UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
☐
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from June 1, 2017 to December 31, 2017
Commission
File Number
000-53461
SPECTRUM
GLOBAL SOLUTIONS, INC.
(Exact
name of registrant as specified in its charter)
Nevada
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26-0592672
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(State
or other jurisdiction of
incorporation
or
organization)
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(IRS
Employer
Identification No.)
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300
Crown Oak Centre Drive
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Longwood,
Florida
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32750
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(407)
512-9102
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(Address
of principal
executive offices)
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(Zip
Code)
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(Registrant’s
telephone number,
including area code)
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Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, $0.00001 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒
No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company ☒
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(Do
not check if a smaller reporting company)
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Emerging
growth company ☐
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
The
aggregate market value of the voting common equity held by non-affiliates as of November 30, 2017 based on the closing sales price
of the Common Stock as quoted on the OTC Pink was $633,138. For purposes of this computation, all officers, directors, and 5 percent
beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such
directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.
As
of April 4, 2018, there were 460,682,237 shares of registrant’s common stock outstanding.
TABLE
OF CONTENTS
FORWARD-LOOKING
STATEMENTS
This
report contains forward-looking statements. Forward-looking statements include all statements that do not directly or exclusively
relate to historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,”
“should,” “could,” “would,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “projects,” “forecasts,” “predicts,” “potential,”
or the negative of those terms, and similar expressions and comparable terminology. These include, but are not limited to, statements
relating to future events or our future financial and operating results, plans, objectives, expectations and intentions. Although
we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not be achieved.
Forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are
subject to known and unknown risks, uncertainties and other factors outside of our control that could cause our actual results,
performance or achievements to differ materially from those expressed or implied by these forward-looking statements. Actual results
may differ materially from those anticipated or implied in the forward-looking statements.
You
should consider the areas of risk described in connection with any forward-looking statements that may be made herein. You should
also consider carefully the statements under Item 1A. Risk Factors appearing in this report, which address additional factors
that could cause our actual results to differ from those set forth in the forward-looking statements. Such risks and uncertainties
include:
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our
ability to successfully execute our business strategies, including the acquisition of
other businesses to grow our company and integration of recent and future acquisitions;
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changes
in aggregate capital spending, cyclicality and other economic conditions, and domestic
and international demand in the industries we serve;
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our
ability to adopt and master new technologies and adjust certain fixed costs and expenses
to adapt to our industry’s and customers’ evolving demands;
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our
ability to obtain additional financing in sufficient amounts or on acceptable terms when
required;
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our
ability to adequately expand our sales force and attract and retain key personnel and
skilled labor;
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shifts
in geographic concentration of our customers, supplies and labor pools and seasonal fluctuations
in demand for our services;
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our
dependence on third-party subcontractors to perform some of the work on our contracts;
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our
ability to comply with certain financial covenants of our debt obligations;
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the
impact of new or changed laws, regulations or other industry standards that could adversely
affect our ability to conduct our business; and
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changes
in general market, economic and political conditions in the United States and global
economies or financial markets, including those resulting from natural or man-made disasters.
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These
risk factors also should be considered in connection with any subsequent written or oral forward-looking statements that we or
persons acting on our behalf may issue. All written and oral forward looking statements made in connection with this report that
are attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary
statements. Given these uncertainties, you are cautioned not to place undue reliance on any forward-looking statements and you
should carefully review this report in its entirety. These forward-looking statements speak only as of the date of this report,
and you should not rely on these statements without also considering the risks and uncertainties associated with these statements
and our business.
Except
for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to
release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated
events. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly
any revisions to any forward-looking statements to reflect events or circumstances after the date of this report or to reflect
the occurrence of unanticipated events, except as required by applicable law or regulation.
PART I
Unless
specifically set forth to the contrary, when used in this report the terms “we,” “our,” the “Company”
and similar terms refer to Spectrum Global Solutions, Inc., a Nevada Corporation and its consolidated subsidiaries.
The
information that appears on our website at
www.SpectrumGlobalSolutions.com
is not part of this report.
EXPLANATORY
NOTE REGARDING THE TRANSITION REPORT
On
January 2, 2018, we changed our fiscal year end from May 31 to December 31. This Transition Report on Form 10-K covers the seven
month period from June 1, 2017 to December 31, 2017, which is the period between the close of the Company's immediate prior fiscal
year and the opening date of the company's newly selected fiscal year. This change in fiscal year end is to align its reporting
periods with those expected by its customers and to align with future acquired companies using the same fiscal reporting periods.
ITEM
1 – BUSINESS
Business
Overview
On
February 5, 2018, Spectrum Global Solutions, Inc. (the “Company”) completed its corporate jurisdiction continuation
from the jurisdiction of the Province of British Columbia to the jurisdiction of the State of Nevada in accordance with the Articles
of Conversion and the Articles of Incorporation (the “Nevada Articles”) filed with the Nevada Secretary of State.
Upon the effectiveness of the continuation, the Company’s corporate existence will be governed by the laws of the State
of Nevada, the Nevada Articles and the Company’s by-laws (the “Nevada Bylaws”). Our principal offices are located
at 300 Crown Oak Centre, Longwood, Florida 32750. Our telephone number is (407) 512-9102. On January 2, 2018 we changed our fiscal
year end to December 31.
We
are a leading provider of services and solutions in the telecommunications sector and research developer of alternative energy
alternatives in the energy sector. The telecommunications sector provides services and solutions throughout the United States,
Guam, Canada and the Caribbean. Our energy sector services are related to research and development of alternative energy technologies.
Our
telecommunications division, which was acquired on April 25, 2017, is supported by its subsidiaries: AW Solutions, Inc., AW Solutions
Puerto Rico, LLC and Tropical Communications, Inc. (collectively known as “AW Solutions”) and ADEX CORP. and ADEX
Puerto Rico LLC. (collectively known as “ADEX”). AW Solutions provides a broad range of professional services and
solutions to top tier communication carriers and Fortune 1000 enterprise customers. The telecommunication division offers carriers,
service providers and enterprise customers professional contracting services, to include: infrastructure audits; site acquisition;
architectural, structural and civil design and analysis; construction management; construction; installation; warehousing and
logistics; maintenance services, that support the build-out and upgrade and operation of some of the most advanced networks, small
cell, Wi-Fi, fiber and distributed antenna system (DAS) networks. We believe the expansion and migration of these next-generation
networks, our long-term relationships supported by multiyear Master Service Agreements (MSA) and multi-year service contracts
with major wireless, commercial wireline and wireless operators, DAS operators, tower companies, original equipment manufacturers
(OEM’s) and prime contractor/project management organization provides us a significant opportunity as a long term leading
and well respected industry leader in this marketplace. ADEX is a leading outsource provider of engineering and installation services,
staffing solutions and other services which include consulting to the telecommunications industry, service providers and Enterprise
customers. ADEX’s managed solutions diversifies the ability to service customers domestically and internationally throughout
the project lifecycle. ADEX customers include many leading wireless and wireline telecommunications providers, cable broadband
MSOs and Original Equipment Manufacturers (“OEM”). On a weekly basis, the Company deploys hundreds of telecommunication
professionals in support of its customers. The Company believes that its global footprint of support is a differentiating factor
for national and international-based customers needing a broad range of technical expertise for management of their legacy and
next generation networks. The Company seeks to assist its customers throughout the entire life cycle of a network deployment via
its comprehensive suite of managed solutions that include Consulting and Professional Staffing services to service providers as
well as Enterprise customers, Network Implementation, Network Installation, Network Upgrades, Rebuilds, Design, Engineering and
Integration Wireless Network Support, Wireless Network Integration, Wireless and Wireline Equipment Installation & Commissioning,
Wireless Site Development & Construction Management, Network Engineering, Project Management, Disaster Recovery design engineering
and integration.
Though
our subsidiary in the energy division, Mantra Energy Alternatives (MEA) has developed cutting edge “green” technologies
that can mitigate and reduce the carbon footprint of generators and consumers of fossil fuels, MEA mission and strategy of development
and research efforts to acquire and commercially exploit various new energy related technologies through licenses and purchases.
These energy technologies and services are to enable the sustainable consumption, production and management of resources on a
residential, commercial and industrial scales on a national and international level. The company also provides marketing and graphic
design services to help companies optimize their environmental awareness presence through the eyes of government, industry and
the general public.
We
provide the following categories of offerings to our customers:
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Telecommunication
Division: We provide a comprehensive array of professional services and solutions to
our clients that are applicable across multiple platforms and technologies to include
but not limited to: Wi-Fi , Wi-Max and wide-area networks, fiber networks, DAS networks
(iDAS/oDAS), small cell distribution networks, public safety networks and enterprise
networks for incumbent local exchange carriers (ILECs), telecommunications original equipment
manufacturers (OEMs), cable broadband multiple system operators (MSOs), tower and network
aggregators, utility entities and enterprise customers. Our services teams support the
deployment of new networks and technologies, as well as expand and maintain existing
networks.
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Energy
Division: We provide research and development resources in the continued exploration
of energy alternatives and technologies. MEA has successfully acquired and owns a process
for the electro-reduction of carbon dioxide (“ERC”) and has secured world
licenses for a mixed-reaction fuel cell (“MRFC”) which is in continuous focus
toward commercial applications. The company also provides marketing and design services
to help companies optimize their environmental awareness from an array of prospective
ranging from the general public, industrial and government viewpoint.
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Our
Operating Units
AW
Solutions business in the telecommunications industry, creating new a customer base and geographic reach. Our company is comprised
of the following:
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AW
Solutions. - AW Solutions, Inc., a Florida corporation (April 17, 2006), AW Solutions
Puerto Rico, LLC, Puerto Rico corporation (March 14, 2011) and Tropical Communications,
Inc., a Florida corporation (May 9, 1984), (Collectively known as, “AW Solutions”).
We are professional, multi-service line, telecommunications infrastructure companies
that provide outsourced services to the wireless and wireline industry. AW Solution’s
services include network systems design, site acquisition services, asset audits, architectural
and engineering services, program management, construction management and inspection,
construction, installation, maintenance and other technical services. AW Solutions provides
in-field design, Computer Aided Design and Drawing services (CADD), fiber and DAS deployments.
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ADEX
- ADEX CORP, a New York corporation (October 29, 1993) and ADEX Puerto Rico, LLC. a Puerto
Rico limited liability company (April 17, 2008), (collectively known as “ADEX”).
ADEX is a leading outsource provider of engineering and installation services, staffing
solutions and other services which include consulting to the telecommunications industry,
service providers and Enterprise customers domestically and internationally. The Company
seeks to assist its customers throughout the entire life cycle of a network deployment
via its comprehensive suite of managed solutions that include Consulting and Professional
Staffing services to service providers as well as Enterprise customers, Network Implementation,
Network Installation, Network Upgrades, Rebuilds, Design, Engineering and Integration
Wireless Network Support, Wireless Network Integration, Wireless and Wireline Equipment
Installation & Commissioning, Wireless Site Development & Construction Management,
Network Engineering, Project Management, Disaster Recovery design engineering and integration.
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Mantra
Energy Alternatives, Ltd. – Mantra Energy Alternatives, Ltd., is a British Columbia,
Canada corporation (known as, “MEA”), which was incorporated in Nevada on
January 22, 2007. On December 8, 2008 we made a jurisdiction change from the State of
Nevada into the Province of British Columbia, Canada. We focus our business strategy
in the energy sector in the ongoing research and development to commercialize alternative
energy technologies and services to the residential, commercial and industrial marketplace.
Continued focus and desire is to refine the technologies and exploratory efforts into
strategic relationships, joint ventures, partnerships with third parties to assist in
commercialization. MEA has successfully acquired and owns a process for the electro-reduction
of carbon dioxide (“ERC”) and has secured world licenses for a mixed-reaction
fuel cell (“MRFC”) which is in continuous focus toward commercial applications.
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Our
Industry
Advances
in technology architectures and the outlook in the telecommunication industry is reflecting remarkable strength in both the top
tier carriers and enterprise customers. Strong investments into new technology, broadband utilization and supporting capacity
requiring the fundamental need for infrastructure expansion will be a key driver and differentiator for providers ensuring continue
growth and competitiveness.
Wireless
infrastructure which has been in place since the 1980’s includes towers, buildings, telephone poles and other facilities
to place critical antennas and associated electronics to support expanded WiMax, LTE and soon 5G technologies, along with the
transition from copper to fiber to support the ever increasing data demands are significant long term factors that drive our business
model and continued success. According to iSuppli, 4G Long Term Evolution (LTE) is the largest share of wireless infrastructure
capital spending through 2018 with 5G enhanced mobile technologies trials commencing in the United States in 2017 which will drive
the migration to the next generation standard which allows for greater capacity required to support new applications. The roll-out
of enhanced mobile broadband, small cell architectures, the launch of 5G technology and billions of Internet of Things (IoT) connective
devices the need to modernize networks to accommodate connectivity is a significant long-term opportunity of companies like ours.
The transition from trial based deployments of 5G to a full nationwide implementation expected to start in 2018 and continuing
beyond 2025. The continued investment of supporting infrastructure that includes fiber optic investment Deloitte Consulting LLP
analysis estimates the in the United States alone requires investment of $130-$150 Billion over the next 5-7 years to adequately
support the consumer demand for broadband and wireless densification projects. It is mission-critical for these providers to deliver
broadband capacity, reliably, security and cost-effectively in a solution that support this massive data consumption of applications
to its customers: reality/virtual reality, video delivery, mobile advertising, self-driving cars, healthcare and much more. The
enhanced mobility with devices requires, small cell deployments to handle the increased usage on both the wireline and wireless
delivery networks
The
outlook indicator and anticipated growth in the telecommunications sector is at a faster rate over the next five (5) years to
2021 than experienced in the previous five (5) year period. Industry revenue is forecasted for the next five (5) years is to grow
at an annual rate between 5%-7%. As a result, major carriers and enterprises are increasingly requiring rapidly deployment of
broadband solutions and network infrastructure upgrades and augments to support a wide array of communication technologies to
cope with the mounting demand for higher mobile traffic capacity and coverage.
INDUSTRY
TRENDS AND OPPORTUNITIES
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5G
technology trials and deployments
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FirstNet
Public Safety Deployment
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FCC
auctioning more spectrum for wireless deployments
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Growth
of wireless and wireline/fiber infrastructure
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Commercialization
of alternative energy technologies
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Monetize
existing technology patents
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International
growth, developing and emerging markets
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Increased
development of the Wi-Fi and Wi-MAX market
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Our
Competitive Strengths
On
the telecommunication sector we believe our market advantage is the long-term relationships, MSA’s, industry leading provider
of wireless and wireline solutions and a reputations and track record of our ability to perform with agility, quality on a seamless
and flawless manner for our clients is key in our success to date. AW Solutions ability to provide a wide range of services in
a turn-key integrated solution is critical to our clients. Our highly experienced and professional team provide such services
as: RF, civil, electrical, architectural engineering and design, value engineering, network engineering services, network planning,
site acquisition, land use planning, feasibility/environmental studies, lease/contract negotiations, Build-To-Suit (BTS) services,
audits functions, program planning, product development, technical services, warehouse and logistics.
We
believe our additional strengths described below will enable us to continue to compete effectively and to take advantage of anticipated
growth in the telecommunications industry segment:
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Service
Provider Relationships: We have established relationships with leading wireless and wireline
telecommunications providers, cable broadband MSOs, OEMs and others.
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SAMPLE
CUSTOMERS
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Commercial
Operators (Carriers): AT&T, Sprint, Verizon Communications, T-Mobile, Level (3) Communications,
COX, Open Mobile, Claro
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Aggregators:
Crown Castle, Extenet Systems, SBA Wireless, Global Tower Partners (GTP), American Tower,
Uniti Fiber, Vertical Bridge, Boingo
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Utilities:
Entergy, MidAmerica Energy, Southern Company, PacificCorp,
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Original
Equipment Manufacturers (OEM’s): Alcatel-Lucent USA Inc., Ericsson, Nokia, Samsung,
Tait Radio
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Project
Management Organization (PMO): MasTec Network Solutions, Nexius, Bechtel, Goodman Networks
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Long-Term
Master Service Agreements (MSA) and Contracts: We have over 100 MSA’s and agreements
with service providers, OEMs and other clients. Our relationships with our customers
and existing master service agreements position us to continue to capture existing and
emerging opportunities, both domestically and internationally. We believe the barriers
are extremely high for new entrants to obtain master service agreements with service
providers and OEMs unless there are established relationships, proven ability to execute,
national coverage and licensing, spotless safety records and broad and deep insurance
coverage.
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Global
Professional Engineering Talents: Our extensive geographical reach and licensing that
covers all US states and territories, majority of Canadian Provinces and select areas
in the Caribbean coupled with our vast engineering experience and expertise supported
by talented staff enables our customers to take advantage of our end-to-end solutions
and one-stop full turn-key solution.
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Proven
Ability to Recruit, Manage and Retain High-Quality Personnel. Our ability to recruit,
manage and retain skilled labor is a critical advantage in an industry where a shortage
of highly skilled and experience personal is limited. This is often a key factor in our
customers selecting AW Solutions over our competitors. We believe that our highly skilled
professionals with professional licenses consisting of Professional Engineer (PE), Electrical
Engineer (EE) and our General Contracting licenses (GC) in the United States, Canada
and Caribbean gives us a competitive edge over our competitors as we continue to expand
and meet our national and international clients needs across their entire service footprints.
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Strong
Senior Management Team with Proven Ability to Execute. Our highly-experienced management
team has deep industry knowledge and brings an average of over 180 years of combined
experience across a broad range of disciplines. We believe our senior management team
is a key driver of our success and is well-positioned to execute our strategy.
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KEY
ASPECTS
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Strong
management team in place
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Opportunity
exists for sustained growth
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Operational
- U.S., Canada, U.S.-Virgin Islands and Puerto Rico
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Turnkey
deployment solutions
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Experience
in all wireless and wireline technologies
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Provides
services direct to carriers, tower and DAS/Small Cell aggregators, OEM’s, enterprise,
Utility Entities and consulting companies
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Diverse
customer base featuring top tier carriers
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Focused
on high growth markets
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Excellent
industry reputation
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Our
Growth Strategy
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Under
the leadership of our senior management team, we intend to continue to build our operational
groups invest in our sales/account management resources and continue to market our capabilities
to support our rapid growth focusing on optimizing our operating margins. While organic
growth will be a continued main focus in our telecommunications division to drive our
business forward, acquisitions will play a strategic role in augmenting existing product
and service lines, expanding geographic reach, diversifying customers and cross-selling
opportunities. We are pursuing several strategies, including:
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Expand
Engineering and Telecom Offerings. We are building a company that can manage the existing
network infrastructures of the largest domestic and international service providers,
utilities, aggregators, Original Equipment Manufacturers (OEM’s) and Project Management
Organizations (PMO’s) while delivering a broad range of professional services to
meet accelerated demand for these services. We believe the ability to provide such solutions
and services is a critical differentiator as we already have relationships for these
professional services in place today. Each of our three operating units within AW Solutions
intends to continue to expand into additional service offerings.
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Grow
Revenues and Market Share through Selective Acquisitions. We plan to continue to acquire
private companies that enhance our earnings and offer complementary services plus expand
our geographic reach and client base. We believe such acquisitions will help us to accelerate
our revenue growth, leverage our existing strengths, and capture and retain more work
“in-house” from our clients, thereby contributing to our profitability. We
also believe that increased scale will enable us to bid and take on larger project and
contracts. We believe there are potential acquisition candidates in the somewhat fragmented
professional services market and infrastructure arena which would be likely candidates
for consolidation opportunities.
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Aggressively
Expand Our Organic Growth Initiatives. Our customers include leading wireless and wireline
telecommunications providers, cable broadband MSOs, OEMs, Utility Entities and enterprise
customers. As we have expanded the breadth of our service offerings through both organic
growth and selective acquisitions, we believe we have opportunities to expand revenues
with our existing clients.
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Expand
Our Relationships with New Service Providers. We plan to capture and expand new relationships
with cable broadband providers, competitive local exchange carriers (CLECs), Fortune
1000 enterprise clients, institutional clients, competitive access providers (CAPs),
etc. We believe that the business model for the expansion of these relationships, leveraging
our core strengths, experience and broad array of service solutions, will support our
business model for organic growth.
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Increase
Operating Margins by Leveraging Operating Efficiencies. We believe that by centralizing
administrative functions, consolidating insurance coverage and eliminating redundancies
across our newly-acquired businesses, we will be positioned to offer more integrated
end-to-end solutions and increase operating margins.
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Cross
Selling and Marketing. We believe that through our acquisitions we will be able to effectively
cross sell between business units and enhanced services offerings and gain even greater
traction through coordinated and branded marketing indicatives.
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Our
Services
1.
Telecommunications
We
are a leading provider of professional services and infrastructure solutions to both the telecommunications industry, utility
entities and enterprises sectors. Our engineering, design, construction, installation, maintenance service offerings supported
by our professional teams to support the build-out, maintenance, upgrade and operation of some of the most advanced fiber optic,
Ethernet, copper, wireless, wireline, utility and enterprise networks. Our breadth of comprehensive services enables our customers
to selectively augment existing services or to outsource entire projects or operational functions. We divide our service offering
into Infrastructure and Professional Services.
We
offer a full array of operations, construction, project and program management professional required to facilitate the full turn-key
completion of networks from the design and planning phase, engineer evaluation and sign off, regulatory, installation, commissioning
and maintain various types of Wi-Fi and wide-area networks, DAS networks, and small cell distribution networks for incumbent local
exchange carriers (ILECs), telecommunications original equipment manufacturers (OEMs), cable broadband multiple system operators
(MSOs) and enterprise customers. Our services and teams support the deployment of new networks and technologies, as well as expand
and maintain existing networks. We also design, install and maintain hardware solutions for the leading OEMs that support voice,
data and optical networks. Our consulting and professional solutions to the service-provider and enterprise market in support
of all facets of telecommunications and next-generation networks, including project management, network implementation, network
installation, network upgrades, rebuilds, maintenance and consulting services. Our global certified professional services organization
offers consulting, design, engineering, integration, implementation and ongoing support of all solutions offered by our company.
We believe our ability to respond rapidly is a differentiating factor for national and international-based customers needing a
broad range of our services and solutions.
The
Company seeks to assist its customers throughout the entire life cycle of a network deployment via its comprehensive suite of
managed solutions and Professional Staffing services. We actively maintain a Proprietary Candidate Database with profiles of more
than 70,000 telecommunications professionals. The database contains domestic and international based telecommunications professionals
of all levels. Our recruiters are able to search the database by any number of criteria including, but not limited to: technical
skill sets, equipment types, technology experience, education, years of experience, past employment history, geographic location.
2.
Energy
Services and Solutions
We
have engaged in the research and development of alternative energy technologies and services primarily in electro-reduction of
carbon dioxide (“ERC”) and mixed-reactant fuel cells (“MRFC”) through our subsidiary, Mantra Energy Alternatives
Ltd. (“MEA”).
This
partially owned subsidiary Mantra Energy Alternatives Ltd. (“MEA”) has itself undertaken financing activities to raise
money for research and development by issuing common shares. MEA and the Company have sought funding to develop a prototype unit
for the MRFC technology but to date has been unsuccessful. We also have a number of inactive subsidiaries, which we may engage
in various businesses in the future but have no current plans to do so at this time. Since the inception as an energy technology
research and development company in 2007, we have incurred operational losses and we have completed several rounds of financing
to fund our operations. We have paused development in moving these technologies toward commercial applications until further funding
is received. We have paused development in moving these technologies toward commercial applications until further funding is received.
These technologies are described as follows.
a)
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Electro
Reduction of Carbon Dioxide (“ERC”) is a certain chemical process for the
electro-reduction of carbon dioxide which has been proven functional through small-scale
prototype trials and limited scale-up trials. ERC offers a possible solution to reduce
the impact of CO2 emissions on Earth’s environment by converting CO2 into chemicals
with a broad range of commercial applications, including a fuel for a next generation
of fuel cells. Powered by electricity, the ERC process combines captured carbon dioxide
with water to produce materials, such as formic acid, formate salts, oxalic acid and
methanol, that are conventionally obtained from the thermo-chemical processing of fossil
fuels.
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b)
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Mixed-Reactant
Fuel Cell (MRFC) The MRFC is a novel fuel cell architecture that utilizes a mixture of
the fuel and oxidant, and as a result, does not need a membrane. The MRFC has a simple
reactant distribution mechanism, and contains no bipolar plates; as a result, the system
is projected to be cheaper, lighter, and more robust than conventional fuel cells. The
MRFC thus offers the potential to provide distributed or grid-connected clean, affordable
heat and power. Being very versatile due to its simplicity, the MRFC can address several
markets, including emergency backup power, stationary combined heat and power, industrial
vehicles such as forklifts, and transportation. Our license to develop this technology
was cancelled during the year. We do not know if we will be successful in restoring this
license, and until we do, we do not intend to further develop this technology in the
future.
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c)
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Energy
Storage - Formate salts and formic acid, which can be produced from CO2 via ERC, are
excellent energy carriers and effective fuels for the MRFC. Thus, the integration of
ERC and MRFC represents an energy storage solution whereby intermittent renewable electricity
can be stored as formate/formic acid when it is available and liberated when it is needed.
The availability of energy storage is widely recognized as the next most critical factor
for increased renewables penetration.
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We
do not have any sales for energy services and solutions at this time and our activities have been primarily research and development.
In the past, we have either contracted out our development work to various laboratories or carried out research and development
on these technologies. Activities included: experimentation to improve the process performance; process and economic modeling
to optimize the costs of a commercial system; design and simulation of pilot systems for technology demonstration and validation;
business development activities such as the establishment of strategic and technology development partners; and the design and
fabrication of laboratory prototypes, among others.
Customers
Our
customers include many Fortune 1000 enterprises, wireless and wireline service providers, cable broadband MSOs and telecommunications
OEMs. Our current service provider and OEM customers include leading telecommunications companies, such as Ericsson, Inc., Verizon
Communications, Sprint Nextel Corporation and AT&T.
Our
top four customers, Crown Castle, High Performance Services LLC, Betacom, Inc, USAC accounted for approximately 64% of our total
revenues from continuing telecommunications operations in the year ended December 31, 2017.
A
substantial portion of our revenue is derived from work performed under multi-year master service agreements and multi-year service
contracts. We have entered into master service agreements, or MSAs, with numerous service providers and OEMs, and generally have
multiple agreements with each of our customers. MSAs are generally the contracting vehicle with work awarded primarily through
a competitive bidding process based on the depth of our service offerings, experience, price, geographic coverage and capacity.
MSAs generally contain customer-specified service requirements, such as discrete pricing for individual tasks, but do not require
our customers to purchase a minimum amount of services. To the extent that such contracts specify exclusivity, there are often
a number of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other
service providers, perform work with the customer’s own employees and use other service providers. Most of our MSAs may
be cancelled by our customers upon minimum notice (typically 60 days), regardless of whether we are or are not in default. In
addition, many of these contracts permit cancellation of particular purchase orders or statements of work without any prior notice
but do allow for payment for services performed up to the point of hold or cancellation.
Suppliers
and Vendors
We
have supply agreements with major technology vendors and material supply houses. However, for a majority of the professional services
we perform, our customers supply the necessary major equipment and materials. We expect to continue to further develop our relationships
with our technology vendors and to broaden our scope of work with each of our partners. In many cases, our relationships with
our partners have extended for over a decade, which we attribute to our commitment to excellence. It is our objective to selectively
expand our partnerships moving forward in order to expand our service offerings.
Competitors
We
provide, professional and infrastructure services to carriers, service provider, utilities and enterprise client on a national
and international basis. Our primary business market is somewhat consolidated and the business is characterized by several large
companies, as for the service providers to the telecommunication sector is somewhat fragmented with a significant number of small,
privately-held, local competitors.
Our
current and potential larger competitors include MasTec, Dycom Industries, Inc., Goodman Networks, Inc., Ericsson, and Black and
Veatch. A significant portion of our services revenue is currently derived from MSAs and price is often an important factor in
awarding such agreements. Accordingly, our competitors may underbid us if they elect to price their services aggressively to procure
such business. It must be recognized that while these companies are competitors, under the right circumstance they are also our
clients or potential clients. Our competitors may also develop the expertise, experience and resources to provide services that
are equal or superior in both price to our services, and we may not be able to maintain or enhance our competitive position based
on threshold for margin and profitability thresholds established as benchmarks within our Telecommunications division. The principal
competitive factors for our professional services include; agility to respond, geographic presence, breadth of service offerings,
technical skills “in-house” professional licenses, price, quality of service, safety record, proven performance and
industry reputation. We believe we compete favorably with our competitors on the basis of all of these factors.
Safety
and Risk Management
We
require our employees to participate in internal training and service programs from time to time relevant to their employment
and to complete any training programs required by law. The telecommunications division has not had any OSHA recordable incidents,
lost work days or fatalities since inception which includes: 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016
and 2017. Our policy is to review accidents and claims from our operations, examine trends and implement changes in procedures
to address safety issues. We have no Claims in our business related to: workers’ compensation claims, general liability
and damage claims, or claims related to vehicle accidents, including personal injury and property damage. We insure against the
risk of loss arising from our operations up to certain deductible limits in all of the states in which we operate. In addition,
we retain risk of loss, up to certain limits, under our employee group health plan. We evaluate our insurance requirements on
an ongoing basis to help ensure we maintain adequate levels of coverage internally and externally for our clients.
