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



For the fiscal year ended July 31, 2018



or



☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from _______to _________



Commission File Number: 001-15687



DIGERATI TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in
Its Charter)



|Nevada                                   |  | 74-2849995         
|---------------------------------------- |  | -------------------
|(State or Other Jurisdiction of          |  | (IRS Employer      
|Incorporation or Organization)           |  | Identification No.)
|                                         |  |                    
|1600 NE Loop 410, Suite 126              |  |                    
|San Antonio, Texas                       |  | 78209              
|(Address of Principal Executive Offices) |  | (Zip Code)         



Registrant’s Telephone Number, Including
Area Code: (210) 775-0888



Securities registered pursuant to Section
12(b) of the Act: NONE



Securities registered pursuant to Section
12(g) of the Act:



Common Stock, Par Value $0.001 Per Share

(Title of Class)



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 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 is not contained herein, and will not be contained, to the best of 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, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.



|Large accelerated filer | ☐                                               | Accelerated filer         | ☐
|----------------------- | ----------------------------------------------- | ------------------------- | -
|Non-accelerated filer   | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐
|                        | Emerging growth company                         | ☐                        



If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐



Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No



The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the issuer was $5,107,106 based on the closing price of $0.39 per share
on January 31, 2018, as reported on the over-the-counter bulletin board.



There were 13,095,143 shares of issuer’s Common Stock
outstanding as of November 12, 2018


















TABLE OF CONTENTS



|           |                                                                                                              | Page
|---------- | ------------------------------------------------------------------------------------------------------------ | ----
|           |                                                                                                              |     
|PART I    
|           |                                                                                                              |     
|Item 1.    | Business                                                                                                     | 1   
|Item 1A.   | Risk Factors                                                                                                 | 7   
|Item 1B.   | Unresolved Staff Comments                                                                                    | 7   
|Item 2.    | Properties                                                                                                   | 7   
|Item 3.    | Legal Proceedings                                                                                            | 7   
|Item 4.    | (Removed and Reserved)                                                                                       | 7   
|           |                                                                                                              |     
|PART II   
|           |                                                                                                              |     
|Item 5.    | Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities | 8   
|Item 6.    | Selected Financial Data                                                                                      | 10  
|Item 7.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations                        | 10  
|Item 7A.   | Quantitative and Qualitative Disclosures about Market Risk                                                   | 16  
|Item 8.    | Financial Statements and Supplementary Data                                                                  | 17  
|Item 9.    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures                        | 44  
|Item 9A.   | Controls and Procedures                                                                                      | 45  
|Item 9B.   | Other Information                                                                                            | 46  
|           |                                                                                                              |     
|PART III  
|           |                                                                                                              |     
|Item 10.   | Directors, Executive Officers and Corporate Governance                                                       | 47  
|Item 11.   | Executive Compensation                                                                                       | 49  
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               | 52  
|Item 13.   | Certain Relationships and Related Transactions, and Director Independence                                    | 53  
|Item 14.   | Principal Accountant Fees and Services                                                                       | 54  
|           |                                                                                                              |     
|PART IV   
|           |                                                                                                              |     
|Item 15.   | Exhibits, Financial Statement Schedules                                                                      | 55  
|           |                                                                                                              |     
|SIGNATURES | 56                                                                                                          



i







PART I



| | ITEM 1. | BUSINESS.
| | ------- | ---------



Overview



Digerati Technologies,
Inc., a Nevada corporation (including our subsidiaries, “we,” “us,” “Company” or “Digerati”),
through its operating subsidiaries, Shift8 Networks, Inc., dba Synergy Telecom (“Shift8”) and T3 Communications, Inc.
(“T3”), provides cloud services specializing in Unified Communications as a Service (“UCaaS”) solutions
for the business market. Our product line includes a portfolio of Internet-based telephony products and services delivered through
our cloud application platform and session-based communication network and network services including Internet broadband, fiber,
and cloud WAN solutions. Our services are designed to provide enterprise-class, carrier-grade services to the small-to-medium-sized
business ("SMB") at cost-effective monthly rates. Our UCaaS or cloud communication services include fully hosted IP/PBX,
mobile applications, Voice over Internet Protocol (“VoIP”) transport, SIP trunking, and customized VoIP services all
delivered Only in the CloudTM.



As a provider of cloud
communications solutions to the SMB, we are seeking to capitalize on the migration by businesses from the legacy telephone network
to the Internet Protocol (“IP”) telecommunication network and the migration from hardware-based on-premise telephone
systems to software-based communication systems in the cloud. Most SMBs are lagging in technical capabilities and advancement and
seldom reach the economies of scale that their larger counterparts enjoy, due to their achievement of a critical mass and ability
to deploy a single solution to a large number of workers. SMBs are typically unable to afford comprehensive enterprise solutions
and, therefore, need to integrate a combination of business solutions to meet their needs. Cloud computing has revolutionized the
industry and opened the door for businesses of all sizes to gain access to enterprise applications with affordable pricing. This
especially holds true for cloud telephony applications, but SMBs are still a higher-touch sale that requires customer support for
system integration, network installation, cabling, and troubleshooting. We have placed a significant emphasis on that “local”
touch when selling, delivering, and supporting our services which we believe will differentiate us from the national providers
that are experiencing high attrition rates due to poor customer support model.



The adoption of cloud
communication services is being driven by the convergence of several market trends, including the increasing costs of maintaining
installed legacy communications systems, the fragmentation resulting from use of multiple on-premise systems, and the proliferation
of personal smartphones used in the workplace. Today, businesses are increasingly looking for an affordable path to modernizing
their communications system to improve productivity, business performance and customer experience.



Our cloud solutions
offer the SMB reliable, robust, and full-featured services at affordable monthly rates that eliminates high-cost capital expenditures
and provides for integration with other cloud-based systems.



Recent Developments



On December 1, 2017,
Shift8 Technologies, Inc., a Nevada corporation (“Shift8”), a wholly owned subsidiary of Digerati Technologies, Inc.,
a Nevada corporation (the “Company”), and Synergy Telecom, Inc., a Texas corporation ("Synergy"), closed
a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy.



On May2, 2018, Shift8
completed the acquisition of T3 Communications, Inc., an established UCaaS and Internet broadband provider serving a high-growth
corridor in Southwest Florida.



During the year ended
July 31, 2018, we have raised $480,000 through the issuance of 960,000 shares of Digerati common stock and three-year warrants
to purchase up to 180,000 shares of common stock at an exercise price of $0.50 per share.





1







Products and Services



We provide a comprehensive
suite of Internet-based communication services to meet the global needs of businesses that are seeking simple, flexible, and cost-effective
communication solutions. Our Internet-based services include fully hosted IP/PBX services, SIP trunking, call center applications,
interactive voice response auto attendant, voice and web conferencing, call recording, simultaneous calling, voicemail to email
conversion, integrated mobility applications that are device and location agnostic, and multiple customized IP/PBX features in
a hosted or cloud environment. Our services, known as UCaaS or cloud communications, are specifically designed for the needs of
the small to medium-sized business, enterprise customers, call centers, and telephony service providers that do not have the scale
or expertise necessary to deploy their own cloud telephony infrastructure.



Through our recent
acquisitions, we have enhanced our product portfolio with the addition of enterprise-class data and connectivity solutions through
multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper.
Other services include remote network monitoring, data backup and disaster recovery. The addition of these new products and services
allows us to increase our value-proposition through product bundles that go beyond the voice application and to serve as a one-stop-shop
for business customers seeking a comprehensive voice and data solution.



Voice over Internet Protocol Networks



The basic technology
of traditional telecommunications systems was designed for slow mechanical switches. Communications over the traditional telephone
network are routed through circuits that must dedicate all circuit resources to each call from its inception until the call ends,
regardless of whether anyone is actually talking on the circuit. This circuit-switching technology incurs a significant cost per
call and does not efficiently support the integration of voice with data services. Data networks, however, were designed for electronic
switching. They break the data stream into small, individually addressed packages of data (“packets”) that are routed
independently of each other from the origin to the destination. Therefore, they do not require a fixed amount of bandwidth to be
reserved between the origin and destination of each call and they do not waste bandwidth when it is not being used for actual transmission
of information. This allows multiple voice or voice and data calls to be pooled, resulting in these networks being able to carry
more calls with an equal amount of bandwidth. Moreover, they do not require the same complex switching methods required by traditional
voice telephone networks, instead using a multiplicity of routers to direct each packet to its destination and automatically routing
packets around blockages, congestion or outages.



Packet switching can
be used within a data network or across networks, including the public Internet. The Internet itself is not a single data network
owned by any single entity, but rather a loose interconnection of networks belonging to many owners that communicate using the
Internet Protocol. By converting voice signals to digital data and handling the voice signals as data, it can be transmitted through
the more efficient switching networks designed for data transmissions and through the Internet using the Internet Protocol. The
transmission of voice signals as digitalized data streams over the Internet is known as Voice over Internet Protocol or “VoIP”.
A VoIP network has the following advantages over traditional networks:



| | ● | Simplification:An integrated infrastructure that supports all forms of communication allows
more standardization, a smaller equipment complement, and less equipment management.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Network Efficiency: The integration of voice and data fills up the data communication channels
efficiently, thus providing bandwidth consolidation and reduction of the costs associated with idle bandwidth. This combined infrastructure
can support dynamic bandwidth optimization and a fault tolerant design. The differences between the traffic patterns of voice and
data offer further opportunities for significant efficiency improvements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Co-existence with traditional communication mediums:IP telephony can be used in conjunction
with existing public telephone system switches, leased and dial-up lines, PBXs and other customer premise equipment, enterprise
LANs, and Internet connections. IP telephony applications can be implemented through dedicated gateways, which in turn can be based
on open standards platforms for reliability and scalability.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Cost reduction: Under the VoIP network, the connection is directly to the Internet backbone
and as a result the telephony access charges and settlement fees are avoided.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The growth of voice
over the Internet was limited in the past due to poor sound quality caused by technical issues such as delays in packet transmission
and by bandwidth limitations related to Internet network capacity and local access constraints. However, the expansion of Internet
Protocol network infrastructure, improvements in packet switching and compression technology, new software algorithms and improved
hardware have substantially reduced delays in packet transmissions and resulted in superior sound quality to that of the legacy
telephone network.





2







Cloud Communications



Cloud
communications are Internet-based voice and data communications where telecommunications applications, switching and storage
are hosted by a third-party service provider outside of the organization using the services. Services are accessed by the user
over the public Internet. Cloud telephony refers specifically to voice services and more specifically the replacement
of conventional business telephone equipment (such as aPBX)
with VoIP service hosted by a third-party service provider and delivered over the Internet.



We
operate a cloud communication network that consists of a VoIP switching system and cloud telephony application platform. Our network
allows us to provide end-to-end cloud telephony solutions designed to provide significant benefits to businesses of all sizes,
with single or multiple locations. The integration of our cloud communication platform and global VoIP network allows us to provide
our customers with virtually any type of telephony solution on a global basis.



Our
cloud communication solutions, also known as UCaaS, are designed to minimize upfront capital costs, increase the scalability and
flexibility of the customer’s communications network and service environment, provide robust features and functionality to
increase productivity and reduce the overall cost of communications.



Strategy



Our strategy is to
target the small to medium-sized business market and capitalize on the wave of migration from the legacy telephone network to cloud
telephony. We will continue to concentrate our sales and marketing efforts on developing vertically oriented solutions for targeted
markets primarily focusing on municipalities, banking, healthcare, legal services and real estate. In addition, we will continue
to partner with our distributors and Value-Added Resellers (“VARs”) to expand our customer base. Our typical VAR is
an information technology services firm, traditional PBX vendor, managed service provider, or systems integrator that has established
relationships with businesses in its local market. These VARs are currently providing local customer support for other IT or PBX
services but lack the technology infrastructure to provide cloud communication and VoIP services to their customers. Our strategy
allows these VARs to focus on their strength of providing first tier support to their customers while we provide the second and
third tier technical support required to operate a cloud communication and VoIP network. In addition, we transform our VARs’
business model by introducing new cloud telephony services and adding a new and lucrative recurring revenue stream that increases
the VARs’ value proposition for its current and prospective customers.



Our cloud-based technology
platform enables us and our VARs to deliver enhanced voice services to their business customers. The features supported on our
cloud communication platform include all standard telephone features and value-added applications such as voicemail to email, VoIP
peering, teleconferencing, IVR auto attendant, and dial-by-name directory. Our system provides our customers and VARs with a migration
path from a traditional PBX system to a complete cloud-based PBX solution.



Our strategic initiatives
to successfully meet our long-term business objectives include:



| | ● | A disciplined approach to evaluating additional acquisitions as we build on the foundation created
by our most recent acquisitions in Texas and Florida. We will continue to target local and/or regional UCaaS/cloud telephony providers
which have excelled in their market with that “local” touch when serving their business customers. We believe the experience
gained in integrating products, personnel, and customers will facilitate continued growth via acquisition.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





3







| | ● | A continued emphasis on our UCaaS/cloud communication business which operates in a segment of the
telecommunication industry that continues to experience significant growth as businesses migrate from legacy phone systems to cloud-based
telephony systems.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Enhancements to our broadband product portfolio with an emphasis on marketing leading-edge network
and business continuity solutions like cloud WAN, also known as SD-WAN (Software Defined Wide-Area Network), to our customers which
we anticipate will increase average revenue per customer.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Implementing a total support model (pre and post sales) for building a world-class service delivery
and help desk organization.
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | ● | Emphasis on our sales distribution model that enables our VARs to offer cloud and session-based
communication services to the enterprise market in various regions and industries.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Continue enhancing our infrastructure and back office system to streamline operations, automate
key processes, and support the scalability of our VAR distribution model.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Competitive Conditions



The
cloud services industry, including the provisioning of cloud communications services, cloud connectivity, cloud storage and cloud
computing, as well as carrier voice and data services, is highly competitive, rapidly evolving and subject to constant technological
change and intense marketing by providers with similar products and services. We expect that new, smaller, but very agile competitors,
specializing in providing service to regional and emerging markets at low margin and hence low cost, may have an impact on our
market. Similarly, the business services market includes competitors who may be significantly larger and have substantially greater
market presence, financial, technical, operational and marketing resources than we do, including Tier 1 carriers, cable companies
and premise-based solutions providers that are implementing cloud communication services. In the event that such a competitor expends
significant sales and marketing resources in one or several markets where we compete with them, we may not be able to compete successfully
in those markets. Specialized cloud services providers, who focus on one or more cloud service or application, could adopt aggressive
pricing and promotion practices that could impact our ability to compete. We also believe that competition will continue to increase,
placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs
commensurate with the price reductions of our competitors. In addition, the pace of technological change makes it impossible for
us to predict whether we will face new competitors using different technologies to provide the same or similar services offered
or proposed to be offered by us. If our competitors were to provide better and more cost-effective services than ours, we may not
be able to increase our revenues or capture any significant market share.



The VoIP and Internet
telephony market are highly competitive. Our competitors include major telecommunications carriers in the U.S., national UCaaS
providers, and numerous small cloud telephony operators. We expect to face continuing competition based on price and service offerings
from existing competitors and new market entrants in the future. The principal competitive factors in our market include price,
coverage, customer service, technical response times, reliability, and network size/capacity. The competitive landscape is rapidly
altering the number, identity and competitiveness of the marketplace, and we are unable to determine with certainty the impact
of potential consolidation in our industry.



Many of our competitors
have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we have. As a result, certain of these competitors may
be able to adopt more aggressive pricing policies that could hinder our ability to market our services. We believe that our key
competitive advantages are our ability to deliver reliable, high quality voice service over the Internet in a cost-effective manner,
superior customers service and our VAR distribution model. We cannot provide assurances, however, that these advantages will enable
us to succeed against comparable service offerings from our competitors.





4







Government Regulation



VoIP and other communications
services, like ours, have been subject to less regulation at the state and federal levels than traditional telecommunications services.
Providers of traditional telecommunications services are subject to the highest degree of regulation, while providers of VoIP and
other information services are largely exempt from most federal and state regulations governing traditional common carriers. The
FCC has subjected VoIP service providers to a smaller subset of regulations that apply to traditional telecommunications service
providers and has not yet classified VoIP services as either telecommunications or information. The FCC is currently examining
the status of VoIP service providers and the services they provide in multiple open proceedings. In addition, many state regulatory
agencies impose taxes and other surcharges on VoIP services, and certain states take the position that offerings by VoIP providers
are intrastate telecommunications services and therefore subject to state regulation. These states argue that if the beginning
and end points of communications are known, and if some of these communications occur entirely within the boundaries of a state,
the state can regulate that offering. We believe that the FCC has preempted states from regulating VoIP offerings in the same manner
as providers of traditional telecommunications services. However, this issue has not been resolved definitively as a matter of
law, and it remains possible that the FCC could determine that such services are not information services, or that there could
be a judicial or legislative determination that the states are not preempted from regulating VoIP services as traditional telecommunications
services. We cannot predict how or when these issues will be resolved or its potential future impact on our business at this time.



The effect of any future
laws, regulations and orders on our operations, including, but not limited to, our cloud-based communications and collaboration
services, cannot be determined. But as a general matter, increased regulation and the imposition of additional funding obligations
increases service costs that may or may not be recoverable from our customers, which could result in making our services less competitive
with traditional telecommunications services if we increase our prices or decreasing our profit margins if we attempt to absorb
such costs.



Federal, state, local
and foreign governmental organizations are considering other legislative and regulatory proposals that would regulate and/or tax
applications running over the Internet. We cannot predict whether new taxes will be imposed on our services, and depending on the
type of taxes imposed, whether and how our services would be affected thereafter. Increased regulation of the Internet may decrease
its growth and hinder technological development, which may negatively impact the cost of doing business via the Internet or otherwise
materially adversely affect our business, financial condition and results of operations.



Regulation
of Internet-based Telecommunication Services in the United States



We have the necessary
authority under Section 214 of the Communications Act to operate as a domestic and international carrier. We are considered a non-dominant
domestic interstate carrier subject to minimal regulation by the FCC. We are not required to obtain FCC authority to initiate or
expand our domestic interstate operations, but we are required to obtain FCC approval to transfer control or discontinue service
and are required to file various reports and pay various fees and assessments. In addition, we must offer service on a nondiscriminatory
basis at just and reasonable rates and are subject to the FCC’s complaint jurisdiction. Generally, our international voice
traffic is subject to minimal regulation by state and local jurisdictions.



The
FCC requires Internet voice communications service providers, such as our company, to provide E-911 service in all geographic areas
covered by the traditional wire-line E-911 network. Under the FCC’s rules, Internet voice communications providers must transmit
the caller’s phone number and registered location information to the appropriate public safety answering point, or PSAP,
for the caller’s registered location. The FCC also requires interconnected VoIP service providers to make Universal Service
Fund (“USF”) contributions. We believe that our services are currently compliant with all applicable requirements of
the FCC, and we have made and are making the required contributions to the USF. However, should we at some time fail to meet certain
requirements or fail to make required contributions, we could be subject to revocation of our authority to operate or to fines
or penalties.



As
a result of the FCC’s preemption of states’ ability to regulate certain aspects of VoIP service, and a trend in state
legislatures to affirmatively deregulate VoIP services for most purposes, our VoIP services are subject to relatively few state
regulatory requirements aside from collection of state and local E911 fees and state Universal Service support obligations. We
believe that our VoIP services are currently compliant with all applicable state requirements, and we have made and are making
the required contributions to E911, state USF, and other funds. The state regulatory framework for our VoIP services continues
to evolve, so we, in conjunction with our professional advisors, monitor the actions of the various state regulatory agencies and
endeavor to ensure that we are in compliance with applicable state law, including any new statutes or regulations that may be passed.
However, there can be no assurance that we will become aware of all applicable requirements on a timely basis, or that we will
always be fully compliant with applicable rules and regulations. Should we fail to be compliant with applicable state regulations,
or to file required reports with state regulatory agencies, we could be subject to fines and/or penalties.





5







In
addition to regulations addressing Internet telephony and broadband services, other regulatory issues relating to the Internet
generally could affect our ability to provide our services. Congress has adopted legislation that regulates certain aspects of
the Internet including online content, user privacy, taxation, liability for third-party activities and jurisdiction. In addition,
a number of initiatives pending in Congress and state legislatures would prohibit or restrict advertising or sale of certain products
and services on the Internet, which may have the effect of raising the cost of doing business on the Internet generally.



