UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

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

For the fiscal year ended December 31, 20212022

OR

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

Commission file number: 001-38167

AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC.

1720 Peachtree Street, Suite 629

Atlanta, GA 30309

(404) 239-2863

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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

 None

As of March 31, 2022, 89,566,997 shares of the Company’s common stock, par value $0.0001 per share, were outstanding. 

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

None 

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

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

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

Indicate by check mark whether the registrant has submitted electronically 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 definition 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 Exchange Act. ☐ ☐

Indicate by check mark whether the registrant has fi ledfiled a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting fi rmfirm that prepared or issued its audit report. ☐

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

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting common stock held by non-affiliates of the registrant on June 30, 20212022 (the last business day of the registrant’s most recently completed second fiscal quarter), as reported on the NASDAQ Capital Market, was approximately $2312,545954,150060. For purposes of this computation, all officers, directors and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the registrant.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No  ☐.

As of March 24, 2023, 33,532,473 shares of the Company’s common stock, par value $0.0001 per share, were outstanding. 

AMERICAN VIRTUAL CLOUD TECHNOLOGIES, INC. AND SUBSIDIARIES

Annual Report on Form 10-K

For the Fiscal Year ended December 31, 20212022

Table of Contents

References to “we,” “us,” “our” or “the Company” refer to American Virtual Cloud Technologies, Inc. and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires. When we refer to “AVCT,” we mean American Virtual Cloud Technologies, Inc. (f/k/a Pensare Acquisition Corp.).

INTRODUCTORY NOTE

As previously disclosed, on January 11, 2023, the Company and two of its subsidiaries (collectively, the “Debtors”) filed voluntary petitions under Chapter 11 of the US Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court for the District of Delaware (such court, the “Court”, and such cases, the “Cases”). Also as previously disclosed, on February 14, 2023, the Company and certain of its subsidiaries (collectively, the “Sellers”) entered into a “stalking horse” Asset Purchase Agreement (as subsequently modified, the “Stalking Horse APA”) with Skyvera, LLC (the “Purchaser”), and in connection with the Cases, and pursuant to bid procedures approved by the Court, on March 7, 2023, the Debtors held an auction (the “Auction”) under Section 363 of the US Bankruptcy Code relating to the disposition of substantially all of the Debtors’ assets. The winning bid at the Auction was submitted by the Purchaser, which agreed to pay cash consideration in the amount of $6,780,062. On March 10, 2023, the Sellers and the Purchaser executed an amended and restated Asset Purchase Agreement (the “Purchase Agreement”), reflecting the cash purchase price of $6,780,062 resulting from the Auction. Pursuant to the Purchase Agreement, the Purchaser agreed to purchase substantially all of the assets of the Sellers (such assets, the “Purchased Assets,” and such transaction, the “Asset Sale”). The Purchased Assets include, among other things, all rights of the Sellers under the Assumed Contracts and Assumed Leases (as such terms are defined in the Purchase Agreement), tangible personal property, intellectual property rights, books and records and goodwill, but excludes all Excluded Assets (as such term is defined in the Purchase Agreement), including all cash.

On March 15, 2023, the Court entered an order authorizing the Asset Sale pursuant to the terms of the Purchase Agreement. On March 24, 2023, the Asset Sale closed, thereby completing the disposition of substantially all of the Company’s assets. As identified in the Debtors’ Combined Disclosure Statement and Chapter 11 Plan of Liquidation (the “Plan”), filed with the Court on March 21, 2023, and subject to Court approval, the Company anticipates that there will be no proceeds available for distribution to the Company’s stockholders and that the Company’s outstanding securities shall be cancelled upon confirmation of the Plan.  Nothing herein is intended to act as a solicitation of the Plan. 

Except as otherwise specifically stated herein, the description and disclosures presented elsewhere in this Form 10-K reflect the Company’s business as of December 31, 2022, prior to the consummation of the Asset Sale. As a result of the Asset Sale, the Company no longer has any operations, other than those relating to the wind down of its business and completion of the Chapter 11 process.

