The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with "Financial Statements and
Supplementary Data" and our consolidated financial statements, related notes,
and other financial information appearing in this Annual Report. In addition to
historical consolidated financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates, and beliefs that
involve significant risks and uncertainties. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to these differences include those discussed below and
elsewhere in this Annual Report, particularly in "Risk Factors" and
"Forward-Looking Statements."
Overview
The Company, through its two wholly owned operating subsidiaries, NuAxess and
PR345 n/k/a OpenAxess, Inc., business, is engaged in providing a full spectrum
of benefit and insurance related staffing and business consulting services,
principally to smaller and mid-sized employers, offering innovative means of
providing their employees with multiple levels of employee benefits including
major medical health insurance, as well as providing other financial and
business consulting services. The Company has entered into third-party
agreements with select strategic partners to provide comprehensive programs
administered through its vendor relationship agreements. The Company offers
programs that include innovative and affordable major medical health insurance
plans and other employee benefit products and services. The NuAxess Smart
Healthcare Plan is a proprietary health plan that is an ERISA-qualified,
self-insured plan, that includes wellness and prevention programs, among other
features. Our primary markets are small and mid-size group employers, sometimes
referred to as the 'gig' economy.
Material Developments During Fiscal 2020
Results of Operations
Comparison of the fiscal year ended September 30, 2020 to the fiscal year ended
September 30, 2019
Revenue
The Company generated no revenues from its former mining operations during the
two years ended September 30, 2020 and 2019. In April 2019, the Company
experienced a change in control transaction, as reported in its Forms 8-K filed
in March and April 2019, referenced above, as a result of which it divested 75%
of the MMMM Mining Subsidiaries to an entity formed and controlled by the
Company's former CEO and Chairman, Sheldon Karasik. At the same time, the
Company commenced operations of its health insurance and employee benefits
subsidiaries.
During the year ended September 30, 2020 the Company received $17,378,502 in
revenue principally from staffing and business consulting services and we
incurred $17,254,140 in expense directly related to this revenue compared to $0
such revenue during the year ended September 30, 2019.
22
Table of Contents
Expenses
Operating expenses for the fiscal year ended September 30, 2020 were
$2,567,961compared to $ 1,591,331 for the same period of the prior year,
representing an increase of 61%, due principally to an increase in general and
administrative expense, sales expense, and stock compensation. The main
components of general and administrative expenses in fiscal 2020 consisted of
approximately $1,175,522 in consulting fees, $231,837 in payroll expense,
$45,765 in stock transfer fees and approximately $50,487 in commission fees.
Included in the shares issued for services was primarily Series M preferred
shares. The professional fees were 17,528. During the prior year, the legal and
professional fees are primarily fees related to the Company's registration
statement on Form S-1 declared effective on March 8, 2019, which registration
statement was initially filed with the SEC on October 15, 2018, after the end of
the fiscal year ended September 30, 2018. In addition, the Company incurred
legal and professional fees of $418,917.
Working Capital
The Company's net loss for the years ended September 30, 2020 and September 30,
2019 were $8,255,367 $4,053,212, respectively. The $4,202,155 increase in net
loss for fiscal year 2020, as compared to fiscal year 2019, is due primarily to
an increase in non-cash gains and losses related to new convertible debt
financings and also to an increase in general and administrative expenses as a
result of the change in business focus and the implementation of our new
business plan.
During the fiscal year ended September 30, 2020, our principal sources of
liquidity included cash received from convertible notes payable, sales of our
common stock, and assignment of future receivables and revenue. During the
fiscal year ended September 30, 2019 our principal source of liquidity included
proceeds from sales of our common stock. We intend to use new capital in the
form of new equity or debt to further advance objectives.
Net cash used by operating activities totaled $1,087,108 and $1,087,437 for the
years ending September 30, 2020 and 2019, respectively. The change between 2020
and 2019 is negligible.
