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

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

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

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

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

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 Securities Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

The accompanying unaudited interim consolidated financial statements of Digerati Technologies, Inc. (“we;” “us,” “our,” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the United States Securities and Exchange Commission. In the opinion of management, these interim financial statements contain all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial position and the results of operations for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements, which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the year ended July 31, ~~2019~~2020 contained in the Company’s Form 10-K filed on October ~~28, 2019~~29, 2020 have been omitted.

As a result of entering into various convertible debt instruments which contained a variable conversion feature with no floor, warrants with fixed exercise price, and convertible notes with fixed conversion price or with a conversion price floor, we reserved 25,000,000 treasury shares for consideration for future conversions and exercise of warrants, for convertible notes with fixed conversion price, notes with variable conversion feature with a floor and warrants with a conversion price floor. The Company will evaluate the reserved treasury shares on a quarterly basis, and if necessary, reserve additional treasury shares. As of April 30, 2021, we believe that the treasury share reserved are sufficient for any future conversions of these instruments. As a result, these debt instruments and warrants are excluded from derivative consideration.

We rely on various suppliers to provide services in connection with our VOIP and UCaaS offerings. Our customers include businesses in various industries including Healthcare, Banking, Financial Services, Legal, Real Estate, and Construction. We are not dependent upon any single supplier or customer.

During the nine months ended April 30, ~~2020~~2021, and ~~2019,~~2020, the Company did not derive a significant amount of revenue from one single customer.

As of the nine months ended April 30, ~~2020~~2021, and ~~2019,~~2020, the Company did not derive a significant ~~amount~~number of accounts receivable from one single customer.

Cloud Software and Service Revenue. The Company recognizes cloud software and service revenue, mainly from subscription services for its cloud telephony applications that includes hosted IP/PBX services, SIP trunking, call center applications, auto attendant, voice and web conferencing, call recording, messaging, voicemail to email conversion, integrated mobility applications that are device and location agnostic, and other customized applications. Other services include enterprise-class data and connectivity solutions through multiple broadband technologies including cloud WAN or SD-WAN (Software-defined Wide Area Network), fiber, and Ethernet over copper. We also offer remote network monitoring, data backup and disaster recovery services. The Company applies a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when the performance obligation is satisfied. Substantially all of the Company’s revenue is recognized at the time control of the products transfers to the customer.

Service revenue from subscriptions to the Company’s cloud-based technology platform is recognized over time on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer. Payments received in advance of subscription services being rendered are recorded as a deferred revenue. Usage fees, either bundled or not bundled, are recognized when the Company has a right to invoice. Professional services for configuration, system integration, optimization, customer training and/or education are primarily billed on a fixed-fee basis and are performed by the Company directly. Alternatively, customers may choose to perform these services themselves or engage their own third-party service providers. Professional services revenue is recognized over time, generally as services are activated for the customer.

The Company recognizes product revenue for telephony equipment at a point in time, when transfer of control has occurred, which is generally upon delivery. Sales returns are recorded as a reduction to revenue estimated based on historical experience.

Contract assets are recorded for those parts of the contract consideration not yet invoiced but for which the performance obligations are completed. The revenue is recognized when the customer receives services or equipment for a reduced consideration at the onset of an arrangement; for example, when the initial month’s services or equipment are discounted. Contract assets are included in prepaid and other current assets in the consolidated balance sheets, depending on if their reduction is recognized during the succeeding 12-month period or beyond. Contract assets as of April 30, ~~2020~~2021, and July 31, ~~2019,~~2020, were ~~$5,084~~$13,260 and ~~$22,967,~~$5,980, respectively.

Deferred income represents billings or payment received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual plan subscription services, for services not yet provided as of the balance sheet date. Deferred revenues that will be recognized during the succeeding 12-month period are recorded as current deferred revenues in the consolidated balance sheets, with the remainder recorded as other noncurrent liabilities in the consolidated balance sheets. Deferred income as of April 30, ~~2020~~2021, and July 31, ~~2019,~~2020, were ~~$318,000~~$43,000 and ~~$285,000,~~$148,000, respectively.

The Company in some instances requires customers to make deposits for equipment, installation charges and training. As equipment is installed and training takes places the deposits are then applied to revenue. As of April 30, 2021, and July 31, 2020, Digerati’s customer deposits balance was $131,000 and $131,000, respectively.

Sales commissions are paid upon collections of related revenue and are expensed during the same period. Sales commissions for the nine months ended April 30, ~~2020~~2021, and April 30, ~~2019,~~2020, were ~~$51,953~~$576,476 and ~~$39,828,~~$51,953, respectively.

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

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

The net income (loss) attributed to the NCI is separately designated in the accompanying consolidated statements of operations and other comprehensive income (loss). For the nine months ended April 30, ~~2020~~2021, and ~~2019,~~2020, the Company recognized a net loss attributable to the noncontrolling ~~deficits~~interest of ~~$58,000~~$223,000 and ~~$87,000,~~$58,000, respectively.

~~In February 2016,~~ Recent accounting pronouncements, other than below, issued by the ~~FASB issued ASU No. 2016-02,~~ ~~Leases~~ ~~(Topic 842). The amendments under this pronouncement will change~~Financial Accounting Standards Board (“FASB”) (including its Emerging Issues Task Force), the ~~way all leases with a duration of one year~~AICPA and the SEC did not, or ~~more~~ are ~~treated. Under this guidance, lessees will be required~~not, believed by management to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases are under current accounting, as amortization expense and interest expense in the statement of operations. Operating lease liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. This update is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December 15, 2018. In July 2018 the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842), Targeted Improvements, which provided additional implementation guidance on the previously issued ASU. The Company evaluated this amendment and it was adopted as of August 1, 2019 and concluded that did not have a material effect on the ~~presentation~~Company’s present or future financial statements.

In August 2020, the FASB issued “ASU 2020-06, Debt with Conversion and Other Options (Subtopic 47020) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of ~~our consolidated~~transition or a fully retrospective method of transition is permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently evaluating the potential on its financial ~~statements (See footnote 8).~~statements.

The Company’s consolidated financial statements for the nine months ending April 30, ~~2020~~2021, have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. Since the Company’s inception in 1993, the Company has incurred net losses and accumulated a deficit of approximately ~~$88,392,000 and~~$104,166,000, a working capital deficit of approximately ~~$5,285,000~~$22,924,000 and total liabilities of $32,430,000, which includes $17,340,000 in derivative liabilities, which raises substantial doubt about Digerati’s ability to continue as a going concern.

Management believes that ~~current~~ available resources as of April 30, 2021, will not be sufficient to fund the Company’s operations and corporate expenses over the next 12 months. The Company’s ability to continue to meet its obligations and to achieve its business objectives is dependent upon, ~~among~~and other things, raising additional capital, issuing stock-based compensation to certain members of the executive management team in lieu of cash, or generating sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company will seek to secure such ~~additional~~best-efforts funding from various possible sources, including ~~the public~~ equity ~~market, private financings,~~or debt financing, sales of assets, or collaborative ~~arrangements and debt.~~arrangements. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences, or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain technologies. There can be no assurance that the Company will be able to raise additional funds or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, it may be unable to execute its business plan, the Company could be required to ~~delay or reduce the scope of~~curtail its operations, and the Company may not be able to pay off its obligations, if and when they come due.

~~The Company~~We are currently taking initiatives to reduce our overall cash deficiencies on a monthly basis. During fiscal 2021 certain members of our management team have taken a significant portion of their compensation in common stock to reduce the depletion of our available cash. To strengthen our business, we intend to adopt best practices from our recent acquisitions and invest in a marketing and sales strategy to grow our monthly recurring revenue; we anticipate utilizing our value-added resellers and channel partners to tap into new sources of revenue streams, we have also secured numerous agent agreements through our recent acquisitions that we anticipate will accelerate revenue growth. In addition, we will continue to ~~work~~focus on selling a greater number of comprehensive services to our existing customer base. Further, in an effort to increase our revenues, we will continue to evaluate the acquisition of various assets with ~~various funding sources to secure additional~~emphasis in VoIP Services and Cloud Communication Services. As a result, during the due diligence process we anticipate incurring significant legal and professional fees.

We have been successful in raising debt and equity ~~financings. However,~~capital in the ~~Company~~past and as described in Notes 6, 7, and 8. We have financing efforts in place to continue to raise cash through debt and equity offerings. Although we have successfully completed financings and reduced expenses in the past, we cannot ~~offer any assurance~~assure you that itour plans to address these matters in the future will be ~~successful in executing the aforementioned plans to continue as a going concern.~~successful.

The Company’s consolidated financial statements as of April 30, ~~2020~~2021, do not include any adjustments that might result from the inability to implement or execute the Company’s plans to improve our ability to continue as a going concern.

On November 17, 2020, the Company and T3 Communications, Inc (“T3 Nevada”), a majority owned subsidiary entered into a credit agreement (the “Credit Agreement”) with Post Road Administrative LLC and its affiliate Post Road Special Opportunity Fund II LLP (collectively, “Post Road”). Pursuant to the Credit Agreement, Post Road provided T3 Nevada with a secured loan of up to $20,000,000, with initial loans of $10,500,000 pursuant to the issuance of a Term Loan A Note and $3,500,000 pursuant to the issuance of a Term Loan B Note, each funded on November 17, 2020.

The Company used $14,000,000 of the credit facility for the payment of approximately $9.452 million for the purchase price for the merger of Nexogy, $1.190 million for the purchase price and transaction fees of certain assets of ActiveServe, Inc., $1.487 million for the payment in full of outstanding debts owed and accrued interest to three creditors, including the secured creditor Thermo Communication, Inc., the payment of approximately $464,000 paid to Post Road, and recognized as deferred financing cost, and will be amortized over the terms of the notes. In addition, the Company expensed $430,000 in legal fees associated to the acquisitions and financing.

The Company can draw additional loans in increments of $1,000,000, before the 18 month anniversary of the initial funding date. The current Credit Agreement will allow the Company to continue acquiring UCaaS service providers that meet the Company’s acquisition criteria. Management anticipates that future acquisitions will provide additional operating revenues to the Company as it continues to execute on its consolidation strategy. There can be no guarantee that the planned acquisitions will close or that they will produce the anticipated revenues on the schedule anticipated by management.

Below are summarized changes in intangible assets at April 30, ~~2020~~2021, and July 31, ~~2019:~~2020:

Total amortization expense for the nine months ended April 30, 2021, and 2020 ~~and 2019~~ was ~~$284,571~~$962,429 and $284,571, respectively.

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

The fair market value of all options issued ~~was~~during the nine months ended April 30, 2021, were determined using the Black-Scholes option pricing model which used the following assumptions:

The Company recognized approximately $109,685 and $315,000 ~~and $403,000~~ in stock-based compensation expense for stock ~~option amortization expense~~options to employees ~~during~~for the nine months ended April 30, ~~2020~~2021, and ~~2019,~~2020, respectively. Unamortized compensation stock option cost totaled $220,861 and $126,182 at April 30, 2021, and ~~$388,732 on~~ April 30, 2020, ~~and April 30, 2019,~~ respectively. In addition, during the nine months ended April 30, 2020 and 2019 Digerati recognized approximately $817,000 and $313,000, respectively in stock compensation expense to employees as part of the Company’s Non-Standardized profit-sharing plan contribution and other stock compensation to employees.

A summary of the stock options as of April 30, ~~2020~~2021, and July 31, ~~2019~~2020, and the changes during the nine months ended April 30, ~~2020~~2021, are presented below:

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) of the ~~5,000,000~~9,230,000 and ~~4,940,000~~5,000,000 stock options outstanding at April 30, ~~2020~~2021, and July 31, ~~2019~~2020, was $0$427,340 and $0, respectively.

The aggregate intrinsic value of ~~4,681,507~~5,666,908 and ~~3,452,405~~4,717,699 stock options exercisable at April 30, ~~2020~~2021, and July 31, ~~2019~~2020, was $0$65,173 and $0, respectively.

During the nine months ended April 30, 2021, the Company issued the following warrants:

On November 17, 2020, the Company issued 107,701,179 Warrants to Post Road Special Opportunity Fund II LP (the “Warrant”) to purchase, initially, twenty-five percent (25%) of the Company’s total shares (the “Warrant”), calculated on a fully-diluted basis as of the date of issuance (the “Warrant Shares”) and subject to a reduction to fifteen percent (15%) as described below.

The number of Warrant Shares is adjustable to allow the holder to maintain, subject to certain share issuances that are exceptions, the right to purchase twenty-five percent (25%) of the Company’s total shares, calculated on a fully-diluted basis. The Warrant has an exercise price of $0.01 per share and the Warrant expires on November 17, 2030. Seventy-five percent (75%) of the Warrant Shares are immediately fully vested and not subject to forfeiture at any time for any reason. The remaining twenty-five percent (25%) of the Warrant Shares are subject to forfeiture based on the Company achieving certain performance targets which, if achieved, would result in twenty percent (20%) warrant coverage. If the minority shareholders of T3 Nevada convert their T3 Nevada shares into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), the Warrant Shares percentage shall also be lowered such that when combined with the achievement of the performance targets, the warrant coverage could be reduced to fifteen percent (15%).

In connection with the issuance of the Warrant, the three executives of the Company, Art Smith, Antonio Estrada, and Craig Clement entered into a Tag-Along Agreement (the “Tag-Along Agreement”) whereby they agreed that the holder of the Warrant or Warrant Share will have the right to participate or “tag-along” in any agreements to sell any shares of their Common Stock that such executives enter into. The Company also agreed, in connection with the issuance of the Warrant and pursuant to a Board Observer Agreement (the “Board Observer Agreement”), to grant Post Road the right to appoint a representative to each of the boards of directors of the Company and each of its subsidiaries, to attend all board meeting in a non-voting observer capacity. In addition, at issuance the Company recognized $6,462,050 in Derivative liability associated with these warrants.

A summary of the warrants as of April 30, 2021, and July 31, 2020, and the changes during the nine months ended April 30, 2021, are presented below:

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money warrants) of the 109,836,179 and 2,540,000 warrants outstanding at April 30, 2021, and July 31, 2020, was $15,677,051 and $6,160, respectively.

The aggregate intrinsic value of 82,610,885 and 1,940,000 warrants exercisable at April 30, 2021, and July 31, 2020, was $11,772,883 and $6,160, respectively.

In March 2020, the Company received $25,000 in professional services and issued 25,000 shares of Series A Convertible Preferred Stock at ana conversion price of $0.30 per share and warrants to purchase an additional 50,000 shares of its common stock at an exercise price of $0.20 per share. We determined that the warrants issued in connection with the services received were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.

During the nine months ended April 30, ~~2019, we issued~~2021, the ~~following warrants:~~Company extended the expiration date for 300,000 warrants that previously set to expired in fiscal year ended July 31, 2020. The extended expiration date is to October 12, 2022.

~~In August 2018,~~During the ~~Company secured $40,000 from an accredited investor under a private placement and issued 80,000 shares of its common stock at a price of $0.50 per share and~~nine months ended April 30, 2021, 105,000 warrants ~~to purchase an additional 15,000 shares of its common stock at~~expired with an exercise price of ~~$0.50 per share. We determined that the~~$0.50. These warrants were issued in ~~connection with the private placement were equity instruments~~August and ~~did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.~~October 2017.

~~In October 2018,~~During the nine months ended April 30, 2021, the Company ~~issued 200,000~~received $30,000 in proceeds from the exercise of 300,000 warrants, ~~under an extension of payments to existing promissory notes, with a combined current principal balance of $75,000, the warrants vested at time of issuance. The warrants have a term of 3 years,~~ with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $31,000 and was recognized as a discount on the promissory note, the company will amortize the fair market value as interest expense over 3 months. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.

In January 2019, the Company cancelled 260,000 warrants with an exercise price of $0.15. Additionally, the Company issued 260,000 common shares to replace these warrants, in conjunction with two promissory notes with a principal balance of $50,000, in addition at the time of issuance we recognized a discount of $36,000.

In February 2019, the Company secured $50,000 from accredited investors under a private placement and issued 50,000 shares of Series A Convertible Preferred Stock at an conversion price of $0.30 per share and warrants to purchase an additional 100,000 shares of its common stock at an exercise price of $0.20 per share. We determined that the warrants issued in connection with the private placement were equity instruments and did not represent derivative instruments. The Company adopted a sequencing policy and determined that the warrants with fixed exercise price were excluded from derivative consideration.