CAUTIONARY INFORMATION REGARDING TRADING IN THE COMPANY’S SECURITIES

Holders of the Company’s equity securities will likely be entitled to no recovery on their investment following the Cases, and recoveries to other stakeholders cannot be determined at this time. The Company cautions that trading in the Company’s securities given the pendency of the Cases is highly speculative and poses substantial risks. Trading prices for the Company’s securities may bear little or no relationship to the actual value realized, if any, by holders of the Company’s securities in the Cases. Accordingly, the Company urges extreme caution with respect to existing and future investments in its securities.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this annual report on Form 10-K and in certain documents incorporated by reference constitute “forward-looking statements” for purposes of federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example, statements about:

The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” elsewhere in this report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by forward-looking statements. Some factors that could cause actual results to differ from those expressed or implied by forward-looking statements include:

PART I

Item 1. Business

Company History and Certain Recent Developments

We were incorporated, in Delaware, as Pensare Acquisition Corp, a special purpose acquisition company (“SPAC”) on April 7, 2016 for the purpose of entering into one or more mergers, share exchanges, asset acquisitions, stock purchases, recapitalizations, reorganizations or other similar business combinations with one or more target businesses.

On April 7, 2020 (the “Computex Closing Date”), we consummated a business combination transaction (the “Computex Business Combination”) in which we acquired Stratos Management Systems, Inc. (“Computex”), a private operating company that does business as Computex Technology Solutions. In connection with the closing of the Computex Business Combination, the Company changed its name to American Virtual Cloud Technologies, Inc.

On December 1, 2020 (the “Kandy Closing Date”), we acquired the Kandy Communications business (hereafter referred to as “Kandy” or “Kandy Communications”) from Ribbon Communications, Inc. and certain of its affiliates (“Ribbon”), by acquiring certain assets, assuming certain liabilities and acquiring all of the outstanding membership interests of Kandy Communications LLC.

On September 16, 2021, the Company announced that as a result of a decision by the Company’s Board of Directors to explore strategic alternatives previously announced on April 7, 2021, the Board had authorized the Company to focus its strategy on acquisitions and organic growth in its cloud technologies business as well as to explore strategic opportunities for its IT solutions business, including the divestiture of Computex. The Company believed that such changes would allowhave allowed it to optimize resource allocation, focus on core competencies, and improve its ability to invest in areas of maximal growth potential.

On December 2, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with Monroe Capital Management Advisors, LLC and certain affiliated entities (“Monroe”) for a $27 million term loan facility (or the “Credit Facility”), part of which was used to pay off amounts owing under a prior credit agreement with Comerica Bank (the “Prior Credit Agreement”) which was assumed as part of the Computex Business Combination. The remainder of the proceeds from the Credit Agreement was to be used for working capital and general business purposes. The terms of the Credit Agreement are discussed in Note 9 in the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K.

On January 27, 2022, the Company announced that it had executed a definitive agreement to sell Computex, and on March 15, 2022, the sale of Computex was consummated, completingwhich completed the Company’s transition to a pure-play cloud communications and collaboration company, centered on theits Kandy platform. As a resultIn connection with the then pending sale of Computex, Computex iswas classified as held for sale as of December 31, 2021 and its operations arewere separated and classified as discontinued operations. In connection with the planned sale of Computex, we recorded a noncash goodwill impairment charge of $32.1 million during the year ended December 31, 2021 (“Fiscal 2021”) which represented the excess of the carrying value of the Computex reporting unit over the expected sale proceeds less costs to sellThe discussions in this Form 10-K primarily focuses on the Company’s corporate activities and its Kandy segment. Net proceeds from the sale of Computex, after payment of closing obligations and certain indebtedness are beingother obligations were used for working capital and general business purposes.

In addition, as more fully discussed in Note 10 in the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K, during the fourth quarter of Fiscal 2021, the Company completed the sale of certain securities, including the sale of common stock, preferred stock and warrants. In connection with the sale of these securities, the Company also completed certain share registrations. Two of the five series of warrants were exercised soon after they were issued resulting in proceeds of approximately $5.0 million during Fiscal 2021On August 25, 2022, the Company announced that it had retained Northland Capital Markets to advise the Company in connection with a comprehensive strategic review process that could lead to the sale of the Company or of selected assets.

Subsequent to December 31, 2021, and as more fully discussed in Note 18 in the Notes to our Consolidated Financial Statements, the Company sold additional securitiesDuring 2022, the Company continued to explore strategic opportunities, including the rationalization of resource allocation and core competencies. Further, the Company took actions that it believed resulted in significant cost savings. Such savings were generated from selective reductions in workforce and negotiated conversions of certain material vendor support costs from fixed to variable, thereby eliminating certain cost burdens related to unused capacity. In addition, the Company obtained strategic and operating restructuring support services of certain capital advisors.

Additionally, during 2022, the Company projected and announced that it would need additional capital to fund its operations including research & development and capital investment requirements until the Company scaled to a revenue level that would permit cash self-sufficiency. Such factors raised substantial doubt about the ability of the Company to continue as a going concern. The projection was based on the Company’s forecasts regarding product sales and service, cost structure, cash burn rate and other operating assumptions.