International Regulation



The regulatory treatment
of Internet telephony outside of the U.S. varies widely from country to country. A number of countries that currently prohibit
competition in the provision of voice telephony also prohibit Internet telephony. Other countries permit but regulate Internet
telephony. Some countries will evaluate proposed Internet telephony service on a case-by-case basis and determine whether it should
be regulated as a voice service or as another telecommunications service. In many countries, Internet telephony has not yet been
addressed by legislation or regulation. Increased regulation of the Internet and/or Internet telephony providers or the prohibition
of Internet telephony in one or more countries could adversely affect our business and future prospects if we decide to expand
globally.



Customers and Suppliers



We rely on various
suppliers to provide services in connection with our Voice over Internet Protocol ("VoIP") or Unified Communication as
a Service ("UCaaS") offerings. Our customers include businesses in various industries including Healthcare, Banking,
Financial Services, Legal, Real Estate, and Construction. We are not dependent upon any single supplier or customer.



During the year ended
July 31, 2018, the Company did not derived a significant amount of revenue from one single customer. During the year ended July
31, 2018, the Company derived a significant amount revenue from four customers, comprising 24%, 24%, 11%, and 8% of the total revenue
for the year.





As of the year ended July
31, 2018, the company derived 13% and 23% total accounts receivable from two customers. During the year ended July 31, 2017, the
Company derived a significant amount of accounts receivable from three customers, comprising 37%, 27% and 14% of the total accounts
receivable for the year ended July 31, 2017.





Employees



As of July 31, 2018,
we had 26 employees, all of whom performed sales, operational, technical and administrative functions. We believe our future success
will depend to a large extent on our continued ability to attract and retain highly skilled and qualified employees. We consider
our employee relations to be good. None of these aforementioned employees belong to labor unions.





6







| | ITEM 1A. | RISK FACTORS.
| | -------- | -------------



Not Applicable to smaller
reporting companies.



| | ITEM 1B. | UNRESOLVED STAFF COMMENTS.
| | -------- | --------------------------



Not Applicable to smaller
reporting companies.



| | ITEM 2. | PROPERTIES.
| | ------- | -----------



We are headquartered
in San Antonio Texas and lease offices and facilities in a number of other locations. Below is a list of our primary leased offices
and other facilities as of July 31, 2018.



|Location                                                       |  | Lease Expiration Date |  | Annual Rent |         |  | Business Use |                                 | Approx. Sq. Ft. | 
|-------------------------------------------------------------- |  | --------------------- |  | ----------- | ------- |  | ------------ | ------------------------------- | --------------- | 
|                                                               |  |                       |  |             |         |  |              |                                 |                 | 
|1600 NE Loop 410, Suite 126, San Antonio, TX 78209             |  | Apr-19                |  | $           | 27,300  |  |              | Executive offices               |                 | 
|                                                               |  |                       |  |             |         |  |              |                                 |                 | 
|2401 First Street, Suite 300, Ft.                              |  |                       |  |             |         |  |              | Lease of network facilities and |                 | 
|Myers, FL 34901                                                |  | Nov-20                |  | $           | 107,534 |  |              | office space                    |                 | 
|                                                               |  |                       |  |             |         |  |              |                                 |                 | 
|7218 McNeail Dr, Austin, TX 78729                              |  | Aug-21                |  | $           | 14,222  |  |              | Lease of network facilities     |                 | 
|                                                               |  |                       |  |             |         |  |              |                                 |                 | 
|6606 Lyndon B. Johnson, Fwy., FL1, Suite 125, Dallas, TX 75240 |  | Sep-21                |  | $           | 25,161  |  |              | Lease of network facilities     |                 | 
|                                                               |  |                       |  |             |         |  |              |                                 |                 | 
|9701 S. John Young Parkway, Orlando, FL 32819                  |  | May-23                |  | $           | 30,528  |  |              | Lease of network facilities     |                 | 



We believe that our
leased facilities are suitable and adequate for their intended use.



| | ITEM 3. | LEGAL PROCEEDINGS.
| | ------- | ------------------



None.



| | ITEM 4. | MINE SAFETY DISCLOSURES
| | ------- | -----------------------



Not Applicable.



7







PART II



| | ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
| | ------- | -------------------------------------------------------------------------------------------------------------



Market for Common Equity



Our common stock is
quoted on the OTCQB under the symbol “DTGI”. The following table sets forth the high and low bid prices for our common
stock for the two most recently completed fiscal years, as reported by Bloomberg, LP. Price quotations on the OTCQB reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.



|Fiscal 2017    |  | Low |      |  | High |  
|-------------- |  | --- | ---- |  | ---- | -
|First Quarter  |  | $   | 0.17 |  |      | $
|Second Quarter |  | $   | 0.24 |  |      | $
|Third Quarter  |  | $   | 0.20 |  |      | $
|Fourth Quarter |  | $   | 0.37 |  |      | $
|               |  |     |      |  |      |  
|Fiscal 2018    |  | Low |      |  | High |  
|First Quarter  |  | $   | 0.33 |  |      | $
|Second Quarter |  | $   | 0.29 |  |      | $
|Third Quarter  |  | $   | 0.33 |  |      | $
|Fourth Quarter |  | $   | 0.33 |  |      | $



Holders



As of November 14,
2018, there were approximately 575 record holders of our Common Stock.



Dividends



We have not paid cash
dividends on our common stock and we do not anticipate paying a dividend in the foreseeable future.



Equity Compensation Plans



The following table
provides information regarding securities that have been or are authorized to be issued under our equity compensation plans as
of July 31, 2018.



|                                                           |  | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |           |  | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |   |      | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | 
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- | --------- |  | --------------------------------------------------------------------------- | - | ---- | -------------------------------------------------------------------------------------------- | 
|                                                           |  |                                                                                             |           |  |                                                                             |   |      |                                                                                              | 
|Equity Compensation plans approved by security holders     |  |                                                                                             | -0-       |  |                                                                             |   | --   |                                                                                              | 
|                                                           |  |                                                                                             |           |  |                                                                             |   |      |                                                                                              | 
|Equity Compensation Plans not approved by security holders |  |                                                                                             | 3,415,000 |  |                                                                             | $ | 0.33 |                                                                                              | 
|                                                           |  |                                                                                             |           |  |                                                                             |   |      |                                                                                              | 
|Total                                                      |  |                                                                                             | 3,415,000 |  |                                                                             | $ | 0.33 |                                                                                              | 





8







Sales of Unregistered Securities



In August 2017, the
Company issued an aggregate of 480,000 shares of common stock for $240,000 and 3-year warrants to purchase 90,000 shares of common
stock at an exercise price of $0.50 per share.



In September 2017,
the Company issued an aggregate of 12,500 shares of common stock with a market value at time of issuance of $4,375. The shares
were issued for consulting services.



In October 2017, the
Company issued an aggregate of 80,000 shares of common stock for $40,000 and 3-year warrants to purchase 15,000 shares of common
stock at an exercise price of $0.50 per share.



In December 2017, the
Company issued an aggregate of 500,000 shares of common stock with a market value of $175,000. The shares were issued under an
Asset Purchase Agreement.



In December 2017, the
Company issued an aggregate of 100,000 shares of common stock with a market value at time of issuance of $40,000. The shares were
issued for consulting services.



In January 2018, the
Company issued an aggregate of 250,000 shares of common stock with a market value at time of issuance of $135,000. The shares were
issued under an Equity Purchase Agreement.



In March 2018, the
Company issued an aggregate of 160,000 shares of common stock for $80,000 and 3-year warrants to purchase 15,000 shares of common
stock at an exercise price of $0.50 per share.



In May 2018, the Company
issued an aggregate of 40,000 shares of common stock for $20,000 and 3-year warrants to purchase 7,500 shares of common stock at
an exercise price of $0.50 per share.



In June 2018, the Company
issued an aggregate of 125,000 shares of common stock with a market value at time of issuance of $58,750. The shares were issued
under a convertible note.



In June 2018, the Company
issued an aggregate of 100,000 shares of common stock with a market value at time of issuance of $48,000. The shares were issued
for consulting services.



In June 2018, the Company
issued an aggregate of 35,575 shares of common stock with a market value at time of issuance of $15,393. The shares were issued
to various professionals for consulting services.



In June 2018, the Company
issued an aggregate of 40,000 shares of common stock for $20,000 and 3-year warrants to purchase 7,500 shares of common stock at
an exercise price of $0.50 per share.



In July 2018, the Company
issued an aggregate of 160,000 shares of common stock for $80,000 and 3-year warrants to purchase 15,000 shares of common stock
at an exercise price of $0.50 per share.



In July 2018, the Company
issued an aggregate of 194,000 shares of common stock with a market value at time of issuance of $93,720. The shares were issued
to various professionals for consulting services.



In July 2018, the Company
issued an aggregate of 130,000 shares of common stock with a market value at time of issuance of $68,900. The shares were issued
under a convertible note.



In July 2018, the Company
issued an aggregate of 25,000 shares of common stock with a market value at time of issuance of $13,900. The shares were issued
in conjunction with a promissory note.



In July 2018, the Company
issued an aggregate of 150,000 shares of common stock with a market value at time of issuance of $15,000. The shares were issued
in conjunction with the exercise of warrants.



The sales and issuances
of the securities described above were made pursuant to the exemptions from registration contained in to Section 4(a)(2) of the
Securities Act and Regulation D under the Securities Act. Each purchaser represented that such purchaser’s intention to acquire
the shares for investment only and not with a view toward distribution. We requested our stock transfer agent to affix appropriate
legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser
was given adequate access to sufficient information about us to make an informed investment decision. Except as described in this
prospectus, none of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions
involved.





9







| | ITEM 6. | SELECTED FINANCIAL DATA.
| | ------- | ------------------------



Not Applicable to smaller
reporting companies.



| | ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
| | ------- | --------------------------------------------------------------------------------------



This Annual Report contains “forward-looking
statements” that describe management’s beliefs and expectations about the future. We have identified forward-looking
statements by using words such as “anticipate,” “believe,” “could,” “estimate,”
“may,” “expect,” and “intend,” or words of similar import. Although we believe these expectations
are reasonable, our operations involve a number of risks and uncertainties and actual results may be materially different than
our expectations.



The following is
a discussion of the consolidated financial condition and results of operations for the fiscal years ended July 31, 2018 and 2017,
and should be read in conjunction with our Consolidated Financial Statements, the Notes thereto, and the other financial information
included elsewhere in this annual report on Form 10-K. For purposes of the following discussion, fiscal 2018 or 2018 refers to
the year ended July 31, 2018 and fiscal 2017 or 2017 refers to the year ended July 31, 2017.



Recent Acquisitions



In December 2017, we
closed a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy Telecom, Inc.
Synergy provides UCaaS or cloud communication services to small and medium-sized business and municipalities, primarily in Texas.



In May 2018, we completed
the acquisition of T3 Communications, Inc., an established UCaaS and Internet broadband provider serving a high-growth corridor
in Southwest Florida.



Sources of revenue:



Cloud-based hosted
Services: We provide UCaaS or cloud communication services and managed cloud-based solutions to small and medium size enterprise
customers and to other resellers. Our Internet-based services include fully hosted IP/PBX services, SIP trunking, call center applications,
interactive voice response auto attendant, voice and web conferencing, call recording, simultaneous calling, voicemail to email
conversion, integrated mobility applications that are device and location agnostic, and multiple customized IP/PBX features in
a hosted or cloud environment. Other services include enterprise-class data and connectivity solutions through multiple broadband
technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper. We also offer
remote network monitoring, data backup and disaster recovery.



Direct Costs:



Cloud-based hosted
Services: We incur bandwidth and colocation charges in connection with our UCaaS or cloud communication services. The bandwidth
charges are incurred as part of the connectivity between our customers to allow them access to our various services. We also incur
costs from underlying providers for fiber, Internet broadband, and telecommunication circuits in connection with our data and connectivity
solutions.





10







Results of Operations



Cloud-based
hosted Services. Cloud-based hosted services revenue increased by $1,808,000, or 937% from fiscal 2017 to fiscal 2018. The
increase in revenue between periods is primarily attributed to the increase in total customers acquired from the acquisitions of
T3 Communications, Inc. and Synergy Telecom's assets. Our total number of customers increased from 66 customers at the end of FY
2017 to 622 customers at the end of FY2018. Additionally, our average monthly revenue per customer increased from $284 per month
in July 2017 to $667 per month in July 2018.



Cost of Services
(exclusive of depreciation and amortization). The cost of services increased by $919,000, or 686%, from fiscal 2017 to fiscal
2018. The increase in cost of services between periods is primarily attributed to the additional costs arising from our acquisitions
and the acquired customers. Additionally, our consolidated gross margin was 47% for the year ended July 31, 2018, as compared to
31% for the year ended July 31, 2017. The increase in gross margin between periods is attributed to a higher concentration of enterprise
customers revenue, which generate a higher margin than services provided via resellers.



Loss on disposal
of unproven oil and gas properties. The Company reported a loss on disposal of unproven oil and gas properties of $248,000
for the period ended July 31, 2017 compared to a loss on disposal of unproven oil and gas properties of $0 for the period ended
July 31, 2018. During the period ended July 31, 2017 the Company terminated its investment in the oil and gas properties and recognized
a loss of $248,000 for the total capitalized investment amount.



Selling, General
and Administrative (SG&A) Expenses (exclusive of legal and professional fees).SG&A expenses increased by $649,000,
or 71%, from fiscal 2017 to fiscal 2018. The increase in SG&A expenses between periods is primarily attributed to the additional
salaries and other employee related expenses of approximately $404,000 attributable to the T3 Communications, Inc. acquisition
and $195,000 increase in additional salaries and other related expenses attributable to the asset acquisition from Synergy Telecom.



Stock Compensation.Stock compensation expense increased by $748,000, from fiscal 2017 to fiscal 2018. The increase between periods is attributed
to the recognition of $226,000 in stock compensation expense associated with the Company's contribution to the Profit Sharing Plan
during FY2018, stock compensation expense recognition of stock option expense of $300,000 associated with the stock options awarded
to various employees and stock compensation expense of $526,000 associated with the issuance of common stock in lieu of cash compensation
to the Company's management team. The Company also recognized $186,000 in stock issuance expense associated with stock issued to
various professionals for consulting services, in addition, the Company recognized $268,000 in warrant expense for warrants issued
for professional services.



Legal and professional
fees. Legal and professional fees increased by $200,000, or 69%, from fiscal 2017 to fiscal 2018. The increase is attributed
to professional and legal expenses incurred related to the professionals conducting the due diligence on the T3 Communications
acquisition.



Bad debt. Bad
debt increased by $15,000 between periods. During Fiscal 2018 the Company recognized an expense of $15,000 for accounts that were
deemed uncollectable.



Depreciation and
amortization. Depreciation and amortization increased by $209,000, from fiscal 2017 to fiscal 2018, mainly due to increased
in amortization expense and depreciation expense related to the intangible and tangible assets obtained in the acquisitions of
T3 Communications Inc., and Synergy Telecom during fiscal 2018.



Operating loss.
The Company reported an operating loss of $2,868,000 for the fiscal period ended July 31, 2018 compared to an operating loss of
$2,184,000 for the fiscal period ended July 31, 2017. The increase in operating loss between periods is primarily due to the increase
of $649,000 in SG&A, the increase of $748,000 in stock compensation expense, the increase of $200,000 in legal and professional
fees, the increase of $15,000 in bad debt expense, and the increase of $209,000 in depreciation and amortization expense. The increase
was offset between periods by the increase in gross margin of $889,000.



Gain (loss) on derivative instruments. Gain (loss) on derivative instruments increased by $91,000 between periods. We are required to re-measure all derivative instruments
at the end of each reporting period and adjust those instruments to market, as a result of the re- measurement of all derivative
instruments we recognized a loss between periods.





11







Miscellaneous gain. Miscellaneous
gain for the year ended July 31, 2018 was $0 compared to $2.6 Million miscellaneous gain for the period ended July 31, 2017. The
miscellaneous gain was a result of a tax refund received in July 2015 and previously recorded by the Company as an accrued liability
until such time as it could determine the proper accounting. During fiscal 2017, management determined that the Company was the
legal owner of the refund and, therefore, recorded the miscellaneous gain.



Income tax benefit.During the year ended July 31, 2018, the Company recognized an income tax benefit of $118,000. The primary reason for the income
tax benefit is due to the offset of the deferred tax assets and the deferred tax liability assumed as part of the acquisition of
T3 Communications Inc.



Interest expense.
Interest income (expense) increased by $379,000 from the fiscal period ended July 31, 2017 to the period ended July 31, 2018. The
primary reason for the increase in interest expenses is attributed to the recognition of non-cash interest / accretion expense
of $278,000 related to the adjustment to the present value of various convertible notes and debentures. Additionally, the company
recognized $143,000 in interest expense for cash interest payments on various promissory notes. In addition, the Company recognized
an adjustment to interest expense for $57,000 for a previously accrual for interest.



Net income (loss).Net loss for the year ended July 31, 2018 was $3,220,000 compared to a net income for the period ended July 31, 2017 of $439,000.
The increase in net loss between periods is primarily due to the increase of $649,000 in SG&A, the increase of $748,000 in
stock compensation expense, the increase of $200,000 in legal and professional fees, the increase of $15,000 in bad debt expense,
the increase of $209,000 in depreciation and amortization expense and the increase of $2,975,000 in other income (expense). The
increase was offset between periods by the increase in gross margin of $889,000.



Noncontrolling interest. As a result of the noncontrolling interest sold during the fiscal period ended July 31, 2018, the consolidated entity recognized
a gain on noncontrolling interest of $57,000 for the year. In addition, the noncontrolling interest is presented as a separate
line item in the Company's stockholders equity section of the balance sheet.



Net income (loss)
attributable to Digerati's shareholders.Net loss for the year ended July 31, 2018 was $3,163,000 compared to a net income
for the period ended July 31, 2017 of $439,000. The increase in net loss between periods is primarily due to the increase of $649,000
in SG&A, the increase of $748,000 in stock compensation expense, the increase of $200,000 in legal and professional fees, the
increase of $15,000 in bad debt expense, the increase of $209,000 in depreciation and amortization expense. The increase was offset
between periods by the increase in gross margin of $889,000.



Liquidity and Capital Resources



Cash Position:
We had a consolidated cash balance of $388,000 as of July 31, 2018. Net cash consumed by operating activities during the period
ended July 31, 2018 was approximately $985,000, primarily as a result of operating expenses, that included $1,521,000 in stock
compensation and warrant expense. Additionally, we had an increase of $181,000 in accounts payable, increase in accrued expenses
of $120,000, increase in accounts receivables of $56,000, these increases were slightly offset by the decrease in deferred income
of $61,000 and a decrease in prepaid expenses and other current assets of $18,000.



Cash used in investing
activities during the period ended July 31, 2018 was $1,538,000, which included $1,788,000 of cash paid in the acquisition all
customers from Synergy Telecom and the acquisition of T3 Communications, Inc. Additionally, the Company received $250,000 from
the sale of a noncontrolling interest in its operating subsidiary.



Cash provided by financing
activities during the period ended July 31, 2018 was $2,238,000, the Company secured $480,000 from various accredited investors
through the issuance of 960,000 restricted common shares with a price of $0.50 per share and 180,000 warrants with an exercise
price of $0.50 per share. Additionally, the Company secured $15,000 from the exercise of 150,000 warrants with an exercise price
of $0.10 per share. In addition the Company secured $890,000 from 3rd party promissory notes, $525,000from related party notes
and $1,397,000 from convertible notes. In addition, the Company made principal payments of $815,000 on promissory notes, $131,000
on principal payments on related notes, $120,000 in principal payments on convertible notes, and $3,000 in principal payments on
financing leases. Overall, our net operating, investing and financing activities during the period ended July 31, 2018 consumed
approximately $285,000 of our available cash.





12







We are currently taking
initiatives to reduce our overall cash deficiencies on a monthly basis. During fiscal 2019 we anticipate reducing fixed costs and
general expenses, in addition, certain members of our management team have taken a significant portion of their compensation in
common stock to reduce the depletion of our available cash. To strengthen our business, we intend to invest in a new marketing
and sales strategy to grow our monthly recurring revenue; we anticipate utilizing our value-added resellers to tap into new sources
of revenue streams, we have also secured various agent agreements to accelerate revenue growth. In addition, we will continue to
focus on selling a greater number of comprehensive services to our existing customer base. Further, in an effort to increase our
revenues, we will continue to evaluate the acquisition of various assets with emphasis in VoIP Services and Cloud Communication
Services. As a result during the due diligence process we anticipate incurring significant legal and professional fees. During
the third quarter of fiscal 2018, the Company acquired T3 Communications, Inc., a leading provider of cloud communication and Internet
broadband solutions in Southwest Florida. The acquisition of T3 will allow the Company to accelerate its revenue growth and expand
into new markets.



