AmeriCrew (ACRU) 10-Q/A2022 Q2 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

For the quarterly period ended: June 30, 2022

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 checkmark 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 (§229.405 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 checkmark 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 the 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 standard 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 Act). Yes ☐ No ☒

As of August 12, 2022, the issuer had 15,764,424 shares of its common stock, $0.001 par value per share, outstanding.

AMERICREW, INC.

TABLE OF CONTENTS 

AMERICREW, INC.

CONDENSED CONSOLIDATED  BALANCE SHEETS (UNAUDITED) Restated

The accompanying notes are an integral part of these Condensed Consolidated financial statements.

AMERICREW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Restated

The accompanying notes are an integral part of these Condensed Consolidated financial statements.

AMERICREW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (UNAUDITED) Restated

The accompanying notes are an integral part of these Condensed Consolidated financial statements

AMERICREW, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), Restated

The accompanying notes are an integral part of these Condensed Consolidated  financial statements.

AMERICREW, INC.

NOTES TO UNAUDUTED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Americrew, Inc. f/k/a PhoneBrasil International, Inc. f/k/a Utz Technologies, Inc. (the “Company”, or “PhoneBrasil”) was organized in New Jersey as Donald Utz Engineering, Inc. in 1991. In April of 1991, the Company changed its name to Utz Engineering, Inc. In March 2002, the Company changed its name to Utz Technologies, Inc. The Company changed its name to PhoneBrasil International, Inc. and further filed a Registration of Alternate Name in the State of New Jersey for the use of the name PhoneBrasil International, Inc. (“we” or the “Company”). On November 16, 2021, the company changed its name to Americrew, Inc.

On April 20, 2007, with a new management team in place, the Board of Directors, in furtherance of its plan designed to grow the Company substantially, and materially change the business direction of the Company, took the following action:

1. Elected to divest the Company of its then-current business activities by selling, in consideration of the assumption of all indebtedness and relief of obligations under executory contracts, all of its business assets;

2. Agreed to acquire all the capital shares of PhoneBrasil Telephonia Voipdigital, Inc., in exchange for 6,000,000 shares of the Company’s capital stock: and

3. Agreed, subject to Shareholder approval, to change the Company’s name to PhoneBrasil International Inc.

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 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.

The increase in the shares the Company is authorized to issue was made because Management believed that it would better position the Company in its efforts to make acquisitions of viable business entities on a stock for stock basis. The Board of Directors further believed it would benefit the shareholders to have a substantial number of unreserved shares available for issuance so that adequate shares may be available for the possible business combination or acquisition.

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 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, 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 Convertible Preferred Stock of the Company, for a total purchase price of $245,000 in cash. The funds were provided by the Buyer’s members. 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.

As a result of the transaction, Mr. Ross DiMaggio, the manager of the Buyer, acquired control of the Company.

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. 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 the outstanding PhoneBrasil Common Stock for the capital stock of MIKAB.

MIKAB provides specialty contracting services to market participants in the telecommunications and clean energy industries and infrastructure build throughout the United States. A proportion of our workforce is staffed through a unique in-house program through which we hire and train military veterans to provide construction and maintenance services to our customers. We also hire employees with skill and experience in our fields and use third party independent contractors for our operations.

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

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, in 2021 the Company changed its domicile from New Jersey to Delaware.

Under guidance of ASU 805-10-55-11 through 15 MIKAB has been identified as the acquirer for accounting purposes.  Accordingly, the historical financial statements are those of MIKAB for all periods presented.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Management’s Representation of Interim Condensed Consolidated Financial Statements

The accompanying unaudited Condensed Consolidated 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 Condensed Consolidated financial statements. Certain information and footnote disclosures normally included in Condensed Consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) 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 Condensed Consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of 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 Condensed Consolidated  financial statements should be read in conjunction with the audited Condensed Consolidated financial statements and notes thereto as of and for the year ended December 31, 2021, as presented in the Company’s Annual Report on Form 10-K filed on April 22, 2022 with the SEC.

