When used in this Quarterly Report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act
regarding events, conditions and financial trends that may affect our future
plans of operations, business strategy, operating results, and financial
position. Persons reviewing this Quarterly Report are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and actual results may differ materially from
those included within the forward-looking statements as a result of various
factors. Such factors are discussed further below under "Trends and
Uncertainties," and include general economic factors and conditions that may
directly or indirectly impact our financial condition or results of operations.
Overview of Current and Planned Business Operations
Our Hosted Services are provided by our wholly- owned subsidiary, Apeiron
Systems, a CPaaS provider that designed, built, owns, and operates a national
network, supporting a suite of business communications services all accessible
via its proprietary Applications Programming Interfaces ("APIs"). Some of
Apeiron's Hosted Services include SIP/VoIP and cellular telephony, SMS/MMS
messaging and numbering features, including Cloud IVRs, Voicemail, Fax, Call
Recording, and other functions provided with local, toll-free, and international
phone numbers.
Apeiron also delivers public and private IP network services from its national
redundant network backbone, including MPLS, dedicated ethernet, broadband, and
LTE wireless WAN solutions. Apeiron's network services enable private WAN
networking, Internet access, public cloud connectivity and Low Power Wide Area
("LPWA") network solutions for both mobile & local IoT connectivity. Apeiron's
Cloud Services include Information Data Dips, Software-Defined Wide Area
Networking ("SD-WAN"), and IoT data processing as well as device and sensor
management.
Apeiron continues to expand its agent sales channel outreach, agent sales
software platform, and invest in new product development to drive revenue
diversification and higher margin services. In addition to new product
development and existing channel development, Apeiron continues to enhance its
billing system capabilities. Apeiron's expanding billing system can enable
distribution channels to increase new product sales and take advantage of
Apeiron's customizable white label billing solutions across its product lines.
We believe we are moving towards an increasingly wireless/mobile future, so
Apeiron continues to evolve its network, cloud infrastructure, and Hosted
Services platforms to capitalize on new and emerging technology trends,
including IoT deployments and the inevitable migration to 5G technology across
national cellular networks. Apeiron's response to these trends can be seen in
its product development cycles and network development efforts, which continue
to strategically position Apeiron in the market.
Our Mobile Services include retail and wholesale cellular voice/text/data
services delivered using the three major domestic wireless networks. A wireless
communications service reseller typically does not own the wireless network
infrastructure over which customer services are provided. Mobile voice/text/data
and mobile data solutions are generally sold as post-paid or pre-paid service
plans that may include voice/text/data or wireless data only plans. Sometimes
equipment is provided, which can include, but is not limited to, phones,
tablets, modems, routers, and accessories.
Also included in our Mobile Services segment is the distribution of cellular
voice service and mobile data service to low-income American households that
qualify for the FCC's Lifeline program and the FCC's temporary EBB program. Our
Lifeline mobile services are provided by our wholly- owned subsidiary, IM
Telecom, marketed under its brand name Infiniti Mobile. IM Telecom operates
under an FCC approved Compliance Plan and FCC wireless ETC designation across
nine (9) states, including California, Georgia, Kentucky, Maryland, Nevada,
Oklahoma, South Carolina, Vermont, and Wisconsin.
IM Telecom was approved to participate in the FCC's temporary EBB program on
April 6, 2021, and to distribute EBB eligible mobile data services within the
states it was then authorized as a Lifeline ETC. Subsequently, on September 1,
2021, the FCC approved IM Telecom's application to expand its EBB authorized
distribution territory (not Lifeline) to include the remaining thirty-nine (39)
contiguous states, as well as the District of Columbia and Puerto Rico.
