Results of Operations - Three months ended September 30, 2021, compared to
September 30, 2020
We had a net loss of $232,000 in the period ended September 30, 2021, compared
to a net loss of $325,000 for the period ended September 30, 2020.
Revenues
Details of revenues are as follows:
Three months ended
September 30, Increase (Decrease)
2021 2020 $ %
Mobile banking technology $ 24,000 $ 24,000 $ - -
Other revenue, management fee -
related party 92,000 56,000 36,000 64.3
Total Revenues $ 116,000 $ 80,000 $ 36,000 45.0
• 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 periods ended September 30,
2021, and 2020 were $24,000 and $24,000, respectively.
• 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,
2022, The Matthews Group earns a fee of 35% from the barcode technology
operations. For the periods ended September 30, 2021 and 2020, revenue earned
from the management services agreement was $92,000 and $56,000, respectively.
Cost of Sales
Cost of sales for the periods ended September 30, 2021 and 2020 totaled $50,000
and $56,000, respectively.
Operating Expenses
General and administrative expenses for the periods ended September 30, 2021 and
2020 totaled $190,000 and $256,000, respectively. The decrease in general and
administrative expenses was primarily due to property taxes related to our
office lease of $67,000 recorded in the prior period, which did not occur in the
current period.
Other Income (Expenses)
Interest expense for the periods ended September 30, 2021 and 2020, was $108,000
and $93,000, respectively. The increase was due to the increase in our notes
payable balance.
17
Liquidity and Capital Resources
Our cash balance on September 30, 2021 increased to $264,000 as compared to
$238,000 on June 30, 2021. The increase was the result of $142,000 in cash used
in operating activities offset by $168,000 in cash provided by financing
activities. Net cash used in operations during the period ended September 30,
2021, was $142,000, compared with $262,000 of net cash used in operations during
the same period of the prior year. Cash used in operations during the period
ended September 30, 2021, was primarily from our net loss of $232,000, offset by
and increase in interest accrued on notes payable of $107,000, and general
changes to our working capital accounts of $17,000. Net cash provided by
financing activities of $168,000 during the period ended September 30, 2021, was
due to proceeds received from notes payable. During the same period of the prior
year, net cash provided by financing activities of $139,000 was from proceeds
received from convertible and 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 September 30, 2021, the Company incurred a net
loss of $232,000 and cash used in operating activities of $142,000, and on
September 30, 2021, the Company had a working capital deficit of $6,889,000. In
addition, as of September 30, 2021, the Company is delinquent in payment of
$717,000 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,
2021 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 2022 without continued
external investment. The Company believes it will require additional funds to
continue its operations through fiscal 2022 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
Convertible notes and notes payable includes principal and accrued interest and
consists of the following at September 30, 2021 and June 30, 2021:
September 30, June 30,
2021 2021
(a) Unsecured convertible notes ($19,000 and
$19,000 in default) $ 62,000 $ 62,000
(b) Notes payable (in default) 445,000 440,000
(c) Notes payable (in default) 27,000 27,000
Total convertible notes and notes payable $ 534,000 $ 529,000
(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.
At June 30, 2021, convertible notes totaled $62,000. During the period ended
September 30, 2021, a nominal amount of interest was added to principal,
resulting in a balance owed of $62,000 at September 30, 2021. On September 30,
2021, $19,000 of the convertible notes were in default and convertible at a
conversion price of $0.30 per share into 64,619 shares of the Company's common
stock. The balance of $43,000 is due on demand and convertible at a conversion
price of $0.08 per share into 535,223 shares of the Company's common stock.
18
(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, 2021, the notes totaled $440,000. During the period ended September
30, 2021, interest of $5,000 was added to principal resulting in a balance owed
of $445,000 at September 30, 2021. At September 30, 2021, $401,000 of notes are
secured by the Company's intellectual property and $44,000 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, 2021, the notes totaled $27,000. During the period ended September
30, 2021, a nominal amount of interest was added to principal, resulting in a
balance owed of $27,000 at September 30, 2021.
Convertible notes and notes payable-related parties
Convertible notes and notes payable-related parties includes principal and
accrued interest and consists of the following at September 30, 2021 and June
30, 2021:
September 30, June 30,
2021 2021
(a) Convertible notes-The Matthews Group $ 1,769,000 $ 1,741,000
(b) Notes payable-The Matthews Group 3,614,000 3,375,000
(c) Convertible notes-other related parties
($226,000 and $224,000 in default) 311,000 308,000
Total convertible notes and notes
payable-related parties $ 5,694,000 $ 5,424,000
(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 (see Note 7) and is owned 50% by Ms. Van
Tran, the Company's CEO/Executive Chair and a director, and 50% by Larry
Johanns, a significant shareholder of the Company. At June 30, 2021, convertible
notes due to The Matthews Group totaled $1,741,000. During the period ended
September 30, 2021, interest of $28,000 was added to principal, resulting in a
balance owed of $1,769,000 at September 30, 2021. At September 30, 2021, the
notes are convertible at a conversion price of $0.08 per share into 22,115,956
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 (see Note 7) dated September 30, 2015. At June 30, 2021,
notes due to The Matthews Group totaled $3,375,000. During the period ended
September 30, 2021, $168,000 of notes payable were issued and interest of
$71,000 was added to principal, resulting in a balance owed of $3,614,000 at
September 30, 2021.
(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.
At June 30, 2021, convertible notes due to other related parties totaled
$308,000. During the period ended September 30, 2021, interest of $3,000 was
added to principal resulting in a balance owed of $311,000 at September 30,
2021. At September 30, 2021, $226,000 of the notes were due in 2010 and are in
default, and the balance of $85,000 is due on demand. At September 30, 2021,
$226,000 of the notes are convertible at a conversion price of $0.30 per share
into 754,581 shares of the Company's common stock, and $85,000 of the notes are
convertible at a conversion price of $0.08 per share into 1,057,550 shares of
the Company's common stock.
19
Loans Payable
On March 23, 2021, the Company was granted its first loan for $59,000 (the "PPP
loan") from Community Federal Savings Bank, pursuant to the Paycheck Protection
Program (the "PPP") under the CARES Act. On June 1, 2021, the Company was
granted a second PPP loan for $59,000 from Community Federal Savings Bank with
similar loan terms. Concurrently, as of September 30, 2021, the total amount
owed for PPP loans was $118,000.
The PPP loan matures on March 23, 2026, bears interest at a rate of 1% per
annum, is unsecured and guaranteed by the U.S. Small Business Administration
(SBA). The PPP loan is payable monthly commencing 6 months after the end of the
covered period, which ends in September 2021. In accordance with the PPP
Flexibility Act, if the Company applies for loan forgiveness within 10 months
after the end of the covered period, then no payments are due until the SBA
remits payment of a forgiveness amount or determines that no forgiveness is
authorized. If the Company does not submit a request for forgiveness within 10
months after the end of the covered period, the Company will begin making
payments on the PPP loan.
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.
20
Revenue Recognition
Revenues for the Company are classified into mobile banking technology and
management fee revenue.
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.
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, 2022. The Company earned a fee of 35% of all
revenues billed up to September 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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