~~In February 2019, the Company received $1,500 for the exercise of 15,000 warrants, with an exercise price of $0.10 per warrant.~~

~~In March 2019, the Company received $6,000 for the exercise of 60,000 warrants, with an exercise price of $0.10 per warrant.~~

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

~~A summary of the warrants as of April 30, 2020 and July 31, 2019 and the changes during the six months ended April 30, 2020 are presented below:~~

The aggregate intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money warrants) of the 2,450,000 and 2,700,000 warrants outstanding at April 30, 2020 and July 31, 2019 was $5,060 and $63,602, respectively.

~~The aggregate intrinsic value of 2,150,000 and 2,400,000 warrants exercisable at April 30, 2020 and July 31, 2019 was $4,290 and $63,602, respectively.~~

~~In January 2020, 300,000 warrants expired with an exercise price pf $0.136.~~ These warrants were issued in ~~January 2015.~~March 2018.

In December 2017, the Company issued 100,000 warrants to a consultant for services, the warrants vested at time of issuance. The warrants have a term of 5 years, with an exercise price of $0.50. ~~Under a Black-Scholes valuation the fair market value of the warrants at time of issuance was approximately $49,000, the Company will amortize the fair market value as warrant expense over 12 months.~~ Additionally, the Company committed to issue 100,000 warrants if the Company’s stock price traded at $0.75 per share for 10 consecutive days, to issue 100,000 warrants if the Company’s stock price traded at $1.00 per share for 10 consecutive days, and to issue 100,000 warrants if the Company’s stock price traded at $1.25 per share for 10 consecutive days. ~~Under a Black-Scholes valuation the fair market value of the warrants at time of issuance was approximately $143,000, the Company amortized the fair market value as warrant expense over 12 months.~~ The ~~200,000~~300,000 commitment warrants have not been issued since the requirements were not achieved during the nine months ending April 30, ~~2020.~~2021.

On April 30, 2018, T3 Communications, Inc., a Nevada corporation (“T3”), our majority owned subsidiary, entered into a secured promissory note for $650,000 with an effective annual interest rate of 0% and aan initial maturity date of May 14, ~~2018, provided, however,~~2018. The lender subsequentially continued to extend the ~~Maturity Date will automatically be extended by one (1) additional period of thirty (30) days,~~maturity date on the note. On October 14, 2020, the lender agreed to extend the maturity date until ~~June 14, 2018.~~October 31, 2020, the Company continued to pay $3,250 per week in late fees. In ~~addition,~~conjunction with the note, T3 entered into a Security Agreement, whereby T3 agreed to pledge one third of the outstanding shares of its Florida operations, T3 Communications, Inc., the secured interest will continue until the principal balance is paid in full. Furthermore, a late fee of $3,000 per calendar week will be accessed beginning on May 15, 2018 and will continue until the principal balance is paid in full. On ~~May 6,~~November 17, 2020, the Company ~~received an additional $50,000 from~~paid the ~~lender and increased the~~total principal balance outstanding of ~~the promissory note to $700,000 and the lender agreed to extend the maturity date until June 30, 2020, we are currently paying a $3,250 per week late fee.~~$700,000. As of April 30, ~~2020,~~2021, and July 31, ~~2019,~~2020, the outstanding principal balance were $0 and $700,000, ~~and $650,000,~~ respectively.

On April 30, 2018, T3 entered into a credit facility under a secured promissory note of $500,000, interest payment for the first twenty-three months with a balloon payment on the twenty-fourth month and a maturity date of April 30, 2020. ~~Collateralized~~The note was collateralized by T3’s accounts receivables and with an effective annual interest rate of prime plus 5.25%, adjusted quarterly on the first day of each calendar quarter. However, the rate will never be less than 9.50% per annum. In the event of default, the interest rate will be the maximum non-usurious rate of interest per annum permitted by whichever of applicable United States federal law or Louisiana law permits the higher interest rate. T3 agreed to pay the lender a commitment fee of 1.00% upon payment of the first interest payment under the credit facility and 1.00% on the first anniversary of the credit facility. In addition, T3 agreed to pay a monitoring fee of 0.33% of the credit facility, payable in arrears monthly. T3 also agreed to pay an over-advance fee of 3.00% of the amount advanced in excess of the borrowing base or maximum amount of the credit facility, payable in arrears monthly. T3 is required to maintain the following financial covenants: 1) A consolidated debt service coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, 2) A fixed charge coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, and 3) A tangible net worth, at all times of at least $100,000.receivables. On April 10, 2020, the Company increased the credit facility to $600,000 and the lender agreed to extend the maturity date until April 10, 2022. In addition, the Company agreed to a revised effective annual interest rate of prime plus 5.75%, adjusted quarterly on the first day of each calendar quarter. ~~However, the rate will never be less than 11.00% per annum. During the period ended April 30,~~On November 17, 2020, the Company ~~received an additional $93,820 from~~paid the ~~lender.~~total principal balance outstanding of $600,000 and $11,115 in accrued interest and fees. As of April 30, ~~2020,~~2021, and July 31, ~~2019,~~2020, the outstanding principal balance were ~~$593,820~~$0 and ~~$500,000,~~$600,000, respectively.

On October 22, 2018, the Company issued a secured promissory note for $50,000, bearing interest at a rate of 8% per annum, with maturity date of December 31, ~~2018. In~~2018.In February 2020, the maturity date was extended tountil December 31, 2020. In ~~conjunction with~~March 2021, the ~~extension, the Company issued 40,000 shares of common stock. At issuance, the fair market value of the shares~~maturity date was ~~recorded as interest expense of $800.~~extended until July 31, 2021. The promissory note is secured by a Pledge and Escrow Agreement, whereby the Company agreed to pledge rights to a collateral due under certain Agreement. The outstanding balance as of April 30, 2021, and July 31, 2020, was $50,000.

On June 14, 2019, the Company, entered into a Stock Purchase Agreement (the “Agreement”) to acquire a 12% minority interest in Itellum Comunicacions Costa Rica, S.R.L. In conjunction with this transaction, we entered into a non-recourse promissory note for $17,500 with an effective annual interest rate of 8% and an initial maturity date of September 14, 2019. On February 15, 2020, the maturity date was extended to July 31, 2020. ~~In addition,~~On August 1, 2020, the ~~holder~~lender agreed to ~~accept 200,000 shares of common stock as a principal payment on~~extend the ~~note for $10,000.~~maturity date to October 31, 2020. Subsequentially, the lender agreed to extend the maturity date to January 31, 2021. Additionally, the lender agreed to extend the maturity date to April 30, 2021. The outstanding balance as of April 30, 2021, and July 31, 2020, was $7,500. Subsequently, on May 7, 2021, the Company paid the total principal balance outstanding of $7,500 and $1,136 in accrued interest.

On February 26, 2020, the Company entered into a secured promissory note for $30,000 with an effective annual interest rate of 12% and a maturity date of May 1, 2020. Subsequently, the note holder agreed to extend the maturity date until August 31, 2020. The proceeds from this note were used to extend the closing date of the acquisition of Nexogy, the funds are held in an escrow account for the benefit of owners of Nexogy, and therefore, the Company included the prepaid amounts in other current assets as of April 30, 2020. The promissory note iswas secured by the Company’s receivables. On November 17, 2020, the Company paid the total principal balance outstanding of $30,000 and $2,604 in accrued interest. The outstanding balance as of April 30, 2021, and July 31, 2020, ~~was $30,000.~~were $0 and $30,000, respectively.

On April 22, 2020, the Company, entered into two unsecured promissory notes (the “Notes”) for $62,500 and ~~$86,500~~$86,000 made to the Company under the Paycheck Protection Program (the “PPP”). In addition, on May 4, 2020, the Company, entered into a third unsecured promissory note (the “Note”) for $213,100 made to the Company under the Paycheck Protection Program (the “PPP”). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”). The loans to the Company ~~was~~were made through The Bank of San Antonio (the “Lender”). On April 15, 2021, the SBA informed the Company that the total outstanding balance of $62,500 and accrued interest of $608 were forgiven. As a result, the Company recognized a gain on settlement of debt of $63,108. In addition, on April 15, 2021, the SBA informed the Company that the total outstanding balance of $86,000 and accrued interest of $836 were forgiven. At the time of the forgiveness, the Company recognized a gain on settlement of debt of $86,836. Subsequently, on May 13, 2021, the SBA informed the Company that the total outstanding balance of $213,100 and accrued interest of $2,172 were forgiven. Subsequentially, on May 13, 2021, the Company recognized a gain on settlement of debt of $215,272.

The Notes provide for an interest rate of 1.00% per year and matures two years after the issuance date. Beginning on the seventh month following the date of the Notes, the Company is required to make 18 monthly payments of principal and interest in the amount of ~~$8,316.~~$8,316 and $11,933, respectively. The Notes may be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that were incurred before February 15, 2020. The Notes contain events of default and other conditions customary for a Note of this type.

~~Under~~As of April 30, 2021, the principal balance on the various notes were $0, $0, and $213,100, respectively. As of July 31, 2020, the principal balance on the various notes were $62,500, $86,000, and $213,100, respectively.

On November 17, 2020, T3 Communications, Inc., a Nevada corporation (“T3 Nevada”), a majority owned subsidiary of Digerati Technologies, Inc. (the “Company”) and the Company’s other subsidiaries entered into a credit agreement (the “Credit Agreement”) with Post Road. The Company is a party to certain sections of the Credit Agreement. Pursuant to the Credit Agreement, Post Road will provide T3 Nevada with a secured loan of up to $20,000,000 (the “Loan”), with initial loans of $10,500,000 pursuant to the issuance of a Term Loan A Note and $3,500,000 pursuant to the issuance of a Term Loan B Note, each funded on November 17, 2020, and an additional $6,000,000 on loans, in increments of $1,000,000 as requested by T3 Nevada before the 18 month anniversary of the initial funding date to be lent pursuant to the issuance of a Delayed Draw Term Note. After payment of transaction-related expenses and closing fees of $964,000, net proceeds to the Company from the Note totaled $13,036,000. The Company recorded these discounts and cost of $964,000 as a discount to the Notes and will be amortized over the term of the notes.

The Company used $14,000,000 of the credit facility for the payment of approximately $9.452 million for the purchase price for the merger of Nexogy, $1.190 million for the purchase price and transaction fees of certain assets of ActiveServe, Inc., $1.487 million for the payment in full of outstanding debts owed and accrued interest to three creditors, including the secured creditor Thermo Communication, Inc., the payment of approximately $464,000 paid to Post Road, and recognized as deferred financing cost, and will be amortized over the terms of the ~~CARES Act, PPP loan recipients can apply~~notes. In addition, the Company expensed $430,000 in legal fees associated to the acquisitions and financing.

During the nine months ending April 30, 2021, the Company amortized $1,294,000 of the total debt discount as interest expense for the Term Loan A Note and ~~be granted forgiveness for all or a portion of loan granted under~~ the ~~PPP, with such forgiveness to be determined, subject to limitations, based~~Term Loan B Note. The total debt discount outstanding on the ~~use~~notes as of the loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the SBA may adopt. While the Company currently believes that its use of the Note proceeds will meet the conditions for forgiveness under the PPP, no assurance is provided that the Company will obtain forgiveness of the Notes in whole or in part.

~~On April 30, 2018, T3 entered into a convertible secured promissory note for $525,000 with~~The Term Loan A and Delayed Draw Term Notes have maturity dates of November 17, 2024, and an ~~effective annual~~ interest rate of 8%LIBOR (with a minimum rate of 1.5%) plus twelve percent (12%). Term Loan A is non-amortized (interest only payments) through the maturity date and contains an option for the Company to pay interest in kind (PIK) for up to five percent (5%) of the interest rate in year one, four percent (4%) in year two and three percent (3%) in year three. The principal balance and accrued PIK interest outstanding on the note were $10,500,000 and $245,881, respectively as of April 30, 2021.

Term Loan B has a maturity date of ~~April 30, 2020. With~~December 31, 2021, and an interest rate of LIBOR (with a ~~principal payment~~minimum rate of ~~$100,000 due on June 1, 2018~~1.5%) plus twelve percent (12%). Term Loan B is non-amortized (interest only payments) through the maturity date and ~~a principal payment of $280,823 due on April 30, 2020. Payment are based on a 60-month repayment schedule. At any time while this Note is outstanding, but only upon: (i)~~contains an option for the ~~occurrence of an Event of Default under the Note or the Pledge and Escrow Agreement; or (ii) mutual agreement between the Borrower and the Holder, the Holder may convert all or any portion~~Company to pay interest in kind (PIK) for up to five percent (5%) of the ~~outstanding~~interest rate in year one, four percent (4%) in year two and three percent (3%) in year three. The principal balance and accrued ~~and unpaid~~PIK interest Premium, if applicable, and any other sums due and payable hereunder (such total amount, the “Conversion Amount”) into shares of Common Stock (the “Conversion Shares”) at a price equal to: (i) the Conversion Amount (the numerator);~~divided by~~(ii) a conversion price of $1.50 per share of Common Stock, which price shall be indicated in the conversion notice (the denominator) (the “Conversion Price”). The Holder shall submit a Conversion Notice indicating the Conversion Amount, the number of Conversion Shares issuable upon such conversion, and where the Conversion Shares should be delivered. The promissory note is secured by a Pledge and Escrow Agreement, whereby T3 agreed to pledge 51% of the securities owned in its Florida operations, T3 Communications, Inc., until the principal payment is paid in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 75,000 shares of common stock at an exercise price of $0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was $19,267 and was recognized as a discountoutstanding on the ~~promissory note. The Company amortized $7,297 as interest expense during the nine months ended April 30, 2020. The total unamortized discount~~note were $3,500,000 and $81,960, respectively as of April 30, ~~2020~~2021.

The Credit Agreement contains customary representations, warranties, and ~~July 31, 2019 were $0~~indemnification provisions. The Credit Agreement also contains affirmative and ~~$7,297, respectively. In addition, during~~negative covenants with respect to operation of the ~~nine months ended April 30, 2020,~~business and properties of the ~~Company paid in full the total outstanding balance of $332,985. The total principal outstanding~~loan parties as well as financial performance. Below are key covenants requirements, (measured quarterly):

As of April 30, ~~2020 and July 31, 2019 were $0 and $332,985, respectively. In May 2020,~~2021, the Company ~~executed~~is in compliance of the financial covenants mentioned above.

T3 Nevada’s obligations under the Credit Agreement are secured by a ~~Settlement Agreement~~first-priority security interest in all of the assets of T3 Nevada and ~~Mutual release, whereby~~guaranteed by the ~~lender released~~other subsidiaries of the Company ~~of any pledged collateral~~pursuant to the Guaranty and ~~any~~Collateral Agreement, dated November 17, 2020, by and among T3 Nevada, the Company’s other ~~obligation~~subsidiaries, and Post Road Administrative LLC (the “Guaranty and Collateral Agreement”). In addition, T3 Nevada’s obligations under the ~~promissory note. One~~Credit Agreement are, pursuant to a Pledge Agreement (the “Pledge Agreement”), secured by a pledge of ~~the note holders also serves as President, CEO and Board Member~~a first priority security interest in T3 Nevada’s 100% equity ownership of each of T3 ~~Communications, Inc., the Florida entity that is one of our~~Nevada’s operating ~~subsidiaries.~~companies.

