UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

or

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

For the transition period from            to

Commission file number: 000-31355

FTE NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 1-877-878-8136

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

Securities registered pursuant of section 12(g) of the Act: None

Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule-405 of the Securities Act. [  ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ] Yes [X] No

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [  ] Yes [X] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

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

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

The aggregate market value of the registrant’s outstanding common stock held by non-affiliates as of June 30, 2019, was approximately $10.1 million.

On May 1, 2020, there were 25,572,148 shares of common stock outstanding.

FTE NETWORKS, INC.

FORM 10-K

TABLE OF CONTENTS

EXPLANATORY NOTE

This Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”) contains a restatement of the consolidated financial statements of FTE Networks, Inc. and its Subsidiaries (collectively, the “Company”) as of and for the year ended December 31, 2017, filed (and amended on April 30, 2018) with the Securities and Exchange Commission (the “SEC”) on April 18, 2018 (the “2017 Form 10-K”).

The decision to restate these financial statements stems from an announcement on April 2, 2019 on Form 8-K in which the Company determined that the previously issued audited financial statements as of and for the year ended December 31, 2017, and interim reviews to the financial statements for the periods ended March 31, June 30 and September 30, 2018 and 2017, should no longer be relied upon. The conclusion to prevent future reliance on the aforementioned financial statements resulted from the determination that such financial statements failed to properly account for certain convertible notes and other potentially dilutive securities.

Accordingly, the Company is filing this 2018 Form 10-K pursuant to Rule 8-02 of Regulation S-K and including the audited financial statements for the years ended December 31, 2018 and 2017. Therefore, any effects of error from the period prior to January 1, 2017 have been restated as of January 1, 2017, in the balance sheet. We have also restated the unaudited interim quarterly condensed consolidated financial statements as of and for the periods ended March 31, June 30, and September 30, 2018 and 2017 which are included in the footnotes to the financial statements filed within this 2018 Form 10-K. The sole purpose of these restatements is to correct the consolidated balance sheets and the statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows and related footnote disclosures as of and for the year ended December 31, 2017, and as of and for the periods ended March 31, June 30, and September 30, 2018 and 2017, for the following:

See Part 1, Item 1 Business, Recent Developments “Internal Investigation”

Additionally, as of the filing date of this report, the business of the Company has substantially changed as described in Part I, Item 1 of this report under the heading “Business”.

PART I

DEFINITIONS

In this Annual Report on Form 10-K, the words “FTE”, the “Company”, the “Registrant”, “we”, “our”, “ours” and “us” refer to FTE Networks, Inc. and, except as otherwise specified herein, to our subsidiaries.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes certain statements that may be deemed “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, all of which are based upon various estimates and assumptions that the Company believes to be reasonable as of the date hereof. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “seek,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. These statements involve risks and uncertainties that could cause the Company’s actual future outcomes to differ materially from those set forth in such statements. Such risks and uncertainties include, but are not limited to:

You should understand that the foregoing, as well as other risk factors discussed in this document, including those listed in Part I, Item 1A of this report under the heading “Risk Factors”, could cause future outcomes to differ materially from those experienced previously or those expressed in such forward-looking statements. The Company undertakes no obligation to publicly update or revise any information, including information concerning its net operating losses, borrowing availability or cash position, or any forward-looking statements to reflect events or circumstances that may arise after the date of this report. Forward-looking statements are provided in this Annual Report on Form 10-K pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of the estimates, assumptions, uncertainties and risks described herein.

Item 1. Business.

The following historical business description should be read in conjunction with the Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Our Corporate History

The Company was originally incorporated in the state of Nevada in May 2000 as Galaxy Specialties, Inc. On March 13, 2014, following a series of mergers, acquisitions and business combinations, the Company changed its name from Beacon Enterprise Solutions Group, Inc. to FTE Networks, Inc. The Company is headquartered in New York, New York.

Prior to October 2019, the Company was a provider of end-to-end design, construction management, build and support solutions for networks, data centers, residential, and commercial properties and services at Fortune 100/500 companies (our “Historical Business”). The Company’s primary activities included engineering, building, installation, maintenance and support solutions for state-of-the-art networks and commercial properties, including the following services: data-center infrastructure, fiber optics, wireless integration, network engineering, internet service provider, general contracting management and general contracting.

The Company had three operating subsidiaries:

Our Current Business and Corporate Strategy

Following a year of corporate and financial restructuring in response to the findings of an internal investigation (see Item 1. Business “Recent Developments”) which examined the acts and omissions of certain former officers and directors, and the loss of our principal operating subsidiary through a foreclosure by our former senior secured lenders, the Company was presented with an opportunity to acquire a real estate portfolio consisting of approximately 3,200 rental homes across the United States moving FTE into a new direction which current management believes offers substantial opportunity for the benefit of shareholders. Accordingly, on December 30, 2019, FTE acquired nearly 3,200 real estate properties by and through its newest subsidiary, US Home Rentals, LLC (the “Vision Transaction”).

RECENT DEVELOPMENTS

Internal Investigation

In current reports on Form 8-K filed on March 11, 2019 and March 22, 2019, the Company disclosed that it had entered into certain securities purchase agreements (the “Purchase Agreements”) with certain investors (the “Investors”), which the Company sold an aggregate principal amount of $22,700,000 in convertible notes (the “Notes”) between January 2017 and January 2019. Approximately $9,800,000 of principal and interest had been converted into 5,186,306 shares of the Company’s common stock through March 19, 2019. These issuances were not supported by a listing application with the New York Stock Exchange (“Exchange’), which resulted in the Company receiving a public reprimand letter from the NYSE Regulation Staff of the Exchange on March 25, 2019. On March 22, 2019, the Company announced the initiation of an independent investigation (the “Investigation”) of these issuances and engaged K&L Gates LLP and Credibility International, LLC, an independent forensic accounting firm (together, the “Team”) to conduct the Investigation.

Scope of the Investigation

The Investigation focused primarily on the following areas: (i) whether prior management, including former Chief Executive Officer (“former CEO”), Michael Palleschi, and former Chief Financial Officer (“former CFO”), David Lethem, had proper authorization to issue the Notes; (ii) whether the Company properly accounted for and disclosed certain expenses incurred by prior management; (iii) the use of personal credit cards by employees to pay routine Company expenses; (iv) whether the Company properly entered into and disclosed certain related party transactions (v) whether certain transactions were improperly reported to increase revenue; (vi) the payment of certain wage and salary amounts to employees; (vii) the Company’s interactions with its external auditors and (viii) issues related to Mr. Palleschi’s compensation.

In connection with the Investigation, the Team visited the Company’s Naples, Florida office and collected hard copy documents, created images of electronic equipment belonging to various members of the prior management team, copied many folders from the Company’s SharePoint database, conducted interviews with sixteen individuals, and collected and processed over four hundred thousand e-mails and documents.

Findings of the Investigation

The Team found the following:

1. Issuances of the Notes.

In numerous instances, prior FTE management, including Mr. Palleschi and Mr. Lethem, caused the Company to issue the Notes as well as other financings without proper Board authorization. Specifically, the Team found: (i) several issuances for which the supporting resolutions did not comply with Nevada state law and the Company’s bylaws; (ii) several issuances for which there were no Board resolutions; and (iii) several issuances for which the supporting resolutions had been falsified. Moreover, the prior management caused the Company to make incomplete disclosures about the Notes in its required SEC filings for fiscal year 2017 and the first three quarters of fiscal year 2018. Notably, because of the prior management, the Company did not disclose that each of the Notes contained a conversion feature that allowed the holders of the Notes to convert the debt into the Company’s common stock.

2. Reimbursement of Expenses and the Use of Personal Credit Cards for Business Expenses.

The Investigation revealed that prior management misused Company funds for personal expenses, including charter flights and automobile leases. The Team also found that prior management instructed FTE employees to charge FTE-related business expenses to their personal credit cards from 2018 forward. However, the Team found that the expenses charged pursuant to such instruction were largely business-related.

3. Related Party Transactions.

The Team found that prior management caused the Company to engage in numerous related party transactions, some of which were implemented to the Company’s detriment and were not disclosed properly or were not disclosed at all. Such transactions included loans provided to the Company by former officers and directors, as well as instances of deferred salary or deferred bonus pay. The Team identified transactions between the Company and former officers or directors, as well as between the Company and entities controlled by former officers or directors.

4. Revenue Recognition and Interaction with Auditors

The Team found that prior management caused the Company to improperly recognize revenue in 2016 and 2017. The revenue was recorded to unbilled Accounts Receivable and later written off in three separate transactions during 2018. The Team also found that members of prior management provided inaccurate and incomplete statements to the Company’s former independent registered public accounting firm, Marcum LLP (“Marcum”), regarding the basis for recognizing the revenue.

5. Payment of Certain Wages, Salary Amounts, and Payroll Expenses

The Team found that the Company’s former CEO, Mr. Palleschi, engaged in improper conduct in connection with his compensation including the following: (i) Mr. Palleschi, without proper authorization, caused the Company to amend his employment agreement, significantly increasing his salary and bonus pay; (ii) Mr. Palleschi, without proper authorization, caused the Company to grant him deferred compensation and to issue “demand notes,” which characterized the deferred compensation as debt of the Company owed to Mr. Palleschi, this mischaracterization resulted in the Company making three substantial wire transfers to Mr. Palleschi to pay him the amounts he was owed on the “demand notes; and (iii) Mr. Palleschi, without proper authorization, caused the Company to enter into a release agreement under which the Company agreed to pay amounts purportedly owed to Messrs. Palleschi and Lethem, in exchange for a mutual release. The Team also found that each of the payments noted above were made without the required withholding of income taxes. In addition, the Team identified multiple instances where Messrs. Palleschi and Lethem made or attempted unsupported cash payments to themselves and certain family members, through direct wire transfers, PayPal and other means. Furthermore, the Team identified three instances in which the Company paid each of its employees through direct wire transfer rather than through its outside payroll processing firm. In each instance the Company wired the amount due, net of income taxes, but failed to remit payroll taxes.

Further to the findings of the investigation as noted above, the Company also has found that former management created and distributed false and misleading documents to its internal accounting staff resulting in improper accounting for (i) convertible notes by removing certain language regarding conversion features and registration rights, (ii) revenue recognition by falsifying support for unbilled revenue, (iii) compensation and characterization of certain cash disbursements, (iv) related party transactions and (v) equity issuances which were later determined to be improperly authorized, and other issues. The Company also found that former management withheld requested documentation and similarly provided false and misleading documents to its former independent registered public accounting firm.

Remediation

The Company self-reported the matters raised in the Investigation to both the U.S. Securities and Exchange Commission (“SEC”) and the New York County District Attorney’s Office (“NYCDA”), and kept both agencies, along with the U.S. Attorney’s Office for the Southern District of New York (“SDNY”), updated on its progress throughout the Investigation. The Company continues to cooperate with all three agencies.

The Company has also taken numerous remedial actions in response to the findings of the Investigation. Most notably, the Company has made dramatic changes to its management team, completely replacing senior management, including Messrs. Palleschi and Lethem as well as a majority of the former Board of Directors. The Company has also restated its financial statements for fiscal year 2017 and the periods ended March 31, June 30 and September 30, 2018 and 2017, as discussed below. Among other things, the restatement corrects the improperly recognized revenue identified by the Investigation and accounts for the convertible feature of the Notes. In addition, the Company has taken significant steps to improve its policies and procedures and internal controls relating to, among other things, the following: (i) tracking, approving and disclosing all issuances of equity and debt; (ii) its expense reimbursement policy; and (iii) tracking, approving and disclosing related party transactions. See “Item 9A Controls and Procedures”.

Finally, to remedy deficiencies in its equity issuances, the Board of Directors held a total of four special meetings on April 29, May 7, May 8, and May 13, 2019, respectively, at which it reviewed all equity issuances and decided which issuances were (i) valid; (ii) noncompliant but should be ratified; (iii) noncompliant but would not be challenged; and (iv) noncompliant and should be nullified. As a result, certain issuances to convertible noteholders, current and former personnel and related parties were nullified. Additionally, the Company sent a letter to its shareholders, dated May 23, 2019, to notify them of noncompliant issuances that were approved and validated during the Board’s review.

Departure of Executive Officers

On January 17, 2019, Lynn Martin, the Company’s then-Chief Operating Officer, resigned from the Company, effective January 25, 2019.

On January 19, 2019, Michael Palleschi, was granted a temporary leave of absence by the Board. On May 11, 2019, Mr. Palleschi notified the Company of his resignation from the Company’s Board and as the Company’s CEO. On May 13, the Board accepted Mr. Palleschi’s resignation from the Board, without compensation and without a release, and terminated his employment as the Company’s CEO on May 13, 2019.

On January 19, 2019, Anthony Sirotka, the Company’s former Chief Administrative Officer, was appointed as the Company’s Interim CEO. On June 27, 2019, Mr. Sirotka was placed on administrative leave. Mr. Sirotka resigned on October 2, 2019.

On March 11, 2019, David Lethem, the former CFO, resigned from the Company, effective March 11, 2019.

Non-Reliance on Previously Issued Financial Statements

The Company announced on April 2, 2019 that the Audit Committee (“Audit Committee”) of FTE, following a communication by Marcum, LLP, the Company’s former registered independent public accounting firm, concluded that previously issued audited financial statements as of and for the year ended December 31, 2017, and interim reviews of the financial statements for the periods ended March 31, June 30, and September 30, 2018 and 2017, should no longer be relied upon. The conclusion to prevent future reliance on the aforementioned financial statements resulted from the determination that such financial statements failed to properly account for certain convertible notes and other potentially dilutive securities. Specifically, the Company identified a potential issue related to the accounting related to certain convertible notes and other potentially dilutive securities the Company issued in 2017, 2018, and during January of 2019.

On June 11, 2019, the Audit Committee, following a communication by Marcum, concluded that the Company’s previously issued audited financial statements as of and for the years ended December 31, 2017 and 2016 and completed interim reviews for the periods ended March 31, June 30, and September 30, 2018, 2017 and 2016 should no longer be relied upon. The conclusion on June 11, 2019 to add the aforementioned 2016 financial statements to those statements which should no longer be relied upon resulted from determinations made as part of the Company’s ongoing restatement effort that certain items, including revenues originally recognized in 2016, should no longer be recognized.

Amendment No. 4 to Lateral Credit Agreement

On February 12, 2019, the Company and certain of its wholly-owned subsidiaries entered into Amendment No. 4 (the “Fourth Amendment”) to the credit agreement dated October 28, 2015, by and among Jus-Com, Inc., certain other Company subsidiaries, Lateral Juscom Feeder LLC (“Lateral”) and several lenders party thereto (together with Lateral, the “Lenders”) (as amended, the “Credit Agreement”). The Fourth Amendment provided for, among other things, $12,632,000 in delayed draw loans (the “Delayed Draw Term Loans”). The Delayed Draw Term Loans had a maturity date of March 31, 2019, and an interest rate of 12% and 4% of paid in kind interest, payable quarterly in arrears according to the terms of the Credit Agreement. In addition, the Company and the Lenders agreed to enter into a restructuring services agreement, in form and substance acceptable to the Lenders in their sole discretion, on or prior to February 28, 2019, which date was extended on several occasions by the parties. Lateral is controlled by Richard de Silva, who joined the Company’s Board of Directors on October 18, 2019.

The Fourth Amendment also provided for (i) amendments to the employment agreements between Benchmark, our former principal operating subsidiary, and Fred Sacramone and Brian McMahon, the founders of Benchmark who sold Benchmark to the Company in April of 2017 (the “Benchmark Sellers”); (ii) the issuance of a promissory note to Fred Sacramone for cash received in the principal amount of $1,000,000 (the “Sacramone Bridge Note”), which note originally matured on March 31, 2019, and was subsequently amended and restated on July 2, 2020 to extend the maturity date to September 30, 2020, and for which Mr. Sacramone was issued 356,513 shares of the Company’s common stock; (iii) the appointment of a finance transformation officer (who was acting in the capacity of Chief Financial Officer from January 23, 2019 through July 15, 2019); and (iv) the issuance of an aggregate of 1,698,580 shares of the Company’s common stock to the Lenders.

Restructuring of Lateral Credit Agreement and Designation of Series H Preferred Stock

On July 2, 2019, the Company completed the debt restructuring contemplated under the Fourth Amendment by entering into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”) among the Company, Lateral and several Lenders. The Company also amended and restated the Series A convertible notes (as amended, the “Series A Notes”), Series B promissory notes (as amended, the “Series B Notes”) issued to the Benchmark Sellers, and the Sacramone Bridge Note (together with the Series A Notes and the Series B Notes, the “Benchmark Notes”).

Amended and Restated Credit Agreement Summary

Pursuant to the Amended and Restated Credit Agreement, the Delayed Draw Term Loans, which were continued as super senior term loans with an aggregate outstanding balance of $12,900,000 (the “Super Senior Term Loans”) were amended to: (i) extend the maturity to September 30, 2020; (ii) amend the interest rate to 12% per annum payable in cash; (iii) add a 4% extension fee to the principal amount (subject to reduction); and (iv) provide for monthly amortization payments based on available cash flow. In addition, the existing term loans under the Credit Agreement, with an aggregate balance of approximately $37,900,000 (“Lateral’s Existing Term Loans”) were amended to: (i) extend the maturity to April 30, 2021; (ii) amend the interest rate to 12% per annum payable in cash; (iii) add a 4% extension fee to the principal amount thereof (subject to reduction); and (iv) include monthly amortization payments based on available cash flow.

