EDGAR 10-K Filing

Company CIK: 1704760
Filing Year: 2022
Filename: 1704760_10-K_2022_0001213900-22-019952.json

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ITEM 1. BUSINESS
Item 1. Business
Company History and Certain Recent Developments
We were incorporated, in Delaware, as Pensare Acquisition Corp, a special purpose acquisition company (“SPAC”) on April 7, 2016 for the purpose of entering into one or more mergers, share exchanges, asset acquisitions, stock purchases, recapitalizations, reorganizations or other similar business combinations with one or more target businesses.
On April 7, 2020 (the “Computex Closing Date”), we consummated a business combination transaction (the “Computex Business Combination”) in which we acquired Stratos Management Systems, Inc. (“Computex”), a private operating company that does business as Computex Technology Solutions. In connection with the closing of the Computex Business Combination, the Company changed its name to American Virtual Cloud Technologies, Inc.
On December 1, 2020 (the “Kandy Closing Date”), we acquired the Kandy Communications business (hereafter referred to as “Kandy” or “Kandy Communications”) from Ribbon Communications, Inc. and certain of its affiliates (“Ribbon”), by acquiring certain assets, assuming certain liabilities and acquiring all of the outstanding membership interests of Kandy Communications LLC.
On September 16, 2021, the Company announced that as a result of a decision by the Company’s Board of Directors to explore strategic alternatives previously announced on April 7, 2021, the Board had authorized the Company to focus its strategy on acquisitions and organic growth in its cloud technologies business as well as to explore strategic opportunities for its IT solutions business, including the divestiture of Computex. The Company believed that such changes would allow it to optimize resource allocation, focus on core competencies, and improve its ability to invest in areas of maximal growth potential.
On December 2, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with Monroe Capital Management Advisors, LLC and certain affiliated entities (“Monroe”) for a $27 million term loan facility (or the “Credit Facility”), part of which was used to pay off amounts owing under a prior credit agreement with Comerica Bank (the “Prior Credit Agreement”) which was assumed as part of the Computex Business Combination. The remainder of the proceeds from the Credit Agreement was to be used for working capital and general business purposes. The terms of the Credit Agreement are discussed in Note 9 in the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K.
On January 27, 2022, the Company announced that it had executed a definitive agreement to sell Computex, and on March 15, 2022, the sale of Computex was consummated, completing the Company’s transition to a pure-play cloud communications and collaboration company, centered on the Kandy platform. As a result, Computex is classified as held for sale as of December 31, 2021 and its operations are classified as discontinued operations. In connection with the planned sale of Computex, we recorded a noncash goodwill impairment charge of $32.1 million during the year ended December 31, 2021 (“Fiscal 2021”) which represented the excess of the carrying value of the Computex reporting unit over the expected sale proceeds less costs to sell. Net proceeds from the sale of Computex, after payment of closing obligations and certain indebtedness are being used for working capital and general business purposes.
In addition, as more fully discussed in Note 10 in the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K, during the fourth quarter of Fiscal 2021, the Company completed the sale of certain securities, including the sale of common stock, preferred stock and warrants. In connection with the sale of these securities, the Company also completed certain share registrations. Two of the five series of warrants were exercised soon after they were issued resulting in proceeds of approximately $5.0 million during Fiscal 2021.
Subsequent to December 31, 2021, and as more fully discussed in Note 18 in the Notes to our Consolidated Financial Statements, the Company sold additional securities.
Our Business
The Kandy cloud communications platform is a cloud-based, real-time communications platform, offering proprietary unified communications as a service (“UCaaS”), communications platform as a service (“CPaaS”), contact center as a service (“CCaaS”), Microsoft Teams Direct Routing as a Service (“DRaaS”), and SIP Trunking as a Service capabilities. Kandy is one of the largest pure-play providers of UCaaS, CCaaS, CPaaS and Direct Routing as a Service (DRaaS) for enterprise customers.
As a provider of cloud-based enterprise services, Kandy deploys a global carrier grade cloud communications platform that supports the digital and cloud transformation of mid-market and enterprise customers across any device, on any network, in any location. The Kandy platform is based on a powerful, proprietary multi-tenant, highly scalable, and secure cloud platform that includes pre-built customer engagement tools, based on web real-time communications technology (“WebRTC technology”) that enables frictionless communications. Further, we support rapid service creation and multiple go to market models including white labelling, multi-tier channel distribution, enterprise direct, and self-service via our SaaS (software as a service) web portals.
Our cloud-based, real-time communications platform, enables service providers, enterprises, software vendors, systems integrators, partners and developers to enrich their applications and their services with real-time contextual communications empowering the API (Application Programming Interface) economy. With Kandy’s platform, companies of various sizes and types can quickly embed real-time communications capabilities into their existing applications and business processes, providing a more engaging user experience.
While the cloud communications business is focused on highly complex, medium and large enterprise deployments, the customer experience is augmented by our managed services capabilities. In addition, our strategic partnerships with companies such as AT&T, IBM, and Etisalat give us access to a marquee customer base and the ability to sell end to end solutions.
Growth Strategy
The acquisition of Kandy has given us the opportunity to provide a full suite of UCaaS, CPaaS, and CCaaS products to serve the rapidly growing cloud communications market. Customers today demand a highly reliable, secure, and scalable communications platform along with a world class customer experience.
With demand for cloud technology increasing, we believe that the already sizable total addressable market (“TAM”) for cloud communications is on track to continue to expand and we believe that we are positioned to monetize mega trends in enterprise cloud communications, gain market share as a premier white-label cloud communications provider, checking the CPaaS, CCaaS, UCaaS and DRaaS boxes, while also capitalizing on our direct to enterprise capabilities (for example, Tier 1 support) to sell through our partners or sell directly.
Certain areas of our growth plan, which also includes continued investment in research and development, are as follows:
● Channel (white label) - Target technology providers, such as Service Providers (SPs), Resellers, Independent Software Vendors (ISVs), and Systems Integrators (SIs) through
o Strategic Alliances with companies looking to co-invest to monetize cloud communications technology; and
o Our partners that are looking to white-label or resell cloud technologies, which we believe offer significant opportunity to grow revenue with existing partners while identifying new ones.
● Direct to Enterprise - Target enterprises looking to deploy their own cloud technology using APIs/SDKs (application programming interface/software development kit) and are looking to enable cloud communications to support their business and customer communications and interactions either
o Organically - By targeting select vertical markets with high growth potential for example, government, retail, financial, & healthcare; or
o Inorganically - By making selective acquisitions to expand the use of the Kandy platform.
Key Trends Affecting Our Business
We believe the following key trends present growth opportunities for our business:
● Disruptive technologies are creating complexity and challenges for customers and vendors. The rapid evolution of disruptive technologies, and the speed by which they impact an organization’s technology platforms, has made it difficult for customers to effectively design, procure, implement and manage their own IT systems. Moreover, increased budget pressures, fewer internal resources, a fragmented vendor landscape and fast time-to-value expectations make it challenging for customers to design, implement and manage, efficient, secure and cost-effective IT environments. Customers are increasingly turning to IT solutions providers to implement or help them implement complex IT offerings, including software defined infrastructure, cloud computing, converged and hyper-converged infrastructures, big data analytics, and flash storage.
● Migration from on-premise communication solutions to cloud hosted services. The migration to cloud hosted services is in full swing with years of solid market growth. For years, on-premise PBX and Centrex carrier-hosted telephony switches dominated the market. In recent years, cloud communications technologies have eclipsed those functions which has led to lower human, capital and operational costs. The transformation to the cloud is accelerating. Complimenting those technologies with video, messaging and embedded communications is adding to revenue streams and productivity enhancements in the workplace.
● Increasing trend away from the use of hard phones. Business communications are rapidly moving away from hard phones to work-from-anywhere-applications on desktops and mobile phones. Further, customers are rapidly evolving to communications that are embedded within applications and business process flows without context switching between applications which leads to increased productivity and contextual communications.
Additional growth opportunities for our business include:
● The acceleration of digital transformation
● The change in how people work, including the “work from anywhere” mindset
● The increased complexity in mid & large enterprises and the desire by enterprises for integrated internal and external communications for UCaaS, CPaaS, CCaaS and DRaaS
● The demand for services similar to WebEx, Teams, & Zoom and partners that can add to and/or complement such tools and players
● The trend towards CPaaS technology - Product developers & Independent Software Vendors (ISVs) are increasingly seen as the influencers
● The general trend towards movement to the cloud
● The lack of sufficient internal IT resources at mid-sized and large enterprises, and the scarcity of IT personnel in certain high-demand disciplines
● The recognition that certain IT services provide the opportunity of funding via recurring payments over a period of time, rather than large upfront payments
● The increasing use of multi-cloud strategies, whereby cloud architectures and cloud-enabled frameworks, whether public, private, or hybrid, provide the core foundation of modern IT
● The explosive growth in remote workforce needs.
Successor/Predecessor References
In the Computex Business Combination, AVCT was considered the acquirer and Computex was considered the acquiree and the Predecessor for accounting purposes. The Computex Business Combination, which was accounted for using the acquisition method of accounting, reflects a new basis of accounting that is based on the fair value of the net assets acquired and liabilities assumed. In the consolidated financial statements and elsewhere in this annual report on Form 10-K, we distinguish between the entity that existed before the Computex Closing Date (“Predecessor”) and the entity that existed on and after such date (“Successor”).
Major customers
All segments (Kandy and Computex)
The five top customers during Fiscal 2021 accounted for 17% of revenues. The top five customers during the Successor period April 7, 2020 to December 31, 2020 accounted for 24% of total revenue. No customer accounted for more than 10% of total revenue during the year ended December 31, 2021 nor during the Successor period April 7, 2020 to December 31, 2020.
Kandy only
The five top customers during Fiscal 2021 accounted for 68% of revenues. Three customers accounted for more than 10% of total revenue during the year ended December 31, 2021, accounting for $9.9 million of Kandy’s revenue.
Competition
Kandy primarily competes with technology and cloud providers such as 8X8, RingCentral, Vonage, Twilio, Nice and Five 9, among others. However, Kandy differentiates itself from its competitors largely by the nature of its route to market - its platform is a proprietary white label, and global cloud platform that support one or a multi-tier distribution via the CSP (communications service provider), VAR (value-added reseller) or ISV (independent software vendor) brand. Further, in addition to being a true multi-tenant platform, Kandy supports a BYOD (bring your own data) and BYOC (bring your own carrier) model while providing both a light weight and heavy weight OSS/BSS (Ordering/Billing) system and automation integration with its channel partners. Lastly, the Kandy platform brings a ubiquitous experience across UCaaS, CCaaS, and CPaaS versus most of the competition who play in one or two of these communications market verticals.
International Operations and Segments
The Company’s reportable segments in Fiscal 2021 were Computex and Kandy. At December 31, 2021, approximately 110 associates were employed in our international operations. All such international employees were employed in our Kandy segment.
Research and Development
Through Kandy, we incur software development costs to enhance, improve, expand and/or upgrade our proprietary software in an agile software environment with releases broken down into several iterations called sprints. These development activities are performed by internal staff primarily located outside of the US.
Through our Kandy R&D team, we focus our research and development efforts on building a carrier-grade communications platform, middleware, software application clients and believe that our future success depends, in part, on our ability to continue to innovate and sustain a competitive differentiation. Therefore, our research and development focuses on deploying next generation software technologies, making communications more frictionless, and supporting multiple go-to-market strategies, including channel and direct sales models.
As of December 31, 2021, our research and development team consisted of approximately 65 associates (excluding contractors). All of our research and development associates are employed by Kandy.
Sales and Marketing
We target customers of varying sizes in both the private and public sector and develop relationships with them through direct marketing efforts as well as through strategic relationships with our technology partners.
We acquire new account relationships through face-to-face field sales, through relationships with our partners and through targeted direct marketing efforts that aim to increase awareness of our solutions.
Our sales representatives are compensated through a combination of fixed and variable compensation. Variable compensation or commission becomes the primary basis of compensation as sales representatives gain more experience.
Proprietary Rights
We rely on a combination of copyrights, patents, trade secrets, trademarks, and contractual provisions to protect the proprietary rights of our products, processes and technology. In addition, we sometimes enter into confidentiality and assignment-of-rights agreements with our employees, consultants and customers and limit access to, and distribution of, our proprietary information. We license our proprietary products to our customers under license agreements that we believe contain appropriate use and other restrictions. However, despite our efforts to safeguard our proprietary rights, we can provide no assurance that we will be able to successfully deter misappropriation or unauthorized third-party use of such rights. As is the case with any software company, safeguarding unauthorized use of our software is difficult, and piracy could become a problem. In addition, if we are engaged in transactions in countries where intellectual property laws are not well developed or are not well enforced, our efforts to protect our proprietary rights may not be effective. Enforcing our proprietary rights in the U.S. and abroad and any litigation to enforce such rights, can result in significant costs and can divert resources, which could cause a material adverse effect on our business, financial condition, results of operations or cash flows.
As the number of solutions available in the marketplace increases and solution functionality continues to overlap, software companies may increasingly become subject to claims of infringement or other misappropriation of intellectual property. Third parties may assert infringement or misappropriation claims against us relating to our software, processes or technology. Following up such claims, whether or not they have merit, can be time-consuming and can result in costly litigation, divert management’s attention away from operations or cause delays in our business or require us to enter into royalty or licensing arrangements. Defending such claims, entering into royalty or licensing agreements, or adverse determinations in proprietary rights litigation could have a material adverse effect on our business, results of operations, cash flow and financial condition.
COVID-19
COVID-19 continues to significantly impact local, regional, and global economies, businesses, supply chains, production and sales across a range of industries. The extent of its impact on our operational and financial performance is uncertain and difficult to predict and we remain cautious about the global recovery.
To protect the health and safety of our employees, our daily execution has evolved into a largely virtual model. However, we have found ways to continue to engage with and assist our customers and partners as they work to navigate the current environment. We will continue to monitor the current environment and may take further actions that may be required by federal, state or local authorities or that we determine to be in the interests of our employees, customers, and partners.
Human Capital
Our core values - Integrity, innovation, delighting our clients, diversity and teamwork are communicated to our employees on joining our company and we strive to maintain and demonstrate these values to our associates in the decisions we make and the actions we take. We believe one of our greatest assets is our people and believe adherence to such policies play a key role in the success of our company.
Integrity - We strive to earn the trust of our customers, partners, and associates through honesty, openness, and ethical, and fair behavior. We respect everyone and believe we should treat others as we expect to be treated.
Innovation - We are committed to continuous progress, never settling for yesterday’s solutions or successes.
Delighting our clients - We are committed to delighting our clients with exceptional and personalized services.
Diversity - We believe it takes people with different ideas, experiences, strengths, interests and backgrounds to succeed.
Teamwork - We understand that we achieve everything together and are accountable to each other for our results.
At December 31, 2021, our employee base stood at approximately 356 employees worldwide, of which more than 30% were employed in our international operations. At March 15, 2022, following the sale of Computex, our employee base stood at approximately 175 employees worldwide, of which more than 63% were employed in our international operations. We have offices in Canada, Mexico, and the United States, as well as representatives in the United Kingdom, Israel and the United Arab Emirates. None of our employees are represented by unions and we consider the relationships with our employees to be good. As of December 31, 2021, women represented 19.1% of our workforce. The attrition rate in Fiscal 2021 was 19.8%.
As of December 31, 2021, the composition of our employee base was as follows:
Computex
(held for sale at
Corporate Kandy December 31, 2021) Total
Sales and marketing -
Product support and R&D -
Engineers - -
Admin 31
Total number of employees 356
But for the Computex employees, the above table also approximates our employee base as of March 15, 2022, after the sale of Computex.
We offer fair and competitive compensation and benefit packages to our employees that include base salary, incentives, adequate paid time off and various health insurance plan options. To protect the health and safety of our employees and others, in response to COVID-19, our daily execution has evolved into a largely virtual model. We support the development of our employees by reimbursing them for certain continuous education programs. COVID-19 has changed the way people work and we have endeavored to facilitate an environment that allows our employees to work from where they are and have adopted hybrid options. We recognize the importance of remaining flexible and agile in the current environment with respect to the needs of our employees.
Backlog
Deferred revenue on our consolidated balance sheet, which relate to payments received but for which the related performance obligations have not yet been performed, was $3.3 million at December 31, 2021, of which $3.2 million relates to the Computex reporting unit which was classified as held for sale at December 31, 2021 and was sold on March 15, 2022. These amounts primarily relate to payments received that were contractually due, in advance of providing the products or performing the services. The related performance obligations for such payments are expected to be performed, and the related revenue recognized in the applicable company’s financial statements, within 12 months of the reporting date, most of which will be recognized as revenue by the buyer of Computex after the sale of Computex.
Further, we allocate a contract’s transaction price to each distinct performance obligation and recognize the revenue when, or as, the performance obligations are satisfied. As of December 31, 2021, total transaction price for remaining performance obligations associated with non-cancelable contracts longer than 12 months that are expected to be recognized over future periods by the Computex segment was approximately $27.9 million, most of which will be recognized as revenue by the buyer of Computex after the sale of Computex.
Seasonality
Except for Computex’s hardware revenue, the Company’s revenue is not considered to be seasonal. Computex’s hardware revenue tends to be seasonal with higher revenues occurring in the fourth quarter of each year. As previously indicated, Computex was sold in the first quarter of 2022.
Available Information
Our website address is http;//www.avctechnologies.com. Our common stock and public warrants are registered under the Securities Exchange Act of 1934 (the “Exchange Act”) and we have reporting obligations, including the requirement to file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual report contain financial statements that are audited and reported on by our independent registered public accountants. These filings are available to the public via the Internet on our website and at the SEC’s website located at http://www.sec.gov. You may also read and copy any document that we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. For more information, please call the SEC at 1-800-SEC-0330. You may request a copy of our filings with the SEC (excluding exhibits) at no cost by writing or telephoning us at the following address or telephone number:
American Virtual Cloud Technologies, Inc.