On February 27, 2020, the Company entered into an unsecured promissory note for $70,000 with an effective annual interest rate of 12% and a maturity date of May 1, 2020. Subsequently, the note holder agreed to extend the maturity date until August 31, 2020. In addition, the Company agreed to pay the lender in services provided by the Company, and any unpaid principal and accrued interest will be paid in cash. The proceeds from this note were used to extend the closing date of the acquisition of Nexogy, the funds are held in an escrow account for the benefit of owners of Nexogy, and therefore, the Company included the prepaid amounts in other current assets as of April 30, 2020. The note holder also serves as President, CEO and Board Member of T3 Communications, Inc., the Florida entity that is one of our operating subsidiaries.NOTE 7 – RELATED PARTY PROMISORY NOTES

On May 1, 2018, T3 entered into a secured promissory note for $275,000 with an effective annual interest rate of 0%8.08% with an interest and principal payment of $6,000 per month and shall continue perpetuity until the entire principal amount is paid in full. The promissory note is guaranteed to the lender by 15% of the stock owned by T3 in its Florida operations, T3 Communications, Inc., the secured interest will continue until the principal balance is paid in full. In conjunction with the promissory note, the Company issued 3-year warrants to purchase 100,000 shares of common stock at an exercise price of $0.50 per share. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $26,543 and was recognized as a discount on the promissory ~~note, the~~note. The company amortized ~~$5,193~~ as interest expense during the ~~nine months~~periods ended April 30, ~~2020.~~2021, and July 31, 2020, $6,300 and $10,386, respectively. The total unamortized discount as of April 30, ~~2020~~2021, and July 31, ~~2019~~2020, were ~~$11,495~~$0 and $16,686, respectively. During the nine months ended April 30, 2020, the Company paid $42,369, of the principal balance. The total principal outstanding as of April 30, 2020 and July 31, 2019 were $167,363 and $209,732,$6,300, respectively. The note holder also serves as Board Member of T3 Communications, Inc., ~~the~~a Florida ~~entity that is~~Corporation, one of our operating subsidiaries. During the nine months ending April 30, 2021, the Company paid the total principal balance outstanding of $152,634. The total principal outstanding as of April 30, 2021, and July 31, 2020, were $0 and $152,634, respectively.

In March 2018, the Company entered into two (2) Promissory Notes (the “Notes”) for $250,000 each, bearing interest at a rate of 12% per annum. The Notes have a maturity date of September 15, 2018, provided, however, the Company shall have the right to request that the maturity date to be extended by one (1) additional period of ninety (90) days, until December 14, 2018. The Notes are payable every month, commencing April 15, 2018, in monthly payments of interest only and a single payment of the principal amount outstanding plus accrued interes~~t on September 15, 2018. T~~he Company agreed to repay the Notes from the proceeds from the Company’s current private placement. As proceeds from the Private Placement are received, the Company shall direct all funds to the Note Holders until the principal amount outstanding and accrued interest are paid in full. In addition, on March 15, 2018, the Company entered into a Note Conversion Agreement (the “Agreement”) with the Note holders, whereby, the holders may elect to convert up to 50% of the principal amount outstanding on the Notes into Common Stock of Digerati at any time after 90 days of funding the Notes. The Conversion Price shall be the greater of: (i) the Variable Conversion Price (as defined herein) or (ii) the Fixed Conversion Price (as defined herein). The“~~Variable Conversion Price~~”~~shall be equal to the average closing price for Digerati’s Common Stock (the “~~~~Shares~~”) for the ten (10) Trading Day period immediately preceding the Conversion Date. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. The“~~Fixed Conversion Price~~”shall mean $0.50. In conjunction with the notes, the Company issued 300,000 warrants, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $126,538 and was recognized as a discount on the promissory notes. Additionally, during the year ended July 31, 2019 the Company issued 375,000 shares of common stock for payment of $60,000 in accrued interest for the notes. On ~~December~~February 27, ~~2018,~~2020, the Company entered into an ~~Amendment to the Loan Agreements, under the amendments~~unsecured promissory note for $70,000 with an effective annual interest rate of 12% and a maturity date of May 1, 2020. Subsequently, the note ~~holders~~holder agreed to extend the maturity date until ~~September 14, 2019.~~August 31, 2020. In addition, ~~as part of the amendment,~~ the Company agreed to ~~modify~~pay the~~“Fixed Conversion Price”~~ ~~to $0.35, all other terms under the Promissory Notes remained the same. We accounted for the extensions to the Notes as debt modifications and not extinguishment of debt since the changes~~ lender in fair value are not substantial in accordance with ASC 470-50. In November 2019, the Company issued 110,830 shares of common stock for payment of $7,500 in accrued interest. On October 7, 2019, the holders agreed to extend the maturity date until March 30, 2020. As part of the amendments, the Company agreed to issue 400,000 shares of common stock. Under a Black-Scholes valuation the relative fair market value of the shares of common at time of issuance was approximately $40,000 and was recognized as a discount on the promissory notes over the extended period. The Company amortized the total discount of $40,000 during the nine months ending April 30, 2020. The total unamortized discount as of April 30, 2020 and July 31, 2019 were $0 and $0, respectively. On April 30, 2020,services provided by the Company, and the debtholder agreed to settle the debt, as a result the Company issued 8,958,333 shares of common stock for the settlement of $250,000 of the outstanding principal balance and $18,750 in accrued interest. At the time of issuance, the Company recognized a gain in settlement of debt $85,104. The gain on settlement was generated from the difference betweenany unpaid principal and accrued interest ~~settled and fair value of the common stock on settlement date. In addition, as part of the settlement the Company issued 268,750 shares of Series B Convertible Preferred Stock for payment~~will be paid in full and the settlement of $250,000 of the outstanding principal balance and $18,750 in accrued interest. The total principal outstanding balance as of April 30, 2020 and July 31, 2019 were $0 and $500,000, respectively.

On June 19, 2018, the Company entered into various Promissory Notes (the “Notes”) for $272,000, bearing interest at a rate of 10% per annum, with an initial maturity date of April 10, 2019. In conjunction with the Notes, the Company issued 255,000 warrants under the promissory notes, the warrants vested at time of issuance. The warrants have a term of 3 years, with an exercise price of $0.10. Under a Black-Scholes valuation the relative fair market value of the warrants at time of issuance was approximately $118,400 and was recognized as a discount on the promissory notes. The Company amortized $109,552 as a non-cash interest during the year ended July 31, 2019. On March 29, 2019, the Company entered into a First Amendment to the Promissory Notes, under the amendments the note holders agreed to extend the maturity date until June 30, 2019. In addition, as part of the amendments, the Company agreed to issue 85,000 shares of common stock. The shares were recorded as debt discount of $17,425 and amortized over the remaining term of the notes. The Company amortized $17,425 as a non-cash interest during the years ended July 31, 2019. On June 30, 2019, the Company entered into a Second Amendment to the Promissory Notes, under the amendments the note holders agreed to extend the maturity date until November 30, 2019. In addition, as part of the amendments, the Company agreed to issue 85,000 shares of common stock. The shares were recorded as debt discount of $14,450 and amortized over the remaining term of the notes. The Company amortized $11,560 as a non-cash interest during the nine months ended April 30, 2020. The total unamortized discount as April 30, 2020 and July 31, 2019 for the issuance of the second amendment shares were $0 and $11,560, respectively. In addition, in November 2019, the Company issued 172,055 shares of common stock for payment of $6,882 in accrued interest. Also, in November 2019 and February 2020, the holders agreed to extend the maturity date of the notes until April 30, 2020. As part of the amendments, the Company agreed to issue 340,000 shares of common stock. The shares were recorded as debt discount of $10,090 and amortized during the note extension agreement. On April 30, 2020, the Company and the debtholder agreed to settle the debt, as a result the Company issued 5,180,493 shares of common stock for the settlement of $136,000 of the outstanding principal balance and $19,414 in accrued interest. At the time of issuance, the Company recognized a gain in settlement of debt $49,215. The gain on settlement was generated from the difference between principal and accrued interest settled and fair value of the common stock on settlement date. In addition, as part of the settlement, the Company issued 155,415 shares of Series B Convertible Preferred Stock for payment in full and the settlement of $136,000 of the outstanding principal balance and $19,414 in accrued interest. The total principal outstanding balance as of April 30, 2020 and July 31, 2019 were $0 and $272,000, respectively.

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

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

The Company analyzed the Debenture for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, the Company recognized derivative liability of $189,171. I~~n connection with the execution of the Debenture, we issued 130,000 shares of our common stock to Peak One, the shares were recorded with a relative fair value of $3,627 and$192,798 was recorded as debt discount and amortized during the term of the note.~~

~~On February 12, 2019, the Company issued 475,511 shares of common stock for the conversion of $20,000 of the principal outstanding under the convertible debenture.~~

~~On March 8, 2019, the Company issued 356,633 shares of common stock for the conversion of $25,000 of the principal outstanding under the convertible debenture.~~

~~On April 9, 2019, the Company issued 356,633 shares of common stock for the conversion of $25,000 of the principal outstanding under the convertible debenture.~~

~~On May 10, 2019, the Company issued 713,266 shares of common stock for the conversion of $50,000 of the principal outstanding under the convertible debenture.~~

~~On June 19, 2019, the Company issued 713,266 shares of common stock for the conversion of $50,000 of the principal outstanding under the convertible debenture.~~

~~On August 26, 2019, the Company issued 416,666 shares of common stock for the conversion of $25,000 of the principal outstanding under the convertible debenture.~~

~~On October 31, 2019, the Company issued 831,669 shares of common stock for the conversion of $25,000 of the principal outstanding under the convertible debenture.~~

cash. During the nine months ended April 30, 2020, and April 30, 2021, the Company ~~amortized $29,214~~provided VoIP Hosted and fiber services of $128,927 and $130,029, respectively. On August 3, 2020, the ~~debt discount as interest expense. The total unamortized discount as April 30, 2020 and July 31, 2019, were $0 and $29,214.~~promissory note was paid in full. The total principal ~~outstanding balance as of April 30, 2020 and July 31, 2019 were $0 and $50,000, respectively.~~

On January 16, 2019, the Company entered into various Securities Purchase Agreements (the SPAs”) with four (4) different investors (each an “Investor”, and together the “Investors”) pursuant to which each Investor purchased a 10% unsecured convertible promissory note (each a “Note”, and together the “Notes”) from the Company. Three of the notes are in the aggregate principal amount of $140,000 each and a maturity date of October 16, 2019. One of the notes is in the aggregate principal amount of $57,750 and a maturity date of January 24, 2020. The purchase price of $140,000 of each of three Notes were paid in cash on January 16, 2019. After payment of transaction-related expenses of $51,000, net proceeds to the Company from the three Notes totaled $369,000. The purchase price of $57,750 Note was paid in cash on January 24, 2019. After payment of transaction-related expenses of $7,750, net proceeds to the Company from Note totaled $50,000. The Company recorded these discounts and cost of $58,750 as a discount to the Notes and fully amortized as interest expense during the period. In connection with the execution of the Notes, we issued 500,000 shares of our common stock to the Note holders, the shares were recorded with a relative fair value of $0 as the notes were fully discounted by derivative liability.

The Company analyzed the Notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the four (4) new convertible notes of $655,345, of which $419,000 was recorded as debt discount and will be amortized during the term of the Notes, and $236,345 was recorded as day 1 derivative loss.

On July 12, 2019, the Company redeemed the full outstanding principal balance on two of the convertible notes for $280,000, at a redemption price of $382,726. The Company recognized the difference between the redemption price and principal balance paid as interest expense of $102,726.

On July 12, 2019, the Company redeemed $70,000 of the principal outstanding on one of the convertible notes, at a redemption price of $91,000. The Company recognized the difference between the redemption price and principal balance paid as interest expense of $21,000.

~~On July 19, 2019, the Company issued 156,202 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~On July 25, 2019, the Company issued 312,500 shares of common stock. The shares were issued in conjunction with a conversion of $20,000 of the principal outstanding under a convertible debenture.~~

On August 6, 2019, the Company entered into an Assignment Agreement whereby Jefferson Street Capital LLC (the “Assignor”) assigned a principal amount of $25,000, representing a portion of a Convertible Promissory Note dated January 24, 2019 to Armada Investment Fund LLC (the “Assignee”). The note is in the aggregate principal amount of $25,000 and a maturity date of January 24, 2020.

~~On August 26, 2019, the Company issued 250,000 shares of common stock for the conversion of $14,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~On August 27, 2019, the Company issued 277,291 shares of common stock for the conversion of $12,750 of the principal outstanding and $3,888 in fees under one of the convertible notes.~~

~~On September 23, 2019, the Company issued 342,466 shares of common stock for the conversion of $14,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~On October 29, 2019, the Company issued 465,736 shares of common stock for the conversion of $13,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~On November 19, 2019, the Company issued 537,635 shares of common stock for the conversion of $13,000 of the principal outstanding and $500 in fees under one of the convertible notes.~~

On January 8, 2020, the Company issued 785,760 shares of common stock for the conversion of $5,000 of the principal outstanding, $500 in fees and accrued interest of $8,408 under one of the convertible notes.

~~The total unamortized discount on the Notes as of April 30, 2020 and July 31, 2019 were $0 and $29,765, respectively. The total principal balance~~ outstanding as of April 30, ~~2020~~2021, and July 31, ~~2019,~~2020, were $0 and ~~$98,250.~~$16,298, respectively. The ~~Company amortized $29,765~~note holder also serves as a Board Member of ~~debt discount as interest expense during the nine months ended April 30, 2020.~~T3 Communications, Inc., a Florida Corporation, one of our operating subsidiaries.

On ~~February 22, 2019, the Company entered into~~November 17, 2020, our indirect, wholly owned subsidiary, T3 Communications, Inc., a ~~Securities~~Florida corporation (“T3 Florida”), executed and closed on an Asset Purchase Agreement (the ~~SPA”~~“Purchase Agreement”) with ~~an investor (an “Investor”) the Investor purchased~~ActiveServe, Inc., a ~~10% unsecured convertible promissory note (the “Note”~~Florida corporation (“Seller”) ~~from the Company. The note is in the aggregate principal amount of $57,750 and a maturity date of February 22, 2020. After payment of transaction-related expenses of $7,750, net proceeds~~. Pursuant to the ~~Company from~~Purchase Agreement, T3 Florida acquired the ~~Note totaled $50,000. The Company recorded these discounts~~customer base, certain equipment, certain intellectual property, inventory, contract rights, software and ~~cost~~other licenses and miscellaneous assets used in connection with the operation of ~~$7,750~~Seller’s telecommunications business known as ~~a discount to~~ActivePBX (collectively, the ~~Note and fully amortized as interest expense during the period.~~“Purchased Assets”).

The ~~Company analyzed~~aggregate purchase price for the ~~Note~~Purchased Assets was $2,555,000 in cash, subject to adjustment as provided therein (the “Purchase Price”). $1,190,000 of the Purchase Price was payable at closing, with $50,000 of such amount being withheld by T3 Florida for ~~derivative accounting consideration and determined that the embedded conversion option qualified as~~ a ~~derivative instrument,~~period of 12 months to cover part of potential future indemnification obligations of Seller to T3 Florida due to Seller’s breaches, if any, of any representations and warranties made to T3 Florida by Seller under the ~~variable conversion price. As~~Purchase Agreement, and $40,000 of such amount being credited to T3 Florida against a ~~result,~~payment in that amount made by T3 Florida to Seller pursuant to the Second Amendment to Letter of Intent between Seller and T3 Florida dated as of October 15, 2020.

Part of the Purchase Price is payable in 8 equal quarterly payments of $136,250, subject to T3 Florida achieving quarterly post-purchase recurring revenues under monthly contracts or subscriptions from the acquired customer base, excluding charges for taxes, regulatory fees, additional set-up fees, equipment purchases or lease, and consulting fees. To the extent that a quarterly revenue threshold is not reached, the amount of the corresponding quarterly payment shall be reduced on a proportional basis. T3 Florida’s $1,140,000 payment obligation is represented by a promissory note of T3 Florida in the form included as an exhibit to the Purchase Agreement. The note, in turn, is subject to the Subordination Agreement, included as an Exhibit to the Purchase Agreement, among Seller, the Company’s parent, T3 Nevada, and Post Road Administrative, LLC, in its capacity as administrative agent for the Post Road lenders. $275,000 of the Purchase Price (the “Customer Renewal Value”) represents an incentive earn-out to be paid with respect to Seller’s customer accounts which are transferred to T3 Florida at closing, that are renewed, expanded and/or revised with T3 Florida for a minimum term of twelve months with an auto-renewal for 12 months. During the ~~time of issuance,~~period ended April 30, 2021, the Company recognized derivative liability for the convertible note of $79,729, of which $50,000 was recorded as debt discount and will be amortized during the term of the Note, and $29,729 was recorded as day 1 derivative loss.