Our
internal policy is to carefully monitor claims and actively participate with our insurers in determining claims estimates and
adjustments. The estimated costs of claims are accrued as liabilities and include estimates for claims incurred but not reported.
If we experience future insurance claims in excess of our umbrella coverage limit, our business could be materially and adversely
affected.
Employees
As
of December 31, 2017, we had 68 full-time employees and 3 part-time employees, of whom 5 were in administration and corporate
management, 1 were accounting personnel, 1 were sales personnel and 61 are engaged in professional engineering, operations, project
managerial and technical roles.
We
maintain a core of professional, technical and managerial personnel and add employees as deemed appropriate to address operational
and scale requirement related to growth. Additionally, we will “flex” our work force through the use of temporary
or agency staff and through subcontractors.
Environmental
Matters
A
portion of the work related to the telecommunication division which is work associated with above ground and underground networks
of our customers. As a result, we are potentially subject to material liabilities related to encountering underground objects
that may cause the release of hazardous materials or substances. We are subject to federal, state and local environmental laws
and regulations, including those regarding the removal and remediation of hazardous substances and waste. These laws and regulations
can impose significant fines and criminal sanctions for violations. Costs associated with the discharge of hazardous substances
may include clean-up costs and related damages or liabilities. These costs could be significant and could adversely affect our
results of operations and cash flows.
Regulation
Our
operations are subject to various federal, state, local and international laws and regulations, including licensing, permitting
and inspection requirements applicable to electricians and engineers; building codes; permitting and inspection requirements applicable
to construction projects; regulations relating to worker safety and environmental protection; telecommunication regulations affecting
our fiber optic licensing business; labor and employment laws; and laws governing advertising.
ITEM
1A – RISK FACTORS
Investing
in our securities involves a high degree of risk. You should carefully consider the following risk factors and all other information
contained in this report before purchasing our securities. If any of the following risks occur, our business, financial condition,
results of operations and prospects could be materially and adversely affected. In that case, the market price of our common stock
could decline, and you could lose some or all of your investment.
Risks
Related to Our Financial Results and Financing Plans
We
have a history of losses and may continue to incur losses in the future.
We
have a history of losses and may continue to incur losses in the future, which could negatively impact the trading value of our
common stock.
If
we are unable to sustain our recent revenue growth rates, we may never achieve or sustain profitability.
On
the telecommunications sector we experienced consistent growth in recent years. To become profitable, we must, among other things,
continue to increase our revenues. Related to Mantra Energy Alternatives (MEA) we may be unable to achieve revenue growth, particularly
if we are unable to commercialize and monetize the products and services that been developed and the ongoing research to support
definitive next steps to accomplish the profitability as some future date. However, if our telecommunication division revenues
continue to grow, they may not be sufficient to support investments into the current energy sector and associated operating expenses
to enable us to achieve or sustain profitability in this sector.
Risks
Related to Our Business
Our
inability to obtain additional capital may prevent us from completing our acquisition strategy and successfully operating our
business; however, additional financings may subject our existing stockholders to substantial dilution.
Our
continued telecommunication organic growth path and associate amount of revenue generated, we expect to finance our anticipated
future strategic acquisitions through public or private equity offerings or debt financings. Additional funds may not be available
when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay,
reduce the scope of, or eliminate one or more strategic acquisitions or business plans. To the extent that we raise additional
funds by issuing equity securities, our stockholders may experience significant dilution. In addition, debt financing, if available,
may involve restrictive covenants. We may seek to access the public or private capital markets whenever conditions are favorable,
even if we do not have an immediate need for additional capital at that time. Our access to the financial markets and the pricing
and terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets
and interest rates.
Our
future funding requirements will depend on many factors, including, but not limited to, the costs and timing of our future acquisitions.
A
failure to successfully execute our strategy of acquiring other businesses to grow our company could adversely affect our business,
financial condition, results of operations and prospects.
We
intend to continue pursuing growth through the acquisition of companies or assets to expand our product offerings, project skill-sets
and capabilities, enlarge our geographic markets, and increase critical mass to enable us to bid on larger contracts. However,
we may be unable to find suitable acquisition candidates or to complete acquisitions on favorable terms, if at all. Moreover,
any completed acquisition may not result in the intended benefits. For example, while the historical financial and operating performance
of an acquisition target are among the criteria we evaluate in determining which acquisition targets we will pursue, there can
be no assurance that any business or assets we acquire will continue to perform in accordance with past practices or will achieve
financial or operating results that are consistent with or exceed past results. Any such failure could adversely affect our business,
financial condition or results of operations. In addition, any completed acquisition may not result in the intended benefits for
other reasons and our acquisitions will involve a number of other risks, including:
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We
may have difficulty integrating the acquired companies;
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Our
ongoing business and management’s attention may be disrupted or diverted by transition
or integration issues and the complexity of managing geographically or culturally diverse
enterprises;
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We
may not realize the anticipated cost savings or other financial benefits we anticipated;
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We
may have difficulty retaining or hiring key personnel, customers and suppliers to maintain
expanded operations;
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Our
internal resources may not be adequate to support our operations as we expand, particularly
if we are awarded a significant number of contracts in a short time period;
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We
may have difficulty retaining and obtaining required regulatory approvals, licenses and
permits;
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We
may not be able to obtain additional equity or debt financing on terms acceptable to
us or at all, and any such financing could result in dilution to our stockholders, impact
our ability to service our debt within the scheduled repayment terms and include covenants
or other restrictions that would impede our ability to manage our operations;
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We
may have failed to, or be unable to, discover liabilities of the acquired companies during
the course of performing our due diligence; and
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We
may be required to record additional goodwill as a result of an acquisition, which will
reduce our tangible net worth.
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Any
of these risks could prevent us from executing our acquisition growth strategy, which could adversely affect our business, financial
condition, results of operations and prospects.
Energy
development and commercialization of services offerings and the competitiveness, and our ability to complete meaningful joint
venture or partnerships with new and emerging technology.
The
energy technology industry is characterized by rapid innovation, influence by government regulations and the introduction of new
and enhanced solutions. On the Energy sector has been and will continue to evaluate the opportunity for commercialization of solutions
and services offerings, as well as the acceptance of those innovations by customers. A decrease in the ability to secure funding,
partnerships, or the lack of acceptance of innovations by partners, joint ventures or customers, or pull back of government initiatives
or policies could have an adverse effect on our business, results of operations or cash flows.
Our
engagements can require longer implementations and other professional services engagements.
Our
implementations can involve a longer period of delivery of telecommunication and energy professional and infrastructure services
and technologies. In addition, existing customers for other professional services projects often retain us for those projects
sometime beyond an initial implementation. A successful implementation or other professional services project requires a close
working relationship between us, the customer and often third- party consultants and systems integrators who assist in the process.
These factors may increase the costs associated with completion of any given project award/sale, increase the timeline risks of
collection of amounts due during implementations or other professional services projects, and increase risks of delay of such
projects. Delays in the completion of an implementation or any other professional services project may require that the revenues
associated with such implementation or project be recognized over a longer period than originally anticipated, or may result in
disputes with customers, third-party consultants or systems integrators regarding performance as originally anticipated. Such
delays in the implementation may cause material fluctuations in our operating results. In addition, customers may defer implementation
projects or portions of such projects and such deferrals could have a material adverse effect on our business and results of operations.
Our
future success is substantially dependent on third-party relationships.
An
element of our strategy is to establish and maintain alliances with other companies, such as suppliers of products and services
for construction and maintenance. These relationships enhance our status in the marketplace, which generates new business opportunities
and marketing channels and, in certain cases, additional revenue and profitability. To effectively generate revenue out of these
relationships, each party must coordinate and support required hence the sales and marketing efforts of the other, often including
making a sizable investment in such sales and marketing activity. Our inability to establish and maintain effective alliances
with other companies could impact our success in the marketplace, which could materially and adversely impact our results of operations.
In addition, as we cannot control the actions of these third-party alliances, if these companies suffer business downturns or
fail to meet their objectives, we may experience a resulting diminished revenue and decline in results of operations.
If
we do not accurately estimate the overall costs when we bid on a contract that is awarded to us, we may achieve a lower than anticipated
profit or incur a loss on the contract.
A
portion of our telecommunications revenues from our engineering and professional services offerings are derived from fixed unit
price contracts that require us to perform the contract for a fixed unit price irrespective of our actual costs. We bid for these
contracts based on our estimates of overall costs, but cost overruns may cause us to incur losses. The costs incurred and any
net profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors,
including, but not limited to:
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onsite
conditions that differ from those assumed in the original bid;
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delays
in project starts or completion;
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fluctuations
in the cost of materials to perform under a contract;
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contract
modifications creating unanticipated costs not covered by change orders;
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development
of new technologies;
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availability
and skill level of workers in the geographic location of a project;
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our
suppliers’ or subcontractors’ failure to perform due to various reasons,
including bankruptcy;
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fraud
or theft committed by our employees or others;
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citations
or fines issued by any governmental authority;
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delays
caused by any government authority;
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difficulties
in obtaining required governmental permits or approvals or performance bonds;
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labor
and material cost greater than anticipated;
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changes
in applicable laws and regulations; and
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claims
or demands from third parties alleging damages arising from our work or from the project
of which our work is a part.
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These
factors may cause actual reduced profitability or losses on projects, which could adversely affect our business, financial condition,
results of operations and prospects.
Energy
development and commercialization of services offerings and the competitiveness, and our ability to complete meaningful joint
venture or partnerships with new and emerging technology.
The
energy technology industry is characterized by rapid innovation, influence by government regulations and the introduction of new
and enhanced solutions. On the Energy sector has been and will continue to evaluate the opportunity for commercialization of solutions
and services offerings, as well as the acceptance of those innovations by customers. A decrease in the ability to secure funding,
partnerships, or the lack of acceptance of innovations by partners, joint ventures or customers, or pull back of government initiatives
or policies could have an adverse effect on our business, results of operations or cash flows.
Our
contracts may require us to perform extra or change order work, which can result in disputes and adversely affect our business,
financial condition, results of operations and prospects.
Our
contracts generally require us to perform extra or change order work as directed by the customer, even if the customer has not
agreed in advance on the scope or price of the extra work to be performed. This process may result in disputes over whether the
work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees
that the work performed qualifies as extra work, the price that the customer is willing to pay for the extra work. Even when the
customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until
the change order is approved by the customer and we are paid by the customer.
To
the extent that actual recoveries with respect to change orders or amounts subject to contract disputes or claims are less than
the estimates used in our financial statements, the amount of any shortfall will reduce our future revenues and profits, and this
could adversely affect our reported working capital and results of operations. In addition, any delay caused by the extra work
may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.
We
derive a significant portion of our revenue from a few customers and the loss of one of these customers, or a reduction in their
demand for our services, could adversely affect our business, financial condition, results of operations and prospects.
Our
customer base on the telecommunication sector is highly concentrated. Due to the size and nature of our contracts, one or a few
customers have represented a substantial portion of our consolidated revenues and gross profits in any one year or over a period
of several consecutive years. Our top four customers accounted for approximately 72% of our total revenues from continuing operations
in the year May 31, 2017. Revenues under our contracts with significant customers may continue to vary from period to period depending
on the timing or volume of work that those customers order or perform with in-house service organizations. A limited number of
customers may continue to comprise a substantial portion of our revenue for the foreseeable future.
Because
we do not maintain any reserves for payment defaults, a default or delay in payment on a significant scale could adversely affect
our business, financial condition, results of operations and prospects. We could lose business from a significant customer for
a variety of reasons, including:
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the
consolidation, merger or acquisition of an existing customer, resulting in a change in
procurement strategies employed by the surviving entity that could reduce the amount
of work we receive;
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our
performance on individual contracts or relationships with one or more significant customers
could become impaired due to another reason, which may cause us to lose future business
with such customers and, as a result, our ability to generate income would be adversely
impacted;
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key
customers could slow or stop spending on initiatives related to projects we are performing
for them due to increased difficulty in the markets as a result of economic downturns
or other reasons.
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Since
many of our customer contracts allow our customers to terminate the contract without cause, our customers may terminate their
contracts with us at will, which could impair our business, financial condition, results of operations and prospects.
Our
failure to adequately expand our direct sales force will impede our growth.
We
will need to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. We
plan to continue to expand our account management/sales force, both domestically and internationally. Identifying and recruiting
qualified personnel and training them requires significant time, expense and attention. If we are unable to hire, develop and
retain talented account management/sales personnel or if the personnel are unable to achieve desired productivity levels in a
reasonable period of time, we may not be able to realize the intended benefits of this investment or increase our revenue.
If
we are unable to attract and retain qualified executive officers and managers, we will be unable to operate efficiently, which
could adversely affect our business, financial condition, results of operations and prospects.
We
depend on the continued efforts and abilities of our management, as well as the senior management of our subsidiaries, to establish
and maintain our customer relationships and identify strategic opportunities. The loss of any one of them could negatively affect
our ability to execute our business strategy and adversely affect our business, financial condition, results of operations and
prospects. Competition for managerial talent with significant industry experience is high and we may lose access to executive
officers for a variety of reasons, including more attractive compensation packages offered by our competitors. Although we have
entered into employment agreements with certain of our senior level management, we cannot guarantee that any of them or other
key management personnel will remain employed by us for any length of time.
Our
contracts may require a tender process and it is difficult to predict whether we will win the tender or bids.
It
is generally very difficult to predict whether and when new contracts will be offered for tender because these contracts frequently
involve a lengthy and complex design and bidding process that is affected by a number of factors, such as market conditions, financing
arrangements and governmental approvals. Because of these factors, our results of operations and cash flows may fluctuate from
quarter to quarter and year to year, and the fluctuation may be substantial. Such delays, if they occur, could adversely affect
our operating results for current and future periods until the affected contracts are completed.
We
derive a significant portion of our telecommunications sector revenues from master service agreements that may be cancelled by
customers on short notice, or which we may be unable to renew on favorable terms or at all.
During
the years ended December 31, 2017 we derived approximately 90%, of our revenues from master service agreements and long-term contracts,
none of which require our customers to purchase a minimum amount of services. The majority of these contracts may be cancelled
by our customers upon minimal notice (typically 60 days), regardless of whether or not we are in default. In addition, many of
these contracts permit cancellation of particular purchase orders or statements of work without any notice.
These
agreements typically do not require our customers to assign a specific amount of work to us until a purchase order or statement
of work is signed. Consequently, projected expenditures by customers are not assured until a definitive purchase order or statement
of work is placed with us and the work is completed. Furthermore, our customers generally require competitive bidding of these
contracts. As a result, we could be underbid by our competitors or be required to lower the prices charged under a contract being
rebid. The loss of work obtained through master service agreements and long-term contracts or the reduced profitability of such
work could adversely affect our business or results of operations.
Unanticipated
delays due to adverse weather conditions, global climate change and difficult work sites and environments may slow completion
of our contracts, impair our customer relationships and adversely affect our business, financial condition, results of operations
and prospects.
Because
some of our work in the telecommunication sector is performed outdoors, our business is impacted by extended periods of inclement
weather and is subject to unpredictable weather conditions, which could become more frequent or severe if general climatic changes
occur. Generally, inclement weather is more likely to occur during the winter season, which falls during our first and fourth
fiscal quarters. Additionally, adverse weather conditions can result in project delays or cancellations, potentially causing us
to incur additional unanticipated costs, reductions in revenues or the payment of liquidated damages. In addition, some of our
contracts require that we assume the risk that actual site conditions vary from those expected. Significant periods of bad weather
typically reduce profitability of affected contracts, both in the current period and during the future life of affected contracts,
which can negatively affect our results of operations in current and future periods until the affected contracts are completed.
Some
of our projects involve challenging engineering, procurement and construction phases that may occur over extended time periods,
sometimes up to several years. We may encounter difficulties in engineering, delays in designs or materials provided by the customer
or a third party, equipment and material delivery delays, schedule changes, delays from customer failure to timely obtain rights-of-way,
weather-related delays, delays by subcontractors in completing their portion of the project and other factors, some of which are
beyond our control, but which may impact our ability to complete a project within the original delivery schedule. In some cases,
delays and additional costs may be substantial, and we may be required to cancel a project and/or compensate the customer for
the delay. We may not be able to recover any of these costs. Any such delays, cancellations, defects, errors or other failures
to meet customer expectations could result in damage claims substantially in excess of revenue associated with a project. These
factors could also negatively impact our reputation or relationships with our customers, which could adversely affect our ability
to secure new contracts.
Environmental
and other regulatory matters could adversely affect our ability to conduct our business and could require expenditures that could
adversely affect our business, financial condition, results of operations and prospects.
Our
operations are subject to laws and regulations relating to workplace safety and worker health that, among other things, regulate
employee exposure to hazardous substances. While immigration laws require us to take certain steps intended to confirm the legal
status of our immigrant labor force, we may nonetheless unknowingly employ illegal immigrants. Violations of laws and regulations
could subject us to substantial fines and penalties, cleanup costs, third- party property damage or personal injury claims. In
addition, these laws and regulations have become, and enforcement practices and compliance standards are becoming, increasingly
stringent. Moreover, we cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed,
or how existing or future laws or regulations will be administered or interpreted, with respect to products or activities to which
they have not been previously applied. Compliance with more stringent laws or regulations, as well as more vigorous enforcement
policies of the regulatory agencies, could require us to make substantial expenditures for, among other things, pollution control
systems and other equipment that we do not currently possess, or the acquisition or modification of permits applicable to our
activities.
Fines,
judgments and other consequences resulting from our failure to comply with regulations or adverse outcomes in litigation proceedings
could adversely affect our business, financial condition, results of operations and prospects.
From
time to time, we may be involved in lawsuits and regulatory actions, including class action lawsuits that are brought or threatened
against us in the ordinary course of business. These actions may seek, among other things, compensation for alleged personal injury,
workers’ compensation, violations of the Fair Labor Standards Act and state wage and hour laws, employment discrimination,
breach of contract, property damage, punitive damages, civil penalties, and consequential damages or other losses, or injunctive
or declaratory relief. Any defects or errors, or failures to meet our customers’ expectations could result in large damage
claims against us. Claimants may seek large damage awards and, due to the inherent uncertainties of litigation, we cannot accurately
predict the ultimate outcome of any such proceedings. Any failure to properly estimate or manage cost, or delay in the completion
of projects, could subject us to penalties.
The
ultimate resolution of these matters through settlement, mediation or court judgment could have a material impact on our financial
condition, results of operations and cash flows. Regardless of the outcome of any litigation, these proceedings could result in
substantial cost and may require us to devote substantial resources to defend ourselves. When appropriate, we establish reserves
for litigation and claims that we believe to be adequate in light of current information, legal advice and professional indemnity
insurance coverage, and we adjust such reserves from time to time according to developments. If our reserves are inadequate or
insurance coverage proves to be inadequate or unavailable, our business, financial condition, results of operations and prospects
may suffer.
If
we are required to reclassify independent contractors as employees, we may incur additional costs and taxes which could adversely
affect our business, financial condition, results of operations and prospects.
We
use a significant number of independent contractors in our operations for whom we do not pay or withhold any federal, state or
provincial employment tax. There are a number of different tests used in determining whether an individual is an employee or an
independent contractor and such tests generally take into account multiple factors. There can be no assurance that legislative,
judicial or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and
regulations that would change, or at least challenge, the classification of our independent contractors. Although we believe we
have properly classified our independent contractors, the U.S. Internal Revenue Service or other U.S. federal or state authorities
or similar authorities of a foreign government may determine that we have misclassified our independent contractors for employment
tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties. If we are required
to pay employer taxes or pay backup withholding with respect to prior periods with respect to or on behalf of our independent
contractors, our operating costs will increase, which could adversely impact our business, financial condition, results of operations
and prospects.
Our
dependence on subcontractors and suppliers could increase our cost and impair our ability to complete contracts on a timely basis
or at all.
We
rely on third-party subcontractors to perform some of the work on our contracts. We also rely on third-party suppliers to provide
materials needed to perform our obligations under those contracts. We generally do not bid on contracts unless we have the necessary
subcontractors and suppliers committed for the anticipated scope of the contract and at prices that we have included in our bid.
Therefore, to the extent that we cannot engage subcontractors or suppliers, our ability to bid for contracts may be impaired.
In addition, if a subcontractor or third-party supplier is unable to deliver its goods or services according to the negotiated
terms for any reason, we may suffer delays and be required to purchase the services from another source at a higher price. We
sometimes pay our subcontractors and suppliers before our customers pay us for the related services. If customers fail to pay
us and we choose, or are required, to pay our subcontractors for work performed or pay our suppliers for goods received, we could
suffer an adverse effect on our business, financial condition, results of operations and prospects.
Our
insurance coverage may be inadequate to cover all significant risk exposures.
We
will be exposed to liabilities that are unique to the services we provide. While we intend to maintain insurance for certain risks,
the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial
costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all
operational risks and liabilities. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could
have a material adverse effect on our business, financial condition, results of operations and prospects.
A
portion of our Telecommunication sector operations are subject to hazards that may cause personal injury or property damage, thereby
subjecting us to liabilities and possible losses, which may not be covered by insurance.
Our
workers are subject to hazards associated with providing construction and related services on construction sites. For example,
some of the work we perform is underground. If the field location maps supplied to us are not accurate, or if objects are present
in the soil that are not indicated on the field location maps, our underground work could strike objects in the soil containing
pollutants that could result in a rupture and discharge of pollutants. In such a case, we may be liable for fines and damages.
These operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment
and environmental damage. Even though we believe that the insurance coverage we maintain is in amounts and against the risks that
we believe are consistent with industry practice, this insurance may not be adequate to cover all losses or liabilities that we
may incur in our operations. To the extent that we experience a material increase in the frequency or severity of accidents or
workers’ compensation claims, or unfavorable developments on existing claims, our business, financial condition, results
of operations and prospects could be adversely affected.
The
Occupational Safety and Health Act of 1970, as amended, or OSHA, establishes certain employer responsibilities, including the
maintenance of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated
by the Occupational Health and Safety and Health Administration and various recordkeeping, disclosure and procedural requirements.
While we have invested, and will continue to invest, substantial resources in occupational health and safety programs, serious
accidents or violations of OSHA rules may subject us to substantial penalties, civil litigation or criminal prosecution, which
could adversely affect our business, financial condition, results of operations and prospects. However our record to date has
had no incidents or losses and we are in full compliance with a 100% safety record.
Defects
in our specialty contracting services may give rise to claims against us, increase our expenses, or harm our reputation.
Our
specialty contracting services are complex and our final work product may contain defects. We have not historically accrued reserves
for potential claims as they have been immaterial. The costs associated with such claims, including any legal proceedings, could
adversely affect our business, financial condition, results of operations and prospects.
Risks
Related to Our Industry
Our
industry is highly competitive, with a variety of larger companies with greater resources competing with us, and our failure to
compete effectively could reduce the number of new contracts awarded to us or adversely affect our market share and harm our financial
performance.
The
contracts on which we bid are generally awarded through a competitive bid process, with awards generally being made to the lowest
bidder, but sometimes based on other factors, such as shorter contract schedules, larger scale to complete projects or prior experience
with the customer. Within our markets, we compete with many national, regional, local and international service providers, including
Dycom Industries, Inc., Goodman Networks, Inc., Ericsson, Nokia and MasTec, Inc. Price is often the principal factor in determining
which service provider is selected by our customers, especially on smaller, less complex projects. As a result, any organization
with adequate financial resources and access to technical expertise may become a competitor. Smaller competitors are sometimes
able to win bids for these projects based on price alone because of their lower costs and financial return requirements. Additionally,
our competitors may develop the expertise, experience and resources to provide services that are equal or superior in price to
our services, and we may not be able to maintain or enhance our competitive position.
Some
of our competitors have already achieved greater market penetration than we have in the markets in which we compete, and some
have greater financial and other resources than we do. A number of national companies in our industry are larger than we are and,
if they so desire, could establish a presence in our markets and compete with us for contracts. As a result of this competition,
we may need to accept lower contract margins in order to compete against competitors that have the ability to accept awards at
lower prices or have a pre-existing relationship with a customer. If we are unable to compete successfully in our markets, our
business, financial condition, results of operations and prospects could be adversely affected.
Many
of the industries we serve are subject to consolidation and rapid technological and regulatory change, and our inability or failure
to adjust to our customers’ changing needs could reduce demand for our services.
We
derive, and anticipate that we will continue to derive, a substantial portion of our revenue from customers in the telecommunications
and utilities industries. The telecommunications and utilities industries are subject to rapid changes in technology and governmental
regulation. Changes in technology may reduce the demand for the services we provide. For example, new or developing technologies
could displace the wireline systems used for the transmission of voice, video and data, and improvements in existing technology
may allow telecommunications providers to significantly improve their networks without physically upgrading them. Alternatively,
our customers could perform more tasks themselves, which would cause our business to suffer. Additionally, the telecommunications
and utilities industries have been characterized by a high level of consolidation that may result in the loss of one or more of
our customers. Our failure to rapidly adopt and master new technologies as they are developed in any of the industries we serve
or the consolidation of one or more of our significant customers could adversely affect our business, financial condition, results
of operations and prospects.
Further,
many of our telecommunications customers are regulated by the Federal Communications Commission, or the FCC, and other international
regulators. The FCC and other regulators may interpret the application of their regulations in a manner that is different than
the way such regulations are currently interpreted and may impose additional regulations, either of which could reduce demand
for our services and adversely affect our business and results of operations.
Economic
downturns could cause capital expenditures in the industries we serve to decrease, which may adversely affect our business, financial
condition, results of operations and prospects.
The
demand for our services has been, and will likely continue to be, cyclical in nature and vulnerable to general downturns in the
United States economy. The United States economy after the election cycle is showing signs of recovering from a recession, and
growth in United States economic activity has remained slow until this year. It is uncertain when these conditions will significantly
improve. The wireless and wireline telecommunications industry are cyclical in nature and vulnerable to general downturns in the
United States and international economies. Our customers are affected by economic changes that decrease the need for or the profitability
of their services. This can result in a decrease in the demand for our services and potentially result in the delay or cancellation
of projects by our customers. Slow-downs in real estate, fluctuations in commodity prices and decreased demand by end-customers
for services could affect our customers and their capital expenditure plans. As a result, some of our customers may opt to defer
or cancel pending projects. A downturn in overall economic conditions also affects the priorities placed on various projects funded
by governmental entities and federal, state and local spending levels.
In
general, economic uncertainty makes it difficult to estimate our customers’ requirements for our services. Our plan for
growth depends on expanding our company both in the United States and internationally. If economic factors in any of the regions
in which we plan to expand are not favorable to the growth and development of the telecommunications industries in those countries,
we may not be able to carry out our growth strategy, which could adversely affect our business, financial condition, results of
operations and prospects.
Other
Risks Relating to Our Company and Results of Operations
Our
operating results may fluctuate due to factors that are difficult to forecast and not within our control.
Our
past telecommunications operating results may not be accurate indicators of future performance, and you should not rely on such
results to predict our future performance.
Our
operating results have fluctuated and could fluctuate in the future. Factors that may contribute to fluctuations include:
|
●
|
changes
in aggregate capital spending, cyclicality and other economic conditions, or domestic
and international demand in the industries we serve;
|
|
●
|
our
ability to effectively manage our working capital;
|
|
●
|
our
ability to satisfy consumer demands in a timely and cost-effective manner;
|
|
●
|
pricing
and availability of labor and materials;
|
|
●
|
shifts
in geographic concentration of customers, supplies and labor pools; and
|
|
●
|
seasonal
fluctuations in demand and our revenue
|
Actual
results could differ from the estimates and assumptions that we use to prepare our financial statements.
To
prepare financial statements in conformity with GAAP, management is required to make estimates and assumptions as of the date
of the financial statements that affect the reported values of assets and liabilities, revenues and expenses, and disclosures
of contingent assets and liabilities. Areas requiring significant estimates by our management include:
|
●
|
contract
costs and profits and application of percentage-of-completion accounting and revenue
recognition of contract change order claims;
|
|
●
|
provisions
for uncollectible receivables and customer claims and recoveries of costs from subcontractors,
suppliers and others;
|
|
●
|
valuation
of assets acquired and liabilities assumed in connection with business combinations;
|
|
●
|
accruals
for estimated liabilities, including litigation and insurance reserves; and
|
|
●
|
goodwill
and intangible asset impairment assessment.
|
At
the time the estimates and assumptions are made, we believe they are accurate based on the information available. However, our
actual results could differ from, and could require adjustments to, those estimates.
We
exercise judgment in determining our provision for taxes in the Canada, United States and Puerto Rico that are subject to tax
authority audit review that could result in additional tax liability and potential penalties that would negatively affect our
net income.
The
amounts we record in intercompany transactions for services, licenses, funding and other items affects our potential tax liabilities.
Our tax filings are subject to review or audit by the U.S. Internal Revenue Service and state, local and foreign taxing authorities.