Principles of Consolidation

The Condensed Consolidated financial statements include two subsidiaries controlled by the Company, MIKAB Inc. and Americrew CE, LLC. This company is the operating unit of the Company and generate all of the revenues for the Company. All intercompany transactions are eliminated in consolidation.

Going Concern

The accompanying condensed consolidated 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 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. The Company does not have sufficient working capital to meet its cash needs for the next 12 months. Therefore, the Company will need to raise additional funds and is currently exploring alternative sources of financing. Historically, the Company 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 short-term loans from related parties.

The Company has $511,857 in cash on hand as of August 12, 2022. We owe $256,000 to our former principal stockholder which was due December 30, 2021; we also owe $351,649 of bridge notes due on July 31, 2022, and the balance of $300,000 due on December 31, 2022. We also owe $2,485,000 of convertible promissory notes which mature between October-December 30, 2023. In addition, we owe $464,078 to the estate of a family member of our Chief Operating Officer which is due January 1, 2025. See Notes 12 and 13to our Condensed Consolidated  Financial Statements for more information on our indebtedness.

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 at least an additional $5 million. We are pursuing a new offering of Notes and Warrants in 2022 and seek to raise up to $7 million on a best efforts basis.

Overall, there is no guarantee that cash flow from our existing or future operations and any external capital that we may be able to raise will be sufficient to meet our expansion goals and working capital needs.  The consolidated financial statements do not include any adjustments relating to this uncertainty.

Use of Estimates

The preparation of 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 at the date of the 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.

Cash

On June 30, 2022, and December 31, 2021, the Company’s cash totaled $193,385 and $721,452, respectively.

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 from the balance sheet date. The Company reviews all receivables prior to the year end and all uncollectible amounts are written off against income. Historically, our uncollectible Accounts Receivables have been less than 1% on an annual basis and therefore deemed immaterial.

Revenue Recognition

The Company recognizes its revenue in accordance with FASB Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”). ASC 606 is the result of a joint project of the FASB and the International Accounting Standards Board (“IASB”) to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”). The guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards.

ASC 606 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. An entity should apply the following five-step process to recognize revenue:

Step 1:  Identify the contract with a customer.

Step 2:  Identify the performance obligations in the contract.

Step 3:  Determine the transaction price.

Step 4:  Allocate the transaction price to the performance obligations in the contract.

Step 5:  Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company is engaged in one major line of business, specialty contracting services to market participants in the telecommunications and clean energy industries and infrastructure build throughout the United States. The Company satisfies its performance obligation at the point of sale when the transfer of control of services to customers occurs.

Revenue is recognized upon the transfer of control of the promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. For service sales, the Company typically transfers control at a point in time upon service is completed.

Typically, the timing of revenue recognition coincides with the timing of invoicing to the customers, at which time the Company has an unconditional right to consideration. As such, the Company typically records a receivable when revenue is recognized.

The contract with the customer states the final terms of the sale, including the description of services and pricing. Payment is typically due within 30 of the service completion.  The Company’s contracts with customers generally result in services performed at point in time with a single performance obligation. 

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 Company 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 Condensed Consolidated 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.

Fixed Assets

Fixed assets are recorded at cost. Depreciation  is provided over the estimated useful lives of the assets using the straight-line method.  The estimated useful lives of the assets are as follows:

Repairs and maintenance are charged to expense as incurred. Gains and losses on disposition of property and equipment are included in income.

Long-Lived Assets

Long-lived assets are reviewed for impairment periodically or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with FASB ASC Topic 360. If the total expected future cash flows, including estimated salvage value, is less than the asset’s carrying value, the asset is written down to its fair value.  For the six months June 30, 2022, management determined that no such impairment existed.

Income Taxes

Effective January 1, 1981, the Company elected with the consent of its stockholders, to be taxed under the provisions of subchapter S of the Internal Revenue Code. Under these provisions, the Company does not pay Federal corporate income tax on its income. Instead, the stockholders are liable for individual Federal income tax on the Company’s taxable income. For tax purposes, income is reported using the income tax basis of accounting.

The same election was made for the State of New Jersey as of January 1, 1995. However, there are minimum taxes due to New Jersey based on the amount of the Company’s revenues. Any tax paid is reported as an expense under Other Operating Expenses.

