Results of Operations - Three months ended September 30, 2020, compared to
September 30, 2019
We had a net loss of $325,000 in the period ended September 30, 2020, compared
to a net income of $30,000 for the period ended September 30, 2019.
Revenues
Details of revenues are as follows:
Three months ended
September 30, Increase (Decrease)
2020 2019 $ %
Mobile banking technology $ 24,000 $ 25,000 $ (1,000 ) (4.0 )
Other revenue, management fee -
related party 56,000 129,000 (73,000 ) (56.6 )
Total Revenues $ 80,000 $ 154,000 $ (74,000 ) (48.1 )
• Mobile banking technology
Mobile Banking Technology revenues include products such as the Company's Blinx
On-Off™ prepaid toggle Card and its Open Loop/Closed Loop System and Bio ID Card
Platform. Mobile Banking Technology uses web-based mobile technology to offer
financial cardholders the very best technology in conducting secure financial
transactions in real-time, protecting personal identity, and financial account
security. Mobile Banking Technology revenues for the period ended September 30,
2020, and 2019 were $24,000 and $25,000, respectively. The decrease in Mobile
Banking Technology revenues was due to both the conclusion of certain long-term
contracts during the prior year and the Company not having a bank to sponsor its
mobile banking solutions since fiscal year 2016 (see Note 1 to Consolidated
Financial Statements).
• Other revenue, management fee - related party
Effective October 1, 2015, the Company entered into a management services
agreement with The Matthews Group for which the Company agreed to manage its
previous barcode technology business, on behalf of The Matthews Group, from
October 1, 2015 to June 30, 2021. Per the terms of the management services
agreement, the Company earned a fee of 20% of barcode technology operations
revenues through May 31, 2017. Subsequent to May 31, 2017 and up to June 30,
2021, The Matthews Group earns a fee of 35% from the barcode technology
operations. For the period ended September 30, 2020 and 2019, revenue earned
from the management services agreement was $56,000 and $129,000, respectively.
The Company is currently experiencing a decline in revenues earned under the
management services agreement with The Matthews Group, as The Matthews Group's
customer orders have been negatively impacted by the effects of COVID-19. The
severity of the impact of the COVID-19 pandemic on the Company's business will
continue to depend on a number of factors, including, but not limited to, the
duration and severity of the pandemic and the extent and severity of the impact
on the Company's customers, service providers and suppliers, all of which are
uncertain and cannot be predicted.
Cost of Sales
Cost of sales for the period ended September 30, 2020 and 2019 totaled $56,000
and $55,000, respectively.
Operating Expenses
General and administrative expenses for the period ended September 30, 2020 and
2019 totaled $256,000 and $156,000, respectively. The increase in general and
administrative expenses was primarily due to property taxes related to our
office lease of $67,000, which did not occur in the prior year period, and
increased legal and professional fees as compared to the same period of the
prior year.
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Other Income (Expenses)
On July 10, 2019, the Company and Plaintiffs entered into a Confidential
Settlement Agreement and Mutual Release, whereas, both the Company and the
Plaintiffs agreed to generally discharge and forever release each other from
future claims, to pay their own legal fees, and the promissory note payable to
the Plaintiffs was discharged. During the period ended September 30, 2019, the
Company recorded a gain on extinguishment of convertible note payable of
$167,000.
Interest expense for the period ended September 30, 2020 and 2019, was $93,000
and $80,000, respectively. The increase was due to the increase in our notes
payable balance.
Liquidity and Capital Resources
Our cash balance on September 30, 2020 decreased to $105,000 as compared to
$228,000 on June 30, 2020. The decrease was the result of $262,000 in cash used
in operating activities offset by $139,000 in cash provided by financing
activities. Net cash used in operations during the period ended September 30,
2020, was $262,000, compared with $15,000 of net cash used in operations during
the same period of the prior year. Cash used in operations during the period
ended September 30, 2020, was primarily from our net loss of $325,000, offset by
and increase in interest accrued on notes payable of $92,000, and general
changes to our working capital accounts of $29,000. Net cash provided by
financing activities of $139,000 during the period ended September 30, 2020, was
due to proceeds received from notes payable. During the same period of the prior
year, net cash provided by financing activities of $104,000 was from proceeds
received from notes payable.
The accompanying Consolidated Financial Statements have been prepared assuming
the Company will continue as a going concern, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business.
