UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
———————————
FORM
For the quarterly period ended
OR
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CARRIER EQ, LLC. d/b/a AIRFOX AND SUBSIDIARIES
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARRIER EQ, LLC. d/b/a AIRFOX AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2021 (unaudited) | September 30, 2020 (audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Intangibles, net | ||||||||
| Security deposits | ||||||||
| Lease right of use assets | ||||||||
| Investment in related affiliate | ||||||||
| Due from related party | ||||||||
| Due from affiliates | ( | |||||||
| Non-current assets of discontinued operations | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND MEMBER'S DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| AirToken refund liability | ||||||||
| Lease liability, current portion | ||||||||
| Due to related party | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Deferred gain on issuance of AirTokens for Services | ||||||||
| Lease liability, net of current portion | ||||||||
| Deferred revenue - AirToken Project | ||||||||
| Long-term liabilities of discontinued operations | ||||||||
| Total liabilities | $ | $ | ||||||
| Commitments and contingencies (Note 13) | ||||||||
| Carrier EQ, LLC member's deficit: | ||||||||
| Member's deficit; | ( | ) | ( | ) | ||||
Accumulated other comprehensive income of discontinued operations | ||||||||
| Total member's deficit attributable to Carrier EQ, LLC member | ( | ) | ( | ) | ||||
| Non-controlling interest in subsidiary | ( | ) | ||||||
| Total member's deficit | ( | ) | ( | ) | ||||
| Total liabilities and member's deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 1 |
CARRIER EQ, LLC. d/b/a AIRFOX AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income: | ||||||||||||||||
| Realized loss on sale of digital assets | ( | ) | ||||||||||||||
| Foreign currency transaction loss | ( | ) | ( | ) | ||||||||||||
| Other miscellaneous income | ||||||||||||||||
| Interest income (expense), net | ( | ) | ||||||||||||||
| Other (expense) income, net | ||||||||||||||||
| Income (loss) from continuing operations before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax benefit | ||||||||||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ||||||||||||
| Net loss from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | 6,142,993 | (6,122,579) | (5,735,071) | (16,767,455) | ||||||||||||
| Net loss (income) attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income (loss) attributable to Carrier EQ, LLC. | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive income | ||||||||||||||||
| Foreign currency translation adjustment - discontinued operations | ( | ) | ( | ) | ) | |||||||||||
| Total comprehensive income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 2 |
CARRIER EQ, LLC. d/b/a AIRFOX AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF MEMBER’S DEFICIT AND STOCKHOLDERS’ DEFICIT
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CARRIEREQ INC. | CARRIER EQ, LLC | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock (Series One) | Preferred Stock (Series One - A) | Common Stock | Treasury Stock | Additional Paid-in | Accumulated Other Comprehensive | Noncontrolling | Accumulated | Accumulated Other Comprehensive | Membership | Member's | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Interest | Deficit | Income | Interests | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 (audited) | ( |
) | ( |
) | $ | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 (unaudited) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additional paid-in-capital | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 (unaudited) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Additional paid-in-capital | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain from Deconsolidation of subsidiary | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 (unaudited) | $ | $ |
( |
) | $ | $ | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
CARRIER EQ, LLC. d/b/a AIRFOX AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF MEMBER’S DEFICIT AND STOCKHOLDERS’ DEFICIT
| CARRIEREQ INC. | CARRIER EQ LLC | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred
Stock | Preferred
Stock | Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Noncontrolling | Accumulated | Accumulated | Membership | Member’s | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Interest | Deficit | Income | Interests | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Options exercised | — | — | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | — | — | — | — | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 (unaudited) (as restated) | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Options exercised | — | — | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | — | — | — | — | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 (unaudited) (as restated) | 2,652,072 | $ | 27 | 1,046,147 | $ | 11 | 7,753,069 | $ | 87 | 914,893 | $ | (240,005 | ) | $ | 2,413,632 | $ | 1,108,632 | $ | (757 | ) | $ | (31,670,235 | ) | $ | — | — | $ | — | $ | — | $ | (28,388,608 | ) | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
CARRIER EQ, LLC. d/b/a AIRFOX AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF MEMBER’S DEFICIT AND STOCKHOLDERS’ DEFICIT
| CARRIEREQ INC. | CARRIER EQ LLC | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred
Stock | Preferred
Stock | Common Stock | Treasury Stock | Additional Paid-In | Accumulated | Noncontrolling | Accumulated | Accumulated | Membership | Member’s | Noncontrolling | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income/(Loss) | Interest | Deficit | Income | Interests | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible notes converted into common stock | — | — | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Preferred One and Preferred One A shares to common stock | ( | ) | ( | ) | ( | ) | ( | ) | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of common stock previously outstanding | — | — | ( | ) | ( | ) | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Simple Agreements for Future Equity converted into common stock | — | — | — | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation related to accelerated vesting of options | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution - Via Varejo | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Noncontrolling interest | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of treasury stock | — | — | — | ( | ) | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to Option Stockholders | — | — | — | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution from Via Varejo for payment to Option Holders due to cancellation of stock options | — | — | — | — | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payment to Option Holders due to cancellation of stock options | — | — | — | — | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of membership units - Carrier EQ, LLC | — | — | ( | ) | ( | ) | — | ( | ) | ( | ) | ( | ) | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
CARRIER EQ, LLC. d/b/a AIRFOX AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended June, | |||||
| 2021 | 2020 | ||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
| Net income (loss) from continuing operations | $ | $ | ( | ||
| Net (loss) from discontinued operations | ( |
( | |||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||
| Amortization and Depreciation | |||||
| Impairment write-off | |||||
| Stock based compensation | |||||
| Additional stock based compensation due to cancellation of stock options | |||||
| Reversal of accrued interest related to conversion of convertible notes | ( | ||||
| Realized loss on sale of digital assets | |||||
| Gain on issuance of AirTokens for services | ( |
||||
| Gain from reversal of deferred revenue due to discontinuance of Airtoken project | ( |
||||
| Inflation adjustment to deferred revenue Master card Program | |||||
| (Increase) decrease in assets, net of effect of deconsolidation | |||||
| Transfer out of cash and restricted cash as part of deconsolidation | ( |
||||
| Accounts receivable | ( |
( | |||
| Prepaid expenses and other current and long-term assets | |||||
| Investment in other companies | |||||
| Due from related party | ( | ||||
| Other assets | |||||
| Increase ( decrease) in liabilities, net of effect of deconsolidation | |||||
| Accounts payable | ( |
( | |||
| Operating lease right of use assets and liabilities | |||||
| Accrued liabilities and other current liabilities | |||||
| Other deferred revenue | ( |
( | |||
| AirToken refund liability | ( |
( | |||
| Due to related party | |||||
| Net cash used in operating activities | ( |
( | |||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||
| Acquisition of property and equipment | ( |
( | |||
| Acquisition of intangible assets | ( |
( | |||
| Net cash used in investing activities | ( |
( | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
| Proceeds from exercise of options | |||||
| Capital contributions - Via Varejo | |||||
| Proceeds from Paycheck Protection Program SBA loan | |||||
| Payment of principal from Paycheck Protection Program SBA loan | ( | ||||
| Proceeds from Via Varejo for payment to Option Holders due to cancellation of stock options | |||||
| Payment to Option Holders due to cancellation of stock options | ( | ||||
| Net cash provided by financing activities | |||||
| Effect of exchange rate changes on cash and cash equivalents | ( |
( | |||
| Net decrease in cash and cash equivalents | ( |
( | |||
| Cash and cash equivalents, beginning of period | |||||
| Cash and cash equivalents, end of period | $ | $ | |||
| Supplemental disclosure of non-cash transactions: | |||||
| Investment in related affiliate no longer eliminated in consolidation | |||||
| Due to related party resulting from the deconsolidation of subsidiary | |||||
| Convertible debt instrument settled through issuance of common stock | ( | ||||
| Simple agreement for future equity settled through issuance of common stock | ( | ||||
| Cancellation of common stock | ( | ||||
| Conversion to common stock - Series One | ( | ||||
| Conversion to common stock - Series One A | ( | ||||
| Par value of common stock from issuance to Lake Niassa | |||||
| Conversion of Preferred One and Preferred One A shares to common stock | |||||
| Operating lease right of use assets and liabilities | |||||
| Retirement of treasury stock | |||||
| Issuance of common stock to Option Stockholders | |||||
| Purchase of membership units - Carrier EQ, LLC | ( | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 6 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Note 1 - Organization and Nature of Operations
Carrier EQ, LLC, doing business as Airfox (the “Company”), was incorporated in Delaware on May 21, 2020 with a principal place of business in Boston, Massachusetts. Airfox was previously formed as a corporation, CarrierEQ, Inc. and was incorporated in Delaware on January 19, 2016.