~~On October 27, 2019, the Company issued 332,667 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under~~made one of the ~~convertible notes.~~

~~On November 15, 2019,~~quarterly principal payments of $136,250, and a payment of $11,000 towards the ~~Company issued 398,247 shares of common stock for~~Holdback amount, the ~~conversion of $9,500 of the~~total principal outstanding ~~and $500 in fees under one of the convertible notes.~~

~~On December 16, 2019, the Company issued 520,833 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~On December 31, 2019, the Company issued 517,598 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~On January 16, 2020, the Company issued 705,128 shares of common stock for the conversion of $10,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

On January 28, 2020, the Company issued 956,226 shares of common stock for the conversion of $9,250 of the principal outstanding, $500 in fees and accrued interest of $3,962 under one of the convertible notes.

~~The total unamortized discount~~ on the ~~Notes~~notes as of April 30, 2020 and July 31, 2019 were $0 and $29,166, respectively. The total principal balance outstanding as of April 30, 2020 and July 31, 2019, were $0 and $57,750. The Company amortized $29,166 of debt discount as interest expense during the nine months ended April 30, 2020.2021, was $1,267,750.

~~On April 20, 2019,~~In connection with the Purchase Agreement, the Company entered with the Note Holders into Consulting Agreements and a ~~Securities Purchase~~Non-Compete Agreement ~~(the SPA”)~~ with each of Alex Gonzalez and Jose Gonzalez, the Chief Executive Officer and Chief Technology Officer of ActivePBX. Under the Consulting Agreements, the Company will pay on an ~~investor (an “Investor”)~~annual basis $90,000 to each the ~~Investor purchased a 10% unsecured convertible promissory note (the “Note”~~consultants.

Additional terms No.1:The Holder shall have the right at any time on or after six (6) months from the ~~Company.~~Issue Date to convert any portion of the outstanding and unpaid principal balance into fully paid and nonassessable shares of Common Stock. The ~~note is~~Note Conversion Price shall equal (1) $0.05 (five) cents provided however that in the ~~aggregate principal amount~~event the Borrower fails to complete the acquisition of ~~$44,000 and a maturity date of January 19, 2020. After payment of transaction-related expenses of $4,000, net proceeds~~Nexogy, Inc., the Conversion Price shall equal (2) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the ~~Company from~~Borrower’s securities or the ~~Note totaled $40,000.~~securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The ~~Company recorded these discounts and cost of $4,000 as~~“Variable Conversion Price” shall mean eighty-five percent (85%) multiplied by the Market Price (as defined herein) (representing a discount rate of fifteen percent (15%)). “Market Price” means the lowest Trading Price for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the ~~Note and fully amortized as interest expense during the period. I~~n connection with the execution of the Note, we issued 50,000 shares of our common stock to the Note holder, the shares were recorded with a relative fair value of $0 as the notes were fully discounted by derivative liability.Conversion Date.

The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the convertible note of $55,592, of which $40,000 was recorded as debt discount and will be amortized during the term of the Note, and $15,592 was recorded as day 1 derivative loss.

~~On October 31, 2019, the Company issued 310,527 shares of common stock for the conversion of $6,500 of the principal outstanding and $2,834 in fees under one of the convertible notes.~~

On November 14, 2019, the Company issued 301,697 shares of common stock for the conversion of $7,500 of the principal outstanding, $500 in fees and accrued interest of $146 under one of the convertible notes.

On November 26, 2019, the Company issued 447,917 shares of common stock for the conversion of $8,000 of the principal outstanding, $500 in fees and accrued interest of $100 under one of the convertible notes.

On December 24, 2019, the Company issued 444,672 shares of common stock for the conversion of $8,000 of the principal outstanding, $500 in fees and accrued interest of $171 under one of the convertible notes.

On January 13, 2020, the Company issued 549,858 shares of common stock for the conversion of $8,000 of the principal outstanding, $500 in fees and accrued interest of $78 under one of the convertible notes.

On January 28, 2020, the Company issued 474,891 shares of common stock for the conversion of $6,000 of the principal outstanding, $500 in fees and accrued interest of $25 under one of the convertible notes.

The total unamortized discount on the Notes as of April 30, 2020 and July 31, 2019 were $0 and $26,668, respectively. The total principal balance outstanding as of April 30, 2020 and July 31, 2019, were $0 and $44,000. The Company amortized $26,668 of debt discount as interest expense during the nine months ended April 30, 2020.

~~Convertible Promissory Notes with four (4) investors - July 2019~~Variable Conversion No.2:

In July 2019, the Company entered into various Securities Purchase Agreements (the SPAs”) with four (4) different investors (each an “Investor”, and together the “Investors”) pursuant to which each Investor purchased unsecured convertible promissory note (each a “Note”, and together the “Notes”) from the Company. Three of the The notes are in the aggregate principal amount of $146,625 each, 3% interest rate and a maturity date of April 11, 2020. The purchase price of $146,625 of each of three Notes were paid in cash on July 11, 2019. After payment of transaction-related expenses of $57,375, net proceeds to the Company from the three Notes totaled $382,500. One of the notes is in the aggregate principal amount of $140,000, interest rate of 10% and a maturity date of April 10, 2020. The purchase price of $140,000 Note was paid in cash on July 10, 2019. After payment of transaction-related expenses of $17,000, net proceeds to the Company from Note totaled $123,000. The Company recorded these discounts and cost of $74,375 as a discount to the Notes and fully amortized as interest expense during the period. In connection with the execution of the Notes, we issued 450,000 shares of our common stock to the Note holders, the shares were recorded with a relative fair value of $0 as the notes were fully discounted by derivative liability.

The Company analyzed the Notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the four (4) newimmediately convertible ~~notes of $959,180, of which $505,500 was recorded as debt discount and will be amortized during the term of the Notes, and $453,680 was recorded as day 1 derivative loss.~~

~~On January 9, 2020, the Company issued 200,000 shares of common stock for the conversion of $1,328 of the principal outstanding and accrued interest of $2,212 under one of the convertible notes.~~

On January 10, 2020, the Company assigned a convertible note with a $145,297 principal and accrued interest of $13,500. In addition, the Company assigned a second convertible note issued in October 2019 with a $35,750 principal and accrued interest of $15,453. The total assignment was for $210,000.

~~On January 22, 2020, the Company assigned two promissory notes with a $293,250 principal balance outstanding and accrued interest of $66,750. The total assignment was for $360,000.~~

The total unamortized discount on the Notes as of April 30, 2020 and July 31, 2019 were $0 and $449,332, respectively. The total principal balance outstanding as of April 30, 2020 and July 31, 2019 were $140,000 and $579,875, respectively. The Company amortized $449,332 of debt discount as interest expense during the nine months ended April 30, 2020.

~~Each of the Investors is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the Note~~ into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock equal to the lesser of (i) the lowest trading price of the Common Stock (as defined in the Note) as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding the issuance date of each Note; or (ii) 60% multiplied by the lowest traded price of the Common Stock during the twenty (20) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a notice of conversion (the “Variable Conversion Price”). The Variable Conversion Price may further be adjusted in connection with the terms of the ~~Notes.~~

~~The Company shall at all times reserve~~Notes.at a ~~minimum~~discount of ~~six (6) times~~35% to the ~~number of its authorized and unissued common stock (the “Reserved Amounts”), free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion~~average of the ~~each~~three lowest trading closing prices of the Notes. Upon full conversion of each Note, any shares remaining in such reserve shall be cancelled. The Company will, from time to time, increases the Reserved Amount in accordance with the Company’s obligations under each of the Notes.

Pursuant to the terms of the SPAs, for so long as any of the Investors owns any shares of Common Stock issued upon conversion of a Note (the “Conversion Shares”), the Company covenants to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the Notes and the SPAs, including but not limited to the requirement to maintain its corporate existence and assets, subject to certain exceptions, and not to make any offers or sales of any security under circumstances that would require registration of or stockholder approval for the Notes or the Conversion Shares.

The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of assignment, the Company transferred as derivative liability for the convertible note of $27,853, of which $10,823 was recorded as debt discount and was amortized during the term of the Note.

~~On August 12, 2019, the Company issued 114,123 shares of common~~ stock for ~~the conversion of $7,500 of the principal outstanding and $500 in administrative fees under the convertible note.~~

On August 20, 2019, the Company issued 191,116 shares of common stock for the conversion of $7,500 of the principal outstanding and $538 in accrued interest and administrative fees under the convertible note.

~~On September 4, 2019, the Company issued 250,620 shares of common stock for the conversion of $10,000 of the principal outstanding and $541 in fees under one of the convertible notes.~~ten days prior to conversion.

The total unamortized discount on the ~~Note~~convertible notes as of April 30, 2021, and July 31, 2020, ~~was $0.~~were $491,903 and $294,667, respectively. The total principal balance outstanding as of April 30, 2021, and July 31, 2020, ~~was $0. The~~were $1,358,235 and $841,831, respectively. During the periods ended April 30, 2021, and July 31, 2020, the Company amortized ~~$10,823~~$528,645 and $1,228,000, respectively, of debt discount as interest ~~expense during the nine months ended April 30, 2020.~~expense.

On August 30, 2019, the Company entered into a Securities Purchase Agreement (the “SPA”) with an investor (an “Investor”) the Investor purchased a 10% unsecured convertible promissory note (the “Note”) from the Company. The note is in the aggregate principal amount of $93,500 and a maturity date of May 30, 2020. After payment of transaction-related expenses of $8,500, net proceeds to the Company from the Note totaled $85,000. The Company recorded these discounts and cost of $8,500 as a discount to the Note and fully amortized as interest expense during the period.

The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the convertible note of $100,978, of which $85,000 was recorded as debt discount and will be amortized during the term of the Note, and $15,978 was recorded as day 1 derivative loss.

The total unamortized discount on the Note as of April 30, 2020 was $9,448. The total principal balance outstanding as of April 30, 2020 was $93,500. The Company amortized $75,552 of debt discount as interest expense during the nine months ended April 30, 2020.

~~Other Terms to the Convertible Promissory Note and Note Assignment - August 2019~~

Notes shall bear interest at a rate of ten percent (10%) per annum (the “Interest Rate”), which interest shall be paid by the Company to each Investor in shares of Common Stock at any time an Investor sends a notice of conversion to the Company. Each of the Investors is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the Note into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock equal to (i) the lowest trading price of the Common Stock (as defined in the Note) as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding the issuance date of each Note; or (ii) 60% multiplied by the lowest traded price of the Common Stock during the twenty (20) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a notice of conversion (the “Variable Conversion Price”). The Variable Conversion Price may further be adjusted in connection with the terms of the Notes.

Each of the Notes may be prepaid until 180 days from the issuance date with the following penalties: (i) if a Note is prepaid within ninety (90) days of the issuance date, then the prepayment premium shall be 125% of the outstanding principal amount plus any accrued and unpaid interest; (ii) if a Note is prepaid during the period beginning on the date which is ninety-one (91) days following the issuance date, and ending on the date which is one hundred eighty (180) days following the issuance date, then the prepayment premium shall be 130% of the outstanding principal amount plus any accrued and unpaid interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited.

The Company shall at all times reserve a minimum of six (6) times the number of its authorized and unissued common stock (the “Reserved Amounts”), free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the each of the Notes. Upon full conversion of each Note, any shares remaining in such reserve shall be cancelled. The Company will, from time to time, increases the Reserved Amount in accordance with the Company’s obligations under each of the Notes.

In October 2019, the Company entered into two Securities Purchase Agreements (the “SPA”) with multiple investors (the “Investors”) the Investors purchased two 8% unsecured convertible promissory notes (the “Notes”) from the Company. The notes are in the aggregate principal amount of $71,500 and a maturity date of July 18, 2020. After payment of transaction-related expenses of $6,500, net proceeds to the Company from the Note totaled $65,000. The Company recorded these discounts and cost of $6,500 as a discount to the Note and fully amortized as interest expense during the period.

The Company analyzed the Notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the convertible note of $82,462 of which $65,000 was recorded as debt discount and will be amortized during the term of the Note, and $17,462 was recorded as day 1 derivative loss.

On January 10, 2020, the Company assigned $35,750 of the principal outstanding on one of the convertible notes, along with the other note discussed in Convertible Promissory Notes with four (4) investors - July 2019 section, and accrued interest of $15,453. The total assignment for both notes was for $210,000.

The total unamortized discount on the Notes as of April 30, 2020 was $7,223. The total principal balance outstanding as of April 30, 2020 was $35,750. The Company amortized $64,277 of debt discount as interest expense during the nine months ended April 30, 2020.

Notes shall bear interest at a rate of eight percent (8%) per annum (the “Interest Rate”), which interest shall be paid by the Company to each Investor in shares of Common Stock at any time an Investor sends a notice of conversion to the Company. Each of the Investors is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the Note into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock equal to (i) the lowest trading price of the Common Stock (as defined in the Note) as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding the issuance date of each Note; or (ii) 60% multiplied by the lowest traded price of the Common Stock during the twenty (20) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a notice of conversion (the “Variable Conversion Price”). The Variable Conversion Price may further be adjusted in connection with the terms of the Notes.

Each of the Notes may be prepaid until 180 days from the issuance date with the following penalties: (i) if a Note is prepaid within one hundred and twenty (120) days of the issuance date, then the prepayment premium shall be 125% of the outstanding principal amount plus any accrued and unpaid interest; (ii) if a Note is prepaid during the period beginning on the date which is one hundred and twenty-one (121) days following the issuance date, and ending on the date which is one hundred eighty (180) days following the issuance date, then the prepayment premium shall be 130% of the outstanding principal amount plus any accrued and unpaid interest. Such prepayment redemptions must be closed and funded within three days of giving notice of prepayment or the right to prepay shall be forfeited.

On January 10, 2020, the Company entered into an Assignment Agreement whereby Armada Investment Fund LLC (the “Assignor”) assigned to Platinum Point Capital LLC (the “Assignee”) a principal amount of $145,297 and $35,750, representing the outstanding principal balance on the Convertible Promissory Notes dated July 11, 2019 and October 18, 2019, respectively, plus accrued interest of $28,953. The new notes are is in the aggregate principal amount of $210,000, annual interest rate of 3% and a maturity date of January 10, 2021.

On January 22, 2020, the Company entered into an Assignment Agreement whereby BHP Capital NY Inc. (the “Assignor”) assigned to Platinum Point Capital LLC (the “Assignee”) a principal amount of $146,625, representing the outstanding principal balance on the Convertible Promissory Note dated July 11, 2019, plus accrued interest of $33,375. The new note is in the aggregate principal amount of $180,000, annual interest rate of 3% and a maturity date of January 22, 2021.

On January 22, 2020, the Company entered into an Assignment Agreement whereby Jefferson Street Capital LLC (the “Assignor”) assigned to Platinum Point Capital LLC (the “Assignee”) a principal amount of $146,625, representing the outstanding principal balance on the Convertible Promissory Note dated July 11, 2019, plus accrued interest of $33,375. The new note is in the aggregate principal amount of $180,000, annual interest rate of 3% and a maturity date of January 22, 2021.

The Company analyzed the Notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of the assignment, the Company recognized derivative liability for the new convertible notes of $784,565, of which $570,000 was recorded as debt discount and will be amortized during the term of the Notes, and $214,565 was recorded as day 1 derivative loss.

~~On January 22, 2020, the Company issued 1,698,717 shares of common stock for the conversion of $25,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.~~

~~On February 4, 2020, the Company issued 2,054,263 shares of common stock for the conversion of $25,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.~~

~~On February 27, 2020, the Company issued 2,500,000 shares of common stock for the conversion of $15,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.~~

~~On April 2, 2020, the Company issued 3,208,955 shares of common stock for the conversion of $20,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.~~

~~On April 24, 2020, the Company issued 3,208,955 shares of common stock for the conversion of $20,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.~~

The total unamortized discount on the Notes as of April 30, 2020 was $324,417, and the total principal balance outstanding as of April 30, 2020 was $467,500. The Company amortized $248,083 of debt discount as interest expense during the nine months ended April 30, 2020.