As consideration for the Amended and Restated Credit Amendment, the Company issued to the Lenders 1,500,000 shares of the Company’s common stock and warrants (the “Warrants”) exercisable to purchase 3,173,731 shares of the Company’s common stock (collectively, the “Lender Securities”) with an initial exercise price of $3.00 per share. Pursuant to the terms of the Warrants, in the event the Super Senior Term Loans were not paid and satisfied by October 31, 2019, the exercise per share of half of the Warrants would be automatically reset to $0.01 and in the event the Super Senior Term Loans were not paid by December 31, 2019, the exercise per share of the other half of the Warrants would be automatically reset to $0.01. The Company also agreed that on December 31, 2019, the aggregate number of shares of the Company’s common stock issuable upon exercise of the Warrants would be automatically adjusted on December 31, 2019 such that that Lateral and its affiliates would beneficially own, in the aggregate, inclusive of all shares of the Company’s common stock previously issued, 25% of the outstanding shares of the Company’s common stock on a fully-diluted basis, subject to certain exceptions.

As additional consideration for the Amended and Restated Credit Agreement, the Company and Lateral entered into a registration rights agreement (the “Registration Rights Agreement”) whereby the Company agreed to register the Company’s common stock issued to Lateral. The Company and Lateral also entered into an investor rights agreement (the “Investor Rights Agreement”) whereby the Company agreed that within sixty days of its execution, the Company would set the number of directors on its Board of Directors at seven and Lateral would be entitled to nominate one of such seven directors.

Series A Notes and Series B Notes & Designation of Series H Preferred Stock

The Series A Notes and Series B Notes were also amended to extend the maturity date to July 30, 2021 and to amend the interest rate to 8% per annum to be paid in kind until the borrowings under the Amended and Restated Credit Agreement were repaid in full. The Sacramone Bridge Note was amended to extend the maturity date to September 30, 2020, to capitalize the accrued interest as of July 2, 2019 and to provide for monthly cash interest payments. Additionally, all of the foregoing notes were amended to provide for monthly amortization payments based on available cash flow.

As consideration for amending and restating the Benchmark Notes, the Company entered into subscription agreements (the “Subscription Agreements”) pursuant to which it issued to the Benchmark Sellers an aggregate of 1,951 shares of the Company’s Series A Preferred Stock and 296 shares of the Company’s Series A-1 Preferred Stock (collectively, the “Series A Preferred”), which the Benchmark Sellers immediately exchanged, pursuant to exchange agreements (the “Exchange Agreements”), for an aggregate of 100 shares of a new series of preferred stock (the “Series H Preferred,” and together with the Series A Preferred, the “Preferred Stock”). The Series H Preferred had no dividend rights, no liquidation preference, was not convertible and had perpetual voting rights equivalent to 51% of the total number of votes that could be cast by all outstanding shares of capital stock of the Company.

Foreclosure by Senior Secured Lenders

During July 2019, the Company was notified that judgments had been entered against the Company in favor of six holders of the Company’s convertible notes in the state of New York. Certain of these convertible noteholders sought to levy against the bank account of the Company’s former subsidiary, Benchmark, and filed an order directing the Company to turn over all of the Company’s assets. The Company’s failure to satisfy, vacate or stay these judgments constituted an event of default under the Credit Agreement.

As a result, on October 10, 2019, the Company consented to a Proposal for Surrender of Collateral and Strict Foreclosure (the “Foreclosure Proposal”), from Lateral, Lateral Builders LLC (“Lateral Builders”) and Benchmark Holdings, LLC (“Benchmark Holdings” and together with Lateral Recovery LLC (“Lateral Recovery”), the (“Foreclosing Lenders”)), pursuant to which the Lenders took possession and ownership of the Subject Collateral (see below) by means of a strict foreclosure by the Foreclosing Lenders (the “Benchmark Foreclosure”). 

Pursuant to the Foreclosure Proposal, the Company transferred; (i) to Benchmark Holdings all of its (a) equity interests in Benchmark, the Company’s principal operating subsidiary, and (b) cash on hand in excess of levels specified in the Foreclosure Proposal; and (ii) to Lateral Recovery, all of the Credit Parties’ interests in certain commercial tort litigation claims, fraud claims, and insurance claims as specified in the Foreclosure Proposal (collectively, the “Subject Collateral”).

Also pursuant to the Foreclosure Proposal, Benchmark transferred $3,000,000 of cash to the Company. Additionally, Benchmark agreed to make a monthly cash payment to the Company, in the amount of $300,000 per month (the “Working Capital Cash Payments”), for purposes of funding certain of the Company’s remaining obligations related to accounts payable, indebtedness for borrowed money, convertible note obligations and other matters specified in the Foreclosure Proposal (the “Remainder Obligations”). Working Capital Cash Payments were to continue until the earlier of (i) October 10, 2021, (ii) the repayment in full of the Remainder Obligations or (iii) the occurrence of a Working Capital Termination Event (as defined in the Foreclosure Proposal). The cash infusion and Working Capital Cash Payments provided the opportunity for the Company to receive total cash payments of up to $10,200,000 over the next 24 months. Benchmark made a total of two Working Capital Cash Payments to the Company—one in each of the months of November and December of 2019—for aggregate Working Capital Cash Payments of $600,000.

Benchmark Holdings, as the holder of the following of the Company’s obligations, absolutely and unconditionally released and forever discharged the Company and the other Credit Parties from certain indebtedness previously held by Niagara Nominee L.P. totaling $4,900,000, Lateral’s Existing Term Loans totaling $42,300,000 and the Super Senior Term Loans totaling $13,500,000 as each such term is defined in the Credit Agreement. Accordingly, Lateral’s Existing Term Loans and the Super Senior Term Loans were deemed fully paid and satisfied.

Additionally, pursuant to an Agreement Regarding Debt and Series H Preferred Stock (the “Debt and Series H Agreement”), dated October 10, 2019, entered into between the Company and Fred Sacramone and Brian McMahon, Messrs. Sacramone and McMahon released the Company and its affiliates from (i) all obligations represented by the Sacramone Bridge Note per the Credit Agreement, which had an outstanding amount equal to approximately $1,030,000 and (ii) indebtedness represented by the Series B Notes in the amount of $19,000,000. As a result, the total amount remaining outstanding under the Series A Notes and Series B Notes was $28,000,000 (the “Remaining Indebtedness”) with a due date of December 31, 2019.

The total debt relief provided pursuant to the Foreclosure Proposal and the related agreements and arrangements equaled an aggregate of $80,700,000.

In accordance with the Debt and Series H Agreement, the Remaining Indebtedness was to be automatically released and discharged as of December 31, 2019 unless (i) on or before November 10, 2019, the Company entered into a business combination transaction that enabled the Company’s common stock to remain listed on the NYSE American Exchange or any other U.S. national securities exchange and (ii) such business combination transaction was consummated on or before December 31, 2019 (such transaction, a “Qualified Business Combination”). Additionally, the Debt and Series H Agreement also required Messrs. Sacramone and McMahon to sell their shares of Series H Preferred Stock to the Company for a nominal price in the event an agreement for a Qualified Business Combination was entered into on or before November 10, 2019, and such Qualified Business Combination was consummated on or before December 31, 2019.

On November 8, 2019, the Company and Messrs. Sacramone and McMahon entered into an amendment to the Debt and Series H Agreement, pursuant to which the parties agreed to extend the date by which an agreement for a Qualified Business Combination must be entered into from November 10, 2019 to December 31, 2019 and to extend the date by which a Qualified Business Combination must close from December 31, 2019 to February 28, 2020.

On December 23, 2019, the Company entered into a separate agreement with Messrs. Sacramone and McMahon pursuant to which the Company repurchased all outstanding shares of its Series H Preferred Stock from Messrs. Sacramone and McMahon for a payment of $1.00 per share, as a result of which no shares of Series H Preferred Stock remain outstanding.

The Remaining Indebtedness remains an unpaid and outstanding Company liability. As of December 31, 2019, the outstanding balance of the Remaining Indebtedness was $28,280,465, including principal of $28,000,000 and paid in kind interest of $280,465 (subject to the adjustment described below).

In order to facilitate the continued inflow of additional cash infusions from Benchmark and other agreements pertaining to the Remaining Indebtedness, the Board also determined that, as result of the completion of the Vision Transaction, Benchmark would no longer be obligated to continue making Working Capital Cash Payments to the Company. On January 10, 2020, Benchmark loaned $300,000 to the Company with a maturity date of October 1, 2020 and an annual interest rate of 10%. Furthermore, on January 27, 2020, the Company issued two senior promissory notes to Benchmark, one in the principal amount of $4,129,000 and the other in the principal amount of $600,000 (collectively, the “Senior Notes”), each such note secured by all of the Company’s non-real estate assets. The $4,129,000 note, which matures on December 1, 2020 and has an interest rate of 10%, obligates the Company to repay all monies previously paid or transferred to the Company pursuant to the Foreclosure Proposal, including (i) $3,000,000 in cash; (ii) two Working Capital Cash Payments totaling $600,000; and (iii) approximately $500,000 in cash remaining in a Benchmark bank account, was issued in consideration of a $6,000,000 reduction to the $28,000,000 Remaining Indebtedness. The $600,000 note, which matures on December 1, 2020 and has an interest rate of 10%, was issued to evidence the loan received by Benchmark on January 10, 2020 in the principal amount of $300,000 and an additional $300,000 loan from Benchmark received on January 27, 2020. As of the date of this filing the Remaining Indebtedness is $22,228,356 which includes $22,000,000 of principal, $155,106 of paid in kind interest and accrued interest of $73,250.

On May 1, 2020, the parties entered into a second amendment to the Debt and Series H Agreement (the “Second Amendment”) pursuant to which Messrs. Sacramone and McMahon agreed to release and forever discharge the Remaining Indebtedness on the date on which the NYSE American Exchange files a Form 25 with the Securities and Exchange Commission (the “SEC”), delisting the Company’s common stock (the “Termination Date”), provided that in no event shall the Termination Date be any sooner than July 1, 2020 or any later than October 1, 2020.

Appointment of New Board and Committee Members

On April 1, 2019, James E. Shiah was appointed to the Board, effective April 15, 2019. Mr. Shiah joined then-directors Luisa Ingargiola, Christopher Ferguson, Patrick O’Hare, Brad Mitchell, and Fred Sacramone.

On May 29, 2019, Ms. Ingargiola and Messrs. Ferguson, O’Hare, and Mitchell resigned from the Board.

Jeanne Kingsley and Stephen Berini were appointed to the Board, effective June 10, 2019. Ms. Kingsley and Mr. James Shiah were appointed to the Audit Committee, which committee Mr. Shiah chaired. Mr. Shiah was also appointed to the Company’s Compensation Committee and its Nominating and Corporate Governance Committee. On June 24, 2019, Richard Omanoff was appointed to the Board and to be chair of the Nominating and Corporate Governance Committee. Mr. Omanoff was joined by Irving Rothman, who was appointed to the Board, effective June 25, 2019 and was appointed to the Company’s Audit, Compensation, and Nominating and Corporate Governance Committee.

On September 16, 2019, Irving Rothman resigned from the Board, followed by James Shiah, Jeanne Kingsley, and Stephen Berini who all resigned from the Board effective October 9, 2019.

On October 18, 2019, concurrent with the resignation of Fred Sacramone and Richard Omanoff, the Board appointed Michael P. Beys, Joseph F. Cunningham, Jr., Richard de Silva and Peter Ghishan as directors. The Board determined that each of Messrs. Beys, Cunningham and Ghishan is “independent” under NYSE American listing standards and other governing laws and applicable regulations, including Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Accordingly, Messrs. Cunningham and Ghishan were appointed to serve on the Audit Committee. Mr. Cunningham was appointed to serve as the chair of the Audit Committee and the Board determined that he was financially sophisticated as defined in the NYSE American governance standards. Messrs. Beys and Cunningham were appointed to serve on the Compensation Committee and Messrs. Beys and Ghishan were appointed to serve on the Nominating and Corporate Governance Committee.

Appointment of Interim CEO

On June 13, 2019, the Board of Directors appointed Fred Sacramone as the Company’s Co-Interim Chief Executive Officer. On June 27, 2019, the Board of Directors appointed Mr. Sacramone as the Company’s Interim Chief Executive Officer. Mr. Sacramone resigned on October 21, 2019, concurrent with the appointment of Stephen M. Goodwin.

Appointment of Interim CEO

On October 21, 2019, the Board of Directors appointed Stephen M. Goodwin as the Company’s Interim Chief Executive Officer. Mr. Goodwin replaced Fred Sacramone, who resigned concurrent with Mr. Goodwin’s appointment.

Appointment of Interim CEO

On December 11, 2019, the Board of Directors appointed Michael P. Beys as the Company’s Interim Chief Executive Officer. Mr. Beys replaced Stephen M. Goodwin, who resigned concurrent with Mr. Beys appointment. The Board of Directors appointed Mr. Goodwin as the Company’s Executive Vice President of Operations. Upon Mr. Beys’ appointment as Interim Chief Executive Officer, the Board of Directors determined that he no longer qualified as “independent” under NYSE American listing standards and applicable regulations, including Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Accordingly, the Board of Directors replaced Mr. Beys on the Compensation Committee with Mr. Ghishan and replaced Mr. Beys on the Nominating and Corporate Governance Committee with Mr. Cunningham.

Suspension of Trading of Common Stock

During March 2019, the Company received a series of letters from the NYSE American concerning its failure to comply with various continued listing requirements under the NYSE American Company Guide. On December 17, 2019, the Company received a letter from the staff of NYSE Regulation (the “Staff”), on behalf of the Exchange, stating that it had determined to commence proceedings to delist the Company’s common stock from the Exchange because, according to the Exchange, the Company or its management had engaged in operations that, in the opinion of the Exchange, were contrary to the public interest. On December 17, 2019 at market close, the Company’s common stock was suspended from trading on the NYSE American Market. The Company appealed this determination to the NYSE Listing Qualifications Panel (the “Panel”) of the Exchange’s Committee for Review, and a hearing regarding the Company’s continued listing was held on February 13, 2020. On March 9, 2020, the NYSE Office of General Counsel notified the Company that the Panel had determined to affirm the Staff’s decision to delist the Company’s shares from NYSE. The Company has since initiated steps to seek review of and/or appeal the Panel’s determination.

As of the date of the filing of this report, the Company’s common stock was listed on the NYSE American Market under the symbol FTNW but continued to be suspended from trading. In the event the common stock is delisted from the NYSE American Market, the Company intends to pursue other opportunities to have the common stock traded on a stock market, which may include one of the trading platforms operated by OTC Markets Group or another stock market.

Acquisition of Vision Property Assets

On December 20, 2019, the Company entered into a purchase agreement (the “Vision Purchase Agreement”) with (i) US Home Rentals LLC, a Delaware limited liability company and direct wholly owned subsidiary of FTE (“Acquisition Sub”), (ii) the holders (the “Equity Sellers”) of 100% of the equity interests in entities owned by the Equity Sellers that collectively hold a real estate asset portfolio consisting of 3,184 rental homes located across the United States (the “Entities”), (iii) Vision Property Management, LLC, a South Carolina limited liability company (“Vision” and together with the Equity Sellers, the “Sellers”), and (iv) Alexander Szkaradek, in his capacity as the representative of the Sellers (the “Sellers’ Representative”). On December 30, 2019, the parties amended the Vision Purchase Agreement (the “Amendment”) in order to address certain changes to the Vision Purchase Agreement, including, among other things, to allow the $9,750,000 balance of the cash portion of the purchase price to be paid in cash or short-term promissory notes, and to reduce the Sellers’ indemnification deductible to $100,000. On December 30, 2019, the Company completed the acquisition of the Entities pursuant to the Vision Purchase Agreement, as amended.

Pursuant to the Vision Purchase Agreement, as amended, Acquisition Sub purchased (a) all of the equity interests in the Entities and (b) all of Vision’s assets that are related to its business, including certain assumed contracts and assumed intellectual property, excluding certain specified assets for aggregate consideration of $350,000,000, consisting of (i) $250,000 of cash; (ii) $9,750,000 in promissory notes payable on or before March 31, 2020 as extended by the forbearance period; (iii) the amount of outstanding indebtedness of the Entities, which is approximately $80,000,000; (iv) 4,222,474 shares of the Company’s common stock, par value $0.001, which the parties valued at $32,000,000; and (v) shares of a newly designated Series I Non-Convertible Preferred Stock having an aggregate stated value equal to $228,000,000, which is subject to adjustment.

Divestiture of CrossLayer, Inc.

On January 16, 2020, the Company entered into an asset purchase agreement (the “CrossLayer Purchase Agreement”) with CBFA Corporation, pursuant to which CBFA acquired approximately $73,000 in accounts payable and approximately $100,000 in long-term supplier contracts.

Appointment of Interim CFO

On May 5, 2020, the Board of Directors formally appointed Ernest J. Scheidemann as the Company’s interim CFO and principal financial officer. In connection with his formal appointment, Mr. Scheidemann and the Company intend on entering into an Interim CFO Services Agreement. Mr. Scheidemann is a Certified Public Accountant. He holds a Certified Global Management Accountant and Certified Financial Forensics designation issued from the American Institute of CPAs. Mr. Scheidemann received a BA in Accounting from William Paterson University and MBA in Finance and International Business from Seton Hall University.