There is pending legislation before the U.S. Congress within the Infrastructure
Bill (H.R.3684 - Infrastructure Investment and Jobs Act, further described in
Title V Broadband Affordability and starting in Section 60501), to offer
subsidized mobile data service under a new program, following the expiration of
the EBB program, with new rules that is expected to be called the Affordable
Connectivity Benefit ("ACB") program; and the ACB program would be subject to
interpretation and administration by the FCC and its administration company,
USAC. On Friday, November 5, 2021, the above referenced Infrastructure Bill was
passed in the House of Representatives and is now expected to be signed into law
by President Biden.
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IM Telecom, operating under its brand name Infiniti Mobile, distributes cellular
voice and mobile data services through its storefront in Tulsa, Oklahoma, a
current group of independent field agents, two (2) new master agent
relationships described above in Note 9 - Subsequent Events, of our Condensed
Consolidated Financial Statements accompanying this Quarterly Report, and
through its Infiniti Mobile website (www.infinitimobile.com). With IM Telecom's
recent approval on June 3, 2021, to expand its Lifeline distribution into
California, we anticipate California distribution will commence in the fourth
quarter of 2021.
In 2017, before it acquired IM Telecom, the Company successfully distributed
California Lifeline service under a Virtual ETC ("VETC") distribution agreement
with another ETC. Under that agreement, the Company provided marketing, field
distribution, agent management, device (equipment) sourcing and configuration,
and compliance assurance with FCC and California regulations for the approval
and distribution of new Lifeline service.
At its peak, the Company distributed over 10,000 new lines of Lifeline service
per month in California. The Company ceased California VETC Lifeline
distribution shortly after it acquired IM Telecom in early 2018, while it waited
for the California Public Utilities Commission to approve IM Telecom's
California Lifeline distribution application.
The FCC's Universal Service Administrative Company ("USAC") website
(https://www.usac.org/lifeline/resources/program-data/) currently indicates
there are 3,630,292 Lifeline eligible households in California, of which
1,242,787 currently receive service, leaving an estimated 2,387,505 unserved
Lifeline eligible households in the State of California.
The Company's previous California VETC Lifeline management team is the same
management team now operating IM Telecom. The Company expects that IM Telecom's
management team will be successful in the distribution of applicable Lifeline,
EBB, and/or ACB (if it becomes law) services in California.
Results of Operations
Comparison of the quarter ended September 30, 2021, to the quarter ended
September 30, 2020
For the quarter ended September 30, 2021, we had $3,612,861 in revenues from
operations compared to the quarter ended September 30, 2020, where we had
$2,527,281 in revenue from operations. The cost of revenue for the quarter ended
September 30, 2021, was $1,988,624 compared to $1,625,481 for the quarter ended
September 30, 2020. We had a gross profit of $1,624,237 for the quarter ended
September 30, 2021, and $901,800 for the quarter ended September 30, 2020.
For quarter ended September 30, 2021, our gross profit margin was 44.9% compared
to 35.7% for the three months ended September 30, 2020.
For the quarters ended September 30, 2021, and 2020, respectively, total
operating expenses were $1,252,632 and $958,223, for an increase of $294,409.
This increase was primarily a result of infrastructure expansion consisting of
primarily payroll, professional services, handset costs, and application
development costs to support sales channel growth.
For the quarter ended September 30, 2021, non-operating expenses were interest
expense of $2,573 and other non-operating expenses of $49,197 consisting
primarily of stock option expenses, compared to other income of $81,070 and
interest expense of $4,694 for the quarter ended September 30, 2020.
For the quarter ended September 30, 2021, we had a net income of $319,835. For
the quarter ended September 30, 2020, we had net income of $19,953.
In comparing our Condensed Consolidated Statements of Operations between the
three-month periods ended September 30, 2021, and 2020, respectively, the
Company continued diversifying and expanding its service offerings. Revenues for
both Hosted Services and Mobile Services were up from the quarter ended
September 30, 2021, as compared to the quarter ended September 30, 2020. Hosted
Services revenue increased by 3.5%, while Mobile Services revenue increased by
103.9%. Gross profit margin overall was 45% for the three months ended September
30, 2021, compared to 35.7% for the three months ended September 30, 2020.