Net cash provided by financing activities totaled $1,536,282 and $1,100,237 for
the years ending September 30, 2020 and 2019, respectively. The change between
2020 and 2019 is primarily attributed to an increase in convertible debt
financing and assignment of receivables in 2020, as compared to 2019. The cash
increased to $436,874 at September 30, 2020 from $14,700 at September 30, 2019,
principally reflecting the net cash used by operations during the period, offset
by the increase in convertible debt.
As reflected in our accompanying financial statements, other than approximately
$1,636,402 received from the issuance of convertible notes during the fiscal
year ended September 30, 2020, we have negative working capital, and an
accumulated deficit of $16,910,125 and $7,079,690 for the years ending September
30, 2020 and September 30, 2019, respectively. Notwithstanding our belief that
we will be able to continue to raise capital through the issuance of equity and,
to a reduced level if at all, convertible notes. The Company believes that it
will be able to raise the requisite amount of equity capital at terms and
condition acceptable to the Company, of which there can be no assurance, these
factors indicate that we may be unable to continue in existence in the absence
of receiving additional funding.
In addition to our operating expenses which average approximately $220,000 per
month, management's plans for the next twelve months include approximately $2.5
million of cash expenditures for development and expansion of our health
insurance and employee benefits business operations. While there can be no
assurance, the Company believes that it will be able to generate sufficient
capital from operations, equity and/or debt financing to fully-implement its
business plan of offering principally to smaller and mid-sized employers a full
spectrum of employee benefit and insurance services enabling employers to offer
a variety of plans providing their employees with multiple levels of benefits
including major medical health insurance, as well as providing financial and
business consulting services.
Dividend Policy
We have never declared or paid, and do not anticipate declaring or paying, any
cash dividends on any of our capital stock. We do not anticipate paying any
dividends in the foreseeable future, and we currently intend to retain all
available funds and any future earnings for use in the operation of our business
and to finance the growth and development of our business. Future determinations
as to the declaration and payment of dividends, if any, will be at the
discretion of our board of directors and will depend on then-existing
conditions, including our operating results, financial condition, contractual
restrictions, capital requirements, business prospects and other factors our
board of directors may deem relevant. Our loan agreements limit our ability to
pay dividends or make other distributions or payments on account of our common
stock, in each case subject to certain exceptions.
23
Table of Contents
Off-Balance Sheet Arrangements
The Company has not undertaken any off-balance sheet transactions or
arrangements.
Recent Accounting Pronouncements
Recent accounting pronouncements which may affect the Company are described in
Note 2 - Summary of Significant Accounting Policies, subsection "New Accounting
Requirements and Disclosures" in the annual financial statements below.
Limitations on Liability and Indemnification Matters
We intend to amend our Bylaws to contain provisions that limit the liability of
our current and former directors for monetary damages to the fullest extent
permitted by Idaho law. Any limitation of liability pursuant to Idaho law does
not apply to liabilities arising under federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Our amended Bylaws will further authorize us to indemnify our directors,
officers, employees, and other agents to the fullest extent permitted by Idaho
law. We intend our amended bylaws also to provide that, on satisfaction of
certain conditions, we will advance expenses incurred by a director or officer
in advance of the final disposition of any action or proceeding, and permit us
to secure insurance on behalf of any officer, director, employee, or other agent
for any liability arising out of his or her actions in that capacity regardless
of whether we would otherwise be permitted to indemnify him or her under the
provisions of Idaho law. We expect to enter into agreements to indemnify our
directors, executive officers, and other employees as determined by the board of
directors. With certain exceptions, these agreements will provide for
indemnification for related expenses including attorneys' fees, judgments,
fines, and settlement amounts incurred by any of these individuals in any action
or proceeding. We believe that these amended bylaw provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
The intended limitation of liability and indemnification provisions in our
amended Bylaws may discourage stockholders from bringing a lawsuit against our
directors for breach of their fiduciary duty. They may also reduce the
likelihood of derivative litigation against our directors and officers, even
though an action, if successful, might benefit us and other stockholders.
Further, a stockholder's investment may be adversely affected to the extent that
we pay the costs of settlement and damage awards against directors and officers
as required by these indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted for directors, executive officers, or persons controlling us, we
have been informed that, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
© Edgar Online, source Glimpses