Management believes
that current available resources will not be sufficient to fund the Company’s operations over the next 12 months. The Company’s
ability to continue to meet its obligations and to achieve its business objectives is dependent upon, among other things, raising
additional capital, issuing stock-based compensation to certain members of the executive management team in lieu of cash, or generating
sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company will seek to secure
such best-efforts funding from various possible sources, including equity or debt financing, sales of assets, or collaborative
arrangements. If the Company raises additional capital through the issuance of equity securities or securities convertible into
equity, stockholders will experience dilution, and such securities may have rights, preferences or privileges senior to those of
the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may
be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds
through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain
technologies. There can be no assurance that the Company will be able to raise additional funds or raise them on acceptable terms.
If the Company is unable to obtain financing on acceptable terms, it may be unable to execute its business plan, the Company could
be required to curtail its operations, and the Company may not be able to pay off its obligations, if and when they come due.



Our current cash expenses
are expected to be approximately $95,000 per month, including wages, rent, utilities and corporate professional fees. As described
elsewhere herein, we are not generating sufficient cash from operations to pay for our ongoing operating expenses, or to pay our
current liabilities. As of July 31, 2018, our total liabilities were approximately $5,559,000, which included $632,000 in derivative
liabilities. We will continue to use our available cash on hand to cover our deficiencies in operating expenses.



We estimate that we
need approximately $500,000 of additional working capital to fund our ongoing operations during Fiscal 2019. We used proceeds secured
from the convertible debentures to pay existing notes and we anticipate raising additional debt financing to meet our working capital
needs.



During
Fiscal 2018, the Company raised $480,000 through the issuance of 960,000 shares of common stock and three-year warrants to purchase
180,000 shares of common stock at $0.50 per share.



Digerati’s consolidated
financial statements for the period ending July 31, 2018 have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities in the normal course of business. Digerati has incurred net losses and accumulated
a deficit of approximately $80,800,000 and a working capital deficit of approximately $3,722,000 which raises substantial doubt
about Digerati’s ability to continue as a going concern.



Critical Accounting Policies



Revenue Recognition.We derive our
revenue from UCaaS or cloud communication services and managed cloud-based services. Our services include fully hosted IP/PBX services,
SIP trunking, call center applications, interactive voice response auto attendant, call recording, simultaneous calling, voicemail
to email conversion, disaster recovery services and multiple customized IP/PBX features in a hosted or cloud environment. Revenue
is recognized when persuasive evidence of an arrangement exists, service or network capacity has been provided, the price is fixed
or determinable, collectability is reasonably assured and there are no significant obligations remaining.





13







We record and report
our revenue on the gross amount billed to our customers in accordance with the following “gross indicators”:



| | ● | Digerati is the primary obligor in its arrangements,
| | - | ----------------------------------------------------

| | ● | Digerati has latitude in establishing pricing,
| | - | ----------------------------------------------

| | ● | Digerati changes the product or performs part of the service and is involved in the determination
of the product or service specifications,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| | ● | Digerati has discretion in supplier selection; and
| | - | --------------------------------------------------

| | ● | Digerati assumes credit risk for the amount billed to the customer
| | - | ------------------------------------------------------------------



During Fiscal 2019,
the Company anticipates adoption FASB ASU 2014-09, Revenue from Contracts with
Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific
revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. The updated guidance states
that an entity should recognize revenue to depict the transfer of 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 guidance also provides
for additional disclosures with respect to revenues and cash flows arising from contracts with customers. The standard will be
effective for the first interim period within annual reporting periods beginning after December 15, 2017, and the Company
will adopt the standard effective August 1, 2018.



Goodwill, Intangible
Assets, and Long-Lived Assets.Goodwill is carried at cost and is not amortized. The Company tests goodwill for impairment
on an annual basis at the end of each fiscal year, relying on a number of factors including operating results, business plans,
economic projections, anticipated future cash flows and marketplace data. Company management uses its judgment in assessing whether
goodwill has become impaired between annual impairment tests according to specifications set forth in ASC 350. The Company completed
an evaluation of goodwill at July 31, 2018 and 2017 and determined that there was no impairment.



The fair value of the Company’s reporting
unit is dependent upon the Company’s estimate of future cash flows and other factors. The Company’s estimates of future
cash flows include assumptions concerning future operating performance and economic conditions and may differ from actual future
cash flows. Estimated future cash flows are adjusted by an appropriate discount rate derived from the Company’s market capitalization
plus a suitable control premium at date of the evaluation.



The financial and credit market volatility
directly impacts the Company’s fair value measurement through the Company’s weighted average cost of capital that the
Company uses to determine its discount rate and through the Company’s stock price that the Company uses to determine its
market capitalization. Therefore, changes in the stock price may also affect the amount of impairment recorded.



The Company recognizes an acquired intangible
asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated
or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination
with a related contract, asset or liability. Such intangibles are amortized over their useful lives. Impairment losses are recognized
if the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and its
carrying amount exceeds its fair value.



The Company reviews its long-lived assets,
including property and equipment, identifiable intangibles, and goodwill annually or whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets,
the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets.





14







Business combinations.Each investment in a business is being measured and determined whether the investment should be accounted for as a cost-basis
investment, an equity investment, a business combination or a common control transaction. An investment in which the Company do
not have a controlling interest and which the Company is not the primary beneficiary but where the Company has the ability to exert
significant influence is accounted for under the equity method of accounting. For those investments that we account for in accordance
ASC 805, Business Combinations, the Company records the assets acquired and liabilities assumed at the management’s estimate
of their fair values on the date of the business combination. The assessment of the estimated fair value of each of these can have
a material effect on the reported results as intangible assets are amortized over various lives. Furthermore, according to ASC
805-50-30-5, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that
receives the net assets or the equity interests shall initially measure the recognized assets and liabilities transferred at their
carrying amounts in the accounts of the transferring entity at the date of transfer.



Stock-based compensation.
In June 2018 FASB adopted the Accounting Standards Update No. 2018-07, Compensation – Stock Compensation
(Topic 718): Improvements to Non-employee Share-Based Payment Accounting.This update simplifies the accounting for non-employee
share-based payment transactions by expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment
transactions for acquiring goods and services from non-employees. The guidance is effective for annual periods beginning after
December 15, 2018, and interim periods within that reporting period. The Company adopted the updated standard as of May 1,
2018, adopting this guidance did not have a material effect on its consolidated financial statements. During fiscal 2017 and 2018,
the Company issued 1,003,970 common shares and 2,213,512 common shares, respectively to various employees as part of our profit
sharing-plan contribution and stock in lieu of cash. At the time of issuance during fiscal 2017 and 2018 we recognized stock-based
compensation expense of approximately $241,000 and $1,240,000, respectively equivalent to the market value of the shares issued
calculated based on the share's closing price at the grant dates.



Derivative financial
instruments. Digerati does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.
However, Digerati analyzes its convertible instruments and free-standing instruments such as warrants for derivative liability
accounting.



For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date. Any changes in fair value is recorded as non-operating, non-cash income or expense
for each reporting period. For derivative notes payable conversion options Digerati uses the Black-Scholes option-pricing model
to value the derivative instruments.



The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not
net-cash settlement of the derivative instrument is probable within the next 12 months from the balance sheet date.



Sequencing Policy



In January 2018,
as a result of entering into a convertible debenture which contained a variable conversion feature with no floor, we adopted a
sequencing policy in accordance with ASC 815-40-35-12 The Company retrospectively is adopting the sequencing policy so all warrants
with fixed exercise price, and convertible notes with fixed conversion price or with a conversion price floor are sequenced by
issue date thus excluded from derivative consideration.



Fair Value of Financial
Instruments. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy based on the three levels
of inputs that may be used to measure fair value are as follows:



Level 1– Quoted prices in
active markets for identical assets or liabilities.



Level 2– Observable inputs
other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the assets or liabilities.



Level 3– Unobservable inputs
that are supported by little or no market activity and that are financial instruments whose values are determined using pricing
models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value
requires significant judgment or estimation.





15







For certain of our financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate
fair value due to the short maturity of these instruments. The carrying value of our long-term debt approximates its fair value
based on the quoted market prices for the same or similar issues or the current rates offered to us for debt of the same remaining
maturities.



Our derivative liabilities as of July 31,
2018 and 2017 of $632,000 and $0, respectively, were valued using Level 3 inputs.



The following table provides a summary
of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant
unobservable inputs:



|Balance at July 31, 2017               |  | $ | -       | 
|-------------------------------------- |  | - | ------- | 
|Derivative discount - convertible debt |  |   | 541,000 | 
|Derivative loss                        |  |   | 91,000  | 
|Balance at July 31, 2018               |  | $ | 632,000 | 



| | ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
| | -------- | -----------------------------------------------------------



Not Applicable to smaller
reporting companies.





16







| | ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | ------- | -------------------------------------------



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                            | Page
|------------------------------------------------------------------------------------------- | ----
|Consolidated Financial Statements of Digerati Technologies, Inc. and Subsidiaries           |     
|                                                                                            |     
|Reports of Independent Registered Public Accounting Firms                                   | 18  
|Consolidated Balance Sheets as of July 31, 2018 and 2017                                    | 20  
|Consolidated Statements of Operations for the Years Ended July 31, 2018 and 2017            | 21  
|Consolidated Statements of Stockholders’ Deficit for the Years Ended July 31, 2017 and 2018 | 22  
|Consolidated Statements of Cash Flows for the Years Ended July 31, 2018 and 2017            | 23  
|Notes to Consolidated Financial Statements                                                  | 24  



17







REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Board of Directors and Stockholders

Digerati Technologies, Inc.

San Antonio, Texas



Opinion on the Financial Statements



We have audited the accompanying consolidated
balance sheet of Digerati Technologies, Inc. and its subsidiaries (collectively, the “Company”) as of July 31, 2018,
and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended, and
the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of July 31, 2018, and the results of their operations
and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States
of America.



Going Concern Matter



The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the
Company has suffered recurring losses from operations and has a net capital deficiency that 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 2. 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 audit. 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 audit 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 audit 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 audit 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 audit provides a reasonable
basis for our opinion.



|/s/ MaloneBailey, LLP                               | 
|--------------------------------------------------- | 
|www.malonebailey.com                                | 
|We have served as the Company’s auditor since 2018. | 
|Houston, Texas                                      | 
|November 15, 2018                                   | 





18







REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



To the Board of Directors and Stockholders

Digerati Technologies, Inc.

San Antonio, Texas



We have audited the accompanying consolidated
balance sheets of Digerati Technologies, Inc. and its subsidiaries (collectively, “Digerati”) as of July 31, 2017
and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year then ended. Digerati
Technologies, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion
on these consolidated financial statements.



We conducted our audits in accordance with
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Digerati is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of Digerati’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Digerati as of July
31, 2017 and the consolidated results of their operations and their cash flows for year then ended in conformity with accounting
principles generally accepted in the United States of America.



The accompanying consolidated financial
statements have been prepared assuming that Digerati will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, Digerati suffered losses from operations and has a working capital deficit, which raises substantial doubt
about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.



|/s/ LBB & Associates Ltd., LLP | 
|------------------------------ | 
|LBB & Associates Ltd., LLP     | 
|Houston, Texas                 | 
|                               | 
|December 13, 2017              | 









19







PART 1. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



DIGERATI TECHNOLOGIES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                                   |  | July 31, |         |   | July 31, |  
|---------------------------------------------------------------------------------- |  | -------- | ------- | - | -------- | -
|                                                                                   |  | 2018     |         |   | 2017     |  
|                                                                                   |  |          |         |   |          |  
|ASSETS                                                                             |  |          |         |   |          |  
|CURRENT ASSETS:                                                                    |  |          |         |   |          |  
|Cash and cash equivalents                                                          |  | $        | 388     |   |          | $
|Accounts receivable, net                                                           |  |          | 229     |   |          |  
|Prepaid and other current assets                                                   |  |          | 124     |   |          |  
|                                                                                   |  |          |         |   |          |  
|Total current assets                                                               |  |          | 741     |   |          |  
|                                                                                   |  |          |         |   |          |  
|LONG-TERM ASSETS:                                                                  |  |          |         |   |          |  
|Intangible assets, net                                                             |  |          | 3,046   |   |          |  
|Property and equipment, net                                                        |  |          | 713     |   |          |  
|Other assets                                                                       |  |          | 59      |   |          |  
|                                                                                   |  |          |         |   |          |  
|Total assets                                                                       |  | $        | 4,559   |   |          | $
|                                                                                   |  |          |         |   |          |  
|LIABILITIES AND STOCKHOLDERS’ DEFICIT                                              |  |          |         |   |          |  
|CURRENT LIABILITIES:                                                               |  |          |         |   |          |  
|Accounts payable                                                                   |  | $        | 1,177   |   |          | $
|Accrued liabilities                                                                |  |          | 893     |   |          |  
|Current portion of capital lease obligations                                       |  |          | 30      |   |          |  
|Convertible note payable, current, net $187 and $0, respectively                   |  |          | 585     |   |          |  
|Note payable, current, related party                                               |  |          | 126     |   |          |  
|Note payable, current                                                              |  |          | 725     |   |          |  
|Convertible note payable, current, net $273 and $0, respectively                   |  |          | 33      |   |          |  
|Deferred income                                                                    |  |          | 262     |   |          |  
|Derivative liability                                                               |  |          | 632     |   |          |  
|Total current liabilities                                                          |  |          | 4,463   |   |          |  
|                                                                                   |  |          |         |   |          |  
|LONG-TERM LIABILITIES:                                                             |  |          |         |   |          |  
|Convertible debenture, net $273 and $0, respectively                               |  |          | 27      |   |          |  
|Notes payable, related party, net $38 and $0, respectively                         |  |          | 505     |   |          |  
|Deferred income                                                                    |  |          | -       |   |          |  
|Note payable                                                                       |  |          | 500     |   |          |  
|Obligations under capital leases                                                   |  |          | 64      |   |          |  
|Total long-term liabilities                                                        |  |          | 1,096   |   |          |  
|                                                                                   |  |          |         |   |          |  
|Total liabilities                                                                  |  |          | 5,559   |   |          |  
|                                                                                   |  |          |         |   |          |  
|Commitments and contingencies                                                      |  |          |         |   |          |  
|                                                                                   |  |          |         |   |          |  
|STOCKHOLDERS’ DEFICIT:                                                             |  |          |         |   |          |  
|Preferred stock, $0.001, 50,000,000 shares authorized, none issued and outstanding |  |          | -       |   |          |  
|Common stock, $0.001, 150,000,000 shares authorized, 12,775,143 and 8,386,056      |  |          |         |   |          |  
|issued and outstanding, respectively                                               |  |          | 13      |   |          |  
|Additional paid in capital                                                         |  |          | 79,993  |   |          |  
|Accumulated deficit                                                                |  |          | (80,800 | ) |          |  
|Other comprehensive income                                                         |  |          | 1       |   |          |  
|Total Digerati’s stockholders’ deficit                                             |  |          | (793    | ) |          |  
|Noncontrolling interest                                                            |  |          | (207    | ) |          |  
|Total stockholders’ deficit                                                        |  |          | (1,000  | ) |          |  
|Total liabilities and stockholders’ deficit                                        |  | $        | 4,559   |   |          | $



See accompanying notes to consolidated
financial statements



20







DIGERATI TECHNOLOGIES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per
share amounts)



|                                                              |  | For the Years ended
July 31, |           
|------------------------------------------------------------- |  | ---------------------------- | ----------
|                                                              |  | 2018                         |           
|OPERATING REVENUES:                                           |  |                              |           
|Cloud-based hosted services                                   |  | $                            | 2,001     
|                                                              |  |                              |           
|Total operating revenues                                      |  |                              | 2,001     
|                                                              |  |                              |           
|OPERATING EXPENSES:                                           |  |                              |           
|Cost of services (exclusive of depreciation and amortization) |  |                              | 1,053     
|Loss on disposal of unproven oil and gas properties           |  |                              | -         
|Selling, general and administrative expense                   |  |                              | 1,563     
|Stock compensation & warrant expense                          |  |                              | 1,521     
|Legal and professional fees                                   |  |                              | 490       
|Bad debt                                                      |  |                              | 15        
|Depreciation and amortization expense                         |  |                              | 227       
|Total operating expenses                                      |  |                              | 4,869     
|                                                              |  |                              |           
|OPERATING LOSS                                                |  |                              | (2,868    
|                                                              |  |                              |           
|OTHER INCOME (EXPENSE):                                       |  |                              |           
|Loss on derivative instruments                                |  |                              | (91       
|Miscellaneous gain                                            |  |                              | -         
|Income tax benefit                                            |  |                              | 118       
|Interest income (expense)                                     |  |                              | (379      
|Total other income (expense)                                  |  |                              | (352      
|                                                              |  |                              |           
|NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST           |  |                              | (3,220    
|                                                              |  |                              |           
|Less: Net  loss attributable to the noncontrolling interest   |  |                              | 57        
|                                                              |  |                              |           
|NET INCOME / (LOSS) ATTRIBUTABLE TO DIGERATI’S SHAREHOLDERS   |  | $                            | (3,163    
|                                                              |  |                              |           
|INCOME (LOSS) PER SHARE - BASIC                               |  | $                            | (0.31     
|                                                              |  |                              |           
|INCOME (LOSS) PER SHARE - DILUTED                             |  | $                            | (0.31     
|                                                              |  |                              |           
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC            |  |                              | 10,339,371
|                                                              |  |                              |           
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED          |  |                              | 10,339,371



See accompanying notes to consolidated financial
statements



21







DIGERATI TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT

YEARS ENDED JULY 31, 2017 AND 2018

(In thousands, except for share amounts)



|                                                       |  | Equity Digerati’s Shareholders |            |  |         |   |    |             |  |   |              
|------------------------------------------------------ |  | ------------------------------ | ---------- |  | ------- | - | -- | ----------- |  | - | -------------
|                                                       |  |                                |            |  |         |   |    | Additional  |  |   |              
|                                                       |  | Common                         |            |  | Paid-in |   |    | Accumulated |  |   | Comprehensive
|                                                       |  | Shares                         |            |  | Par     |   |    | Capital     |  |   | Deficit      
|BALANCE, July 31, 2016                                 |  |                                | 5,234,158  |  |         | $ | 5  |             |  | $ | 75,656       
|Stock issued for services, to employees                |  |                                | 1,956,898  |  |         |   | 2  |             |  |   | 727          
|Stock issued for professional services                 |  |                                | 75,000     |  |         |   | -  |             |  |   | 44           
|Stock issued for cash                                  |  |                                | 1,120,000  |  |         |   | 1  |             |  |   | 559          
|Net Income                                             |  |                                | -          |  |         |   | -  |             |  |   | -            
|BALANCE, July 31, 2017                                 |  |                                | 8,386,056  |  |         | $ | 8  |             |  | $ | 76,986       
|Stock issued for services, to employees                |  |                                | 1,807,012  |  |         |   | 2  |             |  |   | 1,052        
|Stock issued for services                              |  |                                | 406,500    |  |         |   | -  |             |  |   | 186          
|Stock issued for AP settlement                         |  |                                | 35,575     |  |         |   | -  |             |  |   | 15           
|Stock issued for cash                                  |  |                                | 960,000    |  |         |   | 1  |             |  |   | 479          
|Stock issued for convertible debt                      |  |                                | 505,000    |  |         |   | 1  |             |  |   | 3            
|Stock issued, extension of debt                        |  |                                | 25,000     |  |         |   | -  |             |  |   | 13           
|Stock issued for Acquisition                           |  |                                | 500,000    |  |         |   | 1  |             |  |   | 174          
|Stock issued, exercise of warrants                     |  |                                | 150,000    |  |         |   | -  |             |  |   | 15           
|Value of warrants issued                               |  |                                | -          |  |         |   | -  |             |  |   | 670          
|Sale of subsidiary shares to a noncontrolling interest |  |                                | -          |  |         |   | -  |             |  |   | 400          
|Net Ioss                                               |  |                                | -          |  |         |   | -  |             |  |   | -            
|BALANCE, July 31, 2018                                 |  |                                | 12,775,143 |  |         | $ | 13 |             |  | $ | 79,993       



See accompanying notes to consolidated
financial statements



22







DIGERATI TECHNOLOGIES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
CASH FLOWS