As a result of the stock transactions on August 12, 2021, Mikab’s Subchapter S election has been terminated. As of that date forward the Company will be treated as a taxable C corporation. Separate short year tax returns for S and C Corporations will be 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, inventories, 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.

NOTE 3– Restatement

Restatement

As result of errors identified in our previously filed interim financial information for the three and six month periods ended June 30, 2022 and 2021, we have restated our prior financial statements.  Those errors and restatements are as follows.  We corrected 2021 earnings per share for errors made with respect to weighted average shares outstanding.  We corrected prior period retained earnings for offering expenses that were previously included in equity but should have been in our prior period operating statement.  We also corrected certain 2022 and 2021 clerical errors and presentation items in our cashflow and operating statements. Those are summarized as follows

NOTE 4 - 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.

The Company had one major vendor, which accounted for approximately 31% of all purchases for the six months ended June 30, 2022.

The Company had three major customers, which accounted for approximately 28%, 22%, and 21% of all sales for the six months ended June 30, 2022.

Accounts receivable due from five customers accounted for approximately 22%, 20%, 17%, 12%, and 11% of accounts receivable at June 30, 2022.

NOTE 5 – Fixed Assets

Fixed assets, net is summa as follows:

Depreciation and amortization expense related to fixed assets amounted to $16,631 and $16,631 for the six months ended June 30, 2022 and 2021, respectively.

NOTE 6 – Paycheck Protection Program Loan

As a result of the Corona Virus pandemic, Mikab was able to obtain Paycheck Protection Program loans described in the CARES Act in the amount of $351,370 for payroll and other expense reimbursement in 2021 and 2020. Both loans were completely forgiven in 2021and such amounts recorded as a gain in the accompanying Condensed Consolidated consolidated statement of operations.

NOTE 7 – Related Party Transactions

Mikab and the Company have entered into a number of related party transactions.  Certain of the owners of the Company own stock in entities which sell goods and services and lease premises to the Company. The Company believes the terms of these transactions approximate those done as arms-length and are as follows for the six months ended June 30, 2022 and 2021:

NOTE 8 – Leasing Arrangements

The Company leases a commercial building under a twenty-year lease beginning October 1, 2009 and ending September 30, 2029, payable in monthly installments of $8,998 from Mikab Properties (a related party as described in Note 3). The Company is required to carry insurance and pay for all needed repairs, maintenance and real estate taxes. The rental amount has been reduced in the last two years to $96,000 in 2020 by agreement between the parties. There were oral month-to-month agreements for the three other premises the Company leases prior to 2021. Beginning in 2021, these three premises are under five-year lease agreements payable in monthly installments of $3,100 to 29 Aladdin Avenue Realty LLC, $1,200 to 75 Second Street Realty LLC and $1,200 to Mikab Realty LLC. Each has a 3% annual increase for the term of the leases. Based on current GAAP accounting, The Company has determined that it’s operating lease right of use is valued at $988,521 of which $279,633 is current and $708,838 is long-term.  The future minimum lease commitments are as follows for the year ending June 30,

NOTE 9 – Stockholders’ Life Insurance

The Company entered into life insurance policies for certain stockholders. The Company is both the owner and beneficiary of these policies. The purpose of these policies is to buy back the shares of the stockholder in the event of their death.

The Company also provides whole life insurance to several of the key employees.  There isn’t a cash surrender value

NOTE 10 – Fair  Market Value (FMV)

These Condensed Consolidated financial statements are required to disclose the methods used to determine the fair value of financial assets and liabilities based on a hierarchy of three levels of input.

Level 1 inputs are based on unadjusted market prices within active markets.

Level 2 inputs are based on quoted prices for similar assets and liabilities in active or inactive markets.

Level 3 inputs would be primarily valued using management assumptions about the assumptions market participants would utilize in pricing the asset or liability.

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.

The Company has no financial assets or liabilities requiring fair valuation.