We exercise judgment in determining our worldwide provision for income and other taxes and, in the ordinary course of our business,
there may be transactions and calculations where the ultimate tax determination is uncertain. Examinations of our tax returns
could result in significant proposed adjustments and assessment of additional taxes that could adversely affect our tax provision
and net income in the period or periods for which that determination is made.
Risks
Related to our Common Stock
Our
common stock price has fluctuated in recent years, and the trading price of our common stock is likely to continue reflect changes,
which could result in losses to investors and litigation.
In
addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this “Risk
Factors” section, the market price of and trading volume for our common stock may change for a variety of other reasons,
not necessarily related to our actual operating performance. The capital markets have experienced extreme volatility that has
often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect
the trading price of our common stock. In addition, the average daily trading volume of the securities of small companies can
be very low, which may contribute to future volatility. Factors that could cause the market price of our common stock to fluctuate
significantly include:
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●
|
the
results of operating and financial performance and prospects of other companies in our
industry;
|
|
●
|
strategic
actions by us or our competitors, such as acquisitions or restructurings;
|
|
●
|
announcements
of innovations, increased service capabilities, new or terminated customers or new, amended
or terminated contracts by our competitors;
|
|
●
|
the
public’s reaction to our press releases, media coverage and other public announcements,
and filings with the SEC;
|
|
●
|
market
conditions for providers of services to telecommunications, utilities OEM’s and
PMO’s service customers;
|
|
●
|
lack
of securities analyst coverage or speculation in the press or investment community about
us or opportunities in the markets in which we compete;
|
|
●
|
changes
in government policies in the United States and, as our international business increases,
in other foreign countries;
|
|
●
|
changes
in earnings estimates or recommendations by securities or research analysts who track
our common stock or failure of our actual results of operations to meet those expectations;
|
|
●
|
dilution
caused by the conversion into common stock of convertible debt securities or by the exercise
of outstanding warrants;
|
|
●
|
market
and industry perception of our success, or lack thereof, in pursuing our growth strategy;
|
|
●
|
changes
in accounting standards, policies, guidance, interpretations or principles;
|
|
●
|
any
lawsuit involving us, our services or our products;
|
|
●
|
arrival
and departure of key personnel;
|
|
●
|
sales
of common stock by us, our investors or members of our management team; and
|
|
●
|
changes
in general market, economic and political conditions in the United States and global
economies or financial markets, including those resulting from natural or man-made disasters.
|
Any
of these factors, as well as broader market and industry factors, may result in large and sudden changes in the trading volume
of our common stock and could seriously harm the market price of our common stock, regardless of our operating performance. This
may prevent stockholders from being able to sell their shares at or above the price they paid for shares of our common stock,
if at all. In addition, following periods of volatility in the market price of a company’s securities, stockholders often
institute securities class action litigation against that company. Our involvement in any class action suit or other legal proceeding,
including the existing lawsuits filed against us and described elsewhere in this report, could divert our senior management’s
attention and could adversely affect our business, financial condition, results of operations and prospects.
If
we do not meet the listing standards of a national securities exchange our investors’ ability to make transactions in our
securities will be limited and we will be subject us to additional trading restrictions.
Our
securities currently are traded over-the-counter on the OTC Pink market and are not qualified to be listed on a national securities
exchange, such as NASDAQ. Accordingly, we face significant material adverse consequences, including:
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●
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a
limited availability of market quotations for our securities;
|
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●
|
reduced
liquidity with respect to our securities;
|
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●
|
our
shares of common stock are currently classified as “penny stock” which requires
brokers trading in our shares of common stock to adhere to more stringent rules, resulting
in a reduced level of trading activity in the secondary trading market for our shares
of common stock;
|
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●
|
a
limited amount of news and analyst coverage for our company; and
|
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●
|
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.” Since our common stock is traded on
the OTC Pink, our common stock is a covered security. Although the states are preempted from regulating the sale of our securities,
the federal statute allows 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 traded over-the-counter, our common stock would not be a covered security and we would be subject to regulation in each
state in which we offer our securities.
Our
shares of common stock are subject to penny stock regulations. Because our common stock is a penny stock, holders of our common
stock may find it difficult or may be unable to sell their shares.
The
SEC has adopted rules that regulate broker/dealer practices in connection with transactions in penny stocks. Penny stocks generally
are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges
or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities
is provided by the exchange system). The penny stock rules require a broker/dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information
about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer
with bid and offer quotations for the penny stock, the compensation of the broker/dealer, and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition,
the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker/dealer
must make a special written determination that a penny stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity
in any secondary market for a stock that becomes subject to the penny stock rules, and accordingly, holders of our common stock
may find it difficult or may be unable to sell their shares.
We
have never paid cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock.
We
have never paid cash dividends and do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We currently intend to retain any earnings to finance our operations and growth. As a result, any short-term return on your investment
will depend on the market price of our common stock, and only appreciation of the price of our common stock, which may never occur,
will provide a return to stockholders. The decision whether to pay dividends will be made by our board of directors in light of
conditions then existing, including, but not limited to, factors such as our financial condition, results of operations, capital
requirements, business conditions, and covenants under any applicable contractual arrangements. Investors seeking cash dividends
should not invest in our common stock.
If
equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade
our common stock, the market price of our common stock will likely decline.
The
trading market for our common stock will rely in part on the research and reports that equity research analysts, over whom we
have no control, publish about us and our business. We may never obtain research coverage by securities and industry analysts.
If no securities or industry analysts commence coverage of our company, the market price for our common stock could decline. In
the event we obtain securities or industry analyst coverage, the market price of our common stock could decline if one or more
equity analysts downgrade our common stock or if those analysts issue unfavorable commentary, even if it is inaccurate, or cease
publishing reports about us or our business.
ITEM
1B – UNRESOLVED STAFF COMMENTS
None.
ITEM
2 – PROPERTIES
Our
principal executive offices are located in Longwood, Florida. We are occupying our offices under a 60-month lease that expires
in June 2018 and provides for monthly lease payments of $13,507.
Set
forth below are the locations of the other properties leased by us, the businesses that use the properties, and the size of each
such property. All of such properties are used by our company or by one of our subsidiaries principally as office facilities to
house their administrative, marketing, and engineering and professional services personnel. We believe our facilities and equipment
to be in good condition and reasonably suited and adequate for our current needs.
Location
|
|
Owned or Leased
|
|
User
|
|
Size (Sq Ft)
|
|
Longwood, FL
|
|
Leased (1)
|
|
AW Solutions
|
|
7,750
|
|
Puerto Rico
|
|
Leased (2)
|
|
AW Solutions
|
|
1,575
|
|
Boca Raton, FL
|
|
Leased (3)
|
|
AW Solutions
|
|
1,282
|
|
Miami, FL
|
|
Leased (4)
|
|
Tropical Communications, Inc.
|
|
3,400
|
|
|
(1)
|
This
multi-building facility is leased pursuant to a lease which the latest expires in February
28, 2019 and provides for monthly rental payments of $13,507.
|
|
(2)
|
This
facility is leased on a month to month basis and provides for monthly payments of $1,500.
|
|
(3)
|
This
facility is leased pursuant to a five-year lease that expires in August 2019 and provides
for monthly base rental payments of $3,491.
|
|
(4)
|
This
facility is leased on a month to month basis and provides for monthly base rental payments
of $3,792.
|
ITEM
3 – LEGAL PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
ITEM
4 – MINE SAFETY DISCLOSURES
Not applicable.
PART
II
ITEM
5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price
Range of Common Stock
Our common stock is currently
available for quotation on the OTC Pink market under the symbol “SGSI”. Previously, our common stock was available
for quotation on the Over-the-Counter Bulletin Board under the symbol “MVTG”.
For the periods indicated,
the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent actual transactions.
|
|
Transition
Period ended
December 31, 2017
|
|
Transition Period:
|
|
High
|
|
|
Low
|
|
Quarter ended December 31, 2017
|
|
$
|
0.02
|
|
|
$
|
0.006
|
|
Quarter ended September 30, 2017
|
|
$
|
0.009
|
|
|
$
|
0.005
|
|
Fiscal 2017
|
|
High
|
|
|
Low
|
|
Quarter ended May 31, 2017
|
|
$
|
0.03
|
|
|
$
|
0.003
|
|
Quarter ended February 28, 2017
|
|
$
|
0.008
|
|
|
$
|
0.003
|
|
Quarter ended November, 2016
|
|
$
|
0.03
|
|
|
$
|
0.005
|
|
Quarter ended August 31, 2016
|
|
$
|
0.02
|
|
|
$
|
0.006
|
|
Fiscal 2016
|
|
High
|
|
|
Low
|
|
Quarter ended May 31, 2016
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
Quarter ended February 28, 2016
|
|
$
|
0.05
|
|
|
$
|
0.01
|
|
Quarter ended November 30, 2015
|
|
$
|
0.10
|
|
|
$
|
0.02
|
|
Quarter ended August 31, 2015
|
|
$
|
0.27
|
|
|
$
|
0.08
|
|
On
April 4, 2018, the closing sale price of our common stock, as reported by OTC Markets, was $0.0058 per share. On April 4, 2018,
there were 173 holders of record of our common stock and 460,682,237 common shares outstanding. Because many of our shares of
common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number
of stockholders represented by these record holders.
Dividends
We
have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our
business. Any future determination to pay cash dividends will be at the discretion of the Board and will be dependent upon our
financial condition, results of operations, capital requirements and such other factors as the Board deems relevant.
Securities
Authorized for Issuance Under Equity Compensation Plans
Information
regarding our equity compensation plans is set forth in Item 12, Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
Unregistered
Sales of Equity Securities
Since
the beginning of the seven month period ended December 31, 2017, we have not sold any equity securities that were not registered
under the Securities Act of 1933 that were not previously reported in an annual report on Form 10-K, in a quarterly report on
Form 10-Q or in a current report on Form 8-K.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
We
did not purchase any of our registered securities during the period covered by this Transition Report.
ITEM
6 – SELECTED FINANCIAL DATA
Not
required under Regulation S-K for “smaller reporting companies.”
ITEM
7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This
Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements
that reflect Management's current views with respect to future events and financial performance. You can identify these statements
by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,”
“estimate” and “continue,” or similar words. Those statements include statements regarding the intent,
belief or current expectations of us and members of its management team as well as the assumptions on which such statements are
based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and
involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking
statements.
Readers
are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with
the Securities and Exchange Commission. Important factors known to us could cause actual results to differ materially from those
in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are
based upon reasonable data derived from and known about our business and operations and the business and operations of the Company.
No assurances are made that actual results of operations or the results of our future activities will not differ materially from
its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s
services, fluctuations in pricing for materials, and competition.
Business
Overview
Telecommunications
Telecommunications
providers and enterprise customers continue to seek and outsource solutions in order to reduce their investment in capital equipment,
provide flexibility in workforce sizing and expand product offerings without large increases in incremental hiring. As a result,
we believe there is significant opportunity to expand both our United States and international telecommunications solutions services
and staffing services capabilities. As we continue to expand our presence in the marketplace, we will target those customers going
through new network deployments and wireless service upgrades.
We
expect to continue to increase our gross margins by leveraging our single-source end-to-end network to efficiently provide a full
spectrum of end-to- end next-generation network solutions and staffing services to our customers. We believe our solutions and
services offerings can alleviate some of the inefficiencies typically present in our industry, which result, in part, from the
highly-fragmented nature of the telecommunications industry, limited access to skilled labor and the difficulty industry participants
have in managing multiple specialty-service providers to address their needs. As a result, we believe we can provide superior
service to our customers and eliminate certain redundancies and costs for them. We believe our ability to address a wide range
of end-to-end solutions, network infrastructure and project-staffing service needs of our telecommunications industry clients
is a key competitive advantage. Our ability to offer diverse technical capabilities (including design, engineering, construction,
deployment, and installation and integration services) allows customers to turn to a single source for those specific specialty
services, as well as to entrust us with the execution of entire turn-key solutions.
We
have become a multi-faceted company with an international presence. We believe this platform will allow us to leverage our corporate
and other fixed costs and capture gross margin benefits. Our platform is highly scalable. We typically hire workers to staff projects
on a project-by-project basis and our other operating expenses are primarily fixed. Accordingly, we are generally able to deploy
personnel to infrastructure projects in the United States and beyond without incremental increases in operating costs, allowing
us to achieve greater margins. We believe this business model enables us to staff our business efficiently to meet changes in
demand.
Finally,
given the worldwide popularity of telecommunications and wireless products and services, we will selectively pursue international
expansion, which we believe represents a compelling opportunity for additional long-term growth.
Our
planned expansion will place increased demands on our operational, managerial, administrative and other resources. Managing our
growth effectively will require us to continue to enhance our operations management systems, financial and management controls
and information systems and to hire, train and retain skilled telecommunications personnel. The timing and amount of investments
in our expansion could affect the comparability of our results of operations in future periods.
Our
planned acquisitions will be timed with additions to our management team of skilled professionals with deep industry knowledge
and a strong track record of execution. Our senior management team brings an average of over 30 years of individual experience
across a broad range of disciplines. We believe our senior management team is a key driver of our success and is well-positioned
to execute our strategy.
We
were incorporated 2007 and functioned as a development stage company with limited activities through 2017.
Energy
Alternatives
We
have developed processes for the electro-reduction of carbon dioxide (“ERC”). During the year, our patents on the
ERC technology lapsed. During the year, our exclusive license agreement for a mixed-reactant fuel cell (“MRFC”) expired
due to non-payment of license fees by us. These events significantly impair our ability to carry on this line of business. Unless
we renew the patents and reach a new agreement to licenses the MRFC technology, it will likely be necessary to discontinue this
line of business.
In
the past, we have contracted out our development work to various laboratories and carried out research and development on our
ERC and MRFC technologies in our own internal laboratory with our own staff in Vancouver, BC. These activities include: experimentation
to improve the process performance; process and economic modeling to optimize the costs of a commercial system; design and simulation
of pilot systems for technology demonstration and validation; business development activities such as the establishment of strategic
and technology development partners; and the design and fabrication of laboratory prototypes, among others.
Factors
Affecting Our Performance
Changes
in Demand for Data Capacity and Reliability.
The
telecommunications industry has undergone and continues to undergo significant changes due to advances in technology, increased
competition as telephone and cable companies converge, the growing consumer demand for enhanced and bundled services and increased
governmental broadband stimulus funding. As a result of these factors, the networks of our customers increasingly face demands
for more capacity and greater reliability. Telecommunications providers continue to outsource a significant portion of their engineering,
construction and maintenance requirements in order to reduce their investment in capital equipment, provide flexibility in workforce
sizing, expand product offerings without large increases in incremental hiring and focus on those competencies they consider core
to their business success. These factors drive customer demand for our services.
The
proliferation of smart phones and other wireless data devices has driven demand for mobile broadband. This demand and other advances
in technology have prompted wireless carriers to upgrade their networks. Wireless carriers are actively increasing spending on
their networks to respond to the explosion in wireless data traffic, upgrade network technologies to improve performance and efficiency
and consolidate disparate technology platforms. These customer initiatives present long-term opportunities for us for the wireless
services we provide. Further, the demand for mobile broadband has increased bandwidth requirements on the wired networks of our
customers. As the demand for mobile broadband grows, the amount of cellular traffic that must be “backhauled” over
customers’ fiber and coaxial networks increases and, as a result, carriers are accelerating the deployment of fiber optic
cables to cellular sites. These trends are increasing the demand for the types of services we provide.
Our
Ability to Recruit, Manage and Retain High-Quality IT and Telecommunications Personnel.
The
shortage of skilled labor in the telecommunications industry and the difficulties in recruiting and retaining skilled personnel
can frequently limit the ability of specialty contractors to bid for and complete certain contracts. We believe our access to
a skilled labor pool gives us a competitive edge over our competitors as we continue to expand.
Our
Ability to Integrate Our Acquired Business and Expand Internationally
We
have completed one material acquisition April 25, 2017 and plan to consummate additional acquisitions in the near term. Our success
will depend, in part, on our ability to successfully integrate these businesses into our telecommunications platform. In addition,
we believe international expansion represents a compelling opportunity for additional growth over the long-term because of the
worldwide need for telecommunications infrastructure. We plan to expand our global presence either by expanding our current operations
or by acquiring subsidiaries with international platforms.
Our
Ability to Expand and Diversify Our Customer Base.
Our
customers for specialty contracting services consist of leading telephone, wireless, cable television, utility and other companies.
Historically, our revenue has been significantly concentrated in a small number of customers. Although we still operate at a net
loss, our revenue this years has increased as we have acquired additional subsidiaries and diversified our customer base and revenue
streams. The percentage of our revenue attributable to our top 10 customers, as well as our only customer that contributed at
least 10% of our revenue in at least one of the years specified in the following table, were as follows:
Impact
of Recently-Completed Acquisitions
We
have grown significantly and expanded our service offerings and geographic reach through a strategic acquisition on April 25,
2017. We have completed one (1) material acquisition of AW Solutions and initiated the new Telecommunication Division. We expect
to regularly review opportunities, and periodically to engage in discussions, regarding possible additional acquisitions. Our
ability to sustain our growth and maintain our competitive position may be affected by our ability to identify, acquire and successfully
integrate companies.
Expiration
and cancelation of patents and licenses for ERC and MRFC technologies
The
ERC and MRFC technologies relate to projects involving research and development of alternative energy methods and uses. The expiration
of our patents and of our exclusive license agreement will significantly impair our ability to carry on this line of business.
Unless we renew the patents and reach a new agreement to licenses the MRFC technology, it will likely be necessary to discontinue
this line of business. As a result, we intend to focus on our telecommunications line of business in the future.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations are based on our historical consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation
of these financial statements requires management to make certain estimates and assumptions that affect the amounts reported therein
and accompanying notes. On an ongoing basis, we evaluate these estimates and assumptions, including those related to recognition
of revenue for costs, the fair value of reporting units for goodwill impairment analysis, the assessment of impairment of intangibles
and other long-lived assets, income taxes, asset lives used in computing depreciation and amortization, allowance for doubtful
accounts, stock-based compensation expense, contingent consideration and accruals for contingencies, including legal matters.
These estimates and assumptions require the use of judgment as to the likelihood of various future outcomes and as a result, actual
results could differ materially from these estimates.
We
have identified the accounting policies below as critical to the accounting for our business operations and the understanding
of our results of operations because they involve making significant judgments and estimates that are used in the preparation
of our historical consolidated financial statements. The impact of these policies affects our reported and expected financial
results and are discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We have discussed the development, selection and application of our critical accounting policies with the Audit Committee of our
board of directors, and the Audit Committee has reviewed the disclosure relating to our critical accounting policies in this “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
Other
significant accounting policies, primarily those with lower levels of uncertainty than those discussed below, are also important
to understanding our historical consolidated financial statements. The notes to our consolidated financial statements in this
report contain additional information related to our accounting policies, including the critical accounting policies described
herein, and should be read in conjunction with this discussion.
Our
consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management
during their preparation. A complete summary of these policies is included in Note 2 of the notes to our financial statements.
We have identified below the accounting policies that are of particular importance in the presentation of our financial position,
results of operations and cash flows, and which require the application of significant judgment by management.
On
January 2, 2018, our Board of Directors approved a change in our fiscal year-end from May 31 to December 31. As a result of this
change, our fiscal year 2017 is a 7 month transition period beginning June 1, 2017 through December 31, 2017. In these consolidated
statements, including the notes thereto, financial results for fiscal 2017 are for a 7 month period. Corresponding results for
the years ended May 31, 2017 and 2016 are both for 12 month periods. In addition, our Consolidated Statements of Earnings and
Consolidated Statements of Cash Flows also include an unaudited 7 month period for fiscal 2016.
Basis
of Presentation/Principles of Consolidation
These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries, Carbon
Commodity Corporation, Climate ESCO Ltd., Mantra Energy Alternatives Ltd., Mantra China Inc., Mantra China Limited, Mantra Media
Corp., Mantra NextGen Power Inc., Mantra Wind Inc., AW Solutions, Inc.(from the date of acquisition, April 25, 2017), Tropical
Communications, Inc. (from the date of acquisition, April 25, 2017) and AW Solutions Puerto Rico, LLC.(from the date of acquisition,
April 25, 2017). All the subsidiaries are wholly-owned with the exception of Climate ESCO Ltd., which is 64.55% owned, Mantra
Energy Alternatives Ltd., which is 88.21% owned and AW Solutions, Inc., Tropical Communications, Inc., and AW Solutions Puerto
Rico, LLC which are all 80.1% owned. All inter-company balances and transactions have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability
of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation
allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors
that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent
there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Accounts
Receivable
Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for
services performed but not billed. At December 31, 2017, unbilled receivables totaled $11,429 (May 31, 2017 - $430,669), and are
included in accounts receivable. Management reviews a customer’s credit history before extending credit. The Company maintains
an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period, and changes
are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable each period.
This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness,
current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate
made by management may also change. The allowance for doubtful accounts was $54,482 at December 31, 2017 (May 31, 2017 - $267,476).
Property
and Equipment
Property
and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives
at the following annual rates:
Automotive
|
|
3-5 years straight-line basis
|
Computer equipment and software
|
|
3-7 years straight-line basis
|
Leasehold improvements
|
|
5 years straight-line basis
|
Office equipment and furniture
|
|
5 years straight-line basis
|
Research equipment
|
|
5 years straight-line basis
|
Goodwill
Goodwill
was generated through the acquisition of AW Solutions in fiscal 2017 as the total consideration paid exceeded the fair value of
the net assets acquired.
The
Company tests its goodwill for impairment at least annually on December 31
st
and whenever events or circumstances change
that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment
has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows;
a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates.
Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s
consolidated financial results.
The
Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used
in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit
margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital
used to discount future cash flows to their present value. There were no impairment charges during the seven months ended December
31, 2017.
Intangible
Assets
At
December 31, 2017 and May 31, 2017, definite-lived intangible assets primarily consist of non-compete agreements, tradenames and
customer relationships which are being amortized over their estimated useful lives ranging from 1-10 years.
The
Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized,
they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances
indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based
on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For
long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted,
probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying
amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
Long-lived
Assets
In
accordance with ASC 360, “
Property, Plant and Equipment
,” the Company tests long-lived assets or asset groups
for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances
which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history
of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed
based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted
cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances.
An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
Foreign
Currency Translation
Transactions
in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date.
Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect
at the balance sheet date. The resulting exchange gains and losses are recognized in income.
The
Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the
temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are
translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical
rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the
same basis as the related asset. The resulting exchange gains or losses are recognized in income.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “
Accounting for Income
Taxes
”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and
for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted
tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance
to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The
Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States,
in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations
in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal
and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment
in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010
to 2017. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S.
state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not
audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
Significant
management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded
against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently
has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which
should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The
Company follows the guidance set forth within ASC Topic 740, “
Income Taxes”
(“ASC Topic 740”) which
prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected
to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more
likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second
step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely
than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification
of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would
be recorded as a component of current income tax expense.
The
Company received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014 in the amount of $166,084
plus penalties and interest of $96,764 for a total obligation due of $262,848. This tax assessment is included in accrued expenses
at December 31, 2017.
Revenue
Recognition
The
Company’s revenues are generated from infrastructure and professional services. The Company recognizes revenue on arrangements
in accordance with ASC Topic 605-10, “
Revenue Recognition
”. The Company recognizes revenue only when the price
is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting
receivable is reasonably assured.
The
infrastructure and professional services revenues are derived from contracts to provide technical engineering services along with
contracting services to commercial and governmental customers. The Company’s service contracts generally require specific
tasks or services that the Company must perform under the contract. The Company recognizes revenues associated with these services
upon the completion of the related task or service which is at the time the four revenue recognition criteria have been met. Direct
costs incurred related to performance of the task or service are deferred and recorded as prepaid expense and are expensed when
the related revenue is recognized.
The
Company also generates revenue from service contracts with certain customers. These contracts are accounted for under the proportional
performance method. Under this method, revenue is recognized in proportion to the value provided to the customer for each project
as of each reporting date.
The
Company records unbilled receivables for revenues earned, but not yet billed.
Cost
of Revenues
Cost
of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by
employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct
materials, insurance claims and other direct costs.
Research
and Development Costs
Research
and development costs are expensed as incurred.
Stock-based
Compensation
The
Company records stock-based compensation in accordance with ASC 718, “
Compensation – Stock Compensation
,”
using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable.
The
Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected
by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables
include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and
projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest
is recognized as an expense in the consolidated statement of operations over the requisite service period.
The
Company applies ASC 505-50, "Equity-Based Payments to Non-Employees" ("ASC 505") with respect to options and
warrants issued to non-employees which requires the use of option valuation models to measure the fair value of the options and
warrants at the measurement date.
Loss
Per Share
The
Company computes loss per share in accordance with ASC 260, “
Earnings per Share
” which requires presentation
of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by
dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury
stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price
for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2017, the Company had
1,162,108,830 (December 31, 2016 – 311,089,881, May 31, 2017 – 647,182,222, May 31, 2016 – 56,260,229) dilutive
potential shares outstanding.
Comprehensive
Loss
ASC
220, “
Comprehensive Income
,” establishes standards for the reporting and display of comprehensive loss and
its components in the financial statements. As of December 31, 2017 and 2016 and May 31, 2017 and 2016, the Company has no items
that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial
statements.
Concentrations
of Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables.
The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the
amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.
The
Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the seven months
ended December 31, 2017, two customers accounted for 42% and 12%, respectively, of consolidated revenues for the period. In addition,
amounts due from these customers represented 27% and 11%, respectively, of trade accounts receivable as of December 31, 2017.
For the period from April 25, 2017 to May 31, 2017, two customers accounted for 48% and 11%, respectively, of consolidated revenues
for the period from April 25, 2017 to May 31, 2017. In addition, amounts due from these customers represented 39% and 8%, respectively,
of trade accounts receivable as of May 31, 2017.
The
Company’s customers are primarily located within the domestic United States of America and Puerto Rico. Revenues generated
within the domestic United States of America accounted for approximately 82% of consolidated revenues for the seven month period
ended December 31, 2017. Revenues generated from customers in Puerto Rico accounted for approximately 18% of consolidated revenues
for the seven month period ended December 31, 2017.
The
Company’s customers are primarily located within the domestic United States of America and Puerto Rico. Revenues generated
within the domestic United States of America accounted for approximately 78% of consolidated revenues for the period from April
25, 2017 to May 31, 2017. Revenues generated from customers in Puerto Rico accounted for approximately 22% of consolidated revenues
for the period from April 25, 2017 to May 31, 2017.
Fair
Value Measurements
The
Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed
by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available
inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy
is defined as follows:
Level
1 – quoted prices for identical instruments in active markets.
Level
2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in
active markets; and.
Level
3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.
Financial
instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable
and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant
and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the seven months
ended December 31, 2017 and 2016. The recorded values of all other financial instruments approximate their current fair values
because of their nature and respective relatively short maturity dates or durations.
Our
financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2017 and May 31, 2017,
consisted of the following:
|
|
Total fair value at
December 31,
2017
$
|
|
|
Quoted prices in active markets
(Level
1)
$
|
|
|
Significant other observable inputs
(Level
2)
$
|
|
|
Significant unobservable inputs
(Level
3)
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability (1)
|
|
|
4,749,712
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,749,712
|
|
|
|
Total fair value at
May 31,
2017
$
|
|
|
Quoted prices in active markets
(Level
1)
$
|
|
|
Significant other observable inputs
(Level
2)
$
|
|
|
Significant unobservable inputs
(Level
3)
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability (1)
|
|
|
3,760,067
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,760,067
|
|
(1)
|
The
Company has estimated the fair value of these derivatives using the Monte-Carlo model and/or a Binomial Model.
|
Fair
value estimates are made at a specific point in time, based on relevant market information and information about the financial
statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 8 for additional
information.
Derivative
Liabilities
The
Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative
instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair
value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly
transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is
to first look at observable market prices for identical assets and liabilities in active markets, where available. When these
are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities,
prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability
of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values
presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in
accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in
measuring financial instruments at fair value as discussed above. As of December 31, 2017 and May 31, 2017, the Company had a
$4,749,712 and $3,760,067 derivative liability, respectively.
Recent
Accounting Pronouncements
In
November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”), which is effective for nonpublic entities for annual reporting periods beginning after December 15,
2016. ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be
classified as non-current in the statement of financial position. The Company has elected to early adopt the requirements of ASU
2015-17 and the results of such adoption are presented within these consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which is effective for nonpublic
entities for annual reporting periods beginning after December 15, 2019. Under ASU 2016-02, lessees will be required to recognize
the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is
a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. The Company continues to evaluate the effects of ASU 2016-02 and does not expect that the adoption will have a material
effect on its consolidated financial statements and disclosures.
In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is amended by ASU 2015-14,
ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-10, ASU 2017-13 and ASU 2017-14, which FASB issued in
August 2015, March 2016, April 2016, May 2016, May 2016, December 2016, May 2017, September 2017 and November 2017, respectively
(collectively, the amended ASU 2014-09). The amended ASU 2014-09 provides a single comprehensive model for the recognition of
revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific
guidance. It requires an entity to recognize revenue when the entity transfers promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amended
ASU 2014-09 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s). The
amended ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including qualitative and quantitative information about contracts with customers, significant
judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The effective date
for the amended ASU 2014-09 is December 15, 2017 with early adoption permitted. The Company expects to adopt the new guidance
under the modified retrospective transition approach and while we are still assessing the impact of adoption we do not expect
the new guidance to have a material impact on the consolidated financial statements of the Company.