Airfox had at that time a
On May 21, 2020, Airfox filed a certificate of conversion (the “Certificate of Conversion”) to convert the Corporation to a Limited Liability Company and to change the Airfox’s name from “CarrierEQ, Inc.” to “Carrier EQ, LLC” The conversion and name change became effective on May 21, 2020. Airfox (the Company) filed a certificate of formation of Carrier EQ, LLC (the “Certificate of Formation”) on May 21, 2020.
On May 21, 2020, the Company was fully acquired by Via Varejo S.A, a corporation organized under the laws of the Federative Republic of Brazil (“Via Varejo”) through Lake Niassa Empreendimentos e Participações Ltda. ("Lake Niassa"), a limited liability company duly organized under the laws of the Federative Republic of Brazil and wholly-owned by Via Varejo (the "Transaction").
On June 14, 2021, the Company, Lake Niassa and
banQi Instituição de Pagamento Ltda (formerly known as AirFox Servicos E Intermediacoes Ltda (“banQi”),
a limited liability company organized under the laws of the Federative Republic of Brazil entered into the 7th Amendment and Consolidation
of the Articles of Association of banQi (the “7th Amendment”).
Prior to entering into the 7th Amendment, the
Company had a
As a result of this change in control, on June 14, 2021, the Company determined that it did not have a controlling interest over banQi, and banQi was deconsolidated from the Company's condensed consolidated financial statements and presented as discontinued operations in the Company’s condensed consolidated financial information presented within this quarterly report. The presentation of the operations and results of banQi is further explained in Note 3.
Beginning in February 2017, the Company began exploring consumer applications of its legacy prepaid mobile applications. The Company initiated a business plan to introduce a mobile application that would allow users to earn digital tokens, exchange them for free or discounted mobile data and, ultimately, other goods and services in South America as part of a new international business and ecosystem (the “AirToken Project”). The AirToken Project included the issuance of digital tokens (“AirToken(s)”). The AirToken is an ERC-20 token issued on the Ethereum blockchain.
The Company obtained Ether and Bitcoin (collectively
referred therein as the “Digital Assets”), in August 2017 through early October 2017 from those interested in obtaining AirTokens.
The Company raised approximately $
| 7 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
On June 30, 2021, Lake Niassa the sole member of Carrier EQ, LLC determined to discontinue the development of AirTokens and end the AirToken project related to the Company’s business. At this time, the Company does not have the ability to further develop AirTokens as part of its business plan in the absence of new laws or a definitive regulatory regime (in both the U.S. and Brazil) regarding the use and transferability of AirTokens (and other similar tokens issued on the Ethereum block chain that are classified as securities). Current laws and regulatory regimes do not provide for the Company to utilize the AirTokens as envisioned by the Company since AirTokens are no longer freely transferable and the previous market for AirTokens no longer exists. AirTokens were never fully developed and never gained full functionality. As previously stated, AirTokens are not currently freely transferable, and no market exists for AirTokens.
As a result of the Company discontinuing the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable.
Since the Company is no longer continuing with
the AirToken project, the Company should not recognize any revenue related to the research and development of the AirToken project, and
the deferred revenue is no longer appropriate to be recorded on the balance sheet. The liability - AirToken Project, of approximately
$
Currently, the Company's main functions and activities comprise of supporting banQi’s operation in Brazil, including assisting banQi with the management of the digital wallet application and the financial services provided to those without bank accounts or credit cards. Primarily due to the cancellation of the AirToken project and since the main features of the Company’s software and technology platform have been developed and funded to be applied in the Brazilian market (as per the Services Agreement and the Call Option Agreement), the Company's main functions and activities relating to the development and management of a software technology platform consisting of a digital wallet application and an alternative credit scoring and lending application have substantially migrated to the banQi entity in Brazil.
In connection with the above strategy, the Company is gradually transferring contracts with some suppliers to Brazil and reducing its activities in the US.
Note 2 - Financial Condition and Management’s Plans
The Company has experienced recurring losses
and negative cash flows from operations. At June 30, 2021, the Company had cash and cash equivalents of $
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business.
The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results. The condensed financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
In the event the Company is unable to raise additional debt or equity financing, it may:
| 1. | Have to cease operations, in which case the Company may file a petition for bankruptcy in U.S. Bankruptcy Court under Chapter 7, whereby a trustee will be appointed to sell off the Company’s assets, and the money will be used to pay off the Company’s debts in order of their priority. Or |
| 2. | File a petition for bankruptcy in U.S. Bankruptcy Court under Chapter 11 to restructure the Company’s debt. |
COVID-19 Risks, Impacts and Uncertainties
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 Outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 Outbreak as a pandemic, based on the rapid increase in exposure globally. The Commonwealth’s “Reopening Massachusetts” process is underway. The Company is subject to the risks arising from the COVID-19 Outbreak’s social and economic impacts.
| 8 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
The Company’s management believes that the social and economic impacts, which include but are not limited to the following, could have a significant impact on future financial condition, liquidity, and results of operations: (i) the duration and scope of the pandemic; (ii) governmental, business and individual actions that have been and continue to be taken in response to the pandemic, including travel restrictions, quarantines, social distancing, work-from-home and shelter-in-place orders and shut-downs; (iii) the impact on U.S. and global economies and the timing and rate of economic recovery; (iv) potential adverse effects on the financial markets and access to capital; (v) potential goodwill or other impairment charges; (vi) increased cybersecurity risks as a result of pervasive remote working conditions; and (vii) the Company’s ability to effectively carry out its operations due to any adverse impacts on the health and safety of the Company’s employees and their families.
In response to the COVID-19 Outbreak, the Company’s employees have been required to work from home. The significant increase in remote working, particularly for an extended period of time, has been exacerbating certain risks to the Company’s business, including an increased risk of cybersecurity events and improper dissemination of personal or confidential information.
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements (“interim statements”) of Airfox have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as determined by Financial Accounting Standards Board (the “FASB”) within its Accounting Standards Codification (“ASC”) and under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended September 30, 2020.
The Company has elected not to apply pushdown accounting to the accompanying standalone condensed consolidated financial statements in accordance with ASC 805 Business Combinations ("ASC 805").
The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act, enacted on April 5, 2012 and has elected to comply with certain reduced public company reporting requirements, however, the Company may adopt accounting standards based on the effective dates for public entities.
As of June 14, 2021, the operations of banQi were deconsolidated from the Company, as the Company no longer had a controlling interest in banQi. The Company accounted for the loss in controlling interest as discontinued operations in banQi in accordance with Accounting Standards Codification, ASC 205, Discontinued Operations and Accounting Standards Update, ASU, No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASC 205 requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items, net of tax, in the unaudited condensed consolidated statements of comprehensive loss. Assets and liabilities are also reclassified into separate line items on the related condensed consolidated balance sheets for the periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of discontinued operations as separate line items. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.
Due to the deconsolidation of banQi during the third quarter of fiscal 2021, in accordance with ASC 205, Discontinued Operations, the Company has classified the results of banQi as discontinued operations in our unaudited condensed consolidated statements of operations and cash flows for all periods presented. All assets and liabilities associated with banQi were therefore classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets for the periods presented. All amounts included in the notes to the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted. For additional information, see Note 4, Discontinued Operations.
| 9 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Principles of Consolidation
Prior to June 14, 2021 the Company had a controlling
interest in banQi and, prior to April 6, 2020, had a
On June 14, 2021, the Company’s ownership
of banQi was reduced from 99.99% to
The change in ownership represents a transfer of net assets between entities under common control, because all entities are owned by the same common parent entity, Lake Niassa, and thus the gain on deconsolidation of banQi was recorded against accumulated deficit The Company will also record a cost method investment in banQi for their respective investment in the entity, and any previously recorded non-controlling interest will be removed from the balance sheet.