On January 11, 2023, the Debtors filed the Cases as voluntary petitions under Chapter 11 in the Court. The respective Case numbers for each of the Debtors are 23-10020, 23-10021 and 23-10022. However, the Cases are being jointly administered under Case number 23-10020. The Debtors are continuing to operate their businesses as “debtors-in-possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the US Bankruptcy Code and orders of the Court. To ensure their ability to continue operating in the ordinary course of business, the Debtors filed various “first day” motions with the Court requesting customary relief, including the authority to pay employee wages and benefits, that have enabled the Debtors to continue to operate their business during the pendency of the Chapter 11 proceedings without material disruption to their ordinary course operations.

Our BusinessOn February 14, 2023, the Sellers entered into the Stalking Horse APA with the Purchaser, and in connection with the Cases, and pursuant to bid procedures approved by the Court, on March 7, 2023, the Debtors held the Auction under Section 363 of the US Bankruptcy Code relating to the disposition of substantially all of the Debtors’ assets. The winning bid at the Auction was submitted by the Purchaser, who agreed to pay cash consideration of approximately $6.8 million.

On March 10, 2023, the Sellers and the Purchaser executed the Purchase Agreement, which is substantially the same as the Stalking Horse APA, except that it reflects the cash purchase price of approximately $6.8 million resulting from the Auction. Pursuant to the Purchase Agreement, the Purchaser agreed to purchase the Purchased Assets, consisting of substantially all of the assets of the Sellers. The Purchased Assets include, among other things, all rights of the Sellers under the Assumed Contracts and Assumed Leases that are defined in the Purchase Agreement, tangible personal property, intellectual property rights, books and records and any goodwill, but excludes cash, accounts receivable and certain other assets. Under the Purchase Agreement, the Purchaser is expected to acquire the Purchased Assets for a purchase price (the “Purchase Price”) consisting of (i) cash of approximately $6.8 million, subject to certain adjustments (including a reduction by the amount, if any, by which the deferred revenues of the Sellers as of the date of the closing of the Purchase Agreement exceeds the deferred revenues of the Sellers as of the date of the Purchase Agreement), and (ii) the Purchaser’s assumption of certain liabilities of the Sellers.

On March 15, 2023, the Court entered an order authorizing the Asset Sale pursuant to the terms of the Purchase Agreement. On March 24, 2023, the Asset Sale closed, thereby completing the disposition of substantially all of the Company’s assets. As identified in the Debtors’ Combined Disclosure Statement and Chapter 11 Plan of Liquidation (the “Plan”), filed with the Court on March 21, 2023, and subject to Court approval, the Company anticipates that there will be no proceeds available for distribution to the Company’s stockholders and that the Company’s outstanding securities shall be cancelled upon confirmation of the Plan.  Nothing herein is intended to act as a solicitation of the Plan.

Reverse Stock Split and Stock Exchange

On September 30, 2022, the Company filed a Certificate of Amendment of the Company’s Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Certificate of Amendment”), which effected, upon filing on September 30, 2022 (the “Effective Stock Split Date”), a one-for-fifteen reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock. In connection with the Reverse Stock Split, the CUSIP number (Committee on Uniform Securities Identification Procedures number) for the Company’s common stock changed.

As a result of the Reverse Stock Split, each share of the Company’s common stock issued and outstanding immediately prior to the Effective Stock Split Date was automatically reclassified as and converted into one-fifteenth (1/15) of a share of the Company’s common stock. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the Reverse Stock Split resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the Reverse Stock Split. Instead, stockholders who would otherwise have been entitled to fractional shares of the Company’s common stock became entitled to receive cash payments in lieu of such fractional shares.

On January 25, 2023, the Company’s securities ceased trading on The Nasdaq Stock Market (“Nasdaq”) as the Company did not meet the requirements for continued trading thereon. Currently, the Company’s securities trade on the Pink sheets, an over-the-counter (OTC) market.

The Business

The description of the Company’s business contained herein reflects the Company’s operation of its business prior to the completion of the Asset Sale on March 24, 2023. As a result of the Asset Sale, the Company no longer has any operations, other than those relating to the wind down of its business and completion of the Chapter 11 process.