Hosted Services gross profit margin was 35.3% compared to 38.9% for the three
months ended September 30, 2021, and 2020, respectively. Mobile Services gross
profit margin was 52.6% compared to 30.8% for the three months ended September
30, 2021, and 2020, respectively.
Comparison of the nine months ended September 30, 2021, to the nine months ended
September 30, 2020
For the nine months ended September 30, 2021, we had $8,919,573 in revenues from
operations compared to the nine months ended September 30, 2020, where we had
$6,741,830 in revenue from operations. The cost of revenue for the nine months
ended September 30, 2021, was $4,946,786 compared to $4,196,528 for the nine
months ended September 30, 2020. We had a gross profit of $3,972,787 for the
nine months ended September 30, 2021, and $2,545,302 for the nine months ended
September 30, 2020.
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For the nine months ended September 30, 2021, our gross profit margin was 44.5%
compared to 37.7% for the nine months ended September 30, 2020. The increase was
primarily due to enhanced COGS measures as well as Infiniti Mobile's expansion
of the EBB program into new states.
For the nine months ended September 30, 2021, and 2020, respectively, total
operating expenses were $3,377,950 and $2,883,526, for an increase of $494,424.
This increase was primarily a result of infrastructure expansion, primarily
payroll, professional services, handset costs, and application development costs
to support sales channel growth.
For the nine months ended September 30, 2021, non-operating expenses were
interest expense of $12,329 and other non-operating expenses of $154,310
consisting primarily of stock option expenses, compared to other income (PPP
loan forgiveness and settlement income) of $624,518 and interest expense of
$23,459 for the nine months ended September 30, 2020.
For the nine months ended September 30, 2021, we had a net income of $428,199.
For the nine months ended September 30, 2020, we had net income of $262,835.
In comparing our Condensed Consolidated Statements of Operations between the
nine-month periods ended September 30, 2021, and 2020, respectively, the Company
continued diversifying and expanding its service offerings, including
participating in the temporary EBB program. Revenues for both Hosted Services
and Mobile Services were up for the nine months ended September 30, 2021, as
compared to the nine months ended September 30, 2020. Hosted Services revenue
increased by 17.6%, while Mobile Services revenue increased by 50.4%. Gross
profit margin was 44.5% overall for the nine months ended September 30, 2021,
compared to 37.8% for the nine months ended September 30, 2020. Hosted Services
gross profit margin was 36.5% compared to 36.5% for the nine months ended
September 30, 2021, and 2020, respectively. Mobile Services gross profit margin
was 52.3% compared to 39.3% for the nine months ended September 30, 2021, and
2020, respectively.
Marketing and Advertising expense increased due mostly to an increase in Mobile
Services sales activity and an enhancement of our Mobile Services website.
Utilities and Facilities expense increased due mostly to the execution of a new
headquarters office lease in Plano, TX, combined with a change in rent expense
recognition rules. General and Administrative costs increased due mostly to
costs related to new hires and increased travel. In 2020, we categorized Hosted
Services' software development costs within Operating and Maintenance; then in
2021, we began categorizing software development costs into a new category,
"Application Development Costs."
Liquidity and Capital Resources
As of September 30, 2021, we had $1,358,722 in cash and cash equivalents on
hand.
In comparing liquidity between the nine-month periods ending September 30, 2021,
and September 30, 2020, cash assets increased by 131%. This increase was due
largely to expanded revenues from the EBB program and increased cash-flow
performance. Liabilities and total overall debt showed a 2.4% decrease in the
nine-month period ended September 30, 2021, when compared to September 30, 2020.
Going forward, growth in new services as well as the introduction of the ACB
program is expected to provide additional liquidity for our business.
Overall, the current ratio (current assets divided by our current liabilities)
increased to 2.05 as of September 30, 2021, compared to December 31, 2020, of
.94. Working capital increased 117.7%.
