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Item 7. Management’s Discussion and Analysis

2023-04-17 compared with 2022-04-14 · 97 added, 92 removed, 129 unchanged (59% of the section changed)

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

When used in this Annual Report, the words “may,”

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may differ materially from those included within the forward-looking statements as a result of various factors.

are discussed further below under “Trends and Uncertainties,” and also include general economic factors and conditions that

may directly or indirectly impact our financial condition or results of operations.

are discussed at the forepart of this Annual Report on page 2 hereof, and further, below, under “Trends and Uncertainties.”

Overview of Current and Planned Business Operations

We continue to pursue market

opportunities for the distribution of our current products and services described in our “ Principal Products or Services and

their Markets ” summary on page 6 of this Annual Report.

In addition, we continue to pursue expanded market distribution

opportunities, development of new products and services, the addition of new lines of business (i.e., the FCC’s anticipated ACP

service expansion), and accretive acquisition opportunities that may enhance or expand our current product and service offerings.

opportunities for the distribution of our current products and services described in our “Principal Products or Services and their

Markets” summary on page 6 of this Annual Report.

In addition, we continue to pursue expanded market distribution opportunities,

development of new products and services, the addition of new lines of business and accretive acquisition opportunities that may enhance

or expand our current product and service offerings.

Comparison of the Year Ended December 31, 2022,

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In comparing our Statements of Operations between

the years ended December 31, 2021, and 2020, we grew revenue, realized increased costs of revenue and operating expenses, and increased

the years ended December 31, 2022, and 2021, we grew revenue, realized increased costs of revenue and operating expenses, and decreased

For the year ended December 31, 2022, we had $20,023,340

in revenues from operations compared to $12,834,844 in the prior year ended December 31, 2021, for a total revenue increase of $7,188,496,

The increase in 2021 revenue was caused by an increase in both our Hosted Services and Mobile Services segments, with Mobile

Services expanding largely due to the introduction of the EBB program that added additional revenues for the distribution of high-speed

mobile data service to low-income consumers.

The increase in 2022 revenue was due to our planned expansion within the Mobile Services segment, which allowed us to distribute

high-speed mobile data service to low-income consumers.

For the year ended December 31, 2022, our cost of

revenue was $15,033,733 compared to $7,105,464 in the prior year ended December 31, 2021, for a cost of revenue increase of $7,928,269,

Our 2021 cost of revenue increase was primarily the result of increased network, handset and sales commission costs related to

distributing additional services.

For the year ended December 31, 2021, we had a gross

profit of $5,729,380 compared to $3,535,447 in the prior year ended December 31, 2020, for a gross profit increase of $2,193,933 in 2021.

Our cost of revenue increase was the result of delivering more devices to subscribers, as well as providing for sales compensation

and network costs related to the higher growth occurring within the Mobile Services segment.

For the year ended December 31, 2022, we had gross

profit of $4,989,607 compared to $5,729,380 in the prior year ended December 31, 2021, for a gross profit decrease of ($739,773) in 2022.

This decline is directly related to up-front costs incurred by accelerating growth to acquire new customers within our Mobile Services

For the year ended December 31, 2022, total operating

expenses were $5,091,033 compared to $3,895,466 in the prior the year ended December 31, 2020, for an increase of $1,195,567 in 2021.

This increase was due primarily to increases in payroll and related expenses resulting mostly from the hiring of management level operations

positions in both Apeiron Systems and IM Telecom.

expenses were $7,544,292 compared to $5,091,033 in the prior year ended December 31, 2021, for an increase of $2,453,259 in 2022.

increase was due primarily from additions in payroll and related expenses resulting from the hiring of our executive staff, as well as

senior operations and customer support staff within our IM Telecom subsidiary.

Additionally, increases in professional service fees for

legal and billing, as related to the expansion of ACP and Lifeline in our Mobile Services segment.

For the year ended December 31, 2022, other income

(expense) was ($15,361) compared to $598,637 in the prior year ended December 31, 2020 (see Note to of our Consolidated Financial Statements

included in this Annual Report).

For the year ended December 31, 2021, we had net income

of $622,986 compared to $238,618 in the prior year ended December 31, 2020.

(expense) was ($397,675) compared to ($15,361) in the prior year ended December 31, 2021.