The Kandy cloud communications platform is a cloud-based, real-time communications platform, offering proprietary unified communications as a service (“UCaaS”), communications platform as a service (“CPaaS”), contact center as a service (“CCaaS”), Microsoft Teams Direct Routing as a Service (“DRaaS”), and SIP Trunking as a Service capabilities. Kandy is one of the largest pure-play providers of UCaaS, CCaaS, CPaaS and Direct Routing as a Service (DRaaS) for enterprise customers (“STaaS”).

As a provider of cloud-based enterprise services, Kandy deploys a global carrier grade cloud communications platform that supports the digital and cloud transformation of mid-market and enterprise customers across virtually any device, on virtually any network, in virtually any location. The Kandy platform is based on a powerful, proprietary multi-tenant, highly scalable, and secure cloud platform that includes pre-built customer engagement tools, based on web real-time communications technology (“WebRTC technology”) that enables frictionless communications. Further, we support. Further, Kandy supports rapid service creation and multiple go to market models including white labelling, multi-tier channel distribution, enterprise direct, and self-service via ourits SaaS (software as a service) web portals.

Our cloud-based, real-time communications platform,

Kandy’s cloud-based, real-time communications platform enables service providers, enterprises, software vendors, systems integrators, partners and developers to enrich their applications and their services with real-time contextual communications empowering the API (Application Programming Interface) economy. With Kandy’s platform, companies of various sizes and types can quickly embed real-time communications capabilities into their existing applications and business processes, thereby providing a more engaging user experience.

While the cloud communications business is focused on highly complex, medium and large enterprise deployments, the customer experience is augmented by our managed services capabilities. In addition, our strategic partnerships with companies such as AT&T, IBM/Kyndryl, and Etisalat, give us access to a marquee customer base and the ability to sell end -to -end solutions.

Growth Strategy

The acquisition of Kandy has given us the opportunity to provide a full suite of UCaaS, CPaaS,Computex, sold in March 2022 and classified within discontinued operations, is a leading multi-brand technology solutions provider to large global customers, providing a comprehensive and integrated set of technology solutions, through its extensive hardware, software and CCaaS products to serve the rapidly growing cloud communications market.  Customers today demand a highly reliable, secure, and scalable communications platform along with a world class customer experience.

With demand for cloud technology increasing, we believe that the already sizable total addressable market (“TAM”) for cloud communications is on track to continue to expand and we believe that we are positioned to monetize mega trends in enterprise cloud communications, gain market share as a premier white-label cloud communications provider, checking the CPaaS, CCaaS, UCaaS and DRaaS boxes, while also capitalizing on our direct to enterprise capabilities (for example, Tier 1 support) to sell through our partners or sell directly.

Certain areas of our growth plan, which also includes continued investment in research and development, are as follows:

Key Trends Affecting Our Business

We believe the following key trends present growth opportunities for our business:

Additional growth opportunities for our business include:

Successor/Predecessor References

In the Computex Business Combination, AVCT was considered the acquirer and Computex was considered the acquiree and the Predecessor for accounting purposes. The Computex Business Combination, which was accounted for using the acquisition method of accounting, reflects a new basis of accounting that is based on the fair value of the net assets acquired and liabilities assumed. In the consolidated financial statements and elsewhere in this annual report on Form 10-K, we distinguish between the entity that existed before the Computex Closing Date (“Predecessor”) and the entity that existed on and after such date (“Successor”).

Major customers

All segments (Kandy and Computex)

The five top customers during Fiscal 2021 accounted for 17% of revenues. The top five customers during the Successor period April 7, 2020 to December 31, 2020 accounted for 24% of total revenue. No customer accounted for more than 10% of total revenue during the year ended December 31, 2021 nor during the Successor period April 7, 2020 to December 31, 2020.

Major customers

Kandy only

The five top customers during Fiscal 20212022 accounted for 6879% of total Kandy revenues. ThreeFour customers accounted for more than 10% of total revenue during the year ended December 31, 2021, accounting for $911.98 million of total Kandy’s revenue.

Competition

Kandy primarily competes with technology and cloud providers such as 8X8, RingCentral, Vonage, Twilio, Nice and Five 9, among others. However, Kandy differentiates itself from its competitors largely by the nature of its route to market - its platform is a proprietary white label, and global cloud platform that supportsupports onea single or a multi-tier distribution via thea CSP (communications service provider), VAR (value-added reseller) or ISV (independent software vendor) brand.  Further, in addition to being a true multi-tenant platform, Kandy supports a BYOD (bring your own data) and BYOC (bring your own carrier) model while providing both a light weight and heavy weight OSS/BSS (Ordering/Billing) system and automation integration with its channel partners.  Lastly, the Kandy platform brings a ubiquitous experience across UCaaS, CCaaS, and CPaaS versus most of the competition who play in one or two of these communications market verticals.

International Operations and Segments

TheDuring 2021, the Company’s operated reportabletwo segments in Fiscal 2021 were, Computex and Kandy. With the sale of Computex during the first quarter of 2022, the Company began operating as one reportable segment beginning in the second quarter of 2022. At December 31, 20212022, approximately 11070 associates were employed in our international operations. All such international employees were employed in our Kandy segment.

Research and Development

Through Kandy, we incurhave incurred software development costs to enhance, improve, expand and/or upgrade our proprietary software in an agile software environment with releases broken down into several iterations called sprints. These development activities arehave been performed by internal staff primarily located outside of the USas well as by certain contractors.

Through our Kandy R&D team, we focus our research and development efforts have been focused, in part, on building a carrier-grade communications platform, middleware, software application clients and believe that our future success depends, in part, on our ability to continue to innovate and sustain a competitive differentiation. Therefore, our research and development focuses on deploying with a focus on next generation software technologies, making and frictionless communications more frictionless, and supportingwith multiple go-to-market strategies, including channel and direct sales models.

As of December 31, 20212022, our research and development team consisted of approximately 6531 associates (excluding contractors). All of our research and development associates are employed by Kandy.

Sales and Marketing

We targethave been targeting customers of varying sizes in both the private and public sector and develophave developed relationships with them through direct marketing efforts as well as through strategic relationships with our technology partners.

We acquire new account relationships through face-to-face field sales, through relationships with our partners and through targeted direct marketing efforts that aim to increase awareness of our solutions.

Our sales representatives are generally compensated through a combination of fixed and variable compensation. Variable compensation or commission becomes the primary basis of compensation as sales representatives gain more experience.

Proprietary Rights

We relyhave relied on a combination of copyrights, patents, trade secrets, trademarks, and contractual provisions to protect the proprietary rights of our products, processes and technology. In addition, we sometimes enterhave, at times, entered into confidentiality and assignment-of-rights agreements with our employees, consultants and customers and limithave limited access to, and distribution of, our proprietary information. We licenselicensed our proprietary products to our customers under license agreements that we believe contain appropriate use and other restrictions. However, despite our efforts to safeguard our proprietary rights, we can provide no assurance that we will be able to successfully deter misappropriation or unauthorized third-party use of such rights. As is the case with any software company, safeguarding unauthorized use of our software is difficult, and piracy could become a problem. In addition, if we are engaged in transactions in countries where intellectual property laws are not well developed or are not well enforced, our efforts to protect our proprietary rights may not be effective. Enforcing our proprietary rights in the U.S. and abroad and any litigation to enforce such rights, can result in significant costs and can divert resources, which could cause a material adverse effect on our business, financial condition, results of operations or cash flows.

As the number of solutions available in the marketplace increases and solution functionality continues to overlap, software companies may increasingly become subject to claims of infringement or other misappropriation of intellectual property. Third parties may assert infringement or misappropriation claims against us relating to our software, processes or technology. Following up such claims, whether or not they have merit, can be time-consuming and can result in costly litigation, divert management’s attention away from operations or cause delays in our business or require us to enter into royalty or licensing arrangementshave other negative consequences. Defending such claims, entering into royalty or licensing agreements, or adverse determinations in proprietary rights litigation could have a material adverse effect on our business, results of operations, cash flow and financial condition.

COVID-19

COVID-19 continues to significantly impact local, regional, and global economies, businesses, supply chains, production and sales across a range of industries. The extent of its impact on our operational and financial performance is uncertain and difficult to predict and we remain cautious about the global recovery.

To protect the health and safety of our employees, our daily execution has evolved into a largely virtual model. However, we have found ways to continue to engage with and assist our customers and partners as they workworked to navigate the current environment. We will continue to monitor the current environment and may take further actions that may be required by federal, state or local authorities or that we determine to be in the interests of our employees, customers, and partnerschanged environment.

Human Capital

Our core values – Integrity, innovation, delighting our clients, diversity and teamwork are communicated to our employees onupon joining our company. and weWe strive to maintain and demonstrate these values to our associates in the decisions we make and the actions we take. We believe one of our greatest assets is our people and believe adherence to such policies playplays a key role in the success of our company.

Integrity – We strive to earn the trust of our customers, partners, and associates through honesty, openness, and ethical, and fair behavior. We respect everyone and believe we should treat others as we expect to be treated.

Innovation - We are committed to continuous progress, never settling for yesterday’s solutions or successes.