NOTE 11 – Net Income (Loss) per Share

Basic net loss per share has been computed on the basis of the weighted average number of shares of common stock outstanding. Diluted net loss per share of common stock has been computed on the basis of the weighted average number of shares outstanding plus equivalent shares of common stock assuming exercise of stock options. Potential shares of common stock that have an anti-dilutive effect (i.e., those that share or decrease loss per share) are excluded from the calculation of diluted net loss per share of common stock.  For the periods ending June 30, 2022 and 2021, all potentially dilutive securities were antidilutive.

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 warrants (the “Warrants”) to purchase 961,544 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 Warrants except they are exercisable at $2.0935 per share.

Each Note is due two years from the date of issuance. The Notes bear interest at 8% per annum payable quarterly, subject to an increase in case of an event of default as provided for therein, and interest is payable in cash or common stock at the option of each investor. The Notes are convertible into shares of common stock at any time following the date of issuance at the holder’s option at a conversion price of $1.9032 per share, subject to certain adjustments. The conversion price will also be subject to adjustment upon any issuance by the Company of common stock or securities convertible or exercisable into common stock at a price per share that is lower than the conversion price (a “Dilutive Price”), subject to certain exempt issuances, whereupon the conversion price will be adjusted to 80% of the Dilutive Price. Furthermore, at any time after December 31, 2022, we may, after written notice to the noteholders, redeem all of the then outstanding principal amount of the Notes for cash in an amount equal to the sum of 110% of the then outstanding principal amount of the Notes, accrued but unpaid interest and all other amounts due in respect of the Notes (if any). The Notes also contain certain negative covenants including the general inability to borrow funds whether to prepay the Notes or otherwise, although in 2023 we may borrow a sufficient sum to cover the prepayment.

The 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 Warrants, there is no effective Registration Statement registering, or no current Prospectus available for, the resale of the shares underlying the Warrants, the holders may exercise the 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 subsidiary, entered into a Guaranty Agreement, dated October 5, 2021.

The Note also contains customary negative covenants prohibiting the Company from certain actions while the Note remains outstanding.

Each of the Note and the 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 on or before January 31, 2022, covering the resale of the shares of common stock issuable upon conversion of the Notes and exercise of the Warrants and to have such Registration Statement declared effective within 90 days thereafter.

The Warrants are equity classified. On the date of issuance, the warrants had a fair value of $65,284 and relative fair value of $75,824.33. Amortization of debt discount has been recorded in interest expense the accompanying condensed consolidated statement of operations.

NOTE 13 – Loans Payable - Related Party

As of June 30, 2022 and December 31, 2021, there was a note payable to related parties of $464,078 and $522,562.  The lean bears interest at  12% and 10%  respectively and matures January 1, 2025 and December 31, 2022 respectively.

NOTE 14 – Loan Payable - Stockholder

As of June 30 2022 and December 31, 2021 the balances of loan payable stockholder were $451,859 and $ 464,078 respectively. The loan bears no interest until maturity January 1, 2025. Interest after maturity is 10% per annum until fully repaid.

NOTE 15 – GOODWILL and INTANGIBLE ASSETS

GOODWILL

The Company entered into a Stock Purchase Agreement (the “SPA”) effective as of August 12, 2021 with MIKAB and its stockholders. On August 12, 2021, the Company completed the acquisition of all of the issued and outstanding stock of MIKAB and MIKAB became a wholly owned subsidiary of the Company. At the closing the Company delivered to the sellers a 94.6% of the Equity of The Company. 

Under guidance of ASU 805-10-55-11 through 15 MIKAB has been identified as the acquirer for accounting purposes. As a result of the foregoing the Company has not recorded goodwill. The Company intends to conduct a valuation study on the acquisition prior to yearend and will adjust its intangible assets pursuant to the final valuation report.

NOTE 16 – EQUITY

Common Stock

The Company has authorized 300,000,000 shares of $0.000001 par value, common stock. As of June  30, 2022, and December 31, 2021, there were 15,764,424 shares of Common Stock issued and outstanding, respectively.

NOTE 17 - 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 would not have a material adverse effect on the Company’s Condensed Consolidated consolidated financial statements.

The COVID-19 outbreak in the United States has caused business disruption through mandated and voluntary closings. Although temporary disruptions can be expected, significant uncertainty exists concerning the magnitude and duration of the COVID-19 pandemic’s impact on the Company's customers, labor sources, supply chains, and demand for the Company’s services.  The potential financial impact cannot be reasonably estimated at this time.

