Results of Operations - Three months ended December 31, 2019, compared to
December 31, 2018
We had a net loss of $214,138 in three month period ended December 31, 2019,
compared to a net loss of $182,597 for the three month period ended December 31,
2018.
Revenues
Details of revenues are as follows:
Three months ended
December 31, Increase (Decrease)
2019 2018 $ %
Mobile banking technology $ 26,014 $ 31,490 $ (5,476 ) (17.4 )
Other revenue, management fee -
related party 45,990 50,885 (4,895 ) (9.6 )
Total Revenues $ 72,004 $ 82,375 $ (10,371 ) (12.6 )
• 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 December 31,
2019, and 2018 were $26,014 and $31,490, 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, 2020. Per the terms of the management services
agreement, the Company earned 20% of all revenues through May 31, 2017, and 35%
of all revenues through June 30, 2020. For the period ended December 31, 2019
and 2018, revenue earned from the management services agreement was $45,990 and
$50,885, respectively.
Cost of Sales
Cost of sales for the period ended December 31, 2019 and 2018 totaled $54,722
and $55,188, respectively. The decrease in the cost of sales was primarily from
expense reductions, including bank sponsor fees, associated with our decline in
Mobile Banking Technology revenues discussed above, as compared to the same
period of the prior year.
Operating Expenses
General and administrative expenses for the period ended December 31, 2019 and
2018 totaled $143,913 and $135,500, respectively. The decrease in general and
administrative expenses was primarily due to decreased legal and professional
fees as compared to the same period of the prior year.
Sales and marketing expenses for the period ended December 31, 2019 and 2018
totaled $565 compared to $0, respectively.
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Other Income (Expenses)
Interest expense for the period ended December 31, 2019 and 2018, was $86,942
and $74,284, respectively. The increase was due to the increase in our notes
payable balance.
Results of Operations - Six months ended December 31, 2019, compared to December
31, 2018
We had a net loss of $184,081 in six month period ended December 31, 2019,
compared to a net loss of $425,143 for the three month period ended December 31,
2018.
Revenues
Details of revenues are as follows:
Three months ended
December 31, Increase (Decrease)
2019 2018 $ %
Mobile banking technology $ 50,623 $ 60,590 $ (9,967 ) (16.4 )
Other revenue, management fee -
related party 175,424 92,516 82,908 89.6
Total Revenues $ 226,047 $ 153,106 $ 72,941 47.6
• 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 December 31,
2019, and 2018 were $50,623 and $60,590, 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, 2020. Per the terms of the management services
agreement, the Company earned 20% of all revenues through May 31, 2017, and 35%
of all revenues through June 30, 2020. For the period ended December 31, 2019
and 2018, revenue earned from the management services agreement was $175,424 and
$92,516, respectively.
Cost of Sales
Cost of sales for the period ended December 31, 2019 and 2018 totaled $110,181
and $118,172, respectively. The decrease in the cost of sales was primarily from
expense reductions, including bank sponsor fees, associated with our decline in
Mobile Banking Technology revenues discussed above, as compared to the same
period of the prior year.
Operating Expenses
General and administrative expenses for the period ended December 31, 2019 and
2018 totaled $298,917 and $313,550, respectively. The decrease in general and
administrative expenses was primarily due to decreased legal and professional
fees as compared to the same period of the prior year.
Sales and marketing expenses for the period ended December 31, 2019 and 2018
totaled $994 compared to $0, respectively.
Research and development expenses for the period ended December 31, 2019 and
2018 totaled $0 and $50, respectively.
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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 (see Note 4 to the accompanying Condensed
Consolidated Financial Statements). During the period ended December 31, 2019,
the Company recorded a gain on extinguishment of convertible note payable of
$166,921.
Interest expense for the period ended December 31, 2019 and 2018, was $166,957
and $146,477, respectively. The increase was due to the increase in our notes
payable balance.
Liquidity and Capital Resources
Our cash balance on December 31, 2019 increased to $167,108 as compared to
$91,112 on June 30, 2019. The increase was the result of $205,547 in cash used
in operating activities offset by $281,543 in cash provided by financing
activities. Net cash used in operations during the period ended December 31,
2019, was $205,547, compared with $231,594 of net cash used in operations during
the same period of the prior year. Cash used in operations during the period
ended December 31, 2019, was primarily from our net loss of $184,081, reduced by
a gain on settlement and extinguishment of a promissory note payable of
$166,921, increased by stock-based compensation expense of $10,070, and general
changes to our working capital accounts of $135,385. Net cash provided by
financing activities of $281,543 during the period ended December 31, 2019, was
due to proceeds received from notes payable. During the same period of the prior
year, net cash provided by financing activities of $192,590 was from proceeds
received from notes payable.