Delighting our clients – We are committed to delighting our clients with exceptional and personalized services.

Diversity – We believe it takes people with different ideas, experiences, strengths, interests and backgrounds to succeed.

Teamwork – We understand that we achieve everything together and are accountable to each other for our results.

AtOn December 31, 20212022, our employee base stood at approximately 356127 employees worldwide, of which more than 30% were employed in our international operations. At March 15, 2022, following the sale of Computex, our employee base stood at approximately 175 employees worldwide, of which more than 6355% were employed in our international operations. We have offices in Canada, Mexico, and the United States, as well as representatives in the United Kingdom, Israel and the United Arab Emirates. None of our employees are represented by unions and we consider the relationships with our employees to be good. As of December 31, 20212022, women represented 1926.17% of our workforce. TheDue in large part to a scaling back in the Company’s operations during Fiscal 2022, the attrition rate in Fiscal 20212022 was 1944.86%.

As of December 31, 20212022, the composition of our employee base was as follows:

But for the Computex employees, the above table also approximates our employee base as of March 15, 2022, after the sale of Computex.

We offer fair and competitive compensation and benefit packages to our employees that include base salary, incentives, adequate paid time off and various health insurance plan options. To protect the health and safety of our employees and others, in response to COVID-19, our daily execution has evolved into a largely virtual model. We support the development of our employees by reimbursing them for certain continuous education programs. COVID-19 has changed the way people work and we have endeavored to facilitate an environment that allows our employees to work from where they are and have adopted hybrid options. We recognize the importance of remaining flexible and agile in the current environment with respect to the needs of our employees.

Backlog

Deferred revenue on our consolidated balance sheet, which relate to payments received but for which the related performance obligations have not yet been performed, was $3.3 million at December 31, 2021, of which $3.2 million relates to the Computex reporting unit which was classified as held for sale at December 31, 2021 and was sold on March 15, 2022. These amounts primarily relate to payments received that were contractually due, in advance of providing the products or performing the services. The related performance obligations for such payments are expected to be performed, and the related revenue recognized in the applicable company’s financial statements, within 12 months of the reporting date, most of which will be recognized as revenue by the buyer of Computex after the sale of Computex.

Further, we allocate a contract’s transaction price to each distinct performance obligation and recognize the revenue when, or as, the performance obligations are satisfied. As of December 31, 2021, total transaction price for remaining performance obligations associated with non-cancelable contracts longer than 12 months that are expected to be recognized over future periods by the Computex segment was approximately $27.9 million, most of which will be recognized as revenue by the buyer of Computex after the sale of Computex.

Seasonality

Except for Computex’s hardware revenue, the Company’s revenue is not considered to be seasonal. Computex’s hardware revenue tends to be seasonal with higher revenues occurring in the fourth quarter of each year. As previously indicated, Computex was sold in the first quarter of 2022.

Available Information

Our website address is http;//www.avctechnologies.com. Our common stock and public warrants are registered under the Securities Exchange Act of 1934 (the “Exchange Act”) and we have reporting obligations, including the requirement to file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual report contain financial statements that are audited and reported on by our independent registered public accountants. These filings are available to the public via the Internet on our website and at the SEC’s website located at http://www.sec.gov. You may also read and copy any document that we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549. For more information, please call the SEC at 1-800-SEC-0330. You may request a copy of our filings with the SEC (excluding exhibits) at no cost by writing or telephoning us at the following address or telephone number:

American Virtual Cloud Technologies, Inc.

1720 Peachtree Street

Suite 629

Atlanta, GA 30309

Tel: (404) 239-2863

We areThe Company’s status as an emerging growth company (“EGC”) as defined in the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”) and will remain an EGC for up to five years. However, if our non-convertible debt issued within a three-year period exceeds $1.0 billion or our total annual revenues exceed $1.07 billion or the market value of our ordinary shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, we would cease to be an EGC as of the following fiscal year. As an EGC, we have elected, under Section 107(b) of the JOBS Act, to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards, ended on December 31, 2022.

Item 1A. Risk Factors

An investment in our common stock involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Annual Report on Form 10-K, before making a decision to invest in our common stock. If any of the following events occur, our business, financial condition and operating results may be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Bankruptcy

We have sold substantially all of our assets as part of our Chapter 11 bankruptcy process, and we anticipate that our outstanding securities will be cancelled, without any proceeds being available for distribution to our stockholders.