During the period ended September 30, 2020, the Company incurred a net loss of
$325,000 and used cash in operating activities of $262,000, and at June 30,
2020, the Company had a stockholders' deficiency of $6,174,000. In addition, as
of September 30, 2020, the Company is delinquent in payment of $689,000 of its
notes payable. These factors, among others, raise substantial doubt about our
ability to continue as a going concern within one year of the date that the
financial statements are issued. In addition, the Company's independent
registered public accounting firm, in its report on our June 30, 2020 financial
statements, has raised substantial doubt about the Company's ability to continue
as a going concern. The Company's financial statements do not include any
adjustments that might result from the outcome of this uncertainty be necessary
should we be unable to continue as a going concern.
The Company believes its cash and forecasted cash flow from operations will not
be sufficient to continue operations through fiscal 2021 without continued
external investment. The Company believes it will require additional funds to
continue its operations through fiscal 2021 and to continue to develop its
existing projects and plans to raise such funds by finding additional investors
to purchase the Company's securities, generating sufficient sales revenue,
implementing dramatic cost reductions or any combination thereof. There is no
assurance that the Company can be successful in raising such funds, generating
the necessary sales or reducing major costs. Further, if the Company is
successful in raising such funds from sales of equity securities, the terms of
these sales may cause significant dilution to existing holders of common stock.
The Company has traditionally been dependent on The Matthews Group, LLC, a
related party, for its financial support. The Matthews Group is owned 50% by Van
Tran, the Company's CEO/Executive Chair and a director, and 50% by Lawrence J.
Johanns, a significant Company stockholder.
Convertible notes and notes payable
Notes payable includes principal and accrued interest and consists of the
following at September 30, 2020 and June 30, 2020:
September 30, June 30,
2020 2020
(a) Unsecured convertible notes ($19,000 and
$18,000 in default) $ 60,000 $ 59,000
(b) Notes payable (in default) 427,000 423,000
(c) Notes payable (in default) 26,000 26,000
Total notes-third parties $ 513,000 $ 508,000
(a) The notes are unsecured, convertible into common stock at amounts ranging
from $0.08 to $0.30 per share, bear interest at rates ranging from 5% to 8% per
annum, were due through 2011 and are in default or due on demand.
17
At June 30, 2020, convertible notes totaled $59,000. During the period ended
September 30, 2020, interest of $1,000 was added to the principal, resulting in
a balance owed of $60,000 at September 30, 2020. On September 30, 2020, $19,000
of the convertible notes were in default and convertible at a conversion price
of $0.30 per share into 61,952 shares of the Company's common stock. The balance
of $41,000 is due on demand and convertible at a conversion price of $0.08 per
share into 516,963 shares of the Company's common stock.
(b) The notes are either secured by the Company's intellectual property or
unsecured and bear interest ranging from 6.5% to 10% per annum, were due in
2012, and are in default.
At June 30, 2020, the notes totaled $423,000. During the period ended September
30, 2020, interest of $4,000 was added to principal resulting in a balance owed
of $427,000 at September 30, 2020. At September 30, 2020, $369,000 of notes are
secured by the Company's intellectual property and $58,000 of notes are
unsecured.
(c) The notes are unsecured and bear interest of 4% per annum and were due on
March 17, 2020, and are in default.
At June 30, 2020, the notes totaled $26,000. During the period ended September
30, 2020, a nominal amount of interest was added to principal, resulting in a
balance owed of $26,000 at September 30, 2020.
Convertible notes and notes payable-related parties
Notes payable-related parties includes principal and accrued interest and
consists of the following at September 30, 2020 and June 30, 2020:
September 30, June 30,
2020 2020
(a) Convertible notes-The Matthews Group $ 1,655,000 $ 1,560,000
(b) Notes payable-The Matthews Group 2,758,000 2,630,000
(c) Convertible notes-other related parties
($217,000 and 215,000 in default) 297,000 294,000
Total notes-related parties $ 4,710,000 $ 4,484,000
(a) The notes are unsecured, convertible into common stock at $0.08 per share,
bear interest at rates ranging from 8% to 10% per annum, and are due on demand.