All intercompany transactions have been eliminated in consolidation. The Company is not involved with variable interest entities.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. The most significant accounting estimates inherent in the preparation of the Company's financial statements includes, but not limited to, estimated lives of intangible assets, intangible asset impairment, revenue recognition and deferred tax valuation allowance.
Foreign Currency
The Company had operations in Brazil until June 14, 2021, where the local currency is used to prepare the financial statements which are translated into the Company’s reporting currency, U.S. dollars. The local currency is the functional currency for the operations outside the United States. Changes in the exchange rates between this currency and the Company’s reporting currency, are partially responsible for some of the periodic changes in the condensed consolidated financial statements prior to June 14, 2021. Assets and liabilities of the Company’s foreign operations until June 14, 2021 are translated into U.S. dollars at the spot rate in effect at the applicable reporting date. Revenues and expenses of the Company’s foreign operations are translated at the average exchange rate during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (loss) in the period in which they occur.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
ASC 606 prescribes a 5-step process to achieve its core principle:
| Step 1: | Identify the contract with the customer | |
| Step 2: | Identify the performance obligations in the contract | |
| Step 3: | Determine the transaction price | |
| Step 4: | Allocate the transaction price to the performance obligations in the contract | |
| Step 5: | Recognize revenue when the Company satisfies a performance obligation |
| 10 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
AirToken Project Development Services (Non ASC 606 Revenue)
The Company determined that its token issuances represented obligations to perform software development services and accounts for the proceeds received in the token issuances in accordance with ASC 730-20, Research and Development – Research and Development Arrangements (“ASC 730-20”). At the time of, and in conjunction with the token issuances, the Company’s obligation was to develop a live, operational, de-centralized network with token functionality including, at a minimum, features including a digital wallet, credit scoring and peer-to-peer networking (collectively, the “AirToken Project”). Due to the significant hurdles in developing the AirToken Project, technological feasibility had not been established at the time of the token issuances and, therefore, all of the Company’s development costs were expensed.
The Company, beginning in August 2017 through
early October 2017, obtained Ether and Bitcoin totaling approximately $
Pursuant to the Settlement Agreement (as defined and described further in Note 13), the Company was obligated to refund amounts raised for the purpose of developing the AirToken Project if valid claims were submitted.
On or before December 28, 2019, the Company paid
all approved claims to approved claimants who returned their AirTokens to the Company (approximately 93.5% of the total dollar amount
of all approved claim refunds). All amounts were refunded in cash and paid through the Company’s existing cash and cash equivalent
reserves. The total claim amounts including interest, totaled $
Effective October 1, 2019, the Company was not able to estimate a date to conclude the development of the AirToken Project due to regulatory matters that affect the continuity of the development process. Due to this reason, the AirToken Project was on hold and no revenue has been recognized from the AirToken Project.
On June 30, 2021, Lake Niassa determined to discontinue the development of AirTokens and end the AirToken project related to the Company’s business. At this time, the Company does not have the ability to further develop AirTokens as part of its business plan in the absence of new laws or a definitive regulatory regime (in both the U.S. and Brazil) regarding the use and transferability of AirTokens (and other similar tokens issued on the Ethereum block chain that are classified as securities). Current laws and regulatory regimes do not provide for the Company to utilize the AirTokens as envisioned by the Company since AirTokens are no longer freely transferable and the previous market for AirTokens no longer exists. AirTokens were never fully developed and never gained full functionality. As previously stated, AirTokens are not currently freely transferable and no market exists for AirTokens. As a result of the discontinuation of the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable.
Since the Company is no longer continuing with the AirToken project, the Company has not recognized any revenue related to the research and development of the AirToken project, and the deferred revenue is no longer appropriate to be recorded on the balance sheet. The liability, Deferred revenue - AirToken Project, of approximately $12.5 million are extinguished and charged to Other Income in the Condensed Consolidated Statements of Comprehensive Loss.
Mastercard Revenue and Sale Incentives (ASC 606 Revenue)
On December 16, 2019, banQi, received
R$
| 11 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Pursuant to the Program Agreement, banQi, as a licensee of MasterCard International, Inc. and a business partner of Mastercard Brasil, entered into the Incentive Program (as defined in the Program Agreement) in order to issue, expand and boost the prepaid card (“Airfox Card”) base of banQi, as well as the number of transactions and turnover (sales revenue) generated by MasterCard Cards.
As a Mastercard prepaid card issuer, banQi is entitled to receive Sales Revenue Incentives pursuant to the Program Agreement. As a result, the Sales Revenue Incentives is used to amortize the Sales Revenue Incentive Prepayment received on December 11, 2019. Upon complete amortization of Incentive Prepayment, Mastercard makes quarterly payments of the Sales Revenue Incentive, calculated according to the value of transactions completed with the prepaid cards issued by the banQi. banQi have no minimum commitment of transaction volumes to be completed with the prepaid cards.
The revenue from the Program Agreement was recognized until June 14, 2021, the date on which the Company no longer had a controlling interest over banQi, thus no additional revenue was recognized from that date through June 30, 2021.
The Company recognizes
the revenue as earned on a monthly basis, based on a fixed percentage of the total dollar value of card transactions completed during
the month in accordance with the terms in the agreement. The Company has identified one performance obligation that meets the series provision
and recognizes revenue over time. The Company Sales incentives totaling $
In connection to the Program Agreement, the Company also entered into an agreement with Mastercard, an Interchange Manual (“Interchange Fee Agreement”) from Mastercard dated June 18, 2019, which details the fees paid by a merchant’s bank to banQi to compensate for the value and benefits that merchant receives when it accepts electronic payments.
The fee is a specified percentage of the total dollar amount of a card transaction, and a fixed percentage based on the type of card transaction (i.e. merchant type, national vs. international, etc.), based on the schedule of fees outlined in the Interchange Fee Agreement (“Interchange Fee Revenue”).
On a monthly basis, the Company earns revenue
from the Interchange Fee received. The Company has identified one performance obligation that meets the series provision and recognizes
revenue over time. Interchange Fee Revenue totaling $
Via Varejo Services Agreement Revenue (ASC 606 Revenue)
The Company entered into a Services Agreement (the “Services Agreement”) as of September 11, 2018 (“the Agreement Effective Date”) with Via Varejo (the “Client”).
The Company was engaged to design and develop a mobile software module and application programming interface that provides the Client’s customers with access to certain mobile payment functionality, and that integrates banQi (“VV Wallet Services”). The Company provided certain services, including hosting, maintenance and operation of banQi, The VV Wallet Services were structured into four phases. The Phases are - Phase 1: Specifications and Customization; Phase 2: Features; Phase 3: License and Maintenance Services and Phase 4: Rollout.
The development of the VV Wallet Services was considered a bundled performance obligation that included the development of the API and software as a service which is hosted on the Company’s servers. In addition to the software as a service performance obligation, the Company provided support services for the software as a service. The Client was considered to simultaneously receive and consume the benefits provided by the Company’s performance as the Company performed the services. Accordingly, the revenue from Service Charges was recognized over time based on the number of transactions made by Client customers with banQi.
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CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
During Phase 1, there was a payment of $0.3 million
(“Upfront Payment”) from the Client to be recognized as revenue commencing when the product was ready for its intended use
and ratably over the remaining term of the Services Agreement through the duration of the Services Agreement. The total revenue recognized
for the three months ended June 30, 2021 and 2020 totaled $
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments.
Accounts Receivable and Allowance for Doubtful Accounts
As of June 30, 2021, there was a minimal amount of accounts receivable as the Company no longer consolidates the operations of banQi.
Concentrations of Credit Risk and Off-Balance Sheet Risk
The Company is subject to concentration of credit risk with respect to their cash and cash equivalents, which the Company attempts to minimize by maintaining cash and cash equivalents with institutions of sound financial quality. At times, cash balances may exceed limits federally insured by the Federal Deposit Insurance Corporation. The Company had cash and cash equivalents, including amounts held in financial institutions in the USA that totaled $ 378 thousand.
The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the funds are held. The Company has no financial instruments with off-balance sheet risk of loss.