On March 24, 2023, we completed the Asset Sale and disposed of substantially all of our assets.  As identified in the Debtors’ Combined Disclosure Statement and Chapter 11 Plan of Liquidation (the “Plan”), filed with the Court on March 21, 2023, and subject to Court approval, the Company anticipates that there will be no proceeds available for distribution to the Company’s stockholders and that the Company’s outstanding securities shall be cancelled upon confirmation of the Plan.

We may not be able to obtain confirmation of the Plan. 

To complete our Chapter 11 bankruptcy process, we must meet certain statutory requirements with respect to the adequacy of disclosure with respect to the Plan, solicit and obtain the requisite acceptances of such Plan and fulfill other statutory conditions for confirmation of such Plan.

We may be subject to claims that will not be discharged in the Chapter 11 Cases.

The US Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from, among other things, substantially all debts arising prior to consummation of a plan of reorganization. With few exceptions, all claims against us that arose prior to the filing of the Cases or before consummation of a plan of reorganization (i) would be subject to compromise and/or treatment under a plan of reorganization and/or (ii) would be discharged in accordance with the US Bankruptcy Code and the terms of a plan of reorganization. Subject to the terms of a plan of reorganization and orders of the Bankruptcy Court, any claims not ultimately discharged pursuant to a plan of reorganization could be asserted against us and may have an adverse effect on our liquidity and financial condition.

Risks Related to Our Business and Industry

Our operations and revenue will be substantially reduced following the sale of Computex, which may negatively impact the value and liquidity of our common stock.

Upon the sale of Computex, our operations will be limited to our Kandy Business, unless the Company acquires oneWhile the Company remains a or more companies. There can be no assurance that we will be successful at growing our Kandy Business or that the Kandy business will be successful or that we will be able to make acquisitions. A failure by us to grow our Kandy Business or to secure additional sources of revenue following the sale of Computex could negatively impact the value and liquidity of our common stock.

Wepublic company, it will continue to incur the expense of complying with public company reporting requirements even though its operations have been reduced following the sale of Computex.

After the sale of Computex, weWe will continue to be required to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended, even though compliance with such reporting requirements may be economically burdensome.

General economic weakness may harm the Company’s operating results and financial condition.

The Company’s results of operations are largely dependent upon the state of the economy. Global economic weakness and uncertainty may result in decreased sales, gross margin, earnings and/or growth rates. In addition, material changes in trade agreements between the U.S. and other countries may, for example, negatively affect the Company’s ability to purchase products, its ability to import or export products, and could negatively affect pricing and product availability. Adverse economic conditions could negatively affect demand for the Company’s products and services and could impair the ability of customers to pay for such products and services.

The Company’s business could be adversely affected by the

The Company’s business could be adversely affected by COVID-19 outbreak.

Commencing in December 2019, the COVID-19 outbreak began spreading throughout the world, including the first outbreak in the US in February 2020. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. COVID-19 has disrupted and continues to significantly disrupt local, regional, and global economies and businesses, and is disrupting supply chains and affecting production and sales across a range of industries.

In response to the COVID-19 outbreak, the US governments and governments in many countries have taken preventative or protective actions, such as imposing restrictions on travel and business operations. Temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily. These actions may continue to expand in scope, type and impact, and such measures, while intended to protect human life, are expected to have significant adverse impacts on domestic and foreign economies. It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, which may result in a global recession. The effectiveness of economic stabilization efforts being taken to mitigate the effects of the COVID-19 outbreak is currently uncertain.

A public health pandemic, including COVID-19, poses the risk that the Company, its affiliates, employees, suppliers, customers and others may be prevented from conducting business activities for an indefinite period of time, due to shutdowns, travel restrictions and other actions that may be requested or mandated by governmental authorities. Such actions may prevent the Company from accessing the facilities of its customers, thereby affecting its ability to deliver products and provide services. In addition, the Company’s customers may choose to delay or abandon projects.

The Company has modified its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and may take further actions as may be required by governmental authorities or that the Company determines to be in the best interests of its employees, customers, partners, and suppliers.

If such conditions continue for a significant period of time, the Company’s liquidity could be negatively impacted and it may be required to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels and meet its financial obligations. The Company’s ability to obtain any required financing is not guaranteed and is largely dependent upon evolving market conditions and other factors. The Company cannot assure you that it would be able to take any of these actions on terms that are favorable or at all, or that these actions would be successful in permitting the Company to meet its scheduled debt service obligations or satisfy its capital requirements, or that these actions would be permitted under the terms of its existing or future debt agreements, including the Company’s Comerica Credit Agreement (the “Credit Agreement”).

Even after.

