AmeriCrew Inc. - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended: June 30, 2023

For the transition period from:

Commission File Number: 000-56176

Issuer's telephone number: (201) 387-7700

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

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 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 Exchange Act. ☐

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

As of August 15, 2023 the issuer had 15,784,424 shares of its common stock, $0.001 par value per share, outstanding.

AMERICREW, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

AMERICREW, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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The accompanying notes are an integral part of these condensed consolidated financial statements.

AMERICREW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMERICREW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED)

 The accompanying notes are an integral part of these condensed consolidated financial statements.

AMERICREW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements.

AMERICREW, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – Change in Fiscal Year

We changed our fiscal year-end from December 31 to September 30, effective September 30, 2022. Our results of operations, cash flows, and all transactions impacting shareholders deficit presented in this Form 10-Q are for the three and nine months ended June 30, 2023 and 2022, unless otherwise noted.

NOTE 2 – Business, Basis of Presentation and Significant Accounting Policies

Business

Americrew Inc. (the “Company”) was organized in New Jersey as Donald Utz Engineering, Inc. in 1991. The Company later changed its name to PhoneBrasil International, Inc.

The Company subsequently became inactive and ceased operations. On February 14, 2020, the Superior Court of New Jersey Equity Division appointed Custodian Ventures, LLC as the custodian for PhoneBrasil International, Inc., f/k/a Utz Technologies, Inc., Civil Action No. C-2-20, finding that Custodian Ventures, LLC had exhausted all reasonable means of serving the Summons and Complaint in the action to the officers and directors of PhoneBrasil International, Inc., f/k/a Utz Technologies, Inc., and thereby deemed to have served the Summons and Complaint pursuant to Rule 4:4-4(b)(3) and the officers and directors failed to answer or respond in the time allotted by Rule 1:20-6.2. There was no opposition.

On September 15, 2020, the Company issued 18,000,000 shares of $0.00001 par value common stock to Custodian Ventures, LLC in return for a reduction of $5,000 of the interest-free demand loans issued to the Company by Custodian Ventures, LLC.

On September 30, 2020, the Company filed a Restated Certificate of Incorporation which increased the authorized shares to 300,000,000 shares of common stock and 10,000,000 shares of preferred stock each with a par value of $0.000001 per share. The preferred shares are convertible to common shares at a ratio of 30 to 1.

On October 5, 2020, the Company issued 10,000,000 shares of Series A Preferred Stock to Custodian Ventures, LLC in return for a reduction of $10,000 of related party debt that had been extended to the Company.

Effective December 9, 2020, DR Shell LLC, a Delaware limited liability company (the “Buyer”) purchased from Custodian Ventures LLC (the "Seller"), 18,000,000 shares of the common stock of the Company, representing approximately 62% of the outstanding Common Stock of the Company, and (ii) 10,000,000 shares of Series A Convertible Preferred Stock of the Company, for a total purchase price of $245,000. The shares were acquired pursuant to a Stock Purchase Agreement, dated December 9, 2020 (the “SPA”), by and among the Seller, the Buyer, and David Lazar, then Chief Executive Officer of the Company and managing director of Custodian Ventures, LLC. Additionally, under the terms of the SPA, Mr. Lazar forgave $41,229 in related-party loans.

Under the terms of the SPA, effective December 9, 2020, Mr. Lazar resigned as the Chief Executive Officer, Treasurer, and Secretary of the Company, and Mr. Ross DiMaggio was appointed as the sole director, Chief Executive Officer, Treasurer, and Secretary of the Company.

On August 12, 2021, the Company executed a Share Exchange Agreement with Mikab Corporation ("Mikab"). The Company exchanged 94.2% of its outstanding common stock for the capital stock of Mikab.

On August 12, 2021, the Company executed a Share Exchange Agreement with Mikab Corporation ("Mikab"). The Company exchanged 94.2% of the outstanding PhoneBrasil Common Stock for the capital stock of Mikab.

On September 13, 2021, the Company increased the authorized common stock to 1,650,000,000 shares.

On November 16, 2021, the Company filed a Second Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Amendment”) with the New Jersey Secretary of State pursuant to the New Jersey Business Corporation Act (the “NJBCA”). The Amendment made the following changes:

Following the Mikab acquisition (the "Acquisition"), in 2021 the Company changed its domicile from New Jersey to Delaware.

Under guidance of Accounting Standards Codification ("ASC") 805-10-55-11 through 15, Mikab has been identified as the acquirer for accounting purposes.

AmeriCrew and Mikab (together, the "Company") are each service companies engaged in the business of building a national infrastructure involving the installation of rural wireless telecommunication cables, upgrading wireless communications towers and other above-ground infrastructure.

The Company provides specialty infrastructure contracting services to market participants in the telecommunications industry throughout the United States. A portion of the Company’s workforce is staffed through a unique in-house program through which the Company hires and trains military veterans to provide construction and maintenance services to customers.

The Company’s operations are predominantly focused on its telecommunications infrastructure services business in the geographic area of New Jersey and Indiana.

The Company’s chief operating decision maker has been identified as the President , who reviews consolidated results when making decisions about allocating resources and assessing the performance of the Company. The President determined the Company operates under one reportable segment with two business units: Wireless and Fiber.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard Codification™” (the “Codification”) which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.

From an accounting perspective, the condensed consolidated financial statements of the combined entity represent a continuation of the financial statements of the accounting acquirer/legal acquiree. As such, the historical cost bases of assets and liabilities of the acquiring entity (the accounting acquirer/legal acquiree) are maintained in the consolidated financial statements of the merged company and the assets and liabilities (if any) of the acquired entity (the legal acquirer) are accounted for under the acquisition method. Results of operations of the acquired entity (the legal acquirer) are included in the financial statements of the combined company only from the acquisition date.

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve months following the date these financial statements are issued.

Because the Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about the Company’s ability to continue as a going concern. Therefore, the Company will need to raise additional funds and is currently exploring alternative sources of financing. Historically, the Company has raised capital through private placements of convertible debt and warrants and obtaining short-term loans from related parties, to finance working capital needs, and may attempt to raise capital through the sale of common stock or other securities and obtaining additional loans from related parties. There can be no assurance that the Company will be successful in raising future capital.