In
January 2017, the FASB issued ASU 2017-01, “
Business Combinations (Topic 805) Clarifying the Definition of a Business
”
(“ASU 2017-01”). The Amendments in this Update clarify the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation.
The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.
Early adoption of this standard is permitted. The Company will adopt ASU 2017-01 on January 1, 2018, and the impact on the consolidated
financial statements of the Company will depend on the facts and circumstances of any specific future transactions.
In
January 2017, the FASB issued ASU No. 2017-04, “
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment
” (“ASU 2017-04”). This standard will simplify the subsequent measurement of goodwill
by eliminating Step 2 from the goodwill impairment test. Current guidance requires that companies compute the implied fair value
of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and
liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the
fair value of assets acquired and liabilities assumed in a business combination. This standard will require companies to perform
annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity
should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;
however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This standard will
be effective for annual periods beginning after December 15, 2020, including interim periods within that reporting period, and
will be applied prospectively. Early adoption of this standard is permitted on testing dates after January 1, 2017. The Company
will adopt ASU No. 2017-04 on January 1, 2018. The Company notes that this guidance applies to its reporting requirements and
will implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this
update will have a material impact on the consolidated financial statements.
The
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and
does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact
on its financial position or result of operations.
Results
of Operations
Seven
Months Ended December 31, 2017 Compared to unaudited Seven Months Ended December 31, 2016
The
following summary of our results of operations should be read in conjunction with our financial statements for the seven months
ended December 31, 2017 and 2016.
Our
operating results for the seven months ended December 31, 2017 and 2016 are summarized as follows:
|
|
2017
|
|
|
2016
|
|
Statement of Operations Data:
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,872,457
|
|
|
$
|
-
|
|
Gross profit
|
|
|
769,105
|
|
|
|
|
|
Operating expenses
|
|
|
1,969,698
|
|
|
|
269,677
|
|
Loss from operations
|
|
|
(1,200,593
|
)
|
|
|
(269,677
|
)
|
Total other expense
|
|
|
(631,543
|
)
|
|
|
(656,429
|
)
|
Net loss attributable to common stockholders
|
|
|
(1,803,758
|
)
|
|
|
(926,106
|
)
|
Net loss per share, basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Net loss per share, diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Basic weighted average shares outstanding
|
|
|
277,629,106
|
|
|
|
98,578,928
|
|
Diluted weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Our
significant balances sheet accounts as of December 31, 2017 and May 31, 2017 are summarized as follows:
|
|
December 31,
2017
|
|
|
May 31,
2017
|
|
Balance sheet data:
|
|
|
|
|
|
|
Cash
|
|
$
|
28,893
|
|
|
$
|
345,102
|
|
Accounts receivable, net
|
|
|
1,473,377
|
|
|
|
1,623,200
|
|
Total current assets
|
|
|
1,543,333
|
|
|
|
2,100,457
|
|
Goodwill and intangible assets, net
|
|
|
2,872,917
|
|
|
|
2,964,360
|
|
Total assets
|
|
|
4,505,340
|
|
|
|
5,188,777
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
10,932,340
|
|
|
|
9,966,073
|
|
Long-term liabilities
|
|
|
-
|
|
|
|
-
|
|
Stockholders' (deficit) equity
|
|
|
(6,427,000
|
)
|
|
|
(4,777,296
|
)
|
Revenue
Our
revenue increased from $0 for the seven months ended December 31, 2016 to $5,872,457 for the seven months ended December 31, 2017.
During 2017, all of our revenue and a significant portion of our expense was generated by our acquired company AW Solutions. During
the seven months ended December 31, 2016, the Company did not generate any revenue.
A
significant portion of our services are performed under master service agreements and other arrangements with customers that extend
for periods of one or more years. We are currently party to numerous master service agreements, and typically have multiple agreements
with each of our customers. Master Service Agreements (MSA’s) generally contain customer-specified service requirements,
such as discreet pricing for individual tasks. To the extent that such contracts specify exclusivity, there are often a number
of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service
providers, perform work with the customer’s own employees and use other service providers when jointly placing facilities
with another utility. In most cases, a customer may terminate an agreement for convenience with written notice. The remainder
of our services are provided pursuant to contracts for specific projects. Long-term contracts relate to specific projects with
terms in excess of one year from the contract date. Short-term contracts for specific projects are generally of three to four
months in duration.
The
percentage of revenue from long-term contracts varies between periods depending on the mix of work performed under our contracts.
All revenues derived from master service agreements are from customers that are serviced by our applications and infrastructure
and professional services segments. The decline in revenues from multi-year master service agreements is due to the addition of
our cloud services segment and managed services segment, which do not derive revenues from multi-year master service agreements.
Cost
of Revenues
Cost
of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by
employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct
materials, insurance claims and other direct costs.
For
a majority of the contract services we perform, our customers provide all required materials while we provide the necessary personnel,
tools and equipment. Materials supplied by our customers, for which the customer retains financial and performance risk, are not
included in our revenue or costs of revenues. We expect cost of revenues to continue to increase if we succeed in continuing to
grow our revenue.
General
and Administrative Costs.
General
and administrative costs include all of our corporate costs, as well as costs of our subsidiaries’ management personnel
and administrative overhead. These costs primarily consist of employee compensation and related expenses, including legal, consulting
and professional fees, information technology and development costs, provision for or recoveries of bad debt expense and other
costs that are not directly related to performance of our services under customer contracts. Information technology and development
costs included in general and administrative expenses are primarily incurred to support and to enhance our operating efficiency.
We expect these expenses to continue to generally increase as we expand our operations, but expect that such expenses as a percentage
of revenues will decrease if we succeed in increasing revenues.
General
and administrative costs were $539,798 for the seven months ended December 31, 2017, compared to $246,232 for the seven months
ended December 31, 2016. The increase in general and administrative expenses was due to the acquisition of AW Solutions.
Salaries
& Wages Expenses.
Salaries
and wages were $1,299,951 for the seven months ended December 31, 2017, compared to $4,719 for the seven months ended December
31, 2016. The increase during the seven months ended December 31, 2017, was primarily a result of our acquisition of AW Solutions
in April 2017.
Net
Income (Loss).
Our
net loss attributable to common stockholders increased from $914,686 for the seven months ended December 31, 2016 to $1,803,758
for the seven months ended December 31, 2017. As of December 31, 2017, our stockholders’ deficit was $6,427,000.
Accounts
Receivable
We
had accounts receivable at December 31, 2017 and May 31, 2017 of $1,473,377 and $1,623,200, respectively. The decrease in accounts
receivable was a result of lower sales due to the impacts of Hurricanes Irma and Maria.
Capital
expenditures
We
had capital expenditures of $3,635 and $Nil for the seven months ended December 31, 2017 and 2016, respectively. We expect our
capital expenditures for the 12 months ended December 31, 2018 to increase to some degree. These capital expenditures will be
primarily utilized for equipment needed related to fiber operations and office equipment. We expect to fund such capital expenditures
out of our working capital.
Goodwill
and Indefinite Lived Intangible Assets
Goodwill
was $1,503,633 as of December 31, 2017 and May 31, 2017.
Goodwill
was generated through the acquisitions we have made during 2017. As the total consideration we paid for our completed acquisitions
exceeded the value of the net assets acquired, we recorded goodwill for each of our completed acquisitions (see Note 3) of the
Notes to our consolidated financial statements included in this report). At the date of acquisition, we performed a valuation
to determine the value of the goodwill and intangible assets, along with the allocation of assets and liabilities acquired. The
goodwill is attributable to synergies and economies of scale provided to us by the acquired entity.
We
perform our annual impairment test on December 31
st
at the reporting unit level, which is consistent with our operating
segments. Our two (2) reportable segments are infrastructure and professional services, and energy services. Infrastructure and
professional services comprised of AW Solutions the energy services operating segment is comprised of Mantra Energy Alternatives
(MEA). These reporting units are aggregated to form two (2) operating segments and two (2) reportable segments for financial reporting
and for the evaluation of goodwill for impairment. As our business evolves and the acquired entities continue to be integrated,
our operating segments may change. This may require us to reassess how goodwill at our reporting units are evaluated for impairment.
We
perform the impairment testing at least annually or at other times if we believe that it is more likely than not that there may
be an impairment to the carrying value of our intangible assets with indefinite lives and goodwill. If it is more likely than
not that goodwill impairment exists, the second step of the goodwill impairment test should be performed to measure the amount
of impairment loss, if any.
We
consider the results of an income approach and a market approach in determining the fair value of the reportable units. We evaluated
the forecasted revenue using a discounted cash flow model for each of the reporting units. We also noted no unusual cost factors
that would impact operations based on the nature of the working capital requirements of the components comprising the reportable
units. Current operating results, including any losses, are evaluated by us in the assessment of goodwill and other intangible
assets. The estimates and assumptions used in assessing the fair value of the reporting units and the valuation of the underlying
assets and liabilities are inherently subject to significant uncertainties. Key assumptions used in the income approach in evaluating
goodwill are forecasts for each of the reporting unit revenue growth rates along with forecasted discounted free cash flows for
each reporting unit, aggregated into each reporting segment. For the market approach, we used the guideline public company method,
under which the fair value of a business is estimated by comparing the subject company to similar companies with publicly-traded
ownership interests. From these “guideline” companies, valuation multiples are derived and then applied to the appropriate
operating statistics of the subject company to arrive at indications of value.
While
we use available information to prepare estimates and to perform impairment evaluations, actual results could differ significantly
from these estimates or related projections, resulting in impairment related to recorded goodwill balances. Additionally, adverse
conditions in the economy and future volatility in the equity and credit markets could impact the valuation of our reporting units.
We can provide no assurances that, if such conditions occur, they will not trigger impairments of goodwill and other intangible
assets in future periods.
Events
that could cause the risk for impairment to increase are the loss of a major customer or group of customers, the loss of key personnel
and changes to current legislation that may impact our industry or its customers’ industries.
Income
Taxes
As
of December 31, 2017, the Company had federal net operating loss carryforwards (“NOL’s”) of $11,758,850 that
will be available to reduce future taxable income, if any. These NOL’s begin to expire in 2027.
Sections
382 and 383 of the Internal Revenue Code of 1986, as amended, provide for annual limitations on the utilization of net operating
loss, capital loss and credit carryforwards if the Company were to undergo an ownership change, as defined in Section 382 of the
Code. In general, an ownership change occurs whenever the percentage of the shares of a corporation owned, directly or indirectly,
by 5-percent shareholders, as defined in Section 382 of the Code, increases by more than 50 percentage points over the lowest
percentage of the shares of such corporation owned, directly or indirectly, by such 5-percent shareholders at any time over the
preceding three years. In the event such ownership change occurs, the annual limitation may result in the expiration of net operating
losses capital losses and credits prior to full utilization.
The
Company has not completed a study to assess whether ownership change has occurred as a result of the Company’s acquisition
of AWS and related issuance of shares (See Note 3). However, as a result of the issuance of common shares in 2017, the Company
believes an ownership change under Sec. 382 may have occurred. As a result of this ownership change certain of the Company’s
net operating loss, capital loss and credit carryforwards will expire prior to full utilization.
The
Company performs an analysis each year to determine whether the expected future income will more likely than not be sufficient
to realize the deferred tax assets. The Company's recent operating results and projections of future income weighed heavily in
the Company's overall assessment. Prior to 2017, there were no provisions (or benefits) for income taxes because the Company had
sustained cumulative losses since the commencement of operations.
The
Company’s continuing practice is to recognize interest and/or penalties related to income tax matters as a component of
income tax expense. As of December 31, 2017, there was no accrued interest and penalties related to uncertain tax positions.
The
Company is subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within
each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to
apply. Due to the Company's net operating loss carryforwards all years remain open to examination by the major domestic taxing
jurisdictions to which the Company is subject. In addition, all of the net operating loss and credit carryforwards that may be
used in future years are still subject to adjustment.
Liquidity
and Financial Condition
As
of December 31, 2017, our total current assets were $1,543,333 and our total current liabilities were $10,932,340, resulting in
a working capital deficit of $9,389,007 compared to working capital deficit of $7,865,616 as of May 31, 2017.
We
have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining
profitable operations and raising additional capital as needed. In this regard we have historically raised additional capital
through equity offerings and loan transactions.
Cash
Flows
|
|
Seven months Ended
|
|
|
Seven months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net Cash Used in Operating Activities
|
|
$
|
(551,632
|
)
|
|
$
|
(170,415
|
)
|
Net Cash Provided by (Used) In Investing Activities
|
|
$
|
(3,635
|
)
|
|
$
|
-
|
|
Net Cash Provided by Financing Activities
|
|
$
|
239,058
|
|
|
$
|
170,697
|
|
Cash (decrease) increase during the seven months
|
|
$
|
(316,209
|
)
|
|
$
|
282
|
|
The
decrease in cash that we experienced during the seven month period ended December 31, 2017 as compared to the small increase of
cash during the seven month period ended December 31, 2016 was primarily a result of an increase in cash used in operating activities
due to acquisition of AW Solutions. We expect our cash from operations to increase in the coming year, due to operating profits
in our telecommunications division. We have not been able to reach the break-even point since our inception and have had to rely
on raising capital. We anticipate generating increased revenues over the next year. Over the next 12 months, we anticipate raising
additional funds, and we plan to primarily concentrate on our telecommunications business and associated projects.
In
order to improve our liquidity, we intend to pursue additional equity financing from private placement sales of our equity securities
or shareholders’ loans. Issuances of additional shares will result in dilution to our existing shareholders. There is no
assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary
additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses
in order to preserve our liquidity.
Results
of Operations
Fiscal
year Ended May 31, 2017 Compared to Fiscal year Ended May 31, 2016
The
following summary of our results of operations should be read in conjunction with our audited financial statements for the years
ended May 31, 2017 and 2016.
Our
operating results for the years ended May 31, 2017 and 2016 are summarized as follows:
|
|
2017
|
|
|
2016
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,069,917
|
|
|
$
|
70,298
|
|
Gross profit
|
|
|
249,414
|
|
|
|
70,298
|
|
Operating expenses
|
|
|
5,011,243
|
|
|
|
922,862
|
|
Loss from operations
|
|
|
(4,761,829
|
)
|
|
|
(852,564
|
)
|
Total other expense
|
|
|
(2,109,458
|
)
|
|
|
(1,367,296
|
)
|
Net loss attributable to common stockholders
|
|
|
(6,871,287
|
)
|
|
|
(2,219,860
|
)
|
Net loss per share, basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
Net loss per share, diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
Basic weighted average shares outstanding
|
|
|
117,085,052
|
|
|
|
78,327,306
|
|
Diluted weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Balance sheet data:
|
|
|
|
|
|
|
Cash
|
|
$
|
345,102
|
|
|
$
|
1,119
|
|
Accounts receivable, net
|
|
|
1,623,200
|
|
|
|
7,358
|
|
Total current assets
|
|
|
2,100,457
|
|
|
|
13,266
|
|
Goodwill and intangible assets, net
|
|
|
2,964,360
|
|
|
|
62,615
|
|
Total assets
|
|
|
5,188,777
|
|
|
|
171,027
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9,966,073
|
|
|
|
2,845,939
|
|
Long-term liabilities
|
|
|
-
|
|
|
|
3,308
|
|
Stockholders' (deficit) equity
|
|
|
(4,777,296
|
)
|
|
|
(2,678,220
|
)
|
Revenue
Our
revenue increased from $70,298 for the year ended May 31, 2016 to $1,069,917 for the year ended May 31, 2017. Our net loss attributable
to common stockholders increased from $2,219,860 for the year ended May 31, 2016 to $6,871,287 for the year ended May 31, 2017.
As of May 31, 2016, our stockholders’ deficit was $4,777,296. During 2017, all of our revenue and a significant portion
of our expense was generated by our acquired company AW Solutions. During the year ended May 31, 2016, the Company generated a
nominal amount of revenue from the provision of research and development services.
A
significant portion of our services are performed under master service agreements and other arrangements with customers that extend
for periods of one or more years. We are currently party to numerous master service agreements, and typically have multiple agreements
with each of our customers. Master Service Agreements (MSA’s) generally contain customer-specified service requirements,
such as discreet pricing for individual tasks. To the extent that such contracts specify exclusivity, there are often a number
of exceptions, including the ability of the customer to issue work orders valued above a specified dollar amount to other service
providers, perform work with the customer’s own employees and use other service providers when jointly placing facilities
with another utility. In most cases, a customer may terminate an agreement for convenience with written notice. The remainder
of our services are provided pursuant to contracts for specific projects. Long-term contracts relate to specific projects with
terms in excess of one year from the contract date. Short-term contracts for specific projects are generally of three to four
months in duration.
The
percentage of revenue from long-term contracts varies between periods depending on the mix of work performed under our contracts.
All revenues derived from master service agreements are from customers that are serviced by our applications and infrastructure
and professional services segments. The decline in revenues from multi-year master service agreements is due to the addition of
our cloud services segment and managed services segment, which do not derive revenues from multi-year master service agreements.
|
|
2017
|
|
|
2016
|
|
Revenue from:
|
|
|
|
|
|
|
Infrastructure & Professional Services
|
|
$
|
1,069,917
|
|
|
|
Nil
|
|
Energy Services & Solutions
|
|
|
Nil
|
|
|
$
|
70,298
|
|
As a percentage of total revenue:
|
|
|
|
|
|
|
|
|
Infrastructure & Professional Services
|
|
|
100
|
%
|
|
|
-
|
|
Energy Services & Solutions
|
|
|
-
|
|
|
|
100
|
%
|
Cost
of Revenues
Cost
of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by
employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct
materials, insurance claims and other direct costs.
For
a majority of the contract services we perform, our customers provide all required materials while we provide the necessary personnel,
tools and equipment. Materials supplied by our customers, for which the customer retains financial and performance risk, are not
included in our revenue or costs of revenues. We expect cost of revenues to continue to increase if we succeed in continuing to
grow our revenue.
General
and Administrative Costs
General
and administrative costs include all of our corporate costs, as well as costs of our subsidiaries’ management personnel
and administrative overhead. These costs primarily consist of employee compensation and related expenses, including legal, consulting
and professional fees, information technology and development costs, provision for or recoveries of bad debt expense and other
costs that are not directly related to performance of our services under customer contracts. Information technology and development
costs included in general and administrative expenses are primarily incurred to support and to enhance our operating efficiency.
We expect these expenses to continue to generally increase as we expand our operations, but expect that such expenses as a percentage
of revenues will decrease if we succeed in increasing revenues.
General
and administrative costs were $106,114 for the year ended May 31, 2017, compared to $559,316 for the year ended May 31, 2016.
The decrease in general and administrative expenses was because of cost cutting resulting in less staff and overhead prior to
the acquisition of AW Solutions.
Salaries
& Wages Expenses
Salaries
and wages were $4,845,260 for the year ended May 31, 2017, compared to $335,638 for the year ended May 31, 2016. The increase
during the year ended May 31, 2017, was primarily the result of issuing 124,251,510 shares with a fair value of $3,976,048 to
two new directors of the Company in exchange for services provided.
Accounts
Receivable
We
had accounts receivable at May 31, 2017 and 2016 of $1,623,200 and $7,358, respectively. At May 31, 2016, the Company’s
receivables consisted solely of input tax credits receivable. At May 31, 2017, almost all of the Company’s receivables were
trade accounts receivables related to AW Solutions.
Capital
expenditures
We
had capital expenditures of $0 and $16,748 for the years ended May 31, 2017 and 2016, respectively. We expect our capital expenditures
for the 12 months ended May 31, 2018 to increase to some degree with in the integration of AW Solutions. These capital expenditures
will be primarily utilized for equipment needed related to fiber operations and office equipment. We expect to fund such capital
expenditures out of our working capital.
Liquidity
and Financial Condition
As
of May 31, 2017, our total current assets were $2,100,457 and our total current liabilities were $9,966,073, resulting in a working
capital deficit of $7,865,616 compared to working capital deficit of $2,832,673 as of May 31, 2016.
We
have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining
profitable operations and raising additional capital as needed. In this regard we have historically raised additional capital
through equity offerings and loan transactions.
Cash
Flows
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net Cash Used in Operating Activities
|
|
$
|
(403,732
|
)
|
|
$
|
(463,370
|
)
|
Net Cash Provided by (Used) In Investing Activities
|
|
$
|
116,612
|
|
|
$
|
(16,748
|
)
|
Net Cash Provided by Financing Activities
|
|
$
|
631,103
|
|
|
$
|
473,791
|
|
Cash (decrease) increase during the year
|
|
$
|
343,983
|
|
|
$
|
(6,327
|
)
|
The
increase in cash that we experienced during fiscal 2017 as compared to the decrease of cash during fiscal 2016 was primarily due
to acquisition of AW Solutions and increased funding activities during the year, which, added cash to our balance sheet. We obtained
$631,103 during the year in funding. This was offset in part by cash used in operating activities $403,732. We expect that our
cash position will increase next year, due to operating profits in our telecommunications division. We have not been able to reach
the break-even point since our inception and have had to rely on outside capital resources. We anticipate making significant revenues
for the next year. Over the next 12 months, subject to raising additional funds, we plan to primarily concentrate on our telecommunications
business and associated projects.
In
order to improve our liquidity, we intend to pursue additional equity financing from private placement sales of our equity securities
or shareholders’ loans. Issuances of additional shares will result in dilution to our existing shareholders. There is no
assurance that we will be successful in completing any further private placement financings. If we are unable to achieve the necessary
additional financing, then we plan to reduce the amounts that we spend on our business activities and administrative expenses
in order to be within the amount of capital resources that are available to us.
Off-Balance
Sheet Arrangements
We
have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our
financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to our stockholders.
Inflation
The
effect of inflation on our revenue and operating results has not been significant.
ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
required under Regulation S-K for “smaller reporting companies.”
ITEM
8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements
is found in Item 15.
ITEM
9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM
9A – CONTROLS AND PROCEDURES
Evaluation
of disclosure controls and procedures.
Our
management, with the participation of our Chief Executive Officer, evaluated the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect
the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits
of possible controls and procedures relative to their costs.
Based
on management’s evaluation, our Chief Executive Officer concluded that, as a result of the material weaknesses described
below, as of December 31, 2017, our disclosure controls and procedures are not designed at a reasonable assurance level and are
not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and
that such information is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate,
to allow timely decisions regarding required disclosure. The material weaknesses, which relate to internal control over financial
reporting, that were identified are:
|
a)
|
Due
to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The
areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval
of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility
that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis;
and
|
|
|
|
|
b)
|
We
do not have any formally adopted internal controls surrounding its cash and financial reporting procedures.
|
We
are committed to improving our financial organization. In addition, we will look to increase our personnel resources and technical
accounting expertise within the accounting function to resolve non-routine or complex accounting matters. In addition, as funds
are available, we will take the following action to enhance our internal controls: Hiring additional knowledgeable personnel with
technical accounting expertise to further support our current accounting personnel, which management estimates will cost approximately
$200,000 per annum. As our operations are relatively small we expect that both our technical and accounting expertise will be
improved, however our overall financial requirements will only increase. We continue to have net cash losses each quarter, we
do not anticipate being able to hire additional internal personnel until such time as our operations are profitable on a cash
basis or until our operations are large enough to justify the hiring of additional accounting personnel. We currently engage an
outside accounting firm to assist us in the preparation of our consolidated financial statements this past year and will plan
to evaluate our internal capabilities as we integrate the business segments to address the sufficient number of internal accounting
personnel to achieve compliance. As necessary, we will engage consultants in the future in order to ensure proper accounting for
our consolidated financial statements.
Due
to the fact that our internal accounting staff consists solely of a Chief Executive Officer, who functions as our Principal Accounting
Officer, additional personnel will also ensure the proper segregation of duties and provide more checks and balances within the
department. Additional personnel will also provide the cross training needed to support us if personnel turn over issues within
the department occur. We believe this will greatly decrease any control and procedure issues we may encounter in the future.
Management’s
report on internal control over financial reporting.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange
Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based
on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was
not effective as of December 31, 2017 for the reasons discussed above.
Changes
in internal control over financial reporting.
There
were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2017 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B – OTHER INFORMATION
None.
PART
III
ITEM
10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our
bylaws state that the authorized number of directors shall be not less than one and not more than fifteen and shall be set by
resolution of the board of directors. Our board of directors consists of two (2) members, all of whom are not considered “independent
directors,” as defined in applicable rules of the SEC and NASDAQ. Officers are appointed and serve at the discretion of
our board of directors. There are no family relationships among any of our directors or executive officers.
Our
current directors and officers are as follows:
Name
|
|
Position
|
|
Age
|
|
|
Date First Elected or
Appointed
|
Roger M. Ponder
|
|
Chief Executive Officer and Chairman of the Board
|
|
|
65
|
|
|
June 6, 2017
|
Keith W. Hayter
|
|
President and Director
|
|
|
53
|
|
|
June 6, 2017
|
Our
directors serve until our next annual shareholder meeting or until his successor is elected who accepts the position. Officers
hold their positions at the pleasure of the board of directors. There are no arrangements, agreements or understandings between
non-management security holders and management under which non-management security holders may directly or indirectly participate
in or influence the management of our affairs.
The
following is information about the experience and attributes of the members of our board of directors and senior executive officers
as of the date of this report. The experience and attributes of our directors discussed below provide the reasons that these individuals
were selected for board membership, as well as why they continue to serve in such positions.
Roger
M. Ponder, Chief Executive Officer and Chairman of the Board
Mr.
Ponder, age 65, has served as a director of the Company since April 2017. Mr. Ponder was the President and Chief Executive Officer
of Summit Capital Advisors LLC and Summit Broadband LLC, a provider of consulting services to private equity and institutional
banking entities in the telecommunications, cable and media/internet sectors, since August 2009. Mr. Ponder prior served as Chief
Operating Officer of InterCloud Systems, Inc. from November 2012 to March 2015. From January 2005 to August 2009, he was the President
- Midwest/Kansas City Division of Time Warner Cable. Mr. Ponder was a member of the United Way Board of Trustees - Kansas City
from January 2006 to January 2011. Mr. Ponder received his B.S. from Rollins College in Business Administration and Economics.
Mr. Ponder brings extensive business development, strategic planning and operational experience to the Company.
The
Company entered into an employment agreement (the “Ponder Agreement”) with Mr. Ponder, effective as of June 6, 2017.
The form of the Ponder Agreement was approved by the Board. The Ponder Agreement has a three-year term and will automatically
renew for successive one-year terms unless the Company or Mr. Ponder elects to terminate the agreement by giving 60 days’
notice prior to the end of the current term. Mr. Ponder will receive a base annual salary of $220,000, which may be increased
(but not decreased) by the Board (or a committee thereof) in its sole discretion.
In
addition, Mr. Ponder is entitled to receive annual incentive (bonus) compensation as the Board shall determine. His target bonus
is equal to 60% of Mr. Ponder’s base salary for that fiscal year. Mr. Ponder was also granted a stock option to purchase
shares of the Company’s Common Stock as determined by the Board under the Company's Performance Incentive Plan, to participate
in various employee benefit plans and to be reimbursed for out-of-pocket expenses. Mr. Ponder currently holds 108,500,000 Common
Shares.
Keith
W. Hayter, President and Director
On
June 6, 2017, the Board appointed Keith W. Hayter to serve as President of the Company, effective immediately. Mr. Hayter, age
53, has served as a director of the Company since April 2017. Mr. Hayter has served as the Chief Executive Officer and President
of AW Solutions Inc. and AW Solutions Puerto Rico LLC since 2006. Mr. Hayter attended Platt College, the City and Guilds Institute
and the City and East London College. Mr. Hayter brings extensive multi-national experience in the start-up, development and management
in the telecommunication and construction industry.
The
Company entered into an employment agreement (the “Hayter Agreement”) with Mr. Hayter, effective as of June 6, 2017.
The Hayter Agreement has a three-year term and will automatically renew for successive one-year terms unless the Company or Mr.
Hayter elects to terminate the agreement by giving 60 days’ notice prior to the end of the current term. Mr. Hayter will
receive a base annual salary of $210,000, which may be increased (but not decreased) by the Board (or a committee thereof) in
its sole discretion.
In
addition, Mr. Hayter is entitled to receive annual incentive (bonus) compensation as the Board shall determine. His target bonus
is equal to 60% of Mr. Hayter’s base salary for that fiscal year. Mr. Hayter was also granted a stock option to purchase
shares of the Company’s Common Shares as determined by the Board under the Company's Performance Incentive Plan, to participate
in various employee benefit plans and to be reimbursed for out-of-pocket expenses. Mr. Hayter currently holds 108,500,000 Common
Shares.
Family
Relationships
None.
Board
Independence and Committees
We
are not required to have any independent members of the Board of Directors.