The SBA may elect to undertake an audit of the Company’s Paycheck Protection Program loans.

NOTE 18 – Factoring Recourse

On January 28, 2022, MIKAB entered into a Factoring and Security Agreement (the “Factoring Agreement”) with Tower Cap LLC (the “Purchaser”), a related party, 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. MIKAB must repurchase delinquent accounts which are past due within 30 days. 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 11) in all accounts receivable and other assets of MIKAB.

Pursuant to the Factoring Agreement, MIKAB has agreed to repurchase any unpaid fees related to the purchased account on demand. The factored amounts are being recorded as a financing. 

The Corporation accounts for its income taxes using the Financial Accounting Standards Board ASC No. 740, "Accounting for Income Taxes", which requires the establishment of a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit carryforwards. Valuation reserves are used to offset deferred tax assets due to the uncertainty of the realization of those tax assets. Deferred tax expense or benefit is recognized as a result of the changes in the assets and liabilities during the year.

The Corporation had a net operating loss available of approximately $797,000 at December 31, 2021 and $634,000 at June 30, 2022 to offset future federal and state taxable income. This loss does not expire.

Under the Tax Cuts and Jobs Act passed in 2017, the carryforward of net operating losses incurred after 2017 no longer expire. However, these losses can only be used to offset 80% of taxable income in any one year (100% allowed in 2018). Losses incurred in 2017 and prior years can continue to be used to offset 100% of taxable income until they expire. The Deferred Tax Asset at December 31, listed below, reflect the current corporate tax rate of 21%.

For the six months ended June 30, 2022, the approximate taxable income is $204,000. Based on current tax law this can be offset by the carryforward loss up to 80% of the taxable income or $163,200. The resulting taxable income would have a federal tax due of approximately $8,600. It is estimated that various state taxes are approximately $11,400.

The Corporation's total deferred tax asset and deferred tax asset valuation allowances as of June 30, 2022 and December 31, 2021, respectively are as follows:

The Corporation is subject to federal and state taxation in accordance with the Internal Revenue Code and various state codes. Corporation tax expense is charged to income when paid or accrued. The total accrued tax liability at June 30, 2022 would be $20,000. Since there was no change in the tax deferred asset or liability, there is no deferred tax expense or benefit in 2021.

The Company evaluates all significant tax positions. As of June 30, 2022, the Company does not believe that it has any significant tax positions that would result in additional tax liability to the stockholders of the Company nor does it believe that there are any tax benefits that would increase or decrease within the next twelve months.

The tax years subject to examination by the federal and state taxing authorities are the years ended December 31, 2019 to December 31, 2021.

NOTE 20 – SUBSEQUENT EVENTS

The Company has evaluated all events or transactions that occurred after June 30, 2022 through November 3, 2022, which is the date that the Condensed Consolidated financial statements were available to be issued.

On September 30, 2022 and October  28, 2022, AmeriCrew Inc. (the “Company”) entered into a Securities Purchase Agreement (“SPA”) with five investors (the “Purchasers”) whereby the Purchasers lent the Company a total aggregate of $500,000 gross proceeds and the Company issued these Purchasers Secured Convertible Promissory Notes (the “Notes”), five-year Class A Common Stock Purchase Warrants (the “Class A Warrants”) and five-year Class B Common Stock Purchase Warrants (the “Class B Warrants”) at an exercise price of $1.9032 per share and $2.50 per share, respectively, pursuant to the terms and conditions of the SPA.

There have been no other material subsequent events.

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 ability to close a reverse merger transaction, the possibility that we are unable to raise capital as and when needed, the ongoing impact of COVID-19, supply chain shortages, inflation and the Federal Reserve’s interest rate increases in response, 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-K for the fiscal year ended December 31, 2021. 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

Americrew, Inc.. f/k/a PhoneBrasil International, Inc. (the “Company”, or “Americrew”) is a Delaware Corporation that was organized in New Jersey in 1991. We were a development stage company engaged in the telecommunications industry and at some point we became a shell issuer as referred to on Rule 144(i) under the Securities Act of 1933. Effective December 13, 2021, Americrew merged in to its parent, a New Jersey Corporation, named PhoneBrasil International, Inc. which changed the Company domicile and name.