Long-Lived Assets, Including Definite Intangible Assets
Long-lived assets and other indefinite-lived intangibles are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. The Company’s definite-lived intangible assets primarily consist of various domain names and websites. For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
Security Deposits
Security deposits primarily include monies being
held subject to a security agreement (“Security Agreement”) with Mastercard, Inc. executed on June 7, 2019. The Security Agreement
is related to the Services Agreement to ensure a minimum amount of users for the cards. On April 22, 2020 Mastercard returned $
Included in the security deposits balance as of June
30, 2021 are $
Investment in related affiliate
After the deconsolidation of banQi, the Company's
remaining investment in banQi of $
Due to Related Party
Amounts due to banQi as of June 30, 2021 are $
| 13 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Software Development Costs
The Company capitalizes costs related to software developed or obtained for internal use in accordance with the ASC 350-40, Internal-Use Software (“ASC 350-40”). The following illustrates the various stages and related processes of computer software development in accordance with ASC 350-40:
·
| ● | Preliminary project stage: (a) conceptual formulation of alternatives; (b) evaluation of alternatives; (c) determination of existence of needed technology; and (d) final selection of alternatives. Internal and external costs incurred during the preliminary project stage are expensed as incurred. |
| ● | Application development stage: (a) design of chosen path, including software configuration and software interfaces; (b) coding; (c) installation to hardware; and (d) testing, including parallel processing phase. Internal and external costs incurred to develop internal-use computer software during the application development stage are capitalized. |
| ● | Post-implementation-operation stage: (a) training; and (b) application maintenance. Internal and external costs incurred during the post-implementation-operation stage are expensed as incurred. |
Certain costs incurred are considered enhancements, modifications to existing internal-use software that result in additional functionality. Enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications. When this additional functionality is determinable, the related costs are capitalized. Otherwise, costs are expensed as incurred. Capitalization of internal-use software costs ceases when a computer software project is substantially complete and ready for its intended use. The Company begins amortization when the product is available for general release or use.
The Company has capitalized software costs relating to the Via Varejo Services
Agreement and began amortization on January 1, 2020 as the product was ready for its intended use and has been amortized through the contract
term until September 2023. The amortization expense related to the Via Varejo Services Agreement capitalized software for the three and
nine months ended June 30, 2021 totaled $
The Company capitalizes costs related to the development and maintenance of its website in accordance with ASC 350-50, Website Development Costs. Accordingly, costs expensed as incurred include planning the website, developing the applications and infrastructure until technological feasibility is established and operating the site such as training administration and maintenance.
Included in the net intangibles balance as of
June 30, 2021 are $
Capitalizing Software Costs in Connection with Hosting Arrangements and Software as a Service Arrangements
For the operation in Brazil at banQi, the Company developed certain software that are considered to be part of cloud computing arrangement (or hosting arrangement), whereby, a user or a customer of software does not take possession of the Company’s software; rather, the software is accessed on an as-needed basis over the Internet.
Therefore, when the software is used to produce a product or in a process to provide a service to a customer, and the customer is not given the right to obtain or use the software, the related costs are accounted for in accordance with ASC 350-40. When a hosting arrangement includes multiple modules or components, capitalized costs are amortized on a module-by-module basis. When a module or component is substantially ready for its intended use, amortization begins, regardless of whether the overall hosting arrangement is being placed in service in planned stages. If the module’s functionality is entirely dependent on the completion of one or more other modules, then amortization does not begin until that group of interdependent modules is substantially ready for use.
Impairment of Long-term Assets
The Company evaluates the recoverability of tangible and intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
| 14 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Leases
The Company categorizes leases at their inception as either operating or finance leases based on the criteria in ASC 842, Leases (“ASC 842”). The Company adopted ASC 842 on October 1, 2019, using the modified retrospective approach, and has established a Right-of-Use (“ROU”) Asset and a current and non-current Lease Liability for each lease arrangement identified. The lease liability is recorded at the present value of future lease payments discounted using the discount rate that approximates the Company’s incremental borrowing rate for the lease established at the commencement date, and the ROU asset is measured as the lease liability plus any initial direct costs, less any lease incentives received before commencement. The Company recognizes a single lease cost, so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis.
Advertising
Advertising costs are expensed as incurred and included in selling, general
and administrative expenses and amounted to a reversal of $
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes any interest and penalties accrued related to unrecognized tax benefits as income tax expense.
Gain on issuance of AirTokens for services
AirTokens issued to vendors for services in connection
with raising monies for the purpose of developing the AirToken Project were accounted for in accordance with ASC 845-30-1, Nonmonetary
Transactions, which requires that the AirTokens to be recognized at fair value and resulted in recognizing a deferred gain of approximately
$
On June 30, 2021, Lake Niassa determined to discontinue the development of AirTokens and end the AirToken project related to the Company’s business. At this time, the Company does not have the ability to further develop AirTokens as part of its business plan in the absence of new laws or a definitive regulatory regime (in both the U.S. and Brazil) regarding the use and transferability of AirTokens (and other similar tokens issued on the Ethereum block chain that are classified as securities). Current laws and regulatory regimes do not provide for the Company to utilize the AirTokens as envisioned by the Company since AirTokens are no longer freely transferable and the previous market for AirTokens no longer exists. AirTokens were never fully developed and never gained full functionality. As previously stated, AirTokens are not currently freely transferable, and no market exists for AirTokens. As a result of the Company discontinuing the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable.
Since the Company is no longer continuing with the AirToken project, the Company should not recognize any revenue related to the research and development of the AirToken project, and the deferred revenue is no longer appropriate to be recorded on the balance sheet. The liability, Deferred revenue - AirToken Project, of approximately $13 million, as of June 30, 2021, was extinguished and charged to Other Income in the Condensed Consolidated Statements of Comprehensive Loss.
| 15 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Distinguishing Liabilities from Equity
The Company relies on the guidance provided by ASC 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.
Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet. The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e., at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
The Company records its financial instruments classified as liabilities at their fair value at each subsequent measurement date. The changes in fair value of these financial instruments are recorded as other expense/income.
Hedging
The Company does not use derivative instruments to hedge exposures to cash flows, market or foreign currency risks. The Company evaluates its financial instruments, including equity-linked financial instruments, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
The Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of ASC 718, Compensation - Stock Based Compensation. The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Stock-based awards are recognized on a straight-line basis over the requisite service period. For stock-based employee compensation cost recognized at any date will be at least equal to the amount attributable to share-based compensation that is vested at that date. The Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Common shares issued to third parties for services provided are valued based on the estimated fair value of the Company’s common shares.
All stock-based compensation costs are recorded in selling, general and administrative expenses in the consolidated statements of operations. All stock-based compensation awards were cancelled pursuant to the Transactions which occurred on May 21, 2020.
In August 2020, the Company established the Share Based Payment Program with Cash Settlement - Phantom Shares of Via Varejo S.A. (the "Plan"). Pursuant to the Plan, the Company's Board of Directors may grant cash-settled shares, referred to as "Phantom Shares," to the Company's employees as part of the employees' remuneration package. Each Phantom Share will represent the employee's right to receive the full amount corresponding to the average quotation of 3 (three) common shares of Via Varejo S.A. in the 20 (twenty) trading sessions at B3 - Brazil, Bolsa, Balcão immediately prior to vesting, as established in the Plan. The Phantom Shares vest over a service period of five years.
As of June 14, 2021, there is no liability reported related to the Phantom Shares due the deconsolidation of banQi. No Phantom Shares have vested as of June 30, 2021.
| 16 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Fair Value Measurement
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short and long-term debt. The fair values of cash and cash equivalents, accounts receivable, and accounts payable approximate their stated amounts because of the short maturity of these financial instruments.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy under ASC 820 are described below:
| Level 1 — | Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities. | |
| Level 2 — | Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. | |
| Level 3 — | Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities. |
Adoption of Recent Accounting Pronouncements
In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02 (“ASU 2016-02”), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for Lessors. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The Company adopted ASU 2016-02 effective October 1, 2019 using the modified retrospective approach whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, the Company elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, the Company adopted a short-term lease exception policy, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets.
Adoption of the new standard resulted in the recording
of right-of-use assets and lease liabilities related to the Company’s operating leases, totaling $
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends disclosure requirements on fair value measurements in Topic 820. This amendment modifies the valuation process of fair value measurements by removing the disclosure requirements for the valuation processes for Level 3 fair value measurements, clarifying the timing of the measurement uncertainty disclosure, and including the changes in unrealized gains and losses for recurring Level 3 fair value measurements in other comprehensive income if held at the end of the reporting period. It also allows the disclosure of other quantitative information in lieu of the weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and should be applied prospectively for the most recent period presented in the initial fiscal year of adoption. The Company adopted ASU 2018-13 effective October 1, 2020 and there was no material impact on the Company's results of operations, financial position and cash flows.
| 17 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
In August 2018, the FASB issued ASU 2018-15, Intangibles, Goodwill and Other (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance in ASC 350-40. The new standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU 2018-15 effective October 1, 2020 and there was no material impact on the Company's results of operations, financial position and cash flows.
