Results of Operations - Three months ended March 31, 2020, compared to March 31,
2019
We had a net loss of $181,940 for the three month period ended March 31, 2020,
compared to a net loss of $214,958 for the three month period ended March 31,
2019.
Revenues
Details of revenues are as follows:
Three months ended
March 31, Increase (Decrease)
2020 2019 $ %
Mobile banking technology $ 16,934 $ 29,604 $ (12,670 ) (42.8 )
Other revenue, management fee -
related party 100,779 44,536 56,243 126.3
Total Revenues $ 117,713 $ 74,140 $ 43,573 58.8
• 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 three month period ended
March 31, 2020, and 2019 were $16,934 and $29,604, 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 three month period ended March
31, 2020 and 2019, revenue earned from the management services agreement was
$100,779 and $44,536, respectively.
Cost of Sales
Cost of sales for the three month period ended March 31, 2020 and 2019 totaled
$52,876 and $57,697, 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
Selling, general and administrative expenses for the three month period ended
March 31, 2020 and 2019 totaled $162,325 and $143,451, respectively. The
increase in general and administrative expenses was primarily due to increased
legal and professional fees as compared to the same period of the prior year.
Research and development expenses for the three month period ended March 31,
2020 and 2019 totaled $0 and $12,403, respectively.
17
Other Income (Expenses)
Interest expense for the three month period ended March 31, 2020 and 2019, was
$84,452 and $75,547, respectively. The increase was due to the increase in our
notes payable balance.
Results of Operations - Nine months ended March 31, 2020, compared to March 31,
2019
We had a net loss of $366,021 for the nine month period ended March 31, 2020,
compared to a net loss of $640,101 for the nine month period ended March 31,
2019.
Revenues
Details of revenues are as follows:
Nine months ended
March 31, Increase (Decrease)
2020 2019 $ %
Mobile banking technology $ 67,557 $ 90,194 $ (22,637 ) (25.1 )
Other revenue, management fee -
related party 276,203 137,052 139,151 101.5
Total Revenues $ 343,760 $ 227,246 $ 116,514 51.3
• 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 nine month period ended
March 31, 2020 and 2019 were $67,557 and $90,194, 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 nine month period ended March 31,
2020 and 2019, revenue earned from the management services agreement was
$276,203 and $137,052, respectively.
Cost of Sales
Cost of sales for the nine month period ended March 31, 2020 and 2019 totaled
$163,057 and $175,869, 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
Selling, general and administrative expenses for the nine month period ended
March 31, 2020 and 2019 totaled $462,236 and $457,001, respectively. The
increase in general and administrative expenses was primarily due to increased
legal and professional fees as compared to the same period of the prior year.
18
Research and development expenses for the nine month period ended March 31, 2020
and 2019 totaled $0 and $12,453, respectively.
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 nine month period ended March 31,
2020, the Company recorded a gain on extinguishment of convertible note payable
of $166,921.
Interest expense for the nine month period ended March 31, 2020 and 2019, was
$251,409 and $222,024, respectively. The increase was due to the increase in our
notes payable balance.
Liquidity and Capital Resources
Our cash balance on March 31, 2020 increased to $169,305 as compared to $91,112
on June 30, 2019. The increase was the result of $262,664 in cash used in
operating activities offset by $340,857 in cash provided by financing
activities. Net cash used in operations during the period ended March 31, 2020,
was $262,664, compared with $290,591 of net cash used in operations during the
same period of the prior year. Cash used in operations during the period ended
March 31, 2020, was primarily from our net loss of $366,021, and the gain on
settlement and extinguishment of a promissory note payable of $166,921, and
offset by and increase in interest accrued on notes payable of $248,911,
stock-based compensation expense of $16,332, common stock issued for services of
$10,000, and general changes to our working capital accounts of $4,965. Net cash
provided by financing activities of $340,857 during the period ended March 31,
2020, was due to proceeds received from notes payable. During the same period of
the prior year, net cash provided by financing activities of $263,769 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 March 31, 2020, the Company incurred a loss
from operations of $366,021 and used cash in operating activities of $262,664,
and on March 31, 2020, the Company had a working capital deficit of $5,484,066
and a stockholders' deficiency of $5,639,066. In addition, as of March 31, 2020,
the Company is delinquent in payment of $649,330 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.
The outbreak of communicable diseases, such as a new virus known as the
Coronavirus (COVID-19), could result in a widespread health crisis that could
adversely affect general commercial activity and our business. An outbreak of
communicable diseases in the region that we operate or regions from which our
customers travel from or through, or the perception that such an outbreak could
occur, and the measures taken by the governments of countries affected,
including restricting air travel and other means of transportation, imposing
quarantines and curfews and requiring the closure of our offices or other
businesses, including office buildings, theatres, retail stores and other
commercial venues, could adversely affect our business, financial condition or
results of operations.
19
Convertible notes and notes payable
Convertible notes and notes payable includes principal and accrued interest and
consists of the following at March 31, 2020 and June 30, 2019:
March 31, June 30,
2020 2019
(Unaudited)
(a) Convertible notes ($18,186 and $184,506 in default) $ 58,812 $ 224,037
(b) Notes payable (in default)
418,270 405,162
(c) Notes payable 25,904 25,153
Total notes-third parties $ 502,986 $ 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 March 31, 2020, and June 30, 2019:
March 31, June 30,
2020 2019
(Unaudited)
(a) Convertible notes-The Matthews Group $ 1,533,500 $ 1,452,621
(b) Notes payable-The Matthews Group 2,397,452 1,914,618
(c) Convertible notes-other related parties
($212,874 and $206,124 in default) 290,228 279,728
Total notes-related parties $ 4,221,179 $ 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 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.
20
Critical Accounting Policies
Revenue Recognition
The Company recognizes 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.
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.
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.
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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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