Cash Flow from Operations
During the nine months ended September 30, 2021, cash flow provided by operating
activities was $636,557, and for the nine months ended September 30, 2020, cash
flow provided by operating activities was $441,506.
Cash Flows from Investing Activities
During the nine months ended September 30, 2021, $10,000 of cash flow was used
in investing activities for the purchase of a percentage ownership in another
telecommunications company. For the nine months ended September 30, 2020, cash
flow used in investing activities was $10,833 for the purchase of assets.
Cash Flows from Financing Activities
During the nine months ended September 30, 2021, cash flow provided by financing
activities was $16,970 for net cash received from exercises of stock options
after repayments of amounts of notes payable of $93,030. For the nine months
ended September 30, 2020, net cash flow used in financing activities was
$33,934, comprised of proceeds from Federal SBA Covid-19 loans ($459,000),
repayments of revolving lines of credit, ($12,237), repayments of amounts due to
a related party, ($87,165), and a one-time dividend paid to former Apeiron
shareholders of ($310,129) as part of the acquisition of Apeiron Systems.
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Going Concern
For the nine months ended September 30, 2021, the Company generated net income
of $428,199. For the three months ended September 30, 2021, net income was
$319,835. The Company has sustained itself through the operations of the
business, indicated by net cash from operations of $636,557 for the nine months
ended September 30, 2021. The accumulated deficit as of September 30, 2021, is
$5,540,291.
The Company has ameliorated any substantial going concern doubt issues by
generating additional cash flow from operations through diversification of
product offerings and revenue growth of its subsidiaries, Apeiron Systems and IM
Telecom. We have continued to use additional cash flow to retire debt, while
also adding resources to enable further revenue growth. Our working capital
continues to improve without the use of lines of credit, borrowings or
additional cash investments beyond our long term, low interest SBA EIDL loan
proceeds from June 20, 2020.
We continue to diversify sources of revenue and increase margins through cost
controls and a shift to higher margin product offerings. Prior to acquiring
Apeiron Systems and IM Telecom, we derived nearly 100% of our revenue from
cellular (voice) sales. With continued aggressive management and sales channel
development we anticipate no future going concern issues.
Off-Balance Sheet Arrangements
We had no Off-Balance Sheet arrangements during the nine-month period ended
September 30, 2021.
Critical Accounting Policies
Earnings Per Share
Basic earnings per common share calculations are determined by dividing net
income by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per common share calculations are determined
by dividing net income by the weighted average number of common shares and
dilutive common share equivalents outstanding. As of September 30, 2021, and
September 30, 2020, there are 2,676,266 and 3,400,000 respectively, potentially
dilutive common shares.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist primarily of receivables, cash, and cash equivalents.
All cash and cash equivalents are held at high credit financial institutions.
These deposits are generally insured under the FDIC's deposit insurance
coverage; however, from time to time, the deposit levels may exceed FDIC
coverage levels.
The Company has a concentration of risk with respect to trade receivables from
customers, other cellular providers, and the FCC. As of September 30, 2021, the
Company had a significant concentration of receivables (defined as customers
whose receivable balances are greater than 10% of total receivables) due from
two (2) customers in the amounts of $111,672 and $639,429, or 11.23% and 64.33%
of total accounts receivable, respectively. As of December 31, 2020, the Company
had a significant concentration of receivables (defined as customers whose
receivable balances are greater than 10% of total receivables) due from two (2)
customers in the amounts of $194,509, or 52.4%, and $52,843, or 14.2%,
respectively.
Concentration of Major Customers
A significant amount of the revenue is derived from contracts with major
customers, cellular partners and the federal government. For the nine-month
period ended September 30, 2021, the Company had two (2) customers that
accounted for $3,297,984 or 37% and $2,818,465 or 31.6% of total revenue,
respectively. For the nine-month period ended September 30, 2020, the Company
had one (1) customer that accounted for $2,332,716 or 34.6%, of revenue.
Effect of Recent Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements and believes that
none will have a significant effect on the Company's financial statements.
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