(In thousands)



|                                                                           |  | For the Years ended
    July 31, |       
|-------------------------------------------------------------------------- |  | -------------------------------- | ------
|                                                                           |  | 2018                             |       
|                                                                           |  |                                  |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                      |  |                                  |       
|Net income (loss)                                                          |  | $                                | (3,220
|Adjustments to reconcile net loss to cash used in by operating activities: |  |                                  |       
|Loss on disposal of unproven oil and gas properties                        |  |                                  | -     
|Deferred tax benefit                                                       |  |                                  | (159  
|Depreciation and amortization                                              |  |                                  | 227   
|Stock compensation and warrant expense                                     |  |                                  | 1,508 
|Stock issued for extension of debt                                         |  |                                  | 13    
|Amortization of debt discount                                              |  |                                  | 277   
|Loss (Gain) on derivative liabilities                                      |  |                                  | 91    
|Changes in operating assets and liabilities:                               |  |                                  |       
|Accounts receivable                                                        |  |                                  | 56    
|Prepaid expenses and other current assets                                  |  |                                  | (18   
|Accounts payable                                                           |  |                                  | 181   
|Accrued expenses                                                           |  |                                  | 120   
|Deferred income                                                            |  |                                  | (61   
|Net cash used in operating activities                                      |  |                                  | (985  
|                                                                           |  |                                  |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                      |  |                                  |       
|Acquisition of oil and gas property                                        |  |                                  | -     
|Purchases of property & equipment                                          |  |                                  | -     
|Cash received from selling of noncontrolling interest                      |  |                                  | 250   
|Cash paid in business acquisition, net of cash acquired                    |  |                                  | (1,788
|Net cash used in investing activities                                      |  |                                  | (1,538
|                                                                           |  |                                  |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                      |  |                                  |       
|Proceeds from sale of stock                                                |  |                                  | 480   
|Proceeds from exercise of warrants                                         |  |                                  | 15    
|Borrowings from 3rd party promissory notes, net                            |  |                                  | 890   
|Borrowings from related party notes, net                                   |  |                                  | 525   
|Borrowings from convertible notes, net                                     |  |                                  | 1,397 
|Principal payments on promissory notes, net                                |  |                                  | (815  
|Principal payments on related party notes, net                             |  |                                  | (131  
|Principal payments on convertible notes, net                               |  |                                  | (120  
|Principal payment on financing leases                                      |  |                                  | (3    
|Net cash provided by financing activities                                  |  |                                  | 2,238 
|                                                                           |  |                                  |       
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           |  |                                  | (285  
|CASH AND CASH EQUIVALENTS, beginning of period                             |  |                                  | 673   
|                                                                           |  |                                  |       
|CASH AND CASH EQUIVALENTS, end of period                                   |  | $                                | 388   
|                                                                           |  |                                  |       
|SUPPLEMENTAL DISCLOSURES:                                                  |  |                                  |       
|Cash paid for interest                                                     |  | $                                | 143   
|Income taxes paid                                                          |  | $                                | 116   
|                                                                           |  |                                  |       
|SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES    |  |                                  |       
|Debt discount from derivative liabilities                                  |  | $                                | 542   
|Debt discount from BCF on convertible debt and warrants issued with debt   |  | $                                | 402   
|Debt discount from common stock issued with debt                           |  | $                                | 4     
|Stock issued for business acquisition                                      |  | $                                | 175   
|Financing lease on purchased assets                                        |  | $                                | 98    
|Common Stock issued to settle AP                                           |  | $                                | 15    
|Note payable issued for business acquisition                               |  | $                                | 1,425 



See accompanying notes to consolidated financial statements



23







DIGERATI TECHNOLOGIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES



Description of Business.Digerati
Technologies, Inc. (“we”, “our”, “Company” or “Digerati”) was incorporated in the
state of Nevada on May 24, 2004. Digerati is a diversified holding company that has no independent operations apart from its subsidiaries.
Through our operating subsidiaries, T3 Communications, Inc., and Shift8 Networks, Inc., dba, Synergy Telecom, we are an established
provider of cloud services specializing in UCaaS (Unified Communications
as a Service) solutions for the small to medium-sized business (“SMB”) market. Weoffer a comprehensive suite
of cloud communication services to meet the global needs of businesses that are seeking simple, flexible, and cost-effective communication
solutions. Our services include cloud PBX, cloud mobile, Internet broadband, cloud WAN, SIP
trunking, and customized VoIP services, all delivered on its global carrier-grade network and Only
in the CloudTM.



In December 2017, we
closed a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy Telecom, Inc.
Synergy provides UCaaS or cloud communication services to small and medium-sized businesses and municipalities, primarily in Texas.



In May 2018, we completed
the acquisition of T3 Communications, Inc., an established UCaaS and Internet broadband provider serving a high-growth corridor
in Southwest Florida.



Principles of Consolidation.The
consolidated financial statements include the accounts of Digerati, and its subsidiaries, which are majority owned by Digerati
In accordance with ASC 810-10-05. All significant inter-company transactions and balances have been eliminated.



Reclassifications. Certain
amounts in the consolidated financial statements of the prior year have been reclassified to conform to the presentation of the
current year for comparative purposes.



Use of Estimates. In preparing
financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in
the balance sheet and revenue and expenses in the statement of operations. Actual results could differ from those estimates.



Concentration of Credit Risk.Financial
instruments that potentially subject Digerati to concentration of credit risk consist primarily of trade receivables. In the normal
course of business, Digerati provides credit terms to its customers. Accordingly, Digerati performs ongoing credit evaluations
of its customers and maintains allowances for possible losses, which, when realized, have been within the range of management’s
expectations. Digerati maintains cash in bank deposit accounts, which, at times, may exceed federally insured limits. Digerati
has not experienced any losses in such accounts and Digerati does not believe it’s exposed to any significant credit risk
on cash and cash equivalents.



Revenue Recognition.Digerati
derives revenue from UCaaS or cloud communication services and managed cloud-based services. Our services include fully hosted
IP/PBX services, SIP trunking, call center applications, interactive voice response auto attendant, call recording, simultaneous
calling, voicemail to email conversion, disaster recovery services and multiple customized IP/PBX features in a hosted or cloud
environment. Revenue is recognized when persuasive evidence of an arrangement exists, service or network capacity has been provided,
the price is fixed or determinable, collectability is reasonably assured and there are no significant obligations remaining.



Digerati records and reports its revenue
on the gross amount billed to its customers in accordance with the following indicators:



| | ● | Digerati is the primary obligor in its arrangements,
| | - | ----------------------------------------------------



| | ● | Digerati has latitude in establishing pricing,
| | - | ----------------------------------------------



| | ● | Digerati changes the product or performs part of the service and is involved in the determination
of the product or service specifications,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | ● | Digerati has discretion in supplier selection and
| | - | -------------------------------------------------



| | ● | Digerati assumes credit risk for the amount billed to the customer.
| | - | -------------------------------------------------------------------





24







Sources of revenue:



Cloud-based hosted
Services: We provide UCaaS or cloud communication services and managed cloud-based solutions to small and medium size enterprise
customers and to other resellers. Our Internet-based services include fully hosted IP/PBX services, SIP trunking, call center applications,
interactive voice response auto attendant, voice and web conferencing, call recording, simultaneous calling, voicemail to email
conversion, integrated mobility applications that are device and location agnostic, and multiple customized IP/PBX features in
a hosted or cloud environment. Other services include enterprise-class data and connectivity solutions through multiple broadband
technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper. We also offer
remote network monitoring, data backup and disaster recovery.



Direct Costs:



Cloud-based hosted
Services: We incur bandwidth and colocation charges in connection with our UCaaS or cloud communication services. The bandwidth
charges are incurred as part of the connectivity between our customers to allow them access to our various services. We also incur
costs from underlying providers for fiber, Internet broadband, and telecommunication circuits in connection with our data and connectivity
solutions.



Cash and cash equivalents.The Company considers all bank deposits and highly liquid investments with original maturities of three months or less
to be cash and cash equivalents.



Allowance for Doubtful
Accounts.



Bad debt expense is recognized based on
management’s estimate of likely losses each year based on past experience and an estimate of current year uncollectible amounts.
As of July 31, 2018 and 2017, Digerati’s allowance for doubtful accounts balance was $122,000 and $0, respectively.



Customer deposits.



The Company in some instances requires
customers to make deposits for equipment, installation charges and training. As equipment is installed and training takes places
the deposits are then applied to revenue. As of July 31, 2018 and 2017, Digerati’s customer deposits balance was $262,000
and $131,000, respectively.



Property and equipment.Property
and equipment is recorded at cost. Additions are capitalized and maintenance and repairs are charged to expense as incurred. Gains
and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets, which are one to five years.



Goodwill, Intangible Assets,
and Long-Lived Assets



Goodwill is carried at cost and is not
amortized. The Company tests goodwill for impairment on an annual basis at the end of each fiscal year, relying on a number of
factors including operating results, business plans, economic projections, anticipated future cash flows and marketplace data.
Company management uses its judgment in assessing whether goodwill has become impaired between annual impairment tests according
to specifications set forth in ASC 350. The Company completed an evaluation of goodwill at July 31, 2018 and determined that there
was no impairment. We did not have any goodwill during the year ended July 31, 2017.



The fair value of the Company’s reporting
unit is dependent upon the Company’s estimate of future cash flows and other factors. The Company’s estimates of future
cash flows include assumptions concerning future operating performance and economic conditions and may differ from actual future
cash flows. Estimated future cash flows are adjusted by an appropriate discount rate derived from the Company’s market capitalization
plus a suitable control premium at date of the evaluation.





25







The financial and credit market volatility
directly impacts the Company’s fair value measurement through the Company’s weighted average cost of capital that the
Company uses to determine its discount rate and through the Company’s stock price that the Company uses to determine its
market capitalization. Therefore, changes in the stock price may also affect the amount of impairment recorded.



The Company recognizes an acquired intangible
asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated
or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination
with a related contract, asset or liability. Such intangibles are amortized over their useful lives. Impairment losses are recognized
if the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and its
carrying amount exceeds its fair value.



The Company reviews its long-lived assets,
including property and equipment, identifiable intangibles, and goodwill annually or whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets,
the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets.



Impairment of Long-Lived Assets.
Digerati reviews the carrying value of its long-lived assets annually or whenever events or changes in circumstances indicate that
the value of an asset may no longer be appropriate. Digerati assesses recoverability of the carrying value of the asset by estimating
the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less
than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying
value and fair value.



Derivative financial instruments.
Digerati does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. However, Digerati
analyzes its convertible instruments and free-standing instruments such as warrants for derivative liability accounting.



For derivative
financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, any changes in fair value is recorded as non-operating, non-cash income or expense
for each reporting period. For option-based derivative financial instruments, warrants and notes payable conversion options Digerati
uses the Black-Scholes option-pricing model to value the derivative instruments.



The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not
net-cash settlement of the derivative instrument is probable within the next 12 months from the balance sheet date.



Notes payable
conversion options are recorded as debt discounts and are amortized as interest expense over the term of the related debt instrument.



Sequencing Policy



In January 2018,
as a result of entering into a convertible debenture which contained a variable conversion feature with no floor, we adopted a
sequencing policy in accordance with ASC 815-40-35-12 The Company retrospectively is adopting the sequencing policy so all warrants
with fixed exercise price, and convertible notes with fixed conversion price or with a conversion price floor are sequenced by
issue date thus excluded from derivative consideration.



Fair Value of Financial Instruments.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. A fair value hierarchy is used which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The fair value hierarchy based on the three levels of inputs that may
be used to measure fair value are as follows:



Level 1– Quoted prices in
active markets for identical assets or liabilities.



Level 2– Observable inputs
other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can
be corroborated by observable market data for substantially the full term of the assets or liabilities.





26







Level 3– Unobservable inputs
that are supported by little or no market activity and that are financial instruments whose values are determined using pricing
models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value
requires significant judgment or estimation.



For certain of our financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate
fair value due to the short maturity of these instruments. The carrying value of our long-term debt approximates its fair value
based on the quoted market prices for the same or similar issues or the current rates offered to us for debt of the same remaining
maturities.



Our derivative liabilities as of July 31,
2018 and 2017 of $632,000 and $0, respectively, were valued using Level 3 inputs.



The following table provides a summary
of the changes in fair value of the derivative financial instruments measured at fair value on a recurring basis using significant
unobservable inputs:



|Balance at July 31, 2017               |  | $ | -       | 
|-------------------------------------- |  | - | ------- | 
|Derivative discount - convertible debt |  |   | 541,000 | 
|Derivative loss                        |  |   | 91,000  | 
|Balance at July 31, 2018               |  | $ | 632,000 | 



Income taxes. Digerati recognizes
deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities
using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. Digerati
provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely
than not.



Since January 1, 2007, Digerati accounts
for uncertain tax positions in accordance with the authoritative guidance issued by the Financial Accounting Standards Board on
income taxes which addresses how an entity should recognize, measure and present in the financial statements uncertain tax positions
that have been taken or are expected to be taken in a tax return. Pursuant to this guidance, Digerati recognizes a tax benefit
only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To
the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured
as the largest amount that is greater than 50% likely of being realized upon settlement. As of July 31, 2017 we have no liability
for unrecognized tax benefits.



Stock-based compensation.
In June 2018 FASB adopted the Accounting Standards Update No. 2018-07, Compensation – Stock Compensation
(Topic 718): Improvements to Non-employee Share-Based Payment Accounting.This update simplifies the accounting for non
employee share-based payment transactions by expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based
payment transactions for acquiring goods and services from non-employees. The guidance is effective for annual periods beginning
after December 15, 2018, and interim periods within that reporting period. The Company adopted the updated standard as of
May 1, 2018 and adopting this guidance did not have a material effect on its consolidated financial statements. During fiscal 2017
and 2018, the Company issued 1,003,970 common shares and 2,213,512 common shares, respectively to various employees as part of
our profit-sharing plan contribution and stock in lieu of cash. At the time of issuance during fiscal 2017 and 2018 we recognized
stock-based compensation expense of approximately $241,000 and $1,240,000, respectively equivalent to the market value of the shares
issued calculated based on the share’s closing price at the grant dates.





27







Basic and diluted net income (loss)
per share. The basic net loss per common share is computed by dividing the net loss by the weighted average number of common
shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted”
basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the year ended July
31, 2017, potential dilutive securities including options and warrants had dilutive effect and were included in the calculation
of diluted net income (loss) per common share. For the year ended July 31, 2018, potential dilutive securities including options
and warrants were not included in the calculation of diluted net (loss) per common share. Potential dilutive securities, which
are not included in dilutive weighted average shares are as follows:



|                                  |  | 7/31/2018 |           |  | 7/31/2017 | 
|--------------------------------- |  | --------- | --------- |  | --------- | 
|Options to purchase common stock  |  |           | 3,415,000 |  |           | 
|Warrants to purchase common stock |  |           | 2,370,000 |  |           | 
|Convertible debt                  |  |           | 3,268,214 |  |           | 
|Total:                            |  |           | 9,053,214 |  |           | 



Noncontrolling interest



The Company follows
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, which
governs the accounting for and reporting of non-controlling interests (“NCIs”) in partially owned consolidated subsidiaries
and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs be treated
as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that
leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses
of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance.



The net income
(loss) attributed to the NCI is separately designated in the accompanying consolidated statements of operations and other comprehensive
income (loss). For the year ended July 31, 2018 and 2017, the Company recognized a noncontrolling deficits of $57,000 and $0, respectively.



Recently
issued accounting pronouncements.



In
May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue
recognition requirements in Topic 605, Revenue Recognition, and most industry-specific revenue recognition guidance throughout
the Industry Topics of the Accounting Standards Codification. The updated guidance states that an entity should recognize revenue
to depict the transfer of 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 guidance also provides for additional disclosures with respect
to revenues and cash flows arising from contracts with customers. The standard will be effective for the first interim period within
annual reporting periods beginning after December 15, 2017, and the Company adopted the standard effective August 1, 2018.





28







In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842). The amendments under this pronouncement will change the way all leases with
a duration of one year or more are treated. Under this guidance, lessees will be required to capitalize virtually all leases on
the balance sheet as a right-of-use asset and an associated financing lease liability or capital lease liability. The right-of-use
asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease
liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis.
Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those
that contain provisions similar to capitalized leases, are amortized like capital leases are under current accounting, as amortization
expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis
over the life of the lease as lease expense in the statement of operations. This update is effective for annual reporting periods,
and interim periods within those reporting periods, beginning after December 15, 2018.  In July 2018 the FASB issued ASU No.
2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provided
additional implementation guidance on the previously issued ASU.  The Company is currently assessing the impact of adopting
this guidance on its consolidated financial statements.



In June 2018, the FASB issued Accounting
Standards Update No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Non-employee
Share-Based Payment Accounting.This update simplifies the accounting for non-employee share-based payment transactions
by expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring
goods and services from non-employees. The guidance is effective for annual periods beginning after December 15, 2018, and
interim periods within that reporting period. The Company adopted this updated standard as of May 1, 2018, and adopting this guidance
did not have a material effect on the presentation of our consolidated financial statements.



NOTE 2 – GOING CONCERN



Financial Condition



Digerati’s consolidated financial
statements for the year ending July 31, 2018 have been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities in the normal course of business. Digerati has incurred net losses and accumulated a deficit
of approximately $80,800,000 and a working capital deficit of approximately $3,722,000which raises substantial doubt about Digerati’s
ability to continue as a going concern.



Management Plans to Continue as a
Going Concern



Management believes that current available
resources will not be sufficient to fund the Company’s operations over the next 12 months. The Company’s ability to
continue to meet its obligations and to achieve its business objectives is dependent upon, among other things, raising additional
capital or generating sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company
will seek to secure such additional funding from various possible sources, including the public equity market, private financings,
sales of assets, collaborative arrangements and debt. If the Company raises additional capital through the issuance of equity securities
or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences
or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds
by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If
the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required
to relinquish its rights to certain technologies. There can be no assurance that the Company will be able to raise additional funds
or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, it may be unable to execute
its business plan, the Company could be required to delay or reduce the scope of its operations, and the Company may not be able
to pay off its obligations, if and when they come due.



The Company will continue to work with
various funding sources to secure additional debt and equity financings. However, Digerati cannot offer any assurance that it will
be successful in executing the aforementioned plans to continue as a going concern.



Digerati’s consolidated financial
statements as of July 31, 2018 do not include any adjustments that might result from the inability to implement or execute Digerati’s
plans to improve our ability to continue as a going concern.





29







NOTE 3 – INTANGIBLE ASSETS



During fiscal 2008, Digerati made a loan
of $150,000 to NetSapiens Inc. The note receivable had a maturity date of June 26, 2008 with interest at 8% per year. The note
was secured by NetSapiens’ proprietary Starter Platform License and SNAPsolution modules. On June 26, 2008 Digerati converted
the outstanding interest and principal balance into a lifetime and perpetual NetSapiens’ License. The License provides Digerati
with the ability to offer Hosted PBX (Private Branch eXchange), IP Centrex application, prepaid calling, call center, conferencing,
messaging and other innovative telephony functionality necessary to offer standard and/or custom services to enterprise markets.
The NetSapiens’ License, in the amount of $150,000, is being amortized equally over a period of 10 years. For the years ended
July 31, 2018 and 2017, amortization totaled approximately $13,750 and $15,000, respectively. As of July 31, 2018 the NetSapiens’
License is fully amortized.



On December 1, 2017,
Shift8 and Synergy Telecom, Inc., a Delaware corporation (“Synergy”), closed a transaction to acquire all the assets,
assumed all customers, and critical vendor arrangements from Synergy. The total purchase price was $425,000, the acquisition was
accounted for under the purchase method of accounting, with Digerati identified as the acquirer. Under the purchase method of accounting,
the aggregate amount of consideration assumed by Digerati was allocated to customer contracts acquired, software licenses, and
goodwill based on their fair values as of July 31, 2018.



The following information summarizes the
allocation of the fair values assigned to the assets. The allocation of fair values is based on an extensive analysis and is subject
to changes in the future during the measurement period.



|                       |  | Synergy |         |  | Useful life  (years)
|---------------------- |  | ------- | ------- |  | --------------------
|Customer relatiosnhips |  | $       | 40,000  |  |                     
|License - software     |  |         | 105,000 |  |                     
|Goodwill               |  |         | 280,000 |  |                     
|Total Purchase price   |  | $       | 425,000 |  |                     



For the years ended July 31, 2018 and 2017,
amortization expense for the acquired intangible was $25,000 and $0, respectively.