1720 Peachtree Street
Suite 629
Atlanta, GA 30309
Tel: (404) 239-2863
We are an emerging growth company (“EGC”) as defined in the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”) and will remain an EGC for up to five years. However, if our non-convertible debt issued within a three-year period exceeds $1.0 billion or our total annual revenues exceed $1.07 billion or the market value of our ordinary shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an EGC as of the following fiscal year. As an EGC, we have elected, under Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Annual Report on Form 10-K, before making a decision to invest in our common stock. If any of the following events occur, our business, financial condition and operating results may be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose all or part of your investment.
Risks Related to Our Business and Industry
Our operations and revenue will be substantially reduced following the sale of Computex, which may negatively impact the value and liquidity of our common stock.
Upon the sale of Computex, our operations will be limited to our Kandy Business, unless the Company acquires one or more companies. There can be no assurance that we will be successful at growing our Kandy Business or that the Kandy business will be successful or that we will be able to make acquisitions. A failure by us to grow our Kandy Business or to secure additional sources of revenue following the sale of Computex could negatively impact the value and liquidity of our common stock.
We will continue to incur the expense of complying with public company reporting requirements following the sale of Computex.
After the sale of Computex, we will continue to be required to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended, even though compliance with such reporting requirements may be economically burdensome.
General economic weakness may harm the Company’s operating results and financial condition.
The Company’s results of operations are largely dependent upon the state of the economy. Global economic weakness and uncertainty may result in decreased sales, gross margin, earnings and/or growth rates. In addition, material changes in trade agreements between the U.S. and other countries may, for example, negatively affect the Company’s ability to purchase products, its ability to import or export products, and could negatively affect pricing and product availability. Adverse economic conditions could negatively affect demand for the Company’s products and services and could impair the ability of customers to pay for such products and services.
The Company’s business could be adversely affected by the COVID-19 outbreak.
Commencing in December 2019, the COVID-19 outbreak began spreading throughout the world, including the first outbreak in the US in February 2020. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. COVID-19 has disrupted and continues to significantly disrupt local, regional, and global economies and businesses, and is disrupting supply chains and affecting production and sales across a range of industries.
In response to the COVID-19 outbreak, the US governments and governments in many countries have taken preventative or protective actions, such as imposing restrictions on travel and business operations. Temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily. These actions may continue to expand in scope, type and impact, and such measures, while intended to protect human life, are expected to have significant adverse impacts on domestic and foreign economies. It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, which may result in a global recession. The effectiveness of economic stabilization efforts being taken to mitigate the effects of the COVID-19 outbreak is currently uncertain.
A public health pandemic, including COVID-19, poses the risk that the Company, its affiliates, employees, suppliers, customers and others may be prevented from conducting business activities for an indefinite period of time, due to shutdowns, travel restrictions and other actions that may be requested or mandated by governmental authorities. Such actions may prevent the Company from accessing the facilities of its customers, thereby affecting its ability to deliver products and provide services. In addition, the Company’s customers may choose to delay or abandon projects.
The Company has modified its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and may take further actions as may be required by governmental authorities or that the Company determines to be in the best interests of its employees, customers, partners, and suppliers.
If such conditions continue for a significant period of time, the Company’s liquidity could be negatively impacted and it may be required to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels and meet its financial obligations. The Company’s ability to obtain any required financing is not guaranteed and is largely dependent upon evolving market conditions and other factors. The Company cannot assure you that it would be able to take any of these actions on terms that are favorable or at all, or that these actions would be successful in permitting the Company to meet its scheduled debt service obligations or satisfy its capital requirements, or that these actions would be permitted under the terms of its existing or future debt agreements, including the Company’s Comerica Credit Agreement (the “Credit Agreement”).
Even after the COVID-19 outbreak has subsided, the Company may continue to experience significant impacts to its business as a result of the global economic impact of the COVID-19 outbreak, including any economic downturn or recession or other long-term effects that have occurred or may occur in the future. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, employees and vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our financial condition and/or results of operations is uncertain.
The Company has customer concentration, and if the Company loses one or more of its large volume customers, its earnings may be materially affected.
Following the Company’s sale of the Computex business in March 2022, it has significant concentration of customers. The five top customers of the Company’s Kandy business, which is the Company’s sole business segment following the sale of Computex, accounted for 68% of the revenues of that business segment during Fiscal 2021. There are inherent risks whenever a significant percentage of total revenues are concentrated with a limited number of customers. Revenues from our largest customers may fluctuate from time to time based on numerous factors, including market conditions, which may be outside of our control. Contracts between the Company and its customers for the provision of products and/or services are generally in the form of non-exclusive agreements that do not contain volume purchase commitments, and are terminable by either party upon 30 days’ notice. The loss of one or more of the Company’s largest customers, the failure of such customers to pay amounts due, or a material reduction in sales dollars by such customers could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.
Changes in the IT industry, customers’ usage, IT procurement, and/or rapid changes in product standards may result in reduced demand for technology solutions and services that the Company sells.
The Company’s results of operations are influenced by a variety of factors, including the condition of the IT industry, shifts in demand for, or availability of IT hardware, software, peripherals and services. In addition, the Company’s results of operations may be influenced by industry introductions of new products, upgrades, changes in the methods of distribution, and changes in the nature of IT consumption and procurement. Further, the industry is characterized by rapid technological change and frequent introduction of new products, product enhancements and new distribution methods or channels, each of which can decrease demand for current products or render them obsolete. In addition, the proliferation of cloud technology, infrastructure as a service (IaaS), software as a service (SaaS), platform as a service (PaaS), software defined networking, or other emerging technologies could reduce the demand for products and services that the Company sells. Introduction of certain cloud offerings could influence the Company’s customers to move workloads to other cloud providers, which may reduce the procurement of products and services from the Company. With the significant investment in personnel, any of these shifts or changes could adversely impact the Company’s financial position due to competition or changes in the industry or improper focus or selection of the products and services that the Company sells. Also, if the Company fails to react in a timely manner to such changes, its results of operations could be adversely affected.
Fluctuations in oil and gas prices could directly or indirectly impact the Company’s customers, which could have a material adverse impact on the Company’s financial condition, results of operations and cash flows.
Demand for the Company’s products and services depends, in part, on expenditures by its customers. These expenditures are generally dependent on customers’ views of future oil and natural gas prices, which are sensitive to customers’ views of future economic growth. Declines, as well as anticipated declines, in oil and gas prices could result in project modifications, delays or cancellations, general business disruptions, and delays in payment of, or nonpayment of, amounts that are owed to the Company. These effects could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. The oil and gas industry has historically experienced periodic downturns, which have been characterized by diminished demand for the Company’s products and services as well as downward pressure on the prices it charges. A significant downturn or sustained market uncertainty could result in a reduction in demand for the Company’s services and could adversely affect its financial condition, results of operations and cash flows.
The Company may fail to innovate or create new solutions which align with changing market and customer demand.
As a provider of a comprehensive set of solutions, which involves the offering of bundled solutions consisting of direct IT sales, advanced professional and managed services, the Company expects to encounter some of the challenges, risks, difficulties, and uncertainties frequently encountered by companies providing bundled solutions in rapidly evolving markets. Some of these challenges include the Company’s ability to increase the total number of users of its services, its ability to adapt to meet changes in its markets as well as competitive developments. The Company’s personnel must continually stay current with vendor and marketplace technology advancements and continue to create solutions which can integrate evolving vendor products and services. Further, the Company may provide customized solutions and services that are solely reliant on its own marketing, design and fulfillment services, and the Company may lack the skills or personnel to execute. The Company’s failure to innovate and provide value to its customers may erode its competitive position and market share and may lead to a decrease in revenue and financial performance.
In all of the Company’s markets, some of its competitors have greater financial, technical, marketing, and other resources than the Company does. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies, and customer requirements. Many current and potential competitors engage in more extensive promotional marketing and advertising activities, offer more attractive terms to customers, and adopt more aggressive pricing and credit policies than the Company does. The Company may not be successful in achieving revenue growth which may have a material adverse effect on its future operating results as a whole.
The Company may not be able to hire and/or retain the personnel that it needs.
To increase market awareness and sales of the Company’s offerings, the Company may need to expand its marketing efforts and sales operations in the future. The Company’s products and services require a sophisticated sales effort and significant technical engineering talent. For example, its sales and engineering candidates must have highly technical hardware and software knowledge to create a customized solution for its customers’ business processes. Competition for qualified sales, marketing and engineering personnel fluctuates depending on market conditions, and the Company may not be able to hire or retain sufficient personnel to maintain and grow its business. Frequently, the Company’s competitors require their employees to agree to non-compete and non-solicitation agreements as part of their employment. This makes it more difficult for the Company to hire, and also may increase the costs of reviewing and managing non-compete restrictions. Additionally, in some cases, the Company’s relationship with a customer may be impacted by turnover in its sales or engineering team.
The Company faces substantial competition from other companies.
The Company competes in all areas of its business against local, regional, national, and international firms, including other direct marketers; national and regional resellers; online marketplace competitors; and regional and national service providers. In addition, the Company faces competition from vendors, which may choose to market their products directly to end-users, rather than through channel partners such as the Company, and this could adversely affect the Company’s future sales. Many competitors compete principally on price and may have lower costs or charge lower prices than the Company does and, therefore, the Company’s gross margins may not be maintainable. Online market place competitors are continually improving their pricing and offerings to customers as well as making it easier to use their online marketplaces. Also, the Company’s competitors may offer better or different products and services than the Company does. In addition, the Company does not have guaranteed purchasing volume commitments from its customers and, therefore, its sales volume may be volatile.
The Company may not adequately protect itself through its contracts, or its insurance policies may not be adequate to address potential losses or claims.
The Company’s contracts may not protect it against the risks inherent in its business including, but not limited to, warranties, limitations of liability, indemnification obligations, human resources and subcontractor-related claims, patent and product liability, regulatory and compliance obligations, and data security and privacy. Also, the Company faces pressure from its customers for competitive pricing and contract terms. The Company also is subject to audits by various vendor partners and customers relating to purchases and sales under various contracts. In addition, the Company is subject to indemnification claims under various contracts.
The Company depends on having creditworthy customers to avoid an adverse impact on its operating results and financial condition.
If the credit quality of the Company’s customer base materially decreases, or if the Company experiences a material increase in its credit losses, the Company may find it difficult to continue to obtain the required capital for its business, and its operating results and financial condition may be harmed. In addition to the impact on the Company’s ability to attract capital, a material increase in its delinquency and default experience would itself have a material adverse effect on its business, operating results, and financial condition.
The Company may be liable for misuse of its customers’ or employees’ information.
Third-parties, such as hackers, could circumvent or sabotage the security practices and products used in the Company’s product and service offerings, and/or the security practices or products used in the Company’s internal IT systems, which could result in disclosure of sensitive or personal information, unauthorized procurement, or other business interruptions that could damage the Company’s reputation and disrupt its business. Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats.
If third-parties or the Company’s employees are able to maliciously penetrate its network security or otherwise misappropriate its customers’ information or employees’ personal information, or other information for which its customers may be responsible and for which the Company agrees to be responsible in connection with service contracts into which it may enter, or if the Company gives third-parties or its employees improper access to certain information, the Company could be subject to liability. This liability could include claims related to unauthorized access to devices on its network; unauthorized access to its customers’ networks, applications, data, devices, or software; and identity theft or other similar fraud-related claims. This liability could also include claims related to other misuses of or inappropriate access to personal information. Other liability could arise from claims alleging misrepresentation of the Company’s privacy and data security practices. Any such liability for misappropriation of information could decrease the Company’s profitability. In addition, federal and state agencies have been investigating various companies to determine whether they misused or inadequately secured information. The Company could incur additional expenses when new laws or regulations regarding the use of information are enacted, or if governmental agencies require the Company to substantially modify its privacy or security practices. The Company could fail to comply with applicable data privacy laws, the violation of which may result in audits, fines, penalties, litigation, or administrative enforcement actions with associated costs.
Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the security practices the Company uses to protect sensitive customer transaction information and employee information. A party who is able to circumvent the Company’s security measures could misappropriate proprietary information or cause interruptions in the Company’s operations. Further, third-parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords, or other information or otherwise compromise the security of the Company’s internal networks and/or its customers’ information. Since techniques used to obtain unauthorized access change frequently and the size and severity of security breaches are increasing, the Company may be unable to implement adequate preventative measures or timely identify or stop security breaches while they are occurring.
The Company may be required to expend significant capital and other resources to protect against security breaches or to remediate the subsequent risks and issues caused by such breaches. The Company’s security measures are designed to protect against security breaches, but its failure to prevent such security breaches could cause it to incur significant expense to investigate and respond to a security breach and correct any problems caused by any breach, subject it to liability, damage its reputation, and diminish the value of its brand. There can be no assurance that the limitations of liability in Company contracts would be enforceable or adequate or would otherwise protect the Company from any such liabilities or damages with respect to any particular claim. The Company also cannot be sure that its existing insurance coverage for errors and omissions or security breaches will continue to be available on acceptable terms or in sufficient amounts to cover one or more large claims, or that its insurers will not deny coverage as to any future claim. The successful assertion of one or more large claims against the Company that exceeds its available insurance coverage, or changes in its insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have an adverse effect on the Company’s business, financial condition, and results of operations.
Failure to comply with new laws or changes to existing laws may adversely impact the Company’s business.
The Company’s operations are subject to numerous laws and regulations in a number of areas including, but not limited to, laws relating to labor and employment, immigration, advertising, e-commerce, tax, imports and exports, data privacy, competition, the environment, health, and safety. Compliance with these laws and regulations may be onerous and expensive, and may not be consistent across jurisdictions, thereby further increasing the cost of compliance, the cost of doing business, and the risk of noncompliance. Though the Company has designed policies and procedures to comply with applicable laws and regulations, there can be no certainty that employees, contractors, or agents will fully comply with such policies and procedures.
We may face risks associated with our growing international operations that could adversely affect the Company.
The Company’s operations outside the United States include a Canadian division that was acquired as part of the Kandy acquisition. The Company also has employees in Mexico as well as representatives in the United Kingdom and Israel. Approximately 30% of the Company’s employees are based outside of the US. For Kandy, more than 60% of its employees are based outside of the US. In addition, the Company has plans to expand its geographic footprint both within and outside the US. Foreign operations are subject to risks that are inherent in operating within different legal, political and economic environments. Among the risks are changes in tax laws, possible limitations on foreign investment and income repatriation, government price or foreign exchange controls, and restrictions on currency exchange. Such operations may require significant management attention and financial resources to successfully grow. In addition, international operations are subject to other inherent risks, including:
● greater reliance on local partners;
● possible difficulties collecting accounts receivable and longer collection cycles;
● difficulties and costs of staffing and managing international operations;
● compliance with international trade, customs and export control regulations;
● foreign government regulations limiting or prohibiting potential sales or increasing the cost of doing business in such markets, including adverse tax policies, tariffs, customs regulations, trade protection measures, export quotas and qualifications to transact business;
● foreign currency controls, restrictions on repatriation of cash and changes in currency exchange rates;
● a possible need to adapt and localize our products for specific countries;
● our ability to effectively price our products in competitive international markets;
● political, social and economic instability, including as a result of possible volatility of global financial markets, health pandemics or epidemics and/or acts of war or terrorism;
● exchange rate fluctuations that could negatively impact our financial results; and risks associated with our use and reliance on research and development resources in global locations.
The departure of certain of the Company’s key executives or key members of its senior management team and/or failure to successfully implement a succession plan could adversely affect the Company’s business.
The departure of certain key executives or key members of the Company’s senior management team and/or failure to successfully implement a succession plan could disrupt the Company’s business and impair the execution of its business strategies. The Company’s executive officers are at the forefront of its strategic direction and focus, and therefore believes that its success depends in part upon its ability to retain the services of certain executive officers and senior members of its management team and also depends on its ability to successfully implement a succession plan. Therefore, the departure of any of such persons without replacement by qualified successors could adversely affect the Company’s ability to effectively manage its overall operations and successfully execute current or future business strategies and could cause instability within the Company’s workforce.
Changes in accounting standards, or the misapplication of current accounting standards, may adversely affect the Company’s future financial results.
The Company prepares its financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”). These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the Public Company Accounting Oversight Board (“PCAOB”), the SEC, the American Institute of Certified Public Accountants (“AICPA”) and various other bodies formed to interpret and create appropriate accounting policies. Periodic assessments required by current or new accounting standards may result in noncash charges and/or changes in presentation or disclosure. In addition, any change in accounting standards could influence the Company’s customers’ decision to purchase from the Company or finance transactions with the Company, which could have a significant adverse effect on the Company’s financial position or results of operations.
For example, a relatively new accounting standard requires the Company to determine if it is the principal or agent in transactions with its customers. In addition, the manner in which some of the Company’s products are bundled, and the voluminous number of products and services the Company sells can add to the level of complexity. Mischaracterization of these products and services could result in misapplication of revenue recognition policies. In addition, judgements and estimates are made in the application of GAAP, such as to determine the fair value of assets acquired, and liabilities assumed in business combinations, assessments of goodwill impairment, the estimating of the allowance for doubtful accounts and the determination of the cost of professional and managed services. If the Company is unable to accurately estimate such amounts, including the time-line for completion of contracts, the profitability of its contracts and its profits overall may be materially and adversely affected.
A natural disaster or other adverse occurrence at one of the Company’s facilities could damage its business.
As of December 31, 2021, the Company has one warehouse and a distribution facility in the U.S. If such facilities were to be seriously damaged by a natural disaster or other adverse occurrence, the Company could utilize another distribution center or third-party distributors to ship products to its customers. However, this may not be sufficient to avoid interruptions in the Company’s business and may not be enough to meet the needs of all of the Company’s customers and could cause increased operating costs. In addition, the Company operates two customer facing data centers which contain its Securities Operations Center and Network Operations Center. The Company also operates certain sales offices as well as leased facilities in Ottawa, North Carolina and Mexico, along with a number of rented spaces that are used as server locations, all of which may contain business-critical data and confidential customer information. A natural disaster or other adverse occurrence at any such locations could negatively impact its business, results of operations or cash flows.