Recent Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company's financial reporting, the Company undertakes a study to determine the consequences of the change to its condensed consolidated financial statements and assures that there are proper controls in place to ascertain that the Company's condensed consolidated financial statements properly reflect the change.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of the pending adoption of the new standard on its condensed consolidated financial statements and intends to adopt the standard on October 1, 2023.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for the Company for interim and annual reporting periods beginning after December 15, 2021. The Company is currently assessing the impact of ASU 2019-12, but it is not expected to have a material impact on the Company’s condensed consolidated financial statement.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard on its financial statements and intends to adopt the standard as of October 1, 2024.
Reclassifications
Certain reclassifications have been made to the 2020 consolidated financial statements in order to conform to the 2021 financial statement presentation.
| 18 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Note 4 – Discontinued Operations
The Company has determined the loss of a controlling interest and deconsolidation of the operations of banQi as of June 14, 2021 represents a strategic shift that will have a major effect on the business and therefore meets the criteria for classification as discontinued operations at June 30, 2021 and prior periods presented in the condensed consolidated financial information. Accordingly, the assets and liabilities associated with the operations of banQi have been classified as discontinued operations in the accompanying condensed consolidated balance sheets, condensed consolidated statements of comprehensive loss, and condensed consolidated cash flows for all periods presented.
The assets and liabilities that were included in the June 14, 2021 deconsolidation of banQi consist of the following:
| BALANCE SHEET | As of June 14, 2021 | |||
| Cash and cash equivalents | ||||
| Restricted cash | ||||
| Accounts receivable, net | ||||
| Prepaid expenses and other current assets | ||||
| Intangibles, net | ||||
| Property and equipment, net | ||||
| Security deposits | ||||
| Due from affiliates | ||||
| Accrued liabilities | ||||
| Other deferred revenue, current portion | ||||
| Due to related party | ||||
| Deferred revenue - Mastercard Program Agreement | ||||
| Other deferred revenue, net of current portion | ||||
| Foreign capital | ||||
| Gain from deconsolidation of banQi | ( | ) | ||
The results from the discontinued operations have been reflected in the Consolidated Statement of Comprehensive Loss for the three- and nine-month periods ended June 30, 2021 consist of the following:
| Three Months Ended | Nine Months Ended | |||||||
| June 30, 2021 | June 30, 2021 | |||||||
| Revenue | $ | $ | ||||||
| Operating expenses: | ||||||||
| Selling, general and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other (expense) income: | ||||||||
| Foreign currency transaction loss | ( | ) | ||||||
| Interest income (expense), net | ||||||||
| Other (expense) income, net | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Net income (loss) | ( | ) | ( | ) | ||||
| Net loss attributable to non-controlling interest | ||||||||
| Net loss attributable to CarrierEQ, Inc, | ( | ) | ( | ) | ||||
| Other comprehensive loss | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Total comprehensive loss | ( | ) | ( | ) | ||||
| 19 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
As a result of the discontinued operations, the previously presented 2020 financial statements have been revised to present the consolidated financial statements of the continuing operations separate from the discontinued operations. The effects on the Consolidated Balance Sheet as of September 30, 2020 were as follows:
| September 30, 2020 | ||||||||||||
| As previously | ||||||||||||
| Reported | Adjustment | As Revised | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Accounts receivable | ||||||||||||
| Prepaid expenses and other current assets | ||||||||||||
| Current assets of discontinued operations | ( | ) | ||||||||||
| Total current assets | ||||||||||||
| Non-current assets: | ||||||||||||
| Intangibles, net | ||||||||||||
| Property and equipment. Net | ||||||||||||
| Security deposits | ||||||||||||
| Lease right of use assets | ||||||||||||
| Investment in related affiliate | ||||||||||||
| Due from related party | ||||||||||||
| Due from affiliates | ( | ) | ||||||||||
| Other assets | ||||||||||||
| Non-current assets of discontinued operations | ( | ) | ||||||||||
| Total non-current assets | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| LIABILITIES AND MEMBER'S DEFICIT | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | ||||||||||||
| Accrued liabilities | ||||||||||||
| Other deferred revenue. current portion | ||||||||||||
| AirToken refund liability | ||||||||||||
| Lease liability, current portion | ||||||||||||
| Due to related party | ||||||||||||
| Current liabilities of discontinued operations | ( | ) | ||||||||||
| Total current liabilities | ||||||||||||
| Long-term liabilities: | ||||||||||||
| Deferred revenue - Mastercard Program Agreement | ||||||||||||
| Deferred gain on issuance of AirTokens for Services | ||||||||||||
| Lease liability, net of current portion | ||||||||||||
| Deferred revenue - AirToken Project | ||||||||||||
| Other deferred revenue, net of current portion | ||||||||||||
| Long-term liabilities of discontinued operations | ( | ) | ||||||||||
| Total liabilities | $ | $ | $ | |||||||||
| Carrier EQ, LLC member's deficit: | ||||||||||||
| Member's deficit; 1,277,635 limited liability company units outstanding as of June 30, 2021 and September 30, 2020 | ( | ) | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||||||
| Accumulated other comprehensive income of discontinued operations | ( | ) | ||||||||||
| Total member's deficit attributable to Carrier EQ, LLC member | ( | ) | ( | ) | ||||||||
| Non-controlling interest in subsidiary | ( | ) | ( | ) | ||||||||
| Total member's deficit | ( | ) | ( | ) | ||||||||
| Total liabilities and member's deficit | $ | $ | $ | |||||||||
| 20 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
The effects on the Consolidated Statement of Comprehensive Loss for the three- and nine-month periods ended June 30, 2020 were as follows:
| Three Months Ended June 30, 2020 | Nine Months Ended June 30, 2020 | |||||||||||||||||||||||
| As Previously Reported | Adjusted | As Revised | As Previously Reported | Adjusted | As Revised | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Cost of revenue | ( | ) | ( | ) | ||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||
| Impairment of digital assets | ||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||
| Loss from operations | ||||||||||||||||||||||||
| Other (expense) income: | ||||||||||||||||||||||||
| Realized loss on sale of digital assets | ( | ) | ( | ) | ||||||||||||||||||||
| Interest income (expense), net | ||||||||||||||||||||||||
| Other (expense) income, net | ||||||||||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Income tax benefit | ||||||||||||||||||||||||
| Loss from Continuing Operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) from discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss attributable to Carrier EQ, LLC | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||
| Foreign currency translation adjustment | ||||||||||||||||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
The depreciation, amortization and significant operating noncash items of the discontinued operations were as follows:
| Three
Months Ended June 30, 2021 |
Nine
Months Ended June 30, 2021 | ||||||
| Depreciation and amortization | $ | $ | |||||
| 21 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Note 5 – Mastercard Program Agreement
On December 16, 2019, banQi, received
R$
Pursuant to the Program Agreement, banQi, as a licensee of MasterCard International, Inc. and a business partner of Mastercard Brasil, entered into the Incentive Program (as defined in the Program Agreement) in order to issue, expand and boost the prepaid card (“Airfox Card”) base of banQi as well as the number of transactions and turnover (sales revenue) generated by MasterCard Cards. The Program Incentives monies (as defined in the Program Agreement) cannot be used for the benefit of any product of any Mastercard competitor and/or any card brand other than the Mastercard Network. As an incentive to support the launching of Airfox Card, on December 16, 2019 Mastercard Brasil made to BanQi the incentive prepayment per sales revenue ("Sales Revenue Incentive Prepayment") totaling R$65 million.
As a Mastercard prepaid card issuer, banQi will be entitled to receive Sales Revenue Incentive pursuant to the Program Agreement. As a result, the Sales Revenue Incentive will be used to amortize the Sales Revenue Incentive Prepayment received on December 11, 2019. Upon complete amortization of Incentive Prepayment, Mastercard will make quarterly payments of the Sales Revenue Incentive, calculated according to the value of transactions completed with the prepaid cards issued by the banQi. banQi will have no minimum commitment of transaction volumes to be completed with the prepaid cards.