The Company had $146,652 in cash on hand as of August 15, 2023. The Company will need to raise additional capital to fund its operations for the next twelve months and to repay its short-term debt and the convertible promissory notes. A total of $2,485,000 of the senior secured promissory notes mature between October 4, 2023, and December 30, 2023 and a total of $838,000 of the senior secured promissory notes mature between September 30, 2024 and December 29, 2024.

Our liquidity is primarily derived from financing transactions and revenue from our contracts with customers, although management anticipates a larger proportion of our capital resources to be derived from financing transactions in future periods, particularly as we seek growth capital to fund our acquisition efforts in the next twelve months.

The Company is reliant upon completing one or more securities offerings in the future to continue its operations as planned and to meet its financial obligations as they become due. Because the Company was only able to raise $2,485,000 of the up to $15,000,000 sought in its prior private placement offerings which closed as of December 31, 2021, the Company launched a second offering of $7 million of convertible notes and warrants in August 2022, of which $838,000 was raised in 2022; this second offering expired on March 31, 2023. During June 2023, the Company entered into a Loan and Security Agreement with Thermo Communications Funding, LLC which provides for a $2,000,000 revolving line of credit facility. As of June 30, 2023, there was $1,780,018 outstanding under the revolving line of credit facility.

We believe substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from the date of issuance of our financial statements. The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

On June 9, 2023 the Company entered into  a secured loan agreement with a third party which caused a default in outstanding convertible notes issued by the Company from October 2021 to December 2022 (the “Prior Notes”). This default results in an increase to the interest rate of the Prior Notes from 8% to 18%. See Note 8. Loans Payable.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities as of the reporting date of these condensed consolidated financial statements. The most significant estimates relate to income taxes and contingencies. The Company bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these condensed consolidated financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

Principles of Consolidation

These condensed consolidated financial statements include the accounts of AmeriCrew, Mikab Corporation and AmeriCrew CE Services, LLC. These companies are the operating units of AmeriCrew and generate all of the revenues for AmeriCrew. AmeriCrew CE Services, LLC was formed on March 29, 2021, as a subsidiary of Mikab. All intercompany transactions are eliminated in consolidation.

Management’s Representation of Interim Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Company uses the same accounting policies in preparing quarterly and annual consolidated financial statements. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed, consolidated, or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to fairly present the financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the period ended September 30, 2022, as presented in the Company’s Transition Annual Report on Form 10-KT for the nine month transition period ended September 30, 2022 filed with the SEC on January 30, 2023 as amended.

Significant Accounting Policies

The following is a summary of significant accounting policies followed in the preparation of the accompanying condensed consolidated financial statements.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are stated at their full collectible value less an allowance for doubtful accounts for any receivables over six months old or which was deemed doubtful of collection. Accounts receivable balances that are still outstanding after the Company has used reasonable collection efforts are written off as uncollectible. From time to time, the Company uses its non-recourse factor arrangement to receive advances on approved invoices.

On January 28, 2022, Mikab entered into a non-recourse Factoring and Security Agreement (the “Factoring Agreement”) with Tower Cap LLC (the “Purchaser”), under which the Purchaser agreed to purchase selected Mikab accounts receivable (subject to a required reserve). The Purchaser retains the right to purchase such accounts as it deems appropriate. Under the Factoring Agreement, the amount advanced to Mikab varies by account debtor. The fees include interest ranging from 1.95% per month for accounts due in 30 days to 1.75% for accounts due in 90 days in addition to other fees which Mikab will be charged in the ordinary course of the relationship. The Purchaser also has a security interest (subject to that of the holders of the 2021 Notes described in Note 12) in all accounts receivable and other assets of Mikab. On June 8, 2023, the Factoring Agreement was terminated, requiring the Company to payout the entire balance of the factored receivables. Future collections from customers will be remitted to the Company, therefore the payment amount was recognized as a receivable from TowerCap of $785,205, which is included in accounts receivable as of June 30, 2023.

Revenue Recognition

The Company adopted Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers (“ASC 606”) as of January 1, 2019, using the modified retrospective method. This method allows the Company to apply ASC 606 to new contracts entered into after January 1, 2019, and to its existing contracts for which revenue earned through December 31, 2018, has been recognized under the guidance in effect prior to the effective date of ASC 606. The revenue recognition processes the Company applied prior to the adoption of ASC 606 aligned with the recognition and measurement guidance of the new standard, therefore adoption of ASC 606 did not require a cumulative adjustment to opening equity in 2019.

Under ASC 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized when performance obligations are satisfied, and the customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for goods or services.

Under the standard, a contract’s transaction price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identifies the contracts with a customer; (ii) identifies the performance obligations within the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when, or as, the Company satisfies each performance obligation.

Customers are billed as work is completed and accepted. Extended contracts are billed in segments as completed. The amount of unbilled work in process at the end of a period is immaterial to the financial statements taken as a whole. If a contract has been completed and accepted but not billed at the end of the year, the contract price is accrued as sales in the period completed.

Fixed assets, net

Fixed assets are carried at cost. Depreciation of the fixed assets is calculated on the straight-line method over estimated useful lives of five to fifteen years. Trucks and automobiles have estimated useful lives of seven to fifteen years, equipment has estimated useful lives of five to fifteen years and improvements have estimated useful lives of five to ten years.

Depreciation expense related to fixed assets amounted to approximately $18,084 and $43,694 for the three and nine months ended June 30, 2023, respectively, and $8,315 and $24,947 for the three and nine months ended June 30, 2022, respectively.

The Company reviews its long-lived assets, consisting of fixed assets, for impairment whenever events or circumstances exist that indicate the carrying amount of an asset or asset group may not be recoverable. The recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset or asset group to the future undiscounted cash flows expected to be generated by that asset group. If the asset or asset group is considered to be unrecoverable, an impairment loss is recorded to adjust the carrying amounts to the estimated fair value. No impairment expenses were recorded for the nine months ended June 30, 2023 and 2022.

Recapitalization Expenses

For the nine months ended June 30, 2022, the Company recognized non-recurring costs, associated with the merger transaction described above, of approximately $240,000.

Income (Loss) per Share

We compute basic income (loss) per common share by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. We compute diluted income (loss) per common share by dividing net income (loss) available to common shareholders by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumed exercise of warrants, and (3) the dilutive effect of other potentially dilutive securities. We exclude the potential dilutive effect of warrants and convertible instruments from the determination of diluted income (loss) per common share if the effect of including them would be antidilutive.

Income Tax

As a result of the stock transactions on August 12, 2021, the Company Subchapter S election has been terminated. As of that date forward the Company is be treated as a taxable C corporation. Separate short year tax returns for S and C Corporations were required to be filed for 2021.

The Company is a C Corporation for federal income tax purposes. Income taxes include U.S. federal, state, and local taxes, and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. These differences are primarily related to the allowance for doubtful accounts, prepaid expenses, and various accruals. Deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the years that include the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized. Deferred tax assets and liabilities are aggregated and shown as a net non-current amount on the accompanying consolidated balance sheet.

An uncertain tax position in a tax return is recognized in the consolidated financial statements when it is more likely than not that the position would be sustained upon examination by taxing authorities. A recognized tax position is then measured at the largest amount of benefit that has greater than a 50% likelihood of being realized upon ultimate settlement. Accounting provisions also require that a change in judgment that results in subsequent recognition, derecognition, or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the period in which the change occurs. The Company regularly evaluates the likelihood of recognizing the benefit from income tax positions taken in various federal and state filings by considering all relevant facts, circumstances, and information available.

The Company evaluates all significant tax positions. As of June 30, 2023, the Company does not believe that it has any significant tax positions that would result in additional tax liability, nor does it believe that there are any tax benefits that would increase or decrease within the next twelve months.

The Company’s policy is to include interest and penalties, if any, within the provision for taxes in the consolidated statement of operations. To date, there have been no interest or penalties charged in relation to unrecognized tax benefits.

The Company’s income tax returns are subject to examination by appropriate taxing authorities. As of June 30, 2023, the Company’s federal and state income tax returns for 2022 and 2021 remain open.

New Accounting Standards

In February 2016, the FASB issued new lease accounting guidance in ASU No. 2016-02, Leases-Topic 842, which has been codified in ASC 842, Leases. Under this new guidance, lessees are required to recognize for all leases (with the exception of short-term leases): 1) a lease liability equal to the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis and 2) a right-of-use asset which will represent the lessee’s right to use, or control the use of, a specified asset for the lease term. This standard was effective for AmeriCrew in the annual reporting period beginning after December 31, 2021. The new standard was adopted as of January 1, 2022, using the modified retrospective approach. As of June 30, 2023, a right of use operating lease asset of $652,092, a right of use finance lease asset of $690,937, an operating lease liability of $702,518 and a finance lease liability of $690,937 are recorded on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators and past due securities. The new standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and will be applied as a cumulative-effect adjustment to retained earnings. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements and intends to adopt the standard on October 1, 2023.

NOTE 3 - INCOME/(LOSS) PER SHARE

The following table set forth the computation of the Company’s basic and dilutive income/(loss) per common share:

Securities that were excluded from loss per share as their effect would be anti-dilutive due to the net loss position that could potentially be dilutive in future periods, or which were included in income per share, are as follows:

NOTE 4 – RELATED PARTY TRANSACTIONS

Brian Weis, the Company’s President and his family members own entities listed below (except for Novation Enterprises) which lease premises to AmeriCrew. Addtionally in the nine months ended June 30, 2022, the Company engaged in business with Novation Enterprises, an entity controlled by the Company’s  then Chief Executive Officer and current director. Amounts paid for related party transactions for the three and nine months ended June 30, 2023 and 2022 are as follows:

On September 30, 2022, the Company received a loan on equipment from Mr. Weis in the amount of $49,200. The Company has agreed to repay this loan over 24 months with 0% interest. The Company has recorded imputed interest expense at the current Applicable Federal Rates ("AFR").

NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following at the dates indicated:

NOTE 6 – LEASING ARRANGEMENTS

Mikab leases a commercial building, from Mikab Properties (a related party as described in Note 4), under a 20-year lease beginning October 1, 2009 and ending September 30, 2029, payable in monthly installments of $6,500. Mikab is required to carry insurance and pay for all needed repairs, maintenance and real estate taxes.

There are three other premises Mikab leases that are under five-year lease agreements payable in monthly installments of approximately $3,300 to 29 Aladdin Avenue Realty LLC, approximately $1,300 to 75 Second Street Realty LLC and approximately $1,300 to Mikab Realty LLC. Each has a 3% annual increase for the term of the leases.

In June 2023, Mikab entered into a 2-year operating lease for equipment, payable in monthly installments of $5,250, and a 5-year financing lease for equipment, payable in monthly installments of $7,746.

The Company has determined that its finance and operating lease right of use assets are valued at $690,937 and $652,092, respectively, as of June 30, 2023. The finance lease liability consists of $192,959 in current obligations and $497,978 non-current. The operating lease liability consists of $182,284 in current obligations and $520,234 non-current. The future minimum lease commitments are as follows as of June 30, 2023:

The following table summarizes supplemental information related to leases for the nine months ended June 30, 2023, and 2022:

The following summarizes other supplemental information about the Company’s leases as of March 31, 2023:

NOTE 7 – CONCENTRATION OF CREDIT RISK

The Company maintains cash balances in several financial institutions. Such balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $250,000 per institution. From time to time, the Company’s balances may exceed these limits.

For the nine months ended June 30, 2023, the Company had four major customers, which accounted for 84% of all sales, with one accounting for 28% of all sales. As of June 30, 2023, accounts receivable due from those customers accounted for 65% of accounts receivable, with  26% of accounts receivable from one customer. For the nine months ended June 30, 2022, three major customers accounted for 71% of all sales. As of June 30, 2022, accounts receivable due from those customers accounted for 60% of accounts receivable, including 22% of accounts receivable from one customer.

The Company had four major customers, which accounted for 84% of all sales, with the customer with the most sales accounting for 27% of all sales, for the three months ended June 30, 2023. Accounts receivable due from those customers accounted for 65% of accounts receivable, with the highest concentrated accounting for 26% of accounts receivable, as of June 30, 2023. For the three months June 30, 2022, four major customers accounted for 79% of all sales. Accounts receivable due from those customers accounted for 38% of accounts receivable, with the highest concentrated accounting for 14% of accounts receivable, as of June 30, 2022.

NOTE 8 – FAIR VALUE

The Company is required to disclose, in the condensed consolidated financial statements, the methods used to determine the fair value of financial assets and liabilities based on a hierarchy of three levels of input. Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to the Company as of and during the period.

The three levels of the fair value hierarchy under FASB ASC Topic 820, Fair Value Measurement, are described as follows:

Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Because of their short-term nature, the amounts reported in the condensed consolidated financial statements for cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities, and loans and notes payable approximated their respective fair values at June 30, 2023 and September 30, 2022.

NOTE 9 - INCOME TAXES

The income tax expense for the three and nine months ended June 30, 2023 and 2022 is $0 and $20,000, respectively.

The effective tax rate differs from the statutory Federal rate of 21% primarily because of the change in valuation allowance and the uncertainty of realizing a tax benefit from the Company’s Net Operating Losses (NOLs).

The primary components of the Company's net deferred tax assets and liabilities are as follows:

As of June 30, 2023 and September 30, 2022, the Company had approximately $3 million and $3 million, respectively, of federal NOL carryforwards available to offset future taxable income. Full valuation allowances have been established for Federal, state and local jurisdictions that reduce the Company’s net deferred tax assets to an amount that will, more likely than not, be realized. The uncertainty that may affect the realization of these assets is the ability of the Company to generate sufficient taxable income from its operations.

NOTE 10 – NOTES AND LOANS PAYABLE - RELATED PARTY

Notes Payable - Related Party

As of June 30, 2023 and September 30, 2022, the balances of notes payable related party were $436,833 and $370,429, respectively, inclusive of bridge loans and short term loans. Bridge loans bear an annualized interest rate of 12%. On December 31, 2022 all notes payable with related parties were amended to grant additional warrants and extend the maturity date to December 31, 2023. The notes payable to related parties are presented net of unamortized discount of approximately $138,000 and $192,000 as of June 30, 2023 and September 30, 2022, respectively.

The following related party notes were outstanding as of June 30, 2023:

Warrants issued on December 31, 2021 to holders of the notes were valued at $1.73 - $1.93. The fair value of each warrant is estimated on the date of issuance using the Black Scholes model based on the following inputs:

Additional warrants issued on December 31, 2022 to holders of the notes were valued at $1.57. The fair value of each warrant is estimated on the date of issuance using the Black Scholes model based on the following inputs:

The additional warrants had a calculated fair value of approximately $527,000 at issuance, as of December 31, 2022. Using the relative fair value method, the Company recognized the resultant debt discount and equity classified warrant in the amount of approximately $276,000 in connection with the notes payable to related parties. Amortization of the discount in connection with the related party notes was $137,890 for the three months ended June 30, 2023. As of June 30, 2023, the remaining unamortized discount associated with the notes was $137,889.

Loans Payable - Equipment, Related Party

As of June 30, 2023 and September 30, 2022, the balances of equipment loans payable with a related party were $33,561 and $49,200, respectively, of which $24,600 and $24,600 was classified as a current liability as of June 30, 2023 and September 30, 2022, respectively. The Company has agreed to repay this loan over 24 months with 0% interest, maturing in September 2024. The Company has recorded imputed interest expense at the current AFR of approximately $400 and $1,500 for the three and nine months ended June 30, 2023, respectively.

During the nine months ended June 30, 2023 and 2022, the Company received proceeds from related party loans of approximately $2,500 and $7,600, respectively.

Guarantee provided by Company’s President and Chief Operating Officer

In connection with the Loan Security Agreement entered into by the Company on June 9, 2023, the Company’s President and Chief Operating Officer, guaranteed the payment of any amounts borrowed by the Company and/or Mikab under the Line of Credit. Refer to Note 11 for further detail.

NOTE 11 – LOANS PAYABLE

Loans Payable - Stockholder

As of both June 30, 2023 and September 30, 2022, the balance of loans payable to stockholder were $464,078. The loans bear no interest until maturity on January 1, 2025. Interest after maturity is 10% per annum until fully repaid. The Company recognized imputed interest for the three months ended June 30, 2023 and 2022 of approximately $5,100 and $1,100, respectively, based on the then current AFR. The Company recognized imputed interest for the nine months ended June 30, 2023 and 2022 of approximately $15,700 and $2,300, respectively.

Loans Payable - Insurance

As of June 30, 2023 and September 30, 2022, the balance of loans payable insurance was $56,656 and $380,799, respectively, all of which is classified as a current liability. The total balance is comprised of two loans, maturing in July and August of 2023, respectively. The loans have an effective interest rate of 6.1% and 5.6%, respectively.

Loans Payable - Equipment

On February 16, 2023, the Company financed an equipment purchase of $38,475 with North Mill; Credit Trust, a non-related party. As of June 30, 2023, the balance of the loans payable equipment was $33,579. The loans payable equipment has payments of approximately $1,300 due monthly until maturity in July 2026, with an effective interest rate of approximately 13%.

Revolving Line of Credit

On June 9, 2023, the Company entered into a Loan and Security Agreement (the “Agreement”) with Thermo Communications Funding, LLC (the “Lender”) which provides for a $2,000,000 revolving line of credit facility (the “Line of Credit”) to be evidenced by a promissory note (the “Note”). Thermo Communications has agreed to waive any defaults to date.