This increase is due primarily to interest expense

related to our CCUR loan.

For the year ended December 31, 2022, we had a net

loss of ($2,952,360) compared to net income of $622,986 in the prior year ended December 31, 2021.

Liquidity and Capital Resources

As of December 31, 2021, we had $932,785 in cash and

cash equivalents on hand.

The ability to continue as a business is dependent

As of December 31, 2022, we had $2,055,634 in cash

and cash equivalents on hand.

Our ability to continue as a business is dependent

upon our generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our

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Management intends to finance operating costs over the next twelve

(12) months with revenues from our operations.

(12) months with revenues from our operations and use of financing received during the year.

In comparing liquidity between the years ending December

31, 2022, and 2021, cash increased by 120%.

The increase was the result of improved revenues and margins.

Liabilities and total overall

debt showed a 10% decrease in 2021 when compared to 2020.

Our revolving lines of credit were eliminated through payments in 2020.

forward, growth from new service offerings is expected to

provide additional liquidity for our business.

capital increased by $1,943,386 for the year ended December 31, 2021, resulting from increases in cash, accounts receivable and inventory.

The increase was the result of the CCUR $3,150,000 loan received to finance sales growth in

our mobile services sector.

Total liabilities increased by 294% in 2022when compared to 2021, as a result of the CCUR loan taken out in

Going forward, growth from new service offerings is expected to provide additional liquidity for our business.

Working capital

decreased by $2,257,587 for the year ended December 31, 2022, primarily resulting from the addition of loans payable.

Our current ratio (current assets divided by current

liabilities) was 2.91 as of December 31, 2021, and 0.94 in 2020.

liabilities) was .92 as of December 31, 2022, and 2.91as of December 31, 2021.

Cash Flow from Operations

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ended December 31, 2021, cash flow provided by operating activities was $(1,821,870) and $211,930, respectively.

Decreased cash flows

provided by operating activities were primarily attributable to a material increase in inventory purchases to support increased distribution

of Mobile Services.

Decreased cash

flows provided by operating activities were primarily attributable to a material increase in purchased inventory to support distribution

and growth within the Mobile Services, as well as related sales compensation expenses.

Cash Flows from Investing Activities

During the year ended December 31, 2022, and the year

ended December 31, 2020, cash flow used in investing activities was $(10,000) and ($10,833), respectively.

The cash used in investing

activities during 2021 was the result of the purchase of assets.

ended December 31, 2021, cash flow provided by(used in) investing activities was $10,000 and ($10,000), respectively.

The cash provided

by investing activities during 2022 was the result of the sale of assets.

Cash Flows from Financing Activities

During the year ended December 31, 2022, and the year

ended December 31, 2020, cash flow provided by (used in) financing activities was $15,661 and ($36,992), respectively.

The funds provided

by financing were comprised of cash received from the exercise of incentive stock options in 2021 of $110,000 and proceeds received from

the PPP loans and notes payable of $548,900 in 2020.

Cash flow used in financing activities in 2021 was ($94,339) for repayments of notes

payable and repayments of amounts due to a related party ($151,357);

repayment of revolving lines of credit ($12,237);

repayment of notes

payable ($112,168), and as part of the Apeiron Systems Merger Agreement’s “surplus net working capital settlement provision,”

a paid-in-full payment paid as a dividend to the two (2) former Apeiron Systems shareholders of ($310,130) in 2020.

ended December 31, 2021, cash flow provided by financing activities was $2,934,718 and $15,661, respectively.

In 2022, cash flow generated

from financing activities consisted of $3,150,000 cash received from short-term notes payable;

($173,532) cash used for payment of loan

origination costs;

($150,000) cash used for repayment of notes payable;

and $108,250 cash received from the exercise of incentive stock

During the year ended December 31, 2021, cash flow used in financing activities was comprised of($94,339) for repayments of notes

payable and $110,000 in cash received from the exercise of incentive stock options.

Going Concern

The Company generated net income of $622,986 during

The Company generated a net loss of ($2,952,360) during

the year ended December 31, 2022.

We had two (2) consecutive years of net income, in 2021 and 2020.

The Company experienced positive cash

flow of $217,590 and $523,721 in 2021 and 2020, respectively.