Involvement
in Certain Legal Proceedings
To the best of our knowledge,
none of our directors or executive officers has, during the past ten years:
1.
|
been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other
minor offences);
|
2.
|
had
any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or
business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or
within two years prior to that time;
|
3.
|
been
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction
or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement
in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities,
or to be associated with persons engaged in any such activity;
|
4.
|
been
found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to
have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
5.
|
been
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an
alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement
or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
6.
|
been
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined
in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or persons associated with a member.
|
Code
of Ethics
We
adopted a Code of Ethics applicable to all of our directors, officers, employees and consultants, which is a “code of ethics”
as defined by applicable rules of the SEC. Our Code of Ethics was attached as an exhibit to our Registration Statement filed on
Form S-1filed with the SEC on February 26, 2008. If we make any amendments to our Code of Ethics other than technical, administrative,
or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics
to our Chief Executive Officer, Chief Financial Officer, or certain other finance executives, we will disclose the nature of the
amendment or waiver, its effective date and to whom it applies in a Current Report on Form 8-K filed with the SEC.
We
have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors. We will provide
a copy of our Code of Business Conduct and Ethics, without charge, to any person desiring a copy, by written request to our company
at 300 Crown Oak Centre Drive, Longwood, Florida, 32750.
Section
16(a) Beneficial Ownership Compliance Reporting
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more
than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports
of changes in ownership and annual reports concerning their ownership of our shares of common stock and other equity securities,
on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations
to furnish us with copies of all Section 16(a) reports they file.
Based
on a review of the copies of such reports and the written representations of such reporting persons, we believe that all Section
16(a) filing requirements applicable to our executive officers, directors and 10% stockholders were complied with during the transition
period ended December 31, 2017.
ITEM
11 – EXECUTIVE COMPENSATION
The
following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive
Officer, the two highest paid executive officers and up to two other highest paid individuals whose total annual salary and bonus
exceeded $100,000 for the transition period ended December 31, 2017 and the fiscal year ended May 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Non-Qualified
|
|
|
|
|
|
|
|
Name &
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
Plan
|
|
|
Deferred
|
|
|
All Other
|
|
|
|
|
Principal
|
|
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Compensation
|
|
|
|
|
Position
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Earnings ($)
|
|
|
($)
|
|
|
Total ($)
|
|
Roger M. Ponder,
|
|
December 31, 2017
|
|
|
|
128,333
|
|
|
|
|
|
|
|
1,988,024
|
|
|
|
Nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,116,357
|
|
Chief Executive Officer
|
|
May 31, 2017
|
|
|
|
22,000
|
|
|
|
|
|
|
|
510,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith W. Hayter,
|
|
December 31, 2017
|
|
|
|
122,500
|
|
|
|
|
|
|
|
1,988,024
|
|
|
|
Nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,110,524
|
|
President
|
|
May 31, 2017
|
|
|
|
16,677
|
|
|
|
|
|
|
|
510,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526,794
|
|
Option/SAR
Grants in Fiscal Year Ended December 31, 2017
Name
|
|
|
Grant Date
|
|
|
|
All
Other Option Awards:
Number of Securities Underlying Options
(#)
|
|
|
|
Exercise
or Base Price of Option Awards ($/Share)
|
|
|
|
Grant Date Fair Value of Stock and Option Awards
($)
|
|
Roger M. Ponder
|
|
|
n/a
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith W. Hayter
|
|
|
n/a
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
Outstanding
Equity Awards at Fiscal Year-End Table
There
were no equity awards outstanding as of December 31, 2017.
|
|
|
|
Number
of
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
underlying
|
|
|
|
underlying
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
|
Unexercised
|
|
|
|
Option
|
|
|
|
|
|
|
|
Options
(#)
|
|
|
|
Options
(#)
|
|
|
|
Exercise
|
|
|
|
Name
|
|
|
|
Exercisable
|
|
|
|
Unexercisable
|
|
|
|
Price
($/Sh)
|
|
|
Option Expiration Date
|
n/a
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
None
|
Equity
Compensation Plan Information
Plan category
|
|
Number of
securities to
be issued
upon
exercise of
outstanding
options
(a)
|
|
|
Weighted-
average
exercise
price of
outstanding
options
(b)
|
|
|
Securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
1,500,000
|
|
|
$
|
0.16
|
|
|
|
1,000,808
|
|
Equity compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
1,500,000
|
|
|
$
|
0.16
|
|
|
|
1,000,808
|
|
Employment
Contracts and Termination of Employment and Change-In-Control Arrangements
Roger
M. Ponder employee agreement
On
June 6, 2017, the Board of Directors (the “Board”) of the Company appointed Roger M. Ponder to serve as Chief Executive
Officer of the Company, effective immediately. Mr. Ponder, age 65, has served as a director of the Company since April 2017. Mr.
Ponder has been the President and Chief Executive Officer of Summit Capital Advisors LLC and Summit Broadband LLC a provider of
consulting services to private equity and institutional banking entities in the telecommunications, cable and media/internet sectors,
since August 2009. Mr. Ponder had served as a member of the board of directors of InterCloud Systems, Inc., and served as its
Chief Operating Officer from November 2012 to March 2015. From January 2005 to August 2009, he was the President - Midwest/Kansas
City Division of Time Warner Cable. Mr. Ponder was a member of the United Way Board of Trustees - Kansas City from January 2006
to January 2011. Mr. Ponder received his B.S. from Rollins College in Business Administration and Economics. Mr. Ponder brings
extensive business development, strategic planning and operational experience to the Company.
The
Company entered into an employment agreement (the “Ponder Agreement”) with Mr. Ponder, effective as of June 6, 2017.
The form of the Ponder Agreement was approved by the Board. The following is a brief summary of the material terms of the Ponder
Agreement.
The
Ponder Agreement has a three-year term and will automatically renew for successive one-year terms unless the Company or Mr. Ponder
elects to terminate the agreement by giving 60 days’ notice prior to the end of the current term. Mr. Ponder will receive
a base annual salary of $220,000, which may be increased (but not decreased) by the Board (or a committee thereof) in its sole
discretion.
In
addition, Mr. Ponder is entitled to receive annual incentive (bonus) compensation as the Board shall determine. His target bonus
is equal to 60% of Mr. Ponder’s base salary for that fiscal year. Mr. Ponder was also granted a stock option to purchase
shares of the Company’s Common Stock as determined by the Board under the Company's Performance Incentive Plan, to participate
in various employee benefit plans and to be reimbursed for out-of-pocket expenses. Mr. Ponder currently holds 108,500,000 common
shares.
In
the event that Mr. Ponder’s employment is terminated without “Cause” or he terminates his employment for “Good
Reason” not in connection with a “Change in Control” (as such terms are defined in the Ponder Agreement), the
Company shall pay to Mr. Ponder an amount equal to the sum of (x) twenty-four (24) months of his base salary at the monthly rate
in effect on the date of termination, plus (y) two (2) times his target bonus for the fiscal year in which the termination occurs,
an amount equal to any unpaid bonus from the previous year, and all equity-based awards shall vest. In addition, the Company shall
pay Mr. Ponder an amount equal to the cost of continuation of group health coverage under COBRA for 12 months.
The
Ponder Agreement contains a non-compete provision during the term of Mr. Ponder’s employment and for a period of one year
thereafter. Mr. Ponder would also be prohibited from soliciting customers or clients of the Company with whom he dealt during
his employment and from soliciting employees of the Company for the one-year period.
There
are no family relationships between Mr. Ponder and any director or executive officer of the Company, and he does not have any
direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Keith
W. Hayter employment agreement
On
June 6, 2017, the Board appointed Keith W. Hayter to serve as President of the Company, effective immediately. Mr. Hayter, age
53, has served as a director of the Company since April 2017. Mr. Hayter has served as the Chief Executive Officer and President
of AW Solutions Inc. and AW Solutions Puerto Rico LLC since 2006. Mr. Hayter attended Platt College, the City and Guilds Institute
and the City and East London College. Mr. Hayter brings extensive multi-national experience in the start-up, development and management
in the telecommunication and construction industry.
The
Company entered into an employment agreement (the “Hayter Agreement”) with Mr. Hayter, effective as of June 6, 2017.
The form of the Hayter Agreement was approved by the Board. A copy of the Hayter Agreement is attached hereto as Exhibit 10.2
and is incorporated herein by reference. The following is a brief summary of the material terms of the Hayter Agreement.
The
Hayter Agreement has a three-year term and will automatically renew for successive one-year terms unless the Company or Mr. Hayter
elects to terminate the agreement by giving 60 days’ notice prior to the end of the current term. Mr. Hayter will receive
a base annual salary of $210,000, which may be increased (but not decreased) by the Board (or a committee thereof) in its sole
discretion.
In
addition, Mr. Hayter is entitled to receive annual incentive (bonus) compensation as the Board shall determine. His target bonus
is equal to 60% of Mr. Hayter’s base salary for that fiscal year. Mr. Hayter was also granted a stock option to purchase
shares of the Company’s Common Shares as determined by the Board under the Company's Performance Incentive Plan, to participate
in various employee benefit plans and to be reimbursed for out-of-pocket expenses. Mr. Hayter currently holds 108,500,000 common
shares.
In
the event that Mr. Hayter’s employment is terminated without “Cause” or he terminates his employment for “Good
Reason” not in connection with a “Change in Control” (as such terms are defined in the Hayter Agreement), the
Company shall pay to Mr. Hayter an amount equal to the sum of (x) twenty-four (24) months of his base salary at the monthly rate
in effect on the date of termination, plus (y) two (2) times his target bonus for the fiscal year in which the termination occurs,
an amount equal to any unpaid bonus from the previous year, and all equity-based awards shall vest. In addition, the Company shall
pay Mr. Hayter an amount equal to the cost of continuation of group health coverage under COBRA for 12 months.
The
Hayter Agreement contains a non-compete provision during the term of Mr. Hayter’s employment and for a period of one year
thereafter. Mr. Hayter would also be prohibited from soliciting customers or clients of the Company with whom he dealt during
his employment and from soliciting employees of the Company for the one-year period.
There
are no family relationships between Mr. Hayter and any director or executive officer of the Company, and he does not have any
direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Director
Compensation
The
following table sets forth summary information concerning the total compensation paid to our non-employee directors in fiscal
2017 for services to our company.
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
|
or Paid in
|
|
|
Option
|
|
|
|
|
Name
|
|
Cash
($)
|
|
|
Awards
($)
|
|
|
Total
($)
|
|
n/a
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
n/a
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
Total:
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
|
$
|
Nil
|
|
ITEM
12- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information regarding beneficial ownership of our common stock as of April 4, 2018:
|
●
|
by
each person who is known by us to beneficially own more than 5% of our common stock;
|
|
|
|
|
●
|
by
each of our officers and directors; and
|
|
|
|
|
●
|
by
all of our officers and directors as a group.
|
Unless
otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power.
NAME OF OWNER
|
|
TITLE OF
CLASS
|
|
NUMBER OF
SHARES OWNED (1)
|
|
|
PERCENTAGE OF
COMMON STOCK (2)
|
|
Keith W. Hayter
|
|
Common Stock
|
|
|
108,500,000
|
|
|
|
23.6
|
%
|
Roger M. Ponder
|
|
Common Stock
|
|
|
108,500,000
|
|
|
|
23.6
|
%
|
Officers and Directors as a Group (2 persons)
|
|
Common Stock
|
|
|
217,000,000
|
|
|
|
47.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Beneficial
Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect
to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible
within 60 days are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
|
(2)
|
Percentage
based upon 460,682,237 shares of common stock issued and outstanding as of April 4, 2018.
|
Securities
Authorized for Issuance Under Equity Compensation Plans
On
November 24, 2009, we registered a 2009 Stock Compensation Plan and a 2009 Stock Option Plan which permits our company to grant
up to an aggregate of 3,500,000 options to acquire shares of common stock, to directors, officers, employees and consultants of
our company.
Our
board of directors may amend or terminate the Plans at any time, but no action will affect any outstanding awards in any manner
materially adverse to participant without the consent of the participants. Plan amendments will be submitted to the stockholders
for their approval as required by applicable law or any listing agency. Our plans provide additional means to attract, motivate,
retain and reward employees or other eligible persons by allow them the ability to purchase additional shares of common stock.
ITEM
13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except
as set forth below, we have not entered into any transactions with our officers, directors, persons nominated for these positions,
beneficial owners of 5% or more of our common stock, or family members of these persons wherein the amount involved in the transaction
or a series of similar transactions exceeded the lesser of $120,000 or 1% of the average of our total assets for the last fiscal
year:
During
the seven months ended December 31, 2017, the Company incurred management fees of $12,011 (2016 - $79,910) to the former President
of the Company. During the year ended May 31, 2017, the Company incurred management fees of $112,927 (2016 - $129,799) to the
former President of the Company
As
of December 31, 2017, the Company owes a total of $109,978 (May 31, 2017 - $241,327) to the former President of the Company and
his spouse, and a company controlled by the former President of the Company which is non-interest bearing, unsecured, and due
on demand.
As
of December 31, 2017, the Company owes $22,097 (May 31, 2017 - $17,305) to a former officer and a former director of the Company,
which is non-interest bearing, unsecured, and due on demand.
As
of December 31, 2017, the Company owes $51,889 (May 31, 2017 - $49,376) to InterCloud Systems, Inc. (“InterCloud”),
which is non-interest bearing, unsecured, and due on demand.
As
of December 31, 2017, pursuant to the acquisition AW Solutions, the Company owes a contingent liability of $793,893 (May 31, 2017
- $1,409,411) to InterCloud. During the seven months ended December 31, 2017, InterCloud agreed to reduce the contingent liability
by $615,518 which was recorded as a gain on settlement of debt.
On
December 31, 2017, the Company received $18,858 pursuant to a promissory note issued to the Chief Executive Officer of the Company.
The note issued is unsecured, due on November 30, 2018 and bears interest at a rate of 8% per annum.
On
November 30, 2017, the Company received $130,000 pursuant to a promissory note issued to the President of the Company. The note
issued is unsecured, due on November 30, 2018 and bears interest at a rate of 8% per annum.
On
November 16, 2017, the Company issued 251,885 shares of Series A Preferred Stock with a fair value of $86,785 to settle $195,204
of amounts owed to the former President of the Company. The Company recognized a gain on settlement of debt of $108,419.
On
December 28, 2017, the Company issued 46,374,245 shares of common stock with a fair value of $510,117 to the President of the
Company in exchange for services for the Company.
On
December 28, 2017, the Company issued 46,374,245 shares of common stock with a fair value of $510,117 to the CEO of the Company
in exchange for services for the Company.
During
the seven months ended December 31, 2017, the Company recorded $Nil (2016 - $nil) of management fees for the vesting of options
to management. During the year ended May 31, 2017, the Company recorded $Nil (2016 - $21,609) of management fees for the vesting
of options previously granted to former officers and directors previously granted to former officers and directors.
On
May 18, 2017, the Company issued 62,125,755 shares of common stock with a fair value of $1,988,024 to a new director of the Company
in exchange for services for the Company.
On
May 19, 2017, the Company issued 62,125,755 shares of common stock with a fair value of $1,988,024 to a new director of the Company
in exchange for services for the Company.
The
Company subleased a portion of one of its offices located in Florida to InterCloud. Rental income charged to the InterCloud was
$2,513 from April 25, thru May 31, 2017.
During
the year ended May31, 2017, the Company was part of the InterCloud’s group health insurance plan. InterCloud billed the
Company monthly for their portion of health insurance premiums. Total amounts billed during the year ended May 31, 2017 was $42,978.
InterCloud
also allocated certain general insurance expenses to the Company. Total insurance expense allocated by the InterCloud to the Company
amounted to $8,911 during the year ended May 31, 2017 which is included in selling, general and administrative on the statements
of operations.
ITEM
14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The
aggregate fees billed for the most recently completed fiscal year ended December 31, 2017 and for fiscal year ended May 31, 2017
for professional services rendered by the principal accountant for the audit of our annual financial statements and review of
the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
|
|
Year Ended
December 31, 2017
|
|
|
|
Sadler, Gibb
2017
|
|
|
Sadler, Gibb
(May 31, 2017)
|
|
Audit Fees
|
|
$
|
65,488
|
|
|
$
|
77,120
|
|
Audit Related Fees
|
|
|
5,500
|
|
|
|
Nil
|
|
Tax Fees
|
|
|
Nil
|
|
|
|
Nil
|
|
All Other Fees
|
|
|
Nil
|
|
|
|
Nil
|
|
Total
|
|
$
|
70,988
|
|
|
$
|
77,120
|
|
Our
board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed
and approved by the board of directors either before or after the respective services were rendered.
Our
board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision
of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.
PART
IV
ITEM
15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1)
Financial Statements.
See
the “Index to Consolidated Financial Statements” on page F-1 below for the list of financial statements filed as part
of this report.
(a)(2)
Financial Statement Schedules.
All
schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial
Statements or Notes thereto set forth below beginning on page F-1.
(a)(3)
Exhibits.
See
the Exhibit Index immediately following the signature page of this Transition Report on Form 10-K. The exhibits listed in the
Exhibit Index below are filed or incorporated by reference as part of this Transition Report on Form 10-K.
ITEM
16 – FORM 10-K SUMMARY
None.
SPECTRUM
GLOBAL SOLUTIONS, INC.
(f/k/a
Mantra Venture Group Ltd.)
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered
Public Accounting Firm
|
F-2
|
|
|
Consolidated balance sheets as of December 31,
2017 and May 31, 2017
|
F-3
|
|
|
Consolidated statements of operations for the
seven months ended December 31, 2017 and 2016(unaudited), and the years ended May 31, 2017 and 2016
|
F-4
|
|
|
Consolidated statements of stockholder’s
equity (deficit) for the seven months ended December 31, 2017 and the years ended May 31, 2017 and 2016
|
F-5 – F-7
|
|
|
Consolidated statements of cash flows for the
seven months ended December 31, 2017 and 2016 (unaudited), and the years ended May 31, 2017 and 2016
|
F-8
|
|
|
Notes
to unaudited consolidated financial statements
|
F-9 – F34
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of Spectrum Global Solutions, Inc. (f/k/a Mantra Venture Group Ltd.):
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Spectrum Global Solutions, Inc. (f/k/a Mantra Venture Group Ltd.)
(“the Company”) as of December 31, 2017 and May 31, 2017, the related consolidated statements of operations, stockholders’
equity (deficit), and cash flows for the transitional seven month period ended December 31, 2017 and the two years in the period
ended May 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion,
the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and May 31, 2017, and the results of its operations and its cash flows for the transitional seven
month period ended December 31, 2017 and the two years in the period ended May 31, 2017, in conformity with accounting principles
generally accepted in the United States of America.
Explanatory
Paragraph Regarding Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency
which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
Sadler, Gibb & Associates, LLC
We
have served as the Company’s auditor since 2014
Salt
Lake City, UT
April
9, 2018
SPECTRUM
GLOBAL SOLUTIONS, INC.
(f/k/a
Mantra Venture Group Ltd.)
Consolidated
balance sheets
(Expressed
in U.S. dollars)
|
|
December 31,
|
|
|
May 31,
|
|
|
|
2017
|
|
|
2017
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
|
28,893
|
|
|
|
345,102
|
|
Accounts receivable (net of allowance for doubtful accounts of $54,482 and $267,476, respectively)
|
|
|
1,473,377
|
|
|
|
1,623,200
|
|
Prepaid expenses and deposits
|
|
|
41,063
|
|
|
|
132,155
|
|
Total current assets
|
|
|
1,543,333
|
|
|
|
2,100,457
|
|
Property and equipment (net of accumulated depreciation of $999,769 and $961,263, respectively)
|
|
|
61,159
|
|
|
|
96,030
|
|
Goodwill
|
|
|
1,503,633
|
|
|
|
1,503,633
|
|
Customer lists (net of accumulated amortization of $65,269 and $9,421, respectively)
|
|
|
836,279
|
|
|
|
892,127
|
|
Tradenames (net of accumulated amortization of $41,600 and $6,005, respectively)
|
|
|
533,005
|
|
|
|
568,600
|
|
Other assets
|
|
|
27,931
|
|
|
|
27,930
|
|
Total assets
|
|
|
4,505,340
|
|
|
|
5,188,777
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
2,368,652
|
|
|
|
2,113,355
|
|
Due to related parties
|
|
|
159,782
|
|
|
|
308,008
|
|
Loans payable
|
|
|
363,081
|
|
|
|
235,441
|
|
Loans payable to related parties
|
|
|
148,858
|
|
|
|
–
|
|
Convertible debentures (net of discount of $573,776 and $1,350,067, respectively)
|
|
|
1,913,224
|
|
|
|
2,139,791
|
|
Derivative liability
|
|
|
4,749,712
|
|
|
|
3,760,067
|
|
Contingent liability
|
|
|
793,893
|
|
|
|
1,409,411
|
|
Preferred stock liability:
|
|
|
|
|
|
|
|
|
Authorized: 8,000,000 Series A preferred stock, par value $0.00001 Issued and outstanding: 1,262,945 (May 31, 2017 – Nil) shares
|
|
|
435,138
|
|
|
|
–
|
|
Total current liabilities
|
|
|
10,932,340
|
|
|
|
9,966,073
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
Common stock Authorized: 750,000,000 shares, par value $0.00001 Issued and outstanding: 423,027,290 (May 31, 2017 – 274,998,800) shares
|
|
|
4,233
|
|
|
|
2,754
|
|
Additional paid-in capital
|
|
|
15,905,400
|
|
|
|
15,724,447
|
|
Common stock subscribed
|
|
|
74,742
|
|
|
|
74,742
|
|
Accumulated deficit
|
|
|
(22,322,725
|
)
|
|
|
(20,518,967
|
)
|
Total Spectrum Global Solutions, Inc. stockholders’ deficit
|
|
|
(6,338,350
|
)
|
|
|
(4,717,024
|
)
|
Non-controlling interest
|
|
|
(88,650
|
)
|
|
|
(60,272
|
)
|
Total stockholders’ deficit
|
|
|
(6,427,000
|
)
|
|
|
(4,777,296
|
)
|
Total liabilities and stockholders’ deficit
|
|
|
4,505,340
|
|
|
|
5,188,777
|
|
(The
accompanying notes are an integral part of these consolidated financial statements)
SPECTRUM
GLOBAL SOLUTIONS, INC.
(f/k/a
Mantra Venture Group Ltd.)
Consolidated
statements of operations
(Expressed
in U.S. dollars)
|
|
Seven Months Ended
December 31,
|
|
|
Seven Months Ended
December 31,
|
|
|
Year Ended
May 31,
|
|
|
Year Ended
May 31,
|
|
|
|
2017
$
|
|
|
2016
$
|
|
|
2017
$
|
|
|
2016
$
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
5,872,457
|
|
|
|
–
|
|
|
|
1,069,917
|
|
|
|
70,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
5,103,352
|
|
|
|
–
|
|
|
|
820,503
|
|
|
|
–
|
|
Gross
profit
|
|
|
769,105
|
|
|
|
–
|
|
|
|
249,414
|
|
|
|
70,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
129,949
|
|
|
|
18,726
|
|
|
|
59,869
|
|
|
|
27,908
|
|
General and administrative
|
|
|
539,798
|
|
|
|
246,232
|
|
|
|
106,114
|
|
|
|
559,316
|
|
Salaries
& wages
|
|
|
1,299,951
|
|
|
|
4,719
|
|
|
|
4,845,260
|
|
|
|
335,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,969,698
|
|
|
|
269,677
|
|
|
|
5,011,243
|
|
|
|
922,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,200,593
|
)
|
|
|
(269,677
|
)
|
|
|
(4,761,829
|
)
|
|
|
(852,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on settlement
of debt
|
|
|
3,988,268
|
|
|
|
(19,418
|
)
|
|
|
(33,620
|
)
|
|
|
(24,000
|
)
|
Loss on disposal
of assets
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,067
|
)
|
|
|
–
|
|
Accretion of discounts
on convertible debentures
|
|
|
(1,042,270
|
)
|
|
|
(338,350
|
)
|
|
|
(561,137
|
)
|
|
|
(461,905
|
)
|
Loss on change in
fair value of derivatives
|
|
|
(3,330,790
|
)
|
|
|
(203,143
|
)
|
|
|
(1,197,700
|
)
|
|
|
(497,079
|
)
|
Interest expense
|
|
|
(246,751
|
)
|
|
|
(95,518
|
)
|
|
|
(211,454
|
)
|
|
|
–
|
|
Impairment
loss
|
|
|
–
|
|
|
|
–
|
|
|
|
(103,480
|
)
|
|
|
(384,312
|
)
|
Total
other income (expense)
|
|
|
(631,543
|
)
|
|
|
(656,429
|
)
|
|
|
(2,109,458
|
)
|
|
|
(1,367,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
(1,832,136
|
)
|
|
|
(926,106
|
)
|
|
|
(6,871,287
|
)
|
|
|
(2,219,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
net loss attributable to the non-controlling interest
|
|
|
28,378
|
|
|
|
11,420
|
|
|
|
58,408
|
|
|
|
43,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Spectrum Global Solutions, Inc.
|
|
|
(1,803,758
|
)
|
|
|
(914,686
|
)
|
|
|
(6,812,879
|
)
|
|
|
(2,176,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share attributable to Spectrum Global Solutions, Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding used in the calculation of net loss attributable to Spectrum Global Solutions, Inc. per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
277,629,106
|
|
|
|
98,578,928
|
|
|
|
117,085,052
|
|
|
|
78,327,306
|
|
(The
accompanying notes are an integral part of these consolidated financial statements)
SPECTRUM
GLOBAL SOLUTIONS, INC.
(f/k/a
Mantra Venture Group Ltd.)
Consolidated
statements of stockholder’s equity (deficit)
For
the Year Ended May 31, 2016
|
|
Common Stock
|
|
|
Additional paid-in
|
|
|
Common
stock
|
|
|
Accumulated
|
|
|
Non-
controlling
|
|
|
Total
stockholders’ deficit
|
|
|
|
Number
|
|
|
Amount
$
|
|
|
capital
$
|
|
|
subscribed
$
|
|
|
deficit
$
|
|
|
interest
$
|
|
|
(as revised)
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2015
|
|
|
71,516,581
|
|
|
|
715
|
|
|
|
10,462,265
|
|
|
|
74,742
|
|
|
|
(11,529,916
|
)
|
|
|
(192,586
|
)
|
|
|
(1,184,780
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash at $0.16 per share
|
|
|
93,750
|
|
|
|
1
|
|
|
|
14,999
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
150,000
|
|
|
|
2
|
|
|
|
29,999
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
30,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for settlement of debt
|
|
|
300,000
|
|
|
|
3
|
|
|
|
47,997
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued upon conversion of convertible debt
|
|
|
16,498,693
|
|
|
|
165
|
|
|
|
591,828
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
591,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions received
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
25,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of stock options granted
|
|
|
–
|
|
|
|
–
|
|
|
|
16,426
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
16,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,176,172
|
)
|
|
|
(43,688
|
)
|
|
|
(2,219,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2016
|
|
|
88,559,024
|
|
|
|
886
|
|
|
|
11,163,514
|
|
|
|
99,742
|
|
|
|
(13,706,088
|
)
|
|
|
(236,274
|
)
|
|
|
(2,678,220
|
)
|
(The
accompanying notes are an integral part of these consolidated financial statements)
SPECTRUM
GLOBAL SOLUTIONS, INC.
(f/k/a
Mantra Venture Group Ltd.)
Consolidated
statements of stockholder’s equity (deficit)
For
the Year Ended May 31, 2017
|
|
Common Stock
|
|
|
Additional paid-in
|
|
|
Common
stock
|
|
|
Accumulated
|
|
|
Non-
controlling
|
|
|
Total
stockholders’
equity
|
|
|
|
Number
|
|
|
Amount
$
|
|
|
capital
$
|
|
|
subscribed
$
|
|
|
deficit
$
|
|
|
interest
$
|
|
|
(deficit)
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2016
|
|
|
88,559,024
|
|
|
|
886
|
|
|
|
11,163,514
|
|
|
|
99,742
|
|
|
|
(13,706,088
|
)
|
|
|
(236,274
|
)
|
|
|
(2,678,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash at $0.02 per share
|
|
|
2,000,000
|
|
|
|
20
|
|
|
|
29,980
|
|
|
|
(25,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
124,251,510
|
|
|
|
1,244
|
|
|
|
3,974,804
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,976,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for settlement of debt
|
|
|
15,904,199
|
|
|
|
160
|
|
|
|
89,720
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
89,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued upon conversion of convertible debt
|
|
|
44,284,067
|
|
|
|
444
|
|
|
|
499,363
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
499,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of derivatives previously classified as equity
|
|
|
–
|
|
|
|
–
|
|
|
|
(32,934
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(32,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of non-controlling interest
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
234,410
|
|
|
|
234,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(6,812,879
|
)
|
|
|
(58,408
|
)
|
|
|
(6,871,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2017
|
|
|
274,998,800
|
|
|
|
2,754
|
|
|
|
15,724,447
|
|
|
|
74,742
|
|
|
|
(20,518,967
|
)
|
|
|
(60,272
|
)
|
|
|
(4,777,296
|
)
|
(The
accompanying notes are an integral part of these consolidated financial statements)
SPECTRUM
GLOBAL SOLUTIONS, INC.