The Sales Revenue Incentive Prepayment constitutes the creation of a direct financial obligation on banQi since it constitutes prepaid sales revenue from Mastercard Brasil to banQi. Via Varejo has agreed to act as a guarantor of banQi’s Sales Revenue Incentive Prepayment obligations to Mastercard Brasil pursuant to the Program Agreement and a Guaranty Letter.
The Program Agreement has a term of ten years, unless earlier terminated by either party in accordance with specific provisions of the Program Agreement. The Program Agreement also establishes that the remaining balance of the prepaid incentive amount shall be updated every twelve months at 72% of the Brazilian federal funds rate, the "SELIC" rate (or 'over Selic') as of the payment date of the incentive, which turns the incentive agreement into a financial debt instrument. If the Agreement was ever terminated, even as of the ending of the effective term of ten years or before, the Company shall make the full payment of the remaining sales incentive prepaid balance at the actual termination date.
The Company will recognize the revenue as earned
on a monthly basis, based on a fixed percentage of the total dollar value of card transactions completed during the month in accordance
with the terms in the agreement. Also, the company will recognize finance expenses related to the SELIC adjustment on a yearly basis,
as stated by the agreement. The Company has identified one performance obligation that meets the series provision and recognizes revenue
over time. The Company Sales incentives totaling $
Note 6 - Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
| June 30, 2021 | September 30, 2020 | |||||||
| Service contract | $ | $ | ||||||
| Research and Development tax credit | ||||||||
| Prepaid expense | ||||||||
| Total Prepaid expenses and other current assets | $ | $ | ||||||
| 22 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Note 7 - Intangible Assets, Net
The following table summarizes the Company’s definite-lived intangible assets:
| June 30, 2021 | ||||||||||||||||||||||||
| Estimated Useful Life (Years) |
Gross Carrying Amount |
Additions | Impairment / banQi deconsolidation |
Accumulated Amortization |
Net Carrying Value |
|||||||||||||||||||
| Domain names | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
| Capitalized software costs towards VV Wallet | ( |
) | ( |
) | ||||||||||||||||||||
| Website | ( |
) | ||||||||||||||||||||||
| Software | ( |
|||||||||||||||||||||||
| $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||
| September 30, 2020 | ||||||||||||||||||||
| Estimated Useful Life (Years) |
Gross Carrying Amount |
Additions | Accumulated Amortization |
Net Carrying Value |
||||||||||||||||
| Domain names | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Capitalized software costs towards VV Wallet | ( |
) | ||||||||||||||||||
| Website | ( |
) | ||||||||||||||||||
| $ | $ | $ | ( |
) | $ | |||||||||||||||
The Company uses the straight-line method to determine
the amortization expense for its definite-lived intangible assets. The amortization expense related to the definite-lived intangible assets
was $
Note 8 - Accrued liabilities
Accrued liabilities consisted of the following:
| June 30, 2021 (unaudited) |
September 30, 2020 (audited) |
|||||||
| Customer deposits | $ | $ | ||||||
| Accrued compensation | ||||||||
| Other accrued liabilities | ||||||||
| Operating third parties' liabilities | ||||||||
| Accrued accounts payable | ||||||||
| Tax and licenses | ||||||||
| Credit card payable | ||||||||
| Legal and professional | ||||||||
| Total accrued liabilities | $ | $ | ||||||
Note 9 - Preferred Stock
Series One and One-A Preferred Stock Purchase Agreement
On July 15, 2016, the Company sold to accredited investors an aggregate of shares of Series One and of Series One-A Preferred Shares (collectively, “Preferred Stock”).
The Preferred Stock was convertible into the Company’s Common Stock on a 1 for 1 basis at the holders’ option. The Preferred Stock did not contain any redemption provisions. The Preferred Stock did not pay dividends and vote together with the common stock of the Company as a single class on all actions to be taken by the stockholders of the Company.
| 23 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
On May 21, 2020, in connection with the February
7, 2020 written Call Exercise Notice from Via Varejo (“Call Exercise Notice”), the aggregate of
The Company amended its Certificate of Incorporation and filed the Second Restated Certificate of Incorporation (the “Restated Certificate of Incorporation”) with the Delaware Secretary of State on May 21, 2020, to provide for (i) a single class of common stock (and automatic conversion of any and all outstanding shares of preferred stock into common stock) and (ii) no preferential rights in favor of any shareholder.
Note 10 - Common Stock
On January 25, 2016, the Company issued shares of common stock to an investor (the “Investor”) for a purchase price of $
The contingent issuance of shares of common stock to the Investor was evaluated to determine whether the embedded feature would be required to be recorded as a derivative liability. It was determined the embedded feature qualifies for equity classification.
On February 28, 2018 the Company repurchased
shares of common stock which it had previously granted to an independent entity in exchange for $
On May 21, 2020, in connection with the Call Exercise
Notice, all of the Company’s previously outstanding common stock was purchased by the Buyer, which is included in the total aggregate
of
The Company established a 2016 Equity Incentive Plan (the “Plan”) during 2016 and issued stock-based awards to certain employees and non-employees under this plan. The Plan provided for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units and other stock awards.
On February 3, 2020, the Company’s Board of Directors approved an amendment to the Plan to decrease the aggregate number of shares of the Company’s common stock that may be issued pursuant to Stock Awards (as defined in the Plan) from to ; and waived the restrictions on transfer and right of first refusal in favor of the Company, as set forth in the Company’s Amended and Restated Bylaws, for certain stockholders.
Additionally, on February 3, 2020, the Company’s Board of Directors approved the acceleration of vesting of outstanding stock option awards awarded to employees and a third-party.
On February 6, 2020, the Board approved the acceleration of vesting of outstanding stock options awarded to a third-party.
On February 26, 2020, the Board approved the acceleration of vesting of outstanding stock options awarded to employees and other third-parties.
On May 21, 2020, concurrently with the consummation of the Transaction and as a condition precedent under the September 11, 2018 convertible note purchase and call option agreement (the “Call Option Agreement”), the Company’s Board of Directors cancelled all outstanding options to purchase the Company’s Common Stock granted under the Plan. All of the holders of the outstanding options issued under the Plan were immediately cancelled and, in consideration for such cancellation were entitled to a lump sum cash payment from the Company.
| 24 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
The Company lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a set of publicly traded peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield was zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The fair value of the Company’s common stock
was estimated to be $
The Company used the Black-Scholes option-pricing model to estimate the fair value of options issued using the following assumptions:
|
Nine Months Ended June 30, |
Nine Months Ended June 30, 2020 |
|||||||
| Price of Common Stock | $ | $ | - | |||||
| Volatility | % | % - % | ||||||
| Expected term (in years) | — | 0 – | ||||||
| Risk free rate | % | % - % |
On May 21, 2020, as a result of the
Transaction, there was a change in control when the Company was fully acquired by Via Varejo, and as a condition precedent under the
Call Option Agreement, the Company’s Board of Directors cancelled all outstanding options. As noted in the 2016 Equity
Incentive Plan Amendment, for instances where a change in control occurs, vesting will be accelerated for all outstanding stock
award and a cash payment will be paid to all Option Stockholders by Via Varejo. The total unrecognized compensation cost based on
the fair value of the options was recognized as stock-based compensation expense on May 21, 2020 totaling $
million. Additionally, all of the holders of the outstanding options issued under the Plan (“Option Holders”) were
immediately cancelled and, in consideration for such cancellation, were entitled to a lump sum cash payment totaling $
Note 12 – Concentrations
Accounts Payable
As of June 30, 2021, and September 30, 2020, the
Company had approximately
| 25 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Note 13 - Commitments and Contingencies
Operating Leases
The Company has operating leases primarily consisting of office space with remaining lease terms of 1 to 8 years, subject to certain renewal options as applicable.
Leases with an initial term of twelve months or less are not recorded on the balance sheet, and the Company does not separate lease and non-lease components of contracts. There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord, as is customary with these types of charges for office space.