~~Other Terms to the Convertible Promissory Notes and Note Assignments – January 2020~~

Notes shall bear interest at a rate of three (3%) per annum (the “Interest Rate”), which interest shall be paid by the Company to each Investor in shares of Common Stock at any time an Investor sends a notice of conversion to the Company. Each of the Investors is entitled to, at its option, convert all or any amount of the principal amount and any accrued but unpaid interest of the Note into shares of the Company’s Common Stock, at any time, at a conversion price for each share of Common Stock equal to (i) the lowest trading price of the Common Stock (as defined in the Note) as reported on the National Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded during the twenty (20) consecutive Trading Day period immediately preceding the issuance date of each Note; or (ii) 60% multiplied by the lowest traded price of the Common Stock during the twenty (20) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a notice of conversion (the “Variable Conversion Price”). The Variable Conversion Price may further be adjusted in connection with the terms of the Notes.

Pursuant to the terms of the Notes, for so long as any of the Investors owns any shares of Common Stock issued upon conversion of a Note (the “Conversion Shares”), the Company covenants to secure and maintain the listing of such shares of Common Stock. The Company is also subject to certain customary negative covenants under the Notes, including but not limited to the requirement to maintain its corporate existence and assets, subject to certain exceptions, and not to make any offers or sales of any security under circumstances that would require registration of or stockholder approval for the Notes or the Conversion Shares.

On February 13, 2020, the Company entered into a convertible promissory note (the “Note”). The note is in the aggregate principal amount of $33,500, annual interest rate of 10% and a maturity date of February 13, 2021. After payment of transaction-related expenses of $3,500, net proceeds to the Company from the Note totaled $30,000. The Company recorded these discounts and cost of $3,500 as a discount to the Note and fully amortized as interest expense during the period.

The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the convertible note of $42,976, of which $30,000 was recorded as debt discount and will be amortized during the term of the Note, and $12,976 was recorded as day 1 derivative loss.

The total unamortized discount on the Note as of April 30, 2020 was $22,500. The total principal balance outstanding as of April 30, 2020 was $33,500. The Company amortized $7,500 of debt discount as interest expense during the nine months ended April 30, 2020.

On April 28, 2020, the Company entered into a convertible promissory note (the “Note”). The note is in the principal amount of $15,000, annual interest rate of 10% and a maturity date of April 28, 2021.

The Company analyzed the Note for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. As a result, at the time of issuance, the Company recognized derivative liability for the convertible note of $26,629, of which $15,000 was recorded as debt discount and will be amortized during the term of the Note, and $11,629 was recorded as day 1 derivative loss.

The total unamortized discount on the Note as of April 30, 2020 was $15,000. The total principal balance outstanding as of April 30, 2020 was $15,000. The Company amortized $0 of debt discount as interest expense during the nine months ended April 30, 2020.

~~Other Terms to the Convertible Promissory Notes – February 2020 & April 2020~~

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

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

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

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

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

Our derivative liabilities as of April 30, ~~2020~~2021, and July 31, ~~2019~~2020, of ~~$1,098,917~~$17,339,843 and ~~$927,171,~~$606,123, respectively.

The following table provides the fair value of the derivative financial instruments measured at fair value using significant unobservable inputs:

The fair market value of all derivatives during the nine months ended April 30, ~~2020~~2021, was determined using the Black-Scholes option pricing model which used the following assumptions:

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

~~During the nine months ended April 30, 2020, the Company issued the following shares of common stock:~~

~~On August 12, 2019, the Company issued 114,123 shares of common stock for the conversion of $7,500 of the principal outstanding and $500 in administrative fees under the convertible note.~~

~~On August 26, 2019, the Company issued 250,000 shares of common stock for the conversion of $14,500 of the principal outstanding and $500 in administrative fees under a convertible note.~~

~~On August 26, 2019, the Company issued 416,666 shares of common stock for the conversion of $25,000 of the principal outstanding under a convertible note.~~

~~On September 4, 2019, the Company issued 250,620 shares of common stock for the conversion of $10,000 of the principal outstanding and $541 in administrative fees under a convertible note.~~

On September 10, 2019, the Company issued 277,291 shares of common stock for the conversion of $12,750 of the principal outstanding and $3,888 in accrued interest and administrative fees under a convertible note.

~~On September 26, 2019, the Company issued 342,466 shares of common stock for the conversion of $14,500 of the principal outstanding and $500 in administrative fees under a convertible note.~~

On October 7, 2019, the Company issue 400,000 shares of common stock, as part of an amendment to various promissory notes. The shares were recorded as debt discount and amortized over the remaining term of the notes.

~~On October 27, 2019, the Company issued 332,667 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in administrative fees under a convertible note.~~

~~On October 29, 2019, the Company issued 465,736 shares of common stock for the conversion of $13,500 of the principal outstanding and $500 in administrative fees under a convertible note.~~

On October 31, 2019, the Company issued 310,527 shares of common stock for the conversion of $6,500 of the principal outstanding and $2,834 in accrued interest and administrative fees under a convertible note.

~~On October 31, 2019, the Company issued 831,669 shares of common stock for the conversion of $25,000 of the principal outstanding under a convertible note.~~

~~On November 15, 2019, the Company issued 398,247 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~On November 19, 2019, the Company issued 537,635 shares of common stock for the conversion of $13,000 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~In November 2019, in conjunction of various note extension agreements, the Company issued 80,000 shares of common stock with a fair market value $3,200.~~

~~In November 2019, the Company issued 282,885 shares of common stock for payment of $14,382 in accrued interest.~~

~~In November 2019, the Company issued 86,667 shares of common stock in conjunction to the conversion of 25,000 shares of the Series A Convertible Preferred stock and $1,189 in accrued dividends.~~

~~On December 10, 2019, the Company issued 400,000 shares of common stock with a fair market value of $15,240 for compensation on an agreement for professional services.~~

~~On December 16, 2019, the Company issued 520,833 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~On December 31, 2019, the Company issued 517,598 shares of common stock for the conversion of $9,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

~~On January~~ 9 ~~2020, the Company issued 200,000 shares of common stock for the conversion of $1,328 of the principal outstanding and accrued interest of $2,212 under one of the convertible notes.~~

~~On January 16, 2020, the Company issued 705,128 shares of common stock for the conversion of $10,500 of the principal outstanding and $500 in fees under one of the convertible notes.~~

On February 15, 2020, the Company issued 200,000 shares of common stock as a principal payment on a note for $10,000. At issuance, the Company recognized a benefit to non-cash expense of $4,600, this benefit was recognized as a result of the difference between the fair market value of the shares of common stock issued and debt settled.

~~On February 19, 2020, the Company issued 110,027 shares of common stock for payment of accrued interest and a fair market value of $4,290.~~

~~On February 19, 2020, in conjunction with various note extension agreements, the Company issued 260,000 shares of common stock with a fair market value of $6,890.~~

~~On February 20, 2020, in conjunction with a note extension agreement, the Company issued 40,000 shares of common stock with a fair market value of $800.~~

On February 24, 2020, the Company issued 11,509,022 common shares to various employees as part of the Company’s Non-Standardized profit-sharing plan contribution. The Company recognized stock-based compensation expense of approximately $233,633 equivalent to the value of the shares calculated based on the share’s closing price at the grant date.

~~On April 2, 2020, the Company issued 3,208,955 shares of common stock for the conversion of $20,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.~~

~~On April 24, 2020, the Company issued 3,208,955 shares of common stock for the conversion of $20,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.~~

On April 30, 2020, the Company issued 14,138,826 shares of common stock for the settlement of debt of $386,000 and $38,164 in accrued interest. At the time of issuance, the Company recognized a gain in settlement of debt $134,319.

~~During the nine months ended April 30, 2019, the Company issued the following shares of common stock:~~

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

On September 28, 2018, the Company issued an aggregate of 21,672 shares of common stock with a market value at time of issuance of $5,794. The shares were issued to settle accounts payables of $5,287 to a professional, the Company recognized a loss of $507 upon issuance of the shares.

On October 12, 2018, the Company issued a promissory note for $25,000, bearing interest at a rate of 8% per annum, with maturity date of November 12, 2018. In conjunction with the Note, the Company issued 140,000 common shares, the shares vested at time of issuance, these shares replace previously issued warrants with an exercise price of $0.15, therefore the exercise price of $21,000 was recognized as a discount on the promissory note. The Company will amortize the fair market value as interest expense over the term of the note.

On October 18, 2018, the Company issued a promissory note for $25,000, bearing interest at a rate of 8% per annum, with maturity date of November 18, 2018. In conjunction with the Note, the Company issued 100,000 common shares, the shares vested at time of issuance, these shares replace previously issued warrants with an exercise price of $0.15, therefore the exercise price of $15,000 was recognized as a discount on the promissory note. The Company will amortize the fair market value as interest expense over the term of the note.

On November 1, 2018 the Company issued an aggregate of 200,000 shares of common stock with a market value at time of issuance of $69,600 and recognized the total fair market value as stock-based compensation expense at the time of issuance. The shares were issued for consulting services.

On November 5, 2018, the Company issued an aggregate of 16,883 shares of common stock with a market value at time of issuance of $5,875. The shares were issued to settle accounts payables of $5,287 to a professional, the Company recognized a loss of $587 upon issuance of the shares. This loss is immaterial, thus presented in stock-based compensation expense on the statement of cash flows.

~~On November 14, 2018, the Company secured $75,000 from an investor under a Securities Purchase Agreement and issued 258,621 shares of its common stock at a price of $0.29.~~

On November 29, 2018, the Company issued an aggregate of 39,444 shares of common stock with a market value at time of issuance of $11,833. The shares were issued to settle accounts payables of $10,545 to a professional, the Company recognized a loss of $1,288 upon issuance of the shares. This loss is immaterial, thus presented in stock-based compensation expense on the statement of cash flows.

On February 1, 2019, the Company issued an aggregate of 325,000 shares of common stock with a market value at time of issuance of $78,000 and recognized the total fair market value as stock-based compensation expense at the time of issuance. The shares were issued for consulting services.

On February 5, 2019, the Company issued an aggregate of 60,715 shares of common stock with a market value at time of issuance of $13,357. The shares were issued to settle accounts payables of $10,382 to a professional, the Company recognized a loss of $2,975 upon issuance of the shares.

~~On February 8, 2019, the Company secured $150,000 from an accredited investor under a Securities Purchase Agreement and issued 600,000 shares of its common stock at a price of $0.25.~~

On February 8, 2019, the Company issued an aggregate of 400,000 shares of common stock with a market value at time of issuance of $100,000 and recognized the total fair market value as stock-based compensation expense at the time of issuance. The shares were issued for consulting services.

Effective August 1, 2019, the Company adopted ASC 842, “Leases” (“ASC 842”) on a modified retrospective basis. Accordingly, information presented for periods prior to FY2019 have not been recast. In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing lease upon adoption. No impact was recorded to the income statement or beginning retained earnings for Topic 842.

The leased properties have a remaining lease term of ~~eleven~~sixteen to ~~forty-six~~seventy-two months as of August 1, 2019. At the option of the Company, it can elect to extend the term of the leases.

Beginning August 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments, including annual rent increases, over the lease term at commencement date. Operating leases in effect prior to August 1, 2019, were recognized at the present value of the remaining payments on the remaining lease term as of August 1, 2019. Because ~~neither~~none of our leases included an implicit rate of return, we used our incremental secured borrowing rate based on lease term information available as of the adoption date or lease commencement date in determining the present value of lease payments. The incremental borrowing rate on the leases is 8.0%.

On January 1, 2021, the Company entered into a new office lease, with a monthly base lease payment and applicable shared expenses of $4,750 and $2,140, respectively. The base rent will increase on an annual basis by 2% of the base lease payment. The lease expires on January 1, 2026, and at the option of the Company, the lease can be extended for one (1) five (5) year term with a base rent at the prevailing market rate at the time of the renewal.The Company ~~has not entered into any sale~~recorded ROU asset and ~~leaseback transactions during~~liability of $254,375 for this new lease, using the ~~nine-month period ended April 30, 2020.~~incremental borrowing rate of 8.0% over a 5 year term.

The impact of ASU No. 2016-02 (“Leases (Topic 842)” on our consolidated balance sheet beginning August 1, 2019, was through the recognition of ROU assets and lease liabilities for operating leases. Amounts recognized on ~~August 1, 2019~~July 31, 2020, and April 30, ~~2020~~2021, for operating leases are as follows:

For the ~~nine-months~~period ended April 30, ~~2020~~2021, the amortization of operating ROU assets was ~~$159,403.~~$95,694.

For the ~~nine-months~~period ended April 30, ~~2020~~2021, the amortization of operating lease liabilities was ~~$159,403.~~$95,694.

The ~~table below reconciles~~future minimum lease payment under the ~~fixed component~~operating leases are as follows:

In March 2019, the Company’s Board of Directors designated and authorized the issuance up to 1,500,000 shares of the ~~undiscounted cash flows for each~~Series A Preferred Stock. Each share of Series A Preferred Stock has a par value of $0.001 per share and a stated value equal to one dollar ($1.00) (the “Stated Value”) and are entitled to a dividend at an annual rate of eight percent (8%) per share. The Company had 225,000 shares of the ~~first five years and the total remaining years to the lease liabilities recorded on the Consolidated Balance Sheet~~Convertible Series A Preferred Stock outstanding as of April 30, ~~2020:~~2021. During the three months ending April 30, 2021, the Company declared a dividend of $5,000 and had $35,000 as accumulated dividends as of April 30, 2021.

~~NOTE 9 –~~Voting Rights. Unless otherwise required by the Nevada Revised Statutes, the shares of Series A Preferred Stock shall not be entitled to vote on any matter presented at any annual or special meeting of stockholders of the Corporation, or through written consent.

Optional Conversion. Each holder of shares of Series A Preferred Stock may, at holder’s option and commencing on April 30, 2020, convert any or all such shares, on the terms and conditions set forth herein, into fully paid and non-assessable shares of the Corporation’s Common Stock. The number of shares of Common Stock into which each share of Series A Preferred Stock may be converted shall be determined by dividing the Original Issue Price of each share of Series A Preferred Stock, plus accrued and unpaid dividends through the Conversion Date, to be converted by the Conversion Price (as defined below) in effect at the time of conversion. The “Conversion Price” at which shares of Common Stock shall be issuable upon conversion of any shares of Series A Preferred Stock shall initially be the greater of (i) $0.40 per share, (ii) a 30% discount to the offering price of the Common Stock (or Common Stock equivalent) in a $10 million or greater equity financing that closes concurrently with an up-listing of the Company Common Stock on the NYSE American or Nasdaq, in the event of such up-listing, and (iii) a 30% discount to the average closing price per share of the Common Stock for the 5 consecutive trading days commencing upon the date the Common Stock is up-listed on either the NYSE American or Nasdaq in which there is no concurrent $10 million equity financing, in the event of such up-listing, subject to adjustment as provided below.

Mandatory Conversion. Each share of Series A Preferred Stock shall automatically convert into shares of Common Stock, as described in paragraph 2a, at the then applicable Conversion Price, upon the earlier of (i) the closing of a public or private offering (or series of offerings within a 90-day period) of Corporation equity or equity equivalent securities placed by a registered broker-dealer resulting in minimum gross proceeds to the Corporation of $10 million, (ii) commencing on April 30, 2020, if the Common Stock shall close (or the last trade shall be) at or above 150% of the Conversion Price per share for 20 out of 30 consecutive trading days, and (iii) the uplisting of the Corporation’s Common Stock to a national securities exchange or the Nasdaq stock market ((i), (ii) and (iii) are collectively referred to as “Mandatory Conversion Event”). The Corporation will provide notice to holder within 20 days of the occurrence of a Mandatory Conversion Event (failure of the Corporation to timely give such notice does not void the mandatory conversion). Holder shall surrender to the Corporation, within 10 days of receiving such notice, the certificate(s) representing the shares of Series A Preferred Stock to be converted into Common Stock. In the event holder does not surrender such certificate(s) within 10 days of receiving such notice, the Corporation shall deem such certificate(s) cancelled and void. As soon as practicable, after the certificate(s) are either surrendered by the holder or cancelled by the Corporation, as the case may be, the Corporation will issue and deliver to holder a new certificate for the number of full shares of Common Stock issuable upon such mandatory conversion in accordance with the provisions hereof and cash as provided in paragraph 2(c) in respect of any fraction of a share of Common Stock otherwise issuable upon such mandatory conversion, unless fractional shares are rounded up to the next whole share. Holder will be deemed a Common Stockholder of record as of the date of the occurrence of a Mandatory Conversion Event.