The Company could be exposed to additional risks if it continues to make strategic investments or acquisitions or enter into alliances.
The Company may continue to pursue transactions, including strategic investments, acquisitions or alliances, in an effort to extend or complement its existing business. These types of transactions involve numerous business risks, including risks related to the suitability of transaction partners, negotiated terms, the diversion of management’s attention from other business concerns, new product or service offerings into areas in which the Company has limited experience, entries into new geographic markets, its ability to retain key coworkers, its ability to retain key business relationships and risks related to integrating acquired businesses. There can be no assurance that the intended benefits of the Company’s investments, acquisitions and alliances will be realized, or that those benefits will offset the numerous risks or unforeseen factors, any of which could adversely affect the Company’s business, results of operations or cash flows.
In addition, the Company’s financial results could be adversely affected by impairment charges if goodwill and/or intangible assets that are recorded at the acquisition date should later become impaired, which could occur if market and economic conditions deteriorate. At December 31, 2021, for assets not held for sale, the carrying value of the Company’s goodwill was $10.5 million.
The Company faces risks of claims from third-parties for intellectual property infringement, including counterfeit products, that could harm its business.
The Company may be subject to claims if products that it resells is considered to infringe on the intellectual property rights of third-parties and/or are considered to be counterfeit products. Also, the vendors of certain products or services that the Company resells may not provide the Company with indemnification for infringement. However, the Company’s customers may seek indemnification from the Company, which could cause the Company to incur substantial costs in defending infringement claims against itself and its customers. In the event of such claims, the Company and its customers may be required to obtain one or more licenses from third-parties, and the Company may not be able to obtain such licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain any such required license could significantly increase the Company’s expenses and/or adversely affect its ability to offer one or more of its services.
Risks Related to Our Securities and Recent Acquisitions
Nasdaq may delist our securities from quotation on its exchange which could limit investors’ ability to trade in our securities and subject us to additional trading restrictions.
Our common stock and public warrants are currently listed on the Nasdaq. There can be no assurance that we will continue to be able to meet Nasdaq’s listing standards with respect to our securities. If Nasdaq delists our common stock from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant material adverse consequences including:
● a limited availability of market quotations for our securities;
● reduced liquidity with respect to our securities;
● a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;
● a limited amount of news and analyst coverage for our company; and
● a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our common stock and public warrants are currently listed on the Nasdaq, our common stock and public warrants are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on the Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.
If the benefits of our Kandy acquisition do not meet the expectations of investors or securities analysts, the market price of our securities may decline.
If the benefits of our Kandy acquisition do not meet the expectations of investors or securities analysts, the market price of our securities may decline. Fluctuations in the price of our securities could contribute to the loss of all or part of your investment. Even though there is an active market for our securities, the trading price of our securities could be volatile and be subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Factors affecting the trading price of our securities may include:
● actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
● changes in the market’s expectations about our operating results;
● success of competitors;
● our operating results failing to meet the expectation of securities analysts or investors in a particular period;
● changes in financial estimates and recommendations by securities analysts concerning the Company or the IT industry in general;
● operating and stock price performance of other companies that investors deem comparable to the Company;
● our ability to market new and enhanced products on a timely basis;
● changes in laws and regulations affecting our business;
● our ability to meet compliance requirements;
● commencement of, or involvement in, litigation involving the Company;
● changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
● the volume of shares of our common stock available for public sale;
● any major change in our board of directors or management;
● sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and
● general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations, acts of war or terrorism and global health crises, including the COVID-19 pandemic.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and the Nasdaq in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
As an emerging growth company and a smaller reporting company, the Company is exempt from certain public company reporting requirements for so long as the Company qualifies as an emerging growth company and/or a smaller reporting company.
The Company qualifies as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, the Company is eligible for and has taken advantage of certain reporting exemptions, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements. The Company will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of its common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which it has total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which it has issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the first sale of its common stock in the 2017 initial public offering (“IPO”) which would be December 31, 2022. If the Company continues to expand its business through acquisitions and/or continues to grow revenues organically, we may cease to be an emerging growth company prior to December 31, 2022.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as such company is an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the same time that private companies adopt the new or revised standard.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our common stock held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter. Investors may find our common stock less attractive because we rely on these exemptions, which may result in a less active trading market for our common stock and/or could result in our stock price being more volatile. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
Our management and their affiliates control a substantial interest in us and thus may influence certain actions requiring a stockholder vote.
As of February 1, 2022, directors and executive officers beneficially owned 42.7% of our common stock, and four shareholders and their affiliates beneficially owned more than 5% of our common stock, of which three beneficially owned more than 10% of our common stock, including certain warrants. Accordingly, these individuals have considerable influence regarding the outcome of any transaction that requires stockholder approval. Furthermore, our board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. As a consequence of our “staggered board,” only a minority of our board of directors will be considered for election in any given year. In addition, our management and their affiliates, because of their ownership position, will have considerable influence regarding the outcome of such elections.
We may not be able to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act that are applicable to us.
As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. To comply with the requirements of being a public company, we are required to provide attestation on internal controls, and we may need to undertake various actions, such as implementing additional internal controls and procedures and hiring additional accounting or internal audit staff. Management may not be able to effectively and timely implement the required controls and procedures that adequately respond to the regulatory compliance and reporting requirements of such statutes. If we are not able to implement the additional requirements of Section 404 in a timely manner or with adequate compliance, the Company may not be able to assess whether its internal control over financial reporting is effective, which may subject it to adverse regulatory consequences and could harm investor confidence and the market price of our common stock. Further, as an emerging growth company, our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event that it is not satisfied with the level at which our controls are documented, designed or operating.
In addition, our management and other personnel will need to continue to devote a substantial amount of time to compliance initiatives applicable to public companies, including compliance with Section 404 and the evaluation of the effectiveness of our internal control over financial reporting within the prescribed timeframe.
Provisions in our Charter and Bylaws and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay for our common stock and could entrench management.
Our Charter and Bylaws contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. Our board of directors is divided into three classes, each of which serves for a term of three years with only one class of directors being elected in each year. As a result, at a given annual meeting only a minority of the board of directors may be considered for election. Since our “staggered board” may prevent our stockholders from replacing a majority of our board of directors at any given annual meeting, it may entrench management and discourage unsolicited stockholder proposals that may be in the best interests of stockholders. Moreover, our board of directors has the ability to designate the terms of and issuance of one or more new series of preferred stock.
We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations.
Our Charter provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our Charter provides, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel; provided that the exclusive forum provision will not apply to (i) suits brought to enforce any liability or duty created by the Exchange Act, (ii) any other claim for which the federal courts have exclusive jurisdiction, (iii) any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), (iv) any claim which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or (v) any claim for which the Court of Chancery does not have subject matter jurisdiction. Furthermore, our Charter also provides that unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such provision with respect to suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our Charter.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. Alternatively, if a court were to find the choice of forum provision contained in our Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
Sales of a substantial number of shares of our common stock in the public market, or the perception that they might occur, could have an adverse effect on the market price of our common stock.
As of December 31, 2021, we had various types of warrants to purchase shares of our common stock at various exercise prices. To the extent any such warrants are exercised, additional shares of common stock will be issued, which will result in dilution to our stockholders and an increase in the number of shares of common stock eligible for resale in the public market. In addition, pursuant to the Incentive Plan, equity incentive awards representing an aggregate of up to 987,000 shares of our common stock were available for issuance as of December 31, 2021. All of our outstanding warrants are subject to agreements requiring us to register for resale the underlying shares of common stock. Sales of substantial numbers of such shares in the public market or the fact that the warrants may be exercised, could adversely affect the market price of our common stock or on our ability to obtain future financing.
Because we have no current plans to pay cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends as a public company in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in our common stock unless you sell your shares of common stock for a price greater than that which you paid for it.
Future issuances of any equity securities may dilute the interests of our stockholders and decrease the trading price of our common stock.
Any future issuance of equity securities could dilute the interests of our stockholders and could substantially decrease the trading price of our common stock. We may issue equity or equity-linked securities in the future for a number of reasons, including to finance the Company’s operations and business strategy (including in connection with acquisitions and other transactions), to adjust the Company’s ratio of debt to equity, to satisfy its obligations upon the exercise of then-outstanding options or other equity-linked securities, if any, or for other reasons.
The periodic valuation of certain warrants could increase the volatility in our net income (loss).
The change in fair value of our warrants is the result of changes in the Company’s stock price and warrants outstanding at each reporting period and represents the mark-to-market fair value adjustments to the outstanding warrants. Significant changes in our stock price or number of warrants outstanding may adversely affect our net income (loss).

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties
We currently maintain our principal executive offices at 1720 Peachtree Street, Suite 629, Atlanta, GA 30309, along with several additional offices, all of which are leased.
As of December 31, 2021, locations leased by Computex (all of which were transferred as part of our sale of Computex in March 2022) were as follows:
● Computex Headquarters in Houston, Texas with approximately 5,222 square feet
● North Texas/DFW headquarters in Westlake, Texas with approximately 2,575 square feet
● Security Operations Center and Network Operations Center in Houston, Texas with approximately 15,000 square feet;
● Warehouse in Houston, Texas with approximately 5,175 square feet;
● Sales and training offices in: (i) Odessa, Texas; (ii) St. Petersburg, Florida; and (iii) Excelsior, Minnesota.
Locations leased by Kandy are as follows:
● Administrative offices located in the Brier Creek Office Parke, Wake County, North Carolina;
● A lab and related facilities in Ottawa and North Carolina;
● A facility in Mexico City; and
● Approximately 10 co-located data centers that are used as server locations.
We believe our current facilities meet the needs of our employee base and can accommodate our currently contemplated growth. Also, we believe that we will able to obtain suitable additional facilities on commercially reasonable terms to meet any future needs.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
There is no material litigation, arbitration, governmental proceeding or any other legal proceeding currently pending or known to be contemplated against any members of our management team in their capacity as such. From time to time, we may be involved in certain legal proceedings and claims, which arise in the ordinary course of business. Currently, we not aware of any matter or matters that, individually or in the aggregate, would have a material adverse effect on our results of operations, financial condition, or cash flow. If we should determine that an unfavorable outcome is probable on a claim and that the amount of probable loss is reasonably estimable, we will record an accrual for such claim or claims. If any such accrual is recorded, it could be material and could adversely impact our results of operations, financial condition, and cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Our equity securities trade on the Nasdaq Capital Market. The common stock and public warrants trade under the symbols “AVCT,” and “AVCTW,” respectively. Each such whole warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment as described in our registration statement. Only whole warrants are exercisable and only whole warrants trade. Such warrants will expire on April 7, 2025.
Holders of Record
On March 31, 2022, there were approximately 62 holders of record of our common stock and 4 holders of record of our publicly-traded warrants. Such numbers do not include beneficial owners holding our securities through nominee names.
Dividends
We have not paid any cash dividends on our common stock to date and do not anticipate declaring any dividends in the foreseeable future. The payment of cash dividends will be dependent upon our revenues, results, capital requirements and general financial condition and will be at the discretion of our board of directors. Currently, our board of directors plan to retain all earnings, if any, for use in our business operations.
Equity Compensation Plans
The following table provides certain information regarding our equity compensation plans:
Plan Category Number of
securities
to be issued
upon
exercise of
outstanding
rights Weighted-average
exercise price of
outstanding
rights Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
Equity compensation plans approved by security holders 5,794,500 - 987,000
Equity compensation plans not approved by security holders - - -
Total 5,794,500 - 987,000
Additional information is included in Note 13 in the Notes to our Consolidated Financial Statements.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements (including the notes thereto) contained elsewhere in this report. Certain information contained in this discussion and analysis includes forward-looking statements that involve risk and uncertainties. You are therefore encouraged to read the section in this annual report on Form 10-K titled, “CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.”
Overview
We are a Delaware-incorporated entity with operating locations in Ottawa, North Carolina and Mexico City as of March 31, 2022.
On April 7, 2020, AVCT (formerly known as Pensare Acquisition Corp.), consummated the Computex Business Combination in which it acquired Computex, a private operating company that does business as Computex Technology Solutions. In connection with the Computex Business Combination, the Company changed its name to American Virtual Cloud Technologies, Inc.
On December 1, 2020, we acquired Kandy from Ribbon, by acquiring certain assets, assuming certain liabilities and acquiring all of the outstanding interests of Kandy Communications LLC.
Computex is a leading multi-brand technology solutions provider to large global customers, providing a comprehensive and integrated set of technology solutions, through its extensive hardware, software and value-added service offerings. Computex designs best-fit solutions, and with the help of leading vendors in the industry, helps its customers with the procurement of suitable hardware and software that are appropriate for their specific needs. With primary operating locations in Minnesota, Michigan, Florida and Texas, services offered by Computex include directory and messaging, enterprise networking, cybersecurity, collaboration, data center services, integration, storage, backup, virtualization, converged infrastructures and UCaaS.
Kandy, a provider of cloud-based enterprise services, globally deploys a white-label, carrier-grade cloud-based platform for UCaaS, CPaaS and CCaaS for mid-market and enterprise customers across a proprietary multi-tenant, highly scalable cloud platform. The Kandy platform also includes pre-built customer engagement tools, based on WebRTC technology, known as Kandy Wrappers, and provides white-labeled services to a variety of customers including communications service providers and systems integrators. With Kandy, companies can quickly embed real-time communications capabilities into their existing applications and business processes.
Recent developments
On September 16, 2021, the Company announced that as a result of a decision by the Company’s Board of Directors to explore strategic alternatives previously announced on April 7, 2021, the Board had authorized the Company to focus its strategy on acquisitions and organic growth in its cloud technologies business as well as to explore strategic opportunities for its IT solutions business, including the divestiture of Computex. The Company believed that the change would allow it to optimize resource allocation, focus on core competencies, and improve its ability to invest in areas of maximal growth potential.
On December 2, 2021, the Company entered into the Credit Agreement with Monroe for a $27.0 million Credit Facility, part of which was used to pay off amounts owing under the Prior Credit Agreement which was assumed as part of the Computex Business Combination. The remainder of the proceeds from the Credit Facility were scheduled to be used for working capital and general business purposes. However, on March 1, 2022, all amounts owing under the Credit Agreement were repaid from the proceeds of a securities sale executed on March 1, 2022 and cash on hand. The terms of the Credit Agreement are discussed in Note 9 in the Notes to the Consolidated Financial Statements included elsewhere in this Form 10-K.
On January 27, 2022, the Company announced that it had executed a definitive agreement to sell Computex and on March 15, 2022, the sale of Computex was consummated, completing the Company’s transition to a pure-play cloud communications and collaboration company, centered on the Kandy platform. As a result, Computex was classified as held for sale as of December 31, 2021 and its operations are classified as discontinued operations. In connection with the planned sale of Computex, we recorded a noncash goodwill impairment charge of $32.1 million during Fiscal 2021 which represented the excess of the carrying value of the Computex reporting unit over the expected sale proceeds less costs to sell. Net proceeds from the sale of Computex, after payment of closing obligations and certain indebtedness, are being used for working capital and general business purposes.
In addition, as more fully discussed in Note 10 in the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K, during the fourth quarter of Fiscal 2021, the Company completed the sale of certain securities, including the sale of common stock, preferred stock and warrants. In connection with the sale of these securities, the Company also completed certain share registrations. Two of the five series of warrants were exercised soon after they were issued resulting in proceeds of approximately $5.0 million during Fiscal 2021.
Subsequent to December 31, 2021, and as more fully discussed in Note 18 in the Notes to our Consolidated Financial Statements, the Company sold additional securities. Also, the Company repaid amounts that were outstanding under the Credit Agreement and closed on the sale of Computex.
Growth strategy
The acquisition of Kandy has given us the opportunity to provide a full suite of UCaaS, CPaaS, and CCaaS products to serve the rapidly growing cloud communications market. Customers today demand a highly reliable, secure, and scalable communications platform along with a world class customer experience.
With demand for cloud technology increasing, we believe that the already sizable total addressable market (TAM) for cloud communications is on track to continue to expand and we believe that we are positioned to monetize mega trends in enterprise cloud communications, gain market share as a premier white-label cloud communications provider, checking the CPaaS, CCaaS & UCaaS boxes, while also capitalizing on our direct to enterprise capabilities (for example, Tier 1 support) to sell through our partners or sell directly.
Certain areas of our growth plan, which also includes continued investment in research and development, are as follows:
● Channel (white label) - Target technology providers, such as Service Providers (SPs), Resellers, Independent Software Vendors (ISVs), and System Integrators (SIs) through
o Strategic Alliances with companies looking to co-invest to monetize cloud communication technology; and
o Our partners that are looking to white label or resell cloud technologies, which we believe offer significant opportunity to grow revenue with existing partners while identifying new ones.
● Direct to Enterprise - Target enterprises looking to deploy their own cloud technology using APIs/SDKs (application programming interface/software development kit) and/or looking to enable cloud communications to support their business and customer communications and interactions either
o Organically - By targeting select vertical markets with high growth potential for example, government, retail, financial, & healthcare; or
o Inorganically - By making selective acquisitions to expand the use of the Kandy platform.
Key trends affecting our results of operations
The following are key trends that we believe can positively impact our results of operations:
● The acceleration of digital transformation
● The change in how people work, including the “work from anywhere” mindset
● The increased complexity in mid & large enterprises and the desire by enterprises for integrated internal and external communications for UCaaS, CPaaS and CCaaS
● The demand for services similar to WebEx, Teams, & Zoom and partners that can add to and/or complement such tools and players
● The trend towards CPaaS technology - Product developers & Independent Software Vendors (ISVs) are increasingly seen as the influencers
● The general trend towards movement to the cloud
● The lack of sufficient internal IT resources at mid-sized and large enterprises, and the scarcity of IT personnel in certain high-demand disciplines
● Disruptive technologies that are creating complexity and challenges for customers and vendors
● The recognition that certain IT services provide the opportunity of funding via recurring payments over a period of time, rather than large upfront payments
● The increasing use of multi-cloud strategies, whereby cloud architectures and cloud-enabled frameworks, whether public, private, or hybrid, provide the core foundation of modern IT
● The explosive growth in remote workforce needs.