The Company determined that the exercise of the renewal option became reasonably certain for its office space in Boston and Brazil; therefore, the payments associated with the renewal are now included in the measurement of the lease liability and ROU asset for those locations. The useful life of the Boston and Brazil office spaces will extend through February 2028 and September 2021, respectively. In February 2021, the Company modified the terms of Brazilian Lease agreement with the landlord, and the Company decided to reduce the length of the contract to April 30, 2021, as the remote work has been practiced by mostly employees and the office facilities are not being fully used. Considering the new terms, this agreement specifically is not applicable to the Operating Lease approach and its ROU was fully amortized in the current quarter. The Company is evaluating options of other locations. The remaining amounts of this agreement of lease liabilities and ROU were fully amortized.
The Company’s lease agreements generally
do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate imputed discount
rate. The Company benchmarked itself against other companies of similar credit ratings and comparable quality and derived imputed rates,
which were used to discount its real estate lease liabilities. The Company used estimated incremental borrowing rates of
The Company entered into a sublease agreement with a subtenant on March
1, 2020, the rent commencement date was April 1, 2020, and the lease terminated on December 31, 2020. There was approximately $
Lease Costs
The table below presents certain information related to the lease costs for the Company’s operating leases:
| Three Months Ended June 30, 2021 | Nine Months Ended June, 2021 | Three Months Ended June 30, 2020 | Nine Months Ended June, 2020 | |||||||||
| Components of total lease cost: | ||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||
| 26 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Lease Position as of June 30, 2021
Right of use lease assets and lease liabilities for our operating leases were recorded in the condensed consolidated balance sheet as follows:
| As of June 30, 2021 | ||||
| Assets | ||||
| Operating lease right of use assets | $ | |||
| Total lease assets | 1,636,515 | |||
| Liabilities | ||||
| Current liabilities: | ||||
| Operating lease liability, current portion | $ | |||
| Noncurrent liabilities: | ||||
| Operating lease liability, net of current portion | ||||
| Total lease liability | $ | |||
Lease Terms and Discount Rate
The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases as of June 30, 2021:
| Weighted average remaining lease term (in years) – operating leases | % | |||
| Weighted average discount rate – operating leases | % |
Undiscounted Cash Flows
Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of June 30, 2021, for the following five fiscal years and thereafter were as follows:
| Year ending September 30, | Operating Leases | ||||
| Remaining 2021 | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Total Minimum Lease Payments | $ | ||||
| Less effects of discounting | ( |
) | |||
| Present value of future minimum lease payments | $ | ||||
Legal Proceedings
The Company may be involved in various lawsuits, claims and proceedings incidental to the ordinary course of business. The Company accounts for such contingencies when a loss is considered probable and can be reasonably estimated.
Between August and October 2017, the Company offered
and sold AirTokens pursuant to the 2017 ICO and raised approximately $
| 27 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
On March 15, 2019, the Company filed an initial registration statement on Form 10 with the SEC under the Exchange Act on a voluntary basis in connection with the Settlement Agreement and to provide current information to Potential AirToken Claimants pursuant to Section 12(a) of the Securities Act. The Form 10 registration statement became effective on May 14, 2019, and on October 18, 2019 we were notified that the SEC had completed its review of the Form 10 registration statement.
In conjunction with the Settlement Agreement, Potential AirToken Claimants were entitled to return their AirTokens to the Company and receive a refund in the amount of consideration paid, plus interest, less the amount of any income received thereon. Pursuant to the Settlement Agreement, as modified in May 2019, our Company timely distributed the claim forms on June 28, 2019. The claims period closed on September 28, 2019. All forms were processed in accordance with the terms and provisions set forth by the Settlement Agreement. The Company received claim forms from 174 Potential AirToken Claimants during the claims period and the Company determined to approve payment on 163 out of the 174 claims, which is approximately 93% of the claim forms received during the claims period. On December 11, 2019, the Company commenced the process of notifying, via email only, all 174 Potential AirToken Claimants of the Company’s resolution of their claim.
On or before December 28, 2019 the Company paid
all approved claims to approved claimants who returned their AirTokens to us (approximately 93.5% of the total dollar amount of all approved
claim refunds). All amounts were refunded in cash and paid through the Company's existing cash and cash equivalent reserves. The total
claim amounts including interest, totaled $3.3 million on December 28, 2019. Certain approved claimants did not return their AirTokens
to the Company. The Company did not pay approved claims to approved claimants who did not return their AirTokens to the Company. As of
June 30, 2021, the amount that was not paid was approximately $
Additionally, the Settlement Agreement requires our Company to:
| ● | Maintain timely filings of all reports required by Section 13(a) of the Exchange Act for at least one year from the date the Form 10 becomes effective (the “Effective Date”) and continue these filings until the Company is eligible to terminate its registration pursuant to Rule 12g-4 under the Securities Exchange Act of 1934. |
| ● | Provide monthly reports to the SEC which include the amount of the claims paid, and any claims not paid as well as the reasons for non-payment. |
| ● | Submit to the SEC a final report of its handling of all claims received within seven months from the Effective Date of the Form 10 filing. |
Also, on November 16, 2018, The Company entered
into a settlement with the Massachusetts Securities Division related to the issuance of AirTokens in the 2017 ICO whereby the Company
agreed to pay a penalty of $
As a result of the Company’s inability to timely resolve these accounting issues, the Company did not timely file with the SEC the Company’s Quarterly Reports on Form 10-Q for the quarters ended June 30, 2019 and June 30, 2019, and the Company’s annual report on Form 10-K for the year ended September 30, 2019, which puts the Company in violation of Section 13(a) of the Exchange Act and the Settlement Agreement. In addition, the Company did not timely file certain Current Reports on Form 8-K. As a result of the Company’s failure to timely file these various reports, the SEC may through civil or administrative actions seek monetary and non-monetary relief from the Company, including fines, penalties, undertakings and conduct-based injunctions, and officer and director bars and suspensions.
On December 30, 2019 a claimant who purchased AirTokens in the 2017 ICO whose claim was denied for failure to comply with the deadlines and the claim process filed a civil lawsuit against the Company in the Supreme Court of the State of New York, County of New York. The lawsuit alleges a claim of sale of unregistered securities to the plaintiff under Section 12(a) of the Securities Act of 1933 in connection with the plaintiff’s purchase of AirTokens in the 2017 ICO. The plaintiff demands a full refund in the amount of consideration paid, plus interest and other costs. On February 25, 2020 the Company settled this claim with the plaintiff and the lawsuit was dismissed.
The claims period officially came to a close on September 28, 2019. All claims were processed in accordance with the terms and provisions set forth in the SEC Order.
| 28 |
CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Other than with respect to the matters described above, the Company is not aware of any pending or threatened claims that we violated any federal or state securities laws. However, the Company cannot assure that any such claim will not be asserted in the future or that the claimant in any such action will not prevail. The possibility that such claims may be asserted in the future will continue until the expiration of the applicable federal and state statutes of limitations. If the payment of additional rescission claims or fines is significant, it could have a material adverse effect on the Company cash flow, financial condition or prospects and the value of the AirTokens.
Note 14 - Income Taxes
A nominal provision for taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets as of December 31, 2020 and September 30, 2020 consist of income tax loss carryforwards. These amounts are available for carryforward indefinitely for use in offsetting taxable income. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Prior to May 21, 2020 the Company was organized as a C Corporation for tax purposes. As of May 21, 2020, the Company was converted from a C Corporation to a limited liability company ("LLC"). As a result of this transaction the Company believes it has lost the right to utilize its net operating loss carryovers, non-refundable tax credits and charitable contribution carryover assets associated with the original corporation with which the Company was organized within. Generally, only a Company that has generated a net operating loss should be able to then utilize that net operating loss to reduce its own future profits. In late December 2020, the Company filed Form 8832 with the Internal Revenue Service in order to elect C corporation tax classification for the LLC. The Company filed this request within the 90-day time period allowed for automatic approval of the Company’s tax classification request. On May 21, 2020, the Company was fully acquired by Via Varejo S.A, a corporation organized under the laws of the Federative Republic of Brazil (“Via Varejo”) through Lake Niassa Empreendimentos e Participações Ltda., a limited liability company duly organized under the laws of the Federative Republic of Brazil and wholly-owned by Via Varejo (“Transaction”). As a result of the Transaction, the utilization of some of the net operating loss carryforwards generated in both prior and the current fiscal years may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. As of the date of these financial statements, the Company has not undertaken an effort to convince the IRS that the Company’s net operating losses prior to and through May 21, 2020 should be maintained and available for the Company’s future benefit. The Company may or may not do this in the future. The Company may also have lost the use of the net operating loss assets as a result of IRC 382. The Company may undertake an Internal Revenue Code (“IRC”) 382 study to estimate the amount of the net operating losses that may be utilized in the future. However, whatever the outcome of the IRC 382 study is, the IRS would still have to approve the Company’s right to utilize such carryovers in the future. However, throughout the Company’s history the Company has generated substantial net operating losses. These deferred tax assets arising from the future tax benefits are currently considered not likely to be realized and are thus reduced to zero by an offsetting valuation allowance. As a result, there is no provision for income taxes other than those amounts required to properly accrued for the various state minimum income taxes owed by the Company to the jurisdictions in which it operates. The income tax benefit for the three and nine months ended June 30, 2021 and 2020 is the result of research and development tax credits.