During the period ended April 30, 2021, the Company evaluated Series A Convertible Preferred Stock and concluded that none of the mandatory conversion events occurred during the period and determined that the convertible shares were classified as equity instruments.

In April 2020, the Company’s Board of Directors designated and authorized the issuance up to 1,000,000 shares of the Series B Preferred Stock. The Series B Preferred Stock is only issuable to the Company’s debt holders as of March 25, 2020 (“Existing Debt Holders”) who may purchase shares of Series B Preferred Stock at the Stated Value by converting all or part of the debt owed to them by the Corporation as of March 25, 2020. Each share of Series B Preferred Stock has a par value of $0.001 per share and a stated value equal to one dollar ($1.00) (the “Stated Value”). In April 2020, the Company issued a total of ~~424,165~~407,477 shares of Series B Preferred Stock for settlement of debt of ~~$386,000~~$370,000 on various promissory notes and ~~$38,165~~$37,477 in accrued interest. In March 2021, the Company issued a total of 17,965 shares of Series B Preferred Stock for settlement of debt of $16,000 on a promissory note and $1,965 in accrued interest.

The Company had 425,442 shares of Convertible Series B Preferred Stock outstanding as of April 30, 2021. No dividends are payable on the Convertible Series B Preferred Stock.

Voting Rights. Except as otherwise provided by the Nevada Revised Statutes, other applicable law or as provided in this Certificate of Designation, the Series B Preferred Stock shall have no voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend this Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (c) increase the number of authorized shares of Series B Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

Mandatory Conversion. Upon (i) an up-listing of the Corporation’s Common Stock to Nasdaq or a US national securities exchange, (ii)an underwriting involving the sale of $5,000,000 or more of the Corporation’s Common Stock or Common Stock Equivalents (a “Material Underwriting”), (iii) the Corporation ceases to be a public corporation as the result of a going private transaction, (iv) the Corporation, directly or indirectly, effects any sale, lease, exclusive license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions (including a transaction involving the Corporation’s spin-off of its operating subsidiary, T3 Communications, Inc.), (v) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (vi) the Corporation, directly or indirectly, in one or more related transactions, effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (vii) the Corporation, directly or indirectly, in one or more related transactions, consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person, other than an officer or director of the Company, whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) , all shares of Series B Preferred Stock shall be automatically converted, without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, into the number of fully paid and nonassessable shares of Common Stock in an amount equal, following conversion ,to 18% of the Corporation’s issued and outstanding shares of Common Stock . Each of (i)-(vii) above shall be hereafter referred to as a “Conversion Event” and the date of a Conversion Event shall be hereafter referred to as a “Conversion Date”. Upon any such mandatory conversion and the issuance of Conversion Shares further thereto, the shares of Series B Preferred Stock shall be deemed cancelled and of no further force or effect. A mandatory conversion is the only means by which Series B Preferred Stock is convertible as the shares of Series B Preferred Stock are not convertible at the option of the Holder. For purposes of the foregoing Conversion Events, conversion will be deemed to have taken place immediately prior to the Conversion Event. By way of example, if the Corporation engages in a Material Underwriting, the Series B Preferred Stock will be treated as having been converted immediately prior to the issuance of the securities in the Material Underwriting.

Redemption. At any time on or after the second anniversary of the date of issuance of shares of Series B Preferred Stock to the Holder, the Corporation, in its sole discretion ,may elect, by delivering written notice to the Holder no less than 10 days or more than 20 prior to the redemption date set forth in such notice (the “Redemption Date”), to redeem all or any portion of the Series B Preferred Stock held by such Holder at a price per share (the “Redemption Price”) equal to 120% of the Stated Value per share being redeemed . The Corporation shall, unless otherwise prevented by law, redeem from such holder on the Redemption Date the number of shares of Series B Preferred Stock identified in such notice of redemption. The Company will evaluate the convertible shares at each reporting balance sheet date and determine if a re-classification is required.

During the period ended April 30, ~~2020,~~2021, the Company evaluated Series B Convertible Preferred Stock and concluded that none of the mandatory conversion events occurred during the period and determined that the convertible shares were classified as equity instruments.

In July 2020, the Company’s Board of Directors designated and authorized the issuance up to 1,000,000 shares of the Series C Preferred Stock. Each share of Series C Preferred Stock has a par value of $0.001 per share and a stated value equal to ten dollars ($10.00) (the “Stated Value”).

On February 25, 2021, Digerati’s Board of Directors approved the issuance of the following shares of Series C Convertible Preferred Stock.:

The Series C Convertible Preferred Stock were issued for accrued compensation to the management team of $554,000.

The Company had 55,400 shares of Convertible Series C Preferred Stock outstanding as of April 30, 2021. No dividends are payable on the Convertible Series C Preferred Stock.

Designation, Amount and Par Value; Eligible Recipients. The series of preferred stock shall be designated as its Series C Convertible Preferred Stock (the “Series C Preferred Stock”) and the number of shares so designated shall be up to one million (1,000,000) (which shall not be subject to increase without the written consent of the holders of a majority of the outstanding Series C Preferred Stock (each, a “Holder” and collectively, the “Holders”). Series C Preferred Stock shall only be issuable to the Company’s officers and directors as of July 1, 2020 who may from time-to-time purchase shares of Series C Preferred Stock at the Stated Value by converting all or part of the compensation owed to them by the Corporation. Each share of Series C Preferred Stock shall have a par value of $0.001 per share and a stated value equal to Ten Dollars ($10.00) (the “Stated Value”).

Dividends. No dividends are payable on the shares of Series C Preferred Stock.

Voting Rights. Except as otherwise provided by the Nevada Revised Statutes, other applicable law or as provided in this Certificate of Designation, the Series C Preferred Stock shall have no voting rights. However, as long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series C Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series C Preferred Stock or alter or amend this Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (c) increase the number of authorized shares of Series C Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.

Automatic Conversion. Upon (i) an up-listing of the Corporation’s Common Stock to Nasdaq or a US national securities exchange, (ii) a financing or offering involving the sale of $5,000,000 or more of the Corporation’s Common Stock or Common Stock Equivalents (a “Material Financing”), (iii) the Corporation ceases to be a public corporation as the result of a going private transaction, (iv) the Corporation, directly or indirectly, effects any sale, lease, exclusive license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions (including a transaction involving the Corporation’s spin-off of its Nevada subsidiary, T3 Communications, Inc.), (v) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (vi) the Corporation, directly or indirectly, in one or more related transactions, effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (vii) the Corporation, directly or indirectly, in one or more related transactions, consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person, other than an officer or director of the Company, whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination), all issued shares of Series C Preferred Stock shall be automatically converted, without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, into the number of fully paid and nonassessable shares of Common Stock in an amount equal, following conversion, to 22% of the Corporation’s issued and outstanding shares of Common Stock. Each of (i)-(vii) above shall be hereafter referred to as a “Conversion Event” and the date of a Conversion Event shall be hereafter referred to as a “Conversion Date”. Upon any such mandatory conversion and the issuance of Conversion Shares further thereto, the shares of Series C Preferred Stock shall be deemed cancelled and of no further force or effect. A mandatory conversion is the only means by which Series C Preferred Stock is convertible as the shares of Series C Preferred Stock are not convertible at the option of the Holder. For purposes of the foregoing Conversion Events, conversion will ~~evaluate~~be deemed to have taken place immediately prior to the ~~convertible~~Conversion Event. By way of example, if the Corporation engages in a Material Financing, the Series C Preferred Stock will be treated as having been converted immediately prior to the issuance of the securities in the Material Underwriting.

Redemption. At any time on or after the second anniversary of the date of issuance of shares of Series C Preferred Stock to the Holder, the Corporation, in its sole discretion ,may elect, by delivering written notice to the Holder no less than 10 days or more than 20 prior to the redemption date set forth in such notice (the “Redemption Date”), to redeem all or any portion of the Series C Preferred Stock held by such Holder at ~~each reporting balance sheet~~a price per share (the “Redemption Price”) equal to 120% of the Stated Value per share being redeemed . The Corporation shall, unless otherwise prevented by law, redeem from such holder on the Redemption Date the number of shares of Series C Preferred Stock identified in such notice of redemption.

In July 2020, the Company’s Board of Directors designated and authorized the issuance up to 100 shares of the Series F Super Voting Preferred Stock. Each share of Series F Super Voting Preferred Stock has a par value of $0.001 per share and a stated value equal to one cent ($0.01) (the “Stated Value”).

On November 17, 2020, Digerati’s Board of Directors approved the issuance of the following shares of Series F Super Voting Preferred Stock. (See note 10 for designations):

As of April 30, 2021, the Company has 100 shares outstanding of the Series F Super Voting Preferred Stock. No dividends are payable on the Series F Super Voting Preferred Stock.

Designation, Amount and Par Value; Eligible Recipients. The series of preferred stock shall be designated as its Series F Preferred Stock (the “Series F Preferred Stock”) and the number of shares so designated shall be up to one hundred (100) (which shall not be subject to increase without the written consent of the holders of a majority of the outstanding Series F Preferred Stock (each, a “Holder” and collectively, the “Holders”). Series F Preferred Stock shall only be issuable to members of the Corporation’s Board of Directors, as joint tenants, who may purchase shares of Series F Preferred Stock at the Stated Value per share. Each share of Series F Preferred Stock shall have a par value of $0.001 per share and a stated value equal to one cent ($0.01) (the “Stated Value”).

Voting Rights. As long as any shares of Series F Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series F Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series F Preferred Stock or alter or amend this Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (c) increase the number of authorized shares of Series F Preferred Stock, (d) sell or otherwise dispose of any assets of the Corporation not in the ordinary course of business, (e) sell or otherwise effect or undergo any change of control of the corporation, (f) effect a reverse split of its Common Stock, or (g) enter into any agreement with respect to any of the foregoing.

Holder of the Series F Preferred Stock shall be entitled to vote on all matters subject to a vote or written consent of the holders of the Corporation’s Common Stock, and on all such matters, the shares of Series F Preferred Stock shall be entitled to that number of votes equal to the number of votes that all issued and outstanding shares of Common Stock and all other securities of the Corporation are entitled to, as of any such date of determination, on a fully diluted basis, plus one million (1,000,000) votes, it being the intention that the Holders of the Series F Preferred Stock shall have effective voting control of the Corporation. The Holders of the Series F Preferred Stock shall vote together with the holders of Common Stock as a single class on all matters requiring approval of the holders of the Corporation’s Common Stock and ~~determine if~~separately on matters not requiring the approval of holders of the Corporation’s Common Stock.

Redemption. At any time while share of Series F Preferred Stock are issued and outstanding, the Corporation, in its sole discretion, may elect to redeem the shares of Series F Preferred Stock.

During the nine months ended April 30, 2021, the Company issued the following shares of common stock that are not disclosed in other footnotes:

On August 1, 2020, the Company issued an aggregate of 2,000,000 shares of common stock, at the time of issuance the Company recognized the market value $58,000 as stock compensation expense for professional services.

On January 26, 2021, the Company issued 1,000,000 shares of common stock for the settlement of $60,000 in accounts payable for professional services.

On February 5, 2021, the Company entered into a ~~re-classification is required.~~Consulting Agreement, in which the Company agreed to issue a total of 2,000,000 shares of Common Stock, at issuance the Company recognized the market value of the stock of $125,000 as stock compensation expense for professional services.

On ~~May 4,~~November 17, 2020, ~~the Company, entered~~T3 Nevada’s wholly owned subsidiary, Nexogy Acquisition, Inc., merged with and into ~~an unsecured promissory note~~Nexogy, Inc. (“Nexogy”) resulting in Nexogy becoming a wholly owned subsidiary of T3 Nevada (the ~~“Note”~~“Merger”) ~~for $213,100 made~~. Nexogy is a leading provider in South Florida of Unified Communications as a Service and managed services, offering a portfolio of cloud-based solutions to the Company under the Paycheck Protection Program (the “PPP”). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”). The loans to the Company was made through The Bank of San Antonio (the “Lender”).high-growth SMB market.

The ~~Note provides~~purchase price for Nexogy was $9 million in cash, plus an ~~interest rate of 1.00% per year and matures two years after the issuance date. Beginning on the seventh month following the date~~additional $452,000 in initial excess Net Working Capital, with $900,000 of the ~~Note,~~$9 million being placed in an indemnity escrow account and $50,000 of the ~~Company is required to make 18 monthly payments~~$9 million being placed in a working capital escrow account. In addition, at the closing of ~~principal and interest~~the Merger, T3 Nevada paid a number of Nexogy’s liabilities which were included in the amount of $11,933. The Note may be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that were incurred before February 15, 2020. The Note contains events of default and other conditions customary for a Note of this type.

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the SBA may adopt. While the Company currently believes that its use of the Note proceeds will meet the conditions for forgiveness under the PPP, no assurance is provided that the Company will obtain forgiveness of the Note in whole or in part.$9 million purchase price.

On ~~May 29,~~November 17, 2020, our indirect, wholly owned subsidiary, T3 Communications, Inc., a Florida corporation (“T3 Florida”), executed and closed on an Asset Purchase Agreement (the “Purchase Agreement”) with ActiveServe, Inc., a Florida corporation (“Seller”). Pursuant to the Purchase Agreement, T3 Florida acquired the customer base, certain equipment, certain intellectual property, inventory, contract rights, software and other licenses and miscellaneous assets used in connection with the operation of Seller’s telecommunications business known as ActivePBX (collectively, the “Purchased Assets”).

The aggregate purchase price for the Purchased Assets was $2,555,000 in cash, subject to adjustment as provided therein (the “Purchase Price”). $1,190,000 of the Purchase Price was payable at closing, with $50,000 of such amount being withheld by T3 Florida for a period of 12 months to cover part of potential future indemnification obligations of Seller to T3 Florida due to Seller’s breaches, if any, of any representations and warranties made to T3 Florida by Seller under the Purchase Agreement, and $40,000 of such amount being credited to T3 Florida against a payment in that amount made by T3 Florida to Seller pursuant to the Second Amendment to Letter of Intent between Seller and T3 Florida dated as of October 15, 2020.

Part of the Purchase Price is payable in 8 equal quarterly payments of $136,250, subject to T3 Florida achieving quarterly post-purchase recurring revenues under monthly contracts or subscriptions from the acquired customer base, excluding charges for taxes, regulatory fees, additional set-up fees, equipment purchases or lease, and consulting fees. To the extent that a quarterly revenue threshold is not reached, the amount of the corresponding quarterly payment shall be reduced on a proportional basis. T3 Florida’s $1,190,000 payment obligation is represented by a promissory note of T3 Florida in the form included as an exhibit to the Purchase Agreement. The note, in turn, is subject to the Subordination Agreement, included as an Exhibit to the Purchase Agreement, among Seller, the Company’s parent, T3 Nevada, and Post Road Administrative, LLC, in its capacity as administrative agent for the Post Road lenders. $275,000 of the Purchase Price (the “Customer Renewal Value”) represents an incentive earn-out to be paid with respect to Seller’s customer accounts which are transferred to T3 Florida at closing, that are renewed, expanded and/or revised with T3 Florida for a minimum term of twelve months with an auto-renewal for 12 months.

In connection with the Purchase Agreement, we entered into Consulting Agreements and a Non-Compete Agreement with each of Alex Gonzalez and Jose Gonzalez, the Chief Executive Officer and Chief Technology Officer of Seller.

The total purchase price for Nexogy and ActivePBX were $9,452,000 and $2,555,000, respectively. The acquisitions were accounted for under the purchase method of accounting, with Digerati identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration assumed by Digerati was allocated to customer contracts acquired and intangible assets based on their estimated fair values as of November 17, 2020. Allocation of the purchase price is based on the best estimates of management.

The following information summarizes the allocation of the fair values assigned to the assets at the purchase date. The allocation of fair values is preliminary and is subject to change in the future during the measurement period.

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

The Company incurred approximately $460,000 in costs associated with the acquisitions. These included legal, regulatory, and accounting. The Company incurred and expensed these costs of $158,000 and $302,000, during the year ended July 31, 2020, and nine months ended April 30, 2021, respectively.