Covid-19
COVID-19 continues to significantly impact local, regional, and global economies, businesses, supply chains, production and sales across a range of industries. The extent of its impact on our operational and financial performance is uncertain and difficult to predict and we remain cautious about the global recovery. To protect the health and safety of our employees, our daily execution has evolved into a largely virtual model. However, we have found ways to continue to engage with and assist our customers and partners as they work to navigate the current environment. We will continue to monitor the current environment and may take further actions that may be required by federal, state or local authorities or that we determine to be in the interests of our employees, customers, and partners.
Nature of revenue categories discussed below:
Hardware revenue is generated from the sale of data storage, desktops, servers, and other hardware which are sourced from a network of leading manufacturers.
Third party software and maintenance revenue include licensing, licensing management, software solutions and other services, which typically are delivered as part of a complete technology solution. Such solutions range from configuration services for computer devices to fully integrated solutions such as virtualization, collaboration, security, mobility, data center optimization and cloud computing. Such services also include complementary services including installations, warranty services and certain managed services such as remote network and data center monitoring.
Professional and managed services revenue include managed IT services, virtualization, storage, networking and data center services. These services include customized solutions for business continuity, back-up and recovery, capacity on-demand, regulatory compliance and data center best practice methodologies as well as IaaS and SaaS. These solutions are used by customers to optimize investments in IT infrastructure and data centers.
Cloud subscription and software revenue include subscriptions to the Company’s cloud-based technology platform.
Financial statement presentation and results of operations
The consolidated financial statements of the Company include the accounts of AVCT and its wholly-owned subsidiaries. As discussed in Note 3 of the Notes to the Consolidated Financial Statements, the financial position, results of operations and cash flows described herein for the dates and periods prior to April 7, 2020 relate to the operations of Computex. The historical financial information of AVCT prior to the Computex Business Combination (a special purpose acquisition company, or “SPAC”) has not been reflected in the Predecessor financial statements as such historical amounts have been determined to be not useful information to a user of the financial statements.
To distinguish between the different bases of accounting, due to the Computex Business Combination that occurred on April 7, 2020, certain tables in this quarterly report include a blackline between certain columns to separate: (1) the periods prior to the closing date of April 7, 2020 (“Predecessor”) and (2) the period that started on April 7, 2020 (“Successor”). We refer to the periods before April 7, 2020 as the “Predecessor” periods and refer to the periods that started on April 7, 2020 as the “Successor” periods.
For the reasons discussed above, management believes it remains useful to review the operating results for Fiscal 2021 with the operating results for the year ended December 31, 2020. Accordingly, in the discussion below, for purposes of a year over year comparison, the financial information for the period January 1, 2020 through April 6, 2020 is combined with the financial information for the period April 7, 2020 through December 31, 2020 and, together, is referred to as the “S/P combined 2020 Year.” Accordingly, in addition to presenting our results of operations in our consolidated financial statements in accordance with GAAP, which also include the identification of continuing and discontinued operations, the tables and certain discussions below present the non-GAAP combined results for the year ended December 31, 2020, which also combines continuing and discontinued operations.
FY 2021 versus the S/P Combined 2020 Year (in thousands)
Year April 7,
January 1,
S/P
Ended through through Combined
December 31,
December 31,
April 6,
Year
(Non-GAAP) (Non-GAAP) Predecessor (Non-GAAP)
Revenues:
Hardware $ 55,551 $ 38,334 $ 10,587 $ 48,921
Third party software and maintenance 7,611 4,341 1,459 5,800
Managed and professional services 35,915 23,851 6,880 30,731
Cloud subscription and software 16,930 1,383 - 1,383
Other 779
Total revenues 116,985 68,577 19,037 87,614
Cost of revenue 83,678 47,326 12,426 59,752
Gross profit 33,307 21,251 6,611 27,862
Impairment of goodwill and intangible assets 61,095 - - -
Research and development 17,916 1,285 - 1,285
Selling, general and administrative 67,252 32,541 7,835 40,376
Loss from operations (112,956 ) (12,575 ) (1,224 ) (13,799 )
Other (expense) income
Gain on extinguishment of debt 4,177 - - -
Change in fair value of warrant liabilities (19,608 ) (3,625 ) - (3,625 )
Interest expense (1) (32,857 ) (9,316 ) (384 ) (9,700 )
Other (expense) income (71 )
Total other expenses (48,359 ) (12,931 ) (353 ) (13,284 )
Loss before income taxes (161,315 ) (25,506 ) (1,577 ) (27,083 )
Provision for income taxes (71 ) (70 ) (12 ) (82 )
Net loss $ (161,386 ) $ (25,576 ) $ (1,589 ) $ (27,165 )
(1) Interest expense in the year ended December 31, 2021 and the period April 7, 2020 through December 31, 2020 include related party interest of $14,958 and $6,899, respectively.
Net loss
Net loss for Fiscal 2021 was $161.4 million compared with $27.2 million for the S/P Combined 2020 Year. The increase in the net loss for Fiscal 2021 includes an increase in noncash charges of $99.0 million consisting of the following:
Fiscal 2021 S/P Combined
2020 Year Increase
Impairment of goodwill and other intangible assets $ 61,095 $ - $ 61,095
Depreciation 4,637 3,713
Amortization of intangible assets 5,183 2,257 2,926
Amortization of Convertible Debenture discount 9,253 4,717 4,536
Interest on convertible debt paid-in-kind 8,257 3,695 4,562
Gain on extinguishment of debt (4,177 ) - (4,177 )
Share-based compensation 8,629 2,489 6,140
Change in fair value of warrant liabilities 19,608 3,625 15,983
Deferred income taxes (9 ) (19 )
Amortization and write-off of deferred financing costs 1,172
Noncash financing fees 5,948 - 5,948
Loss on disposal of property and equipment -
$ 119,781 $ 20,738 $ 99,043
Discussed below are the revenue and expense factors that primarily contributed to the net loss change, including additional discussion of the noncash charges.
Hardware revenue
Hardware revenue was $55.6 million in Fiscal 2021 compared with $48.9 million in the S/P Combined 2020 Year, an increase of $6.6 million, or 13.6%. We attribute this increase to the impact of COVID-19 due to increased demand for equipment in the manufacturing, logistics and public sectors in the earlier part of 2021, as more customers transitioned to remote work. There was some normalization of the demand for hardware in the latter months of 2021, however, the positive impact of the higher demand in the earlier months of 2021 more than offset the impact that the flattening of hardware demand in the latter months of Fiscal 2021 had on overall Fiscal 2021 demand. The gross margin on hardware revenue was 21.9% for Fiscal 2021, a 120-basis points decrease from the 23.1% recorded in the S/P Combined 2020 Year. We attribute the basis points decrease to a shift in product mix towards lower margin products during the period.
Third party software and maintenance revenue
Revenues from software and maintenance, which are recorded net of direct expenses, increased to $7.6 million in Fiscal 2021 from $5.8 million in the S/P Combined 2020 Year, an increase of 31.2% or $1.8 million. We attribute this increase to continued customer penetration in the retail and hospitality sector. Since this revenue is recorded net, the revenue is also the gross margin.
Managed and professional services revenue
Managed and professional services revenues increased $5.2 million, or 16.9%, to $35.9 million in Fiscal 2021 from $30.7 million in the S/P Combined 2020 Year. Of the $5.2 million increase, $2.8 million is attributable to the Kandy acquisition. We attribute the remaining increase to increasing demand for infrastructure assessment, cyber security and managed services monitoring at our Computex segment, primarily in the 1st half of the year. Though revenues from managed and professional services in the Computex segment increased $2.4 million, the margin decreased from 33.4% to 29.0 %, a decrease of 440 basis points. We attribute this decrease to increased investments in direct labor and software tools to support an increasing customer base as well as to the normalization of demand for certain services that were in higher demand in 2020 due to Covid-19.
Cloud subscription and software revenue
Cloud subscription and software revenue was $16.9 million in Fiscal 2021 and represents revenue from subscriptions to the Company’s cloud-based technology platform as well as revenue from the Company’s on-premise software, both of which are offered by the Company’s recently-acquired Kandy segment, which the Company acquired in December 2020.
Other revenue
Other revenue, which consists primarily of freight and reimbursables, including travel, meals and entertainment, was $1.0 million and $0.8 million for Fiscal 2021 and the S/P Combined 2020 Year, respectively. By its nature, this type of revenue fluctuates depending on the revenue of the other product lines.
Total revenue, cost of revenue and gross margin
Aggregate revenue for the five product lines together was $117.0 million in Fiscal 2021, compared with $87.6 million in the S/P Combined 2020 Year, an increase of $29.4 million, or 33.5%. Of the $29.4 million revenue increase, $18.4 million was related to the Kandy acquisition. The remainder of the increase is due to an increase in each of the four product lines at the Computex segment.
Aggregate gross profit was also up, reflecting an increase of $5.4 million, or 19.5%, due in part to the Kandy acquisition, which contributed $3.4 million to the increase. The remaining increase in aggregate gross profit was due primarily to the gross profit increase in software and maintenance revenue.
Though gross profit increased, aggregate gross margin percent decreased from 31.8% in the S/P Combined 2020 Year to 28.5%, a 330-basis points decrease, primarily due to the lower margin recorded by Kandy vis-à-vis Computex. Aggregate gross margin percent for the Computex segment was 30.4% for Fiscal 2021 compared with 31.8% for the S/P Combined 2020 Year, which was only a 140-basis point decrease. Gross margin at our Kandy segment was 19.3% in Fiscal 2021 as the Company continues to ramp up costs in the segment as part of its strategic investment in the Kandy segment. The 140-basis point decrease in margin at our Computex segment was due primarily to increased investments in direct labor and telecommunications in the managed and professional services line of business.
Impairment of goodwill and other intangible assets
The noncash impairment charges recorded in Fiscal 2021 are discussed in Notes 1 and 3 of the Notes to the Consolidated Financial Statements and relates to goodwill of the Computex reporting unit, goodwill of the Kandy reporting unit and Kandy’s other intangible assets. In connection with the announced sale of Computex, the Company compared the expected proceeds less costs to sell with the carrying value of the reporting unit and in connection therewith recorded a noncash goodwill impairment charge of $32.1 million during Fiscal 2021. The remaining impairment charges relate to Kandy’s goodwill and other intangible assets, which resulted from a quantitative impairment analysis during the Company’s annual impairment assessment, effective December 2021, after an evaluation based on certain factors considered to be triggering events, such as changes in Kandy’s forecasts. As a result of the quantitative assessment, the Company recorded an impairment charge to goodwill and intangible assets of $13.7 million and $15.3 million, respectively.
Research and development
The Company began recognizing research and development expenses when it acquired Kandy in December 2020. In Fiscal 2021, research and development expenses were $17.9 million and represent research and development costs related to certain proprietary software incurred in an agile software environment with releases broken down into several iterations called sprints involving short cycles of development (typically 4-6 weeks in duration) in which the research and development teams create potentially sellable products. Currently, such costs are expensed as incurred, and include personnel-related costs, depreciation related to engineering and test equipment, allocated costs of facilities and information technology, outside services and consultants, supplies, software tools and product certification.
Selling, general and administrative expenses
Selling, general and administrative expenses for Fiscal 2021 and the S/P Combined 2020 Year consisted of the components in the following table (in thousands):
Year S/P
Ended Combined
December 31,
Year Increase
(decrease)
(Non-GAAP) (Non-GAAP)
Salaries, benefits, subcontracting & personnel administration costs $ 45,131 $ 27,379 $ 17,752
Building occupancy costs, utilities, office supplies & repairs and maintenance 3,207 2,002 1,205
Depreciation and amortization 3,268 3,082
Dues, subscriptions and memberships 1,717
Sales and marketing 3,558 2,831
Professional fees 6,113 4,608 1,505
Insurance 2,195 1,326
Other 2,063 1,706
$ 67,252 $ 40,376 $ 26,876
Selling, general and administrative expenses increased $26.9 million, primarily as a result of added expenses related to the Kandy acquisition ($15.2 million of the increase), certain termination expenses recorded in Fiscal 2021, increased stock compensation expenses and increased insurance costs. The termination expenses, which were approximately $3.2 million (excluding stock compensation expenses related to the terminations), were primarily recorded in July 2021 and were primarily due to a reduction in the Company’s corporate workforce. Stock compensation expenses included in selling, administrative and general expenses (excluding those related to Kandy) increased approximately $2.9 million in Fiscal 2021 compared with the S/P Combined 2020 Year due to certain amounts related to the terminations as well as to an increase in the number of awardees. Increased insurance expenses are related to the Company’s expanded public company activities.
Gain on extinguishment of debt
The gain on extinguishment of debt of $4.2 million in Fiscal 2021 was due to the forgiveness, in July 2021, of a loan that was granted under the Paycheck Protection Program (“PPP loan) plus related accrued interest. Under the terms of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), PPP loan recipients had the option to apply for forgiveness for all or a portion of such loans, if the loan was used for eligible purposes, including to fund payroll costs.
Change in fair value of warrant liabilities
The change in the fair value of warrant liabilities in FY 2021 and the S/P Combined 2020 Year represent mark-to-market fair value adjustments related to certain warrants, and primarily fluctuate due to changes in and the volatility of the Company’s stock price. The income statement amounts in Fiscal 2021 and the S/P Combined 2020 Year consisted of fair value adjustments related to the following:
Year S/P
Ended Combined
December 31,
Year
Successor (Non-GAAP)
Series A Warrants $ 7,834 $ -
Series B Warrants 2,296 -
Series C Warrants (675 ) -
Series D Warrants 9,688 -
Monroe Warrants 2,394 -
2017 Private Placement and EBC Warrants (1,929 ) 3,625
$ 19,608 $ 3,625
Interest expense
Interest expense in Fiscal 2021 increased compared with the S/P Combined 2020 Year, due primarily to interest and financing fees related to the new Credit Agreement entered into with Monroe, amendment fees related to certain warrants and the related party note as well as to an increase in interest on Debentures due to new issuances in Fiscal 2021 and the compounding effect of paid-in-kind interest on such Debentures. The Debentures were converted to common stock during the 3rd quarter of 2021 (on September 8, 2021), but prior to conversion, bore interest at the rate of 10.00% per annum compounded quarterly. Interest expense, which was also impacted by increases in Debenture discount amortization charges consisted of the following (in thousands):
Year S/P
Ended Combined
December 31,
Year
Successor (Non-GAAP)
Amortization of debenture discount $ 9,253 $ 4,717
Debenture interest paid-in-kind 8,257 3,695
Amortization of debenture deferred fees -
Interest on term note and line of credit - Prior Credit Agreement 1,028 1,122
Interest and financing fees - Monroe 9,131 -
Interest and amendment fee on related party promissory note 1,986 -
Hudson bay waiver fee 2,000 -
Placement agent fees -
Other
$ 32,857 $ 9,700
Benefit/provision for income taxes
For all periods presented, the benefit/provision for income taxes consists of provisions for state taxes. The effective tax rates differ from the federal statutory rate as a result of certain expenses being deductible for financial reporting purposes that are not deductible for tax purposes, the existence of research and development tax credits, operating loss carryforwards, and adjustments to previously recorded deferred tax assets and liabilities related to the enactment of the Tax Cuts and Jobs Act in 2017. For the Successor periods, the benefit/provision for income taxes also reflects the impact of amortization of intangible assets recognized as of the Computex Closing Date and the Kandy Closing Date.
Liquidity and Capital Resources
Overview
Historically, the Company’s primary sources of liquidity have been cash and cash equivalents, cash flows from operations (when available) and cash flows from financing activities, including funding under the Prior Credit Agreement. From time to time, the Company may also choose to access the debt and equity markets to fund acquisitions to diversify its capital sources. The Company’s current principal capital requirements are to fund working capital and make investments in line with its business strategy. At December 31, 2021, the Company had unrestricted cash of $35.3 million in its operating bank account compared with $9.9 million at December 31, 2020. At December 31, 2021, there was a working capital deficit (excess of current liabilities over current assets) of $7.6 million, primarily as a result of the classification of certain debt as current, primarily, the Credit Agreement and a promissory note. The working capital deficit of $7.6 million reflects an improvement over the previous year’s working capital deficit of $18.4 million as of December 31, 2020.
The cash balance and working capital position as of December 31, 2021 were impacted by the following events or actions during Fiscal 2021, which together contributed to the net improvements discussed above:
● A cash capital raise of $24.0 million via the sale of Units (consisting of Debentures and certain penny warrants) to fund expansion, capital expenditures and working capital. Pursuant to the terms of the Debentures, on September 8, 2021, the Debentures with related accrued interest were converted to shares of common stock. See Note 10 of the Notes to the Consolidated Financial Statements for additional information.
● The forgiveness, in July 2021, of the $4.1 million that was payable under the PPP loan. Under the terms of the CARES Act, PPP loan recipients had the option to apply for forgiveness for all or a portion of such loans, if the loan was used for eligible purposes, including to fund payroll costs.
● The entry into the Credit Agreement with Monroe, on December 2, 2021, for a $27 million term loan facility, to fund working capital, other general business activities and pay off amounts owing under the Prior Credit Agreement that was assumed as part of the Computex Business Combination. The payoff of amounts owing under the Prior Credit Agreement, which consisted of a line of credit balance and a term loan, was $12.8 million. The Credit Agreement matures on December 2, 2022, at the latest, or on the date that Computex is sold, at the earliest. Interest on the Credit agreement is payable monthly at the rate of 12% per annum. However, the lenders are guaranteed a minimum return of $7.3 million. Monroe was also granted warrants to purchase 2.5 million shares of the Company’s common stock for an exercise price of $0.0001 per share (the “Monroe Warrants”). See Notes 9 and 10 in the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K for further discussion of the terms of the Credit Agreement and the Monroe Warrants, respectively.
