holdings, a Nevada corporation, to effect a name change from Tanaris Power Holdings Inc. to Hammer Fiber Optics Holdings Corp. The Plan of Merger also provides for a 1 for 1,000 exchange ratio for shareholders of both the Company and the HRO Holdings, which had the effect of a 1 for 1,000 reverse split of the common stock. Articles of Merger were filed with the Secretary of State of Nevada on April 13, 2016 and, on April 14, 2016, this corporate action was submitted to Financial Industry Regulatory Authority (the “FINRA”) for its review and approval.
On May 3, 2016, the FINRA approved the merger with the wholly-owned subsidiary, HMMR Fiber Optics Holdings Corp. (“HFO Holdings”). Accordingly, thereafter, the Company’s name was changed and the shares of common stock began trading under new ticker symbol “HMMR” as of May 27, 2016. The merger was effected on July 19, 2016.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The interim financial statements for the fiscal quarter ending October 31, 2018 are unaudited. These financial statements are prepared in accordance with requirements for unaudited interim periods and consequently do not include all disclosures required to be in conformity with accounting principles generally accepted in the United States of America. The results of operations for the interim periods are not necessarily indicative of the results for the full year. In management's opinion, all adjustments necessary for a fair presentation of the Company's financial statements are reflected in the interim periods included and are of a normal recurring nature. These interim financial statements should be read in conjunction with the financial statements included in our Form 10-K, for the year ended July 31, 2018, as filed with the Securities and Exchange Commission (“the SEC”) at www.sec.gov.
6
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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. For network service equipment, and furniture and fixtures, the useful life is ten and five years, respectively. Leasehold Improvements are depreciated over six years. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.
Impairment of long-lived assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company has not recognized impairment losses.
Indefinite lived intangible assets
The Company reviews property, plant and equipment, inventory component prepayments and certain identifiable intangibles, excluding goodwill, for impairment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property, plant and equipment, inventory component prepayments and certain identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair value. The Company has not recorded any related impairment losses.
The Company does not amortize goodwill and intangible assets with indefinite useful lives, rather such assets are required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired. The Company has not recorded any related impairment losses.
Revenue recognition
We adopted ASC 606 on August 1, 2018. Revenue is measured based on a consideration specified in a contract or agreement with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Incidental items that are immaterial in the context of the contract are recognized as expense. Unearned revenues are recorded when cash payments are received or due in advance of the performance of the services. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.
The Company’s revenues consist primarily of subscription agreements for its broadband internet and voice-over-IP phone services. Residential broadband service delivered to customers over the Company’s hybrid fiber and wireless network in Atlantic County, New Jersey is the primary revenue source. Revenues are supplemented by phone and add-on services. Broadband services delivered via fiber optics to enterprise businesses account for the remaining sources of revenue. Services are billed monthly to subscribers on either a one- year or two-year contract for residential customers and three-year contracts for enterprise business customers. Revenue begins accruing as service is delivered at commencement of the customer’s service contract.
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Revenue is recorded net of discounts provided to customers. Discounts applied during the quarter ended October 31, 2018 and 2017 were $3,287 and $6,319, respectively.
Income taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Fair value measurements
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions) The Company has no assets or liabilities valued at fair value on a recurring basis.
Consolidation of financial statements
Hammer Fiber Optics Holdings Corp. is the parent company and sole shareholder of Hammer Wireless Corporation. The financial statements for Hammer Fiber Optics Holdings Corp. and its wholly-owned subsidiaries are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated.
Basic and Diluted Earnings (Loss) per Common Share
The basic earnings (loss) per share are calculated by dividing the Company's net income available to common shareholders by the weighted average number of common shares during the year. The diluted earnings (loss) per share is calculated by dividing the Company's net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. Diluted earnings (loss) per share are the same as basic earnings (loss) per share due to the lack of dilutive items in the Company. As of October 31, and July 31, 2018, there were no common stock equivalents outstanding.
Recent accounting pronouncements
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) (“ASU 2018-07”). ASU 2018-07 provides for improvements to nonemployee share-based payment accounting by expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The awards will be measured at grant date, consistent with accounting for employee share-based payment awards. The measurement date has been redefined as the date at which the grantor and grantee reach a mutual understanding of the key terms and conditions of the award. The requirement to reassess classification of equity-classified awards upon vesting has been eliminated. We do not expect the adoption of this standard to have a material impact on the Company’s financial statements. The Company adopted ASU 2018-07 August 1, 2018.
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In February 2016, FASB issued ASU No. 2016-02, Accounting Standards Update No. 2016-02, Leases (Topic 842). ASU 2016-02 provides for improvements for accounting guidance related to a leasing treatments on financial statements as a response to user input. The update maintains two classifications of leases, Financial lease and Operating leases. The Update is effective for fiscal years beginning after December 2015, 2018. The company has not yet adopted this standard but there may be impact to the presentation of the Company’s financial statements during the period of adoption.