Pursuant to the Agreement, amounts borrowed under the Line of Credit are secured by the assets of the Company and Mikab. The Agreement also establishes a “lockbox account” for the benefit of the Lender into which the Company and Mikab are obligated to deposit all collections from accounts receivable, after such amounts are required to be remitted as instructed by the Lender. Under the Agreement, the Company agreed to pay a non-refundable commitment fee equal to 2% of the Line of Credit, or $40,000. In addition, under the Agreement the Company is required to pay a monthly monitoring fee equal to 0.45% of the average outstanding principal balance of the Line of Credit. The Agreement contains customary representations and warranties, events of default and covenants in favor of the Lender. Pursuant to the Agreement and the Note, all future or contemporaneous indebtedness incurred by the Company, other than indebtedness expressly permitted thereunder, will be subordinated to the Line of Credit.

The Note bears interest at a rate equal to the lesser of (i) the maximum non-usurious rate permitted by applicable law, and (ii) the prime interest rate as reported on the Wall Street Journal plus 9.75% per annum, subject to a minimum interest rate of in 13.95%. The Note matures on June 9, 2024. The Note may be prepaid in whole, but not in part, by paying outstanding amounts thereunder plus a premium equal to 1% of the maximum amount of the Line of Credit, multiplied by the number of months remaining until maturity, divided by 12.

In connection with the Agreement, the Company entered into a Limited Recourse Guaranty with the Lender and Brian Weis, the Company’s President and Chief Operating Officer, pursuant to which Mr. Weis guaranteed the payment of any amounts borrowed by the Company and/or Mikab under the Line of Credit.

As of June 30, 2023, drawdowns on the revolving line of credit totaled $1,780,018. As of June 30, 2023, the company is not in compliance with the financial covenants related to the revolving line of credit facility.

During the nine months ended June 30, 2023 and 2022, the Company made repayments of loans payable of approximately $365,458 and $317,000, respectively.

NOTE 12 – CONVERTIBLE DEBT AND WARRANTS

During the fourth quarter of 2021, the Company sold $2,485,000 of senior secured convertible notes (the “Notes”) and five-year Class A Warrants to purchase 1,195,354 shares of the Company’s common stock at an exercise price of $1.9032 per share. It also issued 110,342 Placement Agent Warrants to a Placement Agent which contain similar terms to the Class A Warrants except they are exercisable at $2.0935 per share.

The Class A Warrants are exercisable for five years from the respective dates of issuance at an exercise price of $1.9032 per share, subject to certain adjustments, including adjustment upon any issuance by the Company of common stock or securities convertible or exercisable into common stock at a Dilutive Price in which event the exercise price will be adjusted to 80% of the Dilutive Price, subject to certain exempt issuances. If at any time after the six-month anniversary of the issuance of the Class A Warrants, there is no effective Registration Statement registering, or no current Prospectus available for, the resale of the shares underlying the Class A Warrants, the holders may exercise the Class A Warrants on a net exercise or cashless basis.

Our obligations under the Notes are secured by a first priority lien on all of our assets and those of our wholly owned subsidiaries pursuant to a Security Agreement, dated October 5, 2021 by and among the Company, our wholly owned subsidiaries, Mikab and Americrew Holdings, LLC, the noteholders, and Westpark Capital, Inc. (“West Park”), as agent for the secured parties. Our obligations under the Notes are also guaranteed by our subsidiaries. The Company and our wholly owned subsidiaries, entered into a Guaranty Agreement, dated October 5, 2021.

The Notes also contain customary negative covenants prohibiting the Company from certain actions while the Notes remain outstanding.

Each of the Notes and the Class A Warrants contain a 4.99% beneficial ownership limitation pursuant to which neither may be converted or exercised, as applicable, if and to the extent that following such conversion or exercise the holder would beneficially own more than 4.99% of the Company’s outstanding common stock, subject to increase to 9.99% upon 61 days’ prior written notice by the holder.

In addition, pursuant to the Securities Purchase Agreement, we entered into Registration Rights Agreements with the purchasers, in which we agreed to file a Registration Statement on Form S-1 with the SEC, covering the resale of the shares of common stock issuable upon conversion of the Notes and exercise of the Class A Warrants and to have such Registration Statement declared effective within 90 days thereafter. The Registration Statement was filed with the SEC during February 2022, and withdrawn in September 2022.

The Class A Warrants are equity classified. On the date of issuance, the Class A Warrants had a fair value of approximately $3,900,000 and relative fair value of $1,500,000. Amortization of debt discount over the notes related two-year term has been recorded in interest expense in the accompanying condensed consolidated statement of operations. Interest expense with respect to the debt discount amortization was approximately $189,000 and $189,000 for the three months ended June 30, 2023 and 2022, respectively. Interest expense with respect to the debt discount amortization was approximately $315,000 and $566,000 for the nine months ended June 30, 2023 and 2022, respectively. The unamortized debt discount associated with these Class A Warrants was approximately $503,000 and $881,000 as of June 30, 2023 and September 30, 2022, respectively.

On September 30, 2022, the Company raised $245,000 of capital in the form of senior secured convertible notes and accompanying Class A and Class B Warrants. The notes pay interest at the rate of 8% and are payable two years after issuance, with due dates ranging from September 2024 to December 2024. The lenders can convert the investment at a rate of $1.9032 per share. The lenders also received Class A or Class B Warrants (together, the "Warrants") to buy common stock of the Company at $1.9032 and $2.50, respectively. These Warrants expire five years from issuance, with expiration dates ranging from September 2027 to December 2027.

The Class B Warrants are exercisable for five years from the respective dates of issuance at an exercise price of $2.50 per share, subject to certain adjustments, including adjustment upon any issuance by the Company of common stock or securities convertible or exercisable into common stock at a Dilutive Price in which event the exercise price will be adjusted to 80% of the Dilutive Price, subject to certain exempt issuances. If at any time after the six-month anniversary of the issuance of the Class B Warrants, there is no effective Registration Statement registering, or no current Prospectus available for, the resale of the shares underlying the Class B Warrants, the holders may exercise the Class B Warrants on a net exercise or cashless basis.