Following the acquisition of Mikab Corporation (“Mikab”) in a reverse merger which closed on August 12, 2021 pursuant to which we issued 94.2% of our outstanding common stock to the former Mikab stockholders in exchange for 100% of the capital stock of Mikab (the “Acquisition”), we now provide specialty contracting services to market participants in the telecommunications and clean energy industries and infrastructure build throughout the United States. A proportion of our workforce is staffed through a unique in-house 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:

Since the Acquisition, we have continued our telecommunications service business, commenced training of veterans, negotiated with third parties about EV opportunities, and commenced a small number of site planning projects in the EV space.

Mikab is a service company engaged in the business of building a national infrastructure involving the installation of rural wireless telecommunication cables, upgrading wireless communications towers and going forward providing services to EV charging stations.

While our business is profitable, we lack the capital to support further growth and need to raise capital to grow our business. See the Risk Factor in Part 2, Item 1A of this Report.

Results of Operations

Results of Operations for the Three and Six Months ended June 30, 2022 and 2021, Respectively

Revenue

For the three months ended June 30, 2022 and 2021, the Company’s revenue was $4,678,413 and $1,229,733, respectively. The increase in revenue between periods was primarily attributable to commencement of work under a new contract beginning in the first quarter of 2022 and an increase in work orders from major customers.

For the six months ended June 30, 2022 and 2021, the Company’s Revenue was $6,622,191 and $2,823,727, respectively. The increase in revenue between these periods was primarily attributable to the same reasons referenced above for the corresponding three month periods.

Cost of Revenue, Exclusive of Depreciation

For the three months ended June 30, 2022 and 2021, the Company’s cost of revenue was $3,012,570 and $836,928, respectively. The Cost of Revenue as a percentage of sales increased  due to the commencement of work under a new contract beginning in the first quarter 2022

For the six months ended June 30, 2022 and 2021, the Company’s cost of revenue was $4,458,934 and $1,872,617, respectively. 

Operating Expenses

For the three months ended June 30, 2022 and 2021, the Company had operating expenses of $1,036,653 and $274,710, respectively. The increase in operating expenses between periods was primarily attributable to increased labor, equipment and other expenditures in our efforts to meet the increased demand for our services in the recent period relative to the prior period.

For the six months ended June 30, 2022 and 2021, the Company had operating expenses of $1,658,247 and $876,875, respectively. The increase in operating expenses between periods was primarily attributable to the same reasons referenced above for the corresponding three month period.

Operating Income

For the three months ended June 30, 2022 and 2021, the Company had operating income of $629,190 and $118,095, respectively. The increase was primarily due to the increase in revenue, partially offset by an increase in operating expenses and cost of revenue year-over-year.

For the six months ended June 30, 2022 and 2021, operating income was $505,010 and $74,235, respectively, with the increase attributable to the same reason referenced above for the corresponding three-month periods.

Net Income

For the three months ended June 30, 2022 and 2021, the Company had net income of $490,494 and $118,095, respectively The -increase in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, was primarily attributable to the increased revenue in the 2022 period coupled with a lower increase in expenditures in the same period.

For the six months ended June 30, 2022 and 2021, the Company had net income of $356,314 and $423,188, respectively The decrease in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 was primarily attributable to normal business operations.

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 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 in a timely manner. In recent periods we have faced challenges in meeting customer demand due to limitations in our operational and capital resources, as more particularly described under “Item 1A – Risk Factors.” 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 six months ended June 30, 2022, net cash used by operating activities was $1,707,973, compared to net cash provided by operating activities of $619,555 for the six months ended June 30, 2021. The increase in the 2022 period as compared to the 2021 period was primarily attributable to an increase in net accounts receivable and an increase in other assets, offset by an increase in other current liabilities and accounts payable.