NOTE 4 – COMMITMENTS AND LEASES
The Company is committed under numerous operating leases for its offices and various installations of operating equipment. The office leases are commitments of 1 to 3 years and have extension of varying lives. Equipment and installation locations have varying leases of between 3 and 5 years and also have varying renewal option of up to 5 years at time for 15 additional years. The Company is also commited to long term technical agreements governed under service orders with several difference major telecommunications operators for access to dark fiber in conjunction with rack space and power at data centers. Commitments on these technical agreements run from 5 to 10 years.
The future minimum lease payments are provided below.
|
|
Amount
|
For the fiscal year ended July 31, 2019
|
$
|
834,969
|
For the fiscal year ended July 31, 2020
|
|
820,464
|
For the fiscal year ended July 31, 2021
|
|
404,276
|
For the fiscal year ended July 31, 2022
|
|
1,197,956
|
For the fiscal year ended July 31, 2023 and thereafter
|
|
|
NOTE 5 – GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has consistently sustained losses since its inception. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a period of one year from the issuance of these financial statements. The Company’s continuation as a going concern is dependent upon, among other things, its ability to increase revenues, adequately control operating expenses and receive debt and/or equity capital from third parties. No assurance can be given that the Company will be successful in these efforts.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company intends to continue to address this condition by seeking to raise additional capital through the issuance of debt and/or the sale of equity until such time that ongoing revenues can sustain the business, at which time capitalization may be considered through other means.
NOTE 6 – PROPERTY AND EQUIPMENT
As of July 31, 2018, property and equipment consisted of the following:
|
|
Amount
|
|
Life
|
|
|
|
|
|
Computer and Telecom equipment
|
$
|
4,636,066
|
|
5 years
|
Building & Structures
|
|
119,416
|
|
10 years
|
Office equipment, furniture, fixtures
|
|
94,287
|
|
5-6 years
|
Computer software
|
|
79,952
|
|
3 years
|
Capitalized labor costs
|
|
1,880,554
|
|
5 years
|
Sub-total
|
|
6,810,275
|
|
|
Less: Accumulated depreciation and amortization
|
|
(2,216,640)
|
|
|
Total
|
$
|
4,593,635
|
|
|
Depreciation expense was $263,397 and $279,036 for the quarters ended October 31, 2018 and 2017, respectively.
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NOTE 7 – INDEFINITE LIVED INTANGIBLE ASSETS
The Company has $18,934 of recognized indefinite lived intangible assets, which consist of the ownership of Internet Protocol version 4 (IPv4) address blocks. These assets are not amortized and are evaluated routinely for potential impairment. If a determination is made that the intangible asset is impaired after performing the initial qualitative assessment, the asset’s fair value will be calculated and compared with the carrying value to determine whether an impairment loss should be recognized.
NOTE 8 – RELATED PARTY TRANSACTIONS
During the fiscal year ended July 31, 2016, the Company entered into two promissory notes with a related party for an aggregate amount of $2,400,000 and $1,000,000, respectively. The $2,400,000 note matures on January 4, 2019. The terms consist of ten principal and interest payments due quarterly in the amount of $300,000 for total payments of $3,000,000. The Company is currently in default on this loan. To date, the Company has made payments on this note amounting to $725,831. The payments were applied to interest accrued as of the time of payment as well as to principal. The principal balance was $2,294,067 at July 31, 2018 and 2017. The interest accrued was $219,434 at July 31, 2018 and $69,594 at July 31, 2017, respectively.
The $1,000,000 note matured on June 9, 2018 at which time the principal became due in its entirety, in addition to simple interest accrued at 3%. The company is currently in default on this loan.
For period ending October 31, 2018, 142,500 treasury shares were purchased by a Director of the Company, for cash of $142,500. As none of these shares were issued as of October 31, 2018, the full amount is reported in Shares to be issued, on the balance sheet (see also additional shares to be issued, as identified below in footnote 9). As of October 31, 2018, all of the related party payables are reported as current liabilities in the Consolidated Balance Sheet.
NOTE 9 – STOCKHOLDERS’ EQUITY
Treasury Stock
In July 2016, certain shareholders of the Company contributed
9,291,670 restricted shares of their common stock to the Company’s wholly-owned subsidiary, Hammer Wireless Corporation (“Treasury Shares”), for the purpose of effecting acquisitions, joint ventures or other business combinations with third parties. According to ASC 810-10-45 Consolidations, these shares are accounted for as treasury stock.
During the three months ended October 31, 2018, the Company received cash of $184,700 from the sale of 255,700 treasury shares. 96,000 of these shares were sold at $0.35 per share; 142,500 of these shares were sold at $1 per share; and 17,200 shares were sold at $0.50 per share. Additionally, the Company issued 110,000 treasury shares to third parties for services provided during the period ended October 31, 2018. The Company valued these shares using the closing quoted price of the Company’s common stock on the date of issuance. This resulted an increase in the Company’s general and administrative expenses amounting to $49,340 in the first quarter of fiscal year 2019. Of the 255,700 treasury shares sold for cash during the period, 238,500 were yet to be issued as of October 31, 2018 (total value of $176,100).