The Warrants issued with the September 2022 senior secured convertible notes were valued at $1.97. The fair value of each Warrant was estimated on the date of issuance using the Black Scholes model based on the following inputs:

The Warrants issued with the September 2022 senior secured convertible notes had a calculated fair value of approximately $381,000. Using the relative fair value method, the Company recognized the resultant debt discount and equity classified Warrant in the amount of approximately $149,000. The debt discount will be accreted to interest expense over the two-year term of the related convertible notes. Interest expense with respect to the debt discount amortization for the three months ended June 30, 2023 was approximately $19,000. Interest expense with respect to the debt discount amortization for the nine months ended June 30, 2023 was approximately $93,000. There was no interest accretion in the nine months ended September 30, 2022.

During October 2022 and December 2022, the Company raised $593,000 of capital in the form of senior secured convertible notes and accompanying Class A and Class B Warrants. The notes pay interest at the rate of 8% and are payable two years after issuance, with due dates ranging from October 2024 to December 2024. The lenders can convert the investment at a rate of $1.9032 per share. The lenders also received Class A or Class B Warrants to buy common stock of the Company at $1.9032 and $2.50, respectively. These Warrants expire five years from issuance, with expiration dates ranging from October 2027 to December 2027.

The Warrants issued with the October 2022 and December 2022 senior secured convertible notes had a calculated fair value of approximately $802,000. Using the relative fair value method, the Company recognized the resultant debt discount and equity classified Warrants in the amount of approximately $340,000. The debt discount will be accreted to interest expense over the two-year term of the related convertible notes. Interest expense with respect to the debt discount amortization for the three months ended June 30, 2023 was approximately $43,000. Interest expense with respect to the debt discount amortization for the nine months ended June 30, 2023 was approximately $55,000.

The following table presents the Company's convertible note maturities:

The following table presents the Company's warrant activity from September 30, 2021 to June 30, 2023:

Default on Senior Secured Convertible Notes

On June 9, 2023 the Company entered into the Line of Credit  which created a default  in all of the Priuor Notes. This default resulted  in an increase to the interest rate of the Prior Notes from 8% to 18%. In terms of the nature of the default, the prior notes prohibit certain transactions that were triggered by incurring incremental indebtedness under the new loan facility. The new loan facility was however obtained with the consent of the prior note holders by the lienholder, WestPark Capital, who represents all noteholders.

NOTE 13 – CONTINGENCIES

The Company may from time to time be involved in various legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation will not have a material adverse effect on the Company’s condensed consolidated financial statements.

NOTE 14 – SUBSEQUENT EVENTS

Reverse Stock split

On July 21, 2023, in connection with the action by written consent without a meeting, the Board of Directors  and shareholders holding a majority of the Company’s outstanding voting power approved an amendment to the Certificate of Incorporation to effect a reverse split of the issued and outstanding shares of Common Stock at the ratio within the range of one-for-five through one-for-15 as the Board of Directors of the Company may determine, whereby depending on the Ratio selected by the Board every specified number of shares of the issued and outstanding or treasury shares of Common Stock within the range would be combined, converted and changed into one share of Common Stock. On August 1, 2023, the Company filed a definitive information statement on Schedule 14C regarding the Reverse Split, and first began mailing such information statement to its non-consenting shareholders.

The Company is pursuing the Reverse Split in an effort to increase the market price per share of its Common Stock to meet the initial listing qualifications of The Nasdaq Capital Market or another principal national securities exchange operated by The Nasdaq Stock Market LLC (“Nasdaq”) or the New York Stock Exchange (“NYSE”).

To become effective, the Reverse Split must first be approved by the Financial Industry Regulatory Authority (“FINRA”). The Company anticipates filing the Certificate of Amendment as soon as possible after receiving approval from FINRA.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Cautionary Note Regarding Forward Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding management’s future plans for the Company, our liquidity and ability to raise capital, our business strategy and our future operations. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, working capital sources, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include the possibility that we are unable to raise capital as and when needed due to our outstanding indebtedness and the weakness in the capital markets for small and microcap issuers, supply chain shortages and interest rate increases in response to inflation, economic uncertainty and the possibility of a recession, and our lack of an operating history and revenue. Further information on the risk factors affecting our business is contained in “Risk Factors” of our Annual Report on Form 10-KT for the period ended September 30, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

Company Overview

Prior to the Acquisition in August 2021, the Company was a shell company with no operations. Following the Acquisition, we provide specialty infrastructure contracting services to market participants in the telecommunications industry throughout the United States. A proportion of our workforce is staffed through a unique program through which we hire and train military veterans to provide construction and maintenance services to our customers, and we also hire employees with skill and experience in our fields and use third party independent contractors for our operations.

Our business, which is conducted primarily through Mikab, consists of the following:

Understanding Our Results of Operations

Revenue. We provide construction, installation, maintenance and upgrade services to our customers. We derive revenue from projects performed under master and other service agreements as well as from contracts for specific projects requiring the construction and installation of an entire infrastructure system or specified units within an infrastructure system.

Costs of Revenue, exclusive of depreciation. Costs of revenue consists principally of salaries, employee incentives and benefits, subcontracted services, equipment rentals and repairs, fuel and other equipment expenses, material costs, parts and supplies, insurance and facilities expenses. Project profit or loss is calculated by subtracting a project’s costs of revenue, including project-related depreciation, from project revenue. Project profitability and corresponding project margins will generally be reduced if actual costs to complete a project exceed our project cost estimates. Estimated losses on contracts, or the excess of estimated costs to complete a contract over the contract’s remaining revenue, are recognized in the period in which such losses are determined. Factors impacting our costs of revenue, include:

Project Mix. The mix of revenue derived from the projects we perform impacts overall project margins, as margin opportunities can vary by project. For example, installation work, which is often performed on a fixed price basis, has a higher level of margin risk than maintenance or upgrade work, which is often performed under pre-established or time and materials pricing arrangements. As a result, changes in project mix between installation work and maintenance or upgrade services can affect our project margins in a given period. Our project mix by industry can also affect our overall margins, as project margins can vary by industry and over time.