● The issuance of a $5.0 million subordinated promissory note (the “2021 Note”), on September 16, 2021, which was secured by a shareholder that owns more than five percent of the Company’s common stock. The 2021 Note, as amended, was scheduled to mature on the earliest of (a) September 16, 2022, (b) the Company’s consummation of a debt financing resulting in the receipt of gross proceeds of not less than $20.0 million, (c) the Company’s consummation of primary sales of registered equity securities resulting in receipt of gross proceeds of not less than $20.0 million, (d) the Company’s consummation of the sale of Computex and (e) the date of any event of default. The 2021 Note was subordinate to any amounts owed under the Credit Agreement and had a minimum return of 25%. The 2021 Note became due on March 1, 2022 due to the early pay off of the Credit Agreement. However, for a waiver fee of $250,000, the lender extended the maturity date to May 1, 2022. The 2021 Note was paid in full on March 15, 2022 from proceeds received from the sale of Computex.
● The receipt of gross proceeds of $5.0 million (before deduction of offering costs), in November 2021, from the sale to an institutional investor in a registered direct offering, of 2,500,000 shares (the “Registered Shares”) of common stock at a purchase price of $2.00 per share. At the closing of such sale, the Company issued to the buyer, in addition to the 2,500,000 shares of the Company’s common stock: (i) a warrant to purchase up to 5,000,000 shares of the Company’s common stock (the “Series A Warrant”) and (ii) a warrant to purchase up to 2,500,000 shares of the Company’s common stock (the “Series B Warrant”). The Series A Warrant and the Series B Warrant were each exercisable at an initial exercise price of $2.00. However, the number of such warrants were later increased, the exercise price of each was reduced to $1.50 per share and the buyer received warrants to purchase 1,500,000 shares of the Company’s common stock (the “Series C Warrants”) at an exercise price of $0.001 per share. Subsequent to December 31, 2021, the exercise price of the Series A and Series B Warrants were reduced to $1.00 per share (with a proportional increase to the number of shares of the Company’s common stock issuable upon exercise of such warrants). See Note 10 of the Notes to the Consolidated Financial Statements for further discussion of the Series A and Series B warrants, including a discussion of the modifications that occurred during Fiscal 2021. In December, the Company received an additional $5.0 million in gross proceeds from the subsequent exercise of the Series B Warrants.
● The repayment of a subordinated note of $0.5 million along with related accrued interest in November 2021.
● The receipt of gross proceeds of $25.0 million (before deduction of offering costs), in December 2021, from the sale of securities consisting of 7,840,000 shares of common stock, 12,456 units of convertible preferred stock and certain Series D Warrants to purchase up to 15,625,000 shares of the Company’s common stock at an exercise price of $2.00 per share. See Note 10 of the Notes to the Consolidated Financial Statements for further discussion of such securities.
In July 2021, prior to the sale of the securities discussed above, the Company filed a registration statement on Form S-3 containing the following two prospectuses:
● a base prospectus for the sale and issuance by us of up to $100 million of our common stock, preferred stock, warrants, subscriptions rights, debt securities and/or units; and
● a resale prospectus covering the resale by certain selling stockholders of up to 67,797,774 shares of common stock.
The Company believes that current cash balances as well as proceeds from debt and equity offerings will provide sufficient liquidity to fund operations for at least one year after the date the financial statements are issued. However, there is no assurance that future funding will be available if and when required or at terms acceptable to the Company. This projection is based on the Company’s current expectations regarding product sales and service, cost structure, cash burn rate and other operating assumptions.
Successor cash flows (Fiscal 2021 and the period April 7, 2020 through December 31, 2020)
Operating activities
Net cash used in continuing operating activities was $47.4 million in Fiscal 2021, primarily consisting of cash used in Kandy’s operating activities, including its research and development activities, as well as cash used in the operating activities of the corporate division.
Net cash used in continuing operating activities was $14.6 million for the period April 7, 2020 through December 31, 2020 and primarily consisted of cash used in the operating activities of the corporate division. Net cash used in continuing operating activities was also impacted by lower current liabilities at December 31, 2020 compared with April 6, 2020, as a substantial portion of the current liabilities at April 6, 2020 was converted to common stock and Debentures (and therefore reflected as increases in cash provided by financing activities). Current liabilities of $2.6 million at April 6, 2020 were converted to Debentures and $1.5 million was converted to common stock.
Investing activities
Cash used in continuing investing activities of $3.9 million, in Fiscal 2021, were primarily for capital purchases.
Cash provided by continuing investing activities was $0.2 million in the period April 7, 2020 through December 31, 2020 and primarily consisted of cash from the Computex acquisition.
Financing activities
Cash provided by continuing financing activities was $71.9 million in Fiscal 2021 and was generated from the issuance of common stock of $27.8 million, proceeds of $5.0 million from the exercise of certain warrants, proceeds from the issuance of Debentures of $24.0 million, proceeds of $30.1 million from the issuance of debt (net of deferred financing fees), partially offset by debt repayments of $13.9 million, and payments for shares withheld of $1.1 million related to employee tax withholding associated with the delivery of vested RSUs under the Company’s equity incentive plan.
Cash provided by continuing financing activities was $23.6 million in the period April 7, 2020 through December 31, 2020, and was generated from the issuance of $23.1 million in Debentures and $1.5 million from the issuance of common stock, partially offset by the redemption of shares held in trust of $1.0 million.
Off-Balance Sheet Arrangements
As of December 31, 2021, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and had not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Critical Accounting Policies, Judgements and Estimates
This discussion of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures included elsewhere in this annual report. The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could differ materially from those estimates. We believe the accounting policies that involve the most significant judgments and estimates used in the preparation of the consolidated financial statements include those relating to revenue recognition, accounting for warrants, accounting for income taxes, accounting for business combinations, the recognition and impairment evaluation relating to tangible and intangible assets, including goodwill, and accounting for share-based compensation. We discuss some of these policies below. The ones not discussed below are discussed in Note 3 of the Notes to the Consolidated Financial Statements.
Revenue recognition
Revenue from contracts with customers are not recorded until the Company has the approval and commitment from the parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and collectability of the consideration is probable. The Company also evaluates the following indicators, amongst others, when determining whether it is acting as a principal in the transaction (and therefore whether to record revenue on a gross basis): (i) whether the Company is primarily responsible for fulfilling the promise to provide the specified good or service, (ii) whether the Company has the inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) whether the Company has the discretion to establish the price for the specified good or service. If the terms of a transaction do not indicate that the Company is acting as a principal in the transaction, then the Company is acting as an agent in the transaction and therefore, the associated revenue is recognized on a net basis (that is revenue net of costs).
Revenue is recognized once control passes to the customer. The following indicators are evaluated in determining when control has passed to the customer: (i) whether the Company has a right to payment for the product or service, (ii) whether the customer has legal title to the product, (iii) whether the Company has transferred physical possession of the product to the customer, (iv) whether the customer has the significant risk and rewards of ownership of the product and (v) whether the customer has accepted the product. The Company’s products can be delivered to customers in a variety of ways, including (i) physical shipment from the Company’s warehouse, (ii) via drop-shipment by the vendor or supplier or (iii) via electronic delivery of keys for software licenses. The Company’s shipping terms typically allow for the Company to recognize revenue when the product is shipped to the customer’s location.
When an arrangement contains more than one performance obligation, the Company will allocate the transaction price to each performance obligation on a relative standalone selling price basis. The Company utilizes the observable price of goods and services when they are sold separately to similar customers in order to estimate standalone selling price.
Hardware
Revenue from the sale of hardware is recognized on a gross basis, as the Company is deemed to be acting as the principal in these transactions. The selling price to the customer is recorded as revenue and the acquisition cost is recorded within cost of revenue. The Company recognizes revenue from these transactions when control has passed to the customer, which is usually upon shipment.
In some instances, the customer agrees to buy the product from the Company, but requests delivery at a later date, commonly known as a bill-and-hold arrangement. For these transactions, the Company deems that control passes to the customer when the product is ready for delivery. The Company classifies such products as products ready for delivery when the customer is in possession of a signed agreement, the significant risk and rewards for the product has passed to the customer, the customer has the ability to direct the asset, the product has been set aside specifically for the customer and the Company cannot redirect the product for the benefit of another customer.
In drop-shipment arrangements, whereby the Company arranges for the vendor to deliver the product directly to the customer without the inventory first being held at its warehouses, the Company considers itself to be the principal and therefore, recognizes the related revenue on a gross basis.
Third party software
Revenues from most software license sales are recognized as a single performance obligation on a net basis, as the Company is deemed to be acting as an agent in these transactions. Revenues in these instances are recognized at the point the software license is delivered to the customer. Generally, software licenses are sold with accompanying third-party delivered software support, which is a product that allows customers to upgrade, at no additional cost, to the latest technology if new capabilities are introduced during the period that the software support is in effect. The Company evaluates whether the software support is a separate performance obligation by assessing whether the third-party delivered software support is critical or essential to the core functionality of the software itself. This involves considering whether the software provides its original intended functionality to the customer without the updates, whether the customer would ascribe a higher value to the upgrades versus the up-front deliverable, whether the customer would expect frequent intelligence updates to the software (such as updates that maintain the original functionality), and whether the customer chooses to not delay or always install upgrades. If the Company determines that the accompanying third-party delivered software support is critical or essential to the core functionality of the software license, the software license and the accompanying third-party delivered software support are recognized as a single performance obligation. The value of the product is primarily based on the accompanying support delivered by a third-party, and therefore the Company is acting as an agent in these transactions and therefore, recognizes the associated revenue on a net basis at the point that the associated software license is delivered to the customer.
Third party maintenance
The Company is deemed to be the agent in the sale of third-party maintenance, software support and services, as the third-party controls the service until it is transferred to the customer. In these instances, the Company recognizes the revenue on a net basis equal to the selling price to the customer less the acquisition costs. Such revenue is recognized when the customer and vendor accept the terms and conditions of the arrangement.
Managed and professional services
Professional services offered by the Company include assessments, project management, staging, configuration, customer training and integration. Managed services offerings range from monitoring and notification to a fully outsourced network management solution. In these arrangements, the Company satisfies the performance obligations and recognizes revenue over time.
Such professional services are provided under both time and materials and fixed price contracts. When services are provided on a time and materials basis, the Company recognizes revenues at agreed-upon billing rates as services are performed. When services are provided on a fixed fee basis, the Company recognizes revenues over time in proportion to the Company’s progress towards satisfaction of the performance obligation.
In arrangements for managed services, the Company’s arrangement is typically a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company typically recognizes revenue from these services on a straight-line basis over the period services are provided, which is consistent with the timing of services rendered.
Cloud subscription and software revenue
Revenue from subscriptions to Kandy’s cloud-based technology platform is recognized on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer until the end of the contractual period. Payments received in advance of subscription services are recorded as deferred revenue; revenue recognized for services rendered in advance of payments received are recorded as contract assets. Usage fees, when bundled, are billed in advance and recognized on a ratable basis over the contractual subscription term, which is usually the monthly contractual billing period. Non-bundled usage fees are recognized as actual usage occurs.
When services do not meet certain service levels of commitments, customers are entitled to receive service credits, and in certain cases, refunds, each representing a form of variable consideration. Kandy historically has not experienced any significant incidents affecting the defined levels of reliability and performance as required by its subscription contracts. Therefore, the variable consideration has been insignificant and there are no reserves for such service credits as of December 31, 2021.
The Company also recognizes revenue for term-based software licenses and has concluded that its software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own. The software license revenue is typically recognized upon transfer of control or when the software is made available for download, as this is the point at which the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property.
Freight and sales tax
Freight billed to customers is included within sales on the consolidated statement of operations. The related freight charged to the Company is included within cost of revenue. Sales tax collected from customers is remitted to governmental authorities on a net basis.
Contract liabilities
Contract liabilities (or deferred or unearned revenue) are recognized when cash payments are received or due in advance of the Company’s performance obligations.
Costs of obtaining and fulfilling a contract
The Company capitalizes costs that are incremental to obtaining customer contracts, predominately sales commissions. Such deferrals are then amortized to expense, in proportion to each completed contract performance obligation, on a straight-line basis over the period during which the Company fulfills its performance obligation.
Costs associated with contracts whereby the Company has an obligation to perform services, are incurred specifically to assist the Company in rendering services to its customers and are recorded as deferred customer support contract costs at the time the costs are incurred. The costs are amortized to expense on a straight-line basis over the period during which the Company fulfills its performance obligation.
We consider revenue recognition to be a critical accounting policy and one that involves critical accounting estimates because of the materiality of this item to our financial statements and the level of judgement involved. Judgement is required in some of the factors discussed above including whether we are acting as a principal or an agent, the determination of when risk effectively passes to the customer, the determination of the price expected to be collected from the customer, the determination of whether revenue from certain software sales should be recognized as a single performance obligation or whether certain software support should be recognized as a separate performance obligation, and the assessment of whether the third-party delivered software support is critical or essential to the core functionality of the software itself.
Goodwill and intangibles impairment assessment
The Company reviews its long-lived assets for impairment whenever events or circumstances exist that indicate the carrying amount of an asset or asset group may not be recoverable. The recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset or asset group to the future undiscounted cash flows expected to be generated by that asset group. If the asset or asset group is considered to be impaired, an impairment loss is recorded to adjust the carrying amounts to the estimated fair value. During the year ended December 31, 2021, the Company recorded impairment of intangible assets of $15.3 million relating to the Kandy reporting unit based on a comparison of the reporting unit’s fair value with its carrying value. The excess of the carrying value of the reporting over the estimated fair value was first allocated to the intangibles and then to goodwill. Fair value was determined using the income approach.
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. Goodwill is reviewed for impairment at least annually, in December, or more frequently if a triggering event occurs between impairment testing dates. As of December 31, 2021, the Company had two operating segments and two reporting units for the purpose of evaluating goodwill impairment.
The Company’s impairment assessment begins with a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. Qualitative factors may include, macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity and Company specific events. If, based on the qualitative test, the Company determines that it is “more likely than not” that the fair value of a reporting unit is less than its carrying value, then we evaluate goodwill for impairment by comparing the fair value of each of our reporting unit to its respective carrying value, including its goodwill. If it is determined that it is “not likely” that the fair value of the reporting unit is less than its carrying value, then no further testing is required.
The selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value involves significant judgment and estimates. Fair values may be determined using a combination of both income and market-based approaches.
As indicated in Note 1 of the Notes to the Consolidated Financial Statements, in connection with the planned sale of Computex, the Company recorded a noncash goodwill impairment charge of $32.1 million during the year ended December 31, 2021 which represents the excess of the carrying value of the Computex reporting unit over the expected sale proceeds less costs to sell. As indicated above, impairment of Kandy’s goodwill was also recorded during the year ended December 31, 2021. Goodwill impairment of the Kandy reporting unit was $13.7 million.
Public Warrants, 2017 Private Placement Warrants and 2017 EBC Warrants
On July 27, 2017, the Company entered into certain Warrant Purchase Agreements with each of Pensare Sponsor Group, LLC, a Delaware limited liability company (the “Sponsor”), and certain other investors (collectively, the “Purchasers”), pursuant to which the Purchasers purchased an aggregate of 10,512,500 warrants (including the full over-allotment amount) in connection with and simultaneously with the closing of the IPO (the “2017 Private Placement Warrants”) at a purchase price of $1.00 per Private Placement Warrant.
On or about August 1, 2017, in the IPO, the Company sold units of the Company’s equity securities, each such unit consisting of one share of Common Stock, one-half of one Public Warrant and one-tenth of one right to acquire one share of Common Stock upon the closing of our initial business combination (the “Units”) and, in connection therewith, issued and delivered 15,525,000 warrants to public investors in the Offering (the “Public Warrants”). In addition, 675,000 warrants, underlying unit purchase options issued to the underwriters of the IPO and certain of their designees (the “2017 EBC Warrants”), were issuable. The 2017 EBC Warrants together with the 2017 Private Placement Warrants and the Public Warrants are collectively referred to as the “2017 Warrants.” Each whole 2017 Warrant entitles the holder thereof to purchase one share of the Company’s common stock for $11.50 per share, subject to adjustments. In addition to the 675,000 warrants, the unit purchase options, which expire in July 2022, entitle the holders to receive 1,485,000 shares of common stock for an exercise price of $10 per unit.
As of December 31, 2021, a total of 15,525,000 Public Warrants and 10,512,500 of the 2017 Private Placement Warrants remained outstanding. The 2017 EBC Warrants totaled 675,000 units as of December 31, 2021.
The 2017 Private Placement Warrants and the 2017 EBC Warrants, if issued upon exercise of the unit purchase options, are exercisable on a cashless basis, at the holder’s option, and are non-redeemable so long as they are held by the initial Purchasers or their permitted transferees. Public Warrants and any 2017 Private Placement Warrants or any 2017 EBC Warrants that are transferred to nonpermitted transferees are redeemable at the option of the Company and are not exercisable on a cashless basis.
The Company evaluated the 2017 Warrants under ASC 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity, and concluded that the 2017 Private Placement Warrants and the 2017 EBC Warrants did not meet the criteria to be classified in stockholders’ equity. A recent SEC Statement focused in part on provisions in warrant agreements that provide for potential changes to the settlement amounts dependent upon the characteristics of the warrant holder and because the holder of a warrant is not an input into the pricing of a fixed-for-fixed option on equity shares, such provision would preclude the 2017 Private Placement Warrants and 2017 EBC Warrants from being classified in equity and therefore the 2017 Private Placement Warrants and 2017 EBC Warrants are classified as liabilities at fair value, with subsequent changes in fair values recognized in earnings at each reporting date. The 2017 Private Placement Warrants and 2017 EBC Warrants were valued using a Black-Scholes pricing model as described in Note 3 of the Notes to the Consolidated Financial Statements. Changes in the fair value of the 2017 Private Placement Warrants and the 2017 EBC Warrants requires significant judgment, including the determination of the appropriate valuation model to use and the inputs to the valuation model.
Series A, Series B, Series C, Series D and Monroe Warrants
In November and December 2021, the Company issued certain warrants as defined and discussed in Note 10 in the Notes to the Consolidated Financial Statements (Series A Warrants, Series B Warrants, Series C Warrants, Series D Warrants and Monroe Warrants). Each such whole Warrant entitles the holder thereof to purchase one share of the Company’s common stock.