The following schedule contains unaudited proforma consolidated results of operations for both acquisitions for the three and nine months ended April 30, 2021, and 2020 as if the acquisition occurred on August 1, 2019. The unaudited pro-forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on August 1, 2019, or of results that may occur in the future.

As part of the acquisitions of Nexogy and ActivePBX, the Company ~~issued 3,500,000 shares~~secured an office and rooftop lease, with monthly base lease payments of ~~common stock for~~$13,720 and $3,546, respectively, the ~~conversion of $30,000 of the principal outstanding and accrued interest of $1,500 under one of the convertible notes.~~leases expire on July 31, 2022.

Additionally, the Company secured four (4) additional leases, with the following terms:

	Base Monthly Lease		Commencement	Expiration
Lease	Payment		Date	Date	Additional terms
1 - Colocation	$	4,130	June 8, 2020	June 8, 2023	With an option to extend for an additional twelve (12) months, and 5% increase in base monthly lease payment.
2 - Rooftop	$	2,450	June 1, 2015	June 1, 2021	With an option to extend for five (5) additional one (1) year terms.
3 - Rooftop	$	979	December 1, 2015	December 1, 2025	Initial term for five (5) years, lease renewed for additional five (5) years.
4 - Rooftop	$	2,700	November 30, 2013	November 30, 2023	Initial term for five (5) years, lease renewed for additional five (5) years, with an option for a second renewal for an additional five (5) years.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains “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. “Forward-looking statements” are those statements that describe management’s beliefs and expectations about the future. We have identified forward-looking statements by using words such as “anticipate,” “believe,” “could,” “estimate,” “may,” “expect,” “plan,” and “intend.” Although we believe these expectations are reasonable, our operations involve a number of risks and uncertainties. Some of these risks include the availability and capacity of competitive data transmission networks and our ability to raise sufficient capital to continue operations. Additional risks are included in our Annual Report on Form 10-K for the fiscal year ended July 31, ~~2019~~2020, filed with the Securities and Exchange Commission on October ~~28, 2019.~~29, 2020.

The following is a discussion of the unaudited interim consolidated financial condition and results of operations of Digerati for the three and nine months ended April 30, ~~2020~~2021, and ~~2019.~~2020. It should be read in conjunction with our audited Consolidated Financial Statements, the Notes thereto, and the other financial information included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, ~~2019~~2020, filed with the Securities and Exchange Commission on October ~~28, 2019.~~29, 2020. For purposes of the following discussion, fiscal 2021 or 2021 refers to the year that will end on July 31, 2021, and fiscal 2020 or 2020 refers to the year ended July 31, ~~2020 and fiscal 2019 or 2019 refers to the year ended July 31, 2019.~~2020.

Overview

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

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

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

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

Recent Activity

~~In September 2019,~~Acquisitions

On November 17, 2020, the Company~~entered into a definitive agreement to acquire~~ closed on the acquisitions of Nexogy, Inc. (“Nexogy”), aand ActivePBX (“ActivePBX”), leading ~~provider in South Florida~~providers of cloud communication, UCaaS, and ~~managed services, offering~~broadband solutions tailored for businesses. As a ~~portfolio of cloud-based solutions to the high-growth SMB market.~~ ~~In February 2020, after meeting the required public notice period pursuant to section 214~~combined business, Nexogy, ActivePBX, and our operating subsidiary, T3 Communications, Inc., will serve over 2,600 business customers and approximately 28,000 users. The business model of the ~~Communications Act~~combined entities is supported by strong and predictable recurring revenue with high gross margins under contracts with business customers in various industries including banking, healthcare, financial services, legal, insurance, hotels, real estate, staffing, municipalities, food services, and education. The contribution from the acquisitions is expected to have an immediate and positive impact on the consolidated EBITDA of ~~1934,~~ the Company ~~secured FCC approval for~~with additional improvements to be realized during FY2021 from the acquisition of Nexogy. In addition, in February 2020 the Company entered into a Letter of Intent (LOI) for another acquisition. The Company is expecting to simultaneously close both of the transactions~~during the fourth quarter of FY 2020 (on or before July 31, 2020), subject to finalizing debt financing for the transactions that were previously committed by an established~~anticipated cost synergies and ~~traditional lending source.~~consolidation savings.

Sources of revenue:

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

Direct Costs:

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

Results of Operations

Three Months ended April 30, ~~2020~~2021, Compared to Three Months ended April 30, ~~2019~~2020.

Cloud Software and Service Revenue. Cloud software and service revenue increased by ~~$81,000,~~$2,185,000, or 5%140% from the three months ended April 30, ~~2019~~2020, to the three months ended April 30, ~~2020.~~2021. The increase in revenue ~~between periods~~ is primarily attributed to the increase in total customers between ~~periods.~~periods due to the acquisitions of Nexogy and ActivePBX. Our total number of customers increased from ~~688~~731 for the three months ended April 30, ~~2019~~2020, to ~~731~~2,612 customers for the three months ended April 30, ~~2020. Additionally, our average monthly revenue per customer decreased from $723 for the three months ended April 30, 2019 to $715 for the three months ended April 30, 2020.~~2021.

Cost of Services (exclusive of depreciation and amortization). The cost of services ~~decreased~~increased by ~~$6,000,~~$762,000, or 1%100%, from the three months ended April 30, ~~2019~~2020, to the three months ended April 30, ~~2020.~~2021. The ~~decrease~~increase in cost of services ~~between periods~~ is primarily attributed to the ~~reduction~~consolidation of ~~one of our colocation sites, whereby we consolidated multiple servers and consolidated to a nationwide provider. As a result~~various networks as part of the ~~cost reductions,~~increase in total customers between periods due to the acquisitions of Nexogy and ActivePBX. Our total number of customers increased from 731 for the three months ended April 30, 2020, to 2,612 customers for the three months ended April 30, 2021. However, our consolidated gross margin improved by ~~$87,000~~$1,423,000 from the ~~quarter~~three months ended April 30, ~~2019~~2020, to the ~~quarter~~three months ended April 30, ~~2020.~~2021.

Selling, General and Administrative (SG&A) Expenses (exclusive of legal and professional fees and stock compensation expense).SG&A expenses ~~decreased~~increased by ~~$141,000,~~$1,061,000, or ~~16%~~141%, from the three months ended April 30, ~~2019~~2020, to the three months ended April 30, ~~2020.~~2021. The ~~decrease~~increase in SG&A is attributed to ~~reduction~~acquisition of ~~a few sales partners,~~Nexogy and ActivePBX, as part of the consolidation, the Company absorbed all of the employees responsible for customer ~~care~~ and technical support, ~~partners.~~sales, account management, and administration.

Stock Compensation expense.Stock compensation expense decreased by ~~$32,000~~$115,000, from the three months ended April 30, ~~2019~~2020, to the three months ended April 30, ~~2020.~~2021. The decrease between periods is attributed to the recognition of stock option expense of ~~$62,979~~$63,000 recognized during the three months ended April 30, 2020, associated with the stock options ~~with multiple vesting periods that were~~ awarded to various employees during FY2018, FY2019 and FY2020. The Company also recognized $233,633 in stock compensation ~~expense associated with~~for stock issued for the funding of ~~the 401(K)-profit~~our 401K profit sharing plan ~~for~~during the ~~three months~~period ended April 30, 2020. During the period ended April 30, 2021, the Company only recognized $57,000 in stock options expense associated with stock options awarded to various employees and $125,000 in stock compensation for consulting services.

Legal and professional fees. Legal and professional fees increased by ~~$3,000,~~$106,000, from the three months ended April 30, ~~2019~~2020, to the three months ended April 30, ~~2020.~~2021. The increase between periods is attributed to the recognition during FY ~~2020~~2021 of ~~$18,750 in professional expenses incurred related to investor relations services, the recognition of $10,500~~$115,000 in professional fees for the audits related to the ~~due-diligence on target~~ acquisitions, ~~the recognition of $26,000 in~~investor relations fees, and professional ~~fees~~services related to ~~accounting and financial quarterly reviews and~~ the ~~recognition of $10,650 in professional fees related to mediation with two former employees.~~purchase price allocation.

Bad ~~debt~~debt. . Bad debt ~~was a benefit of $19,000 for~~increased by $24,000, from the three months ended April 30, ~~2020; this was~~2020, to the three months ended April 30, 2021. The increase is attributed to the recognition of $5,000 in bad debt during the period ended April 30. 2021. During the period ended April 30, 2020, the Company recognized $19,000 in bad debt recovery, for accounts that were previously ~~deemed uncollectable.~~considered uncollectible.

Depreciation and amortization. Depreciation and amortization ~~decreased~~increased by ~~$19,000,~~$463,000, from the three months ended April 30, ~~2019~~2020, to the three months ended April 30, ~~2020, mainly due~~2021. The increase is primarily attributed to the ~~decrease~~acquisitions and related amortization of $431,000 for intangible assets, in addition to the depreciation ~~expense related to~~of the assets ~~that reached their expected useful life.~~acquired from Nexogy and ActivePBX.

Operating loss. The Company reported an operating loss of $588,000 for the three months ended April 30, 2021, compared to an operating loss of $472,000 for the three months ended April 30, ~~2020 compared to an operating loss of $767,000 for the three months ended April 30, 2019.~~2020. The ~~improvement~~increase in operating loss between periods is primarily due to the ~~decrease~~increase of ~~$141,000~~$1,061,000 in SG&A, the ~~decrease~~increase in legal fees of ~~$19,000~~$106,000, the increase in depreciation ~~expense,~~of $463,000, and the ~~improvement~~increase in bad debt of ~~$87,000~~$24,000. These increases were slightly offset by the increase in ~~gross~~ margin of $1,423,000 and the decrease in stock compensation expense of ~~$32,000 and the improvement of $19,000 in bad debt recovery.~~$115,000.

Gain (loss) on derivative instruments.Gain (loss) on derivative instruments increased by ~~$1,152,000~~$10,629,000 from the three months ended April 30, ~~2019~~2020, to the three months ended April 30, ~~2020.~~2021. We are required to re-measure all derivative instruments at the end of each reporting period and adjust those instruments to market, as a result of the re- measurement of all derivative instruments we recognized an increase between periods.

Gain (loss) on settlement of debt.Gain (loss) on settlement of debt improved by ~~$134,000~~$16,000 from the three months ended April 30, ~~2019~~2020, to the three months ended April 30, ~~2020.~~ 2021. During the period ended April 30, 2021, the Company recognized a gain on settlement of deb for that forgiveness by the U.S Small Business Administration of two promissory notes with a total principal of $148,500 and accrued interest of $1,443.

Income tax benefit (expense). During the three months ended April 30, 2020 the Company issued 14,138,826 shares of common stock for the conversion of $386,000 on the outstanding principal balance on various promissory notes and $38,164 in accrued interest. At the time of issuance,2021, the Company recognized ~~$134,000 as a gain in settlement~~an income tax expense of ~~debt.~~

~~Income tax benefit (expense).~~$63,000. During the three months ended April 30, 2020, the Company recognized an income tax expense of ~~$10,000, this was comparable to the three months ended April 30, 2019.~~$10,000.

Interest expense. Interest income (expense) increased by ~~$135,000~~$1,066,000 from the three months ended April 30, ~~2019~~2020, to the three months ended April 30, ~~2020. The~~2021. During the quarter ended April 30, 2021, the Company recognized non-cash interest / accretion expense of ~~$363,000~~$916,000 related to the adjustment to the present value of various convertible notes and ~~debentures.~~debt. Additionally, the Company recognized ~~$121,000~~$360,560 in interest expense for cash interest payments on various promissory notes, accrual of ~~$16,000~~$185,000 for interest expense for various promissory notes, ~~interest paid in shares of common stock for $8,000~~ and interest income of ~~$3,400.~~$3,089.

Net income (loss) including noncontrolling interest.Net loss including noncontrolling interest for the three months ended April 30, ~~2020~~2021, was ~~$1,108,000~~$12,956,000, an increase in net loss of $11,848,000 as compared to a net loss for the three months ended April 30, ~~2019~~2020, of ~~$250,000.~~$1,108,000. The increase in net loss including noncontrolling interest between periods is primarily due to the increase is of ~~$81,000~~$1,061,000 in ~~stock compensation expense,~~SG&A, the increase ~~of $3,000~~ in legal ~~and professional~~ fees of $106,000, the increase in depreciation of ~~$1,152,000~~$463,000, the increase in loss on derivative instruments of $10,629,000 and the increase of ~~$135,000~~$1,066,000 in interest expense. ~~The~~These increases were slightly offset by the ~~improvement~~improvements in margin of ~~$87,000 in gross margin between periods,~~$1,423,000, the ~~decline of $141,000 in SG&A, the decline of $32,000~~decrease in stock compensation expense of $115,000 and the improvement of ~~$134,000~~$16,000 in gain onof settlement of debt.

Net ~~income~~loss attributable to the noncontrolling interest.During the three months ended April 30, 2021, and 2020, the consolidated entity recognized net ~~income~~loss in noncontrolling interest of ~~$1,000.~~$158,000 and $1,000, respectively. The noncontrolling interest is presented as a separate line item in the Company’s stockholders equity section of the balance sheet.

Net income (loss) attributable to Digerati’s shareholders. Net loss for the quarter ended April 30, 2021, was $12,798,000 compared to a net loss for the quarter ended April 30, 2020, of $1,107,000.

Deemed dividend on Series A Convertible Preferred Stock. Dividend declared on convertible preferred stock for the quarter ended April 30, 2021, was $5,000 compared to a deemed dividend on convertible preferred stock for the quarter ended April 30, 2020, of $0.

Net income (loss) attributable to Digerati’s common shareholders.Net loss for the three months ended April 30, ~~2020~~2021, was ~~$1,107,000~~$12,803,000 compared to a net loss for the three months ended April 30, ~~2019~~2020, of ~~$221,000.~~$1,107,000.

Nine Months ended April 30, ~~2020~~2021, Compared to Nine Months ended April 30, ~~2019~~2020.

Cloud Software and Service Revenue. Cloud software and service revenue increased by ~~$219,000,~~$3,917,000, or 5%83% from the nine months ended April 30, ~~2019~~2020, to the nine months ended April 30, ~~2020.~~2021. The increase in revenue ~~between periods~~ is primarily attributed to the increase in total customers between ~~periods.~~periods due to the acquisitions of Nexogy and ActivePBX. Our total number of customers increased from ~~688~~731 for the nine months ended April 30, ~~2019~~2020, to ~~731~~2,612 customers for the nine months ended April 30, ~~2020. Additionally, our average monthly revenue per customer decreased from $738 for the nine months ended April 30, 2019 to $730 for the nine months ended April 30, 2020.~~2021.

Cost of Services (exclusive of depreciation and amortization). The cost of services increased by ~~$21,000,~~$1,365,000, or 1%58%, from the nine months ended April 30, ~~2019~~2020, to the nine months ended April 30, ~~2020.~~2021. The increase in cost of services ~~between periods~~ is primarily attributed to the ~~additional costs arising~~consolidation of various networks and key vendors as part of the increase in total customers between periods due to the acquisitions of Nexogy and ActivePBX. Our total number of customers increased from 731 for the ~~acquired customers. Although our consolidated cost of services increased between periods,~~nine months ended April 30, 2020, to 2,612 customers for the nine months ended April 30, 2021. However, our consolidated gross margin improved by ~~$198,000 between periods. The improvement in gross margin between periods is attributed~~$2,552,000 from the nine months ended April 30, 2020, to ~~a higher concentration of enterprise customers revenue, which generate a higher margin than services provided via resellers.~~the nine months ended April 30, 2021.

Selling, General and Administrative (SG&A) Expenses (exclusive of legal and professional fees and stock compensation expense).SG&A expenses ~~decreased~~increased by ~~$99,000~~$2,171,000, or 4%97%, from the nine months ended April 30, ~~2019~~2020, to the nine months ended April 30, ~~2020.~~2021. The ~~decrease~~increase in SG&A is attributed to ~~reduction~~acquisition of ~~a few sales partners,~~Nexogy and ActivePBX, as part of the consolidation, the Company absorbed all of the employees responsible for customer ~~care~~ and technical support, ~~partners.~~sales, account management, and administration.