The Matthews Group is a related party and is owned 50% by Ms. Van Tran, the
Company's CEO, and 50% by Larry Johanns, a significant shareholder of the
Company. At June 30, 2020, convertible notes due to The Matthews Group totaled
$1,560,000. During the year ended September 30, 2020, $67,000 of notes payable
were issued and interest of $28,000 was added to principal, resulting in a
balance owed of $1,655,000 at September 30, 2020. At June 30, 2020, the notes
are convertible at a conversion price of $0.08 per share into 20,684,433 shares
of the Company's common stock.
(b) The notes are unsecured, accrue interest at 10% per annum, and are due on
demand. The notes were issued relating to a management services agreement with
The Matthews Group dated September 30, 2015. At June 30, 2020, notes due to The
Matthews Group totaled $2,630,000. During the period ended September 30, 2020,
$72,000 of notes payable were issued and interest of $56,000 was added to
principal, resulting in a balance owed of $2,758,000 at September 30, 2020.
(c) The notes are due to a current and a former director, are unsecured,
convertible into common stock at per share amounts ranging from $0.08 to $0.30,
and bear interest at rates ranging from 8% to 10% per annum.
18
At June 30, 2020, convertible notes due to other related parties totaled
$294,000. During the period ended September 30, 2020, interest of $3,000 was
added to principal resulting in a balance owed of $297,000 at September 30,
2020. At September 30, 2020, $217,000 of the notes were due in 2010 and are in
default, and the balance of $80,000 is due on demand. At September 30, 2020,
$217,000 of the notes are convertible at a conversion price of $0.30 per share
into 724,581 shares of the Company's common stock, and $80,000 of the notes are
convertible at a conversion price of $0.08 per share into 998,175 shares of the
Company's common stock.
Commitments and Contractual Obligations
The Company leases its corporate office building from Ms. Tran, our chief
executive officer, on a month-to-month basis, for $4,000 per month. The
corporate office is located at 2445 Winnetka Avenue North, Golden Valley,
Minnesota.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of
operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates its estimates, including
those related to impairment of long-lived assets, including finite lived
intangible assets, accrued liabilities, fair value of warrant derivatives and
certain expenses. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ materially from these estimates under different
assumptions or conditions.
Our significant accounting policies are more fully described in Note 1 to our
financial statements. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, and expenses, and the related
disclosures of contingent assets and liabilities. Actual results could differ
from those estimates under different assumptions or conditions.
Stock-Based Compensation
The Company periodically issues stock-based compensation to officers, directors,
contractors and consultants for services rendered. Such issuances vest and
expire according to terms established at the issuance date.
Stock-based payments to officers, directors, employees, and for acquiring goods
and services from nonemployees, which include grants of employee stock options,
are recognized in the financial statements based on their fair values in
accordance with Topic 718. Stock option grants, which are generally time vested,
will be measured at the grant date fair value and charged to operations on a
straight-line basis over the vesting period. The fair value of stock options is
determined utilizing the Black-Scholes option-pricing model, which is affected
by several variables, including the risk-free interest rate, the expected
dividend yield, the expected life of the equity award, the exercise price of the
stock option as compared to the fair market value of the common stock on the
grant date and the estimated volatility of the common stock over the term of the
equity award.
Revenue Recognition
Revenues for the Company are classified into mobile banking technology and
management fee revenue.
19
a. Mobile Banking Revenue
The Company, as a merchant payment processor and a distributor, recognizes
revenue from transaction fees charged to cardholders for the use of its issued
mobile debit cards. The fees are recognized on a monthly basis after all
cardholder transactions have been summarized and reconciled with third party
processors.
Prior to the year ended June 30, 2016, the Company entered into certain long
term agreements to provide application development and support. Some customers
paid the agreement in full at signing and the Company recorded the receipt of
payment as deferred revenue. The Company records revenue relating to these
agreements on a pro-rata basis over the term of the agreement and reduces its
deferred revenue balance accordingly.
b. Other revenue, management fee - related party
On September 30, 2015, the Company sold all of its assets of its Barcode
Technology comprised solely of its intellectual property to The Matthews Group
and entered into a management services agreement with The Matthews Group to
manage all facets of the barcode technology operations, on behalf of The
Matthews Group, through June 30, 2021. The Company earned a fee of 35% of all
revenues billed up to June 30, 2021.
Recently Issued Accounting Standards
See Footnote 1 of consolidated financial statements for a discussion of recently
issued accounting standards.
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