On May 2, 2018, the Company closed on the
Merger Agreement with T3 Communications, Inc. to increase its customer base and obtain higher efficiency of its existing infrastructure.



The total purchase price was $3,211,945
paid in cash at closing. The acquisition was accounted for under the purchase method of accounting, with the Company identified
as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by the Company was allocated
to cash, customer contracts acquired, current assets, property plant and equipment and assumed payables based on their estimated
fair values as of May 2, 2018.



The following information summarizes the
allocation of the purchase price assigned to intangible assets. The allocation of fair values is based on an extensive analysis
and is subject to changes in the future during the measurement period.



|                        |  | Synergy |           |  | Useful life (years)
|----------------------- |  | ------- | --------- |  | -------------------
|Customer relationships  |  | $       | 1,480,000 |  |                    
|Marketing & Non-compete |  |         | 800,000   |  |                    
|Goodwill                |  |         | 554,828   |  |                    
|Total                   |  | $       | 2,834,828 |  |                    





30







For the years ended July 31, 2018 and 2017,
amortization expense for the acquired assets totaled approximately $93,000 and $0, respectively.



Intangible assets at July 31, 2018 and
2017 are summarized in the tables below:



|July 31, 2018                    |  | Gross  Carrying  Value |           |  | Accumulated  Amortization |   |          | Net Carrying  Amount | 
|-------------------------------- |  | ---------------------- | --------- |  | ------------------------- | - | -------- | -------------------- | 
|NetSapeins - license, 10 years   |  | $                      | 150,000   |  |                           | $ | (150,000 | )                    | 
|Customer relationships, 5 years  |  |                        | 40,000    |  |                           |   | (4,667   | )                    | 
|Customer relationships, 7 years  |  |                        | 1,480,000 |  |                           |   | (64,652  | )                    | 
|Marketing & Non-compete, 5 years |  |                        | 800,000   |  |                           |   | (40,000  | )                    | 
|Total Define-lived Assets        |  |                        | 2,470,000 |  |                           |   | (259,319 | )                    | 
|Goodwill, Indefinite             |  |                        | 834,828   |  |                           |   | -        |                      | 
|Balance, July 31, 2018           |  |                        | 3,304,828 |  |                           |   | (259,319 | )                    | 



|                               |  | Gross    |         |  |              |   |          | Net      | 
|------------------------------ |  | -------- | ------- |  | ------------ | - | -------- | -------- | 
|                               |  | Carrying |         |  | Accumulated  |   |          | Carrying | 
|July 31, 2017                  |  | Value    |         |  | Amortization |   |          | Amount   | 
|NetSapeins - license, 10 years |  | $        | 150,000 |  |              | $ | (136,500 | )        | 
|Total Define-lived Assets      |  |          | 150,000 |  |              |   | (136,500 | )        | 
|Goodwill, Indefinite           |  |          | -       |  |              |   | -        |          | 
|Balance, July 31, 2017         |  |          | 150,000 |  |              |   | (136,500 | )        | 



Total amortization expense for the periods
ended July 31, 2018 and 2017 was approximately $123,000 and $15,000, respectively.



NOTE 4 - PROPERTY AND EQUIPMENT



Following is a summary of Digerati’s
property and equipment at July 31, 2018 and 2017 (in thousands):



|                               |  | Useful lives |  | 2018 |      |   | 2017 |  
|------------------------------ |  | ------------ |  | ---- | ---- | - | ---- | -
|Telecom equipment & software   |  | 1-5 years    |  | $    | 831  |   |      | $
|Less: accumulated depreciation |  |              |  |      | (118 | ) |      |  
|Net–property and equipment     |  |              |  | $    | 713  |   |      | $



The Company uses straight-line depreciation,
for the years ended July 31, 2018 and 2017, depreciation totaled approximately $104,000 and $3,000, respectively.



NOTE 5 – INCOME TAXES



Digerati files a consolidated tax return.
The current tax year is subject to examination by the Internal Revenue Service and certain state taxing authorities. As of July
31, 2018, Digerati had net operating loss carry-forwards of approximately $5,956,000 to reduce future federal income tax liabilities;
the loss carryforwards will start to expire in 2020. Under the recently enacted Tax Cuts and Jobs Act (TCJA), the new effective
Corporate flat tax rate is 21% (effective for tax years beginning after December 31, 2017). Income tax benefit (provision) for
the years ended July 31, 2018 and 2017 are as follows:



The effective tax rate for Digerati is reconciled to statutory rates as follows:



|                                                        |  | 2018 |       |    | 2017 | 
|------------------------------------------------------- |  | ---- | ----- | -- | ---- | 
|Expected Federal benefit (provision), at statutory rate |  |      | 21.0  | %  |      | 
|Change in valuation allowance                           |  |      | (21.0 | )% |      | 
|                                                        |  |      | 0.0   | %  |      | 





31







Deferred tax assets are comprised of the
following as of July 31, 2018 and 2016:



|                              |  | 2018 |            |   | 2017 |  
|----------------------------- |  | ---- | ---------- | - | ---- | -
|Net operating loss carryover  |  | $    | 1,090,700  |   |      | $
|Valuation allowance           |  |      | (1,090,700 | ) |      |  
|Total deferred tax asset, net |  | $    | -          |   |      | $



At July 31, 2018, realization of Digerati’s
deferred tax assets was not considered likely to be realized. The change in the valuation allowance for 2018 was resulted in a
decrease of approximately $191,000. Management has evaluated and concluded that there are no significant uncertain tax positions
requiring recognition in Digerati’s combined financial statements. The current year remains open to examination by the major
taxing jurisdictions in which Digerati is subject to tax. The Company files a calendar year return and the net operating loss was
adjusted for the fiscal year ended July 31, 2018.



During the year ended July 31, 2018 the
Company issued 4,389,086 common shares, and under our initial assessment this will likely result in a change of control and the
net operation loss (NOL’s) became subject to the separate return limitation year. We will evaluate during the tax year and consider
the limitations.



We record unrecognized tax benefits as
liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluate on new
information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result
in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences
will be reflected as increases or decreases to income tax expense in the period in which new information is available.



NOTE 6 – COMMITMENTS AND CONTINGENCIES



Commitments



Digerati leases its corporate facilities,
sales office and network facilities in Texas and Florida. The annual rent expense under the operating leases was $81,670 and $6,996,
for 2018 and 2017, respectively. Below is a list of our primary operating leases:



The future minimum lease payment under
the operating leases are as follows:



|Location                                                       |  | Lease Expiration Date |  | Annual
Rent |         |  | Business Use |                                              | Approx. Sq. Ft.
|-------------------------------------------------------------- |  | --------------------- |  | ----------- | ------- |  | ------------ | -------------------------------------------- | ---------------
|1600 NE Loop 410, Suite 126, San  Antonio, TX 78209            |  | Apr-19                |  | $           | 27,300  |  |              | Executive offices                            |                
|2401 First Street, Suite 300,
Ft. Myers, FL 34901              |  | Nov-20                |  | $           | 107,534 |  |              | Lease of network facilitie
 and office space |                
|7218 McNeail Dr, Austin, TX 78729                              |  | Aug-21                |  | $           | 14,222  |  |              | Lease of network facilities                  |                
|6606 Lyndon B. Johnson, Fwy., FL1,
Suite 125, Dallas, TX 75240 |  | Sep-21                |  | $           | 25,161  |  |              | Lease of network facilities                  |                
|9701 S. John Young Parkway,  Orlando,
FL 32819                 |  | May-23                |  | $           | 30,528  |  |              | Lease of network facilities                  |                



32











NOTE 7 – STOCK -BASED COMPENSATION



In November 2015, Digerati adopted the
Digerati Technologies, Inc. 2015 Equity Compensation Plan (the “Plan”). The Plan authorizes the grant of up to 7.5
million stock options, restricted common shares, non-restricted common shares and other awards to employees, directors, and certain
other persons. The Plan is intended to permit Digerati to retain and attract qualified individuals who will contribute to the overall
success of Digerati. Digerati’s Board of Directors determines the terms of any grants under the Plan. Exercise prices of
all stock options and other awards vary based on the market price of the shares of common stock as of the date of grant. The stock
options, restricted common stock, non-restricted common stock and other awards vest based on the terms of the individual grant.



During the year ended July 31, 2018, we
issued:



| | · | 644,732 common shares to various employees
as part of the Company’s profit-sharing plan contribution. The Company recognized stock-based compensation expense of approximately
$226,000 equivalent to the value of the shares calculated based on the share’s closing price at the grant dates.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 515,493 common shares to management for
services in lieu of cash compensation. The Company recognized stock-based compensation expense of approximately $222,000 equivalent
to the value of the shares calculated based on the share’s closing price at the grant dates.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 646,787 common shares to management for
services in lieu of cash compensation. The Company recognized stock-based compensation expense of approximately $306,000 equivalent
to the value of the shares calculated based on the share’s closing price at the grant dates.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 1,025,000 options to purchase common shares
to various employees with an exercise price of $0.35 per share and a term of 5 years. The options vest equally over a period of
one year. The options have a fair market value of $218,200.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 275,000 options to purchase common shares
to various employees with an exercise price of $0.35 per share and a term of 5 years. The options vest equally over a period of
two years. The options have a fair market value of $74,600.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 545,000 options to purchase common shares
to various employees with an exercise price of $0.35 per share and a term of 5 years. The options vest equally over a period of
three years. The options have a fair market value of $164,600.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 420,000 options to purchase common shares
to various employees with an exercise price of $0.45 per share and a term of 5 years. The options vest equally over a period of
three years. The options have a fair market value of $160,000.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The fair market value of all options issued was determined
using the Black-Scholes option pricing model which used the following assumptions:



|Expected dividend yield         |  | 0.00%            
|------------------------------- |  | -----------------
|Expected stock price volatility |  | 162.72% - 169.76%
|Risk-free interest rate         |  | 2.13% -2.78%     
|Expected term                   |  | 1.0 - 3.0 years  



33







During the year ended July 31, 2018 we
issued the following to non-employee professionals:



| | · | In September 2017, the Company issued an aggregate of 12,500 shares of common stock with a market
value at time of issuance of $4,375. The shares were issued for consulting services.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In December 2017, the Company issued an aggregate of 100,000 shares of common stock with a market
value at time of issuance of $40,000. The shares were issued for consulting services.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In June 2018, the Company issued an aggregate of 100,000 shares of common stock with a market value
at time of issuance of $48,000. The shares were issued for consulting services.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In July 2018, the Company issued an aggregate of 194,000 shares of common stock with a market value
at time of issuance of $93,720. The shares were issued to various professionals for consulting services.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Also, during the year
ended July 31, 2018 we issued the following to settle accounts payables:



| | · | In June 2018, the Company issued an aggregate of 35,575 shares of common stock with a market value
at time of issuance of $15,288. The shares were issued to settle accounts payables with various professionals, the Company recognized
a loss of $5,700 upon issuance of the shares.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During fiscal 2018, the
Company recognized $1,054,000 as employee stock compensation expense and $186,000 as non-employee stock compensation expense. Unamortized
compensation cost totaled $397,000 and $88,000, respectively as of July 31, 2018 and July 31, 2017.



A summary of the stock options of July
31, 2018 and 2017 and the changes during the years ended July 3, 2018 and 2017 are presented below:



|                             |  |         |           |   |                  |   |      | Weighted-average      | 
|---------------------------- |  | ------- | --------- | - | ---------------- | - | ---- | --------------------- | 
|                             |  |         |           |   | Weighted-average |   |      | remaining contractual | 
|                             |  | Options |           |   | exercise price   |   |      | term (years)          | 
|                             |  |         |           |   |                  |   |      |                       | 
|Outstanding at July 31, 2016 |  |         | -         |   |                  | $ | -    |                       | 
|Granted                      |  |         | 1,170,000 |   |                  | $ | 0.24 |                       | 
|Exercised                    |  |         | -         |   |                  |   | -    |                       | 
|Forfeited and cancelled      |  |         | -         |   |                  |   | -    |                       | 
|Outstanding at July 31, 2017 |  |         | 1,170,000 |   |                  | $ | 0.24 |                       | 
|Granted                      |  |         | 2,265,000 |   |                  | $ | 0.37 |                       | 
|Exercised                    |  |         | -         |   |                  |   | -    |                       | 
|Forfeited and cancelled      |  |         | (20,000   | ) |                  | $ | 0.24 |                       | 
|Outstanding at July 31, 2018 |  |         | 3,415,000 |   |                  | $ | 0.33 |                       | 
|Exercisable at July 31, 2018 |  |         | 2,006,111 |   |                  | $ | 0.29 |                       | 



The aggregate intrinsic value (the difference between the Company’s
closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options)
of the 1,170,000 and 3,415,000 stock options outstanding at July 31, 2017 and July 31, 2018 was $339,000 and $706,372 , respectively.



The aggregate intrinsic value of 721,111 and 2,006,111 stock
options exercisable at July 31, 2017 and July 31, 2018 was $209,000 and $587,389, respectively.



NOTE 8 – WARRANTS



During the year ended July 31, 2017, the
Company issued the following warrants:



The Company secured $560,000
from various accredited investors under a private placement and issued 1,120,000 shares of its common stock at a price of $0.50
per share and warrants to purchase an additional 210,000 shares of its common stock at an exercise price of $0.50 per share. We
determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative
instruments.



34







During the year ended July 31, 2018, the
Company issued the following warrants:



The Company secured $480,000
from various accredited investors under a private placement and issued 960,000 shares of its common stock at a price of $0.50 per
share and warrants to purchase an additional 180,000 shares of its common stock at an exercise price of $0.50 per share. We determined
that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments.



In December 2017, Digerati
issued 100,000 warrants to a consultant for services, the warrants vested at time of issuance. The warrants have a term of 5 years,
with an exercise price of $0.50.	Under a Black-Scholes valuation the fair market value of the warrants at time of issuance was
approximately $49,000, the company will amortize the fair market value as warrant expense over 12 months. Additionally, Digerati
committed to issue 100,000 warrants if the Company’s stock price traded at $0.75 per share for 10 consecutive days, to issue
100,000 warrants if the Company’s stock price traded at $1.00 per share for 10 consecutive days, and to issue 100,000 warrants
if the Company’s stock price traded at $1.25 per share for 10 consecutive days. Under a Black-Scholes valuation the fair
market value of the warrants at time of issuance was approximately $143,000, the company will amortize the fair market value as
warrant expense over 12 months. During the year ended July 31, 2018 the Company amortized $128,000 in warrant expense related to
these warrants.



In January 2018, Digerati
issued 220,000 warrants to a consultant for services, the warrants vested at time of issuance. The warrants have a term of 5 years,
with an exercise price of $0.001. At time of issuance the company recognized approximately $119,000 in warrant expense using Black-Scholes
valuation.



In March 2018, Digerati
issued 300,000 warrants under two promissory notes and, the warrants vested at time of issuance. The warrants have a term of 3
years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time
of issuance was approximately $127,000 and was recognized as a discount on the two promissory notes, the company will amortize
the fair market value as interest expense over 9 months.



In March 2018, Digerati
issued 30,000 warrants under various promissory notes, the warrants vested at time of issuance. The warrants have a term of 3 years,
with an exercise price of $0.15. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance
was approximately $12,000 and was recognized as a discount on the two promissory notes, the company will amortize the fair market
value as interest expense over 4 months.



In April 2018, Digerati
issued 400,000 warrants under various promissory notes, the warrants vested at time of issuance. The warrants have a term of 5
years, with an exercise price of $0.15. Under a Black-Scholes valuation the relative fair market value of the warrants at time
of issuance was approximately $107,000 and was recognized as a discount on the promissory notes, the company will amortize the
fair market value as interest expense over 4 months.



In April 2018, Digerati
issued 100,000 warrants under a promissory note, the warrants vested at time of issuance. The warrants have a term of 3 years,
with an exercise price of $0.50.Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance
was approximately $27,000 and was recognized as a discount on the promissory notes, the company will amortize the fair market value
as interest expense over 55 months.



In April 2018, Digerati
issued 75,000 warrants under a promissory note, the warrants vested at time of issuance. The warrants have a term of 3 years, with
an exercise price of $0.50.Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was
approximately $19,000 and was recognized as a discount on the promissory notes, the company will amortize the fair market value
as interest expense over 25 months.



In June 2018, Digerati
issued 255,000 warrants under various promissory notes, the warrants vested at time of issuance. The warrants have a term of 3
years, with an exercise price of $0.10.Under a Black-Scholes valuation the relative fair market value of the warrants at time of
issuance was approximately $110,000 and was recognized as a discount on the promissory notes, the company will amortize the fair
market value as interest expense over 9 months.



In July 2018, Digerati
issued 50,000 warrants to a consultant for services, the warrants vested at time of issuance. The warrants have a term of 3 years,
with an exercise price of $0.50. At time of issuance the company recognized approximately $21,000 in warrant expense using Black-Scholes
valuation.



In July 2018, Digerati
received $15,000 for the exercise of 150,000 warrants, with an exercise price of $0.10 per warrant.



35







The fair market value of all warrants issued was determined
using the Black-Scholes option pricing model which used the following assumptions:



|Expected dividend yield         |  | 0.00%            
|------------------------------- |  | -----------------
|Expected stock price volatility |  | 153.99% - 176.56%
|Risk-free interest rate         |  | 2.05% -2.80%     
|Expected term                   |  | 3.0 - 5.0 years  



A summary of the warrants as of July 31,
2018 and 2017 and the changes during the years ended July 31, 2018 and 2017 are presented below:



|                             |  |          |           |   |                  |   |      | Weighted-average      | 
|---------------------------- |  | -------- | --------- | - | ---------------- | - | ---- | --------------------- | 
|                             |  |          |           |   | Weighted-average |   |      | remaining contractual | 
|                             |  | Warrants |           |   | exercise price   |   |      | term (years)          | 
|                             |  |          |           |   |                  |   |      |                       | 
|Outstanding at July 31, 2016 |  |          | 300,000   |   |                  | $ | 0.14 |                       | 
|Granted                      |  |          | 210,000   |   |                  | $ | 0.50 |                       | 
|Exercised                    |  |          | -         |   |                  |   | -    |                       | 
|Forfeited and cancelled      |  |          | -         |   |                  |   | -    |                       | 
|Outstanding at July 31, 2017 |  |          | 510,000   |   |                  | $ | 0.29 |                       | 
|Granted                      |  |          | 2,010,000 |   |                  | $ | 0.26 |                       | 
|Exercised                    |  |          | (150,000  | ) |                  | $ | 0.10 |                       | 
|Forfeited and cancelled      |  |          | -         |   |                  |   | -    |                       | 
|Outstanding at July 31, 2018 |  |          | 2,370,000 |   |                  | $ | 0.28 |                       | 
|Exercisable at July 31, 2018 |  |          | 2,070,000 |   |                  | $ | 0.24 |                       | 



The aggregate intrinsic value (the difference
between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the
number of in-the-money warrants) of the 510,000 and 2,370,000 stock options outstanding at July 31, 2017 and July 31, 2018 was
$137,700 and $607,557 , respectively.



The aggregate intrinsic value of 510,000 and 2,070,000 stock
options exercisable at July 31, 2017 and July 31, 2018 was $137,700 and $597,927, respectively.



Warrant expense for the
years ended July 31, 2018 and 2017 was $268,000 and $0, respectively. Unamortized warrant expense totaled $64,000 and $0, respectively
as of July 31, 2018 and July 31, 2017.



NOTE 9 – NON-STANDARDIZED PROFIT-SHARING
PLAN



We currently provide a Non-Standardized
Profit-Sharing Plan, adopted September 15, 2006. Under the plan our employees qualify to participate in the plan after one year
of employment. Contributions under the plan are based on 25% of the annual base salary of each eligible employee up to $54,000
per year. Contributions under the plan are fully vested upon funding. During the years ended July 31, 2018 and July 31, 2017, the
Company issued 644,732 and 1,003,966 respectively, common shares to various employees as part of the Company’s profit-sharing
plan contribution. The Company recognized stock-based compensation expense for July 31, 2018 and July 31, 2017 of $226,000 and
$241,000, respectively, equivalent to the value of the shares calculated based on the share’s closing price at the grant
dates.



NOTE 10 – SIGNIFICANT
CUSTOMERS



During the year ended July 31, 2018, the
Company did not derived a significant amount of revenue from one single customer. During the year ended July 31, 2018, the Company
derived a significant amount revenue from four customers, comprising 24%, 24%, 11%, and 8% of the total revenue for the year.





As of the year ended July
31, 2018, the company derived 13% and 23% total accounts receivable from two customers. During the year ended July 31, 2017, the
Company derived a significant amount of accounts receivables from three customers, comprising 37%, 27% and 14% of the total accounts
receivable for the year ended July 31, 2017.





36







NOTE 11 - DEBT



Non-convertible
 debt



On December 1, 2017,
Shift8 and Synergy Telecom, Inc., a Delaware corporation (“Synergy”), closed a transaction to acquire all the assets,
assumed all customers, and critical vendor arrangements from Synergy. In conjunction with the transaction, Shift8 entered into
a promissory note for $125,000 with an effective annual interest rate of 6% with 5 quarterly payments and a maturity date of February
28, 2019. The note holder agreed to extend two of the quarterly payment until January 15, 2019. During the year ended July 31,
2018, the Company made a principal payment of $50,000, the balance outstanding as of July 31, 2018 was $75,000.



On January 17, 2018, the Company entered
into a Promissory Note for $30,000, bearing interest at a rate of 5% per annum, with maturity date of January 19, 2018. The Company
paid the full principal amount outstanding and accrued interest on January 19, 2018.



On February 21, 2018, the Company entered
into a Promissory Note for $35,000, bearing interest at a rate of 5% per annum, with maturity date of March 2, 2018. The Company
paid the full principal amount outstanding and accrued interest on March 2, 2018.



On March 13, 2018, the Company entered
into various Promissory Notes (the “Notes”) for $200,000, bearing interest at a rate of 12% per annum, with maturity
date of April 13, 2018. The Company paid the full principal amount outstanding and accrued interest on April 13, 2018. In conjunction
with the Notes, the Company issued 30,000 warrants under the promissory notes, the warrants vested at time of issuance. The warrants
have a term of 3 years, with an exercise price of $0.15. Under a Black-Scholes valuation the relative fair market value of the
warrants at time of issuance was approximately $12,000 and was recognized as a discount on the promissory notes, the company amortized
the relative fair market value as interest expense during the year ended July 31, 2018. During the year ended July 31, 2018, the
Company paid the full principal amount outstanding and accrued interest.



On April 30, 2018, Shift8
entered into a promissory note for $650,000 with an effective annual interest rate of 0% and a maturity date of May 14, 2018, provided,
however, the Maturity Date will automatically be extended by one (1) additional period of thirty (30) days, until June 14, 2018.
In addition, Shift8 entered into a Security Agreement, whereby Shift8 Agreed to pledge one third of the outstanding shares of T3,
the secured interest will continue until the principal balance is paid in full. Furthermore, a late fee of $3,000 per calendar
week will be accessed beginning on May 15, 2018 and will continue until he principal balance is paid in full. The lender agreed
to extend the maturity date until November 30, 2018, we are currently paying a $3,000 per week late fee. As of July 31, 2018, the
outstanding principal balance was $650,000.





37







On April 30, 2018, Shift8
Networks, Inc. (“Shift8”), a subsidiary of Digerati Technologies, Inc. entered into a credit facility under a promissory
note of $500,000, interest payment for the first twenty-three months with a balloon payment on the twenty-fourth month and a maturity
date of April 30, 2020. Collateralized by Shift8 and T3’s accounts receivables and with an effective annual interest rate of prime
plus 5.25%, adjusted quarterly on the first day of each calendar quarter. However, the rate will never be less than 9.50% per annum.
In the event of default, the interest rate will be the maximum nonusurious rate of interest per annum permitted by whichever of
applicable United States federal law or Louisiana law permits the higher interest rate. Shift8 agreed to pay the lender a commitment
fee of 1.00% upon payment of the first interest payment under the credit facility and 1.00% on the first anniversary of the credit
facility. In addition, Shift8 agreed to pay a monitoring fee of 0.33% of the credit facility, payable in arrears monthly. Shift8
also agreed to pay an over-advance fee of 3.00% of the amount advanced in excess of the borrowing base or maximum amount of the
credit facility, payable in arrears monthly. Shift8 is required to maintain the following financial covenants: 1) A consolidated
debt service coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, 2) A fixed charge coverage ratio,
as of the last day of each fiscal quarter, of at least 1.25 to 1.00, and 3) A tangible net worth, at all times of at least $100,000.
As of July 31, 2018, the outstanding principal balance was $500,000.



On May 1, 2018, Shift8
entered into a promissory note for $150,000 with an effective annual interest rate of 3% and a maturity date of May 7, 2018. On
May 4, 2018 the promissory note was paid in full.



On April 27, 2018, Shift8
entered into a promissory note for $350,000 with an effective annual interest rate of 12% and a maturity date of June 27, 2018.
With a principal payment of $200,000 due on May 31, 2018 and a principal payment of $150,000 due on June 27, 2018. The promissory
note is secured by a Pledge and Security Agreement, whereby Shift8 agreed to pledge the cash on hand at one of the bank accounts
owned by T3 until the principal payment is paid in full.



In conjunction with the
Notes, the Company issued 3-year warrants to purchase 400,000 shares of common stock each at an exercise price of $0.15 per share.
Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $107,000 and
was recognized as a discount on the promissory notes during the year ended July 31, 2018. During the year ended July 31, 2018,
the promissory note was paid in full.



Notes payable, related party



On April 30, 2018, Shift8
Technologies, Inc. (“Shift8”) entered into a convertible promissory note for $525,000 with an effective annual
interest rate of 8% and a maturity date of April 30, 2020. With a principal payment of $100,000 due on June 1, 2018 and a
principal payment of $280,823 due on April 30, 2020. Payment are based on a 60-month repayment schedule. At any time while
this Note is outstanding, but only upon: (i) the occurrence of an Event of Default under the Note or the Pledge and Escrow
Agreement; or (ii) mutual agreement between the Borrower and the Holder, the Holder may convert all or any portion of the
outstanding principal, accrued and unpaid interest, Premium, if applicable, and any other sums due and payable hereunder
(such total amount, the “Conversion Amount”) into shares of Common Stock (the “Conversion Shares”) at
a price equal to: (i) the Conversion Amount (the numerator); divided by(ii) a conversion price of $1.50 per share of
Common Stock, which price shall be indicated in the conversion notice (in the form attached hereto as Exhibit
“B”, the “Conversion Notice”) (the denominator) (the “Conversion Price”). The Holder
shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such
conversion, and where the Conversion Shares should be delivered. The promissory note is secured by a Pledge and
Escrow Agreement, whereby Shift8 agreed to pledge 51% of the securities owned in T3 until the principal payment is paid in
full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 75,000 shares of common stock
at an exercise price of $0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at
time of issuance was approximately $19,000 and was recognized as a discount on the two promissory notes, the company
amortized $6,000 as interest expense during the year ended July 31, 2018. During the year ended July 31, 2018, the Company
paid $119,000 of the principal balance. The total principal outstanding and unamortized discount as of July 31, 2018 were
$406,000 and $13,000, respectively. One of the note holders also serves as President, CEO and Board Member of T3
Communications, Inc., one of our operating subsidiaries.



On May 1, 2018, Shift8
entered into a promissory note for $275,000 with an effective annual interest rate of 0% with an interest and principal payment
of $6,000 per month and shall continue perpetuity until the entire principal amount is paid in full. The promissory note is guaranteed
to the lender by 15% of the stock owned by Shift8 in T3, the secured interest will continue until the principal balance is paid
in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 100,000 shares of common stock
at an exercise price of $0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time
of issuance was approximately $27,000 and was recognized as a discount on the promissory note, the company amortized $2,000 as
interest expense during the year ended July 31, 2018. During the year ended July 31, 2018, the Company paid $13,000 of the principal
balance. The total principal outstanding and unamortized discount as of July 31, 2018 were $262,000 and $25,000, respectively.
The note holder also serves as Board Member of T3 Communications, Inc., one of our operating subsidiaries.



38







Convertible debt non-derivative



In March 2018, the Company
entered into two (2) Promissory Notes (the “Notes”) for $250,000 each, bearing interest at a rate of 12% per annum. The
Notes have a maturity date of September 15, 2018, provided, however, the Company shall have the right to request that the maturity
date to be extended by one (1) additional period of ninety (90) days, until December 14, 2018. The Notes are payable every month,
commencing April 15, 2018, in monthly payments of interest only and a single payment of the principal amount outstanding plus accrued
interest on September 15, 2018. The Company agreed to repay the Notes from the proceeds
from the Company’s current private placement. As proceeds from the Private Placement are received, the Company shall direct all
funds to the Note Holders until the principal amount outstanding and accrued interest are paid in full. In addition, on March 15,
2018, the Company entered into a Note Conversion Agreement (the “Agreement”) with the Note holders, whereby, the holders
may elect to convert up to 50% of the principal amount outstanding on the Notes into Common Stock of Digerati at any time after
90 days of funding the Notes. The Conversion Price shall be the greater of: (i) the Variable Conversion Price (as defined herein)
or (ii) the Fixed Conversion Price (as defined herein). The “Variable Conversion Price”shall be equal
to the average closing price for Digerati’s Common Stock (the “Shares”) for the ten (10) Trading Day
period immediately preceding the Conversion Date. “Trading Day” shall mean any day on which the Common Stock is tradable
for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then
being traded. The “Fixed Conversion Price”shall mean $0.50. In conjunction with the notes, the Company
issued 300,000 warrants, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of
$0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $127,000
and was recognized as a discount on the promissory notes, the company amortized $42,000 as a non-cash interest during the year
ended July 31, 2018. The total principal outstanding and unamortized discount as of July 31, 2018 were $500,000 and $85,000, respectively.



On June 19, 2018, the
Company entered into various Promissory Notes (the “Notes”) for $272,000, bearing interest at a rate of 10% per annum,
with maturity date of April 10, 2019. In conjunction with the Notes, the Company issued 240,000 warrants under the promissory notes,
the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes
valuation the relative fair market value of the warrants at time of issuance was approximately $111,000 and was recognized as a
discount on the promissory notes. The company amortized $9,000 as interest expense during the year ended July 31, 2018. The total
principal outstanding and unamortized discount as of July 31, 2018 were $272,000 and $102,000, respectively.



Convertible debt
- derivative



On January 12, 2018, the Company entered
into a securities purchase agreement with Peak One Opportunity Fund, L.P., a Delaware limited partnership (“Peak One”).
Under the agreement, Peak One agreed to purchase from us up to $600,000 aggregate principal amount of our convertible debentures
(together the “Debentures” and each individual issuance a “Debenture”), bearing interest at a rate of 0%
per annum, with maturity on the third anniversary of the respective date of issuance. On July 25, 2018, the securities purchase
agreement was amended to increase to $620,000 the aggregate principal amount of the convertible debentures.



The Company issued the
first debenture (the “Debenture”) to Peak One on January 17, 2018 in the principal amount of $200,000 for a purchase
price of $180,000 and 0% percent stated interest rate. The Company paid Peak One $6,000 for legal and compliance fees. In addition,
the Company paid $14,400 in other closing costs, these fees were deducted from the proceeds at time of issuance. The Company recorded
these discounts and cost of $40,400 as a discount to the Debenture was amortized to interest expense.



The Debenture provides Peak One with the
option to convert any outstanding balance under the Debenture into shares of Common Stock of the Company at a conversion price
for each share of Common Stock equal to either: (i) if the date of conversion is prior to the date that is 180 days after the issuance
date, $0.50, or (ii) if the date of conversion is on or after the date that is 180 days after the issuance date, the lesser of
(a) $0.50 or (b) at 70% of the lowest closing bid price of the Company’s Common Stock during the twenty trading days prior
to conversion, provided, further, that if either the Company is not DWAC operational at the time of conversion or the Common Stock
is traded on the OTC Pink at the time of conversion, then 70% shall automatically adjust to 65% of the lowest closing bid price.



The Company may at its option call for
redemption all or part of the Debentures, with the exception of any portion thereof which is the subject of a previously-delivered
notice of conversion, prior to the maturity date for an amount equal to: (i) if the redemption date is 90 days or less from the
date of issuance, 110% of the sum of the principal amount so redeemed plus accrued interest, if any; (ii) if the redemption date
is greater than or equal to 91 days from the date of issuance and less than or equal to 120 days from the date of issuance, 115%
of the sum of the principal amount so redeemed plus accrued interest, if any; (iii) if the redemption date is greater than or equal
to 121 days from the date of issuance and less than or equal to 50 days from the date of issuance, 120% of the sum of the principal
amount so redeemed plus accrued interest, if any; (iv) if the redemption date is greater than or equal to 151 days from the date
of issuance and less than or equal to 180 days from the date of issuance, 130% of the sum of the principal amount so redeemed plus
accrued interest, if any; and (v) if the redemption date is greater than or equal to 181 days from the date of issuance, 140% of
the sum of the principal amount so redeemed plus accrued interest, if any. During the year ending July 31, 2018, the Company redeemed
$120,000 of the principal outstanding, at a redemption price of $156,000. The Company recognized the redemption price as interest
expense during the period.



39







The Company analyzed
the Debenture for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative
instrument, due to the variable conversion price. Therefore, as of the year ending July 31, 2018, the company recognized derivative
liability of $112,000 at July 31, 2018, of which $80,000 was recorded as debt discount and will be amortized during the term of
the note, and $32,000 was recorded as derivative loss. The total principal balance outstanding as of July 31, 2018 was $80,000.
In connection with the execution of the Debenture, we issued 250,000 shares of our common
stock to Peak One, the shares were recorded with a relative fair value of $0, the Company also recorded debt discount of $80,000
and will be amortized to interest expense.



The Company issued a
second debenture (the “Debenture”) to Peak One on July 31, 2018 in the principal amount of $220,000 for a purchase
price of $198,000 and 0% percent stated interest rate. The Company paid Peak One $5,000 for legal and compliance fees, these fees
were deducted from the proceeds at time of issuance. The Company recorded these discounts and cost of $22,000 as a discount to
the Debenture and amortized to interest expense.



The Company analyzed
the Debenture for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative
instrument, due to the variable conversion price. As of July 31, 2018, the Company recorded a derivative liability of $189,000
and had an outstanding principal balance of $220,000 In connection with the execution of
the Debenture, we issued 130,000 shares of our common stock to Peak One, the shares were recorded with a relative fair value of
$3,627 the Company also recorded debt discount of $192,798 and will be amortized to interest expense.



On May 30, 2018, the
Company entered into a securities purchase agreement with Firstfire Global Opportunities Fund, LLC, a Delaware limited liability
company (“Firstfire”). Under the agreement, we issued Firstfire a $305,556 principal amount of a convertible promissory
note for a cash purchase price of $275,000 (“Promissory note”), bearing interest at a rate of 6% per annum, with maturity
on the first anniversary of the date of issuance. The Company paid Firstfire $2,500 for legal and compliance fees. The Company
recorded the legal fees and other cost for a total of $33,000 as a discount to the Promissory note and they will be amortized over
the term to interest expense. In connection with the execution of the securities purchase
agreement, we issued 125,000 shares of our common stock to Firstfire as a commitment fee, the shares were recorded with a
relative fair value of $0, the Company also recorded debt discount of $272,500 and will be amortized to interest expense.



The Promissory note provides Firstfire
with the option to convert at any time on or after the 180th calendar day after the issue date, to convert all or any portion of
the then outstanding and unpaid principal amount and interest under the Promissory note into shares of Common Stock of the Company
at a conversion price for each share of Common Stock equal to the lower of (i) $0.50 (the “Fixed Conversion Price”) ,
or (ii) 65% of the lowest closing bid price of the Company’s Common Stock during the twenty (20) consecutive trading day
period immediately preceding the trading day that the Company receives a Notice of Conversion (the “Alternate Conversion
Price”).



The Company may Prepay at any time prior
to the 180th calendar day after the funding of the Promissory note all or part of the outstanding principal balance, with the exception
of any portion thereof which is the subject of a previously-delivered notice of conversion, prior to the maturity date for an amount
equal to: (i) if the prepayment date is 90 days or less from the date of issuance, 105% of the sum of the principal amount to be
prepaid plus accrued interest, if any; (ii) if the prepayment date is greater than or equal to 91 days from the date of issuance
and less than or equal to 120 days from the date of issuance, 110% of the sum of the principal amount to be prepaid plus accrued
interest, if any; (iii) if the prepayment date is greater than or equal to 121 days from the date of issuance and less than or
equal to 180 days from the date of issuance, 115% of the sum of the principal amount to be prepaid plus accrued interest, if any.



In the event of
default, the note shall become immediately due and paid in full in an amount (the “Default Amount”) equal to the principal
amount then outstanding plus accrued interest through the date of full repayment multiplied by 150%. The holder may, at its sole
discretion, determine to accept payment part in Common Stock and part in cash.



40







The Company analyzed the Promissory note
for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument,
due to the variable conversion price. Therefore, as of the year ending July 31, 2018, the company recognized a debt discount of
$272,500 and recorded a $58,000 as a loss in derivative liability. In addition, the Company has a derivative liability of $331,000
at July 31, 2018. As of the year the ended July 31, 2018, the principal balance outstanding was $306,000.



The future principal payments for the Company’s
debts is as follows:





|FY                       |  | Payments |          
|------------------------ |  | -------- | ---------
|2019                     |  | $        | 1,928,501
|2020                     |  |          | 890,083  
|2021                     |  |          | 361,924  
|2022                     |  |          | 67,114   
|2023                     |  |          | 23,596   
|Total Principal Payments |  | $        | 3,271,218







NOTE 12 - CAPITAL
LEASES



The Company entered
into two leases for equipment all of which are classified as capital leases. The Company financed the equipment with a leasing
entity. Under the terms of these transactions, assets with a cost of approximately $37,255 and $60,408, leases were financed under
two separate lease agreements as of the May 2018 and June 2018, respectively. The leases are net leases as all of the costs associated
with the assets such as maintenance, insurance and property taxes are for the account of the Company. Under each of these transactions,
the Company can elect to purchase the assets from the lessor at the end of a fixed term. These terms are for 36 months, with the
first lease payments starting June 20, 2018 and July 20, 2018, respectively and monthly lease principal and interest payments of
$1,176 and $1,856, respectively. The Company will own the equipment at the end of the term. The interest rate under the leases
range from 6.65% to 8.50% per annum. The Company has accounted for its repayment obligations under these transactions as capital
lease obligations. The assets are included in Leased Equipment and Net investment in finance leases and the capital lease obligation
is included in Long-term capital lease obligations and current maturities of capital leases on the accompanying Balance Sheet as
of July 31, 2018.



During the year ended July 31, 2018, the
Company made total principal payments of $3,032. The future capital lease payments under the financing agreements are as follows:





|Year                                        |  | Amount |        
|------------------------------------------- |  | ------ | -------
|2019                                        |  | $      | 36,381 
|2020                                        |  |        | 36,381 
|2021                                        |  |        | 32,152 
|Total future payments:                      |  | $      | 104,914
|Less: amounts representing interest         |  | $      | 10,622 
|Present value of net minimum lease payments |  | $      | 94,292 
|Less current maturities                     |  | $      | 30,465 
|Long-term capital lease obligation          |  | $      | 63,827 





41









NOTE 13 – BUSINESS ACQUISITIONS



On December 1, 2017,
Shift8 and Synergy Telecom, Inc., a Delaware corporation (“Synergy”), closed a transaction to acquire all the assets,
assumed all customers, and critical vendor arrangements from Synergy. Shift8 acquired Synergy to increase its customer base and
obtain higher efficiency of its existing infrastructure. Shift8 paid $125,000 upon execution of the agreement, issued 500,000 shares
of common stock with a market value of $175,000, and entered into a promissory note for $125,000 with an effective annual interest
rate of 6% with 5 quarterly payments and a maturity date of February 28, 2019.



The total purchase price was $425,000,
the acquisition was accounted for under the purchase method of accounting, with Digerati identified as the acquirer. Under the
purchase method of accounting, the aggregate amount of consideration assumed by Digerati was allocated to customer contracts acquired,
software licenses, and goodwill based on their fair values as of July 31, 2018.



The following information summarizes the
allocation of the fair values assigned to the assets. The allocation of fair values is based on an extensive analysis and is subject
to changes in the future during the measurement period.





|                       |  | Synergy |         |  | Useful life (years) | 
|---------------------- |  | ------- | ------- |  | ------------------- | 
|Customer relatiosnhips |  | $       | 40,000  |  |                     | 
|License - software     |  |         | 105,000 |  |                     | 
|Goodwill               |  |         | 280,000 |  |                     | 
|Total Purchase price   |  | $       | 425,000 |  |                     | 





The Company incurred approximately $10,000
in costs associated with the acquisition. These included legal, and accounting. The Company expensed these costs during the year
ended July 31, 2018.



Additionally, on May 2, 2018, the Company
closed on the Merger Agreement with T3 Communications, Inc. to increase its customer base and obtain higher efficiency of its existing
infrastructure.



The total purchase price was $3,211,945,
paid in cash upon closing, the acquisition was accounted for under the purchase method of accounting, with the Company identified
as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by the Company was allocated
to cash, customer contracts acquired, current assets, property plant and equipment and assumed payables based on their estimated
fair values as of May 2, 2018. Allocation of the purchase price is preliminary and based on the best estimates of management.



The allocation of fair values is based
on an extensive analysis and is subject to changes in the future during the measurement period.



|                                           |  | (in thousands) |      
|------------------------------------------ |  | -------------- | -----
|                                           |  | T3             |      
|                                           |  |                |      
|Cash                                       |  | $              | 250  
|Accounts receivable & other current assets |  |                | 367  
|Intangible assets and Goodwill             |  |                | 2,835
|Property and equipment, net                |  |                | 568  
|Other Assets                               |  |                | 140  
|                                           |  |                |      
|Total identifiable net assets              |  | $              | 4,160
|                                           |  |                |      
|Less: liabilities assumed                  |  |                | (948 
|                                           |  |                |      
|Total Purchase price                       |  | $              | 3,212



42







The following table summarizes the cost
of amortizable intangible assets related to the acquisition:



|                        |  | Cost (in thousands) |       |  | Useful life (years) | 
|----------------------- |  | ------------------- | ----- |  | ------------------- | 
|Customer relationships  |  | $                   | 1,480 |  |                     | 
|Marketing & Non-compete |  |                     | 800   |  |                     | 
|Goodwill                |  |                     | 601   |  |                     | 
|Total                   |  | $                   | 2,881 |  |                     | 



The Company incurred approximately $160,000
in costs associated with the acquisition. These included legal, and accounting. The Company expensed these costs during the year
ended July 31, 2018.



Proforma



The following is the unaudited proforma
results of operations for both acquisitions for the years ended July 31, 2018 and 2017 as if the acquisition occurred on August
1, 2016. The proforma results of operations are presented for informational purposes only and are not indicative of the results
of operations that would have been achieved if the acquisition had taken place on August 1, 2016, or of results that may occur
in the future.





|                                                                  |  | For the Years Ended  July 31, |       
|----------------------------------------------------------------- |  | ----------------------------- | ------
|                                                                  |  | 2018                          |       
|Revenue                                                           |  | $                             | 5,674 
|Loss from operations                                              |  |                               | 8,705 
|Net Income (loss)                                                 |  |                               | (3,031
|Earnings (loss) per common shares outstanding - Basic and Diluted |  | $                             | (0.34 









NOTE 14 – NONCONTROLLING
INTEREST



On May 1, 2018, Shift8
Technologies, Inc. (“Shift8”) entered into a Stock Purchase Agreement (’SPA”), whereby in an exchange for $250,000,
Shift8 agreed to sell to the buyer 199,900 shares of common stock equivalent to 19.99% of the issued and outstanding common share
of Shift8 Technologies, Inc. The $250,000 of the cash received under this transaction was recognized as an adjustment to the carrying
amount of the noncontrolling interest and as an increase in additional paid-in capital in Shift8. At the option of the Company,
and for a period of five years following the date of the SPA, the 199,900 shares of common stock in Shift8 may be converted into
Common Stock of Digerati at a ratio of 3.4 shares of DTGI Common stock for every one (1) share of Shift8 at any time after the
DTGI Common Stock has a current market price of $1.50 or more per share for 20 consecutive trading days. For the year ending July
31, 2018, the Company accounted for a noncontrolling interest of $57,000. Additionally, one of the buyers serves as President,
CEO and Board Member of T3 Communications, Inc., one of our operating subsidiaries.



43







NOTE 15 – MISCELLANEOUS GAIN



The Company received a tax refund in July
2015. The Company recorded the funds as an accrued liability until such time as it could determine the proper accounting for the
refund. Subsequent to its receipt, management has determined that the Company is the legal owner of the refund which has been recorded
as a miscellaneous gain during fiscal 2017. The refund did not result from taxes paid by the Company and will not be taxed as it
originated from the Internal Revenue Service.



NOTE 16 – LOSS ON DISPOSAL OF
UNPROVEN OIL AND GAS PROPERTIES



On February 29, 2016 Flagship Energy Company
(“Flagship”), a wholly-owned subsidiary of Digerati, entered into an Agreement with a Texas-based contract-for-hire oil
and gas operator (“Operator”). Under the Agreement, Flagship utilized the Operator for the drilling, completion and
the initial operations of a shallow oil and gas well in conjunction with the purchase of 100% of Operator’s working interest
and 80% of its Net Revenue Interest. Under the Agreement, the Operator agreed to transfer all field-level operations and assign
100% of a certain oil, gas and mineral lease to Flagship upon demand, which included a tract of land located in South Texas. Additionally,
Flagship entered into a Joint Operating Agreement (“JOA”) with Operator, whereby the parties agreed to develop the oil
and gas well or wells for the production and retrieval of oil and gas commodities as provided for in the oil, gas and mineral lease.



During the fiscal year ended July 31, 2017
the Company recognized a loss on disposal of unproven oil and gas properties of $248,000 for the total capitalized investment amount
in the oil and gas properties.



NOTE 17 – SUBSEQUENT EVENTS



On August 1, 2018, the
Company secured $40,000 from an accredited investor under a private placement and issued 80,000 shares of its common stock at a
price of $0.50 per share and warrants to purchase an additional 15,000 shares of its common stock at an exercise price of $0.50
per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not
represent derivative instruments.



On October 12, 2018,
the Company entered into a Promissory Note (the “Note”) for $25,000, bearing interest at a rate of 8% per annum, with
maturity date of November 12, 2019. In conjunction with the Note, the Company issued 140,000 common shares, the shares vested at
time of issuance. The relative fair market value of the common shares at time of issuance was approximately $31,000 and was recognized
as a discount on the promissory notes, the company will amortize the fair market value as interest expense over the term of the
note.



On October 18, 2018,
the Company entered into a Promissory Note (the “Note”) for $25,000, bearing interest at a rate of 8% per annum, with
maturity date of November 18, 2019. In conjunction with the Note, the Company issued 100,000 common shares, the shares vested at
time of issuance. The relative fair market value of the common shares at time of issuance was approximately $25,000 and was recognized
as a discount on the promissory notes, the company will amortize the fair market value as interest expense over the term of the
note.



On October 22, 2018,
the Company entered into a Promissory Note (the “Note”) for $50,000, bearing interest at a rate of 8% per annum, with
maturity date of December 31, 2019. The promissory note is secured by a Pledge and Escrow Agreement, whereby the Company agreed
to pledge rights to a collateral due under certain Agreement.



| | ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
| | ------- | -------------------------------------------------------------------------------------



None





44









| | ITEM 9A. | CONTROLS AND PROCEDURES.
| | -------- | ------------------------



Evaluation of Disclosure Controls
and Procedures



In accordance with
Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were not effective as of July 31, 2018.



Management’s Report on Internal
Control over Financial Reporting



Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended,
as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers
and effected by the Company’s Board, management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America and includes those policies and procedures that:



| | ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                           
| | ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
| |   |                                                                                                                                                                                                                                                                                                                                                                           
| | ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.                                                                                                                                                              



Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there
is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this risk.



As of July 31, 2018, management assessed
the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial
reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that,
during the period covered by this report; such internal controls and procedures were effective based on the COSO criteria. This
was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely
affected our internal controls and that may be considered to be material weaknesses



The matters involving
internal controls and procedures that our management considered to be material weaknesses were:



| | 1. | We do not have sufficient segregation of duties within accounting functions, which is a basic internal
control. We lack multiple levels of review over financial reporting. Due to our size and nature, segregation of all conflicting
duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions,
the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact
of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and concluded that the
controls deficiency and lack of multiple levels of review over financial reporting represented a material weakness;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | We identified deficiencies in the accounting for Purchase accounting, convertible debt derivative
and complex equity transactions.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------



45









The aforementioned
material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the review of
our internal statements as of July 31, 2018.



Management’s
Remediation Initiatives



In an effort to
remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to initiate the
following:



| | 1. | We plan to create a position to segregate duties consistent with controls objectives and to increase
our personnel resources and technical accounting expertise within the accounting function. In addition, we intend to improve the
supervision and training of our accounting personnel.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                            

| | 2. | We plan to implement better controls and procedures over the accounting for debt and equity instruments.
| | -- | --------------------------------------------------------------------------------------------------------



We are continuing our
efforts to improve and strengthen our control processes and procedures to fully remedy these deficiencies. Our management and directors
will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and
effective.



Changes in
internal controls over financial reporting



There have been
no other significant changes in our internal controls or in other factors that could significantly affect those controls subsequent
to the period covered by this report.



Further, subsequent
to the period covered by the report, management plans to implement measures to remediate the material weaknesses in internal control
over financial reporting described above to the extent sufficient capital is available to do so. Specifically, the CEO and CFO
are seeking to improve communications regarding the importance of documentation of their assessments and conclusions of their meetings,
as well as supporting analyses. As our business grows, the Company plans to hire adequate accounting professionals and it will
continue its efforts to create an effective system of disclosure controls and procedures for financial reporting.



The Company is
not required by current SEC rules to include, and does not include, an auditor’s attestation report. The Company’s registered public
accounting firm has not attested to management’s reports on the Company’s internal control over financial reporting.



| | ITEM 9B. | OTHER INFORMATION.
| | -------- | ------------------



None





46









PART III



| | ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
| | -------- | -------------------------------------------------------



The following table
contains the name, age of our Directors and executive officers as of July 31, 2018.



|Name                |  | Age |  | Position Held                                 |  | Held Office Since
|------------------- |  | --- |  | --------------------------------------------- |  | -----------------
|Arthur L. Smith     |  | 53  |  | President, Chief Executive Officer & Director |  | 2003             
|Craig K. Clement    |  | 60  |  | Chairman of the Board                         |  | 2014             
|Maxwell A. Polinsky |  | 60  |  | Director                                      |  | 2014             
|Antonio Estrada Jr. |  | 43  |  | Chief Financial Officer                       |  | 2007             



Arthur L. Smith (53) is our
Chief Executive Officer, President, and Director. Mr. Smith has over 25 years of specialized experience in the telecommunications,
technology, and oil and gas industries.  As the founder of Digerati, formerly known as ATSI Communications, Inc. (“ATSI”),
he led the Company’s start-up operation focused on the USA – Mexico telecommunications corridor to over US$65 million
in annual revenue and alisting on the American Stock Exchange that resulted in a market
value of over US$450 million. Between 1999 and 2009, ATSI was a three-time recipient of Deloitte and Touche’s Fast 500 Award
for recognition as one of the 500 fastest growing technology companies in North America.  As CEO of ATSI, Mr. Smith also co-founded
the Company’s highly successful Internet software subsidiary, GlobalSCAPE, Inc., in 1996(NYSE MKT: GSB). 
As Chairman of the Board of GlobalSCAPE, he led the Company’s strategic and business development efforts from inception through
its growth strategy that resulted in a listing on a public stock exchangeand the subsequent sale of ATSI’s ownership
to private investors in June 2002. 
Mr. Smith is currently President and CEO of the Company’s cloud communications subsidiary, Shift8 Technologies, Inc.



47









Craig
K. Clement(60) is the Executive Chairman of Digerati Technologies. Craig has over thirty-five years of executive and director
experience with Technology (telecom, Internet software) and Oil Exploration and Production (E&P) entities where he has been
responsible for asset management, acquisitions and divestitures, strategic and tactical planning, financial operations, corporate
finance, legal, transaction structuring, business development, and investor relations. He assisted in the growth of a San Antonio-based
telecom provider (AMEX: AI) from 10 employees to 500, achieving a public market valuation of US$500 million. Craig was the founding
CEO of GlobalSCAPE, Inc. (NYSE: GSB), and was the former COO of XPEL Technologies Corp. (TSXV:DAP.U). Craig was also
the former Chairman of the South Texas Regional Center for Innovation and Commercialization, which screened and supported entrepreneurs
through the Texas Emerging Technology Fund managed by the Texas Governor’s office, which invested more than $350 million in Texas-based
technology start-ups.



Maxwell A. Polinsky (60) is our
Director. Mr. Polinsky is currently the President, CFO and a Director of Winston Gold Corp,
a Canadian-based mineral exploration companythat is traded on the CSE Exchange, and
a principal in Venbanc Investment and Management Group Inc., an investment and merchant bank he co-founded in 1994. From 2009 to
2011, Mr. Polinsky was the Chief Financial Officer and a director of RX Exploration Inc., a company that successfully re opened
the previous old historic Drumlummon gold mine in Montana. Mr. Polinsky also served as a director of Nerium Biotechnology from
2006 to 2010, XPEL Technologies from 2003 to 2009, and Nighthawk Systems from 2001 to 2007and Cougar Minerals from 2012
to 2014. Mr. Polinsky holds a Bachelor of Commerce degree from the University of Manitoba.



Antonio Estrada Jr. (43) is our
Chief Financial Officer and Treasurer. Mr. Estrada is a seasoned financial executive with over 19
years of experience in the telecommunications and oil and gas industries. Mr. Estrada’s vast experience includes financial
reporting and modeling, strategic planning, grant writing, and cash management. Mr. Estrada served as the Sr. VP of Finance and
Corporate Controller of Digerati, formerly known as ATSI Communications, Inc., from 2008 to 2013. From 1999 to 2008, Mr. Estrada
served in various roles within ATSI, including International Accounting Manager, Treasurer, Internal Auditor, and Controller. Mr.
Estrada graduated from the University of Texas at San Antonio, with a Bachelors of Business Administration, with a concentration
in Accounting.



Section 16(a) Beneficial Ownership
Reporting Compliance



Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our Directors and executive officers and persons who own more than 10% of
a registered class of our equity securities to file various reports with the Securities and Exchange Commission concerning their
holdings of, and transactions in, securities we issued. Each such person is required to provide us with copies of the reports filed.
Based on a review of the copies of such forms furnished to us and other information, we believe that none of our officers, Directors
or owners of 10% of any class of our securities failed to report transactions in our securities or reported transactions in our
securities late.



Code of Ethics



We adopted an Executive
Code of Ethics that applies to the Chief Executive Officer, Chief Financial Officer, Controller and other members of our management
team. The Executive Code of Ethics may be viewed on our Website, www.digerati-inc.com. A copy of the Executive Code of Ethics will
be provided without charge upon written request to Digerati Technologies, Inc., 1600 NE Loop 410, Suite 126, San Antonio, Texas
78209.



Nominating Committee and Nomination
of Directors



We do not have a nominating
committee because the size of our Board of Directors is too small to establish separate standing committees. Our Directors perform
the function of a nominating committee.



The Directors consider
candidates recommended by other members of the Board of Directors, by executive officers and by one or more substantial, long-term
stockholders. In addition, the Board of Directors may seek candidates through a third-party recruiter. Generally, stockholders
who individually or as a group have held 5% of our shares for over one year will be considered substantial, long-term stockholders.
In considering candidates, the Directors take into consideration the needs of the Board of Directors and the qualifications of
the candidate. The Board of Directors has not established a set of criteria or minimum qualifications for candidacy and each candidate
is considered based on the demonstrated competence and knowledge of the individual. To have a candidate considered by the Directors,
a stockholder must submit the recommendation in writing and must include the following information:





| | · | The name of the stockholder and evidence of ownership of our shares, including the number of shares
owned and the length of time of ownership; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The name of the candidate, the candidate’s resume or a listing of her or his qualifications
to be one of our Directors and the person’s consent to be named as a Director if nominated by the Directors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48







The stockholder’s
recommendation and information described above must be sent to us at 1600 NE Loop 410, Suite 126, San Antonio, Texas 78209.



Audit Committee and Audit Committee
Financial Expert



We do not have an audit
or other committee of our Board of Directors that performs equivalent functions. Our Board of Directors performs all functions
of the audit committee. Mr. Maxwell A. Polinsky served as the Audit Committee Financial Expert during the year ended July 31, 2018.



| | ITEM 11. | EXECUTIVE COMPENSATION.
| | -------- | -----------------------



The compensation programs
presently in effect with respect to the Chief Executive Officer, Chief Financial Officer and Chairman of the Board were established
by the Board of Directors.



Arthur Smith serves
as our President and Chief Executive Officer. Mr. Smith does not have a written employment agreement with the Company. Effective
October 1, 2015, Mr. Smith’s annual salary was approved by the Board of Directors to be set at $165,000. The Board of Directors
also approved the reimbursement of monthly expenses up to $1,667. During FY2018 the Board of Directors approved the issuance of
common stock in lieu of cash compensation equivalent to 40% of Mr. Smith’s annual salary. No other cash compensation is presently
being paid to Mr. Smith.



Antonio Estrada Jr.,
serves as our Chief Financial Officer. Mr. Estrada does not have a written employment agreement with the Company. Effective October
1, 2015, Mr. Estrada’s annual salary was approved by the Board of Directors to be set at $165,000. The Board of Directors also
approved the reimbursement of monthly expenses up to $1,667. During FY2018 the Board of Directors approved the issuance of common
stock in lieu of cash compensation equivalent to 40% of Mr. Estrada’s annual salary. No other cash compensation is presently being
paid to Mr. Estrada.



Craig K. Clement, serves
as our Chairman of the Board, Chief Executive Officer and President of Flagship Energy Company, a wholly-owned subsidiary of Digerati.
Mr. Clement does not have a written employment agreement with the Company. Effective October 1, 2015, Mr. Clement’s annual salary
was approved by the Board of Directors to be set at $195,000. During FY2018 the Board of Directors approved the issuance of common
stock in lieu of cash compensation equivalent to 40% of Mr. Clement’s annual salary. No other cash compensation is presently being
paid to Mr. Clement.



Compensation Discussion and Analysis



Our compensation programs
are designed to meet the following objectives:



| | · | Offer compensation opportunities that attract highly qualified executives, reward outstanding initiative
and achievement, and retain the leadership and skills necessary to build long-term stockholder value;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Emphasize pay-for-performance by maintaining a portion of executives’ total compensation
at risk, tied to both our annual and long-term financial performance and the creation of stockholder value; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Further our short and long-term strategic goals and values by aligning executive officer compensation
with business objectives and individual performance.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



49







Our Board of Directors
believes that an executive’s compensation should be tied to the performance of the individual and the performance of the
complete executive team against both financial and non-financial goals, some of which are subjective and within the discretion
of the Board of Directors.



Our executive compensation
program is intended to be simple and clear, and consists of the following elements (depending on individual performance):



| | · | Base salary;
| | - | ------------



| | · | Annual performance-based cash bonus;
| | - | ------------------------------------



| | · | Long-term incentives in the form of stock options; and
| | - | ------------------------------------------------------



| | · | Benefits that are offered to executives on the same basis as our non-executive employees.
| | - | -----------------------------------------------------------------------------------------



Role of Management in Determining
Compensation Decisions



At the request of our
Board of Directors, our management makes recommendations to our Board of Directors relating to executive compensation program design,
specific compensation amounts, bonus targets, incentive plan structure and other executive compensation related matters for each
of our executive officers, including our Chief Executive Officer. Our Board of Directors maintains decision-making authority with
respect to these executive compensation matters.



Our Board of Directors
reviews the recommendations of our management with respect to total executive compensation and each element of compensation when
making pay decisions. In allocating compensation among compensation elements, we emphasize incentive, not fixed compensation to
ensure that executives only receive superior pay for superior results. We equally value short- and long-term compensation because
both short- and long-term results are critical to our success. In addition, our compensation program includes various benefits
provided to all employees, including life insurance, health insurance and other customary benefits. The objectives and details
of why each element of compensation is paid are described below.



Base Salary.Our
objective for paying base salaries to executives is to reward them for performing the core responsibilities of their positions
and to provide a level of security with respect to a portion of their compensation. We consider a number of factors when setting
base salaries for executives, including:



| | · | Existing salary levels;
| | - | -----------------------



| | · | Competitive pay practices;
| | - | --------------------------



| | · | Individual and corporate performance; and
| | - | -----------------------------------------



| | · | Internal equity among our executives, taking into consideration their relative contributions to
our success.
| | - | ------------------------------------------------------------------------------------------------------------



Long-term Incentive
Awards.We award long-term incentive compensation to focus our executives on our long-term growth and stockholder return, as
well as to encourage our executives to remain with us for the long-term. Long-term incentive awards are primarily in the form of
grants of stock options and/or stock award pursuant to our 2015 Equity Compensation Plan (the “Plan”). We selected
this form because of the favorable accounting and tax treatment and the expectation of key employees in our industry that they
would receive stock options and/or stock grants. We do not have pre-established target award amounts for long-term incentive grants.
In determining long-term incentive awards for the Named Executive Officers, our Board of Directors relies on recommendations from
our Chief Executive Officer, who considers the individual performance of the executives, the relation of the award to base salary
and annual incentive compensation, and associated accounting expense. The terms of and amount of awards are made by our Board of
Directors in accordance with the Stock Option Plan.



50







Executive Compensation



The following table
sets forth the compensation paid to each of our principal executive officers (the “Named Executive Officers”) during
the last two completed fiscal years:



SUMMARY COMPENSATION TABLE



|Name and Principal Position                    |  | Year |      |  | Salary ($) |   |         | Bonus ($) |  |   | Stock Awards ($) (1) |  |  | Option Awards ($) (2) |         |  | All Other Compensation ($) |   |        | Total ($) | 
|---------------------------------------------- |  | ---- | ---- |  | ---------- | - | ------- | --------- |  | - | -------------------- |  |  | --------------------- | ------- |  | -------------------------- | - | ------ | --------- | 
|                                               |  |      |      |  |            |   |         |           |  |   |                      |  |  |                       |         |  |                            |   |        |           | 
|Arthur L. Smith                                |  |      | 2018 |  |            | $ | 96,000  |           |  | $ | -0-                  |  |  | $                     | 144,000 |  |                            | $ | 64,000 |           | 
|President, 
Chief Executive Officer & Director |  |      | 2017 |  |            | $ | 125,000 |           |  | $ | -0-                  |  |  | $                     | 166,000 |  |                            | $ | 56,000 |           | 
|Antonio Estrada Jr.                            |  |      | 2018 |  |            | $ | 96,000  |           |  | $ | -0-                  |  |  | $                     | 132,000 |  |                            | $ | 64,000 |           | 
|Chief Financial Officer                        |  |      | 2017 |  |            | $ | 125,000 |           |  | $ | -0-                  |  |  | $                     | 166,000 |  |                            | $ | 56,000 |           | 
|Craig K. Clement                               |  |      | 2018 |  |            | $ | 117,000 |           |  | $ | -0-                  |  |  | $                     | 252,000 |  |                            | $ | 64,000 |           | 
|Chairman of the Board                          |  |      | 2017 |  |            | $ | 156,000 |           |  | $ | -0-                  |  |  | $                     | 177,000 |  |                            | $ | 56,000 |           | 



| | (1) | During the year ended July 31, 2018 and 2017, Digerati issued common shares as part of the Company’s
profit-sharing plan contribution. In addition, during the year ended July 31, 2018 and July 31, 2017, Digerati issued common stock
in lieu of cash compensation to its Officers.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | During the year ended July 31, 2018, Digerati issued 900,000 options to its Officers to acquire
common shares at an exercise price of $0.35 and a fair value at the time issuance of $192,000. The options vest ratably on a monthly
basis through December 1, 2017. During the year ended July 31, 2017, Digerati issued 900,000 options to its Officers to acquire
common shares at an exercise price of $0.24 and a fair value at the time issuance of $169,000. The options vest ratably on a monthly
basis through November 21, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Board of Directors
adopted the 2015 Equity Compensation Plan (the “Plan”). Under the Plan the Board of Directors may grant up to 7.5 million
shares of our common stock to our officers, Directors, employees and consultants. Grants may be in the form of incentive stock
options, non-statutory stock options, restricted stock awards, and/or unrestricted stock awards. The number and terms of each award
is determined by the Board of Directors, subject to the limitation that the exercise price of any option may not be less than the
fair market value of the common stock on the date of grant.



We currently provide
a Non-Standardized Profit-Sharing Plan (the “Profit-Sharing Plan”). The Board of Directors approved the Profit-Sharing
Plan on September 15, 2006. Under the Profit-Sharing Plan our employees qualified to participate in the Profit-Sharing Plan after
one year of employment. Contribution under the Profit-Sharing Plan by us is based on 25% of the annual base salary of each eligible
employee up to $54,000 per year. Contributions under the Profit Sharing Plan are fully vested upon funding.



51







OUTSTANDING EQUITY AWARDS AS OF JULY
31, 2018



|                    |  | Option Awards                                                       |         | Stock Awards |                                                                      
|------------------- |  | ------------------------------------------------------------------- | ------- | ------------ | ---------------------------------------------------------------------
|Name                |  | Number of Securities Underlying Unexercised Options (#) Exercisable |         |              | Number of Securities Underlying Unexercised Options (#) Unexercisable
|                    |  |                                                                     |         |              |                                                                      
|Arthur L. Smith     |  |                                                                     | 300,000 |              |                                                                      
|                    |  |                                                                     | 200,000 |              |                                                                      
|Antonio Estrada Jr. |  |                                                                     | 300,000 |              |                                                                      
|                    |  |                                                                     | 200,000 |              |                                                                      
|Craig K. Clement    |  |                                                                     | 300,000 |              |                                                                      
|                    |  |                                                                     | 200,000 |              |                                                                      



| | (1) | During the year ended July 31, 2018, Digerati issued 900,000 options to its Officers to acquire
common shares at an exercise price of $0.35 and a fair value at the time issuance of $192,000. The options vest ratably on a monthly
basis through December 1, 2017. During the year ended July 31, 2017, Digerati issued 900,000 options to its Officers to acquire
common shares at an exercise price of $0.24 and a fair value at the time issuance of $169,000. The options vest ratably on a monthly
basis through November 21, 2016.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compensation of Directors



Each Director that
is not an officer is reimbursed the reasonable out-of-pocket expenses in connection with their travel to attend meetings of the
Board of Directors. Each Director that is not an officer was paid $1,000 per month.



Compensation Committee Interlocks
and Insider Participation



We do not have a compensation
committee of our Board of Directors or other committee that performs the same functions. Mr. Arthur L. Smith is presently our Chief
Executive Officer and participates in deliberations concerning executive compensation.



Compensation Committee Report



Our Board of Directors
reviewed and discussed the Compensation Discussion and Analysis with management and, based on such discussion, included the Compensation
Discussion and Analysis in this Annual Report on Form 10-K.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|-------- | -----------------------------------------------------------------------------------------------



Information regarding
securities authorized to be issued under equity compensation plans is set forth under Item 5 Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.



The following table
lists the beneficial ownership of shares of our Common Stock by (i) each person known to own more than 5% of our outstanding voting
securities, (ii) each Director and nominee, (iii) the Named Executive Officers and (iv) all Directors and officers as a group.
Information with respect to officers, Directors and their families is as of July 31, 2018 and is based on our books and records
and information obtained from each individual. Information with respect to other stockholders is based upon the Schedule 13D or
Schedule 13G filed by such stockholders with the Securities and Exchange Commission. Unless otherwise stated, the business address
of each individual or group is the same as the address of our principal executive office and all securities are beneficially owned
solely by the person indicated.



52









|Name of Beneficial Owner                    |  | Shares  Owned |           |  | Vested  Warrants and  Options |  |           | Total Beneficial Ownership |  |  | % Of  Class (1) | 
|------------------------------------------- |  | ------------- | --------- |  | ----------------------------- |  | --------- | -------------------------- |  |  | --------------- | 
|INDIVIDUAL OFFICERS, DIRECTORS AND NOMINEES |  |               |           |  |                               |  |           |                            |  |  |                 | 
|                                            |  |               |           |  |                               |  |           |                            |  |  |                 | 
|Arthur L. Smith                             |  |               | 1,985,483 |  |                               |  | 500,000   |                            |  |  | 2,485,483       | 
|President, Chief Executive Officer Director |  |               |           |  |                               |  |           |                            |  |  |                 | 
|                                            |  |               |           |  |                               |  |           |                            |  |  |                 | 
|Antonio Estrada Jr.                         |  |               | 1,378,298 |  |                               |  | 500,000   |                            |  |  | 1,878,298       | 
|Chief Financial Officer                     |  |               |           |  |                               |  |           |                            |  |  |                 | 
|                                            |  |               |           |  |                               |  |           |                            |  |  |                 | 
|Craig k. Clement 
Chairman of the Board     |  |               | 1,165,477 |  |                               |  | 500,000   |                            |  |  | 1,665,477       | 
|                                            |  |               |           |  |                               |  |           |                            |  |  |                 | 
|Maxwell A. Polinsky
Director                |  |               | 66,494    |  |                               |  | 212,365   |                            |  |  | 278,859         | 
|                                            |  |               |           |  |                               |  |           |                            |  |  |                 | 
|ALL OFFICERS AND                            |  |               |           |  |                               |  |           |                            |  |  |                 | 
|DIRECTORS AS A GROUP                        |  |               | 4,595,752 |  |                               |  | 1,712,365 |                            |  |  | 6,308,117       | 







| | (1) | Based upon 12,775,143 shares of common stock outstanding as of July 31, 2018 and 1,683,333 vested
stock options as of July 31, 2018.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------



| | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
| | -------- | --------------------------------------------------------------------------



For a director
to be considered independent according to the standards set forth in Section 303A.02 of the New York Stock Exchange Listed
Company Manual (the “NYSE Manual”), the Board of Directors must affirmatively determine that the director has no
material relationship with Digerati, either directly or as a partner, shareholder or officer of an organization that has a
relationship with Digerati. In addition, the NYSE Manual provides that a director will not be considered independent if,
within the preceding three years, the director or an immediate family member (i) was an employee of Digerati,
(ii) received more than $120,000 per year in direct compensation from Digerati, (iii) is affiliated with or
employed by a present or former internal or external auditor of Digerati, (iv) employed as an executive officer of
another company for which an executive officer of Digerati serves on the compensation committee or (v) is an executive
officer or employee that makes payments to or receives payments from Digerati of more than $1,000,000 or two percent of such
other company’s gross revenues.



The Board has determined
that Mr. Maxwell A. Polinsky satisfies the independence requirements in the NYSE Manual.



On April 30, 2018,
Shift8 Technologies, Inc. (“Shift8”) entered into a convertible promissory note for $525,000 with an effective annual
interest rate of 8% and a maturity date of April 30, 2020. With a principal payment of $100,000 due on June 1, 2018 and a principal
payment of $280,823 due on April 30, 2020. Payment are based on a 60-month repayment schedule. At any time while this Note is outstanding,
but only upon: (i) the occurrence of an Event of Default under the Note or the Pledge and Escrow Agreement; or (ii) mutual agreement
between the Borrower and the Holder, the Holder may convert all or any portion of the outstanding principal, accrued and unpaid
interest, Premium, if applicable, and any other sums due and payable hereunder (such total amount, the “Conversion Amount”)
into shares of Common Stock (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount (the numerator);
divided by(ii) a conversion price of $1.50 per share of Common Stock, which price shall be indicated in the conversion
notice (in the form attached hereto as Exhibit “B”, the “Conversion Notice”) (the denominator) (the “Conversion
Price”). The Holder shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable
upon such conversion, and where the Conversion Shares should be delivered. The promissory note is secured by a Pledge and Escrow
Agreement, whereby Shift8 agreed to pledge 51% of the securities owned in T3 until the principal payment is paid in full. In conjunction
with the promissory note, the Company issued 3-year warrants to purchase 75,000 shares of common stock at an exercise price of
$0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately
$19,000 and was recognized as a discount on the two promissory notes, the company amortized $6,000 as interest expense during the
year ended July 31, 2018. During the year ended July 31, 2018, the Company paid $119,000 of the principal balance. The total principal
outstanding and unamortized discount as of July 31, 2018 were $406,000 and $13,000, respectively. One of the note holders also
serves as President, CEO and Board Member of T3 Communications, Inc., one of our operating subsidiaries.



53









On May 1, 2018, Shift8
Technologies, Inc. (“Shift8”) entered into a Stock Purchase Agreement (’SPA”), whereby in an exchange for $250,000,
Shift8 agreed to sell to the buyer 199,900 shares of common stock equivalent to 19.99% of the issued and outstanding common share
of Shift8 Technologies, Inc. The $250,000 of the cash received under this transaction was recognized as an adjustment to the carrying
amount of the noncontrolling interest and as an increase in additional paid-in capital in Shift8. For the year ending July 31,
2018, the Company accounted for a noncontrolling interest of $57,000. Additionally, one of the buyers serves as President, CEO
and Board Member of T3 Communications, Inc., one of our operating subsidiaries.



On May 1, 2018, Shift8
entered into a promissory note for $275,000 with an effective annual interest rate of 0% with an interest and principal payment
of $6,000 per month and shall continue perpetuity until the entire principal amount is paid in full. The promissory note is guaranteed
to the lender by 15% of the stock owned by Shift8 in T3, the secured interest will continue until the principal balance is paid
in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 100,000 shares of common stock
at an exercise price of $0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time
of issuance was approximately $27,000 and was recognized as a discount on the promissory note, the company amortized $2,000 as
interest expense during the year ended July 31, 2018. During the year ended July 31, 2018, the Company paid $13,000 of the principal
balance. The total principal outstanding and unamortized discount as of July 31, 2018 were $262,000 and $25,000, respectively.
The note holder also serves as Board Member of T3 Communications, Inc., one of our operating subsidiaries.



| | ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.
| | -------- | ---------------------------------------



The following table
sets forth the aggregate fees paid to MaloneBailey, LLP during 2018 for audit services rendered in connection with the audits and
reviews of our consolidated financial statements.



|Description of Fees |  | 2018 |       
|------------------- |  | ---- | ------
|                    |  |      |       
|Audit Fees          |  | $    | 40,000
|Review Fees         |  |      | -0-   
|Tax fees            |  |      | -0-   
|All Other Fees      |  |      | -0-   



The following table
sets forth the aggregate fees paid to LBB & Associates Ltd., LLP during 2017 for audit services rendered in connection with
the audits and reviews of our consolidated financial statements.



|Description of Fees |  | 2017 |       
|------------------- |  | ---- | ------
|                    |  |      |       
|Audit Fees          |  | $    | 21,700
|Review Fees         |  |      | 11,700
|Tax fees            |  |      | -0-   
|All Other Fees      |  |      | -0-   



During the years ended
July 31, 2018 and 2017, the Company paid $5,000 and $9,038, respectively to MiddletonRainesZapata, LLP for tax work related to
the consolidated tax returns.



Pre-Approval of Audit and Non-Audit
Services



The Board of Directors
considered whether the non-audit services provided by MaloneBailey, LLP are compatible with maintaining their independence. Prior
to engagement of an independent accounting firm for the next year’s audit, the Board of Directors is asked to pre-approve
the engagement of the independent accounting firm, and the projected fees for audit services and audit-related services that we
will incur. The fee amounts approved for the audit and audit-related services are updated to the extent necessary at meetings of
the Board of Directors during the year. In the 2018 fiscal year, there were no fees paid to MaloneBailey, LLP under a de minimis
exception to the rules that waives pre-approval for certain non-audit services.



54







PART IV



| | ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
| | -------- | ----------------------------------------



The following documents
are exhibits to this report.



|Number |  | Description                                                                                                                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1    |  | Agreed Order Confirming Joint Plan of Reorganization filed by Plan Proponents. (field as Exhibit 2.1 to Form 8-K filed on April 11, 2014)                                                                                              
|2.2    |  | Plan Proponents’ Joint Chapter 11 Plan of Reorganization as Modified on the Record on April 4, 2014. (field as Exhibit 2.2 to Form 8-K filed on April 11, 2014)                                                                        
|2.3    |  | Plan Supplement Naming Independent Director in Connection With Plan Proponents’ Joint Chapter 11 Plan of Reorganization. (field as Exhibit 2.3 to Form 8-K filed on April 11, 2014)                                                    
|2.4    |  | Disclosure Statement Under 11 U.S.C. § 1125 and Bankruptcy Rule 3016 in Support of Plan Proponents’ Joint Chapter 11 Plan of Reorganization. (filed as Exhibit 2.4 to Form 8-K filed on April 11, 2014)                                
|2.5    |  | Bankruptcy Settlement Agreement dated January 15, 2014. (field as Exhibit 10.1 to Form 8-K filed on January 23, 2014)                                                                                                                  
|2.6    |  | Order Authorizing the Sale of 100% Equity Interests of Dishon Disposal, Inc. and Granting Related Relief approving the Stock Purchase Agreement dated June 27, 2014. (filed as Exhibit 2.6 to Form 8-K filed on July 7, 2014)          
|2.7    |  | Order Authorizing the Sale of 100% Equity Interests of Hurley Enterprises, Inc. and Granting Related Relief approving the Stock Purchase Agreement dated June 26, 2014.(field as  Exhibit 2.7 to Form 8-K filed on July 24, 2014)      
|3.1    |  | Amended and Restated Articles of Incorporation. (filed as Exhibit 3.1 to Form 8-K filed on April 11, 2014)                                                                                                                             
|3.2    |  | Amended and Restated Bylaws. (filed as Exhibit 3.2 to Form 8-KA filed on April 25, 2014)                                                                                                                                               
|3.3    |  | Second Amended and Restated Bylaws, effective as of January 13, 2015 (filed as Exhibit 3.1 to Form 8-K filed on January 21, 2015 (File No. 001-15687)).                                                                                
|10.1   |  | Form
    of stock award agreement under the Company’s 2015 Stock Compensation Plan for grants to qualifying employees’
    401K Retirement Accounts (filed as Exhibit 10.7 to Form 8-K filed on January 21, 2015 (File No. 001-15687)).
|10.2   |  | 2015 Equity Compensation Plan (filed as Exhibit 4.1 to Form S-8 filed on November 18, 2015(File No. 001-15687)).                                                                                                                       
|10.3   |  | Debenture
    issued to Peak One dated July 31, 2018.                                                                                                                                                                                  
|10.4   |  | Promissory Note dated
    October 12, 2018.                                                                                                                                                                                            
|10.5   |  | Promissory Note dated
    October 18, 2018.                                                                                                                                                                                            
|10.6   |  | Promissory Note dated
    October  22, 2018.                                                                                                                                                                                           
|21.1   |  | Subsidiary list                                                                                                                                                                                                                        
|31.1   |  | Certification of our
    President and Chief Executive Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                   
|31.2   |  | Certification of our
    Chief Financial Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                 
|32.1   |  | Certification of our
    President and Chief Executive Officer, under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                   
|32.2   |  | Certification of our
    Chief Financial Officer, under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                 







55









SIGNATURES



Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.



|                       | DIGERATI TECHNOLOGIES, INC.
|---------------------- | ---------------------------
|                       |                            
|Date:November 16, 2018 | By:                        
|                       |                            
|                       |                            
|                       |                            



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 capacity and on the dates indicated.



|Signature               |  | Title                        |  | Date             
|----------------------- |  | ---------------------------- |  | -----------------
|                        |  |                              |  |                  
|/s/ Arthur L. Smith     |  | Principal Executive Officer  |  | November 16, 2018
|Arthur L. Smith         |  |                              |  |                  
|                        |  |                              |  |                  
|/s/ Antonio Estrada Jr. |  | Principal Accounting Officer |  | November 16, 2018
|Antonio Estrada Jr.     |  | Principal Finance Officer    |  |                  
|                        |  |                              |  |                  
|/s/ Craig K. Clement    |  | Director                     |  | November 16, 2018
|Craig K. Clement        |  |                              |  |                  
|                        |  |                              |  |                  
|/s/ Maxwell A. Polinsky |  | Director                     |  | November 16, 2018
|Maxwell A. Polinsky     |  |                              |  |                  



56







EXHIBIT INDEX



|Number |  | Description                                                                                                      
|------ |  | -----------------------------------------------------------------------------------------------------------------
|10.3   |  | Debenture issued to Peak One dated July 31, 2018.                                                                
|10.4   |  | Promissory Note dated October 12, 2018.                                                                          
|10.5   |  | Promissory Note dated October 18, 2018.                                                                          
|10.6   |  | Promissory Note dated October  22, 2018.                                                                         
|21.1   |  | Subsidiary List                                                                                                  
|31.1   |  | Certification of our President and Chief Executive Officer, under Section 302 of the Sarbanes -Oxley Act of 2002.
|31.2   |  | Certification of our Chief Financial Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.               
|32.1   |  | Certification of our President and Chief Executive Officer, under Section 906 of the Sarbanes-Oxley Act of 2002. 
|32.2   |  | Certification of our Chief Financial Officer, under Section 906 of the Sarbanes-Oxley Act of 2002.               





57