Cash Flows from Financing Activities:

For the six months ended June 30, 2022, the net cash provided by financing activities was $1,179,906 consisting of proceeds from the factoring of accounts receivable, net of repayments of loans and notes payable, and for the six months ended June 30, 2021, net cash provided by financing activities was $283,306 consisting primarily of proceeds from loans and notes payable.

Cash Flows from Investing Activities

We had no cash flows used in or provided by investing activities in the six months ended June 30, 2022 and 2021, respectively.

For the six months ended June 30, 2022, net income   was $ 356,314. The Company has $511,857 cash on hand as of August 12, 2022. We do not have sufficient working capital conduct our operations for the 12 months following the filing of this Report. As a result, we are seeking to raise up to $7 million from the sale of convertible notes and warrants. See Note 2 to the Condensed Consolidated Financial Statements. We cannot assure you we will raise all of this sum or any amount.

The Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations. The Company does not have sufficient working capital to meet its cash needs for the next 12 months. Accordingly, the Company will need to raise additional funds of at least $5 million  to support its ongoing operations. As previously disclosed, we are engaged in a private offering of secured convertible notes and warrants which is being conducted on a best-efforts basis. As of November 3, 2022, we have raised $245,000 in the offering, and the offering remains ongoing as of the date of this report.

Historically, the Company 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 short-term loans from related parties.

Overall, there is no guarantee that cash flow from our existing or future operations and any external capital that we may be able to raise will be sufficient to meet our working capital needs.

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 his evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, Mr. Kelley Dunne, who is presently serving as our Chief Executive Officer and Mr. Ross DiMaggio, who is presently serving as our Chief 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

The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report on Form10-K filed on April 22,2022.

In recent months we have been unable to meet demand for our services due to operational limitations and a lack of working capital.

We have recently faced challenges in servicing certain customers’ work orders under existing master services agreements due to our limited equipment, workforce and working capital. Because of these limitations, demand for our infrastructure services has outpaced our ability to perform the services in a timely manner. As a result, we have not generated revenue to the extent or within the time periods we otherwise would have were we to have the necessary resources to perform the work more promptly. In addition to adversely impacting our results of operations, if this trend continues and we are unable to generate or raise sufficient capital or otherwise struggle to gain access to the equipment and personnel needed to perform under existing or new contracts, our customers may reduce or terminate their agreements or work orders, prospective new customers may elect not to procure us, and the relatively higher demand for our services that we are presently experiencing may subside before we can capitalize on it and leverage it to grow our operations and revenue-generating capabilities. Additionally, as the threat of a possible recession looms and grows due to Federal Reserve interest rate increases, slowing economic growth and other factors, our ability to capitalize on the current opportunities and our future prospects will also be diminished. Should we continue to struggle to provide the requested services due to our own operational and liquidity limitations and/or as a result of outside forces, it could materially harm our business and results of operations.

Our Chief Executive Officer pledged all of his shares in the Company to a creditor of another company that he controls.  Therefore if the other company defaults on the loan, there is a risk that our Company may undergo a change in control which could result in a material adverse effect to our business.

P. Kelley Dunne, our Chief Executive Officer and a director, beneficially owns 4,825,800 shares representing 30.6% of the Company’s issued and outstanding common stock, without giving effect to any conversions or exercises of outstanding derivative securities. This includes 1,856,077 shares held by Novation Enterprises, LLC (“Novation”), an entity which Mr. Dunne controls. Novation has outstanding obligations estimated to be over $1 million payable to a third party under a Royalty Agreement which are past due, although the third party agreed to forbear the enforcement of its rights arising from the defaults until September 30, 2022, subject to certain conditions including the payment by Novation of $45,000. In addition, Mr. Dunne and Novation pledged their shares of the Company’s common stock to secure the payment of the obligations. If Novation is unable to repay its obligations and otherwise comply with the terms of the forbearance agreement or reach another accommodation with the third party by the termination date of the forbearance agreement, the third party could sue Novation and Mr. Dunne. If the third party is successful in asserting a claim against Mr. Dunne, it may become the owner of Mr. Dunne’s pledged shares in the Company as well as those held by Novation. Such a development would result in a change of control of the Company, which could materially adversely affect our ability to take certain corporate actions, or could otherwise result in adverse consequences to the Company and its stockholders.

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.