The Company evaluated the terms of such warrants and determined that they qualified to be treated as liabilities under ASC 480, Distinguishing Liabilities from Equity, with subsequent changes in fair values recognized in earnings at each reporting date. The Series A Warrants were valued using the Black-Scholes pricing model, the Series B and Series D Warrants were valued using the Monte Carlo simulation, and the Series C and Monroe Warrants were valued based on the Company’s stock price. Changes in the fair values of such warrants requires significant judgment, including the determination of the appropriate valuation model to apply and the inputs to the valuation model. See Notes 3 and 10 of the Notes to the Consolidated Financial Statements for further discussion of the accounting policies of warrants issued by the Company.
Accounting for income taxes
Under the Financial Accounting Standard Board’s (“FASB”) Accounting Standard Codification (“ASC”) No. 740 (“ASC No. 740”), income tax expense is recorded for the amount of income tax payable or refundable for the current period and for the change in net deferred tax assets or liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return. We make significant assumptions, judgments, and estimates in the determination of our provision for income taxes and also our deferred tax assets and liabilities and any valuation allowances.
Our judgments, assumptions, and estimates relating to the current tax provision take into account current tax laws, our interpretation of current tax laws, allowable deductions, projected tax credits, and possible outcomes of current and future tax audits. We do not recognize a tax benefit unless we conclude that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, we recognize a tax benefit measured at the largest amount of the tax benefit that, in our judgment, is greater than a 50 percent likelihood of realization. Changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could materially impact the amounts provided for income taxes. Our assumptions, judgments, and estimates relative to the value of our net deferred tax assets take into account predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments, and estimates inaccurate, thus materially impacting our financial position and results of operations.
Purchase price allocation
The Company accounts for business combinations in accordance with ASC 805, Business Combinations. Accordingly, tangible and intangible assets acquired and liabilities assumed are recorded at their estimated fair values, the excess of the purchase consideration over the fair values of net assets acquired is recorded as goodwill, and transaction costs are expensed as incurred. Determining fair values of certain assets acquired and liabilities assumed requires the exercise of judgment and often involves the use of significant estimates and assumptions. Also, assigning useful lives to intangible assets, which determine the related amortization expense, involves subjectivity.
Share-based compensation
The Company accounts for share-based compensation in accordance with ASC 718, Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense, based on estimated fair values, for share-based awards made to employees and directors. Based on the grant date fair value of the award, the Company recognizes compensation expense over the requisite service period or performance period on a straight-line basis, and accounts for forfeitures as they occur.
Significant judgement is required in the estimation of fair values of stock awards. For the restricted stock awards with a time-based vesting condition, the fair value is determined by reference to the Company’s stock price on the grant date. A portion of the Company’s restricted stock awards are performance-based with a market condition that must be met for the award to vest. For those restricted stock awards, the fair value is estimated using a Monte Carlo simulation model, whereby the fair value of such awards is fixed at the grant date and amortized over the shorter of the remaining performance or service period. The Monte Carlo simulation valuation model utilizes the following assumptions: expected stock price volatility, expected life of the awards and a risk-free interest rate. Significant judgment is required in estimating the expected volatility of our common stock. Due to the limited trading history of the Company’s common stock, estimated volatility was based on a peer group of public companies and took into consideration the increased short-term volatility in historical data due to COVID-19.
Recent Accounting Pronouncements Issued and Adopted
See Note 3 of the Notes to the Consolidated Financial Statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign exchange risk
Our business is primarily conducted within US markets. Though there is some exposure to currency fluctuations, we do not currently consider exchange rate fluctuations to materially impact our financial statements. International revenues in Fiscal 2021 was 7.6% of total revenues. For Kandy, international revenues were 26.6% of total Kandy revenues.
Interest rate risk
As of December 31, 2021, the Company had no significant interest rate risk.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Reference is made to Pages through following Item 15, which comprise a portion of this Annual Report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Management’s Report on Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process used to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
An internal control system over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, 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. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design safeguards into the process to reduce, though not fully eliminate, risk.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Controls-Integrated Framework. Based on our management’s assessment and those criteria, our management believes that we maintained effective internal control over financial reporting as of December 31, 2021.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.”
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
Not applicable.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Our current directors and executive officers are as follows:
Name
Age
Position
Michael Tessler
Chairman of the Board
Darrell J. Mays
Chief Executive Officer and Director
Kevin Keough
President
Thomas H. King
Chief Financial Officer
Larry Mock
Director
Mark Downs
Director
U. Bertram Ellis, Jr.
Director
Carolyn Byrd
Director
Karl Krapek
Director
Dennis Lockhart
Director
Dr. Klaas Baks
Director
Kent Mathy
Director
Robert Willis
Director and Vice Chairman - Capital Markets
Michael Tessler, Chairman of the Board, has served on our board of directors since January 2022. Mr. Tessler was a co-founder of Broadsoft, Inc. (“BroadSoft”), and served as a director of BroadSoft from its inception, and as its President and Chief Executive Officer from December 1998, until its sale to Cisco Systems, Inc. (“Cisco”) in February 2018. Following the sale of BroadSoft, Mr. Tessler served as General Manager of Cisco’s Cloud Calling Business Unit until March 2020, and since April 2020, Mr. Tessler has served as a Managing Partner at True North Advisory, a strategic advisory firm. Prior to co-founding BroadSoft, Mr. Tessler was Vice President of Engineering of Celcore, Inc. (“Celcore”), a wireless equipment company, and the Celcore organization of DSC Communications Corporation, which acquired Celcore in 1997 and which was then acquired by Alcatel USA, Inc. Before joining Celcore, Mr. Tessler held a number of senior management positions at Nortel Networks Corporation and founded and led a services development business unit that helped local exchange carriers build and deploy advanced services on their digital networks. Mr. Tessler currently serves as a non-executive director at BAI Communications, a global communications infrastructure provider, and on the Internet2 Technology Evaluation Center advisory board at Texas A&M University.
Darrell Mays, Chief Executive Officer and Director, has served on our board of directors since July 2017 and was our Chief Executive Officer until September 30, 2020. He was the Founder and Chief Executive Officer of nsoro, a turnkey wireless installation services provider, from 2003 to 2008, which was acquired by MasTec in August 2008. Mr. Mays has served as an executive of MasTec since 2008, during which period the revenues and EBITDA of MasTec’s communications division, of which nsoro is a component, increased to approximately $2.3 billion and $245.0 million in 2016, respectively. Mr. Mays holds a Bachelor of Arts degree in Business from Georgia State University.
Kevin Keough has served as our President since July 2021. Mr. Keough has served as Managing Director, Operations, for Navigation Capital Partners, Inc. (“Navigation”), an Atlanta-based private equity firm, since March 2021. Prior to joining Navigation, from October 2020 to March 2021, Mr. Keough was an independent management consultant, serving clients on a range of consulting engagements. From October 2017 to September 2020, he was the Managing Director and Head of Post-Acquisition for Investcorp’s North American Private Equity Group. Prior to joining Investcorp, from 2006 to September 2017 he had been with Arcapita Investment Management and its predecessor firm, Arcapita Inc., ultimately serving in the role of Managing Director and Global Head of Portfolio Management. Before his move into private equity, Mr. Keough spent seven years as a senior executive with FirstEnergy Corporation, a public energy company headquartered in Akron, Ohio. During this period, he held several corporate strategic planning and shared services roles, and served as President of the Ohio Edison Company. He had been a Management Consultant for ten years in the Cleveland Office of McKinsey & Company, Inc, serving as a partner and leader in the Firm’s North American Energy Practice. Mr. Keough holds an MBA from Stanford Graduate School of Business and a BS in Engineering Mechanics, with honors, from the United States Military Academy at West Point.
Thomas H. King has served as our Chief Financial Officer and as a director of Computex since April 2020 and was the Chief Financial Officer of Tier One Holding Corp. and its subsidiaries from January 2017 to June 2019, after serving as its interim Chief Financial Officer between January 2016 and December 2017. Prior to January 2016, Mr. King served as Chief Financial Officer to numerous private equity sponsored companies primarily as an engagement partner with Tatum, a Randstad Company. Also, while at Tatum, he was Chief Financial Officer at Allied Systems Holdings, Inc. between August 2004 and September 2008 and served as Vice President-Finance at Rock-Tenn Company (currently known as WestRock Company) between November 2000 and July 2004. Mr. King was also an Assurance Manager at PricewaterhouseCoopers. Mr. King received a MS Industrial Administration degree from Carnegie-Mellon University and a BS in Business Administration from Pennsylvania State University.
Lawrence E. Mock, Jr., a former director of Computex, is currently Managing Partner of Navigation, which he founded in partnership with Goldman Sachs in 2006. Mr. Mock also serves as a director of Stratos Management Systems Holdings, LLC, a Delaware limited liability company (“Holdings”). From 1995 to 2006, he served as President and Chief Executive Officer of Mellon Ventures, Inc., which he founded in partnership with Mellon Financial Corporation, to make private equity and venture capital investments in operating companies. From 1983 to 1995, Mr. Mock was Chief Executive Officer of River Capital, Inc., a company he founded. He holds a Master of Science degree from Florida State University and a Bachelor of Arts degree from Harvard College.
Mark Downs has served on our board of directors since April 2020 and is the founder of Navigation, a private equity firm where he has served as a partner since January 2007. Mr. Downs has in excess of 20 years of experience serving on for profit boards of directors as a control investor. Mr. Downs served as a director of Computex, Inc. from January 2017 to April 2020; a director of Stratos from January 2017 to April 2020; a director of Holdings from January 2017 to April 2020; a director of Michon, Inc. (d/b/a Definition6) from July 2015 to the present; a director of Brown Integrated Logistics, Inc. from January 2017 to the present; a director of Brightwell Payments, Inc. from May 2015 to Present; and a director of Five Star Food Service, Inc. from October 2016 to March 2019. Mr. Downs holds a Bachelor’s degree in Economics from the University of Pittsburgh and a Master’s of Management degree from Northwestern University.
U. Bertram Ellis, Jr. has served on our board of directors as an independent director since July 2017. He has served as the Chairman and Chief Executive Officer of Ellis Capital, a diversified investment firm, since 1984. In addition, Mr. Ellis was the Founder and Chief Executive Officer of ACT III Broadcasting from 1986 to 1991, which sold for $530 million and Ellis Communication from 1993 to 1996, which sold for $840 million. Mr. Ellis holds a Master of Business Administration from the University of Virginia Darden Business School and a Bachelor of Arts from the University of Virginia.
Carolyn Byrd has served on our board of directors as an independent director since March 2021. Ms. Byrd, age 72, formed GlobalTech Financial, LLC (“GlobalTech”), a private company specializing in business process outsourcing and financial consulting in 2000 and has since served as its Chairman and Chief Executive Officer. Prior to forming GlobalTech, Ms. Byrd had a long career with The Coca-Cola Company, where she was ultimately appointed Vice President, Chief of Internal Audits and Director of the Corporate Auditing Department. She served as a Senior Account Officer at Citibank, N.A. prior to joining Coca Cola. Ms. Byrd has served on the board of directors of Regions Financial Corporation (NYSE: RF) since 2010. She holds a Bachelor’s Degree in Economics and Business Administration from Fisk university and a Master’s Degree in Finance and Business Administration from the University of Chicago Graduate School of Business.
Karl Krapek has served on our board of directors as an independent director since July 2017. He has served as the Lead Director at Prudential Financial, Inc. since 2014, and a Director since 2004, and also as Director of Northrop Grumman Corporation since 2008. From 2002 to 2009, he was the President and Chief Operations Officer of United Technologies Corporation, or UTC, which has a market capitalization of approximately $90 billion. Mr. Krapek has served as an Executive Vice President of UTC since 1997 and as a Director of UTC from 1997 to 2007. Mr. Krapek holds a Master of Science from Purdue University and Bachelor of Science from Kettering University.
Dennis Lockhart has served on our board of directors as an independent director since July 2017. He recently retired from his position as president and Chief Executive Officer of the Federal Reserve Bank of Atlanta, a position he held from 2007 to 2017. Earlier, he was a professor at Georgetown University, School of Foreign Service, from 2003 to 2007. Prior to this, he held senior positions at Heller Financial Inc. and Citicorp (now Citigroup). Mr. Lockhart holds a Master of Arts from Johns Hopkins University and a Bachelor of Arts from Stanford University.
Dr. Klaas Baks has served on our board of directors as an independent director since July 2017. He is the Co-Founder and Executive Director of the Emory Center for Alternative Investments, which was formed in 2008. He also serves as the Atlanta Chair of TIGER 21, which is a peer-to-peer network of high net worth wealth creators, since 2014. In addition, he has been an Associate Professor in the Practice of Finance at Emory University’s Goizueta Business School since 2002. Dr. Baks has a Doctoral degree from the Wharton School at the University of Pennsylvania and a Masters of Arts degree from Brown University.
Kent Mathy has served on our board of directors as an independent director since July 2020. He currently serves on the Board of Directors of Everbridge Inc. (Nasdaq:EVBG) and JourneyCare Hospice and formerly served as the President and CEO of Sequential Technology International, a business process outsourcer serving large enterprises. Mr. Mathy retired in 2016 as AT&T Inc.’s (NYSE:T) President of the Southeast Region. Previously, Mr. Mathy served as President of AT&T’s North Central Region. Prior to that, he was President-Business Markets Group at Cingular Wireless. Mr. Mathy joined AT&T Wireless Services in 2003 as Executive Vice President, leading the Enterprise Solutions Group. Earlier in his career, Mr. Mathy served as Chairman and CEO of Celox Networks, a telecommunications network equipment company. Before joining Celox Networks, he was with AT&T (prior to its merger with SBC Communications Inc.) for more than 18 years holding numerous management positions across the United States.
Mr. Mathy has also served on the Board of Directors of Ribbon Communications (Nasdaq:RBBN) and Rogers Wireless, a subsidiary of Rogers Communications, Inc. (NYSE:RCI). Mr. Mathy holds a Bachelor of Business Administration Degree from the University of Wisconsin-Oshkosh.
Robert Willis has served on our board of directors, including as Vice Chairman - Capital Markets, since July 2021. Dr. Willis has served as a Managing Partner of the SPAC Operations Group at Navigation since April 2020. Dr. Willis previously served as the Company’s President from April 2016 until the completion of its initial business combination with Computex in April 2021. Dr. Willis became the President of nsoro in 2007 and served in that capacity until its acquisition by MasTec in 2008 and, following its acquisition, served in an advisory role from 2010 through July 2016. From December 2013 until December 2015, Dr. Willis served as Chairman of U.S. Shale Solutions, Inc., a shale services company which he founded in 2013. Prior to nsoro, Dr. Willis served as Chief Executive Officer of Foxcode Inc., a merchant-banking firm. In July 2004, Dr. Willis founded Gaming VC, S.A., an online gaming enterprise which completed a GBP 81 million initial public offering in London in 2004, and served as a member of its board and as its Finance Director until 2007. Prior to that, Dr. Willis was the founder and Chief Executive Officer of Alpine Computer Systems, Inc., a systems integration engineering company established in the 1980s that grew rapidly and was acquired by Delphi Group plc. in 1996, at which time he became Senior Vice President and Chief Information Officer of the parent company. Dr. Willis was awarded a Doctorate in Humane Letters (Hon.) from Newbury College in Boston, MA, in May 2001.
Designated Directors
Pursuant to the Computex Business Combination agreement, until the date on which Holdings or Navigation ceases to beneficially hold an aggregate of 10% of (i) the shares of our common stock issued to Holdings as partial consideration for the Computex Business Combination and (ii) the shares of our common stock underlying the PIPE Warrants and the PIPE Debentures issued to Holdings at the Computex Closing (collectively, the “Designation Shares” and such period, the “Nomination Period”), Holdings (or if Holdings has been dissolved, Navigation) has the right to nominate up to three Holdings Designees for election to our board of directors, subject to adjustment as described below, and we are obligated to nominate each Holdings Designee for election as a director as part of the slate that is included in the proxy statement (or consent solicitation or similar document) relating to the election of directors and to support the election of each Holdings Designee.
As of the Computex Closing Date, Holdings’ initial Holdings Designees were Messrs. Downs and Mock. During the Nomination Period, if a Holdings Designee ceases to serve as a director for any reason, Holdings (or if Holdings has been dissolved, Navigation Capital Partners, Inc.) has the right to appoint another individual to fill such vacancy. During the Nomination Period, if Holdings or Navigation Capital Partners, Inc. ceases to beneficially hold at least 50% of the Designation Shares, for the remainder of the Nomination Period, the number of Holdings Designees will be reduced to two, and if Holdings or Navigation Capital Partners, Inc. ceases to beneficially hold at least 30% of the Designation Shares, for the remainder of the Nomination Period, the number of Holdings Designees will be reduced to one.
In addition, pursuant to an Investor Rights Agreement entered into on the Kandy Closing Date, so long as Ribbon holds an amount of shares of Common Stock equal to at least 25% of the total number of shares of Common Stock issuable upon conversion of Debentures issued to Ribbon at the Closing (or Debentures convertible in the aggregate into such amount) (the “Minimum Shares”), Ribbon will have the right to nominate one director to our board of directors. If Ribbon holds the Minimum Shares and does not exercise its right to nominate one director, Ribbon will have the right to designate a board observer.
Number and Terms of Office of Officers and Directors
Our board of directors is divided into three classes with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the first class of directors, consisting of Messrs. Ellis, Krapek, Lockhart and Dr. Baks, will expire at the annual meeting of stockholders to be held in 2024. The term of office of the second class of directors, consisting of Ms. Byrd and Messrs. Tessler, Mays and Mock, will expire at the annual meeting of stockholders to be held in 2022. The term of office of the third class of directors, consisting of Mr. Downs, Mr. Mathy and Mr. Willis, will expire at the annual meeting of stockholders to be held in 2023.