Stock Compensation expense.Stock compensation expense ~~increased~~decreased by ~~$416,000,~~$559,000, from the nine months ended April 30, ~~2019~~2020, to the nine months ended April 30, ~~2020.~~2021. The ~~increase~~decrease between periods is attributed to the recognition of stock option expense of $315,000 recognized during the nine months ended April 30, 2020, associated with the stock options ~~with multiple vesting periods that were~~ awarded to various employees during FY2018, FY2019 and FY2020. The Company also recognized $568,000 in stock compensation for stock issued in lieu of cash payments to the Management team during the ~~nine months~~period ended April 30, 2020. ~~The~~During the period ended April 30, 2021, the Company ~~also~~only recognized ~~$233,633~~$110,000 in stock options expense associated with stock options awarded to various employees, recognized $247,000 in stock compensation expense associated with the funding of the 401(K)-profit sharing plan, recognized $18,000 in stock compensation for ~~the nine months ended April 30, 2020.~~stock issued in lieu of cash payments to a former employee, and recognized $183,000 in stock issued to consultants for professional services.

Legal and professional fees. Legal and professional fees increased by ~~$103,000,~~$309,000, from the nine months ended April 30, ~~2019~~2020, to the nine months ended April 30, ~~2020.~~2021. The increase between periods is attributed to the recognition during ~~FY 2020~~the period ending April 30, 2021, of ~~$48,750~~$333,000 in ~~professional expenses incurred related to investor relations services, the recognition of $60,500 in~~legal and professional fees related to the ~~due-diligence on target~~ acquisitions for audits, purchase price allocation and ~~the recognition of $102,650 on professional fees related to mediation with two former employees.~~investor relations.

Bad ~~debt~~debt. . Bad debt ~~was a benefit~~increased between the periods by $28,000. The increase is attributed to the recognition of ~~$16,000 for~~$9,000 in bad debt during the nine months ended April 30. 2021. During the nine months ended April 30, ~~2020; this was~~2020, the Company recognized $19,000 in bad debt recovery, for accounts that were previously ~~deemed uncollectable.~~considered uncollectible.

Depreciation and amortization. Depreciation and amortization ~~decreased~~increased by ~~$40,000,~~$739,000, from the nine months ended April 30, ~~2019~~2020, to the nine months ended April 30, ~~2020, mainly due~~2021. The increase is primarily attributed to ~~decrease in~~the acquisitions and related amortization of $678,000 for intangible assets, and the additional depreciation ~~expense~~ related to the depreciation for the assets ~~that reached their expected useful life.~~acquired from Nexogy and ActivePBX.

Operating loss. The Company reported an operating loss of $1,978,000 for the nine months ended April 30, 2021, compared to an operating loss of $1,842,000 for the nine months ended April 30, ~~2020 compared to an operating loss of $1,676,000 for the nine months ended April 30, 2019.~~2020. The increase in operating loss between periods is primarily due to the increase of ~~$416,000~~$2,171,000 in ~~stock compensation expense~~SG&A, the increase in legal fees of $309,000 and the increase in depreciation of ~~$103,000 in legal and professional fees. The~~$739,000. These increases were slightly offset by the ~~improvement~~increase in margin of ~~$198,000 in gross margin, improvement of $40,000 in depreciation and amortization expense~~$2,552,000 and the ~~improvement~~decrease in stock compensation expense of ~~$99,000 in SG&A.~~$559,000.

Gain (loss) on derivative instruments.Gain (loss) on derivative instruments ~~improved~~increased by ~~$663,000~~$10,929,000 from the nine months ended April 30, ~~2019~~2020, to the nine months ended April 30, ~~2020.~~2021. We are required to re-measure all derivative instruments at the end of each reporting period and adjust those instruments to market, as a result of the ~~re- measurement~~re-measurement of all derivative instruments we recognized an ~~improvement~~increase between periods.

Gain (loss) on settlement of debt.Gain (loss) on settlement of debt improved by ~~$134,000~~$213,000 from the nine months ended April 30, ~~2019~~2020, to the nine months ended April 30, ~~2020.~~2021. During the ~~three~~nine months ended April 30, 2020 the Company issued 14,138,826 shares of common stock for the conversion of $386,000 on the outstanding principal balance on various promissory notes and $38,164 in accrued interest. At the time of issuance,2021, the Company recognized ~~$134,000 as~~a settlement of $197,000 for an obligation satisfied with our vendors, in addition, the Company recognized a gain inon settlement of ~~debt.~~deb for that forgiveness by the U.S Small Business Administration of two promissory notes with a total principal of $148,500 and accrued interest of $1,443.

Income tax benefit (expense).During the nine months ended April 30, 2021, the Company recognized an income tax expense of $122,000. During the nine months ended April 30, 2020, the Company recognized an income tax benefit of $22,000. ~~During the nine months ended April 30, 2019, the Company recognized an income tax expense of $37,000.~~

Interest expense. Interest income (expense) increased by ~~$99,000~~$1,566,000 from the nine months ended April 30, ~~2019~~2020, to the nine months ended April 30, ~~2020. The~~2021. During the period ended April 30, 2021, the Company recognized non-cash interest / accretion expense of ~~$1,086,000~~$1,775,000 related to the adjustment to the present value of various convertible notes and ~~debentures.~~debt, the amortization of debt discount of $6,000 in a related party note and the amortization to interest expense of $46,000 in debt discount related to the conversions of principal to common shares. Additionally, the Company recognized ~~$218,500~~$753,000 in interest expense for cash interest payments on various promissory notes, ~~$35,000 of interest paid in stock for various promissory notes,~~ accrual of ~~$67,000~~$341,000 for interest expense for various promissory notes, and interest income of ~~$11,000.~~$18,300.

Net income (loss) including noncontrolling interest.Net loss including noncontrolling interest for the nine months ended April 30, ~~2020~~2021, was ~~$3,130,000~~$15,692,000, an increase in net loss of $12,562,000 as compared to a net loss for the nine months ended April 30, ~~2019~~2020, of ~~$3,721,000.~~$3,130,000. The increase in net loss including noncontrolling interest between periods is primarily due to the increase of ~~$416,000~~$2,171,000 in ~~stock compensation expense,~~SG&A, the increase ~~of $103,000~~ in legal ~~and professional~~ fees of $309,000, the increase in depreciation of ~~$99,000~~$739,000, the increase in ~~interest expense~~loss on derivative instruments of $10,929,000 and the increase of ~~$21,000~~$1,566,000 in ~~cost of services. The~~interest expense. These increases were slightly offset by the ~~improvement~~improvements in margin of ~~$198,000~~$2,552,000, the decrease in ~~gross margin between periods~~stock compensation expense of $559,000 and the ~~improvement~~recognition of ~~$757,000~~$347,000 in ~~other income and expense,~~gain of settlement of debt during the ~~improvement of $99,000 in SG&A, and the improvement of $40,000 in depreciation expense.~~period ending April 30, 2021.

Net ~~income~~loss attributable to the noncontrolling interest.During the nine months ended April 30, 2021, and 2020, the consolidated entity recognized net ~~income~~loss in noncontrolling interest of ~~$58,000.~~$223,000 and $58,000, respectively. The noncontrolling interest is presented as a separate line item in the Company’s stockholders equity section of the balance sheet.

Net income (loss) attributable to Digerati’s ~~common~~ shareholders.Net loss for the nine months ended April 30, ~~2020~~2021, was ~~$3,072,000~~$15,469,000 compared to a net loss for the ~~nine months~~period ended April 30, ~~2019~~2020, of ~~$3,636,000.~~$3,072,000.

Deemed dividend on Series A Convertible Preferred Stock. Dividend declared on convertible preferred stock for the period ended April 30, 2021, was $15,000 compared to a deemed dividend on convertible preferred stock for the period ended April 30, 2020, of $0.

Net income (loss) attributable to Digerati’s common shareholders. Net loss for the period ended April 30, 2021, was $15,484,000 compared to a net loss for the period ended April 30, 2020, of $3,072,000.

Liquidity and Capital Resources

Cash Position: We had a consolidated cash balance of ~~$445,000~~$2,125,000 as of April 30, ~~2020.~~2021. Net cash ~~provided~~consumed by operating activities during the nine months ended April 30, ~~2020~~2021 was approximately ~~$36,000,~~$403,000, primarily as a result of operating expenses, that included ~~$1,132,000~~$558,000 in stock compensation and warrant expense, amortization of debt discount of ~~$1,046,000, gain~~$1,827,000, loss on derivative liability of ~~$69,000,~~$10,860,000, depreciation and amortization expense of ~~$465,000.~~$1,204,000, increase in accrued expense of $1,397,000, decrease in accounts receivable of $96,000 and decrease in deferred revenue of $105,000. Additionally, we had an increase of ~~$277,000~~$97,000 in accounts payable, ~~increase in accrued expenses of $532,000, increase in deferred income of $33,000, decrease in accounts receivables of $116,000, a~~ decrease in prepaid expenses and other current assets of ~~$18,000~~$141,000, increase in inventory of $26,000 and the recognition of a gain on settlement of debt of ~~$134,000.~~$347,000.

Cash used in investing activities during the nine months ended April 30, ~~2020~~2021 was ~~$159,000 ,~~$10,336,000, which included ~~$57,000~~$228,000 for the purchase of equipment and the cash paid of ~~$102,000~~$10,108,000, net of cash received, for ~~escrow deposits related to an acquisition.~~the acquisitions of VoIP assets from Nexogy and ActivePBX.

Cash provided by financing activities during the nine months ended April 30, ~~2020~~2021, was ~~$162,000.~~$12,179,000. The Company secured ~~$195,000~~$1,078,000 from convertible notes, net of issuance costs and discounts. ~~The~~In addition, the Company ~~also~~ secured ~~$70,000~~$13,036,000 from ~~borrowing from a related party, and $322,000 from borrowings from 3~~^rd ~~party~~two promissory ~~notes.~~notes, net of issuance costs. (See Note 6) The Company made principal payments of ~~$376,000~~$1,330,000 on various notes, principal payments of $266,000 on convertible notes, principal payments of $316,000 on related party notes, and ~~$49,000~~$53,000 in principal payments on equipment financing. Overall, our net operating, investing, and financing activities during the nine months ended April 30, ~~2020 provided~~2021, contributed approximately ~~$39,000 to~~$1,440,000 of our available cash.

Digerati’s consolidated financial statements for the nine months ending April 30, 2021, have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. Since the Company’s inception in 1993, Digerati has incurred net losses and accumulated a deficit of approximately $104,166,000 and a working capital deficit of approximately $22,924,000 which raises doubt about Digerati’s ability to continue as a going concern.

We are currently taking initiatives to reduce our overall cash deficiencies on a monthly basis. During fiscal ~~2020 we anticipate reducing fixed costs and general expenses, in addition,~~2021 certain members of our management team have taken a significant portion of their compensation in common stock to reduce the depletion of our available cash. To strengthen our business, we intend to adopt best practices from or recent acquisitions and invest in a ~~new~~ marketing and sales strategy to grow our monthly recurring revenue; we anticipate utilizing our value-added resellers and channel partners to tap into new sources of revenue streams, we have also secured various agent agreements to accelerate revenue growth. In addition, we will continue to focus on selling a greater number of comprehensive services to our existing customer base. Further, in an effort to increase our revenues, we will continue to evaluate the acquisition of various assets with emphasis in VoIP Services and Cloud Communication Services. As a result, during the due diligence process we anticipate incurring significant legal and professional fees.

Management believes that ~~current~~ available resources as of April 30, 2021, will not be sufficient to fund the Company’s operations, debt service and corporate expenses over the next 12 months. The Company’s ability to continue to meet its obligations and to achieve its business objectives is dependent upon, ~~among~~and other things, raising additional capital, issuing stock-based compensation to certain members of the executive management team in lieu of cash, or generating sufficient revenue in excess of costs. At such time as the Company requires additional funding, the Company will seek to secure such best-efforts funding from various possible sources, including equity or debt financing, sales of assets, or collaborative arrangements. If the Company raises additional capital through the issuance of equity securities or securities convertible into equity, stockholders will experience dilution, and such securities may have rights, preferences, or privileges senior to those of the holders of common stock or convertible senior notes. If the Company raises additional funds by issuing debt, the Company may be subject to limitations on its operations, through debt covenants or other restrictions. If the Company obtains additional funds through arrangements with collaborators or strategic partners, the Company may be required to relinquish its rights to certain technologies. There can be no assurance that the Company will be able to raise additional funds or raise them on acceptable terms. If the Company is unable to obtain financing on acceptable terms, it may be unable to execute its business plan, the Company could be required to curtail its operations, and the Company may not be able to pay off its obligations, if and when they come due.

Our current cash expenses are expected to be approximately ~~$95,000~~$750,000 per month, including wages, rent, utilities, corporate expenses, and ~~corporate~~legal professional ~~fees.~~fees associated with potential acquisitions. As described elsewhere herein, we are not generating sufficient cash from operations to pay for our corporate and ongoing operating expenses, or to pay our current liabilities. As of April 30, ~~2020,~~2021, our total liabilities were approximately ~~$7,238,000,~~$32,430,000, which included ~~$1,099,000~~$17,340,000 in derivative liabilities. We will continue to use our available cash on hand to cover our deficiencies in operating expenses.

We estimate that we need approximately ~~$500,000~~$65,000 per month of additional working capital to fund our ~~ongoing operations~~corporate expenses during Fiscal ~~2020. We used proceeds secured from convertible promissory notes to pay for operating expenses and we anticipate raising additional debt financing to meet our working capital needs.~~2021.

~~Digerati’s~~We have been successful in raising debt capital and equity capital in the past and as described in Notes 6, 7, and 8 to our consolidated financial ~~statements for the nine months ending April 30, 2020~~statements. We have ~~been prepared on a going concern basis, which contemplates the realization of assets~~financing efforts in place to continue to raise cash through debt and ~~the settlement of liabilities~~equity offerings. Although we have successfully completed financings and reduced expenses in the ~~normal course of business. Since~~past, we cannot assure you that our plans to address these matters in the Company’s inception in 1993, Digerati has incurred net losses and accumulated a deficit of approximately $88,392,000 and a working capital deficit of approximately $5,285,000 which raises doubt about Digerati’s ability to continue as a going concern.future will be successful.

Item 3. Quantitative and Qualitative Disclosures About Market Risks.

Not Applicable.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this quarterly report on Form 10-Q for the quarter ended April 30, ~~2020,~~2021, our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our PEO and PFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as there has been no implementation to date of processes and/or procedures to remedy internal control weaknesses and deficiencies.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

~~None~~On April 16, 2021, a lawsuit was filed against T3 Communications, Inc.(“T3”), a subsidiary of the Company, by Carolina Financial Securities, LLC (“CFS”), in North Carolina state court (Forsyth County Superior Court), claiming that T3 owes CFS a placement fee of $576,000.00 pursuant to an Engagement Letter between the two companies. The Company has removed the case to the United States District Court for the Middle District of North Carolina. The Company denies liability and intends to vigorously defend the lawsuit. At the time of this filing, the Company cannot predict the outcome of such claim and the financial impact on our ongoing operations.

Item 1A. Risk Factors.

Not Applicable

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~On August 12, 2019, the Company issued 114,123 shares of common stock for the conversion of $7,500 of the principal outstanding and $500 in administrative fees under the convertible note.~~

~~On August 26, 2019, the Company issued 250,000 shares of common stock for the conversion of $14,500 of the principal outstanding and $500 in administrative fees under a convertible note.~~

~~On August 26, 2019, the Company issued 416,666 shares of common stock for the conversion of $25,000 of the principal outstanding under a convertible note.~~

~~On September 4, 2019, the Company issued 250,620 shares of common stock for the conversion of $10,000 of the principal outstanding and $541 in administrative fees under a convertible note.~~

~~On September 26, 2019, the Company issued 342,466 shares of common stock for the conversion of $14,500 of the principal outstanding and $500 in administrative fees under a convertible note.~~

~~On October 7, 2019, the Company issue 400,000 shares of common stock, as part of an amendment to various promissory notes. The shares~~There were ~~recorded as debt discount and amortized over the remaining term of the notes.~~