Even though the COVID-19 outbreak has subsided, the Company may continue to experience significant impacts to its business as a result of the global economic impact of the COVID-19 outbreak, including any economic downturn or recession or other long-term effects that have occurred or may occur in the future. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers, employees and vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our financial condition and/or results of operations is uncertain.

The Company has customer concentration, and if the Company loses one or more of its large volume customers, its earnings may be materially affected.

Following the Company’s sale of the Computex business in March 2022, it hashad significant concentration of customers. The five top customers of the Company’s Kandy business, which is the Company’s sole business segment following the sale of Computex, accounted for 68% of the revenues of that business segment during Fiscal 2021. There are inherent risks whenever a significant percentage of total revenues are concentrated with a limited number of customers. Revenues from our largest customers may fluctuate from time to time based on numerous factors, including market conditions, which may be outside of our control. Contracts between the Company and its customers for the provision of products and/or services are generally in the form of non-exclusive agreements that do not contain volume purchase commitments, and are terminable by either party upon 30 days’ notice. The loss of one or more of the Company’s largest customers, the failure of such customers to pay amounts due, or a material reduction in sales dollars by such customers could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.

Changes in the IT industry, customers’ usage, IT procurement, and/or rapid changes in product standards may result in reduced demand for technology solutions and services that the Company sells.

The Company’s results of operations are influenced by a variety of factors, including the condition of the IT industry, shifts in demand for, or availability of IT hardware, software, peripherals and services. In addition, the Company’s results of operations may be influenced by industry introductions of new products, upgrades, changes in the methods of distribution, and changes in the nature of IT consumption and procurement. Further, the industry is characterized by rapid technological change and frequent introduction of new products, product enhancements and new distribution methods or channels, each of which can decrease demand for current products or render them obsolete. In addition, the proliferation of cloud technology, infrastructure as a service (IaaS), software as a service (SaaS), platform as a service (PaaS), software defined networking, or other emerging technologies could reduce the demand for products and services that the Company sells. Introduction of certain cloud offerings could influence the Company’s customers to move workloads to other cloud providers, which may reduce the procurement of products and services from the Company. With the significant investment in personnel, any of these shifts or changes could adversely impact the Company’s financial position due to competition or changes in the industry or improper focus or selection of the products and services that the Company sells. Also, if the Company fails to react in a timely manner to such changes, its results of operations could be adversely affected.

Fluctuations in oil and gas prices could directly or indirectly impact the Company’s customers, which could have a material adverse impact on the Company’s financial condition, results of operations and cash flows.

Demand for the Company’s products and services depends, in part, on expenditures by its customers. These expenditures are generally dependent on customers’ views of future oil and natural gas prices, which are sensitive to customers’ views of future economic growth. Declines, as well as anticipated declines, in oil and gas prices could result in project modifications, delays or cancellations, general business disruptions, and delays in payment of, or nonpayment of, amounts that are owed to the Company. These effects could have a material adverse effect on the Company’s financial condition, results of operations and cash flows. The oil and gas industry has historically experienced periodic downturns, which have been characterized by diminished demand for the Company’s products and services as well as downward pressure on the prices it charges. A significant downturn or sustained market uncertainty could result in a reduction in demand for the Company’s services and could adversely affect its financial condition, results of operations and cash flows.

The Company may fail to innovate or create new solutions which align with changing market and customer demand.

As a provider of a comprehensive set of solutions, which involves the offering of bundled solutions consisting of direct IT sales, advanced professional and managed services, the Company expects to encounter some of the challenges, risks, difficulties, and uncertainties frequently encountered by companies providing bundled solutions in rapidly evolving markets. Some of these challenges include the Company’s ability to increase the total number of users of its services, its ability to adapt to meet changes in its markets as well as competitive developments. The Company’s personnel must continually stay current with vendor and marketplace technology advancements and continue to create solutions which can integrate evolving vendor products and services. Further, the Company may provide customized solutions and services that are solely reliant on its own marketing, design and fulfillment services, and the Company may lack the skills or personnel to execute. The Company’s failure to innovate and provide value to its customers may erode its competitive position and market share and may lead to a decrease in revenue and financial performance.

In all of the Company’s markets, some of its competitors have greater financial, technical, marketing, and other resources than the Company does. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies, and customer requirements. Many current and potential competitors engage in more extensive promotional marketing and advertising activities, offer more attractive terms to customers, and adopt more aggressive pricing and credit policies than the Company does. The Company may not be successful in achieving revenue growth which may have a material adverse effect on its future operating results as a whole.