(f/k/a
Mantra Venture Group Ltd.)
Consolidated
statements of stockholder’s equity (deficit)
For
the Period Ended December 31, 2017
|
|
Common Stock
|
|
|
Additional
paid-in
|
|
|
Common
stock
|
|
|
Accumulated
|
|
|
Non-
controlling
|
|
|
Total
stockholders’
equity
|
|
|
|
Number
|
|
|
Amount
$
|
|
|
capital
$
|
|
|
subscribed
$
|
|
|
deficit
$
|
|
|
interest
$
|
|
|
(deficit)
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2017
|
|
|
274,998,800
|
|
|
|
2,754
|
|
|
|
15,724,447
|
|
|
|
74,742
|
|
|
|
(20,518,967
|
)
|
|
|
(60,272
|
)
|
|
|
(4,777,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock issued to settle debt
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
136,148,490
|
|
|
|
1,360
|
|
|
|
12,375
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
13,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued upon conversion of convertible debt
|
|
|
11,880,000
|
|
|
|
119
|
|
|
|
168,578
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
168,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,803,758
|
)
|
|
|
(28,378
|
)
|
|
|
(1,832,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
423,027,290
|
|
|
|
4,233
|
|
|
|
15,905,400
|
|
|
|
74,742
|
|
|
|
(22,322,725
|
)
|
|
|
(88,650
|
)
|
|
|
(6,427,000
|
)
|
(The
accompanying notes are an integral part of these consolidated financial statements)
SPECTRUM
GLOBAL SOLUTIONS, INC.
(f/k/a
Mantra Venture Group Ltd.)
Consolidated
statements of cash flows
(Expressed
in U.S. dollars)
|
|
Seven Months Ended
December 31,
|
|
|
Seven Months Ended
December 31,
|
|
|
Year Ended
May 31,
|
|
|
Year Ended
May 31,
|
|
|
|
2017
$
|
|
|
2016
$
|
|
|
2017
$
|
|
|
2016
$
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,832,136
|
)
|
|
|
(926,106
|
)
|
|
|
(6,871,287
|
)
|
|
|
(2,219,860
|
)
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on change in fair value of derivative
liability
|
|
|
3,248,024
|
|
|
|
27,501
|
|
|
|
(767,569
|
)
|
|
|
(195,706
|
)
|
Accretion of discounts
on convertible debentures
|
|
|
1,042,270
|
|
|
|
338,350
|
|
|
|
561,137
|
|
|
|
461,905
|
|
Amortization of finance costs
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,085
|
|
Depreciation and amortization
|
|
|
129,949
|
|
|
|
18,726
|
|
|
|
59,869
|
|
|
|
27,908
|
|
Foreign exchange loss (gain)
|
|
|
9,640
|
|
|
|
(726
|
)
|
|
|
5,035
|
|
|
|
(4,842
|
)
|
Initial derivative expenses
|
|
|
82,766
|
|
|
|
175,642
|
|
|
|
1,965,269
|
|
|
|
692,785
|
|
Shares issued for services
|
|
|
13,735
|
|
|
|
6,400
|
|
|
|
3,976,048
|
|
|
|
30,001
|
|
Interest related to cash redemption premium
on convertible notes
|
|
|
17,500
|
|
|
|
32,651
|
|
|
|
105,032
|
|
|
|
254,439
|
|
Stock-based compensation on options and warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
16,426
|
|
Loss on disposal of assets
|
|
|
–
|
|
|
|
–
|
|
|
|
2,067
|
|
|
|
–
|
|
Impairment loss
|
|
|
–
|
|
|
|
–
|
|
|
|
103,480
|
|
|
|
–
|
|
(Gain) loss on settlement of debt
|
|
|
(3,988,268
|
)
|
|
|
19,418
|
|
|
|
33,620
|
|
|
|
24,000
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
149,823
|
|
|
|
4,678
|
|
|
|
212,448
|
|
|
|
18,169
|
|
Prepaid expenses and deposits
|
|
|
91,092
|
|
|
|
11,655
|
|
|
|
(119,366
|
)
|
|
|
121,357
|
|
Accounts payable and accrued liabilities
|
|
|
419,248
|
|
|
|
64,467
|
|
|
|
175,930
|
|
|
|
260,596
|
|
Other assets
|
|
|
–
|
|
|
|
–
|
|
|
|
1,107
|
|
|
|
–
|
|
Due to related
parties
|
|
|
64,725
|
|
|
|
56,929
|
|
|
|
153,448
|
|
|
|
42,367
|
|
Net cash used in operating activities
|
|
|
(551,632
|
)
|
|
|
(170,415
|
)
|
|
|
(403,732
|
)
|
|
|
(463,370
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(3,635
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(4,587
|
)
|
Proceeds from the sale of property and equipment
|
|
|
–
|
|
|
|
–
|
|
|
|
1,500
|
|
|
|
–
|
|
Cash received upon acquisition of subsidiary
|
|
|
–
|
|
|
|
–
|
|
|
|
115,112
|
|
|
|
–
|
|
Investment
in intangible assets
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(12,161
|
)
|
Net
cash provided by(used in) investing activities
|
|
|
(3,635
|
)
|
|
|
–
|
|
|
|
116,612
|
|
|
|
(16,748
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease obligations
|
|
|
–
|
|
|
|
(6,269
|
)
|
|
|
(7,025
|
)
|
|
|
(6,798
|
)
|
Repayment of loan payable
|
|
|
(160,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(50,000
|
)
|
Proceeds from notes payable
|
|
|
250,200
|
|
|
|
37,966
|
|
|
|
64,789
|
|
|
|
63,589
|
|
Proceeds from loans from related parties
|
|
|
148,858
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Proceeds from issuance of convertible debentures
|
|
|
–
|
|
|
|
134,000
|
|
|
|
568,339
|
|
|
|
427,000
|
|
Proceeds from
issuance of common stock and subscriptions received
|
|
|
–
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
40,000
|
|
Net
cash provided by financing activities
|
|
|
239,058
|
|
|
|
170,697
|
|
|
|
631,103
|
|
|
|
473,791
|
|
Change in cash
|
|
|
(316,209
|
)
|
|
|
282
|
|
|
|
343,983
|
|
|
|
(6,327
|
)
|
Cash, beginning
of period
|
|
|
345,102
|
|
|
|
1,119
|
|
|
|
1,119
|
|
|
|
7,446
|
|
Cash, end
of period
|
|
|
28,893
|
|
|
|
1,401
|
|
|
|
345,102
|
|
|
|
1,119
|
|
Non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to relieve common stock
subscribed
|
|
|
–
|
|
|
|
–
|
|
|
|
25,000
|
|
|
|
–
|
|
Common stock issued to settle accounts payable
and debt
|
|
|
–
|
|
|
|
196,816
|
|
|
|
89,880
|
|
|
|
–
|
|
Common stock issued for conversion of notes
payable
|
|
|
–
|
|
|
|
157,467
|
|
|
|
252,000
|
|
|
|
591,992
|
|
Accounts receivable acquired in AW Solutions
Acquisition
|
|
|
–
|
|
|
|
–
|
|
|
|
2,040,249
|
|
|
|
–
|
|
Other assets acquired in AW Solutions Acquisition
|
|
|
–
|
|
|
|
–
|
|
|
|
36,580
|
|
|
|
–
|
|
Equipment acquired in AW Solutions Acquisition
|
|
|
–
|
|
|
|
–
|
|
|
|
116,143
|
|
|
|
–
|
|
Customer lists acquired in AW Solutions Acquisition
|
|
|
–
|
|
|
|
–
|
|
|
|
901,548
|
|
|
|
–
|
|
Tradenames acquired in AW Solutions Acquisition
|
|
|
–
|
|
|
|
–
|
|
|
|
574,605
|
|
|
|
–
|
|
Accounts payable and Accrued expenses acquired
in AW Solutions Acquisition
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,308,450
|
)
|
|
|
–
|
|
Goodwill
|
|
|
–
|
|
|
|
–
|
|
|
|
1,503,634
|
|
|
|
–
|
|
Non-controlling interest
|
|
|
–
|
|
|
|
|
|
|
|
(339,309
|
)
|
|
|
–
|
|
Preferred stock issued to settle accounts payable
and amounts owed related parties
|
|
|
374,263
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Preferred stock issued to settle derivative
liabilities
|
|
|
2,453,667
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Preferred stock issued to settle conversion
of notes payable
|
|
|
987,358
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Debt issuance cost
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
18,000
|
|
Original issue discounts
|
|
|
27,800
|
|
|
|
27,499
|
|
|
|
64,999
|
|
|
|
42,753
|
|
Reclassification of related party debt to accounts
payable
|
|
|
17,747
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Original debt
discount against derivative liability
|
|
|
250,200
|
|
|
|
134,000
|
|
|
|
1,746,783
|
|
|
|
436,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
4,114
|
|
|
|
886
|
|
|
|
657
|
|
|
|
9,141
|
|
Income taxes
paid
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
(The
accompanying notes are an integral part of these unaudited consolidated financial statements)
SPECTRUM
GLOBAL SOLUTIONS, INC.
(f/k/a
Mantra Venture Group Ltd.)
Notes
to the unaudited consolidated financial statements
December
31, 2017
(Expressed
in U.S. dollars)
1.
|
Organization
and Going Concern
|
Spectrum
Global Solutions, Inc. (the “Company”) (f/k/a Mantra Venture Group Ltd.) was incorporated in the State of Nevada on
January 22, 2007 to acquire and commercially exploit various new energy related technologies through licenses and purchases. On
December 8, 2008, the Company continued its corporate jurisdiction out of the State of Nevada and into the province of British
Columbia, Canada. On April 25, 2017, the Company entered into and closed on an Asset Purchase Agreement (the “Asset Purchase
Agreement”) with InterCloud Systems, Inc. (“InterCloud”). Pursuant to the terms of the Asset Purchase Agreement,
the Company purchased 80.1% of the assets associated with InterCloud’s “AW Solutions” business. After the acquisition
of AW Solutions, the Company provides professional, multi-service line, telecommunications infrastructure and outsource services
to the wireless and wireline industry. On November 15, 2017, the Company changed its name to “Spectrum Global Solutions,
Inc.”.
These
consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize
its assets and discharge its liabilities in the normal course of business. The Company has yet to acquire commercially exploitable
energy related technology and is unlikely to generate earnings in the immediate or foreseeable future. The recently acquired AW
Solutions business has also incurred losses and experienced negative cash flows from operations during its most recent fiscal
years. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders,
the ability of management to raise additional equity capital through private and public offerings of its common stock, and the
attainment of profitable operations. As of December 31, 2017, the Company has an accumulated loss of $22,322,725, and a working
capital deficit of $9,389,007. These factors raise substantial doubt regarding the Company’s ability to continue as a going
concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management
requires additional funds over the next twelve months to fully implement its business plan. Management is currently seeking additional
financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures. There can be
no certainty that these sources will provide the additional funds required for the next twelve months.
2.
|
Significant Accounting
Policies
|
On
January 2, 2018 our Board of Directors approved a change in our fiscal year-end from May 31 to December 31. As a result of this
change, our fiscal year 2017 is a 7 month transition period beginning June 1, 2017 through December 31, 2017. In these consolidated
statements, including the notes thereto, financial results for fiscal 2017 are for a 7 month period. Corresponding results for
the years ended May 31, 2017 and 2016 are both for 12 month periods. In addition, our Consolidated Statements of Operations and
Consolidated Statements of Cash Flows also include an unaudited 7 month period for fiscal 2016.
|
a.
|
Basis of Presentation/Principles
of Consolidation
|
These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States. These consolidated financial statements include the accounts of the Company and its subsidiaries, Carbon
Commodity Corporation, Climate ESCO Ltd., Mantra Energy Alternatives Ltd., Mantra China Inc., Mantra China Limited, Mantra Media
Corp., Mantra NextGen Power Inc., Mantra Wind Inc., AW Solutions, Inc.(from the date of acquisition, April 25, 2017), Tropical
Communications, Inc. (from the date of acquisition, April 25, 2017) and AW Solutions Puerto Rico, LLC.(from the date of acquisition,
April 25, 2017). All the subsidiaries are wholly-owned with the exception of Climate ESCO Ltd., which is 64.55% owned, Mantra
Energy Alternatives Ltd., which is 88.21% owned and AW Solutions, Inc., Tropical Communications, Inc., and AW Solutions Puerto
Rico, LLC which are all 80.1% owned. All inter-company balances and transactions have been eliminated.
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions related to allowance for doubtful accounts, the estimated useful lives and recoverability
of long-lived assets, equity component of convertible debt, stock-based compensation, and deferred income tax asset valuation
allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors
that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent
there are material differences between the estimates and the actual results, future results of operations will be affected.
|
c.
|
Cash and Cash Equivalents
|
The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Trade
accounts receivable are recorded at the invoiced amount and do not bear interest. The Company records unbilled receivables for
services performed but not billed. At December 31, 2017 and May 31, 2017, unbilled receivables totaled $11,429 and $430,669, respectively,
and are included in accounts receivable. Management reviews a customer’s credit history before extending credit. The Company
maintains an allowance for doubtful accounts for estimated losses. Estimates of uncollectible amounts are reviewed each period,
and changes are recorded in the period in which they become known. Management analyzes the collectability of accounts receivable
each period. This review considers the aging of account balances, historical bad debt experience, and changes in customer creditworthiness,
current economic trends, customer payment activity and other relevant factors. Should any of these factors change, the estimate
made by management may also change. The allowance for doubtful accounts at December 31, 2017 and May 31, 2017 was $54,482 and
$267,476 respectively.
|
e.
|
Property and Equipment
|
Property
and equipment are stated at cost. The Company depreciates the cost of property and equipment over their estimated useful lives
at the following annual rates:
|
Automotive
|
|
3-5
years straight-line basis
|
|
Computer equipment and software
|
|
3-7 years straight-line basis
|
|
Leasehold
improvements
|
|
5 years straight-line
basis
|
|
Office equipment and furniture
|
|
5 years straight-line basis
|
|
Research equipment
|
|
5 years straight-line
basis
|
Goodwill
was generated through the acquisition of AW Solutions in fiscal 2017 as the total consideration paid exceeded the fair value of
the net assets acquired.
The
Company tests its goodwill for impairment at least annually on December 31
st
and whenever events or circumstances change
that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment
has occurred. Such indicators may include, among others: a significant decline in the Company’s expected future cash flows;
a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates.
Any adverse change in these factors could have a significant impact on the recoverability of goodwill and the Company’s
consolidated financial results.
The
Company tests goodwill by estimating fair value using a Discounted Cash Flow (“DCF”) model. The key assumptions used
in the DCF model to determine the highest and best use of estimated future cash flows include revenue growth rates and profit
margins based on internal forecasts, terminal value and an estimate of a market participant’s weighted-average cost of capital
used to discount future cash flows to their present value. There were no impairment charges during the seven months ended December
31, 2017.
At
December 31, 2017 and May 31, 2017, definite-lived intangible assets primarily consist of non-compete agreements, tradenames and
customer relationships which are being amortized over their estimated useful lives ranging from 1-10 years.
The
Company periodically evaluates the reasonableness of the useful lives of these assets. Once these assets are fully amortized,
they are removed from the accounts. These assets are reviewed for impairment or obsolescence when events or changes in circumstances
indicate that the carrying amount may not be recoverable. If impaired, intangible assets are written down to fair value based
on discounted cash flows or other valuation techniques. The Company has no intangibles with indefinite lives.
For
long-lived assets, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted,
probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying
amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
In
accordance with ASC 360, “
Property, Plant and Equipment
,” the Company tests long-lived assets or asset groups
for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances
which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant
adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history
of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed
based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted
cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances.
An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
|
i.
|
Foreign Currency
Translation
|
Transactions
in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date.
Monetary balance sheet items expressed in foreign currencies are translated into U.S. dollars at the exchange rates in effect
at the balance sheet date. The resulting exchange gains and losses are recognized in income.
The
Company’s integrated foreign subsidiaries are financially or operationally dependent on the Company. The Company uses the
temporal method to translate the accounts of its integrated operations into U.S. dollars. Monetary assets and liabilities are
translated at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical
rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the
same basis as the related asset. The resulting exchange gains or losses are recognized in income.
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “
Accounting for Income
Taxes
”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and
for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted
tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance
to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The
Company conducts business, and files federal and state income, franchise or net worth, tax returns in Canada, the United States,
in various states within the United States and the Commonwealth of Puerto Rico. The Company determines its filing obligations
in a jurisdiction in accordance with existing statutory and case law. The Company may be subject to a reassessment of federal
and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment
in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2010
to 2017. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S.
state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not
audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
Significant
management judgment is required in determining the provision for income taxes, and in particular, any valuation allowance recorded
against the Company’s deferred tax assets. Deferred tax assets are regularly reviewed for recoverability. The Company currently
has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which
should reduce taxable income in future periods. The realization of these assets is dependent on generating future taxable income.
The
Company follows the guidance set forth within ASC Topic 740, “
Income Taxes”
(“ASC Topic 740”) which
prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected
to be taken in an income tax return. The first step evaluates an income tax position in order to determine whether it is more
likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second
step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely
than not recognition threshold. ASC Topic 740 also provides guidance on de-recognition, classification, recognition and classification
of interest and penalties, accounting in interim periods, disclosure and transition. Penalties and interest, if incurred, would
be recorded as a component of current income tax expense.
The
Company received a tax notice from the Puerto Rican government requesting payment of taxes related to 2014 in the amount of $166,084
plus penalties and interest of $96,764 for a total obligation due of $262,848. This tax assessment is included in accrued expenses
at December 31, 2017.
The
Company’s revenues are generated from infrastructure and professional services. The Company recognizes revenue on arrangements
in accordance with ASC Topic 605-10, “
Revenue Recognition
”. The Company recognizes revenue only when the price
is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting
receivable is reasonably assured.
The
infrastructure and professional services revenues are derived from contracts to provide technical engineering services along with
contracting services to commercial and governmental customers. The Company’s service contracts generally require specific
tasks or services that the Company must perform under the contract. The Company recognizes revenues associated with these services
upon the completion of the related task or service which is at the time the four revenue recognition criteria have been met. Direct
costs incurred related to performance of the task or service are deferred and recorded as prepaid expense and are expensed when
the related revenue is recognized.
The
Company also generates revenue from service contracts with certain customers. These contracts are accounted for under the proportional
performance method. Under this method, revenue is recognized in proportion to the value provided to the customer for each project
as of each reporting date.
The
Company records unbilled receivables for revenues earned, but not yet billed.
Cost
of revenues includes all direct costs of providing services under our contracts, including costs for direct labor provided by
employees, services by independent subcontractors, operation of capital equipment (excluding depreciation and amortization), direct
materials, insurance claims and other direct costs.
|
m.
|
Research and Development
Costs
|
Research
and development costs are expensed as incurred.
|
n.
|
Stock-based Compensation
|
The
Company records stock-based compensation in accordance with ASC 718, “
Compensation – Stock Compensation
,”
using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable.
The
Company applies ASC 505-50, "
Equity-Based Payments to Non-Employees
" ("ASC 505") with respect to options
and warrants issued to non-employees which requires the use of option valuation models to measure the fair value of the options
and warrants at the measurement date.
The
Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected
by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables
include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and
projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest
is recognized as an expense in the consolidated statement of operations over the requisite service period.
The
Company computes loss per share in accordance with ASC 260, “
Earnings per Share
” which requires presentation
of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by
dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury
stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price
for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2017, the Company had
853,447,154 (December 31, 2016 – 311,089,881, May 31, 2017 – 647,182,222, May 31, 2016 – 56,260,229) common
stock equivalents outstanding.
ASC
220, “
Comprehensive Income
,” establishes standards for the reporting and display of comprehensive loss and
its components in the financial statements. As of December 31, 2017 and 2016 and May 31, 2017 and 2016, the Company has no items
that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial
statements.
|
q.
|
Recent Accounting
Pronouncements
|
In
November 2015, the FASB issued ASU No. 2015-17, “
Income Taxes (Topic 740) – Balance Sheet Classification of Deferred
Taxes
” (“ASU 2015-17”), which is effective for nonpublic entities for annual reporting periods beginning
after December 15, 2016. ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities
and assets be classified as non-current in the statement of financial position. The Company has elected to early adopt the requirements
of ASU 2015-17 and the results of such adoption are presented within these consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02, “
Leases
” (Topic 842) (“ASU 2016-02”), which is
effective for nonpublic entities for annual reporting periods beginning after December 15, 2018. Under ASU 2016-02, lessees will
be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a
lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis,
and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified
asset for the lease term. The Company continues to evaluate the effects of ASU 2016-02 and does not expect that the adoption will
have a material effect on its consolidated financial statements and disclosures.
In
May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606).
ASU 2014-09 is amended by ASU
2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-10, ASU 2017-13 and ASU 2017-14, which FASB
issued in August 2015, March 2016, April 2016, May 2016, May 2016, December 2016, May 2017, September 2017 and November 2017,
respectively (collectively, the amended ASU 2014-09). The amended ASU 2014-09 provides a single comprehensive model for the recognition
of revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific
guidance. It requires an entity to recognize revenue when the entity transfers promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amended
ASU 2014-09 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s). The
amended ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including qualitative and quantitative information about contracts with customers, significant
judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The effective date
for the amended ASU 2014-09 is December 15, 2017 with early adoption permitted. The Company expects to adopt the new guidance
under the modified retrospective transition approach and while we are still assessing the impact of adoption but we do not expect
the new guidance to have a material impact on the consolidated financial statements of the Company.
In
January 2017, the FASB issued ASU 2017-01, “
Business Combinations (Topic 805) Clarifying the Definition of a Business
”
(“ASU 2017-01”). The Amendments in this Update clarify the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation.
The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods.
Early adoption of this standard is permitted. The Company will adopt ASU 2017-01 on January 1, 2018, and the impact on the consolidated
financial statements of the Company will depend on the facts and circumstances of any specific future transactions.
In
January 2017, the FASB issued ASU No. 2017-04, “
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment
” (“ASU 2017-04”). This standard will simplify the subsequent measurement of goodwill
by eliminating Step 2 from the goodwill impairment test. Current guidance requires that companies compute the implied fair value
of goodwill under Step 2 by performing procedures to determine the fair value at the impairment testing date of its assets and
liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the
fair value of assets acquired and liabilities assumed in a business combination. This standard will require companies to perform
annual or interim goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount. An entity
should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;
however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This standard will
be effective for annual periods beginning after December 15, 2020, including interim periods within that reporting period, and
will be applied prospectively. Early adoption of this standard is permitted on testing dates after January 1, 2017. The Company
will adopt ASU No. 2017-04 on January 1, 2018. The Company notes that this guidance applies to its reporting requirements and
will implement the new guidance accordingly in performing goodwill impairment testing; however, the Company does not believe this
update will have a material impact on the consolidated financial statements. The Company has implemented all new accounting pronouncements
that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements
that have been issued that might have a material impact on its financial position or result of operations.
|
r.
|
Concentrations of
Risk
|
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables.
The Company maintains its cash balances with high-credit-quality financial institutions. Deposits held with banks may exceed the
amount of insurance provided on such deposits. These deposits may be withdrawn upon demand and therefore bear minimal risk.
The
Company provides credit to customers on an uncollateralized basis after evaluating client creditworthiness. For the seven months
ended December 31, 2017, two customers accounted for 42% and 12%, respectively, of consolidated revenues for the period. In addition,
amounts due from these customers represented 27% and 11%, respectively, of trade accounts receivable as of December 31, 2017.
For the period from April 25, 2017 to May 31, 2017, two customers accounted for 48% and 11%, respectively, of consolidated revenues
for the period from April 25, 2017 to May 31, 2017. In addition, amounts due from these customers represented 39% and 8%, respectively,
of trade accounts receivable as of May 31, 2017.
The
Company’s customers are primarily located within the domestic United States of America and Puerto Rico. Revenues generated
within the domestic United States of America accounted for approximately 82% of consolidated revenues for the seven month period
ended December 31, 2017. Revenues generated from customers in Puerto Rico accounted for approximately 18% of consolidated revenues
for the seven month period ended December 31, 2017.
The
Company’s customers are primarily located within the domestic United States of America and Puerto Rico. Revenues generated
within the domestic United States of America accounted for approximately 94% of consolidated revenues for the period from April
25, 2017 to May 31, 2017. Revenues generated from customers in Puerto Rico accounted for approximately 6% of consolidated revenues
for the period from April 25, 2017 to May 31, 2017.
|
s.
|
Fair Value Measurements
|
The
Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed
by US generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available
inputs of observable data. The hierarchy requires the use of observable market data when available. The three-level hierarchy
is defined as follows:
Level
1 – quoted prices for identical instruments in active markets.
Level
2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in
active markets; and.
Level
3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.
Financial
instruments consist principally of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, loans payable
and convertible debentures. Derivative liabilities are determined based on “Level 3” inputs, which are significant
and unobservable and have the lowest priority. There were no transfers into or out of “Level 3” during the seven months
ended December 31, 2017 and 2016. The recorded values of all other financial instruments approximate their current fair values
because of their nature and respective relatively short maturity dates or durations.
Our
financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2017 and May 31, 2017,
consisted of the following:
|
|
|
Total fair value at
December 31,
2017
$
|
|
|
Quoted prices in active markets
(Level 1)
$
|
|
|
Significant other observable inputs
(Level 2)
$
|
|
|
Significant unobservable inputs
(Level 3)
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability (1)
|
|
|
4,749,712
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,749,712
|
|
|
|
|
Total fair value at
May 31,
2017
$
|
|
|
Quoted prices in active markets
(Level 1)
$
|
|
|
Significant other observable inputs
(Level 2)
$
|
|
|
Significant unobservable inputs
(Level 3)
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability (1)
|
|
|
3,760,067
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,760,067
|
|
|
(1)
|
The Company has
estimated the fair value of these derivatives using the Monte-Carlo model and/or a Binomial Model.
|
Fair
value estimates are made at a specific point in time, based on relevant market information and information about the financial
statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 9 for additional
information.
|
t.
|
Derivative Liabilities
|
The
Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative
instruments are reflected as either assets or liabilities at fair value in the balance sheet. The Company uses estimates of fair
value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly
transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is
to first look at observable market prices for identical assets and liabilities in active markets, where available. When these
are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities,
prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability
of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values
presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in
accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in
measuring financial instruments at fair value as discussed above. As of December 31, 2017 and May 31, 2017, the Company had a
$4,749,712 and $3,760,067 derivative liability, respectively.
Certain
prior period amounts have been reclassified to conform to current presentation.
On
April 25, 2017, pursuant to the Asset Purchase Agreement (the “Agreement”) with InterCloud Systems, Inc. (“InterCloud”),
the Company purchased, 80.1% of the assets associated with InterCloud’s “AW Solutions” business (“AWS”)
including, but not limited to, fixed assets, real property, intellectual property, and accounts receivables (collectively, the
“Assets”).
The
purchase price paid by the Company for the Assets includes the assumption of certain liabilities and contracts associated with
AWS, the issuance to InterCloud of a convertible promissory note in the aggregate principal amount of $2,000,000 (as described
in Note 9(j)), and a potential earn-out after six months in an amount equal to the lesser of (i) three times EBITDA (as defined
in the Asset Purchase Agreement) of the Business for the six-month period immediately following the closing and (ii) $1,500,000.
During the seven months ended December 31, 2017, Intercloud agreed to reduce the contingent liability to $793,893, as a result,
the Company recorded a $615,518 gain on settlement of debt.
The
Company has performed a valuation analysis of the fair market value of AWS’ assets and liabilities. The following table
summarizes the allocation of the preliminary purchase price as of the acquisition date:
|
Purchase Price
|
|
|
|
|
The $2,000,000 Convertible Note
|
|
$
|
2,230,701
|
|
|
Contingent Consideration
|
|
|
1,409,411
|
|
|
Total Purchase Price
|
|
$
|
3,640,112
|
|
|
|
|
|
|
|
|
Allocation of Purchase Price
|
|
|
|
|
|
Cash
|
|
$
|
115,112
|
|
|
Accounts receivable
|
|
|
2,040,249
|
|
|
Other assets
|
|
|
36,580
|
|
|
Equipment
|
|
|
116,143
|
|
|
Customer lists
|
|
|
901,548
|
|
|
Tradenames
|
|
|
574,605
|
|
|
Accounts payable
|
|
|
(682,781
|
)
|
|
Accrued expenses
|
|
|
(625,669
|
)
|
|
Noncontrolling interest
|
|
|
(339,309
|
)
|
|
Goodwill
|
|
|
1,503,634
|
|
|
Net assets acquired
|
|
$
|
3,640,112
|
|
The
following table summarizes our consolidated results of operations for the year’s ended May 31, 2017, as well as unaudited
pro forma consolidated results of operations as though the acquisition had occurred on June 1, 2015:
|
|
|
May 31,
2017
$
|
|
|
May 31,
2016
$
|
|
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
As Reported
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
1,069,917
|
|
|
|
10,572,122
|
|
|
|
70,298
|
|
|
|
11,965,151
|
|
|
Net Income
|
|
|
(6,871,287
|
)
|
|
|
(11,136,000
|
)
|
|
|
(2,219,860
|
)
|
|
|
(3,850,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.06
|
)
|
|
|
(0.10
|
)
|
|
|
(0.03
|
)
|
|
|
(0.05
|
)
|
|
Diluted
|
|
|
(0.06
|
)
|
|
|
(0.10
|
)
|
|
|
(0.03
|
)
|
|
|
(0.05
|
)
|
4.
|
Fiscal Year-end Change
|
On
January 2, 2018, our Board of Directors approved a change in our fiscal year-end from May 31 to December 31. As a result of this
change, our fiscal year 2017 is a 7 month transition period beginning June 1, 2017 through December 31, 2017. In these consolidated
statements, including the notes thereto, financial results for fiscal 2017 are for a 7 month period. Corresponding results for
the years ended May 31, 2017 and 2016 are both for 12 month periods. In addition, our Consolidated Statements of Operations and
Consolidated Statements of Cash Flows also include an unaudited 7 month period for fiscal 2016.