As a result of these transactions, the Company has a balance of 7,191,479 treasury shares as of October 31, 2018.
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NOTE 10 –SUBSEQUENT EVENTS
On September 11, 2018 the Company entered into a stock purchase agreement with 1stPoint Communications, LLC (the “Seller”) for the purchase of their business. The acquisition was sought by the Company to complete ownership of key assets to support its hosted wireless services for entry into target markets. 1stPoint owns hosted carrier switching intellectual property for both voice and SMS, CLEC licenses in Florida and New York and a nationwide Commercial Mobile Radio Services license that will allow the company to move forward with its Everything Wireless integrated services strategy as well as hosting services that include cloud computing, virtual servers, virtual desktop and collaboration tools that will be used to advance the Company’s hosted services platform. The managing member of 1stPoint Communications, LLC is the new CEO of Hammer Fiber. Additionally, the agreement contains a buyback provision that expires 180 days from the closing date. The purchase price for all of the Company Units is three million seven hundred and four thousand five hundred and seventeen (3,704,517) shares of the Company’s Common Stock from treasury stock. Seventy five percent (75%) of the shares of the Company’s Common Stock to be issued are restricted securities, as defined in Rule 144 of the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended. On November 1, 2018, the Company completed the previously announced purchase of 1stPoint Communications, LLC, whereby the Company acquired all of the outstanding equity ownership interests in 1stPoint Communications (the “Acquisition”).
On September 11, 2018 the Company entered into a stock purchase agreement with Shelcomm, Inc. (the “Seller”) for the purchase of their business. Shelcomm offers Pocket Paging, VoIP telephone and messaging solutions that will be used to support the assets acquired by 1stPoint and Endstream and support future Smart City deployments as part of the Company’s Everything Wireless strategy. The Co-Chairman of Shelcomm, Inc. is the new CEO of Hammer Fiber; although, he has no management responsibilities with Shelcomm, Inc. Additionally, the agreement contains a buyback provision that expires 180 days from the closing date. The purchase price for all of the Company Units is one million (1,000,000) shares of the Company’s Common Stock from treasury stock. The shares of the Company’s Common Stock to be issued are restricted securities, as defined in Rule 144 of the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended. On November 1, 2018, the Company completed the previously announced purchase of Shelcomm, Inc., whereby the Company acquired all of the outstanding equity ownership interests in Shelcomm (the “Acquisition”).
On September 12, 2018 the Company entered into a stock purchase agreement with Open Data Centers, LLC (the “Seller”) for the purchase of their business. The
acquisition was a crucial component of the Company’s future hosted services and wireless services platform. Open Data Centers operates a brick-and-mortar colocation facility to support the development of new Company infrastructure and provides 24x7 remote network operations to help management the existing assets as well as the newly acquired 1stPoint and Endstream assets. The managing member of Open Data Centers, LLC is the new CEO of Hammer Fiber. Additionally, the agreement contains a buyback provision that expires 180 days from the closing date. The purchase price for all of the Company Units is two million nine hundred thirty thousand five hundred sixty-six (2,930,566) shares of the Company’s Common Stock from treasury stock. The shares of the Company’s Common Stock to be issued are restricted securities, as defined in Rule 144 of the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended. The Company shall also pay Sellers a sum of $200,000 in Cash, delivered to the Sellers no later than January 10, 2019. On November 1, 2018, the Company completed the previously announced purchase of Open Data Centers, LLC whereby the Company acquired all of the outstanding equity ownership interests in Open Data Centers (the “Acquisition”).
On September 11, 2018 the Company entered into a stock purchase agreement with Endstream Communications, LLC (the “Seller”) for the purchase of their business. The acquisition will bring new cash flow to the Company and will support its wireless service strategy through the offering of voice and messaging services. Endstream offers global VoIP termination, Direct Inbound Calling and Calling Card services which will be utilized by the Company in projects contemplated both in the US and internationally.
The managing member of Endstream Communications, LLC is the new CEO of Hammer Fiber. Additionally, the agreement contains a buyback provision that expires 180 days from the closing date. The purchase price for all of the Company Units is one million nine hundred and eighty-eight thousand six hundred and sixteen (1,988,617) shares of the Company’s Common Stock from treasury stock. Seventy five percent (75%) of the shares of Buyer Common Stock to be issued are restricted securities, as defined in Rule 144 of the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended.
Due to control of certain communications licenses by Endstream, pursuant to section 214 of the Communications Act of 1934, Endstream required Commission consent from the Federal Communications Commission (“FCC”) to transfer control of Endstream to the Company. On November 18, 2018 the FCC approved the transfer of control of Endstream Communications, LLC effective December 17, 2018. The Company and Endstream plan to close the same day.
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