Seasonality, Weather and Geographic Mix. Seasonal patterns, which can be affected by weather conditions, can have a significant effect on project margins. Adverse or favorable weather conditions can affect project margins in a given period. For example, extended periods of rain or snowfall can negatively affect revenue and project margins due to reduced productivity from projects being delayed or temporarily halted. Conversely, when weather remains dry and temperatures are accommodating, more work can be done, sometimes with less cost, which can favorably affect project margins. In addition, the mix of business conducted in different geographic areas can affect project margins due to the particular characteristics of the physical locations where work is being performed, such as mountainous or rocky terrain versus open terrain. Site conditions, including unforeseen underground conditions, can also affect project margins. Presently, the vast majority of our telecommunications work is performed in New Jersey and Indiana.

Price and Performance Risk. Overall project margins may fluctuate due to project pricing, changes in the cost of labor and materials, job productivity and work volume. Job productivity can be affected by quality of the work crew and equipment, the quality of specifications and designs, availability of skilled labor, environmental or regulatory factors, customer decisions or delays and crew productivity. Crew productivity can be influenced by weather conditions and job terrain, such as whether project work is in a right of way that is open or one that has physical obstructions or legal encumbrances.

Subcontracted Resources. Our use of subcontracted resources in a given period is dependent upon activity levels and the amount and location of existing in-house resources and capacity. Project margins on subcontracted work can vary from those on self-performed work. As a result, changes in the mix of subcontracted resources versus self-perform work can affect our overall project margins.

Material and Labor Costs. In some cases, our customers are responsible for supplying materials on projects; however, under certain contracts, we may agree to provide all or part of the required materials. Project margins are typically lower on projects where we furnish a significant amount of materials due to the fact that margins on materials are generally lower than margins on labor costs. Therefore, increases in the percentage of work with significant materials requirements could decrease our overall project margins.

General and Administrative Expense. General and administrative expenses consist principally of compensation and benefit expenses, travel expenses and related costs for our finance, benefits, insurance and risk management, legal, financial and other professional fees, facilities upkeep, information technology services and executive functions. General and administrative expenses also include outside professional and accounting fees, expenses associated with information technology used in administration of the business, acquisition costs, including those related to acquisition integration, and, from time to time, certain restructuring charges.

Interest Income or Expense. Interest expense consists of contractual interest expense on outstanding debt obligations, non-cash interest expense associated with the fair value of warrants treated as a debt discount and other interest expense, including interest expense related to financing arrangements. Interest expense is offset by interest earned on cash and other investments.

Other Income or Expense. Other income or expense consists primarily of gains or losses from sales, disposals of, or changes in estimated recoveries from assets and investments, certain legal/other settlements, and certain purchase accounting adjustments.

Results of Operations

Results of Operations for the Three and Nine Months Ended June 30, 2023 Compared to the Three and Six Months Ended March 31, 2022

Revenue

For the three months ended June 30, 2023 and 2022, the Company’s revenue was $4,156,141 and $4,678,413, respectively. The decrease in revenue between periods was primarily attributable to severe summer weather, specifically periods of heavy rain and flooding. Since our crews work entirely outside, we are not able to invoice customers during this downtime.

For the nine months ended June 30, 2023 and 2022, the Company’s revenue was $11,710,195 and $8,391,676, respectively. The increase in revenue between periods was primarily attributable to growing the business of existing clients. severe summer weather, specifically periods of heavy rain and flooding. Since our crews work entirely outside, we are not able to invoice customers during this downtime.

Cost of revenues, exclusive of depreciation

For the three months ended June 30, 2023 and 2022, the Company’s cost of revenue was $2,814,336 and $3,012,570, respectively. The decrease in cost of revenue between these periods was primarily due to a decrease in revenue.

For the nine months ended June 30, 2023 and 2022, the Company’s cost of revenue was $7,606,833 and $5,820,349, respectively. The increase in cost of revenue between these periods was primarily attributable to normal costs associated with an increase in revenue.

Operating Expenses

For the three months ended June 30, 2023 and 2022, the Company had operating expenses of $1,082,125 and $1,036,653, respectively, remaining relatively consistent between periods despite the reduction in revenue.

For the nine months ended June 30, 2023 and 2022, the Company had operating expenses of $3,308,694 and $3,690,105, respectively, remaining relatively consistent between periods.

Operating Income

For the three months ended June 30, 2023, the Company had operating income of $259,680, relative to an operating income of $629,190 for the three months ended June 30, 2022. The decrease was primarily due to a reduction in revenue from severe summer weather, specifically periods of heavy rain and flooding. Since our crews work entirely outside, we are not able to invoice customers during this downtime.

For the nine months ended June 30, 2023, the Company had operating income of $794,668, relative to an operating loss of $1,118,778 for the nine months ended June 30, 2022. The decrease was primarily attributable to severe summer weather, specifically periods of heavy rain and flooding. Since our crews work entirely outside, we are not able to invoice customers during this downtime.

Interest Expense

For the three months ended June 30, 2023 and 2022, the Company’s interest expense was $445,167 and $118,696, respectively. The increase in interest expense between periods was primarily due to non-cash interest associated with amoritazation of debt discount.

For the nine months ended June 30, 2023 and 2022, the Company’s interest expense was $1,473,230 and $206,822, respectively. The increase in interest expense between periods was primarily due to severe summer weather, specifically periods of heavy rain and flooding. Since our crews work entirely outside, we are not able to invoice customers during this downtime.

Recapitalization Expenses

For the nine months ended June 30, 2022, the Company incurred non-recurring costs associated with the Acquisition of $239,721. There were no corresponding costs in the 2023 period.

Net Income/Loss

For the three months ended June 30, 2023, the Company had net loss of $185,487, relative to net income of $490,494 for the three months ended June 30, 2022. The decrease in net income was primarily attributable to lower operating income from lower revenue and higher interest expense from non-cash interest associated with amortization of debt discount.

For the nine months ended June 30, 2023 and 2022, the Company had a net loss of $678,562 and $1,585,321, respectively. The decrease in the net loss was primarily attributable to the non-cash interest associated with amortization of debt discount.