The
following table shows the fiscal months included within our financial statements and footnotes for fiscal 2017 (7 month), as well
as the fiscal months included within our financial statements and footnotes for fiscal 2017 and 2016:
|
New Fiscal Calendar
|
|
|
Previous Fiscal Calendar
|
|
|
2017 (7 – Month)
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2017 – December 31, 2017
|
|
|
June 1, 2016 to May 31, 2017
|
|
|
|
June 1, 2015 to May 31, 2016
|
|
|
5.
|
Property and Equipment
|
|
|
|
December 31,
2017
$
|
|
|
May 31,
2017
$
|
|
|
|
|
|
|
|
|
|
|
Computers and office equipment
|
|
|
308,649
|
|
|
|
308,649
|
|
|
Equipment
|
|
|
382,140
|
|
|
|
378,505
|
|
|
Research equipment
|
|
|
143,129
|
|
|
|
143,129
|
|
|
Software
|
|
|
177,073
|
|
|
|
177,073
|
|
|
Vehicles
|
|
|
94,356
|
|
|
|
94,356
|
|
|
Vehicles under capital lease
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,105,347
|
|
|
|
1,101,712
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: impairment
|
|
|
(44,419
|
)
|
|
|
(44,419
|
)
|
|
Less: accumulated depreciation
|
|
|
(999,769
|
)
|
|
|
(961,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Equipment, Net
|
|
|
61,159
|
|
|
|
96,030
|
|
During
the seven months ended December 31, 2017, the Company recorded $38,506 (December 31, 2016 - $18,331) of depreciation expense.
During the year ended May 31, 2017, the Company recorded $46,018 (2016 - $25,109) of depreciation expense. During the year ended
May 31, 2017, the Company disposed of two vehicles under capital leases. The Company recorded a loss on disposal of $2,067.
|
|
|
Cost
$
|
|
|
Accumulated amortization
$
|
|
|
Impairment
$
|
|
|
December 31,
2017
Net carrying value
$
|
|
|
May 31, 2017
Net carrying value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationship and lists
|
|
|
901,548
|
|
|
|
65,269
|
|
|
|
–
|
|
|
|
836,279
|
|
|
|
892,127
|
|
|
Trade names
|
|
|
574,605
|
|
|
|
41,600
|
|
|
|
–
|
|
|
|
533,005
|
|
|
|
568,600
|
|
|
|
|
|
1,476,153
|
|
|
|
106,869
|
|
|
|
–
|
|
|
|
1,369,284
|
|
|
|
1,460,727
|
|
During
the seven months ended December 31, 2017, and December 31, 2016 the Company recorded $91,443 and $395, respectively of amortization
expense. During the years ended May 31, 2017, and May 31, 2016 the Company recorded $16,429 and $4,123, respectively of amortization
expense.
Estimated
Future Amortization Expense:
|
|
$
|
|
For year ending December 31, 2018
|
156,405
|
|
For year ending December 31, 2019
|
156,405
|
|
For year ending December 31, 2020
|
156,405
|
|
For year ending December 31, 2021
|
156,405
|
|
For year ending December 31, 2022
|
156,405
|
|
For year ending December 31, 2023
|
156,405
|
|
For year ending December 31, 2024
|
156,405
|
|
For year ending December 31, 2025
|
156,405
|
|
For year ending December 31, 2026
|
118,044
|
|
7.
|
Related Party Transactions
|
|
a)
|
During the seven
months ended December 31, 2017, the Company incurred management fees of $12,011 (2016 - $79,910) to the former President of
the Company. During the year ended May 31, 2017, the Company incurred management fees of $112,927 (2016 - $129,799)
to the former President of the Company
|
|
b)
|
During the seven
months ended December 31, 2017, the Company incurred management fees of $0 (2016 - $26,636) to the spouse of the former President
of the Company. During the year ended May 31, 2017, the Company incurred management fees of $68,038 (2016 - $46,616) to the
spouse of the former President of the Company.
|
|
c)
|
As of December 31,
2017, the Company owes a total of $109,978 (May 31, 2017 - $241,327) to the former President of the Company and his spouse,
and a company controlled by the former President of the Company which is non-interest bearing, unsecured, and due on demand.
|
|
d)
|
As of December 31,
2017, the Company owes $22,097 (May 31, 2017 - $17,305) to a former officer and a former director of the Company, which is
non-interest bearing, unsecured, and due on demand.
|
|
e)
|
As of December 31,
2017, the Company owes $51,889 (May 31, 2017 - $49,376) to Intercloud, which is non-interest bearing, unsecured, and due on
demand.
|
|
f)
|
As of December 31,
2017, pursuant to the acquisition AW Solutions, the Company owes a contingent liability of $793,893 (May 31, 2017 - $1,409,411)
to Intercloud. During the seven months ended December 31, 2017, Intercloud agreed to reduce the contingent liability
by $615,518 which was recorded as a gain on settlement of debt.
|
|
g)
|
On November
30, 2017, the Company received $18,858 pursuant to a promissory note issued to the Chief Executive Officer of the Company.
The note issued is unsecured, due on November 30, 2018 and bears interest at a rate of 8% per annum.
|
|
h)
|
On November
30, 2017, the Company received $130,000 pursuant to a promissory note issued to the President of the Company. The note issued
is unsecured, due on November 30, 2018 and bears interest at a rate of 8% per annum.
|
|
i)
|
On November
16, 2017, the Company issued 251,885 shares of Series A Preferred Stock with a fair value of $86,785 to settle $195,204 of
amounts owed to the former President of the Company. The Company recognized a gain on settlement of debt of $108,419.
|
|
k)
|
On December
28, 2017, the Company issued 46,374,245 shares of common stock with a fair value of $510,117 to the President of the Company
in exchange for services for the Company.
|
|
l)
|
On December
28, 2017, the Company issued 46,374,245 shares of common stock with a fair value of $510,117 to the CEO of the Company in
exchange for services for the Company.
|
|
m)
|
During
the seven months ended December 31, 2017, the Company recorded $Nil (2016 - $nil) of management fees for the vesting of options
to management. During the year ended May 31, 2017, the Company recorded $Nil (2016 - $21,609) of management fees for the vesting
of options previously granted to former officers and directors previously granted to former officers and directors.
|
|
n)
|
On
May 18, 2017, the Company issued 62,125,755 shares of common stock with a fair value of $1,988,024 to a new director of the
Company in exchange for services for the Company.
|
|
o)
|
On
May 19, 2017, the Company issued 62,125,755 shares of common stock with a fair value of $1,988,024 to a new director of the
Company in exchange for services for the Company.
|
|
p)
|
The
Company subleased a portion of one of its offices located in Florida to Intercloud. Rental income charged to the Intercloud
was $2,513 from April 25, thru May 31, 2017.
|
|
q)
|
During
the year ended May31, 2017, the Company was part of the Intercloud’s group health insurance plan. Intercloud billed
the Company monthly for their portion of health insurance premiums. Total amounts billed during the year ended May 31, 2017
was $42,978.
|
|
r)
|
Intercloud
also allocated certain general insurance expenses to the Company. Total insurance expense allocated by the Intercloud to the
Company amounted to $8,911 during the year ended May 31, 2017 which is included in selling, general and administrative on
the statements of operations,
|
|
(a)
|
As of December 31,
2017, the amount of $50,349 (Cdn$63,300) (May 31, 2017 - $46,846 (Cdn$63,300)) is owed to a non-related party which is non-interest
bearing, unsecured, and due on demand.
|
|
(b)
|
As of December 31,
2017, the amount of $17,500 (May 31, 2017 - $17,500) is owed to a non-related party which is non-interest bearing, unsecured,
and due on demand.
|
|
(c)
|
As of December 31,
2017, the amounts of $7,500 and $29,430 (Cdn$37,000) (May 31, 2017 - $7,500 and $27,382 (Cdn$37,000)) are owed to a non-related
party which are non-interest bearing, unsecured, and due on demand.
|
|
(d)
|
As of December 31,
2017, the amount of $4,490 (May 31, 2017 - $4,490) is owed to a non-related party which is non-interest bearing, unsecured,
and due on demand.
|
|
(e)
|
As of December 31,
2017, the amounts of $14,370 (Cdn$18,066) (May 31, 2017 - $13,370 (Cdn$18,066) was advanced by a non-related party. The amount
owing is non-interest bearing, unsecured, and due on demand.
|
|
(f)
|
In March 2012, the
Company received $50,000 for the subscription of 10,000,000 shares of the Company’s common stock. During the year ended
May 31, 2013, the Company and the subscriber agreed that the shares would not be issued and that the subscription would be
returned. The subscription has been reclassified as a non-interest bearing demand loan until the funds are refunded to the
subscriber.
|
|
(g)
|
On August 4, 2015,
the Company borrowed $50,000 pursuant to a promissory note. The note was due on September 4, 2015. The note bears interest
at 120% per annum prior September 4, 2015, and at 180% per annum after September 4, 2015. The holder of the note was also
granted the rights to buy 100,000 shares of the Company’s common stock at a price of $0.15 per share until August 4,
2017. During the year ended May 31, 2016, the Company repaid the $50,000 note and $1,200 of accrued interest remains owing.
|
The
rights issued with the note qualified for derivative accounting under ASC 815-15 “
Derivatives and Hedging
”.
The initial fair value of the warrants of $9,755 resulted in a discount to the note payable of $9,755. During the year ended May
31, 2016, the Company recorded accretion of $9,755.
|
(h)
|
As of December 31,
2017 and May 31, 2017, the amounts of $15,000 and $44,433 (Cdn$55,878) was owed to non-related parties. These advances
are non-interest bearing, unsecured, and due on demand.
|
|
(i)
|
On April 12, 2017,
received $12,000 pursuant to a promissory note. The note issued is unsecured, due on demand and bears interest at a rate of
10% per annum.
|
|
(j)
|
On June 27, 2017,
received $250,200 net of a $27,800 Original Issue Discount pursuant to a $278,000 promissory note. The note issued is unsecured,
due on demand and bears interest at a rate of 12% per annum. The Company also issued a warrant with a term of three years
to purchase up to 50,000,000 shares of common stock of the Company at an exercise price of $0.005 per share. The fair value
of the warrants of $332,966 resulted in a discount to the note payable of $250,200 and the recognition of a loss on derivatives
of $82,766. During the seven months ended December 31, 2017, the Company repaid $160,000 of the loan and recorded accretion
of $278,000, increasing the carrying value of the note to $118,000.
|
|
9.
|
Convertible Debentures
|
|
(a)
|
In October 2008,
the Company issued three convertible debentures for total proceeds of $250,000 which bear interest at 10% per annum, are unsecured,
and due one year from date of issuance. The unpaid amount of principal and accrued interest can be converted at any time at
the holder’s option into 625,000 shares of the Company’s common stock at a price of $0.40 per share. The Company
also issued 250,000 detachable, non-transferable share purchase warrants. Each share purchase warrant entitles the holder
to purchase one additional share of the Company’s common stock for a period of two years from the date of issuance at
an exercise price of $0.50 per share.
|
In
accordance with ASC 470-20, “
Debt with Conversion and Other Options
,” the Company determined that the convertible
debentures contained no embedded beneficial conversion feature as the convertible debentures were issued with a conversion price
higher than the fair market value of the Company’s common shares at the time of issuance.
In
accordance with ASC 470-20, the Company allocated the proceeds of issuance between the convertible debt and the detachable share
purchase warrants based on their relative fair values. Accordingly, the Company recognized the fair value of the share purchase
warrants of $45,930 as additional paid-in capital and an equivalent discount against the convertible debentures. The Company had
recorded accretion expense of $45,930, increasing the carrying value of the convertible debentures to $250,000.
On
January 19, 2012, the Company entered into a settlement agreement with one of the debenture holders to settle a $50,000 convertible
debenture and $122,535 in accounts payable and accrued interest with the debt holder. Pursuant to the agreement, the debt holder
agreed to reduce the debt to Cdn$100,000 on the condition that the Company pays the amount of Cdn$2,500 per month for 40 months,
beginning March 1, 2012 and continuing on the first day of each month thereafter.
On
July 18, 2012, the Company entered into a settlement agreement with the $150,000 debenture holder. Pursuant to the settlement
agreement, the lender agreed to extend the due date until April 11, 2013 and the Company agreed to pay $43,890 of accrued interest
within five days of the agreement (paid), pay the accruing interest on a monthly basis (paid), and pay a $10,000 premium in addition
to the $150,000 principal outstanding on April 11, 2013. On April 29, 2013, the Company entered into an amended settlement agreement
whereby the lender agreed to extend the due date to September 15, 2013 and the Company agreed to pay $6,836 of interest for the
period from April 1 to September 15, 2013 upon execution of the agreement (paid) and granted the lender 100,000 stock options
exercisable at $0.12 per share for a period of two years.
On
November 15, 2013, the Company entered into a second settlement agreement amendment. Pursuant to the second amendment, on November
15, 2013, the Company agreed to pay interest of $4,438 (paid) and commencing February 1, 2014, the Company would make monthly
payments of $10,000 on the outstanding principal and interest. On December 4, 2015, the holder of the convertible debenture entered
into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound by
the assignment and sale agreement.
The
Company evaluated the modifications and determined that the creditor did not grant a concession. In addition, as the present value
of the amended future cash flows had a difference of less than 10% of the cash flows of the original debt, it was determined that
the original and new debt instruments are not substantially different. As a result, the modification was not treated as an extinguishment
of the debt and no gain or loss was recognized because the fair value of the old debt and new debt remained the same. The Company
recorded the fair value of $12,901 for the stock options as additional paid-in capital and a discount. During the year ended May
31, 2014, the Company repaid $40,000 of the debenture. As of May 31, 2014 the Company had accreted $12,901 of the discount bring
the carrying value of the convertible debenture to $114,661. During the year ended May 31, 2015, the Company repaid $54,808 decreasing
the carrying value to $59,853. During the year ended May 31, 2017, the Company recorded an additional fee of $21,266 increasing
the carrying value to $81,119. On November 16, 2017, the debenture and $15,423 of accrued interest was converted into Series A
Preferred Stock as described in Note 10(b).
At
December 31, 2017, the other remaining debenture of $50,000 remained outstanding and past due.
|
(b)
|
On August 19, 2013,
the Company issued a convertible debenture for total proceeds of $10,000, which bears interest at 10% per annum, is unsecured,
and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s
option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes.
The Company recognized the intrinsic value of the embedded beneficial conversion feature of $10,000 as additional paid-in
capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the
term of the convertible debenture up to its face value of $10,000. As of December 31, 2017, the carrying value of the convertible
promissory note was $10,000 and the note remained outstanding and in default.
|
|
(c)
|
On December 27,
2013, the Company issued a convertible debenture for total proceeds of $5,000, which bear interest at 10% per annum, is unsecured,
and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s
option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes.
The Company recognized the intrinsic value of the embedded beneficial conversion features of $5,000 as additional paid-in
capital and reduced the carrying value of the convertible debenture to $nil. The carrying value was be accreted over the term
of the convertible debenture up to its face value of $5,000. As of December 31, 2017, the carrying value of the convertible
promissory note was $5,000 and the note remained outstanding and in default.
|
|
(d)
|
On February 4, 2014,
the Company issued a convertible debenture for total proceeds of $15,000, which bears interest at 10% per annum, is unsecured,
and due two years from date of issuance. The unpaid amount of principal and accrued interest can be converted at the holder’s
option into shares of the Company’s common stock at $0.04 per share at any time after the first anniversary of the notes.
The Company recognized the intrinsic value of the embedded beneficial conversion feature of $15,000 as additional paid-in
capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the
term of the convertible debenture up to its face value of $15,000. As of December 31, 2017, the carrying value of the convertible
promissory note was $15,000 and the note remained outstanding and in default.
|
|
(e)
|
On June 1, 2015,
the Company issued a convertible note in the principal amount of $100,000 due on demand on or after December 1, 2015. The
note has a cash redemption premium of 130% of the principal amount in the first 90 days following the execution date, of 135%
for days 90-120 following the execution date, and 140% after the 120th day. After 140 days cash redemption is only available
upon approval by the holder. The note bears interest at 12% per annum and is convertible into common shares of the Company
at the lower of a 42% discount to the lowest trading price during the previous 20 trading days to the date of conversion;
or a 42% discount to the lowest trading price during the previous 20 trading days before the date the note was executed. In
no event shall the conversion price be lower than $0.00001. On December 4, 2015, the holder of the convertible debenture entered
into an agreement to sell and assign the remaining outstanding principal to a third party. The Company approved and is bound
by the assignment and sale agreement.
|
On
October 5, 2016, the holder of the convertible debentures entered into an agreement to sell and assign the remaining outstanding
principal to a third party. The Company approved and is bound by the assignment and sale agreement. At May 31, 2017, $45,000 of
the note had been assigned to the third party.
The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “
Derivatives and Hedging
”.
The initial fair value of the conversion feature of $310,266 resulted in a discount to the note payable of $100,000 and the recognition
of a loss on derivatives of $210,266. During the year ended May 31, 2016, the Company issued 6,303,475 shares of common stock
upon the conversion of $45,000 of principal. During the year ended May 31, 2016, the Company recorded accretion of $100,000 and
recorded the cash redemption premium of $26,250 increasing the carrying value of the note to $81,250.
During
the year months ended May 31, 2017, the Company issued 18,440,200 shares of common stock upon the conversion of $90,000 of principal.
During the year ended May 31, 2017, the Company recorded a default fee of $51,820 increasing the carrying value of the note to
$43,070. On November 16, 2017, the debenture and $13,644 of accrued interest was converted into Series A Preferred Stock as described
in Note 11(b).
|
(f)
|
On September 8,
2015, the Company issued a convertible note in the principal amount of $326,087. During the year ended May 31, 2016, the Company
received the initial tranches of $280,000 net of a $26,087 original issue discount. The note bears interest at 10% per annum
and is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20
trading days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days
before the date the note was executed.
|
The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “
Derivatives and Hedging
”.
The initial fair value of the conversion feature of $479,626 resulted in a discount to the note payable of $280,000 and the recognition
of a loss on derivatives of $204,626. During the year ended May 31, 2016, the Company recorded accretion of $120,175 and recorded
a default fee of $76,522 increasing the carrying value of the note to $190,696.
During
the year ended May 31, 2017, the Company recorded accretion of $185,913 increasing the carrying value of the note to $382,608.
On November 16, 2017, the debenture and $79,881 of accrued interest was converted into Series A Preferred Stock as described in
Note 11(b).
|
(g)
|
On December 4, 2015,
the Company issued a convertible note in the principal amount of $105,000 as an inducement to the holder of the convertible
notes described in Note 7(g), to enter into an agreement to sell and assign the remaining outstanding principal to a third
party. The note included a $10,000 original issue discount. The note bears interest at 10% per annum and is convertible into
common shares of the Company at a 52% discount to the lowest trading price during the previous 30 trading days to the date
of conversion; or a 52% discount to the lowest trading price during the previous 30 trading days before the date the note
was executed. On October 5, 2016, the holder of the convertible debentures entered into an agreement to sell and assign the
remaining outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement.
|
The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “
Derivatives and Hedging
”.
The initial fair value of the conversion feature of $216,108 resulted in a discount to the note payable of $95,000 and the recognition
of a loss on derivatives of $111,108. During the year ended May 31, 2016, the Company recorded accretion of $82,560 and recorded
a default of fee of $26,250 increasing the carrying value of the note to $48,690.
During
the year ended May 31, 2017, the recorded accretion of $82,560 increasing the carrying value of the note to $131,250. On November
16, 2017, the debenture and $24,464 of accrued interest was converted into Series A Preferred Stock as described in Note 11(b).
|
(h)
|
On March 10, 2016,
the Company issued a convertible note in the principal amount of up to $166,666. During the year ended May 31, 2016, the Company
received initial tranches of $65,000 net of a $16,666 original issue discount. The note bears interest at 10% per annum and
is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading
days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the
date the note was executed.
|
The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “
Derivatives and Hedging
”.
The initial fair value of the conversion feature of $218,785 resulted in a discount to the note payable of $81,666 and the recognition
of a loss on derivatives of $158,785. During the year ended May 31, 2016, the Company recorded accretion of $20,015, and recorded
a default fee of $20,417 increasing the carrying value of the note to $40,432.
On
April 7, 2017, the Company entered into an amendment to the convertible note which allowed for the additional funding under the
note of $40,000 with an original discount of $4,444. During the year ended May 31, 2017, the Company received additional tranches
of $123,339. The initial fair value of the conversion feature of $245,571 resulted in a discount to the note payable of $127,783
and the recognition of a loss on derivatives of $117,788. During the year ended May 31, 2017, the Company recorded accretion of
$133,721, and recorded a default fee of $31,946 increasing the carrying value of the note to $206,098. During the period from
June 1, 2017 to November 16, 2017, the Company recorded accretion of $43,692. On November 16, 2017, the debenture and $33,359
of accrued interest was converted into Series A Preferred Stock as described in Note 11(b).
|
(i)
|
On October 11, 2016,
the Company issued a convertible note in the principal amount of up to $249,999. The Company received initial tranches of
$42,500 net of a $24,999 original issue discount and $2,500 of financing fees. The note bears interest at 10% per annum and
is convertible into common shares of the Company at a 65% discount to the lowest trading price during the previous 20 trading
days to the date of conversion; or a 65% discount to the lowest trading price during the previous 20 trading days before the
date the note was executed.
|
The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “
Derivatives and Hedging
”.
The initial fair value of the conversion feature of $121,902 resulted in a discount to the note payable of $45,000 and the recognition
of a loss on derivatives of $76,902. During the year ended May 31, 2017, the Company recorded accretion of $26,953 increasing
the carrying value of the note to $26,953. During the period from June 1, 2017 to November 16, 2017, the Company recorded accretion
of $43,046 and a default fee of $17,500. On November 16, 2017, the debenture and $12,288 of accrued interest was converted into
Series A Preferred Stock as described in Note 11(b).
|
(j)
|
On April 27, 2017,
the Company issued a convertible promissory note in the aggregate principal amount of $2,000,000. The interest on the outstanding
principal due under the Unsecured Note accrues at a rate of 8% per annum. All principal and accrued interest under the Unsecured
Note is due one year following the issue date of the Unsecured Note and is convertible into shares of common stock at a conversion
price equal to 75% of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of
conversion.
|
The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “
Derivatives and Hedging
”.
The initial fair value of the conversion feature of $1,174,000 resulted in a discount to the note payable of $943,299. During
the year ended May 31, 2017, the Company recorded accretion of $77,465 increasing the carrying value of the note to $1,134,166.
On December 15, 2017, the holder of the convertible promissory note entered into an agreement to sell and assign $105,000 of the
outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement. During the seven
month period ended December 31, 2017, the Company recorded accretion of $504,501 increasing the carrying value of the notes to
$1,638,667.
|
(k)
|
On April 28, 2017,
the Company entered into and closed on a Securities Purchase Agreement (“Purchase Agreement”) with an institutional
investor (the “Lender”), pursuant to which the Company issued to the Lender a senior secured convertible promissory
note in the aggregate principal amount of $440,000 (the “Secured Note”) for an aggregate purchase price of $400,000,
and a warrant with a term of three years to purchase up to 27,500,000 shares of common stock of the Company at an exercise
price of $0.0255 per share. The interest on the outstanding principal due under the Secured Note accrues at a rate of 8% per
annum. All principal and accrued interest under the Secured Note is due on April 27, 2018 and is convertible into shares of
the Company’s Common Stock at a conversion price equal to 75% of the lowest volume-weighted average price during the
15 trading days immediately preceding the conversion, subject to adjustment upon the occurrence of certain events.
|
The
embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “
Derivatives and Hedging
”.
The initial fair value of the conversion feature of $1,744,661 and the fair value of the warrants of $425,918 resulted in a discount
to the note payable of $400,000 and the recognition of a loss on derivatives of $1,770,579. During the year ended May 31, 2017,
the Company recorded accretion of $54,526, increasing the carrying value of the note to $54,526. During the seven month period
ended December 31, 2017, the Company recorded accretion of $173,031 increasing the carrying value of the note to $194,557.
|
10.
|
Derivative Liabilities
|
The
embedded conversion option of the convertible debenture described in Note 8(f) contains a conversion feature that qualifies for
embedded derivative classification. The fair value of the liability will be re-measured at the end of every reporting period and
the change in fair value will be reported in the statement of operations as a gain or loss on derivative financial instruments.
Upon
the issuance of the convertible note payable described in Note 8(f), the Company concluded that it only has sufficient shares
to satisfy the conversion of some but not all of the outstanding convertible notes, warrants and options. The Company elected
to reclassify contracts from equity with the earliest inception date first. As a result, none of the Company’s previously
outstanding convertible instruments qualified for derivative reclassification, however, any convertible securities issued after
the election, including the convertible note described in Notes 8(f) to 8(k), qualified for derivative classification. The Company
reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events
during the period, the contract is reclassified as of the date of the event that caused the reclassification.
During
the year ended May 31, 2017, the Company reclassified 350,000 options exercisable at $0.03 until March 16, 2017 with a fair value
of $2,350, 2,000,000 warrants exercisable at $0.03 until August 29, 2018 with a fair value of $13,745, 533,333 warrants exercisable
at $0.80 with a fair value of $Nil, 4,075,000 warrants exercisable at $0.37 with a fair value of $16,978 and a $59,853 note convertible
at $0.40 with a fair value of $41 that qualified for treatment as derivative liabilities.
The
table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities.
|
|
|
December 31,
2017
|
|
|
May 31,
2017
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of period
|
|
$
|
3,760,067
|
|
|
$
|
978,245
|
|
|
Original discount limited to proceeds of notes
|
|
|
250,200
|
|
|
|
1,746,783
|
|
|
Fair value of derivative liabilities in excess of notes proceeds received
|
|
|
82,766
|
|
|
|
1,965,269
|
|
|
Reclassification of instruments previously classified as equity
|
|
|
-
|
|
|
|
32,934
|
|
|
Derivative liability settled through the issuance of preferred stock
|
|
|
(2,591,345
|
)
|
|
|
-
|
|
|
Conversion of derivative liability
|
|
|
-
|
|
|
|
(195,595
|
)
|
|
Change in fair value of embedded conversion option
|
|
|
3,248,024
|
|
|
|
(767,569
|
)
|
|
Balance at the end of the period
|
|
$
|
4,749,712
|
|
|
$
|
3,760,067
|
|
The
Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair values
were determined by using Monte-Carlo model or a Binomial Model based on various assumptions.
Significant
changes in any of these inputs in isolation would result in a significant change in the fair value measurement. As required, these
are classified based on the lowest level of input that is significant to the fair value measurement. The following table shows
the assumptions used in the calculations:
|
|
|
Expected Volatility
|
|
|
Risk-free Interest Rate
|
|
|
Expected Dividend Yield
|
|
|
Expected Life (in years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At issuance
|
|
|
134-213
|
%
|
|
|
0.07-0.74
|
%
|
|
|
0
|
%
|
|
|
0.50-2.00
|
|
|
At May 31, 2017
|
|
|
215-346
|
%
|
|
|
0.84-1.44
|
%
|
|
|
0
|
%
|
|
|
0.96-2.91
|
|
|
At December 15, 2017 upon conversion
|
|
|
256
|
%
|
|
|
1.39
|
%
|
|
|
0
|
%
|
|
|
0.37
|
|
|
At December 31, 2017
|
|
|
259-294
|
%
|
|
|
1.39-1.89
|
%
|
|
|
0
|
%
|
|
|
0.30-2.33
|
|
|
On November
15, 2017, the Company revised its authorized share capital to increase the number of authorized common shares from 275,000,000
common shares with a par value of $0.00001, to 750,000,000 common shares with a par value of $0.00001
|
|
(a)
|
As of December 31,
2017 and May 31, 2017, the Company’s subsidiary, Mantra Energy Alternatives Ltd., had received subscriptions for 67,000
shares of common stock at Cdn$1.00 per share for proceeds of $66,277 (Cdn$67,000), which is included in common stock subscribed,
net of the non-controlling interest portion of $7,231.
|
|
(b)
|
As of December 31,
2017 and May 31, 2017, the Company’s subsidiary, Climate ESCO Ltd., had received subscriptions for 210,000 shares of
common stock at $0.10 per share for proceeds of $21,000, which is included in common stock subscribed, net of the non-controlling
interest portion of $7,384.
|
|
(c)
|
On December 15,
2017, the Company issued 11,880,000 shares of common stock upon the conversion of $33,000 of principal and interest of $2,640
pursuant to a convertible promissory note due April 27, 2018. The Company recorded a gain on extinguishment of debt of $4,622
which was equal to the difference between the fair value of the shares issued and the liabilities settled.
|
|
(d)
|
On December 28,
2017, the Company issued 46,374,245 shares of common stock with a fair value of $510,117 to the CEO of the Company in exchange
for services for the Company. The shares vest over 12 months. During the seven months ended December 31, 2017 the
Company recorded $4,193 for the vested portion of the shares.
|
|
(e)
|
On December 28,
2017, the Company issued 46,374,245 shares of common stock with a fair value of $510,117 to the President of the Company in
exchange for services for the Company. The shares vest over 12 months. During the seven months ended December 31, 2017 the
Company recorded $4,193 for the vested portion of the shares.
|
|
(f)
|
On December 28,
2017, the Company issued 43,400,000 shares of common stock with a fair value of $477,400 to a consultant for compensation
and services rendered to the Company. The shares vest over 12 months. During the seven months ended December 31, 2017 the
Company recorded $5,351 for the vested portion of the shares.
|
On
November 15, 2017, the Company created one series of the 20,000,000 preferred shares it is authorized to issue, consisting of
8,000,000 shares, to be designated as Series A Preferred Shares. The principal terms of the Series A Preferred Shares are as follows:
Voting
rights
– The Series A Preferred Shares do not have voting rights.