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 satisfaction of liabilities in the normal course of
business. During the period ended December 31, 2019, the Company incurred a loss
from operations of $184,081 and used cash in operating activities of $205,547,
and on December 31, 2019, the Company had a working capital deficit of
$5,318,388 and a stockholders' deficiency of $5,473,388. In addition, as of
December 31, 2019, the Company is delinquent in payment of $642,511 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, 2019 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 be necessary if the Company is 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 2020 without continued
external investment. The Company believes it will require additional funds to
continue its operations through fiscal 2020 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.
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Convertible notes and notes payable
Convertible notes and notes payable includes principal and accrued interest and
consists of the following at December 31, 2019 and June 30, 2019:
December 31, June 30,
2019 2019
(Unaudited)
(a) Convertible notes ($17,986 and $184,506 in default) $ 58,247 $ 224,037
(b) Notes payable (in default)
413,901 405,162
(c) Notes payable 25,653 25,153
Total notes-third parties $ 497,801 $ 654,352(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.
(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.
(c) The notes are unsecured and bear interest of 4% per annum and due on March
17, 2020.
Convertible notes and notes payable-related parties
Notes payable-related parties includes principal and accrued interest and
consists of the following at December 31, 2019, and June 30, 2019:
December 31, June 30,
2019 2019
(Unaudited)
(a) Convertible notes-The Matthews Group $ 1,506,541 $ 1,452,621
(b) Notes payable-The Matthews Group 2,289,329 1,914,618
(c) Convertible notes-other related parties
($210,624 and
$206,124 in default) 286,728 279,728
Total notes-related parties $ 4,082,598 $ 3,646,967(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.
(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 (see Note 6) dated December 31, 2015.
(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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies
Revenue Recognition
The Company recognized revenue in accordance with Financial Accounting Standards
Board's ("FASB") Accounting Standards Update ("ASU") No. 2014-09, Revenue from
Contracts with Customers (Topic 606) ("ASC 606") which superseded previous
revenue recognition guidance. The underlying principle of ASC 606 is to
recognize revenue to depict the transfer of goods or services to customers at
the amount expected to be collected. ASC 606 creates a five-step model that
requires entities to exercise judgment when considering the terms of contracts,
which includes (1) identifying the contracts or agreements with a customer, (2)
identifying the Company's performance obligations in the contract or agreement,
(3) determining the transaction price, (4) allocating the transaction price to
the separate performance obligations, and (5) recognizing revenue as each
performance obligation is satisfied. The Company only applies the five-step
model to contracts when it is probable that the Company will collect the
consideration it is entitled to in exchange for the services it transfers to its
clients.
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Mobile Banking Technology 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 monthly after all cardholder
transactions have been summarized and reconciled with third party processors.
The Company has 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.
Other Revenue, Management Fee - Related Party
On December 31, 2015, the Company sold all of its assets of its Barcode
Technology, which was comprised solely of its intellectual property, to The
Matthews Group, a related party (see Note 6). The Company subsequently entered
into a management services agreement with The Matthews Group to manage all
facets of the barcode technology operations through June 30, 2020. The Company
earned a fee of 20% of all revenues billed from the barcode technology
operations up to May 31, 2017, and now earns a fee of 35% of all revenues billed
up to June 30, 2020. The Company recognizes management fee revenue as services
are performed.
Stock-Based Compensation
The Company issues stock options and warrants, shares of common stock, and
equity interests as share-based compensation to employees and non-employees. The
Company accounts for its share-based compensation to employees in accordance
with FASB ASC 718, Compensation - Stock Compensation. Stock-based compensation
cost is measured at the grant date, based on the estimated fair value of the
award, and is recognized as expense over the requisite service period.
In prior periods through December 31, 2018, the Company accounted for
share-based compensation issued to non-employees and consultants in accordance
with the provisions of FASB ASC 505-50, Equity - Based Payments to Non-Employees
. Measurement of share-based payment transactions with non-employees is based on
the fair value of whichever is more reliably measurable: (a) the goods or
services received; or (b) the equity instruments issued. The final fair value of
the share-based payment transaction is determined at the performance completion
date. For interim periods, the fair value is estimated, and the percentage of
completion is applied to that estimate to determine the cumulative expense
recorded.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The
guidance was issued to simplify the accounting for share-based transactions by
expanding the scope of Topic 718 from only being applicable to share-based
payments to employees to also include share-based payment transactions for
acquiring goods and services from nonemployees. As a result, nonemployee
share-based transactions will be measured by estimating the fair value of the
equity instruments at the grant date, taking into consideration the probability
of satisfying performance conditions. The Company adopted ASU 2018-07 on July 1,
2019. The adoption of the standard did not have a material impact on our
financial statements.
Recently Issued Accounting Standards
See Note 1 of the Condensed Consolidated Financial Statements for a discussion
of recently issued accounting standards.
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