Understanding our Operating Results

Revenue from our customers is obtained from purchase orders submitted from time to time. Accordingly, the Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited. The Company’s ability to predict revenue has in the past been and may in the future be further limited by potential disruption to its supply chains or changes in customer ordering patterns and geopolitical turmoil. The Company’s ability to recognize revenue in the future for its backlog of customer orders will depend on the Company’s ability to acquire, assemble and deliver products and services to the customers and fulfill its other contractual obligations in a timely manner. In recent periods we have faced challenges in meeting customer demand due to limitations in our operational and capital resources. Additionally, significant uncertainty exists surrounding our future revenue prospects given our dependence on a limited number of customers for the vast majority of our revenue.

Liquidity and Capital Resources

Cash Flows used by Operating Activities:

For the nine months ended June 30, 2023, net cash used in operating activities was $1,838,503, compared to net cash used in operating activities of $3,355,417 for the nine months ended June 30, 2022. The decrease in cash used in operating activities for the 2023 period as compared to the 2022 period was primarily attributable to lower net loss and improved collections of A/R.

Cash Flows from Investing Activities:

Our net cash used in investing activities was $123,122 and $0 for the nine months ended June 30, 2023 and 2022, respectively. The increase in cash used in investing activities is due to the acquisition of fixed assets during the nine months ended June 30, 2023.

Cash Flows from Financing Activities:

For the nine months ended June 30, 2023, the net cash provided by financing activities was $2,096,297 primarily consisting of proceeds from the issuance of related party loans and convertible notes, net of repayments of loans payable. For the nine months ended June 30, 2022, net cash provided by financing activities was $3,493,777 consisting primarily of proceeds from loans and notes payable, net of repayments of loans payable.

Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the twelve months following the date of these financial statements.

Because Americrew does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about Americrew’s ability to continue as a going concern. Therefore, Americrew will need to raise additional funds and is currently exploring alternative sources of financing. Historically, Americrew raised capital through private placements, to finance working capital needs and may attempt to raise capital through the sale of common stock or other securities and obtaining some short-term loans from related parties. There can be no assurance that the Company will be successful in raising future capital.

The Company had approximately $146,652 in cash on hand as of August 15, 2023. We will need to raise additional capital to fund our operations for the next next 12  months. The $2,485,000 of 2021 Notes mature between October 4, 2023 and December 30, 2023. We are reliant upon completing one or more securities offerings in the future to continue our operations as planned and to meet our financial obligations. Our past inability to raise sufficient capital in our offerings of the Prior Notes may make our ability to raise capital more difficult. We will therefore require additional capital in order to fund our continued operations and execute our business plan. We will also likely need to extend the Prior Notes, which may be expensive and require us to issue dilutive securities.

Our liquidity is primarily derived from financing transactions and revenue from our contracts with customers, although management anticipates a larger proportion of our capital resources to be derived from financing transactions in future periods, particularly as we seek growth capital to fund our acquisition efforts in the next twelve months.

Revolving Loan Facility

In June 2023, the Company terminated its existing Factoring Agreement with another lender and entered into a Loan and Security Agreement with Thermo Communications Funding, LLC which provides for a $2,000,000 revolving line of credit facility to be evidenced by a promissory note. As of June 30, 2023, there was $1,780,018 outstanding under the revolving line of credit facility. See “Note 11 - Loans Payable - Revolving Line of Credit” in the footnotes accompanying the financial statements contained in this Report.

Related Party Bridge Loans and Accompanying Notes and Warrants

During the period from May 27 through August 11, 2021, certain insiders (the “Related Party Lenders”) made a total of $651,649 of bridge loans to the Company. These loans are evidenced by promissory notes which bear interest at 12% to 15% per annum and were originally due upon the earlier of the closing of the Acquisition or September 1, 2021. The Company also issued Warrants in connection with the bridge loans. The Related Party Lenders agreed to defer payment until the closing of the first financing following the closing of the Acquisition, and subsequently agreed to modify the bridge notes, the effect of which was to extend the indebtedness’ due date into 2023. For more information about these related party notes and warrants, see "Note 10 – Loans Payable - Related Party."

Acquisition Strategy

While we are presently in discussions to potentially acquire a target for cash pursuant to a preliminary letter of intent, we may not complete that acquisition, which among other thing would require us to raise sufficient capital from an offering of securities to pay the purchase price and repay the Prior notes.

Critical Accounting Policies

Revenue Recognition

Under ASC 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized when performance obligations are satisfied, and the customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract’s transaction price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identifies the contracts with a customer; (ii) identifies the performance obligations within the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when, or as, the Company satisfies each performance obligation.

Customers are billed as work is completed and accepted. Extended contracts are billed in segments as completed. The amount of unbilled work in process at the end of a period is immaterial to the financial statements taken as a whole. If a contract has been completed and accepted but not billed at the end of the year, the contract price is accrued as sales in the period completed.

Convertible Notes

The Company accounts for its convertible notes at issuance by allocating the proceeds received among freestanding instruments according to ASC 470, based upon their relative fair values. The fair value of debt and common stock is determined based on the closing price of the common stock and the date of the transaction, and the fair value of warrants, if any, is determined using the Black-Scholes Merton option-pricing model. Convertible notes are subsequently carried at amortized cost. The fair value of warrants is recorded as additional paid-in capital, with a corresponding debt discount from the face amount of the convertible notes.

The discounts on the convertible notes, consisting of amounts ascribed to warrants are amortized to interest expense, using the effective interest method, over the terms of the related convertible notes.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

We are required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on their evaluations as of the end of the period covered by this Quarterly Report on Form 10-Q, Mr. Brian Weis, who is presently serving as our President and Chief Operating Officer (principal executive officer) and Mr. Ross DiMaggio, who is presently serving as our Chief Financial Officer (principal financial officer), have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.

Changes in Internal Controls over Financial Reporting.

There have been no changes in the Company’s internal control over financial reporting during the three-month period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time-to-time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits listed in the accompanying "Exhibit Index" are filed or incorporated by reference as part of this Form 10-Q.

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to our Corporate Secretary at Americrew, Inc., 21 Omaha Street, Dumont, NJ 07628.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.