Our officers are elected by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our Bylaws as it deems appropriate. Our Bylaws provide that our officers may consist of a Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Secretary and such other officers (including, without limitation, Vice Presidents, Assistant Secretaries and a Treasurer) as may be determined by the board of directors.
Director Independence
Nasdaq listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which, in the opinion of the company’s board of directors, would not interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Messrs. Ellis, Krapek, Lockhart, Baks, Ms. Byrd and Mr. Mathy are “independent directors” as defined in the Nasdaq listing standards.
Committees of the Board of Directors
Our board of directors has three standing committees: an audit committee, a nominating committee and a compensation committee.
Audit Committee
We have an audit committee comprised of Messrs. Lockhart, Baks and Ms. Byrd, each of whom is an independent director. Mr. Lockhart serves as the Chairman of the audit committee. Each member of the audit committee is financially literate, and our board of directors has determined that Mr. Lockhart qualifies as an “audit committee financial expert” as defined in applicable SEC rules because he meets the requirement for past employment experience in finance or accounting, requisite professional certification in accounting or comparable experience. The responsibilities of our audit committee, which are specified in our Audit Committee Charter, include:
● reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our Form 10-K;
● discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements;
● discussing with management major risk assessment and risk management policies;
● monitoring the independence of the independent auditor;
● verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;
● reviewing and approving all related-party transactions;
● inquiring and discussing with management our compliance with applicable laws and regulations;
● pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed;
● appointing or replacing the independent auditor;
● determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;
● establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and
● approving reimbursement of expenses incurred by our management team in identifying potential target businesses.
Nominating Committee
Our nominating committee consists of Messrs. Lockhart, Mathy and Krapek, each of whom is an independent director under Nasdaq’s listing standards. The nominating committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The nominating committee considers persons identified by its members, management, stockholders, investment bankers and others.
The guidelines for selecting nominees, which are specified in our Nominating Committee Charter, generally provide that persons to be nominated:
● should have demonstrated notable or significant achievements in business, education or public service;
● should possess the requisite intelligence, education and experience to make a significant contribution to the board of directors and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and
● should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of our stockholders.
The nominating committee will consider a number of qualifications relating to management and leadership experience, background, integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The nominating committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The nominating committee does not distinguish among nominees recommended by stockholders and other persons.
Compensation Committee
Our compensation committee consists of Messrs. Ellis, Baks and Krapek, each of whom is an independent director under Nasdaq’s listing standards. Mr. Krapek serves as the Chairman of the compensation committee. The compensation committee’s duties, which are specified in our Compensation Committee Charter, include, but are not limited to:
● reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation;
● reviewing and approving the compensation of all of our other executive officers;
● reviewing our executive compensation policies and plans;
● implementing and administering our incentive compensation equity-based remuneration plans;
● assisting management in complying with our proxy statement and annual report disclosure requirements;
● approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees;
● if required, producing a report on executive compensation to be included in our annual proxy statement; and
● reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.
Code of Ethics and Committee Charters
We have adopted a Code of Ethics applicable to our directors, officers and employees. We have filed a copy of our Code of Ethics, our Audit Committee Charter, our Nominating Committee Charter and our Compensation Committee Charter as exhibits to our registration statement for our initial public offering. You will be able to review these documents by accessing our public filings at the SEC’s web site at www.sec.gov. In addition, a copy of the Code of Ethics will be provided without charge upon request from us in writing at 1720 Peachtree Street, Suite 629, Atlanta, GA 30309 or by telephone at (404) 239-2863. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a current report on Form 8-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors and ten percent stockholders are required by regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on copies of such forms received, we believe that, during the fiscal year ended December 31, 2020, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with, except that the following forms were not timely filed: a Form 4 reporting one transaction by Mr, Mathy, a Form 4 reporting one transaction by Mr. Lockhart, and a Form 3 for Mr. Williams.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Summary compensation table
Prior to the consummation of the Computex Business Combination, none of our officers or directors received compensation for services rendered to us. The following provides, under the scaled reporting rules applicable to smaller reporting companies, an overview of our compensation policies and programs and identifies the elements of compensation for Fiscal Year 2021 and the fiscal year ended December 31, 2020, following the consummation of the Computex Business Combination, with respect to our “named executive officers,” which term is defined by Item 402 of the SEC’s Regulation S-K to include (i) all individuals serving as our principal executive officer at any time during 2021, (ii) our two most highly compensated executive officers other than the principal executive officers who were serving as executive officers at December 31, 2021 and whose total compensation (excluding nonqualified deferred compensation earnings) exceeded $100,000, and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to the foregoing item (ii) but for the fact that the individual was not serving as an executive officer of the Company at December 31, 2021. Our named executive officers for 2021 were Xavier Williams, our previous Chief Executive Officer until July 24, 2021, Thomas King, our Chief Financial Officer, and Darrell Mays, who served as our Chief Executive Officer until September 2020 and then again starting July 16, 2021.
Name and principal position Title Period Year Salary
($)
Bonus
($)
Stock
Awards
($)
All
other
compen-sation
($) [6]
Total
($)
Darrell Mays CEO July 2021
to present - - - - -
February 2017
to September 2020 20,055 - - - 20,055
Thomas King CFO April 2020
to present 420,000 [4] 420,000 [5] 538,500 [3] - 1,378,500
212,830 [4] - [5] - - 212,830
Xavier Williams CEO October 2020
to July 2021 950,000 [1] 448,767 [2] 1,198,125 [3] - 2,596,892
125,000 [1] 750,000 [2] - - 875,000
[1] Represents Mr. Williams’ salary. For 2020, this represents his salary from the start date of October 1, 2020 through December 31, 2020. For 2021, this represents his salary for the period January 1, 2021 until the date of his termination plus severance of $600,000 that was paid in connection with a termination agreement entered into with the Company in July 2021.
[2] Represents bonus paid to Mr. Williams. For 2020, this represents a one-time sign on bonus of $300,000 and the bonus for 2020 of $450,000, which was paid in 2021. For 2021, this represents the pro-rata share of Mr. Williams’ bonus for 2021, which was paid in 2021.
[3] Represents RSU awards that were delivered during the respective year times the stock price on or about the date of delivery.
[4] Represents Mr. Kings’ salary. For 2020, this represents his salary from the start date of April 2020 through December 31, 2020. For 2021, this represents his salary for the full year.
[5] Represents bonus paid or to be paid to Mr. King. The bonus for 2021 is to be paid in 2022. No bonus was paid to Mr. King for 2020.
[6] For 2021 and 2020, there were no option awards, non-equity incentive plan amounts, non-qualified deferred compensation earnings or any other compensation for the named executive officers other than as disclosed in the “All other compensation” column in the table above.
Narrative Disclosure Regarding Summary Compensation Table
Compensation Philosophy
The Company’s executive compensation policies are designed to provide competitive levels of compensation meant to integrate salaries with the Company’s goals and objectives and the interests of shareholders, while rewarding performance and retaining qualified and experienced executives. The Compensation Committee of our board of directors is primarily responsible for implementing the Company’s philosophy with respect to executive compensation. There are three primary elements to our executive compensation programs: base salary, cash bonus and RSUs.
The compensation packages are based on the potential impact the executive may have on the Company, the executive’s skills and experience and comparisons with comparable companies.
The American Virtual Cloud Technologies, Inc. 2020 Equity Incentive Plan (the “Plan”) provides for the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and other share-based awards. Stock options have a maximum term of ten years from the grant date. As of December 31, 2020, 5,794,500 shares had been authorized for issuance under the Plan, of which 987,000 shares remained available for issuance as of December 31, 2021. The RSUs were issued to certain directors and employees and can only be settled in shares. RSUs awarded to directors are time-based. RSUs issued to nondirectors are 50% time-based and 50% performance-based. Twenty-five percent of the time-based awards vests on each grant date anniversary, while 25% of the performance-based awards vests on December 31st of each year, if the market condition (stock price target) is met. If the market condition attached to the performance-based awards is not met in any year, the eligibility is delayed until the market condition is met, except that the market condition must be met on the third anniversary of the stock price target date.
Employment Agreements
Xavier Williams
The Company entered into an employment agreement with Mr. Williams, our CEO, effective October 1, 2020 on an “at-will” basis. Mr. Williams’ initial base salary was $600,000 per year, subject to annual reviews and potential increases, at the discretion of the Board. Mr. Williams also received a one-time bonus of $300,000 that was paid within 30 days of his employment. Mr. Williams was also entitled to an annual bonus for each full fiscal year during his employment term, with a target bonus equal to 150% of his annual base salary, subject to the achievement of performance objectives to be established by the Board each year. For 2020, Mr. Williams was entitled to receive a minimum cash bonus equal to 75% of his annual base salary. Pursuant to the employment agreement, Mr. Williams received grants of equity awards under the Plan consisting of 500,000 RSUs which was also approved by the Board. Mr. Williams was also entitled to additional annual RSU awards if the Company’s stock price exceeded certain specified targets, as described in the employment agreement.
Mr. Williams’s employment was terminated by the Company without “cause” (as such term is defined in the employment agreement) effective July 24, 2021, and the Company paid to Mr. Williams, in addition to accrued but unpaid salary and benefits, (i) continued payment of base salary for one year, (ii) a pro-rated bonus, and (iii) continued benefits, including health care and life insurance. Mr. Williams released the Company of any claims against the Company and is subject to certain non-compete, non-solicitation, and confidentiality and assignment of inventions obligations to the Company.
Thomas King
Effective April 7, 2020, the Company entered into an employment agreement with Thomas King, our CFO, on an “at-will” basis. Mr. King is entitled to receive a base salary of $420,000 per year. Mr. King will also be entitled to an annual bonus for each full fiscal year during his employment term, with a target bonus amount equal to 100% of his annual base salary, subject to the achievement of performance objectives to be established by the Company each year. In connection with his employment, Mr. King was also awarded 300,000 RSUs effective April 7, 2020.
Such employment agreement contains customary confidentiality provisions, which apply both during and for two years after its term, and customary non-competition and non-solicitation provisions, which apply during its term and for one year thereafter.
If Mr. King’s employment is terminated by the Company without “cause” (as defined), the Company will be obligated to pay to Mr. King, in addition to accrued but unpaid salary and benefits, (i) continued payment of base salary for one year and (ii) continued benefits, including health care and life insurance. The Company’s obligation to pay any of the foregoing severance obligations (other than salary and benefits accrued through the date of termination of employment) would be subject to Mr. King’s execution of a release of claims against the Company and Mr. King’s compliance with any surviving non-competition, non-solicitation, confidentiality and assignment of inventions obligations to the Company.
Such employment agreement contains customary confidentiality provisions, which apply both during and for two years after its term, and customary non-competition and non-solicitation provisions, which apply during its term and for one year thereafter.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information about RSUs held by the named executive officers (vesting schedules are discussed in the section above titled “Compensation Philosophy):”
Name Award date Shares underlying
RSUs issued Grant date fair
value (1)
Unvested
RSUs
Thomas King 4/7/2020 300,000 659,250 225,000
Darrell Mays 10/1/2020 350,000 1,519,000 262,500
Director Compensation
Directors who are employees of the Company do not receive additional compensation for their services as directors or as members of board committees. Non-employee directors are also not paid any fees in cash. Instead, non-employee directors receive RSUs on the effective dates of their appointments. Twenty five percent of such RSUs vest on the anniversary date of the respective award. The following summarizes the RSUs issued to non-employee directors as of December 31, 2021:
Name Award date Shares underlying
RSUs issued Grant date
fair value Unvested
RSUs
Larry Mock 4/7/2020 350,000 1,050,000 262,500
Bert Ellis 4/7/2020 60,000 180,000 45,000
Karl Krapek 4/7/2020 60,000 180,000 45,000
Dennis Lockhart 4/7/2020 60,000 180,000 45,000
Carolyn Byrd 3/1/2021 60,000 420,600 60,000
Klass Baks 4/7/2020 60,000 180,000 45,000
Mark Downs 4/7/2020 60,000 180,000 45,000
Kent Mathy 8/1/2020 60,000 255,000 45,000
Compensation Committee Interlocks and Insider Participation
None.
Compensation Committee Report
Our compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on that review and discussion, the compensation committee recommended to the Company’s board of directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.
U. Bertram Ellis, Jr.
Dr. Klaas Baks
Karl Krapek

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information known to the Company regarding the beneficial ownership of our common stock as of March 31, 2022 by:
● each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock;
● each of our executive officers and directors; and
● all of our executive officers and directors as a group.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security or has the right to acquire securities within 60 days, including options and warrants that are currently exercisable or exercisable within 60 days. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by them. The calculation of percentage of beneficial ownership is based on 89,566,997 shares of common stock outstanding as of March 31, 2022:
Name Number of
Shares
Beneficially
Owned(1) Percent of
Common
Stock
Directors and Executive Officers of the Company:
Lawrence E. Mock, Jr.(3) 21,173,995 (4)(6) 23.6 %
Darrell J. Mays 14,792,930 (2) 15.3 %
Kevin Keough - -
Thomas H. King 51,811 *
Mark Downs 15,000 *
U. Bertram Ellis, Jr. 563,821 *
Karl Krapek 42,000 *
Dennis Lockhart 42,000 *
Dr. Klaas Baks 42,000 *
Kent Mathy 15,000 *
Dr. Robert Willis - -
Carolyn Byrd - -
Kevin Keough - -
Xavier Williams (resigned August 31, 2021) 187,500 *
Michael Tessler 1,000,000 1.1 %
All directors and executive officers as a group (15 individuals) 37,926,057 39.3 %
Five Percent or More Holders and Certain Other Holders:
Ribbon Communications Inc.(5) 18,078,221 19.2 %
Pensare Sponsor Group, LLC(9) 13,815,858 14.3 %
Navigation Capital Partners II, L.P.(6) 10,228,929 11.54 %
Hudson Bay Capital Management LP(7) 9,661,377 9.9 %
MasTec, Inc.(8) 5,002,060 5.4 %
* Less than 1% of outstanding shares
(1) Unless otherwise indicated, the business address of each of the persons and entities is 1720 Peachtree Street, Suite 629, Atlanta, GA 30309.
(2) Includes 556,017 shares of Common Stock held by certain of Mr. Mays’ family members (or affiliated entities) who reside at least part-time with Mr. Mays. Mr. Mays disclaims beneficial ownership of all shares of Common Stock held by his family members. Also includes shares of Common Stock beneficially owned by Pensare Sponsor Group, LLC, as described in footnote (8).
(3) Mr. Mock holds an economic interest in Pensare Sponsor Group, LLC and a pecuniary interest in the securities held by Pensare Sponsor Group, LLC. Mr. Mock disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
(4) According to the Amendment to Schedule 13D referred to in footnote (6) below, includes (i) 1,783,035 shares of Common Stock held directly by Holdings, (ii) 8,445,894 shares of Common Stock held directly by Navigation Capital, (iii) 905,342 shares of Common Stock held directly by Nobadeer L.P. (“Nobadeer”) and (iv) 10,039,724 shares of Common Stock held directly by Investment Sub.
(5) According to an Amendment to Schedule 13D filed with the SEC on September 14, 2021 by Ribbon Communications Inc. (“Ribbon”), Ribbon holds 13,700,421 shares of Common Stock and warrants currently exercisable for a total of 4,377,800 shares of Common Stock. The business address of Ribbon is 6500 Chase Oaks Boulevard, Suite 100, Plano, TX 75023.
(6) According to an Amendment to Schedule 13D filed with the SEC on November 17, 2021, on behalf of (i) Navigation Capital Partners II, L.P., a Delaware limited partnership (“Navigation Capital”), (ii) NCP General Partner II, LLC, a Delaware limited liability company, and the general partner of Navigation Capital (“NCP GP”), (iii) Stratos Management Systems Holdings, LLC, a Delaware limited liability company (“Holdings”), (iv) Navigation Capital Partners SOF I, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of New SPAC Opps (as defined below) (“Investment Sub”), (v) SPAC Opportunity Fund I, L.P., a Delaware limited liability company (“New SPAC Opps”), (vi) Navigation Capital Partners, Inc., a Delaware corporation which controls New SPAC Opps (“SPAC NCP”), (vii) Lawrence E. Mock, a citizen of the United States of America (“Mr. Mock”) and (x) a manager of NCP GP and (y) an officer that controls SPAC NCP, and (viii) John S. Richardson, a citizen of the United States of America (“Mr. Richardson” and collectively with Navigation Capital, NCP GP, Holdings, Investment Sub, New SPAC Opps, SPAC NCP and Mr. Mock, the “Reporting Persons”) and a manager of NCP GP, (a) Holdings directly owns 1,783,035 shares of Common Stock, (b) Navigation Capital directly owns 8,445,894 shares of Common Stock, and as the controlling member of Holdings, may, pursuant to Rule 13d-3, be deemed to beneficially own 1,783,035 shares of Common Stock directly held by Holdings, (c) NCP GP, as the general partner of Navigation Capital, and Mr. Richardson, as a manager of NCP GP, may, pursuant to Rule 13d-3, be deemed to beneficially own 10,228,929 shares of Common Stock, (d) Investment Sub directly owns 10,039,724 shares of Common Stock, (e) New SPAC Opps, as the sole member of Investment Sub, may, pursuant to Rule 13d-3, be deemed to beneficially own 10,039,724 shares of Common Stock, (f) SPAC NCP, as the manager of New SPAC Opps, may, pursuant to Rule 13d-3, be deemed to beneficially own 10,039,724 shares of Common Stock, and (g) Mr. Mock, as a manager of NCP GP, may, pursuant to Rule 13d-3, be deemed to beneficially own (i) 1,783,035 shares of Common Stock held directly by Holdings and (ii) 8,445,894 shares of Common Stock held directly by Navigation Capital. Mr. Mock, given his ability to control SPAC NCP, may, pursuant to Rule 13d-3, be deemed to beneficially own 10,039,724 shares of Common Stock held directly by Investment Sub. In addition, Nobadeer, an unaffiliated entity of all of the Reporting Persons, except for Mr. Mock, directly holds 905,342 shares of Common Stock. Mr. Mock is the general partner of Nobadeer, and as a result, may be deemed to indirectly beneficially own securities held by Nobadeer, Navigation Capital disclaims beneficial ownership of the securities directly held by Holdings except to the extent of its pecuniary interest therein. Mr. Richardson disclaim beneficial ownership of the securities described above except to the extent of his pecuniary interest therein. New SPAC Opps disclaims beneficial ownership of the securities held directly by Investment Sub except to the extent of its pecuniary interest therein. SPAC NCP disclaims beneficial ownership of such securities except to the extent of its pecuniary interest therein. Mr. Mock disclaims beneficial ownership of the securities described above except to the extent of his pecuniary interest therein. The business address of each of these stockholders is 2870 Peachtree Rd NW, Unit 509, Atlanta, GA 30305.