Dividend
rights
– The holders of the Series A Preferred Shares shall not be entitled to receive any dividends. However, no dividends
(other than those payable solely in Common Stock) shall be paid on the Common Stock or any class or series of capital stock ranking
junior, as to dividends, to the Series A Preferred during any fiscal year of the Corporation until there shall have been paid
or declared and set apart during that fiscal year for the holders of the Series A Preferred a dividend in an amount per share
equal to (i) the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock times (ii) the amount
per share of the dividend to be paid on the Common Stock.
Conversion
rights
– The holders of the Series A Preferred Shares have the right to convert each Class A Preferred Share and all
accrued and unpaid dividends thereon shall be convertible at the option of the holder thereof, at any time after the issuance
of such share into fully paid and nonassessable shares of Common Stock of the Corporation. The number of shares of Common Stock
into which each share of the Series A Preferred Shares may be converted shall be determined by dividing the sum of the Stated
Value of the Series A Preferred Shares ($0.25 per share) being converted and any accrued and unpaid dividends by the Conversion
Price in effect at the time of the conversion. The Series A Preferred Shares may be converted at an initial conversion price of
the greater of 75% of the lowest VWAP during the ten (10) trading day period immediately preceding the date a conversion notice
is delivered.
Liquidation
rights
- Upon the occurrence of any liquidation, each holder of Series A Preferred Shares then outstanding shall be entitled
to receive, out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made
in respect of the Common Stock, or other series of preferred stock then in existence that is outstanding and junior to the Series
A Preferred Shares upon liquidation, an amount per share of Series A Preferred Shares equal to the amount that would be receivable
if the Series A Preferred Shares had been converted into Common Stock immediately prior to such liquidation distribution, plus,
accrued and unpaid dividends.
In
accordance with ASC 480
Distinguishing Liabilities from Equity,
the Company has classified the following Series A Preferred
Shares as a liability.
|
a)
|
On
November 16, 2017, the Company issued 251,885 shares of Series A Preferred Stock with
a fair value of $86,785 to settle $195,204 of amounts owed to the former President of
the Company. The Company recognized a gain on settlement of debt of $108,419.
|
|
b)
|
On
November 16, 2017, the Company issued 1,011,060 shares of Series A Preferred Stock with
a fair value of $348,354 to settle convertible notes with a carrying value of $975,337,
$179,059 of accrued interest and $2,453,667 of associated derivative liabilities. The
Company recognized a gain on settlement of debt of $3,259,709.
|
|
13.
|
Share Purchase Warrants
|
The
following table summarizes the continuity of share purchase warrants:
|
|
|
Number of
warrants
|
|
|
Weighted average exercise price
$
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2016
|
|
|
7,025,000
|
|
|
|
0.34
|
|
|
Issued
|
|
|
27,833,333
|
|
|
|
0.03
|
|
|
Expired
|
|
|
(650,000
|
)
|
|
|
0.04
|
|
|
Balance, May 31, 2017
|
|
|
34,208,333
|
|
|
|
0.08
|
|
|
Issued
|
|
|
50,000,000
|
|
|
|
0.005
|
|
|
Expired
|
|
|
(633,333
|
)
|
|
|
0.70
|
|
|
Balance, December 31, 2017
|
|
|
83,575,000
|
|
|
|
0.03
|
|
As
of December 31, 2017, the following share purchase warrants were outstanding:
|
Number of warrants
|
|
|
Exercise
price
$
|
|
|
Expiry date
|
|
|
|
|
|
|
|
|
|
|
666,667
|
|
|
|
0.03
|
|
|
August28, 2018
|
|
|
4,075,000
|
|
|
|
0.37
|
|
|
April 10, 2019
|
|
|
1,333,333
|
|
|
|
0.03
|
|
|
August 29, 2018
|
|
|
27,500,000
|
|
|
|
0.03
|
|
|
April 28, 2020
|
|
|
50,000,000
|
|
|
|
0.005
|
|
|
June 27, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
83,575,000
|
|
|
|
|
|
|
|
The
following table summarizes the continuity of the Company’s stock options:
|
|
|
Number
of options
|
|
|
Weighted
average
exercise price
$
|
|
|
Weighted average remaining contractual life (years)
|
|
|
Aggregate
intrinsic
value
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, May 31, 2016
|
|
|
1,500,000
|
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,150,000
|
)
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
Outstanding, May 31, 2017 and December 31, 2017
|
|
|
350,000
|
|
|
|
0.03
|
|
|
|
0.38
|
|
|
|
–
|
|
|
Exercisable, May 31, 2017 and December 31, 2017
|
|
|
350,000
|
|
|
|
0.03
|
|
|
|
0.38
|
|
|
|
–
|
|
Additional
information regarding stock options as of December 31, 2017 is as follows:
|
Number of
options
|
|
|
Exercise
price
$
|
|
|
Expiry date
|
|
|
|
|
|
|
|
|
|
|
350,000
|
|
|
|
0.03
|
|
|
May 17, 2018
|
|
|
350,000
|
|
|
|
|
|
|
|
|
15.
|
Commitments and Contingencies
|
|
(a)
|
On May 23, 2012,
a former employee of the Company delivered a Notice of Application seeking judgment against the Company for approximately
$55,000. The hearing of that Application took place on July 31, 2012, at which time the former employee obtained judgment
in the approximate amount of $55,000. The Company did not defend the amount of the judgment and the amount is included in
accounts payable, but claims a complete set-off on the basis that the former employee retains 1,000,000 shares of common stock
of the Company as security for payment of the outstanding consulting fees owed to him. On November 30, 2012, the Company commenced
a separate action against the former employee seeking a return of the 1,000,000 shares of common stock and a stay of execution
of the judgment. That application is pending and has not yet been heard or determined by the court. The payment of the judgment
claim of approximately $55,000 is dependent upon whether the former employee will first return the 1,000,000 shares of common
stock noted above. The probable outcome of the Company’s claim for the return of the shares cannot yet be determined
as the Company has not received a response from the former employee for nearly two years.
|
|
(b)
|
On November 15,
2013, the Company entered into a second settlement agreement with the $150,000 debenture holder described in Note 10(a). Pursuant
to the second amendment, on November 15, 2013, the Company agreed to make monthly payments of $10,000 on the outstanding principal
and interest. Payments were made until December 2014, but have not been made after. The plaintiff was seeking relief of amounts
owed along with 10% interest per annum, from the date of judgments. All amounts are recorded in these financial statements.
On December 4, 2015, the holder of the convertible debenture entered into an agreement to sell and assign the remaining outstanding
principal to a third party. The Company approved and is bound by the assignment and sale agreement.
1
|
|
(c)
|
On September 3,
2015, a former prospective employee of the Company delivered a Notice of Claim seeking judgment against the Company for approximately
$11,400. During the year ended May 31, 2017 the prospective employee received a judgement which is recorded in these financial
statements.
|
|
(d)
|
On March 14, 2016,
the Company entered into a consulting agreement. Pursuant to the agreement, the Company will pay the consultant $10,000 per
month ($20,000 paid) and issue 550,000 shares per month for a period of three months. At December 31, 2017, the Company had
not issued the shares to the consultant due to non-performance.
|
|
(e)
|
On September 10,
2016, the Company entered into a debt settlement agreement to settle $7,500 of amounts owed for services in exchange for 2,000,000
common shares. The Company has not yet issued the shares. The Company will record the debt settlement upon the issuance of
shares.
|
|
(f)
|
On August 22, 2016,
the Company entered into a consulting agreement for the provision of consulting services until November 22, 2016. Pursuant
to the agreement the Company will pay the consultant $5,000 per month and issue 2,000,000 shares of common stock to the consultant.
On December 7, 2016, the Company entered into a settlement agreement. Pursuant to the agreement, the Company agreed to issue
the consultant 1,000,000 common shares in exchange for fully releasing and discharging the Company of any and all further
obligations.
|
|
(g)
|
The Company leases
certain of its properties under leases that expire on various dates through 2019. Some of these agreements include escalation
clauses and provide for renewal options ranging from one to five years.
|
|
(h)
|
Rent expense incurred
under the Company’s operating leases amounted to $165,610 during the seven months ended December 31, 2017.
|
|
(i)
|
The future minimum
obligation during each year through 2019 under the leases with non-cancelable terms in excess of one year is as follows:
|
|
|
|
Future
|
|
|
|
|
Minimum
|
|
|
|
|
Lease
|
|
|
Years Ended December 31,
|
|
Payments
|
|
|
2018
|
|
$
|
167,616
|
|
|
2019
|
|
|
39,274
|
|
|
2020
|
|
|
0
|
|
|
Total
|
|
$
|
206,890
|
|
During
the seven months ended December 31, 2016, the Company operated in one operating segment in one geographical area.
During
the seven months ended December 31, 2017, the Company had two operating segments including:
|
●
|
AW Solutions, which
is in the business of the provision of professional, multi-service line, telecommunications infrastructure and outsource services
to the wireless and wireline industry and,
|
|
●
|
Spectrum Global
Solutions (SGS), which consists of the rest of the Company’s operations.
|
Factors
used to identify the Company’s reportable segments include the organizational structure of the Company and the financial
information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources
and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative
criteria. The Company operates the SGS reporting segment in one geographical area, the United States and the AW Solutions operating
segment in two geographical areas, the United States and Puerto Rico.
Financial
statement information by operating segment for seven months ended December 31, 2017 is presented below:
|
|
|
Spectrum Global
$
|
|
|
AW Solutions
$
|
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
–
|
|
|
|
5,872,457
|
|
|
|
5,872,457
|
|
|
Operating (loss) income
|
|
|
(1,085,472
|
)
|
|
|
(115,121
|
)
|
|
|
(1,200,593
|
)
|
|
Interest expense
|
|
|
232,901
|
|
|
|
13,850
|
|
|
|
246,751
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
129,949
|
|
|
|
129,949
|
|
|
Total Assets as of December 31, 2017
|
|
|
5,733
|
|
|
|
4,499,607
|
|
|
|
4,505,340
|
|
Geographic
information for the seven months ended and as of December 31, 2017 is presented below:
|
|
|
Revenues
$
|
|
|
Long-Lived
Assets
$
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico
|
|
|
1,065,285
|
|
|
|
5,377
|
|
|
United States
|
|
|
4,807,172
|
|
|
|
2,956,630
|
|
|
Consolidated Total
|
|
|
5,872,457
|
|
|
|
2,962,007
|
|
Financial
statement information by operating segment for year ended May 31, 2017 is presented below:
|
|
|
Spectrum Global
$
|
|
|
AW Solutions
$
|
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
–
|
|
|
|
1,069,917
|
|
|
|
1,069,917
|
|
|
Operating (loss) income
|
|
|
(4,651,298
|
)
|
|
|
(110,531
|
)
|
|
|
(4,761,829
|
)
|
|
Interest expense
|
|
|
211,124
|
|
|
|
330
|
|
|
|
211,454
|
|
|
Depreciation and amortization
|
|
|
24,329
|
|
|
|
35,540
|
|
|
|
59,869
|
|
|
Impairment loss
|
|
|
103,480
|
|
|
|
–
|
|
|
|
103,480
|
|
|
Total Assets as of May 31, 2017
|
|
|
4,515
|
|
|
|
5,184,262
|
|
|
|
5,188,777
|
|
Geographic
information for the year ended and as of May 31, 2017 is presented below:
|
|
|
Revenues
$
|
|
|
Long-Lived
Assets
$
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
836,809
|
|
|
|
3,080,483
|
|
|
Puerto Rico
|
|
|
233,108
|
|
|
|
7,837
|
|
|
Consolidated Total
|
|
|
1,069,917
|
|
|
|
3,088,320
|
|
During
the seven months ended December 31, 2016 and the year ended May 31, 2016 the Company operated in one operating segment and one
geographical area.
The
Company’s pre-tax loss for the seven months ended December 31, 2017 and 2016 consisted of the following:
|
|
|
7 Months Ended
December 31,
|
|
|
Years Ended May 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Domestic
|
|
$
|
(1,899,972
|
)
|
|
$
|
-
|
|
|
$
|
(326,973
|
)
|
|
$
|
-
|
|
|
Foreign
|
|
|
96,214
|
|
|
|
(914,686
|
)
|
|
|
(6,485,906
|
)
|
|
|
(2,176,172
|
)
|
|
Pre-tax Loss
|
|
$
|
(1,803,758
|
)
|
|
$
|
(914,686
|
)
|
|
$
|
(6,812,879
|
)
|
|
$
|
(2,176,172
|
)
|
The
provision for (benefit from) income taxes for the seven months ended December 31, 2017 and 2016 was as follows:
|
|
|
7 Months Ended
December 31,
|
|
|
Years Ended May 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Foreign
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Total current
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total provision for (benefit from) income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company’s income taxes were calculated on the basis of $96,214 of foreign net gain and $1,899,972 of domestic net loss.
The
Company’s effective tax rate for the seven months ended December 31, 2017 and 2016 differed from the U.S. federal statutory
rate as follows:
|
|
|
7 Months Ended
December 31,
|
|
|
Years Ended May 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
Federal tax benefit at statutory rate
|
|
|
(34.0
|
)
|
|
|
(34.0
|
)
|
|
|
(34.0
|
)
|
|
|
(34.0
|
)
|
|
Permanent differences
|
|
|
12.4
|
|
|
|
7.6
|
|
|
|
4.8
|
|
|
|
16.3
|
|
|
State tax benefit, net of Federal benefits
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
0.2
|
|
|
|
-
|
|
|
Effect of foreign income taxed in rates other than the U.S. Federal statutory rate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net change in valuation allowance
|
|
|
21.6
|
|
|
|
26.4
|
|
|
|
29.0
|
|
|
|
17.7
|
|
|
Benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The
tax effects of temporary differences and carryforwards that gave rise to significant portions of the deferred tax assets and liabilities
were as follows:
|
|
|
Year ended December 31,
2017
|
|
|
Year ended May 31,
2017
|
|
|
Net operating loss carry forwards
|
|
$
|
11,758,850
|
|
|
$
|
9.833.923
|
|
|
Depreciation
|
|
|
29,139
|
|
|
|
16.189
|
|
|
Total assets
|
|
|
11,787,989
|
|
|
|
9.850.112
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
Intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
Total liabilities
|
|
|
-
|
|
|
|
-
|
|
|
Less: Valuation allowance
|
|
|
(11,787,989
|
)
|
|
|
(9,850,112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of December 31 2017 and May 31, 2017, the Company had federal net operating loss carryforwards (“NOL’s”) of
$11,758,850 and $9,850,112, respectively that will be available to reduce future taxable income, if any. These NOL’s begin
to expire in 2027.
Sections
382 and 383 of the Internal Revenue Code of 1986, as amended, provide for annual limitations on the utilization of net operating
loss, capital loss and credit carryforwards if the Company were to undergo an ownership change, as defined in Section 382 of the
Code. In general, an ownership change occurs whenever the percentage of the shares of a corporation owned, directly or indirectly,
by 5-percent shareholders, as defined in Section 382 of the Code, increases by more than 50 percentage points over the lowest
percentage of the shares of such corporation owned, directly or indirectly, by such 5-percent shareholders at any time over the
preceding three years. In the event such ownership change occurs, the annual limitation may result in the expiration of net operating
losses capital losses and credits prior to full utilization.
The
Company has not completed a study to assess whether ownership change has occurred as a result of the Company’s acquisition
of AWS and related issuance of shares (See Note 3). However, as a result of the issuance of common shares in 2017, the Company
believes an ownership change under Sec. 382 may have occurred. As a result of this ownership change certain of the Company’s
net operating loss, capital loss and credit carryforwards will expire prior to full utilization.
The
Company performs an analysis each year to determine whether the expected future income will more likely than not be sufficient
to realize the deferred tax assets. The Company’s recent operating results and projections of future income weighed heavily
in the Company’s overall assessment. Prior to 2017, there were no provisions (or benefits) for income taxes because the
Company had sustained cumulative losses since the commencement of operations.
The
Company’s continuing practice is to recognize interest and/or penalties related to income tax matters as a component of
income tax expense. As of December 31, 2017 and May 31, 2017, there was no accrued interest and penalties related to uncertain
tax positions.
The
Company is subject to U.S. federal income taxes and to income taxes in various states in the United States. Tax regulations within
each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to
apply. Due to the Company’s net operating loss carryforwards all years remain open to examination by the major domestic
taxing jurisdictions to which the Company is subject. In addition, all of the net operating loss and credit carryforwards that
may be used in future years are still subject to adjustment.
|
a)
|
On
February 6, 2018, the Company issued 505,494 shares of Series A Preferred Stock to settle $407,000 of principal, and $32,560
of accrued interest on the convertible notes described in Note 9(k).
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b)
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On
February 6, 2018, the Company entered into a Stock Purchase Agreement (the “Agreement”) with InterCloud. Pursuant
to the terms of the Agreement, InterCloud agreed to sell, and Spectrum agreed to purchase, all of the issued and outstanding
capital stock and membership interests of ADEX Corp., ADEX Puerto Rico, LLC and ADEXCOMM (collectively, “ADEX”).
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The
purchase price the Company will pay for ADEX will include $3,000,000 in cash, of which $2,500,000 will be paid at closing
and $500,000 will be retained by the Company for 90 days in order to satisfy any outstanding liabilities of ADEX incurred
prior to the closing date, and the issuance to InterCloud of a one-year convertible promissory note in the aggregate principal
amount of $2,000,000 (the “Note”).
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The
interest on the outstanding principal due under the Note accrues at a rate of 6% per annum. All principal and accrued interest
under the Note is due one year following the issue date of the Note, and is convertible into shares of common stock, par value
$0.00001, at a conversion price equal to 75% of the lowest volume-weighted average price during the 15 trading days immediately
preceding the date of conversion, but in no event ever lower than $0.005. The Note includes customary events of default, including
non-payment of the principal or accrued interest due on the Note. Upon an event of default, all obligations under the Note
will become immediately due and payable and the Company will be required to make certain payments to InterCloud.
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On
February 27, 2018, the Company completed the acquisition of ADEX (the “Acquisition”). Pursuant to the terms of
the Stock Purchase Agreement the Company purchased from InterCloud all of the issued and outstanding capital stock and membership
interests of ADEX.
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On
February 27, 2018, the Company, and its subsidiaries entered into a Business Loan and Security Agreement (the “Super
G Loan Agreement”) with Super G Capital, LLC, a Delaware limited liability company (“Super G”), as lender
and received a term loan from Super G in an amount equal to $1,150,000, a portion of the proceeds of which were used to fund
the Acquisition.
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Borrowings
under the Super G Loan Agreement are to be repaid in semi-monthly installments (including interest) of $43,125 for 36 months
starting on March 16, 2018, for total payments of $1,552,500. The total interest charge is expected to total $402,500. The
obligations of the Company under the Super G Loan Agreement are secured by a lien on substantially all of the assets of the
Company and its subsidiaries, including accounts receivable, intellectual property, equipment and other personal property.
The Super G Loan Agreement contains certain restrictions and covenants and requires the Company to comply with certain financial
covenants, including maintaining unrestricted cash and minimum levels of revenue and adjusted EBITDA.
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The
Super G Loan Agreement contains customary events of default, including failure to pay any principal or interest when due,
failure to perform or observe covenants, breaches of representations and warranties, certain cross defaults, certain bankruptcy
related events, monetary judgments defaults and failure to own 100% of the Company’s subsidiaries. Upon the occurrence
of an event of default, the outstanding obligations may be accelerated and become immediately due and payable.
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c)
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On
February 14, 2018, the Company entered into an agreement (the “Bill of Sale”) with InterCloud providing for the
sale, transfer, conveyance and delivery to the Company of the remaining 19.9% of the assets associated with InterCloud’s
AWS business not already purchased by the Company (collectively, the “Remaining Assets”). The acquisition of the
initial 80.1% of AWS is described in Note 3. As consideration for the Remaining Assets, the Company issued InterCloud a common
stock purchase warrant (the “Warrant”) that entitles InterCloud to purchase a number of shares equal to 4% of
the number of shares of the Company’s common stock outstanding at the time of exercise at an exercise price of $0.006
per share. The Warrant has a three year term.
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The
Company also issued Intercloud a convertible note with a principal amount of $793,894. The note is due on August 16, 2019
and bears interest at 1% per annum. The note is convertible into common shares of the Company at a conversion price equal
to the 80% of the lowest volume-weighted average price during the 5 trading days immediately preceding the date of conversion.
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d)
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On
February 21, 2018, the Company issued a convertible note with a principal amount of $500,000 and a warrant with a term of
three years to purchase up to 25,000,000 shares of common stock of the Company at an exercise price of $0.008 per share. The
exercise price of the warrant will reduce to 85% of the closing price of the Company’s common stock if the closing price
of the Company’s common stock is less than $0.008 on July 31, 2018. The note is due on January 15, 2019, and bears interest
at 6% per annum. The note is convertible into common shares of the Company at a conversion price equal to the lower of 80%
of the lowest volume-weighted average price during the 5 trading days immediately preceding the date of conversion and $0.005.
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e)
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On
February 27, 2018, a subsidiary of the Company, ADEX entered into a Purchase and Sale Agreement (the “Purchase and Sale
Agreement”) with Prestige Capital Corporation (“Prestige”) pursuant to which ADEX agreed to sell and assign
and Prestige agreed to buy and accept, certain accounts receivable owing to ADEX (“Accounts”). Under the terms
of the Purchase and Sale Agreement, upon the receipt and acceptance of each assignment of Accounts, Prestige will pay ADEX
eighty percent (80%) of the face value of the assigned Accounts, up to a maximum total borrowings of $5,000,000 outstanding
at any point in time. ADEX additionally granted Prestige a continuing security interest in and lien upon all accounts receivable,
inventory, fixed assets, general intangibles and other assets.
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SIGNATURES
In accordance with
the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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SPECTRUM GLOBAL SOLUTIONS, INC.
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Date: April 9, 2018
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By:
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/s/
Roger M. Ponder
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Roger M. Ponder
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Chief Executive Officer
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Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Name
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Position
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Date
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/s/ Roger M. Ponder
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Chief Executive Officer and
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April 9, 2018
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Roger M. Ponder
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Chairman of the Board of Directors
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(Principal Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
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/s/ Keith W. Hayter
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Director
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April 9, 2018
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Keith W. Hayter
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Exhibit Index
Exhibit
#
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Exhibit
Description
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2.1
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Plan of Conversion of Mantra Venture Group Ltd. from a Nevada Corporation into a British Columbia Corporation dated October 29, 2008. (incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 4, 2008)
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3.1
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Articles of Conversion of Mantra Venture Group Ltd. dated October 28, 2008 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on November 4, 2008)
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3.2
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British Columbia Table 1 Articles adopted on December 4, 2008 (incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 12, 2008)
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3.3
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British Columbia Notice of Articles (incorporated by reference to our Current Report on Form 8-K filed with the SEC on December 12, 2008)
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4.1*
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Certificate of Designation of Series A Convertible Preferred Stock of Spectrum Global Solutions, Inc., dated March 23, 2018
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10.1
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Revolving Line of Credit Agreement with Larry Kristof dated October 15, 2008 (incorporated by reference to our Quarterly Report on Form 10-Q filed on January 14, 2009)
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10.2
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2009 Stock Compensation Plan and 2009 Stock Option Plan (incorporated by reference to our Registration Statement on Form S-8 filed on November 24, 2009)
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10.3
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Subscription Agreement with Mantra Energy Alternatives Ltd. dated February 29, 2012 (incorporated by reference to our Current Report on Form 8-K filed on March 9, 2012)
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10.4
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Service Contract with PowerTech Labs Inc. dated June 19, 2012 (incorporated by reference to our Current Report on Form 8-K filed on June 25, 2012)
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10.5
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Settlement Agreement with StichtingAdministratiekantoor Carlos Bijl dated July 16, 2012 (incorporated by reference to our Current Report on Form 8-K filed on July 23, 2012)
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10.6
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Master Services Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Tekion (Canada), Inc. dated July 31, 2012 (incorporated by reference to our Current Report on Form 8-K filed on August 30, 2012)
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10.7
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Statement of Work between our subsidiary, Mantra Energy Alternatives Ltd. and Tekion (Canada), Inc. dated July 31, 2012 (incorporated by reference to our Current Report on Form 8-K filed on August 30, 2012)
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10.8
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Employment Agreement with and Larry Kristof dated January 8, 2013 (incorporated by reference to our Current Report on Form 8-K filed on January 14, 2013)
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10.9
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Employment Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Larry Kristof dated January 8, 2013 (incorporated by reference to our Current Report on Form 8-K filed on January 14, 2013)
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10.10
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Sublease Agreement with BC Research Inc. dated February 25, 2013 (incorporated by reference to our Current Report on Form 8-K filed on March 18, 2013)
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10.11
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Letter of Engagement with BC Research Inc. dated March 13, 2013 (incorporated by reference to our Current Report on Form 8-K filed on March 18, 2013)
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10.12
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Amendment to Settlement Agreement with StichtingAdministratiekantoor Carlos Bijl dated April 29, 2013 (incorporated by reference to our Current Report on Form 8-K filed on May 22, 2013)
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10.13
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Director Agreement with Patrick Dodd dated May 7, 2013 (incorporated by reference to our Current Report on Form 8-K filed on May 10, 2013)
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10.14
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Consulting Agreement with BC0798465 BC Ltd. dated July 1, 2013 (incorporated by reference to our Current Report on Form 8-K filed on September 12, 2013)
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10.15
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Employment Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Sona Kazemi dated October 17, 2013 (incorporated by reference to our Current Report on Form 8-K filed on October 28, 2013)
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10.16
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Framework Agreement between our subsidiary, Mantra Energy Alternatives Ltd., and Alstom (Switzerland) Ltd. (incorporated by reference to our Current Report on Form 8-K filed on November 19, 2013)
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10.17
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Consulting Agreement with DCC Consulting dated March 13, 2014 (incorporated by reference to our Current Report on Form 8-K filed on March 24, 2014)
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10.18
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Letter of Engagement with BC Research Inc. dated March 25, 2014 (incorporated by reference to our Current Report on Form 8-K filed on April 1, 2014)
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10.19
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Securities Purchase Agreement dated March 10, 2016 (incorporated by reference to our Quarterly Report on Form 10-Q filed May 16, 2016).
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10.20
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Convertible Promissory Note dated March 10, 2016 (Securities Purchase Agreement dated March 10, 2016 (incorporated by reference to our Quarterly Report on Form 10-Q filed May 16, 2016).
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10.21
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Asset Purchase Agreement dated April 25, 2017 (incorporated by reference to our Form 8-K filed May 1, 2017)
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10.22
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Convertible Promissory Note dated April 25, 2017 (incorporated by reference to our Form 8-K filed May 1, 2017)
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10.23
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Securities Purchase Agreement dated April 28, 2017, for senior secured convertible promissory note and security agreement dated April 27, 2017 (incorporated by reference to our Form 8-K filed May 1, 2017)
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14.1
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Code of Ethics and Business Conduct (incorporated by reference to our Registration Statement on Form S- 1 filed on February 26, 2008)
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21.1*
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List of Subsidiaries
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31.1*
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Certification of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1*
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Certifications of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101 SCH
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XBRL Taxonomy Extension
Schema Document
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101 CAL
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|
XBRL Taxonomy Calculation
Linkbase Document
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101 LAB
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|
XBRL Taxonomy Labels
Linkbase Document
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101 PRE
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|
XBRL Taxonomy Presentation
Linkbase Document
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101 DEF
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|
XBRL Taxonomy Extension
Definition Linkbase Document
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55