The accumulated deficit as of December 31, 2021, was $5,345,504, which continues

The Company has continued to ameliorate any substantial

going concern doubt by generating additional cash flow in 2021 and 2020, respectively, and generating net income in 2021 and 2020.

of costs in our Hosted Services and Mobile Services businesses and increase in revenues from the growth of our Mobile Services customer

base has allowed the Company to retire debt and other lines of credit, all of which have contributed to an improvement in our working

capital, without the use of lines of credit, borrowings or shareholder dilution.

Off-Balance Sheet Arrangements

The Company entered into an off-balance sheet arrangement

as a result of the purchase of Apeiron Systems.

The former Apeiron Systems stockholders had a $1.00 “Guaranteed Value” if

the Company’s common stock trading price did not reach or exceed $1.00 per share over a ten (10) consecutive day period between

December 31, 2020 and ending on December 31, 2021.

This condition was fully satisfied effective June 16, 2021.

See the Company’s

8-KA Current Report dated and filed with the SEC on that date and which is available by Hyperlink in Part IV, Item 15.

We had net income of $622,986 in 2021.

The Company experienced positive cash flow of $1,112,849 and

$217,591 in 2022, and 2021, respectively.

The accumulated deficit as of December 31, 2021, was $8,297,864.

The business received $3,150,000 in capital financing

during the year ended December 31, 2022, to help grow the mobile services base in IM Telecom.

The business gained additional distribution

channels as a result, and at its peak more than tripled its subscriber base.

High growth phases require immediate expense recognition,

and as a result, management expected net operating losses during this high growth phase.

Following this initial high-growth phase, management

slowed the acceleration, and the business had an immediate (and expected) return to positive cash flow and recorded net operating profit

of $301,135 in Q4 2022.

In Q4 2022, management shifted its distribution channels towards its highest profit areas, and has seen Average

Revenue Per User (“ARPU”) increase as a result.

Management also gained additional equipment suppliers, and has been able to

leverage terms on device purchases, moving from prepayments up to thirty (30) days.

We expect terms to become more favorable and offer

greater use of our cash in 2023.

We are one of only a few businesses to hold a national

ETC license, which provides us with additive reimbursement rates within the states we operate.

We will continue to target and expand into

new ETC licensed areas, and expect increasing returns as a result.

Management believes as we expand state licensing under our ETC designation,

this activity will only continue to increase the value of our ETC license within the marketplace and afford us additional financing capabilities

Critical Accounting Policies and Estimates

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feature debt discounts, valuation of share-based payments and the valuation allowance on deferred tax assets.

Impairment of Long-Lived

We account for long-lived assets in accordance with

the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived

This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever

events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be

held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated

by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying

amount of the assets exceeds the fair value of the assets.

Assets to be disposed of are reported at the lower of the carrying amount or

fair value less costs to sell.

Impairment of Long-Lived Assets

account for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10, “Accounting

for the Impairment or Disposal of Long-Lived Assets”.

This statement requires that long-lived assets and certain identifiable intangibles

be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net

cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured

by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Assets to be disposed of are reported at

the lower of the carrying amount or fair value less costs to sell.

Fair Value of Financial

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We adopted the updated guidance on

January 1, 2019 on a prospective basis and as a result, prior period amounts were not adjusted to reflect the impacts of the updated guidance.

In addition, as permitted under the transition guidance within the new standard, prior scoping and classification conclusions were carried

forward for leases existing as of the adoption date.

January 1, 2019, on a prospective basis and as a result, prior period amounts were not adjusted to reflect the impacts of the updated

In addition, as permitted under the transition guidance within the new standard, prior scoping and classification conclusions

were carried forward for leases existing as of the adoption date.

Revenue Recognition

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This requires that such transactions be accounted for using a fair-value-based method.

The Company recognizes the cost of all

share-based awards on a graded vesting basis over the vesting period of the award.

The Company recognizes the cost of all share-based

awards on a graded vesting basis over the vesting period of the award.

We account for equity instruments issued in exchange

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issued, whichever is more reliably measurable.

The value of equity instruments issued for consideration other than employee services

is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services.

The value of equity instruments issued for consideration other than employee services is

determined on the earliest of a performance commitment or completion of performance by the provider of goods or services.

We account for income taxes in accordance with FASB

ASC 740, “Income Taxes”.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable

ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the future tax consequences attributable

to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis