The following discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes, as well as the sections of this Report titled "Business" and "Risk Factors." The following overview provides a summary of our business and industry as more specifically described, including with respect to the risks and uncertainties inherent in our business, in the above-referenced sections of this Report.
41 Table of Contents Overview
Prior to the Acquisition in
Our business, which is conducted primarily through Mikab, consists of the following:
· fiber construction and 5G wireless construction, which are collectively grouped into the broader category of telecommunications infrastructure and consist of construction and maintenance and related services with respect to fiber optic cables; · wireless cell towers and 5G small and macro cells; · site planning and installation and related services for clean energy systems, with an initial focus on EV charging stations; and · workforce development with respect to the unique in-house training program to support the services we provide which is currently being provided at the parent company level and is in the process of being transferred to a new subsidiary.
Since the Acquisition, we have continued our telecommunications service business, commenced training of veterans and negotiated with third parties about EV opportunities. For an overview of each such industry and current trends within them, as well as our current and planned role as a market participant in each space, see "Business - Clean Energy."
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. See "Business" on page 1 of this Report for discussion of our business and revenue-generating activities.
Costs of Revenue, Excluding Depreciation and Amortization. Costs of revenue, excluding depreciation and amortization, 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, excluding depreciation and amortization, include:
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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
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 non-cash stock-based compensation expense, 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, amortization of deferred financing costs, non-cash interest due to warrants issued with convertible debt and other interest expense, including interest expense related to financing arrangements. Interest expense is offset, in part, or becomes interest income, 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, gains or losses from changes to estimated earn-out accruals, forgiveness of PPP, non-cash interest expense associated with the fair value of warrants treated as a debt discount and certain purchase accounting adjustments.
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Note to Investors: The numbers which follow as well as those in our
consolidated financial statements reflect the nine months of operations for the
fiscal year ended
Results of Operations
Results of Operations for the FY 2022 Compared to the FY 2021
Revenue for FY 2022 was
Cost of revenue for FY 2022 was
Our operating expenses decreased from
Net income (loss) - in FY 2022 we had a loss of
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 become further limited by potential disruption to its supply chains or changes in customer ordering patterns due to uncontrollable events such as the COVID-19 pandemic 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 as well as customer cancellations. 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 from Operating Activities
For FY 2022, net cash used for operating activities was
Cash Flows from Financing Activities:
For FY 2022, the net cash provided by financing activities was
In FY 2022, the Company raised
Cash Flows from Investing Activities
Our net cash used from investing activities was
44 Table of Contents 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 12 months following the date of these financial statements.
Because
The Company has
Our liquidity is primarily derived from financing transactions and revenue from accounts receivable 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 12 months.
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.
Because we were only able to raise
On
Other than paying our debt obligations as they come due, the Company intends to
utilize any available cash primarily for its continued operations and organic
growth. However, in order to execute our business plan, we will need to raise
additional capital. In the furtherance of these efforts, the Company raised
We anticipate raising the additional funds to meet our financial obligations, working capital and growth capital requirements which will likely require us to issue or debt securities which will be dilutive to our current stockholders and/or could impose restrictions on our future operating and financing activities. See "Risk Factors" beginning on page 13 for more information on the risks we face with respect to our operational and financing activities, outstanding securities, and need for additional capital to continue and grow our operations and meet our financial obligations as and when they come due.
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Related Party
During the period from
Acquisition Strategy
As part of our growth strategy, we may acquire companies that expand, complement, or diversify our business. We regularly review opportunities and periodically engage in discussions regarding possible acquisitions. Our ability to sustain our growth and maintain our competitive position may be affected by our ability to identify, acquire, and successfully integrate companies. Additionally, our inability to raise sufficient proceeds from our private placement offerings in late 2021 has hindered our ability to pursue acquisitions as planned and will likely delay our acquisition efforts in 2022 and beyond, particularly given our financial obligations under the related party bridge notes and Notes which extend into late 2023.
Impact of COVID-19
The effects of the COVID-19 pandemic continue to impact certain aspects and geographies of the global economy due to supply chain, production and other logistical disruptions. While we have continued to operate as a provider of essential services from the onset of the pandemic, during the course of the pandemic our operations and financial results have been adversely impacted by governmental responses to the COVID-19 pandemic, including shut-down orders and limitations on work site practices implemented by governments. The longer-term implications of the COVID-19 pandemic on our financial performance remain uncertain and variable in the current economic environment including rising interest and inflation rates.
We continue to monitor governmental vaccination and testing standards, or requirements related to COVID-19, as well as certain standards and guidance for preventing the spread of COVID-19. While the impact of these standards has lessened in 2022, we continue to monitor changes in these standards that may impact our business.
Critical Accounting Policies
Revenue Recognition
The Company adopted Accounting Standards Codification ("ASC") 606 - Revenue from
Contracts with Customers ("ASC 606") as of
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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 Corporation 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 Corporation determines are within the scope of ASC 606, the Corporation 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 Corporation 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 year 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 paid0in 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.
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