Employees

As of December 31, 2018, the Company, together with its subsidiaries, employed 289 full-time employees and 1 part-time employees. The number of employees varied according to the level of the Company’s work in progress. The Company maintained a nucleus of technical and managerial personnel to supervise all projects and added employees as needed to complete specific projects.

As of May 1, 2020, the Company, together with its subsidiaries, has 44 full-time employees and contractor staff and no part-time employees. The number of employees and job-site contractors varies according to the level of the Company’s work in progress. The Company maintains a nucleus of technical and managerial personnel to supervise all projects and adds employees and job-site contractors as needed to complete specific projects.

Intellectual Property

The Company has trademarks, trade names and licenses that it believes are necessary for the operation of its business as it is currently conducted. The Company does not consider its trademarks, trade names or licenses to be material to the operation of the business.

Available Information

The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the Exchange Act). Accordingly, the Company files periodic reports, proxy statements and other information with the SEC. These reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330.

The Company makes available, free of charge on its website, the Company’s Annual Report on Form 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Forms 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as practicable after we electronically file these documents with, or furnish them to, the SEC. These documents may be accessed through the Company’s website at www.ftenetwork.com under “Investor Relations.” The information posted or linked on the website is not part of this report. The Company also makes its Annual Report available in printed form upon request at no charge. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding FTE Networks and other issuers that file electronically with the SEC.

The Company also makes available on its website, as noted above, or in printed form free of charge upon request, the Company’s Code of Ethics and the charters for the Audit, Compensation, and Nominating and Corporate Governance committees of the Board of Directors.

ITEM 1A. RISK FACTORS.

The following discussion identifies the most significant risks or uncertainties that could (i) materially and adversely affect our business, financial condition, results of operations, liquidity or prospects or (ii) cause our actual results to differ materially from our anticipated results or other expectations. The following information should be read in conjunction with the other portions of this report, including “Special Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. Please note that the following discussion is not intended to comprehensively list all risks or uncertainties faced by us. Our operations or actual results could also be similarly impacted by additional risks and uncertainties that are not currently known to us, that we currently deem to be immaterial, that may arise in the future or that are not specific to us, such as general economic conditions. If any of the events or circumstances described in the following risks occurs, our business, financial condition or results of operations could be materially adversely affected.

Risks Related to Our Financial Results, Financing Plans and Indebtedness

We have limited capital resources and business operations, and we will need additional funds in order to continue as a viable enterprise. There is no guarantee that we will be able to generate those funds from our limited business operations.

As previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 11, 2019, the Company accepted a foreclosure proposal by the Company’s lenders under that certain Amended and Restated Credit Agreement, dated as of July 2, 2019, which proposal included the strict foreclosure by the lenders of all of the Company’s equity interests in Benchmark, which was our primary operating subsidiary, and certain other assets of the Company.

At December 31, 2018, the Company had $95,502,000 in negative working capital and $12,170,000 in cash and cash equivalents. Following the foreclosure, the Company has very limited capital resources and limited business operations, which only include our subsidiaries Jus-Com, Inc. and US Home Rentals LLC.

As of the date of this filing, our cash and cash equivalents are insufficient to sustain operations in the near term. We have substantial cash requirements, which consist of payment obligations under existing indebtedness, settlement agreements for indebtedness incurred by former management, payroll and other corporate expenses. Currently, our primary sources of cash have been from short-term borrowings and financings, which prospects have been hampered as a result of the uncertainty as to the severity and duration of the COVID-19 pandemic (which has led to disruption and volatility in the financial and real estate markets). And even though we have already taken measures to mitigate the effect of COVID-19 on our business, including negotiating extensions or deferrals on outstanding debt and placing certain employees in impacted markets on furlough, there is no assurance that these efforts will be enough to support our daily operations in the near term without additional financing.

In addition to the above-mentioned mitigating strategies, we are considering and actively pursuing various types of financing alternatives, including financings that leverage unencumbered properties in our real estate portfolio and have applied for a loan under the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loan Program (“EIDL”) pursuant to the recently enacted CARES Act through the U.S. Small Business Association programs. However, there is no assurance that we will be able to obtain PPP or EIDL proceeds as a result of program limitations, our credit profile or other factors or that we will be able to secure additional financing on terms that are favorable to us, or at all. We believe our debt and equity financing prospects will improve once we are current in our Exchange Act filings and we are able to resume trading on a national stock exchange or on an over-the-counter market, although no assurances can be provided in that regard either. And while we believe in the viability of our strategy to increase revenues and raise additional funds, we are unable to predict the impact of COVID-19 on our operations and liquidity, and depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material.

Our failure to successfully implement our growth plan may adversely affect our financial performance.

We are prone to all of the risks inherent in growing a business. You should consider the likelihood of our future success to be highly speculative in light of the limited resources, problems, expenses, risks and complications frequently encountered by entities at our current stage of development. As our growth plan is pursued, we may encounter difficulties expanding and improving our operating and financial systems to maintain pace with the increased complexity of the expanded operations and management responsibilities.

To address these risks, we must, among other things:

We may not be successful in addressing these risks and if we do not, our business prospects, financial condition and results of operations would be materially adversely affected.

Debt financing agreements we enter into may contain a number of restrictive covenants which will limit our ability to finance future operations, acquisitions or capital needs or engage in other business activities that may be in our interest.

If the Company has the need for additional liquidity through debt financing, any related credit arrangements and indentures may contain a number of significant covenants that could impose operating and other restrictions on us and our subsidiaries. Such restrictions could affect, and in many respects could limit or prohibit, among other things, our ability and the ability of some of our subsidiaries to:

These restrictions could limit our ability to plan for or react to market or economic conditions or meet capital needs or otherwise restrict our activities or business plans, and could adversely affect our ability to finance our operations, acquisitions, investments or strategic alliances or other capital needs or to engage in other business activities that would be in our interest.

If we are required to repay our outstanding notes, we would need to raise additional funds. Failure to repay our notes could subject us to legal action, including, but not limited to, judgements being entered against us.

We entered into settlement agreements with certain holders of convertible notes, whose notes were deemed to have been issued without the requisite corporate authorization following the findings of our independent investigation announced on June 13, 2019 (See Item 1 Business, Recent Development “Internal Investigation”). Of the noteholders with whom we were unable to reach settlement terms, six filed purported confessions of judgment. We have since entered into settlement agreements with all holders of judgments previously entered against us, which require us to make monthly payments in accordance with respective payout schedules. To date, we have requested and received several forbearances/deferrals on certain of the monthly payments owed in connection with these settlements and may have to request additional forbearances and/or deferrals in the future. As of the date of this filing, there is an aggregate balance owing of approximately $4,471,000 to these noteholders, exclusive of the convertible redeemable note in the amount of $1,800,000 to GS Capital Partners, LLC (“GS Capital”) issued on March 10, 2020. If we were unable to repay these notes when required, the noteholders could commence legal action against us to recover the amounts due, including possibly filing confessions of judgment. Any such action would have an adverse effect on our financial condition and results of operations. Additionally, we issued $9,750,000 of promissory notes as part of the of the purchase consideration for the Vision Transaction, which notes were payable in full on March 31, 2020 (the “Vision Notes”). As of the date of this filing, we have made partial payments against the Vision Notes but we were unable to repay the Vision Notes by their stated maturity date. We are currently negotiating forbearance agreements and are actively pursuing multiple potential sources of additional debt and equity capital to fund repayment of the Vision Notes. There is, however, no assurance that we will be successful in obtaining forbearance agreements or securing suitable financing. If we are not able to obtain forbearance agreements and/or do not succeed in raising additional capital in a timely fashion, the Vision noteholders may seek to enforce their rights under the Vision Notes through the judicial process, which could result in a material adverse effect on our results of operations and financial condition.

Risks Related to Ownership of Our Common Stock

Our insiders and affiliated parties beneficially own a significant portion of the aggregate voting power of our capital stock.

As of the date of hereof, our executive officers, directors, their affiliated parties and holders of 10% or more of our common stock beneficially own approximately 41.1% of our common stock. As a result, our officers, directors, their affiliated parties and holders of 10% or more of our common stock will have a controlling interest and the ability to:

Affiliated party stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempt to obtain control of us, which in turn could reduce the price of our common stock or prevent our stockholders from realizing any gains from our common stock. In addition, any sale of a significant amount of our common stock held by our directors, executive officers, and affiliated parties, or the possibility of such sales, could adversely affect the market price of our common stock.

The market for our common stock is limited and you may not be able to sell your common stock.

Our common stock is currently listed on the New York Stock Exchange. The NYSE American has suspended the trading of our common stock and commenced delisting proceedings of our common stock. We are appealing the NYSE American delisting proceedings, but there can be no assurance our common stock will resume trading or that our common stock will continue to be listed. If we are unsuccessful in our appeal of the NYSE American hearing panel’s decision to delist our common stock, or if our appeal is successful and thereafter we are unable to meet the NYSE American continued listing requirements, the NYSE American may delist our common stock, which could have an adverse impact on us and the liquidity and market price of our stock. Even if we remain listed and trading of our common stock resumes, we expect the market for purchases and sales of our common stock will be limited and therefore the sale of a relatively small number of shares could cause the price to fall sharply. Accordingly, it may be difficult to sell shares quickly without significantly depressing the value of our common stock. Unless we are successful in developing continued investor interest in our common stock, sales of our common stock could result in major fluctuations in the price of our common stock.

The price of our common stock is likely to be volatile and subject to fluctuations.

If our revenues do not grow or grow more slowly than we anticipate, or, if operating or capital expenditures exceed our expectations and cannot be adjusted accordingly, or if some other event adversely affects us, the market price of our common stock could decline. Fluctuations in our stock price may be influenced by, among other things, general economic and market conditions, conditions or trends in our industry, changes in the market valuations of other telecommunications companies, announcements by us or our competitors of significant acquisitions, strategic partnerships or other strategic initiatives, and trading volumes. Many of these factors are beyond our control but may cause the market price of our common stock to decline, regardless of our operating performance. Moreover, if the stock market in general experiences a loss in investor confidence or otherwise fails, the market price of our common stock could fall for reasons unrelated to our business, results of operations and financial condition. The market price of our common stock also might decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.

Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock.

In the future, we may issue additional authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of common stock may create downward pressure on the trading price of the common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts.

Stockholders who hold unregistered shares of our common stock may be subject to resale restrictions pursuant to Rule 144, due to the fact that we are deemed to be a former “shell company.”

Pursuant to Rule 144 of the Securities Act (“Rule 144”), a “shell company” is defined as a company that has no or nominal operations and either (i) no or nominal assets, (ii) assets consisting solely of cash and cash equivalents or (iii) assets consisting of any amount of cash and cash equivalents and nominal other assets. While we do not believe that we are currently a “shell company,” we were previously a “shell company” and are deemed to be a former “shell company” pursuant to Rule 144, and as such, sales of our securities pursuant to Rule 144 may not be able to be made unless we continue to be subject to Section 13 or 15(d) of the Exchange Act, and have filed all of our required periodic reports for at least the previous one year period prior to any sale pursuant to Rule 144. As a result, it may be harder for us to fund our operations and pay our consultants with our securities instead of cash. Our status as a former “shell company” could prevent us from raising additional funds, engaging consultants, and using our securities to pay for any acquisitions.

If we are unsuccessful in our appeal of the NYSE American decision to delist our common stock, or if our appeal is successful and we are thereafter unable to meet the NYSE American continued listing standards, our common stock may be delisted from the NYSE American equities market, which would likely cause the liquidity and market price of our common stock to decline.

Our common stock is currently listed on the NYSE American. The NYSE American has suspended the trading of our common stock and is engaged in delisting proceedings of our common stock. We are appealing the NYSE American hearing panel’s determination to delist our common stock, but there can be no assurance that our appeal will be successful, that our common stock will resume trading or that our common stock will continue to be listed. If we are unsuccessful in our appeal of the NYSE American hearing panel’s decision to delist our common stock, or if our appeal is successful and thereafter if we cannot meet the NYSE American continued listing requirements, the NYSE American may delist our common stock, which could have an adverse impact on us and the liquidity and market price of our stock.

Our business has been and may continue to be affected by worldwide macroeconomic factors, which include uncertainties in the credit and capital markets. External factors that affect our stock price, such as liquidity requirements of our investors, as well as our performance, could impact our market capitalization, revenue and operating results, which, in turn, could affect our of the NYSE American hearing panel’s decision to delist our common stock or, if our appeal is successful, our ability to meet the NYSE American’s listing standards. The NYSE American has the ability to suspend trading in our common stock or remove our common stock from listing on the NYSE American if in the opinion of the exchange: (a) the financial condition and/or operating results of the Company appear to be unsatisfactory; or (b) it appears that the extent of public distribution or the aggregate market value of our common stock has become so reduced as to make further dealings on the exchange inadvisable; or (c) we have sold or otherwise disposed of our principal operating assets, or have ceased to be an operating company; or (d) we have failed to comply with our listing agreements with the exchange (which include that we receive additional listing approval from the exchange prior to us issuing any shares of common stock, something we have inadvertently failed to comply with in the past); or (e) any other event shall occur or any condition shall exist which makes further dealings on the exchange unwarranted.

Commencing in March 2019, we received a series of letters from the NYSE American concerning the failure to comply with various continued listing requirements. On December 17, 2019, we received a letter from the NYSE American stating that it had determined to commence proceedings to delist the Company’s common stock from the Exchange, and our common stock was suspended from trading on NYSE American at market close on the same date. Additionally, we were out of compliance with the NYSE American’s continued listing requirements under the timely filing criteria outlined in Section 1007 of the NYSE American Listed Company Guide as a result of our failure to timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Additionally, in the past we have been out of compliance with the NYSE American’s continued listing standards when, on each of October 9, 2019 and May 30, 2019, certain members of the Board of Directors resigned and we received notification from the NYSE American that (1) the Company’s Audit Committee was no longer compliant with Section 803B(2)(c) and Section 803B(2)(a)(iii) of the Company Guide as it was no longer composed of two independent members and did not have a financially sophisticated audit committee member and (2) and the Company’s Compensation Committee was no longer compliant with the requirements set forth in Section 805(a) of the Company Guide. On May 30, 2019, we also received notification that the Company’s Nominating Committee was no longer compliant with the requirements set forth in Section 804 of the Company Guide. In each instance, in order to regain compliance with these listing requirements, the Board appointed additional members and made appropriate committee appointments.

A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock and reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing. In addition, delisting from the NYSE American might negatively impact our reputation and, as a consequence, our business. Additionally, if we were delisted from the NYSE American and we are not able to list our common stock on another national exchange we will no longer be eligible to use Form S-3 registration statements and will instead be required to file a Form S-1 registration statement for any primary or secondary offerings of our common stock, which would delay our ability to raise funds in the future, may limit the type of offerings of common stock we could undertake, and would increase the expenses of any offering, as, among other things, registration statements on Form S-1 are subject to SEC review and comments whereas take downs pursuant to a previously filed Form S-3 are not. Because of the lateness of certain of our filings with the SEC, we are not currently eligible to use Form S-3, but if we file our periodic reports with the SEC in a timely manner for 12 months and otherwise satisfy the eligibility requirements, we will be eligible to use Form S-3 for public offerings of our common stock.

If shares of our common stock cease to be listed on a national exchange they may become subject to the “penny stock” rules of the SEC and the trading market in our securities may become limited, which will make transactions in our stock cumbersome and may reduce the value of an investment in the stock.

If shares of our common stock cease to be listed on the NYSE American or another national exchange, they may be subject to regulation as a “penny stock” under Rule 15g-9 under the Exchange Act. That rule establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that is no longer trading on a national exchange and has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

If shares of our common stock cease to be listed on a national exchange our securities will not be eligible for federal preemption rights and be subject to state “blue sky” laws which may affect our capabilities of raising capital.

Each state has its own securities laws, often called “blue sky” laws, which (i) limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration, and (ii) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether securities will be registered or exempt from registration under the laws of any state. If our securities cease to be listed on the national exchange, a determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our common stock. Registering or qualifying shares with states can be time consuming. Compliance and regulatory costs may vary from state to state and may adversely affect future financings and our ability to raise capital.

If our common stock is delisted from a national exchange some institutional investors may not be allowed to purchase our shares and may be required to liquidate their current positions in our stock which could negatively affect the price and volatility of our shares.

Institutional investors may be restricted by their investment policies from investing in shares of companies that are not listed on a national exchange and may be required to liquidate their positions if our securities are delisted from a national exchange. Liquidations, should they occur, may increase volatility and cause wide fluctuations and further declines in the prices of our securities.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our common stock adversely, our share price and trading volume could decline.

The trading market for our shares of common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, our share price would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.

We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our common stock.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends on our shares of common stock in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements or other debt instruments that we may be a party to at the time. To the extent we do not pay dividends, our shares of common stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, investors must rely on sales of their common stock after price appreciation as the only way to realize their investment, and if the price of our common stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not purchase our common stock.