(7) According to a Schedule 13G filed with the SEC on February 8, 2022 by Hudson Bay Capital Management LP (“HBCM”) and Mr. Sandy Gerber (together with HBCM, the “HB Reporting Persons”), the shares of Common Stock reported assume the exercise of warrants and the conversion of convertible notes held by Hudson Bay Master Fund Ltd. (collectively, the "Securities"), subject to the 9.99% Blocker (as defined below). Pursuant to the terms of the Securities, the HB Reporting Persons cannot exercise or convert such Securities if the HB Reporting Persons would beneficially own, after such exercise or conversion, more than 9.99% of the outstanding shares of Common Stock (the "9.99% Blocker"). The number of shares of Common Stock and percentage reported give effect to the 9.99% Blocker. Consequently, at the time of the filing of the Schedule 13G, the HB Reporting Persons were not able to exercise or convert all of the Securities due to the 9.99% Blocker. HBCM serves as the investment manager to Hudson Bay Master Fund Ltd. (“HBMF”), in whose name the Securities are held, and as such may be deemed to be the beneficial owner of all shares of Common Stock, if any, owned by HBMF, and Mr. Gerber serves as the managing member of Hudson Bay Capital GP LLC, which is the general partner of HBCM. Mr. Gerber disclaims beneficial ownership of the reported securities. The business address of each of the HB Reporting Persons is 28 Havemeyer Place, 2nd Floor, Greenwich, Connecticut 06830.
(8) According to an Amendment to Schedule 13G filed with the SEC on September 10, 2021 by MasTec, Inc., (“MasTec”), MasTec holds 2,702,060 shares of Common Stock and warrants currently exercisable for a total of 2,300,000 shares of Common Stock. The business address of MasTec is 800 S. Douglas Road, 11th Floor, Coral Gables, FL 33134.
(9)
Includes 7,017,290 shares of Common Stock underlying warrants that are currently exercisable.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The following paragraph discusses related party transactions that occurred during 2020 and 2021 and/or that are contemplated during 2022 (other than (i) compensation paid or awarded to the Company’s directors, director nominees and executive officers that is required to be discussed, or is exempt from discussion, in the other sections of the annual report on Form 10-K and (ii) equity and Debentures issued in connection with the Computex Business Combination and the Kandy Business Combination, as described elsewhere in the annual report on Form 10-K).
Services provided by Navigation Capital Partners, Inc.
Selling, general and administrative expenses for the year ended December 31, 2021 and the Successor period April 7, 2020 to December 31, 2020 include $600,000 and $150,000 respectively, related to consulting services provided by Navigation, a significant stockholder and an affiliate of certain of our directors. These amounts relate to an agreement entered into effective October 1, 2020 whereby Navigation provides capital markets advisory and business consulting services to the Company for a fee of $50,000 per month. As of December 31, 2021, no payments were required to be paid, and therefore, accounts payable and accrued expenses as of December 31, 2021 include $750,000 in connection therewith.
In addition, the Company’s President, Kevin Keough, and Mr. Robert Willis, a company director and Vice Chairman of Capital Markets provided such services to the Company via Navigation. Accordingly, Mr. Keough and Mr. Willis did not receive any direct compensation from the Company between July 21, 2021 (the effective date of their appointment) and December 31, 2021. Instead, Mr. Keough and Mr. Willis were compensated by Navigation. In consideration for such services provided by Navigation to the Company, Navigation was granted 300,000 RSUs that vest over four years, which is being expensed over 4 years, similar to time-based RSUs granted to directors in lieu of director’s fees. With respect to such RSU’s issued to Navigation, selling, general and administrative expenses include stock compensation expenses of $302,000 during the year ended December 31, 2021.
Transactions with Ribbon.
Pursuant to a transition services agreement entered into with Ribbon, a significant stockholder, in connection with the acquisition of Kandy, accounts payable and accrued expenses as of December 31, 2021 include $799,000 due to Ribbon for professional fees provided and certain software and other support. Prepaid expenses and other current assets as of December 31, 2021 include $190,000 due from Ribbon for collections in excess of reimbursable expenses. Also, trade receivables, net as of December 31, 2021 include $2,511,000 due from Ribbon.
Included in the consolidated statement of operations are certain revenues for services provided to Ribbon, certain expenses for services provided by Ribbon and certain expenses for rental of office space from Ribbon. The expenses for services provided by Ribbon relate primarily to professional services provided by Ribbon as part of the transition services agreement and, to a lesser extent, to certain software support purchased from Ribbon. Details of such revenue and expenses are included in the Company’s consolidated financial statements included elsewhere in this Form 10-K.
The 2021 Note
A subordinated Note, which is secured by a related party, is separately identified on the consolidated balance sheet. The related interest expense of $736,000 is included in “Interest expense - related parties” in the consolidated statement of operations for the year ended December 31, 2021 and is also included in “Accounts payable and accrued expenses” on the consolidated balance sheet as of December 31, 2021. The Note was repaid in full on March 15, 2022 out of proceeds received from the sale of Computex.
Services provided by True North Advisory LLC
On January 21, 2022, the Company entered into a Services Agreement (the “Services Agreement”) with True North Advisory LLC (“True North”), a company affiliated with Michael Tessler, the Chairman of the Company’s board of directors.
Pursuant to the Services Agreement, among other things, True North will provide strategic advice with respect to the Company’s business as requested by the Company from time to time, for a fee of $25,000 per month, plus reimbursement for out-of-pocket expenses. The Services Agreement has an initial term of three months, after which it will continue on a month-to-month basis until terminated by either party on 30 days’ prior notice. The Services Agreement contains customary mutual provisions regarding confidentiality and ownership of intellectual property.
Related Party Policy
Our Code of Ethics requires us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the board of directors (or the audit committee). Related-party transactions are defined as transactions in which (1) the aggregate amount involved will or may exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our shares of common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.
Our audit committee, pursuant to the Audit Committee Charter, will be responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. The audit committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable to us than terms generally available from an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related party, but that director is required to provide the audit committee with all material information concerning the transaction. We also require each of our directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions.
These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
As of March 9, 2022, the aggregate fees billed to our Company by UHY LLP for the years ended December 31, 2021 and 2020 were as follows:
Fees Billed by UHY LLP Year Ended
December 31,
Year Ended
December 31,
Audit Fees(1) $ 405,473 $ 381,732
Audit-Related Fees(2) $ - $ 36,388
Tax Fees(3) $ - $ 92,935
All Other Fees(4) $ - $ -
Total $ 405,473 $ 511,055
(1) Audit Fees consist of fees incurred for the audits of our annual financial statements and for the reviews of our unaudited interim consolidated financial statements included in our quarterly reports on Form 10-Q for the applicable quarters of the fiscal year.
(2) Audit-Related Fees consist of all fees incurred related to various SEC filings, consents and proformas.
(3) Tax Fees consist of fees incurred for tax compliance, planning and advisory services and due diligence in connection with planned acquisitions.
(4) All Other Fees consist of products and services provided, other than the products and services described in the other rows of the foregoing table.
Our audit committee has and will pre-approve all auditing services and permitted non-audit services to be performed for us by UHY LLP, including the fees and terms thereof (subject to the de minimus exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit). The audit committee may form and delegate authority to one or more of its members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such members to grant pre-approvals shall be presented to the audit committee at its next scheduled meeting.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
The following documents are filed as part of this report or incorporated herein by reference:
(1) Our Financial Statements are listed on page of this Annual Report
(2) Financial Statements Schedule
None
(3) Exhibits:
The following documents are included as exhibits to this Annual Report:
Exhibit No.
Description
2.1(2)
Business Combination Agreement, dated as of July 24, 2019, by and among Pensare Acquisition Corp., Tango Merger Sub Corp., Stratos Management Systems Holdings, LLC, and Stratos Management Systems, Inc.
2.2(3)
Amendment No. 1 to the Business Combination Agreement, dated as of December 20, 2019, by and among Pensare Acquisition Corp., Tango Merger Sub Corp., Stratos Management Systems Holdings, LLC, and Stratos Management Systems, Inc.
2.3(4)
Amendment No. 2 to the Business Combination Agreement, dated as of April 3, 2019, by and among Pensare Acquisition Corp., Tango Merger Sub Corp., Stratos Management Systems Holdings, LLC, and Stratos Management Systems, Inc.
2.4(7)
Purchase Agreement, dated August 5, 2020, by and among American Virtual Cloud Technologies, Inc., Ribbon Communications Inc., Ribbon Communications Operating Company, Inc. and Ribbon Communications International Limited.
2.5(11)
Amended and Restated Purchase Agreement, dated December 1, 2020, by and among American Virtual Cloud Technologies, Inc., Ribbon Communications Inc., Ribbon Communications Operating Company, Inc. and Ribbon Communications International Limited
3.1(5)
Amended and Restated Certificate of Incorporation.
3.2(1)
Amended and Restated Bylaws.
3.3(4)
Second Amended and Restated Certificate of Incorporation.
4.1(1)
Warrant Agreement, dated as of July 27, 2017, between Pensare Acquisition Corp. and Continental Stock Transfer & Trust Company.
4.2(11)
Form of Debenture
4.3(11)
Form of Warrant
4.4(15)
Specimen Common Stock Certificate
4.5(14)
Form of Indenture
4.6(17)
Series A Warrant, dated November 5, 2021
4.7(17)
Series B Warrant, dated November 5, 2021
4.8(19)
Form of Monroe Warrant.
4.9(19)
Series C Warrant, dated December 2, 2021.
4.10(21)
Series D Warrant, dated December 15, 2021.
4.11(21)
Certificate of Designation of Series A Convertible Preferred Stock, filed December 13, 2021
10.1(h)(1)
Letter Agreement, dated July 27, 2017, among Jose Mas, Pensare Acquisition Corp. and EarlyBirdCapital, Inc.
10.1(i)(1)
Letter Agreement, dated July 27, 2017, among Darrell J. Mays, Pensare Acquisition Corp. and EarlyBirdCapital, Inc.
10.1(j)(1)
Letter Agreement, dated July 27, 2017, among Lawrence E. Mock, Jr., Pensare Acquisition Corp. and EarlyBirdCapital, Inc.
10.1(k)(1)
Letter Agreement, dated July 27, 2017, among Suzanne Shank, Pensare Acquisition Corp. and EarlyBirdCapital, Inc.
10.1(l)(1)
Letter Agreement, dated July 27, 2017, among Rayford Wilkins, Pensare Acquisition Corp. and EarlyBirdCapital, Inc.
10.1(m)(1)
Letter Agreement, dated July 27, 2017, among Dr. Robert Willis, Pensare Acquisition Corp. and EarlyBirdCapital, Inc.
10.2(1)
Investment Management Trust Agreement, dated July 27, 2017, between Pensare Acquisition Corp. and Continental Stock Transfer & Trust Company.
10.3(1)
Stock Escrow Agreement, dated July 27, 2017 by and among Pensare Acquisition Corp., Continental Stock Transfer & Trust Company, Pensare Sponsor Group, LLC and the other parties thereto.
10.4(1)
Registration Rights Agreement, dated July 27, 2017 by and between Pensare Acquisition Corp. and the other parties thereto.
10.5(a) (1)
Warrant Purchase Agreement, dated July 27, 2017 by and between Pensare Acquisition Corp. and MasTec, Inc.
10.5(b) (1)
Warrant Purchase Agreement, dated July 27, 2017 by and between Pensare Acquisition Corp. and Pensare Sponsor Group, LLC.
10.5(c) (1)
Warrant Purchase Agreement, dated July 27, 2017 by and between Pensare Acquisition Corp. and EarlyBirdCapital, Inc.
10.6(1)
Administrative Services Agreement, dated July 27, 2017 by and between Pensare Acquisition Corp. and Pensare Sponsor Group, LLC.
10.7(1)
Right Agreement, dated July 27, 2017 by and between Pensare Acquisition Corp. and Continental Stock Transfer & Trust Company.
10.8(1)
Letter Agreement, dated July 27, 2017 by and between Pensare Acquisition Corp. and EarlyBirdCapital, Inc.
10.9(1)
Form of Unit Purchase Option.
10.10(6)
Form of Indemnification Agreement for officers, directors and special advisors.
10.11(4)
Securities Purchase Agreement, dated as of April 3, 2020.
10.12(7)
Voting Agreement, dated August 5, 2020, by and among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and Pensare Sponsor Group, LLC.
10.13(7)
Voting Agreement, dated August 5, 2020, by and among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and Stratos Management Systems Holdings, LLC.
10.14(8)
Employment Agreement between the Company and Xavier Williams.
10.15(9)
Fifth Amendment to Credit Agreement, dated November 13, 2020.
10.16(10)
Services Agreement, dated as of March 4, 2021, between American Virtual Cloud Technologies, Inc., and Navigation Capital Partners, Inc.
10.17(11)
Employment Agreement between the Company and Michael Dennis.
10.18(11)
Employment Agreement between the Company and Thomas King.
10.19(11)
Form of Guaranty of Debentures
10.20(11)
Amended and Restated Voting Agreement, dated December 1, 2020, by and among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and Pensare Sponsor Group, LLC.
10.21(11)
Amended and Restated Voting Agreement, dated December 1, 2020, by and among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and Stratos Management Systems Holdings, LLC
10.22(11)
Investor Rights Agreement, dated December 1, 2020, by and among American Virtual Cloud Technologies, Inc., Ribbon Communications Inc., Pensare Sponsor Group, LLC and Stratos Management Systems Holdings, LLC
10.23(11)
Securities Purchase Agreement, dated December 1, 2020, by and between American Virtual Cloud Technologies, Inc. and SPAC Opportunity Partners Investment Sub LLC
10.24(11)
Amendment and Joinder to Registration Rights Agreement, dated December 1, 2020, by and among American Virtual Cloud Technologies, Inc. and the Holders Party thereto
10.25(11)
Sixth Amendment to Loan Documents, dated as of December 1, 2020
10.26(12)
Seventh Amendment to Loan Documents, dated as of June 24, 2021.
10.27(13)
Separation Agreement and Release between the Company and Xavier Williams.
10.29(16)
Securities Purchase Agreement, dated as of November 2, 2021
10.30(17)
Registration Rights Agreement, dated November 5, 2021
10.31(19)
Credit Agreement, dated December 2, 2021
10.32(19)
Amendment and Waiver, dated December 2, 2021
10.1(19)
Credit Agreement, dated December 2, 2021.
10.2(19)
Registration Rights Agreement, dated December 2, 2021.
10.3(19)
Amendment and Waiver, dated December 2, 2021.
10.4(19)
Form of Voting Agreement.
10.5(19)
Subscription Agreement, dated December 2, 2021.
10.6(19)
Amended and Restated Promissory Note, dated December 2, 2021.
10.1(20)
Securities Purchase Agreement, dated as of December 13, 2021
10.1(21)
Registration Rights Agreement, dated December 15, 2021.
14(6)
Code of Ethics.
21.1*
List of subsidiaries.
23.1*
Consent of UHY, LLP.
99.1(6)
Audit Committee Charter.
99.2(6)
Compensation Committee Charter.
99.3(6)
Nominating Committee Charter.
99.4(22)
Waiver, dated December 28, 2021.
31.1*
Certification of the Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).
31.2*
Certification of the Principal Financial and Accounting Officer required by Rule 13a-14(a) or Rule 15d-14(a).
32.1**
Certification of the Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
101.INS***
Inline XBRL Instance Document
101.SCH***
Inline XBRL Taxonomy Extension Schema Document.
101.CAL***
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF***
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB***
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE***
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** Furnished herewith.
*** XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
(1) Incorporated by reference to an exhibit to the Company’s current report on Form 8-K filed with the SEC on August 2, 2017.
(2) Incorporated by reference to an exhibit to the Company’s current report on Form 8-K filed with the SEC on July 30, 2019.
(3) Incorporated by reference to an exhibit to the Company’s current report on Form 8-K filed with the SEC on December 30, 2019.
(4) Incorporated by reference to an exhibit to the Company’s current report on Form 8-K filed with the SEC on April 7, 2020.
(5) Incorporated by reference to an exhibit to the Company’s current report on Form 8-K filed with the SEC on April 30, 2019.
(6) Incorporated by reference to an exhibit to the Company’s Form S-1/A, filed with the SEC on July 24, 2017.
(7) Incorporated by reference to an exhibit to the Company’s current report on Form 8-K filed with the SEC on August 11, 2020.
(8) Incorporated by reference to an exhibit to the Company’s Form current report on Form 8-K filed with the SEC on September 16, 2020.
(9) Incorporated by reference to an exhibit to the Company’s Form 10-Q, filed with the SEC on November 16, 2020.
(10) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on March 5, 2021.
(11) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on December 7, 2020.
(12) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on June 25, 2021.
(13) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on July 22, 2021.
(14) Incorporated by reference to an exhibit to the Company’s Form S-3/A, filed with the SEC on August 25, 2021.
(15) Incorporated by reference to an exhibit to the Company’s Form S-1, filed with the SEC on April 29, 2020.
(16) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on November 3, 2021.
(17) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on November 8, 2021.
(19) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on December 3, 2021.
(20) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on December 13, 2021.
(21) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on December 16, 2021.
(22) Incorporated by reference to an exhibit to the Company’s Form 8-K, filed with the SEC on December 29, 2021.