Risks Related to Our Industry and Business

The current pandemic of the novel coronavirus, or COVID-19, and the future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

Certain states and cities, including where we own rental homes, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly. We expect that a significant number of our tenants will suffer economic dislocation, such as through job furloughs or job loss, which will adversely impact their ability to pay rent to the Company. Some of our tenants have already requested rent deferral or rent abatement during this pandemic. Many experts predict that the outbreak will trigger, or even has already triggered, a period of global economic slowdown or a global recession, which would further adversely impact the ability of our tenants to pay rent to the Company. The COVID-19 pandemic, or a future pandemic, could have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:

The extent to which the COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. The inability of our tenants rent to us, and early terminations by our tenants of their leases, could reduce our cash flows, which could have a material adverse impact on our performance, financial condition, results of operations, cash flows and performance. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our performance, financial condition, results of operations, cash flows and performance.

Our results of operations will likely be diminished as a result of the foreclosure on the equity of Benchmark Builders, Inc., down-sizing of Jus-Com and divestiture of CrossLayer as well as our reliance on other operating subsidiaries. We may not be able to effectively manage the transition of our business.

As discussed above, our lenders previously foreclosed on the equity in Benchmark, previously our primary operating subsidiary, as well as other assets. Additionally, the Company restructured and down-sized the Jus-Com businesses in 2019, completed the acquisition of entities that collectively hold a real estate asset portfolio consisting of 3,184 rental homes located across the United States (the “Vision Properties”), and completed the divestiture of CrossLayer in January 2020. Due to the Benchmark foreclosure, the down-sizing of the Jus-Com businesses and the divestiture of CrossLayer, the Company is now reliant on the businesses of our remaining operating subsidiaries, primarily the U.S. Home Rental properties.

Moreover, whereas our Historical Businesses operated in the construction management and general contracting industry and telecommunications industry, our primary current business operates in the single-family residential property industry. As we are transitioning our business to focus primarily on single-family residential properties, this business model transition may lead to fluctuations in revenue that will make it more difficult to accurately project our operating results or plan for future growth. If we are unable to effectively manage these changes, our growth and ability to achieve long-term projections may be negatively impacted, and our business and operating results will be adversely affected.

Our integration of the operations of Vision Properties may be more difficult, costly or time-consuming than expected, and the anticipated benefits and cost savings of these acquisitions by the Company may not be realized.

During 2019, pursuant to the Vision Purchase Agreement, as amended, we completed the acquisition of the Vision Properties. The acquisition of the Vision Properties represented the Company’s pivot to owning and managing a portfolio of single-family residential properties. The success of the acquisition, including anticipated benefits, will depend, in part, on the Company’s ability to successfully combine and integrate the businesses within the Company’s projected timeframe in a manner that permits growth opportunities. A number of factors could affect the Company’s ability to successfully combine its business with acquired businesses, including the following:

If the Company encounters significant difficulties in the integration process, the anticipated benefits of the acquisition may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve the anticipated benefits of the acquisition in the timeframe projected by the Company could result in increased costs and decreased revenues. This could have a dilutive effect on the Company’s earnings per share. If the Company is unable to successfully integrate the business it acquired, the Company’s business, financial condition and results of operations may be materially adversely affected.

Liabilities and obligations assumed in connection with our acquisition of Vision Properties may result in a material adverse effect to our business and financial condition.

Uncertainty of Common Stock Value. Our common stock, par value $0.001 (the “Common Stock”) was suspended from trading on the NYSE American exchange effective December 17, 2019 and continues to be suspended from trading as of the date of the filing of the Form 10-K. As a result, there is currently no public market for our Common Stock and investors in our Common Stock have limited liquidity. The aggregate value of the Common Stock Consideration issuable pursuant to the Amended Purchase Agreement was determined through negotiations between the Company and the Sellers based on a number of factors, including the estimated book value of the Company after giving effect to the Transaction. Due to its limited liquidity and lack of a current active trading market, the fair value of our Common Stock is uncertain and may not be equal to the agreed-upon valuation of the Common Stock Consideration. Although the Company is appealing its suspension from trading on the NYSE American exchange, there can be no assurance that its appeal will be successful.

Risk of Default under Entities’ Indebtedness. The entities that we acquired in the Vision Properties transaction, which own all of the properties that were subject to the acquisition, are subject to substantial indebtedness (the “Entities’ Indebtedness”), as described in “Item 1. Business – Recent Developments.” The Entities’ Indebtedness is subject to certain conditions and covenants, including the requirement that the Entities obtain the consent of the lender before taking certain actions. Any failure to comply with the conditions and covenants in the financing agreements governing the Entities’ Indebtedness that is not consented to or waived by the lender or otherwise cured could lead to a termination of such debt facilities, acceleration of all amounts due under such debt facilities, or other actions by the lender. The consent of the lender may have been required with respect to the Transaction, and although the Sellers have engaged in negotiations with the lender seeking to obtain such consent prior to the Closing, such consent has not been obtained as of the date of filing of this Form 10-K. While the Company intends to continue to seek to obtain the consent from the lender regarding the Transaction, we cannot guarantee that such consent will be received.

Existing Default under Purchase Price Promissory Notes. The $9,750,000 of promissory notes issued as part of the purchase consideration in the Vision Properties acquisition were payable in full on March 31, 2020, and while partial payments have been made against the notes, we were unable to pay the notes in full by the maturity date. We are currently negotiating forbearance agreements and are actively pursuing multiple potential sources of additional debt and equity capital to fund repayment of the amounts due pursuant to the Notes and our ongoing operating expenses. We may not be successful in obtaining forbearance agreements or securing suitable financing in the time period required. If we are not able to obtain forbearance agreements and/or do not succeed in raising additional capital in a timely fashion, our resources will not be sufficient to fund the repayment of the notes. The noteholders may seek to enforce their rights under the promissory notes through the judicial process, which could result in a material adverse effect on our results of operations and financial condition.

We could be harmed by security breaches or other significant disruptions or failures of networks, information technology infrastructure or related systems owned or installed by us.

We are materially reliant upon our networks, information technology infrastructure and related technology systems (including our billing and provisioning systems) to manage our operations and affairs. We face the risk, as does any company, of a security breach or significant disruption of our information technology infrastructure and related systems. Moreover, in connection with processing and storing sensitive and confidential data on our networks, we face a risk that a security breach or disruption could result in unauthorized access to our customers’ or their customers’ proprietary information.

We strive to maintain the security and integrity of information and systems under our control and maintain contingency plans in the event of security breaches or other system disruptions. Nonetheless, we cannot assure you that our security efforts and measures will prevent unauthorized access to our systems, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service, computer viruses, malware, ransomware, distributed denial-of-service attacks, or other forms of cyber-attacks or similar events. These threats may derive from human error, hardware or software vulnerabilities, aging equipment or accidental technological failure. These threats may also stem from fraud, malice or sabotage on the part of employees, third parties or foreign nations, including attempts by outside parties to fraudulently induce our employees or customers to disclose or grant access to our data or our customers’ data, potentially including information subject to stringent domestic and foreign data protection laws governing personally identifiable information, protected health information or other similar types of sensitive data. These threats may also arise from failure or breaches of systems owned, operated or controlled by other unaffiliated operators to the extent we rely on such other systems to deliver services to our customers. Each of these risks could further intensify to the extent we maintain information in digital form stored on servers connected to the Internet.

Additional risks to our network, infrastructure and related systems include, among others:

Due to these factors, from time to time in the ordinary course of our business we experience disruptions in our service and could experience more significant disruptions in the future.

Disruptions, security breaches and other significant failures of the above-described networks and systems could:

Any or all of the foregoing developments could have a negative impact on our business, results of operations, financial condition and cash flows.

Our results of operations could be adversely affected by economic conditions and the effects of these conditions on our customers’ businesses.

Adverse changes in economic conditions have in the past resulted and may in the future result in lower spending among our customers and contribute to decreased sales. Further, our business may be adversely affected by factors such as downturns in economic activity in specific geographic areas or in the telecommunications industry; social, political or labor conditions; trade restrictions such as tariffs or changes imposed on international trade agreements; or adverse changes in the availability and cost of capital, interest rates, tax rates, or regulations. These factors are beyond our control, but may result in decreases in spending among customers and softening demand for our products and services. Declines in demand for our products and services will adversely affect our sales. Further, challenging economic conditions also may impair the ability of our customers to pay for products and services they have purchased. As a result, our cash flow may be negatively impacted and our allowance for doubtful accounts and write-offs of accounts receivable may increase.

The Company may experience interruptions to its business operations due to events beyond its control, and insurance may not cover the full extent of damages.

A catastrophic event beyond our control, such as a natural disaster, health pandemic, cyber-attack, adverse weather event or act of terrorism, that results in the destruction or disruption of any of our critical business systems or operations could harm its ability to conduct normal business operations and its operating results.

While we maintain business continuity plans that are intended to allow us to continue operations or mitigate the effects of events that could disrupt our business, we cannot provide assurances that our plans would fully protect us from all such events. In addition, insurance maintained by us to protect against property damage, loss of business and other related consequences resulting from catastrophic events is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of our damages or damages to others in the event of a catastrophe. In addition, insurance related to these types of risks may not be available now or, if available, may not be available in the future at commercially reasonable rates.

Due to our size, we depend on key personnel and other skilled employees.

Our employees are key to the growth and success of our business and our continued success depends to a large extent on our ability to recruit, train, and retain skilled employees, particularly executive management and technical employees. If we are unable to attract and retain key personnel, our operating results could be adversely affected.

Additionally, the Company’s ability to retain skilled workforce and its success in attracting and hiring new skilled employees will be a critical factor in determining whether the Company will be successful in the future. The Company faces competition for qualified individuals and may be unable to attract and retain suitably qualified individuals. The Company’s failure to do so could have an adverse effect on its ability to implement the business plan.

Future litigation may impair our reputation or lead us to incur significant costs, and the costs of such litigation may exceed our insurance coverage.

We are currently party to several lawsuits and may become party to various lawsuits and claims arising in the normal course of business, which may include lawsuits or claims relating to contracts, third party contract manufacturers, intellectual property, product recalls, product liability, false or deceptive advertising, employment matters, environmental matters or other aspects of our business. Negative publicity resulting from allegations made in lawsuits or claims asserted against us, whether or not valid, may adversely affect our reputation. In addition, we may be required to pay damage awards or settlements or become subject to injunctions or other equitable remedies, which could have a material adverse effect on our financial condition, results of operations and cash flows. The outcome of litigation is often difficult to predict, and the outcome of pending or future litigation may have a material adverse effect on our business, financial condition, results of operations and cash flows.

We maintain general and excess liability, cyber security, workers’ compensation and medical insurance, all in amounts consistent with industry practice and as part of our overall risk management strategy. Further, our policies are held with financially stable coverage providers, often in a layered or quota share arrangement which reduces the likelihood of an interruption or impact to operations. Although we have various insurance programs in place, the potential liabilities associated with potential litigation matters, or those that could arise in the future, could be excluded from coverage or, if covered, could exceed the coverage provided by such programs. In addition, insurance carriers may seek to rescind or deny coverage with respect to pending or future claims or lawsuits. If we do not have sufficient coverage under our policies, or if coverage is denied, we may be required to make material payments to settle litigation or satisfy any judgment. Any of these consequences could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are operating in an emerging industry, and the long-term viability of our investment strategy on an institutional scale is unproven.

Large-scale institutional investment in single-family residential (“SFR”) homes for rent is a relatively recent phenomenon that has emerged out of the mortgage and housing crisis that began in late 2007. Prior to that time, SFR homes were generally not viewed as viable assets for investment on a large scale by institutional investors. Consequently, the long-term viability of the SFR property investment strategy on an institutional scale has not yet been proven. As a participant in this emerging industry, we are subject to the risk that SFR properties may not prove to be a viable long-term investment strategy on an institutional scale for a permanent capital vehicle. If it turns out that this investment strategy is not a viable one, we would be materially and adversely affected, and we may not be able to sustain the growth of our assets and results from operations that we seek.

Our failure to effectively perform property management functions or to effectively manage our portfolio and operations could materially and adversely affect us.

We have direct responsibility for the management of the properties in our SFR portfolio, including, without limitation, renovations, maintenance and certain matters related to leasing, such as marketing and selection of tenants. If our internal property manager is unable to effectively perform property management services at the level and/or the cost that we expect or if we fail to allocate sufficient resources to meet our property management needs, it would adversely affect our performance. In addition, we will be responsible for ensuring the compliance of our internal property manager with governmental laws, regulations and covenants that are applicable to our homes, our tenants and our prospective tenants, including, without limitation, permitting, licensing and zoning requirements and tenant relief laws, such as laws regulating evictions, rent control laws and other regulations that limit our ability to increase rental rates.

Our ability to perform the property management services will be affected by various factors, including, among other things, our ability to maintain sufficient personnel and retain key personnel and the number of our SFR properties that we manage. No assurance can be made that we will continue to be successful in attracting and retaining skilled personnel or in integrating any new personnel into our organization.

Our future success will depend, in part, upon our ability to successfully monitor our operations, costs, regulatory compliance and service quality and maintain other necessary internal controls. Our inability to effectively perform the property management services on the properties managed by us, or to effectively manage our portfolio and operations could materially adversely affect our business, financial results and share price.

We may incur significant costs in renovating our properties or turning vacant properties, and we may underestimate the costs or amount of time necessary to complete restorations or unit turns.

While a substantial portion of the SFR properties we have acquired to date meet our rental specifications at the time of acquisition, properties frequently require additional renovations prior to renting. Beyond customary repairs, we may undertake improvements designed to optimize the overall property appeal and increase the value of the property. Though we endeavor to conduct property inspections and due diligence prior to acquiring new SFR portfolios, we expect that nearly all of our rental properties will require some level of renovation immediately upon their acquisition or in the future following expiration of a lease or otherwise. We may acquire properties that we plan to extensively renovate and restore. In addition, in order to reposition properties in the rental market, we will be required to make ongoing capital improvements and may need to perform significant renovations and repairs from time to time. Consequently, we are exposed to the risks inherent in property renovation, including potential cost overruns, increases in labor and materials costs, delays by contractors in completing work, delays in the timing of receiving necessary work permits and certificates of occupancy and poor workmanship. If our assumptions regarding the cost or timing of renovations across our properties prove to be materially inaccurate, it may be more costly or take significantly more time than anticipated to develop and grow our SFR portfolio, which could materially and adversely affect us.

In addition, we anticipate a minimum level of effort will be required to prepare a newly vacant property to be made ready for occupancy by a new tenant, and we are exposed to risks of cost overruns, increases in costs of materials or labor, delays in the completion of work and other factors. If we are unable to perform unit turns efficiently or in a timely manner, we would experience decreased revenue, increased expenses or both.

The availability of portfolios of single-family residential properties for purchase on favorable terms may decline as market conditions change, our industry matures and/or additional purchasers for such portfolios emerge, and the prices for such portfolios may increase, any of which could materially and adversely affect us.

In recent years, there has been an increase in supply of SFR property portfolios available for sale. Because we operate in an emerging industry, market conditions may be volatile, and the prices at which portfolios of SFR properties can be acquired may increase from time to time, or permanently, due to new market participants seeking such portfolios, a decrease in the supply of desirable portfolios or other adverse changes in the geographic areas that we may target from time to time. For these reasons, the supply of SFR properties that we may acquire may decline over time, which could materially and adversely affect us and our growth prospects.

Portfolios of properties that we have acquired or may acquire may include properties that do not fit our investment criteria, and divestiture of such properties may be costly or time consuming or both, which may adversely affect our operating results.

We have acquired, and expect to continue to acquire, portfolios of SFR properties, many of which are, or will be, subject to existing leases. We may be subject to a variety of risks, including risks relating to the condition of the properties, the credit quality and employment stability of the tenants and compliance with applicable laws, among others. In addition, financial and other information provided to us regarding such portfolios during our due diligence may be inaccurate, and we may not be able to obtain relief under contractual remedies, if any. If we conclude that certain properties acquired as part of a portfolio do not fit our investment criteria, we may decide to sell such properties and may be required to renovate the properties prior to sale, to hold the properties for an extended marketing period and/or sell the property at an unfavorable price, any of which could materially and adversely affect us.

Competition in identifying and acquiring residential rental assets could adversely affect our ability to implement our business strategy, which could materially and adversely affect us.

We face competition from various sources for investment opportunities, including REITs, hedge funds, private equity funds, partnerships, developers and others. Some third-party competitors have substantially greater financial resources and access to capital than we do and may be able to accept more risk than we can. Competition from these companies may reduce the number of attractive investment opportunities available to us or increase the bargaining power of asset owners seeking to sell, which would increase the prices of assets. If such events occur, our ability to implement our business strategy could be adversely affected, which could materially and adversely affect us. Given the existing competition, complexity of the market and requisite time needed to make such investments, no assurance can be given that we will be successful in acquiring investments that generate attractive risk-adjusted returns. Furthermore, there is no assurance that such investments, once acquired, will perform as expected.

We may be materially and adversely affected by risks affecting the single-family rental properties in which our investments may be concentrated at any given time as well as from unfavorable changes in the related geographic regions.

Our assets are not subject to any geographic diversification requirements or concentration limitations, and, as a result, circumstances or events that impact a geographic region in which we have a significant concentration of properties, including a downturn in regional economic conditions or natural disasters, could materially and adversely affect us. Entities that sell residential rental portfolios may group the portfolios by location or other metrics that could result in a concentration of our portfolio by geography, SFR property characteristics and/or tenant demographics. Such concentration could increase the risk of loss to us if the particular concentration in our portfolio is subject to greater risks or undergoing adverse developments. In addition, adverse conditions in the areas where our properties or tenants are located (including business layoffs or downsizing, industry slowdowns, changing demographics, oversupply, reduced demand and other factors) may have an adverse effect on the value of our investments. A material decline in the demand for single-family housing or rentals in the areas where we own assets may materially and adversely affect us. Lack of diversification can increase the correlation of non-performance and foreclosure risks among our investments.

Short-term leases of residential property expose us more quickly to the effects of declining market rents.

The majority of our leases to tenants of SFR properties will be for a term of one year. As these leases permit the residents to leave at the end of the lease term without penalty, we anticipate our rental revenues will be affected by declines in market rents more quickly than if our leases were for longer terms. Short-term leases may result in high turnover, resulting in additional cost to renovate and maintain the property and lower occupancy levels. Because we have a limited operating history, our tenant turnover rate and related cost estimates may be less accurate than if we had more operating data upon which to base these estimates.

We may be unable to secure funds for property restoration or other capital improvements, which could limit our ability to attract, retain or replace tenants.

When we acquire or otherwise take title to single-family properties or when tenants fail to renew their leases or otherwise vacate their space, we may be required to expend funds for property restoration and leasing commissions in order to lease the property. If we have not established reserves or set aside sufficient funds for such expenditures, we may have to obtain financing from other sources, as to which no assurance can be given. We may also have future financing needs for other capital improvements to restore our properties. If we need to secure financing for capital improvements in the future but are unable to secure such financing on favorable terms or at all, we may be unable or unwilling to make capital improvements or may choose to defer such improvements. If this happens, our properties may suffer from a greater risk of obsolescence or decreased marketability, a decline in value or decreased cash flow as a result of fewer potential tenants being attracted to the property or existing tenants not renewing their leases. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, and our properties’ ability to generate revenue may be significantly impaired.

Our revenue and expenses are not directly correlated, and, because a large percentage of our costs and expenses are fixed and some variable expenses may not decrease over time, we may not be able to adapt our cost structure to offset any declines in our revenue.

Many of the expenses associated with our business, such as acquisition costs, restoration and maintenance costs, HOA fees, personal and real property taxes, insurance, compensation and other general expenses are fixed and would not necessarily decrease proportionally with any decrease in revenue. Our assets also will likely require a significant amount of ongoing capital expenditure. Our expenses, including capital expenditures, will be affected by, among other things, any inflationary increases, and cost increases may exceed the rate of inflation in any given period. Certain expenses, such as HOA fees, taxes, insurance and maintenance costs are recurring in nature and may not decrease on a per-unit basis as our portfolio grows through additional property acquisitions. By contrast, our revenue is affected by many factors beyond our control, such as the availability and price of alternative rental housing and economic conditions in our markets. As a result, we may not be able to fully, or even partially, offset any increase in our expenses with a corresponding increase in our revenues. In addition, state and local regulations may require us to maintain our properties, even if the cost of maintenance is greater than the potential benefit.

Competition could limit our ability to lease single-family rental properties or increase or maintain rents.

Our SFR properties compete with other housing alternatives to attract residents, including rental apartments, condominiums and other single- family homes available for rent as well as new and existing condominiums and single-family homes for sale. Our competitors’ properties may be of better quality, in a more desirable location or have leasing terms more favorable than we can provide. In addition, our ability to compete and generate favorable returns depends upon, among other factors, trends of the national and local economies, the financial condition and liquidity of current and prospective renters, availability and cost of capital, taxes and governmental regulations. Given significant competition, we cannot assure you that we will be successful in acquiring or managing SFR properties that generate favorable returns.

If rents in our markets do not increase sufficiently to keep pace with potential rising costs of operations, our operating results and cash available for distribution will decline.

The success of our business model will substantially depend on conditions in the SFR property market in our geographic markets. Our asset acquisitions are premised on assumptions about, among other things, occupancy and rent levels. If those assumptions prove to be inaccurate, our operating results and cash available for distribution will be lower than expected, potentially materially. Rental rates and occupancy levels have benefited in recent periods from macroeconomic trends affecting the U.S. economy and residential real estate and mortgage markets in particular, including a tightening of credit and increases in interest rates that has made it more difficult to finance a home purchase, combined with efforts by consumers generally to reduce their exposure to credit. A decrease in rental rates would have a material adverse effect on the performance of our SFR portfolio or could cause a default of our obligations under one or more financing agreements, and our business, results of operations and financial condition would therefore be materially harmed.

If the current trend favoring renting rather than homeownership reverses, the single-family rental market could decline.

The SFR market is currently significantly larger than in historical periods. We do not expect the favorable trends in the SFR market to continue indefinitely. Eventually, continued strengthening of the U.S. economy and job growth, together with the large supply of foreclosed SFR properties, the current availability of low residential mortgage rates and government sponsored programs promoting home ownership, may contribute to a stabilization or reversal of the current trend that favors renting rather than homeownership. In addition, we expect that as investors increasingly seek to capitalize on opportunities to purchase undervalued housing properties and convert them to productive uses, the supply of SFR properties will decrease and the competition for tenants will intensify. A softening of the rental property market in our markets would adversely affect our operating results and cash available for distribution, potentially materially.

Suboptimal tenant underwriting and defaults by our tenants may materially and adversely affect us.

Our success depends, in large part, upon our ability to attract and retain qualified tenants for our properties. This depends, in turn, upon our ability to screen applicants, identify good tenants and avoid tenants who may default. We may make mistakes in our selection of tenants, and we may rent to tenants whose default on our leases or failure to comply with the terms of the lease or HOA regulations could materially and adversely affect us. For example, tenants may default on payment of rent; make unreasonable and repeated demands for service or improvements; make unsupported or unjustified complaints to regulatory or political authorities; make use of our properties for illegal purposes; damage or make unauthorized structural changes to our properties that may not be fully covered by security deposits; refuse to leave the property when the lease is terminated; engage in domestic violence or similar disturbances; disturb nearby residents with noise, trash, odors or eyesores; fail to comply with HOA regulations; sub-let to less desirable individuals in violation of our leases or permit unauthorized persons to live with them. The process of evicting a defaulting tenant from a family residence can be adversarial, protracted and costly. Furthermore, some tenants facing eviction may damage or destroy the property. Damage to our properties may significantly delay re-leasing after eviction, necessitate expensive repairs, reduce the rental revenue generated by the property or impair its value. In addition, we will incur turnover costs associated with re-leasing the properties, such as marketing expenses and brokerage commissions, and will not collect revenue while the property is vacant. Although we will attempt to work with tenants to prevent such damage or destruction, there can be no assurance that we will be successful in all or most cases. Such tenants will not only cause us not to achieve our financial objectives for the properties in which they live, but may subject us to liability and may damage our reputation with our other tenants and in the communities where we do business.

A significant uninsured property or liability loss could have a material adverse effect on us.

We carry commercial general liability insurance and property insurance with respect to our SFR properties on terms we considered commercially reasonable. However, many of the policies covering casualty losses are subject to substantial deductibles and exclusions, and we will be self-insured up to the amount of the deductibles and exclusions. For example, we may not always be fully insured against losses arising from floods, windstorms, fires, earthquakes, acts of war or terrorism or civil unrest because they are either uninsurable or the cost of insurance makes it economically impractical. If an uninsured property loss or a property loss in excess of insured limits were to occur, we could lose our capital invested in a property or group of properties as well as the anticipated future revenues from affected SFR properties or groups of properties. Further, inflation, changes in building codes and ordinances, environmental considerations and other factors might also prevent us from using insurance proceeds to replace or renovate a property after it has been damaged or destroyed.

In the event that we incur a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss, and we could experience a significant loss of capital invested and potential revenues in these properties and could potentially remain obligated under any recourse debt associated with the property. Further, if an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement with or court ordered damages to that third party. A significant uninsured property or liability loss could adversely affect our financial condition, operating results, cash flows and ability to make distributions on our common stock.

We rely on information supplied by prospective tenants in managing our business.

We rely on information supplied to us by prospective tenants in their rental applications as part of our due diligence process to make leasing decisions, and we cannot be certain that this information is accurate. In particular, we rely on information submitted by prospective tenants regarding household income, tenure at current job, number of children and size of household. Moreover, these applications are submitted to us at the time we evaluate a prospective tenant, and we do not require tenants to provide us with updated information during the terms of their leases, notwithstanding the fact that this information can, and frequently does, change over time. Even though this information is not updated, we will use it to evaluate the overall average credit characteristics of our portfolio over time. If tenant-supplied information is inaccurate or our tenants’ creditworthiness declines over time, we may make poor leasing decisions, and our portfolio may contain more credit risk than we believe.

Our single-family residential properties are not liquid assets, which could limit our ability to vary our portfolio or to realize the value at which such assets are carried if we are required to dispose of them.

Our SFR properties are not liquid assets, which could limit our ability to vary our portfolio or to realize the value at which such assets are carried if we are required to dispose of them. Our inability to sell individual or portfolios of SFR properties on acceptable terms and/or in accordance with our anticipated timing could materially and adversely affect our financial condition.

Changes in global economic and capital market conditions, including periods of generally deteriorating occupancy and real estate industry fundamentals, may materially and adversely affect us.

There are risks to the ownership of real estate and real estate related assets, including decreases in residential property values, changes in global, national, regional or local economic, demographic and real estate market conditions as well as other factors particular to the locations of our investments. A prolonged recession and a slow recovery could materially and adversely affect us as a result of, among other items, the following:

These conditions could also adversely impact the financial condition and liquidity of the renters that will occupy our real estate properties and, as a result, their ability to pay rent to us.

Residential properties that are subject to eviction are subject to risks of theft, vandalism or other damage that could impair their value.

When a residential property is subject to an eviction, it is possible that the tenant may cease to maintain the property adequately or that the property may be abandoned by the tenant and become susceptible to theft or vandalism. Lack of maintenance, theft and vandalism can substantially impair the value of the property. To the extent we initiate eviction proceedings, some of our properties could be impaired.

Contingent or unknown liabilities associated with respect to our prior acquisitions of portfolios of properties could adversely affect our financial condition, cash flows and operating results.

Assets and entities that we have acquired in connection with prior SFR portfolio or operating entity acquisitions may be subject to unknown or contingent liabilities for which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might include liabilities for or with respect to liens attached to properties; unpaid real estate tax, utilities or HOA charges for which a subsequent owner remains liable; clean-up or remediation of environmental conditions or code violations; claims of customers, vendors or other persons dealing with the acquired entities; or tax liabilities. Purchases of single-family properties in portfolio purchases typically involve limited representations or warranties with respect to the properties and may allow us limited or no recourse against the sellers. Such properties also often have unpaid tax, utility and HOA liabilities for which we may be obligated but fail to anticipate. As a result, the total amount of costs and expenses that we may incur with respect to liabilities associated with prior SFR property or entity acquisitions may exceed our expectations, which may adversely affect our operating results and financial condition. Additionally, such prior SFR property acquisitions may be subject to covenants, conditions or restrictions that restrict the use or ownership of such properties, including prohibitions on leasing. We may not have discovered such restrictions during the acquisition process, and such restrictions may adversely affect our ability to operate such properties as we intend.

The costs and amount of time necessary to secure possession and control of certain properties may exceed our assumptions, which would delay our receipt of revenue from, and return on, the property.

A majority of the SFR properties we have acquired have had an existing tenant at the time of acquisition. However, certain SFR properties require us to secure possession. In certain circumstances, we may have to evict occupants who are in unlawful possession before we can secure possession and control of the property. The holdover occupants may be the former owners or tenants of a property, or they may be squatters or others who are illegally in possession. Securing control and possession from these occupants can be both costly and time consuming. If these costs and delays exceed our expectations, our financial performance may suffer because of the increased expenses incurred or the unexpected delays in turning the properties into revenue-producing rental properties.

Eminent domain could lead to material losses on our investments.

It is possible that governmental authorities may exercise eminent domain to acquire land on which our properties are built in order to build roads or other infrastructure. Any such exercise of eminent domain would allow us to recover only the fair value of the affected properties, which we believe may be interpreted to be substantially less than the actual value of the property. Several cities are also exploring proposals to use eminent domain to acquire residential loans to assist borrowers to remain in their homes, potentially reducing the supply of single-family properties for sale in our markets. Any of these events can cause a material loss to us.

We likely will incur costs due to litigation, including but not limited to, class actions, tenant rights claims and consumer demands.

There are numerous tenants’ rights and consumer rights organizations throughout the country. As we grow in scale, we may attract attention from some of these organizations and become a target of legal demands or litigation. Many such consumer organizations have become more active and better funded in connection with mortgage foreclosure-related issues and displaced home ownership. Some of these organizations may shift their litigation, lobbying, fundraising and grass roots organizing activities to focus on landlord-tenant issues as more entities engage in the SFR property market. Additional actions that may be targeted at us include eviction proceedings and other landlord-tenant disputes, challenges to title and ownership rights (including actions brought by prior owners alleging wrongful foreclosure by their lender or servicer) and issues with local housing officials arising from the condition or maintenance of an SFR property. While we intend to conduct our rental business lawfully and in compliance with applicable landlord-tenant and consumer laws, such organizations might work in conjunction with trial and pro bono lawyers in one state or multiple states to attempt to bring claims against us on a class action basis for damages or injunctive relief. We cannot anticipate what form such legal actions might take or what remedies they may seek. Any of such claims may result in a finding of liability that may materially and adversely affect us.

Additionally, these organizations may lobby local county and municipal attorneys or state attorneys general to pursue enforcement or litigation against us or may lobby state and local legislatures to pass new laws and regulations to constrain our business operations. If they are successful in any such endeavors, they could directly limit and constrain our business operations and impose on us significant litigation expenses, including settlements to avoid continued litigation or judgments for damages or injunctions. Any of the above-described occurrences may materially and adversely affect us.

ITEM 1B. Unresolved Staff Comments.

None.

ITEM 2. Properties.

On April 4, 2019, we moved our corporate headquarters to 237 W. 35^th St., Suite 601, New York, NY 10001. Our current lease expires on October 31, 2021 and has 4,340 square feet and is included in the 11,000 square foot New York, NY office lease noted in the table below. Our subsidiaries leased five additional office/warehouse facilities throughout the United States, which is summarized below.

As of April 5, 2020, we have exited all office/warehouse facilities above with the exception of Indianapolis, IN and the above referenced corporate headquarters in New York, NY. We believe our properties are suitable and adequate for our business needs.

ITEM 3. Legal Proceedings.

From time to time, the Company may be involved in various legal proceedings arising in the ordinary course of business, and we may in the future be subject to additional legal proceedings and disputes. The following is a summary of material legal proceedings as of December 31, 2018:

On May 10, 2018, Vista Capital Investments, LLC (“Vista”) filed suit against the Company for breach of contract and breach of the implied covenant of good faith and fair dealing arising out of a securities purchase agreement (the “SPA”) and a convertible note in the principal amount of $275,000 in the Superior Court of California for the county of San Diego. Vista alleges damages in excess of $9,000,000 stemming from the Company’s purported dilutive issuances of Company common stock. Vista was the holder of a convertible note for which there was no prior Board authorization (See Item 1, Recent Developments “Internal Investigation”). The Company and Vista are continuing to discuss terms of settlement.

Additionally, see Part 1, Item 1 – Business, Recent Developments “Internal Investigation” for information regarding the findings and status of our internal investigation.

The following is a summary of material legal proceedings as of the date of this filing:

On April 11, 2019, the Company received a demand for arbitration, which was filed with the American Arbitration Association (AAA), Case No. 01-19-0001-0962,on behalf of Michael Palleschi, the former CEO, alleging a breach of his employment agreement and seeking $11,300,000 in damages. The Company has asserted counterclaims and affirmative defenses to Mr. Palleschi’s claims and intends to vigorously defend this matter. Discovery is pending.

On June 26, 2019, Efraim Barenbaum filed a shareholder derivative suit in the United States District Court for the Southern District of New York against certain of the Company’s former directors and executive officers, alleging claims for breaches of fiduciary duties, unjust enrichment, waste, and violations of Section 14 of the Securities Exchange Act of 1934. The Company was named as a nominal defendant only. The Company filed a motion to dismiss the complaint on September 23, 2019. In response to the motion, the plaintiff filed an amended complaint on November 1, 2019, but the causes of action remained equally deficient. Having found the claims in the amended complaint also to be baseless, the Company filed a motion to dismiss that pleading as well on January 27, 2020.

On August 17, 2019, Auctus Fund, LLC (“Auctus”) filed suit against the Company alleging, among other things, breach of contract and violations of state and federal securities laws, arising out of a securities purchase agreement and a convertible note in the principal amount of $525,000. Auctus is the holder of a convertible note for which there was no prior Board authorization (See Item 1, Recent Developments “Internal Investigation”). The Company denies any alleged wrongdoing and intends to vigorously defend against these claims. The matter is pending in the United States District Court for the District of Massachusetts.

On November 5, 2019, St. George Investments LLC (“St. George”) filed suit against the Company in the Third Judicial District Court for Salt Lake County in the state of Utah to compel arbitration, alleging, among other things, breach of contract arising out of a securities purchase agreement and convertible note in the principal amount of $2,315,000. St. George is the holder of a convertible note for which there was no prior Board authorization (See Item 1, Recent Developments “Internal Investigation”). The Company is vigorously defending its interests in this matter.

On November 26, 2019, David Lethem (the Company’s former CFO) filed a complaint against the Company in the 20^th Judicial Circuit Court for Lee county in the State of Florida for breach of contract arising out of a transition, separation and general release agreement. The Company filed a counterclaim to rescind the agreement based on fraudulent inducement. Discovery is proceeding in this case and the Company intends to vigorously defend its interests in this matter.

On January 3, 2020, CBRE, Inc. (“CBRE”) filed suit against the Company’s subsidiary, CrossLayer, Inc., for breach of contract arising out of a program participation agreement in the Superior Court of the state of Delaware. CBRE is alleging damages of $1,333,333. The Company considers CBRE’s claims to be without merit and has engaged counsel who is vigorously disputing this matter.

ITEM 4. Mine Safety Disclosures.

Not applicable.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

As of December 31, 2018, our common stock was trading on the NYSE American Market under the symbol FTNW.

As of the date of the filing of this report, our common stock was listed on the NYSE American Market under the symbol FTNW but was suspended from trading. See “Item 1. Business – Recent Developments – Suspension of Trading of Common Stock.”

Stockholders of Record

There were approximately 431 holders of record of our common stock as of April 20, 2020.

Dividends

We have not declared or paid any dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. We plan to retain any future earnings for use in our business operations. Any decisions as to future payments of cash dividends will depend on our earnings and financial position and such other factors as the Board deems relevant. Under our Articles of Incorporation, we may not declare or pay any dividends on any shares of common stock without the affirmative vote or written consent of a majority of the then outstanding shares of Series A and Series A-1 Preferred Stock and even then, not unless we have paid in full the aggregate accrued dividends upon such preferred stock and such amounts that the holders of such preferred stock would receive if they were to convert their shares of preferred stock into shares of common stock.

Equity Compensation Arrangements

Our Board of Directors approved the 2017 Omnibus Incentive Plan (the “2017 Incentive Plan”) which reserves 3,000,000 shares of our common stock for issuance to enable us to attract and retain highly qualified personnel who will contribute to the Company’s success and provide incentives to participants in the 2017 Incentive Plan that are linked directly to increases in stockholder value. The 2017 Incentive Plan was approved by a majority of the holders of our outstanding capital stock via written consent on November 8, 2017.

The following table illustrates the common shares remaining available for future issuance under the 2017 Incentive Plan:

Issuer Purchases of Equity Securities

During the year ended December 31, 2018, there were no purchases of our equity by us or any “affiliated purchaser.”

ITEM 6. Selected Financial Data.

Not required for a smaller reporting company.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our historical financial statements and the related notes contained elsewhere in this report.

Overview

Prior to October 2019, we were a provider of end-to-end design, construction management, build and support solutions for networks, data centers, residential, and commercial properties and services at Fortune 100/500 companies (our “Historical Business”). Our primary activities included engineering, building, installation, maintenance and support solutions for state-of-the-art networks and commercial properties, including the following services: data center infrastructure, fiber optics, wireless integration, network engineering, internet service provider, general contracting management and general contracting.

We had three operating subsidiaries:

Our Current Business and Corporate Strategy

Following a year of corporate and financial restructuring in response to the findings of an internal investigation (see below) that examined the acts and omissions of certain former officers and directors, and the loss of our principal operating subsidiary through a foreclosure by our former senior secured lenders, we were presented with an opportunity to acquire a real estate portfolio consisting of approximately 3,200 rental homes across the United States moving us into a new direction which our current management believes offers substantial opportunity for the benefit of shareholders. Accordingly, on December 30, 2019, we acquired nearly 3,200 real estate properties by and through our newest subsidiary, US Home Rentals, LLC (the “Vision Transaction”).

Internal Investigation

In current reports on Form 8-K filed on March 11, 2019 and March 22, 2019, we disclosed that we had entered into certain securities purchase agreements (the “Purchase Agreements”) with certain investors (the “Investors”), pursuant to which we sold an aggregate principal amount of $22,700,000 in convertible notes (the “Notes”) between January 2017 and January 2019. Approximately $9,800,000 of principal and interest had been converted into 5,186,306 shares of our common stock through March 19, 2019. These issuances were not supported by a listing application with the Exchange, which resulted in us receiving a public reprimand letter from the NYSE Regulation Staff of the Exchange on March 25, 2019. On March 22, 2019, we announced the initiation of an independent investigation (the “Investigation”) of these issuances and engaged K&L Gates LLP and Credibility International, LLC, an independent forensic accounting firm (together, the “Team”) to conduct the Investigation.

The investigation found that:

Non-Reliance on Previously Issued Financial Statements

On April 2, 2019, we announced that our Audit Committee, following a communication by Marcum, our former independent registered public accounting firm, concluded that previously issued audited financial statements as of and for the year ended December 31, 2017, and interim reviews of the financial statements for the periods ended March 31, June 30, and September 30, 2018 and 2017, should no longer be relied upon. The conclusion to prevent future reliance on the aforementioned financial statements resulted from the determination that such financial statements failed to properly account for certain convertible notes and other potentially dilutive securities. Specifically, we identified a potential issue related to the accounting related to certain convertible notes and other potentially dilutive securities the Company issued in 2017, 2018, and during January of 2019.

On June 11, 2019, the Audit Committee, following a communication by Marcum, concluded that the Company’s previously issued audited financial statements as of and for the years ended December 31, 2017 and 2016 and completed interim reviews for the periods ended March 31, June 30, and September 30, 2018, 2017 and 2016 should no longer be relied upon. The conclusion on June 11, 2019 to add the aforementioned 2016 financial statements to those statements which should no longer be relied upon resulted from determinations made as part of our ongoing restatement effort that certain items, including revenues originally recognized in 2016, should no longer be recognized.

See Part 1. Business, “Recent Developments” and Part II, Item 8. Financial Statements and Supplementary Data, Note 2. “Restatement of Consolidated Financial Statements”.

Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our key estimates include: the recognition of revenue and project profit or loss (which we define as project revenue less project costs of revenue, including project-related depreciation), in particular, on construction contracts accounted for under the percentage-of-completion method, for which the recorded amounts require estimates of costs to complete projects, ultimate project profit and the amount of probable contract price adjustments as inputs; allowances for doubtful accounts; estimated fair values of acquired assets; asset lives used in computing depreciation and amortization; share-based compensation; other reserves and accruals; accounting for income taxes.

Revenue and Cost of Goods Sold Recognition

We recognize revenues from fixed-price and modified fixed-price construction contracts on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost for each contract. That method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties in estimated costs, it is at least reasonably possible that the estimates used will change within the near term. Contract cost of sales include all direct material and labor costs and those indirect costs related to contract performance, such as subcontractor commitments, indirect labor, supplies, tools and repairs. Selling, general, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period. The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.

Due to the short-term nature of our network construction contracts, revenue is recognized once 100% of a contract segment is completed. A contract may have many segments, of which, once a segment is completed; the revenue for the segment is recognized and no further obligation exists. Our construction contracts or segments of contracts typically can range from several days to two to four months. Contract costs may be billed as incurred. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools and repairs. Selling, general and administrative costs are charged to expense as incurred. We begin recognizing revenue on a project as project costs are incurred and revenue recognition criteria are met.

Provisions for losses on uncompleted contracts are made in the period such losses are known. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, changes in raw materials costs, and final contract settlements may result in revisions to revenue, costs and income and are recognized in the period in which the revisions are determined.

Valuation of Long-lived Assets

We evaluate our long-lived assets for impairment in accordance with related accounting standards. Assets to be held and used (including projects under development as well as property and equipment), are reviewed for impairment whenever indicators of impairment exist. If an indicator of impairment exists, we first group our assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (the “asset group”). Secondly, we estimate the undiscounted future cash flows that are directly associated with and expected to arise from the completion, use and eventual disposition of such asset group. We estimate the undiscounted cash flows over the remaining useful life of the primary asset within the asset group. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model. If an asset is still under development, future cash flows include remaining construction costs. There were no impairments during the periods presented.

Income Taxes

We record income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carryforwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused, and tax planning alternatives.

Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

Fair Value of Financial Instruments

We adopted the Financial Accounting Standards Board (“FASB”) standard related to fair value measurement at inception. The standard defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. The standard clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The recorded values of long-term debt approximate their fair values, as interest approximates market rates. As a basis for considering such assumptions, the standard established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs other than quoted prices in active markets that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Our financial instruments consist of accounts receivable, other current assets, accounts payable, and notes payable. The recorded values of accounts receivable, other current assets, and accounts payable fair values due to the short maturities of such instruments. Recorded values for notes payable and related liabilities approximate fair values, since their amortization of deferred financing cost stated or imputed interest rates are commensurate with prevailing market rates for similar obligations.

Derivatives

We account for derivative instruments in accordance with applicable accounting standards and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet.

We use estimates of fair value to value our derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, our policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for our liabilities), relying first on observable data from active markets. We categorize our fair value estimates in accordance with ASC No. 820, Fair Value of Financial Instruments based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above.

Warrant Liability

We account for certain common stock warrants outstanding as a liability at fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our consolidated statements of operations.

Embedded Conversion Features

We evaluate embedded conversion features within convertible debt to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in our statements of operations. If the conversion feature does not require recognition of a bifurcated derivative, the convertible debt instrument is evaluated for consideration of any beneficial conversion feature requiring separate recognition.

In this section, we discuss the results of our operations for the year ended December 31, 2018 compared to the year ended December 31, 2017. For a discussion of the year ended December 31, 2017 compared to the year ended December 31, 2016, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2017.

Consolidated Results of Operations

(dollars in thousands)

Overview

For the years ended December 31, 2018 and 2017, we reported a net loss of $46,592 and $92,083, respectively, a decrease of $45,491 or 49%. The decrease in the net loss was attributable to a reduction in non-operating expenses for the year ended December 31, 2018 as compared to December 31, 2017, partially offset by an increase in operating expenses. The reduction in non-operating expenses was primarily due to the following: (i) a gain in the fair value of the debt derivative and warrant liability of $62,224 (ii) an increase in the gain on debt extinguishment of $26,052 (iii) an increase on the loss of debt issuance of $18,871 (iv) partially offset by an increase in amortization of deferred financing costs and debt discount. The reduction in non-operating expenses were partially offset by an increase in operating expenses of $50,360, which was primarily due to an increase in selling, general and administrative expenses of $26,769 and compensation expense of $23,182 expenses.

Revenues and Gross Profit

Our consolidated revenues for the year ended December 31, 2018 were $384,755, as compared to revenues of $215,509 for the year ended December 31, 2017, resulting in an increase of $169,246. The increase in revenues was primarily attributable to the acquisition of Benchmark which was included in the results for a full year in 2018 compared to the period from April 21, 2017 through December 31, 2017. Although our cost of revenues increased by $146,716, our gross profit margin was approximately 14% for each of the years ended December 31, 2018 and 2017.

Operating Expenses

Our operating expenses were $91,180 and $40,820 for the years ended December 31, 2018 and 2017, respectively, representing an increase of $50,360. The increase in operating expenses was primarily due to the following: i) an increase in selling, general and administrative expenses of $26,769, resulting from an increase of consulting expenses of $9,380, $5,603 of expenses related to the write-off of the CrossLayer network platform and travel expenses of $1,382; ii) an increase in compensation expense of $23,182 resulting from the issuance of share- based compensation to certain employees of $13,983 and an increase in salaries and wages of $8,940; and iii) an increase in amortization expense of $1,154 related to the intangible assets acquired in the Benchmark acquisition; partially offset by a decrease in transaction expenses of $701 incurred from the acquisition of Benchmark in 2017.

Operating Loss

The operating loss increased by $27,830, from an operating loss of $10,463 for the year ended December 31, 2017 to an operating loss of $38,293 for the year ended December 31, 2018 due from the increase in total operating expenses.

Other (Expense) Income

Other expense was $7,213 for the year ended December 31, 2018, as compared to $81,060 for the year ended December 31, 2017, a decrease of $73,847 or 91%. The decrease is primarily due to the favorable change in fair value of the debt derivative and warrant liability of $62,224 year-over-year, which was partially offset by an increase in the amortization of deferred financing costs and debt discounts of $33,169 year-over-year. Interest expense increased by $2,758 for the year ended December 31, 2018 as compared to the year ended December 31, 2017 due to the increase in borrowings.

Liquidity and Capital Resources

(in thousands)

Overview

As of December 31, 2018 and 2017, we had total assets of $164,290 and $168,695, current assets of $96,186 and $88,910, total liabilities of $223,749 and $239,500, and current liabilities of $191,687 and $175,175, respectively.

Current assets consists of operating cash of $12,170 and $15,642, accounts receivable of $74,048 and $61,699, costs and estimated earnings in excess of billings on uncompleted contracts of $5,974 and $5,286 and other current assets of $3,994 and $6,283 as of December 31, 2018 and 2017, respectively. Current liabilities consists of accounts payable and accrued expenses of $87,426 and $54,082, billings in excess of costs and estimated earnings on uncompleted contracts of $34,690 and $37,531, Senior notes payable, convertible notes payable, merchant credit agreements and notes payable and capital leases of $44,182 and $10,299, notes and payables to related parties of $13,793 and $8,576, conversion and warrant liabilities of $11,596 and $64,687 as of December 31, 2018 and 2017, respectively.

As of December 31, 2018 and 2017, we had negative working capital of $95,501 and $86,265, respectively. As of the date of this filing, our cash and cash equivalents are insufficient to sustain operations in the near term. We have substantial cash requirements, which consist of payment obligations under existing indebtedness, settlement agreements for indebtedness incurred by former management, payroll and other corporate expenses. Currently, our primary sources of cash have been from short-term borrowings and financings, which prospects have been hampered as a result of the uncertainty as to the severity and duration of the COVID-19 pandemic (which has led to disruption and volatility in the financial and real estate markets). And even though we have already taken measures to mitigate the effect of COVID-19 on our business, including negotiating extensions or deferrals on outstanding debt and placing certain employees in impacted markets on furlough, there is no assurance that these efforts will be enough to support our daily operations in the near term without additional financing.

In addition to the above-mentioned mitigating strategies, we are considering and actively pursuing various types of financing alternatives, including financings that leverage unencumbered properties in our real estate portfolio and have applied for a loan under the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loan Program (“EIDL”) pursuant to the recently enacted CARES Act through the U. S. Small Business Association programs. However, there is no assurance that we will be able to obtain PPP or EIDL proceeds as a result of program limitations, our credit profile or other factors or that we will be able to secure additional financing on terms that are favorable to us, or at all. We believe our debt and equity financing prospects will improve once we are current in our Exchange Act filings and we are able to resume trading on a national stock exchange or on an over-the-counter market, although no assurances can be provided in that regard either. And while we believe in the viability of our strategy to increase revenues and raise additional funds, we are unable to predict the impact of COVID-19 on our operations and liquidity, and depending on the magnitude and duration of the COVID-19 pandemic, such impact may be material.

Liquidity

During the year ended December 31, 2018 and 2017, we incurred net losses of $46,592 and $92,083 and had an accumulated deficit of $174,632 and $128,040, respectively. On April 20, 2017, in conjunction with the acquisition of Benchmark, our senior lender amended its existing credit facility to provide for approximately $10,100 towards the cash purchase price and extension of the maturity date of the existing credit facility to March 31, 2019. Additionally, we incurred approximately $50,000 of debt as part of the Benchmark acquisition, of which $7,500 matured on October 20, 2018, which was paid in full as of that date, and $12,500 which was to mature on April 20, 2019 and $30,000 which was to mature on April 20, 2020. All of the debt incurred in connection with the Benchmark acquisition was considered to be fully paid and satisfied as a result of the Benchmark Foreclosure, see Item 1. Business, “Recent Developments, Foreclosure.”

Other sources of liquidity could include additional potential issuances of debt or equity securities in public or private financings. However, there is no assurance that additional financing will be available if needed or that management will be able to obtain and close financing on terms acceptable to us, or whether our anticipated future profitable and positive operating cash flow generated through its backlog will coincide with its debt service requirements and debt maturity schedule. If we are unable to raise sufficient additional funds or generate positive operating cash flow when required, we may need to develop and implement a plan which may include but may not be limited to such measures as extending payables, renegotiating debt facilities, extending debt maturities, the sale of SFR assets and reducing overhead, until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.

Cash Flows

We expect our liquidity needs to include the payment of interest and principal on our indebtedness, capital expenditures, income taxes and other operating expenses. We use our cash inflows to manage the temporary increases in cash demand and utilize our credit facility to manage more significant fluctuations in liquidity.

The following table summarizes our cash flow for 2018 and 2017:

N/M – not meaningful

Cash Flows for the Years Ended December 31, 2018 and 2017

Cash Provided by Operating Activities

Net cash provided by operating activities for the years ended December 31, 2018 was $17,854 as compared to $3,960 for the year ended December 31, 2017. The $13,894, or approximately 351% increase, is mainly due to the net $18,710 increase in assets and liabilities and decrease of $45,461 in net loss, partially offset by a $50,307 decrease in non-operating expense add-backs.

Cash Used in Investing Activities

Net cash used in investing activities for the year ended December 31, 2018 and 2017, decreased by $17,939 to $631 from $18,570, or approximately 97%. The change in cash from investing activities was primarily due to the net cash paid for the acquisition of Benchmark totaling $14,834 (cash paid of $17,250 less cash received of $2,416) for the year ended December 31, 2017 and the decrease in capital expenditures of $3,105 for the year ended December 31, 2018.

Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $20,695 for the year ended December 31, 2018 compared to cash provided by financing activities of $28,840 for the year ended December 31, 2017. During the year ended December 31, 2018, we received total cash proceeds of $35,347 and made total cash payments of $63,434 on the issuance of convertible notes, merchant credit agreements and senior notes and other payables.

During the year ended December 31, 2017, we received total cash proceeds of $31,408 and made total cash payments of $5,385 on convertible notes, merchant credit agreements, senior notes, Series C notes and other notes payable.

During the years ended December 31, 2017 and 2018, we made cash payments for deferred financing costs of $540 and $521, respectively. 

During the years ended December 31, 2017 and 2018, we received cash from the issuance of common stock and exercise of common stock warrants of $7,932 and $3,338, respectively.

While it is often difficult for us to predict the impact of general economic conditions on our business, we believe that we will be able to meet our current and long-term cash requirements primarily through our operating cash flows and anticipate that we will be able to plan for and match future liquidity needs with future internal and available external resources.

We periodically seek to add growth initiatives by either expanding our network or our markets through organic or internal investments or through strategic acquisitions. We feel we can adjust the timing or the number of our initiatives according to any limitations which may be imposed by our capital structure or sources of financing.

Long-Term Debt and Credit Facilities

On October 28, 2015, we entered into an $8,000 senior credit facility (“Facility”) with Lateral and certain other Lenders. The Facility had a two-year term, and interest payments in the amount of 12%, paid quarterly in arrears. Additionally, there is a “payment in kind” (“PIK”) provision providing a 4% per annum increase in the principal balance monthly. The Facility was secured by all of our assets.

On April 5, 2016, we entered into an amendment agreement (“Amendment No.1”) to the Facility, amending select provisions of the original credit agreement, including equity raises and changes to certain financial and operational covenants. On September 30, 2016, we entered into a second amendment agreement (“Amendment No. 2”) to consolidate a series of short-term bridge loans which were granted to us from time to time during the second and third quarters of 2016 into a $5,000 loan, with a maturity date of April 30, 2017, bearing interest at 12% and a PIK provision of 4%. Amendment No. 2 also amended certain covenants. During March 2017, the Company borrowed an additional $1,500 under the terms of the Facility, originally due April 30, 2017, but subsequently extended to March 31, 2019.

On April 20, 2017, as part of the Benchmark acquisition, the Facility was amended (“Amendment No. 3”) to provide for an additional $11,480 of which approximately $10,100 was applied to the cash purchase price and extended the maturity date of the Facility to March 31, 2019. We issued 256,801 shares of our common stock to the senior lender with a fair value of $5,649 as a term of Amendment No. 3. The value of the shares was recorded as a debt discount. During the year ended December 31, 2017, $2,048 was included in amortization of debt discount costs, and $3,601 remained unamortized as of December 31, 2017. Amendment No. 3 included certain covenants regarding debt coverage, EBITDA and revenue.

During April 2017, we incurred an extension fee of $480 to extend the terms of the Facility to March 31, 2019. This amount was added to the principal amount of the Facility and interest will accrue at stated rate of the Facility.

Additionally, in October and November 2017, we borrowed an additional $1,600 under the terms of the Facility, due March 31, 2019.

During December 2017, we incurred a $42 penalty related to loan non-compliance, which was added to the principal amount of the Facility and incurs interest under the terms of the Facility, due March 31, 2019.

During January 2018, we received cash of $23 for a note under the terms of the facility and converted $867 in PIK interest and $110 in debt discount into principal, all due March 31, 2019.

During April 2018, we borrowed a total of $1,025 under the terms of the Facility, due March 31, 2019. We recognized an original issuance discount of $103 and deferred finance costs of $10 on the note.

During September 2018, we borrowed a total of $2,188 under the terms of the Facility, due March 31, 2019. The borrowing consisted of $1,949 in accrued interest conversion, an original issuance discount of $219 and fees of $20.

During October 2018, we borrowed $1,300 under the terms of the Facility, due March 31, 2019. The borrowing consisted of $1,170 in cash and an original issuance discount of $130.

During the years ended December 31, 2018 and 2017, we had several debt covenant violations primarily related to our various financing arrangements which were prohibited by the Facility, for which we received waivers from its lenders under the Facility.

As of December 31, 2018, total outstanding indebtedness under the Facility was $36,441. As of December 31, 2019, all indebtedness under the Facility was fully paid and discharged a result of the Benchmark Foreclosure.

See Part I — Item 1. Business, “Recent Developments,” for further information regarding the current status of the Facility and the underlying indebtedness.

Senior Secured Promissory Notes

On January 27, 2020, we issued two senior promissory notes to Benchmark, one in the principal amount of $4,129 and the other in the principal amount of $600 (collectively, the “Senior Notes”), each such note secured by all of our non-real estate assets pursuant to a security agreement of even date therewith. The $4,129 note, which matures on December 1, 2020 and has an annual interest rate of 10%, obligates us to repay certain monies previously paid or transferred to us at the time of the Foreclosure Proposal, including (i) $3,000 in cash; (ii) two Working Capital Cash Payments totaling $600; and (iii) approximately $500 in cash remaining in a Benchmark bank account, was issued in consideration of a $6,000 reduction to the $28,000 Remaining Indebtedness.). The $600 note, which has a maturity date of December 1, 2020 and an annual interest rate of 10%, was issued to evidence the loan advanced by Benchmark on January 10, 2020 in the principal amount of $300 and an additional $300 loan from Benchmark advanced on January 27, 2020.

On April 20, 2017, in conjunction with our acquisition of Benchmark, we issued convertible promissory notes in the aggregate principal amount of $12,500 and promissory notes in the aggregate principal amount of $30,000 to certain stockholders of Benchmark, which matured on April 20, 2020. Pursuant to the Agreement Regarding Debt and Series H Preferred Stock on October 10, 2019, we were released from $19,000 in principal, leaving the remaining amount due, inclusive of interest and paid in-kind interest of $28,000 at December 31, 2019. In conjunction with the Senior Secured Promissory notes discussed above, the amount was given a reduction of in the balance, leaving a balance of approximately $22,000 as of the date of this filing.

On February 12, 2020, we issued a senior promissory note to Lateral SMA Agent, LLC in the principal amount of $800, consisting of approximately $550 in expenses and advances previously made by Lateral on behalf of us and an additional $250 loan from Lateral. The $800 note is secured by all of our non-real estate assets pursuant to security agreement of even date therewith and has a maturity date of November 15, 2020 and an annual interest rate of 10%.

On February 27, 2020, we issued a senior promissory note to Lateral SMA Agent, LLC in the principal amount of $75 for working capital purposes. The $75 note is secured by all of our non-real estate assets pursuant to security agreement of even date therewith and has a maturity date of November 15, 2020 and an annual interest rate of 10%.

On April 29, 2020, we issued a senior promissory note to Lateral SMA Agent, LLC in the principal amount of $200 for working capital purposes. The note is secured by all our non-real estate assets pursuant to a security agreement of even date therewith and has a maturity date of November 15, 2020 and an annual interest rate of 10%. The note including interest was paid in full on May 8, 2020.

Vision Acquisition Promissory Notes

On December 30, 2019, in conjunction with the Vision Purchase Agreement, the parties amended the Vision Purchase Agreement to, among other things, allow the $9,750 balance of the cash portion of the purchase price to be paid in cash or short-term promissory notes. Accordingly, we issued $9,750 in promissory notes payable, due on or before March 31, 2020 as extended by the forbearance period. As of the date of this filing, there is $9,750 due on these short-term promissory notes.

Convertible Notes Payable

During March 2018, we issued a convertible redeemable note in the principal amount of $2,315. The note was due September 2018, accrues interest at 4% per annum and was secured by shares of our common stock. The note is convertible at any time at the option of the holder into shares of our common stock at a price equal to 50% of the lowest trading prices of our common stock during the prior twenty-one consecutive trading days. As of the date of this filing, the outstanding balance, including penalties, is approximately $2,525, which is past due. We are pursuing a settlement of all amounts due.

During September 2018, we issued a convertible redeemable note in the principal amount of $525. The note was due September 2019, accrues interest at 4% per annum and was secured by shares of our common stock. The note is convertible at any time at the option of the holder into shares of our common stock at a price equal to 65% of the lowest trading prices of our common stock during the prior twenty-one consecutive trading days. As of the date of this filing, the outstanding balance including penalties and interest, is approximately $525 which is past due. We are pursuing a settlement of all amounts due.

During March 2020, we issued a convertible redeemable note in the principal amount of $1,800. The note is due May 10, 2021, accrues interest at 6% per annum and is secured by shares of our common stock. The note is convertible at any time at the option of the holder into shares of our common stock at a price equal to 66% of the average of the two lowest trading prices of our common stock during the prior twelve consecutive trading days. The outstanding balance is approximately $1,800 as of the date of this filing.

Between April and October 2019, we entered into settlement and release agreements with nine convertible note holders to settle thirteen convertible notes, whereby, we agreed to pay the holders a total of $5,511 in monthly payments through Jan 2011 to settle all existing convertible note principal and interest amounts and remove any conversion features. The balance outstanding on these settlement agreements is approximately $3,042 as of the date of this filing.

Promissory Notes

During February 2019, Company signed a term note for $5,000, payable in monthly installments over twenty- two months bearing interest at a rate of 22% per annum. The term note has a balance of approximately $3,620 as of the date of this filing.

On April 16, 2020, we issued a demand promissory notes, in the amount of $100, for working capital. The note is unsecured, due on demand, accrue interest at the rate of 10% per annum and was paid in full with interest on May 8, 2020.

Off Balance Sheet Arrangements

None.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk.

FTE Networks, Inc. is a “smaller reporting company” as defined by Regulations S-K and as such, is not required to provide the information contained in this item pursuant to Regulation S-K.

ITEM 8. Financial Statements and Supplementary Data.

The financial statements required to be included in this Annual Report on Form 10-K appear immediately following the signature page to this Annual Report on Form 10-K beginning on page F-1.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

On February 21, 2020, the Audit Committee of the Board of Directors dismissed Marcum LLP (“Marcum”) as the Company’s independent registered public accounting firm.

The audit reports of Marcum on the Company’s financial statements for the years ended December 31, 2018 and 2017, did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. Marcum did not provide a report on the Company’s financial statements during fiscal years ended December 31, 2018 and December 31, 2019. During the fiscal years ended December 31, 2018 and December 31, 2019, and the subsequent period through February 21, 2020, there were (i) no disagreements between the Company and Marcum on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Marcum, would have caused Marcum to make reference to the subject matter of the disagreement in Marcum’s reports on the Company’s consolidated financial statements for such years, and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K, except as described below.

As previously reported in Current Reports on Form 8-K filed by the Company on April 4, 2019 and June 13, 2019, Marcum had informed the Company that Marcum’s audit reports included in the Company’s previously issued audited financial statements as of and for the years ended December 31, 2017 and December 31, 2016, and Marcum’s interim reviews of the financial statements for the periods ended March 31, June 30, and September 30, 2018, 2017 and 2016, should no longer be relied upon. The Company identified a number of material weaknesses in internal control over financial reporting as disclosed in Item 9A of the Company’s Annual Reports on Form 10-K for the years ended December 31, 2017, as well as several Quarterly Reports on Form 10-Q for quarterly periods during 2017 and 2018. The Audit Committee discussed these matters with Marcum.

On February 27, 2020, the Audit Committee of the Board of Directors approved the appointment of Turner, Stone & Company, L.L.P. as the Company’s independent registered public accounting firm for the years ended December 31, 2017, 2018 and 2019, as well as the year ending December 31, 2020.

ITEM 9A. Controls and Procedures.

Background

Prior to the filing of this Form 10-K, the Company has neither issued audited financial statements, nor filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q, since our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018, respectively. Consequently, management previously had not evaluated the effectiveness of our disclosure controls and procedures since September 30, 2018, or our internal controls over financial reporting since December 31, 2017. As disclosed in our Current Report on Form 8-K filed on June 13, 2019, management’s and its former independent auditor’s report on the effectiveness of internal control over financial reporting as of December 31, 2017 should no longer be relied upon.

As more fully explained in our Explanatory Note, the remedial measures undertaken in response to the Internal Investigation and the non-investigatory issues that were identified by current management and our independent auditor during the audit process, and the conclusions that our current management reached in its evaluations of the effectiveness of our disclosure controls and procedures and internal controls over financial reporting as of December 31, 2018, are described below.

Notwithstanding the material weaknesses described with this item 9A, our management, including our interim Chief Executive Officer and interim Chief Financial Officer, has concluded that the consolidated financial statements and related financial information included in this Form 10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles in the United States. Management’s belief is based on a number of factors, including, but not limited to:

Internal Investigation

On March 22, 2019, the Company announced the initiation of an independent investigation, based upon the recommendation of the Audit Committee, consisting of independent legal and forensic accounting advisor was in the process of conducting an internal investigation of current and prior period matters relating to the issuance of certain securities purchase agreements with certain investors which the Company entered into, including the proper authorization to enter into these security purchase agreements and convertible notes, the creation and distribution of falsified security purchase agreements and corresponding convertible note documents to the internal accounting group, the resulting accounting treatment, financial reporting and internal controls related to such falsified documents. The Internal Investigation focused principally on security purchase agreements entered into by the Company during the years ended December 31, 2017 and 2018. As a result of the investigation, the Company’s management proposed certain adjustments to previously reported financial statements related to fiscal quarters occurring during the 2017 and 2018 fiscal years of the Company.

The Company announced on April 2, 2019 that the Audit Committee, following a communication by Marcum, concluded that previously issued audited financial statements as of and for the year ended December 31, 2017, and interim reviews of the financial statements for the periods ended March 31, June 30, and September 30, 2018 and 2017, should no longer be relied upon. The conclusion to prevent future reliance on the aforementioned financial statements resulted from the determination that such financial statements failed to properly account for certain security purchase agreements, convertible notes and other potentially dilutive securities. Specifically, the Company identified a potential issue related to the accounting related to certain convertible notes and other potentially dilutive securities the Company issued in 2017, 2018, and during January of 2019.

On June 11, 2019, the Audit Committee, following a communication by Marcum, concluded that the Company’s previously issued audited financial statements as of and for the years ended December 31, 2017 and 2016 and completed interim reviews for the periods ended March 31, June 30, and September 30, 2018, 2017 and 2016 should no longer be relied upon. The conclusion on June 11, 2019 to add the aforementioned 2016 financial statements to those statements which should no longer be relied upon resulted from determinations made as part of the Company’s ongoing restatement effort that certain items, including revenues originally recognized in 2016, should no longer be recognized.

The investigatory adjustments are further discussed in Note 2, “Restatement of Consolidated Financial Statements” of the Notes to Consolidated Financial Statements, located in Item 8 of this Form 10-K.

Non-Investigatory Adjustments Identified During the Audit Process

During the audit process, financial reporting issues were identified by current management, including our new interim Chief Financial Officer (the “CFO”), which were unrelated to the internal investigation and which resulted in further adjustments to the Company’s previously issued or prior fiscal years’ unissued financial statements. These issues were due to the lack of supporting evidence and authorizations for various historical accounting journal entries or accounting policies, failure to adequately and consistently complete the financial integration of Benchmark, and the inadequate performance of our internal controls during the 2017 and 2018 fiscal year.

The non-investigatory adjustments are further discussed in Note 2, “Restatement of Consolidated Financial Statements” of the Notes to Consolidated Financial Statements, located in Item 8 of this Form 10-K.

Evaluation of Disclosure Controls and Procedures

The current interim Chief Executive Officer and current interim Chief Financial Officer have evaluated the Company’s disclosure controls and procedures as of December 31, 2018. Based on this evaluation, they conclude that because of the material weaknesses in our internal control over financial reporting discussed below, the disclosure controls and procedures were not effective as required under Rule 13a-15(e) under the Securities Exchange Act of 1934. Disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure

Management’s Assessment of Internal Control Over Financial Reporting

The Company’s Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, Management has determined that our internal control over financial reporting was not effective as of December 31, 2018, and the periods covered under this Annual Report on Form 10-K due to the material weaknesses described below.

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Principal Executive and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded against unauthorized or improper use, to permit the preparation of our consolidated financial statements in conformity with United States generally accepted accounting principles.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The Company’s management assessed the effectiveness of its internal control over financial reporting as of December 31, 2018. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission’s 2013 Internal Control-Integrated Framework. Based on its assessment, as well as factors identified during the Audit Committee investigation, Internal Investigation and subsequent audit process, management has concluded that that our internal control over financial reporting as of December 31, 2018, were not effective due to the existence of the material weaknesses in internal control over financial reporting described below from the former Board and senior management.

Material Weaknesses Identified and Remedial Measures Implemented Based Upon Internal Investigation and Management Findings

As previously reported, and as more fully described below, the current Board determined to implement significant remedial measures to address the findings of the Internal Investigation. The Company has substantially completed the implementation of the remedial measures as identified in the Internal Investigation and believes that the implementation of these measures will effectively address the tonal issues identified by the Internal Investigation and provide for a sustained culture of compliance.

The Company has also taken numerous remedial actions in response to the findings of the Internal Investigation and Non-Investigatory Adjustments Identified During the Audit Process. Most notably, the Company has made dramatic changes to its management team, completely replacing senior management, including Messrs. Palleschi and Lethem as well as its former Board of Directors. The Company has also restated its financial statements for fiscal year 2017 and the periods ended March 31, June 30 and September 30, 2018 and 2017. The restatement corrects the improperly recognized revenue identified by the Internal Investigation and accounts for the embedded derivatives contained in the convertible notes. In addition, the Company has taken significant steps to improve its policies and procedures and internal controls relating to, among other things, the following: (i) tracking, approving and disclosing all issuances of equity and debt, (ii) its expense reimbursement policy and (iii) tracking, approving and disclosing related party transactions.

Changes in Internal Control over Financial Reporting

Other than described above in the Item 9A, Controls and Procedures, there has been no change in our internal control over financial reporting in our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. Other Information.

None.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

As of the Fiscal Years Ended December 31, 2018 and December 31, 2017

Set forth below is information regarding the executive officers and directors for each of the fiscal years ended December 31, 2018 and 2017:

As of the filing of this Annual Report

Set forth below is information regarding our current executive officers and directors as of the filing of this Annual Report on Form 10-K:

Michael Palleschi, Former Chief Executive Officer and Chairman of the Board (resigned from the Board on May 11, 2019 and terminated as CEO on May 13, 2019)

Michael Palleschi served as the Company’s Chief Executive Officer and Chairman of the Board of Directors from January 2014 to May 2019. From June 2007 through 2010, he was the Director of Infrastructure Services for a South Florida facilities-based telecommunications company start-up. From 2000 through 2007, he held several Senior Management positions at Level 3 Communications in New York and Georgia. Mr. Palleschi has also held several Senior Management/Executive roles at major telecommunications companies such as Qwest Communications and MCI. Mr. Palleschi received a degree in Engineering and Business Management for The State University of New York.

David Lethem, Former Chief Financial Officer (resigned on March 12, 2019)

David Lethem served as the Company’s CFO from June 2014 to March 2019. Prior to joining FTE, Mr. Lethem was the Director of Finance and Audit for Audit Management Solutions, Incorporated from November of 2007 to April 2014. He was responsible for the financial, operational, and audit management of both public and private companies working in the banking, telecommunications, mobile marketing, manufacturing, and finance sectors. Mr. Lethem received his BA from the University of Dubuque and MBA from California Coast University. His is also holds the following certifications, CIA and CRMA.

Lynn Martin, Former Chief Operating Officer (resigned on January 25, 2019)

Lynn Martin served as the Company’s Chief Operating Officer from September 2016 to January 2019. Prior to joining FTE, Mr. Martin was Senior Vice President of the communications, software, and technology division of Nexius where he was responsible for growing the business by delivering end-to-end network solutions for emerging technologies, such as Open Source/NFV/SDN and infrastructure services that provided relevant value to customers and helped them to optimize their businesses. Mr. Martin also served as Executive Director of Telcordia Technologies, managing the company’s next generation software product line, a senior strategist in Accenture’s Network Practice, and as Vice President of Operational Integration and Process Management at Level 3 Communications for more than 10 years.

Luisa Ingargiola, Former Director and Audit Committee Chair (resigned as Audit Chair on May 13, 2019 and resigned as a Director on May 29, 2019)

Luisa Ingargiola served as director of the Company’s board and chair of the audit committee from February 2016 to May 2019. Ms. Ingargiola previously served as the Chief Financial Officer for Magne Gas, a NASDAQ listed technology company, which produces a plasma-based system for the gasification and sterilization of liquid waste. Ms. Ingargiola also served as a director for The JBF Foundation Worldwide and CES Synergies, Inc., where she served as the audit chair. Prior to joining Magne Gas, Ms. Ingargiola worked as a Budget and Expense Manager for MetLife Insurance Company. In this capacity, she managed a $30,000,000 annual budget. Her responsibilities included budget implementation, expense and variance analysis and financial reporting. Ms. Ingargiola previously served as a director and audit chair for CBD Energy Limited in 2014. Ms. Ingargiola received BA from Boston University and MA from the University of South Florida.

Christopher Ferguson, Former Director and Compensation Committee Chair (resigned as Compensation Chair on May 13, 2019 and resigned as a Director on May 29, 2019)

Christopher Ferguson served as a director of the Company’s board and chair of the compensation committee from February 2016 to May 2019. Mr. Ferguson serves as the Managing Director of Tern Capital Partners, LLC, a private equity investment firm founded by Mr. Ferguson in 2013. In 2010, Mr. Ferguson co-founded a company in the fiber network industry, and he served as CEO of the company until June 2013. In addition to his duties at Tern Capital, Mr. Ferguson serves as a member of the Board of Directors for Pennsylvania Youth Theater, a non-profit children’s theater based in Bethlehem, PA, and as a member of the non-profit organization Embrace Your Dreams, which teaches life skills to at risk children through golf and tennis programs. In August 2001, Mr. Ferguson co-founded Mercer, a provider of innovative workforce management solutions to a variety of industries including transportation and engineering, with co-founder, Michael Traina. Prior to founding Mercer, Mr. Ferguson and former New Jersey Governor, James J. Florio, co-founded The Florio Group, a private equity investment company. In addition, Mr. Ferguson served as Chief Financial Officer for Cabot Marsh Corporation in 1995 and remained as a director for the company until 1999. Mr. Ferguson has been a member of the New Jersey and Pennsylvania Bars since 1994. He received a J.D. from Widener University School of Law in May and BA from Villanova University.

Patrick O’Hare, Former Director and Nominating and Corporate Governance Chair (resigned on May 29, 2019)

Patrick O’Hare served as a director of the Company’s board and chair of the nominating and corporate governance committee from March 2016 to May 2019. Mr. O’Hare has over 25 years’ experience in the telecommunications industry and is currently the Senior Vice President of Operations at ZenFi Networks, Inc. where he is responsible for network planning, engineering, operations, and service delivery. Prior to ZenFi, Mr. O’Hare was the Senior Vice President of Operations and Engineering at Sidera Networks where he led all operations, service delivery and engineering functions and was instrumental in the company’s acquisition by Berkshire Partners. Previously, he was Vice President of Field Operations for Zayo Bandwidth, where he was responsible for all aspects of field operations and the company’s fiber to the tower deployments. Prior to that, Mr. O’Hare was Vice President for Field Operations for Level 3 Communications, where he was responsible for all field operations for the East region of North America. During his tenure at Level 3, Mr. O’Hare also held responsibility nationally for the company’s Customer Program Management organization. Before joining Level 3, he held several management positions of increasing responsibility at Verizon’s predecessor companies; New York Telephone, NYNEX and Bell Atlantic. Mr. O’Hare received an MBA from Long Island University and a BA from the State University of New York - University at Albany.

Brad Mitchell, Former Director (resigned on May 29, 2019)

Brad Mitchell served as a director of the Company’s board from February 2016 to May 2019. Mr. Mitchell serves as President of TelePacific Communications Texas, where he is responsible for TelePacific’s operations across the state of Texas. Mr. Mr. Mitchell returned to TelePacific after previously serving as Senior Vice President - Field Operations and was instrumental in creating TelePacific’s customer-centric structure by leading the TelePacific’s sales operations during TelePacific’s early years. Prior to TelePacific, Mr. Mitchell served as Area Vice President at Sprint PCS, where he launched and operated several markets in the southeast, including New Orleans and Atlanta. More recently, he served as Executive Vice President of Cable & Wireless’ International Accounts. Mr. Mitchell received a BA from Oglethorpe University in Atlanta.

Fred Sacramone, Former Director and Former Interim CEO, (resigned on October 18, 2019)

Fred Sacramone served as a director of the Company’s board from April 2017 (following the Company’s acquisition of Benchmark Builders, Inc. in April 2017) to October 2019. He was also appointed by the Board to serve as the Interim Chief Executive Officer from June 2019 to October 2019, until a new Board was constituted in October 2019. Mr. Sacramone was a co-founder of Benchmark in 2008, and served as the company’s president, continuing in that role following the transaction with FTE while becoming a member of the FTE Networks Board of Directors. Previously, Mr. Sacramone held senior roles in project management, overseeing large and complex projects, including work for Rockefeller Group, Simpson Thatcher, Trinity Real Estate, Del Friscos, Depository Trust, and NBC. He received a BBA from the University of Massachusetts.

Michael P. Beys, Interim Chief Executive Officer and Director

Mr. Beys is a partner with the law firm Beys Liston & Mobargha LLP, which he founded in 2009. He focuses his practice on federal criminal defense, complex commercial litigation and real estate litigation. From 2000 to 2005, Mr. Beys served as a federal prosecutor in the U.S. Attorney’s Office for the Eastern District of New York, where he was the lead counsel in over 100 federal prosecutions and investigations involving racketeering, fraud, tax evasion, money laundering, narcotics trafficking, violent crimes and terrorism. Mr. Beys is also currently a director of Secure Property Development & Investment, PLC, a publicly listed (London’s AIM) owner and operator of commercial and industrial properties in Eastern Europe. In 2005, he co-founded Aristone Capital, a real estate investment firm which provided mezzanine debt financing to New York area real estate developers. In 1999, he founded Cobblestone Ventures, Inc., a real-estate development business which has invested in, or actively managed, numerous conversion and new construction projects in downtown Manhattan. Mr. Beys received a B.A. from Harvard College and a J.D. from Columbia Law School.

Ernest J. Scheidemann, Interim Chief Financial Officer

Mr. Scheidemann was appointed Interim Chief Financial Officer on May 5, 2020. Mr. Scheidemann was the CFO of Benchmark from April 2017 through November 2018. From 2008 to 2015, Mr. Scheidemann was CFO of a private global software company. Prior to that, Mr. Scheidemann was the Treasurer and CFO of WCI Communities, a $2.0 billion publicly traded homebuilder from 2004 to 2008 and held various progressive finance and accounting leadership roles with AT&T Corp from 1984 through 1999. Mr. Scheidemann is a Certified Public Accountant. He holds a Certified Global Management Accountant and Certified Financial Forensics designation issued from the American Institute of CPAs. Mr. Scheidemann received a BA in Accounting from William Paterson University and MBA in Finance and International Business from Seton Hall University.

Richard de Silva, Director

Mr. de Silva serves as Managing Partner of Lateral Investment Management, LLC, a California-based credit and growth equity firm, which he joined in 2014. Mr. De Silva is responsible for leading the day to day investment activities and operations of the firm, which include investment origination, underwriting, asset management and fundraising. Mr. de Silva was previously a General Partner at Highland Capital Partners, a private equity firm. He joined Highland in 2003 and focused on investments in growth-stage technology companies. Mr. de Silva has also held operating roles in several companies as an entrepreneur and senior executive including as co-founder of IronPlanet, a marketplace for construction equipment. He received a B.A. from Harvard College, a Master of Philosophy in International Relations from Cambridge University and an M.B.A. from Harvard Business School.

Peter Ghishan, Director and Compensation Committee Chair

Mr. Ghishan is a partner at CPNV, a global real estate development and construction firm based in Nevada. Mr. Ghishan began his career as an attorney working for a regional media holding company based in Las Vegas from August 2002 to February 2005. In February 2005, Mr. Ghishan moved to real estate full time with Andiamo Ventures, LLC, where through September 2009, he developed nearly $10,000,000 in residential projects in Lake Tahoe, overseeing all aspects of development project underwriting, financing, negotiating all entitlements, construction management and sales oversight. In his role as a commercial real estate broker with Commercial Partners of Nevada from February 2007 to June of 2018, Peter assisted a number of developers, lenders and investors in their acquisition and disposition of more than $50,000,000 in commercial real estate assets. Mr. Ghishan received a B.A. from Duke University and a J.D. from the University of Arizona College of Law. Mr. Ghishan holds his New Mexico, California, and Nevada real estate broker licenses and is an active member of the State Bar of Nevada and an inactive member of the State Bars of Arizona, California, and Montana.

Joseph Cunningham, Director and Audit Committee Chair

Mr. Cunningham serves as President of Liberty Mortgage Acceptance Corporation, a private mortgage lender arranging commercial mortgage-backed securities and bridge financing, which he co-founded in 1992. In 2009, Mr. Cunningham co-founded Renew Lending, Inc., a residential mortgage banking firm. Mr. Cunningham left the firm in 2017. Prior to 2009, Mr. Cunningham served as Chief Operating Officer of Colwell Financial Corporation, where he was responsible for all divisions including residential production, secondary marketing, construction lending, joint ventures, commercial real estate brokerage, loan servicing, insurance, underwriting, personnel, REO, finance and administration, and legal activities. Mr. Cunningham also previously served as Executive Vice President and Chief Financial Officer of Granite Financial Corporation, a boutique mortgage banking firm. Earlier in his career, Mr. Cunningham practiced as a CPA in the Boston office of PwC. Mr. Cunningham received a B.S. in Accounting from Boston College.

Term of Office

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.

All current officers and directors will remain in office until the next annual meeting of our stockholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of Directors.

Family Relationships

There are no family relationships among the Company’s current directors or officers.

Involvement in Certain Legal Proceedings

During the past ten (10) years, none of our current officers have been involved in any legal proceeding that are material to the evaluation of their ability or integrity relating to any of the items set forth under Item 401(f) of Regulation S-K. None of our current officers is a party adverse to the Company or any of its subsidiaries in any material proceeding or has a material interest adverse to the Company or any of its subsidiaries.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of a registered class of our securities (“Reporting Persons”), to file reports of ownership and changes in ownership with the SEC. To our knowledge, and based solely on our review of the reports electronically filed by the Reporting Persons, the Company believes that all reports of securities ownership and changes in such ownership required to be filed during the years ended December 31, 2018 and 2017 were timely filed, except for the following:

Code of Ethics

Each of the Company’s directors and employees, including its executive officers, are required to conduct themselves in accordance with ethical standards set forth in the Code of Business Conduct and Ethics adopted by the Board of Directors on January 5, 2015, superseding the prior code of ethics filed as Exhibi1 14.1 to the Company’s Annual Report on Form 10-K filed on January 13, 2009.

A copy of the Company’s current Code of Business Conduct and Ethics is available on our website at www.ftenet.com and is attached as Exhibit 14.4 to this Annual Report.

Director Nominations

We made no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors.

Audit Committee

Our Board has a separately designated standing audit committee, established in accordance with Section 3(a)(58)(A) of the Exchange Act. It is governed by a charter, a copy of which is available on our website, www.ftenet.com. The current members of the audit committee are Joseph Cunningham (Chair) and Peter Ghishan each of whom is considered “independent” under the rules of the SEC and the listing standards of NYSE American. Each member of our audit committee can read and understand fundamental financial statements in accordance with audit committee requirements and our board of directors has determined that Mr. Cunningham is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K, based upon past employment experience in finance and other business experience requiring accounting knowledge and financial sophistication. Our Board also has a standing compensation and nominating and corporate governance committee, comprised as set forth in the table below:

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to compensation, in accordance with Regulation S-K, for the years ended December 31, 2019, 2018 and 2017 paid to all who served as our chief executive officer and our two most highly compensated executive officers, other than our chief executive officer, whose total compensation exceeded $100,000 (the “named executive officers” or “NEO’s”), including the aggregate fair value of large grants of common stock issued to certain NEO’s. Some of these shares of common stock have either been cancelled and returned to shares to be issued for lack of Board authorization or are the subject matter of a judicial action seeking their return.

Summary Compensation Table

Employment Agreements

Below is a summary of the employment agreements with named executive officers for the year ended December 31, 2018.

On June 13, 2014, FTE Networks entered into an employment agreement with Michael Palleschi to serve as its Chief Executive Officer in consideration of a salary of $250,000 per year, with standard employee insurance and other benefits through June 13, 2017, including a mandatory arbitration provision. On October 26, 2015, the employment agreement was amended to extend the term through the end of June 13, 2019. Mr. Palleschi was placed on unpaid leave on January 19, 2019 and later served the Company with a demand for arbitration alleging a breach of his employment agreement on April 9, 2019. On April 11, 2019, the Company notified Mr. Palleschi that it would not be renewing his employment agreement and terminated his employment on May 13, 2019. The Company continues to challenge the allegations set forth in the demand for arbitration and its liability for any damages thereunder. The arbitration is pending in the state of Florida.

On June 2, 2014, the Company entered into an employment agreement with David Lethem to serve as its Chief Financial Officer in consideration of a salary of $120,000 per year. The employment agreement had an initial term of three years and was continued on a year-to-year basis thereafter. Mr. Lethem resigned on March 11, 2019 in connection with a transition, separation and general release agreement, pursuant to which the Company agreed to pay Mr. Lethem a severance payment of $87,500. In addition to certain releases and post-employment covenants, Mr. Lethem also returned 466,151 shares of Company common stock. The Company is actively litigating a dispute that arose in connection with this transition, separation, and general release in the state of Florida.

On May 2, 2016, the Company entered into an employment agreement with Lynn Martin to serve as the Company’s Chief Operating Officer in consideration of a salary of $250,000 per year. The employment agreement had an initial term of three years and was continued on a year-to-year basis thereafter. Mr. Martin resigned on January 25, 2019.

Outstanding Equity Awards at Fiscal Year End

There were no grants of plan-based equity awards or non-equity awards to named executives during the years ended December 31, 2018 and 2017.

Director Compensation

The following table provides the total compensation for each person who served as a non-employee member of our Board of Directors for each of the fiscal years ended December 31, 2018 and 2017, including the aggregate fair value of large grants of common stock issued to certain non-employee directors, which shares have been cancelled and returned to shares to be issued as of the date of this filing.