Brazil Income Taxation
The Company operates a subsidiary in Brazil. All Brazilian resident companies are taxed on their world-wide income. Corporate income tax (IRPJ) is generally assessed at a fixed rate of 15% on annual taxable income, using either the 'actual profits' method (APM) or the 'presumed profits' method (PPM). All legal entities are further subject to Social Contribution on Net Income (CSLL) at the rate of 9% (except for financial institutions, private insurance, as well as certain other prescribed entities, who are taxed at a 15% rate). This amount is not deductible for IRPJ purposes. The tax base is therefore the profit before income tax, after some adjustments, depending on the calculation method (i.e. APM or PPM).
Corporate taxpayers may also be subject to a surcharge of 10% on annual taxable income in excess of 240,000 Brazilian reais (BRL).
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CARRIER EQ, LLC d/b/a AIRFOX AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Note 15 – Related Party Transaction
The related party transactions between the Company
and Via Varejo were revenue totaling $
Note 16 – Subsequent Events
On July 8, 2021, Lake Niassa made a capital contribution
to Airfox in the amount of $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, and projections about the Company’s industry, management’s beliefs, and certain assumptions made by management. Forward-looking statements include our expectations regarding product, services, and maintenance revenue, and short- and long-term cash needs. In some cases, words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “estimates,” variations of these words, and similar expressions are intended to identify forward-looking statements. The statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any forward-looking statements. Risks and uncertainties of our business include those set forth under “Risk Factors” in our Annual Report on Form 10-K (“Form 10-K”) as of and for the year ended September 30, 2020, as filed with the United States Securities and Exchange Commission (“SEC”) on January 8, 2021. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents we file from time to time with the Securities and Exchange Commission, particularly any future Annual Reports on Form 10-K, any Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.
COVID-19
During this uncertain time, our critical priorities are the health and safety of our employees and contractors, all of whom began working from home and reduced travel to essential business needs. We currently have a Company-wide work-from-home program. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local authorities, or that we determine are in the best interests of our employees.
The COVID-19 pandemic has had and continues to have a significant impact on local, state, national and global economies. The actions taken by governments, as well as businesses and individuals, to limit the spread of the disease has significantly disrupted the Company’s normal activities. Numerous businesses, including our contractors, collaborative partners and suppliers have either shut down or are operating on a limited basis, employees have been furloughed or laid off and social distancing has been mandated through stay-in-place orders. The Company expects these actions to have a significant impact on the Company’s results of operations, particularly with respect to research and development, and financial position. The full extent of the impact to the Company due to the impact of the COVID-19 pandemic cannot be reasonably estimated at this time. The extent to which the COVID-19 pandemic will impact the Company will depend on future developments, which are highly uncertain and cannot be reasonably predicted, including the duration of the outbreak, the increase or reduction in governmental restrictions to businesses and individuals, the potential for a resurgence of the virus and other factors.
OVERVIEW
Carrier EQ, LLC, doing business as Airfox (the “Company”), was incorporated in Delaware on May 21, 2020 with a principal place of business in Boston, Massachusetts. The Company was previously formed as a corporation, CarrierEQ, Inc. and was incorporated in Delaware on January 19, 2016.
On May 21, 2020, the Company filed a certificate of conversion (the “Certificate of Conversion”) to convert the Corporation to a Limited Liability Company and to change the Company’s name from “CarrierEQ, Inc.” to “Carrier EQ, LLC” The conversion and name change became effective on May 21, 2020. The Company filed a certificate of formation of Carrier EQ, LLC (the “Certificate of Formation”) on May 21, 2020.
On May 21, 2020, the Company was fully acquired by Via Varejo S.A, a corporation organized under the laws of the Federative Republic of Brazil (“Via Varejo”) through Lake Niassa Empreendimentos e Participações Ltda., a limited liability company duly organized under the laws of the Federative Republic of Brazil and wholly-owned by Via Varejo ("Transaction").
On June 30, 2021, Lake Niassa determined to discontinue the development of AirTokens and end the AirToken project related to the Company’s business. At this time, the Company does not have the ability to further develop AirTokens as part of its business plan in the absence of new laws or a definitive regulatory regime (in both the U.S. and Brazil) regarding the use and transferability of AirTokens (and other similar tokens issued on the Ethereum block chain that are classified as securities). Current laws and regulatory regimes do not provide for the Company to utilize the AirTokens as envisioned by the Company since AirTokens are no longer freely transferable and the previous market for AirTokens no longer exists. AirTokens were never fully developed and never gained full functionality. As previously stated, AirTokens are not currently freely transferable and no market exists for AirTokens. As a result of the discontinuation of the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable.
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On June 14, 2021, the Company, Lake Niassa and banQi Instituição de Pagamento Ltda (formerly known as AirFox Servicos E Intermediacoes Ltda (“banQi”), a limited liability company organized under the laws of the Federative Republic of Brazil entered into the 7th Amendment and Consolidation of the Articles of Association of banQi (the “7th Amendment”). Pursuant to the terms of the 7th Amendment, the banQi and Lake Niassa (i) increased banQi 's share capital from BRL 1,000,000.00 (one million reais) to BRL 69,870,000.00 (sixty-nine million, eight hundred and seventy thousand reais), which represents an increase of BRL 68,870,000.00 (sixty-eight million, eight hundred and seventy thousand reais); and (ii) issued 68,870,000 (sixty-eight million, eight hundred and seventy thousand) new quotas, with par value of BRL 1.00 (one real) each, fully subscribed and paid up, in Brazilian currency, through the capitalization of Advances for Future Capital Increase ("AFAC") made by Lake Niassa.
Prior to entering into the 7th Amendment, the Company had a 99.99% ownership interest in banQi and Lake Niassa had a 0.01% ownership interest in banQi. Pursuant to the 7th Amendment, and the transfer of banQi’s share capital to Lake Niassa, the Company’s ownership interest in banQi decreased to 1.43% of the share capital of banQi, and Lake Niassa’s ownership interest in banQi increased to 98.57% of the share capital of banQi, which makes Lake Niassa the controlling owner of banQi.
As a result of this change in control, on June 14, 2021, the Company determined that it did not have a controlling interest over banQi, and banQi was deconsolidated from the Company's condensed consolidated financial statements.
As of June 30, 2021, banQi met all the conditions to be classified as discontinued operations, and because we consider the loss of the controlling interest of banQi to be a strategic shift that will have a major effect on our operations and financial results, represented a discontinued operation. All assets and liabilities associated with banQi were therefore classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets for the periods presented. Further, all historical operating results for our Legacy Business are reflected within discontinued operations in the condensed consolidated statements of comprehensive loss for all periods presented.
banQi met the criteria within Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements to be reported as discontinued operations because the transaction was a strategic shift in business that had a major effect on our operations and financial results. Therefore, we have reported the historical results of banQi including the results of operations and cash flows as discontinued operations, and related assets and liabilities were retrospectively reclassified as assets and liabilities of discontinued operations for all periods presented herein. Unless otherwise noted, applicable amounts in the prior year have been recast to conform to this discontinued operations presentation. Refer to Note 3, “Summary of Significant Accounting Policies” of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. Unless otherwise indicated, the following information relates to our continuing operations following the deconsolidation of banQi. A description of our business prior to the consummation of the transaction is included in Item 1. “Business”, in Part I of the Annual Report on Form 10-K for the year ended September 30, 2020 that was previously filed with the Securities and Exchange Commission (“SEC”) on January 8, 2021.
RESULTS OF OPERATIONS
The following comparative analysis of results of operations for the three and nine months ended June 30, 2021 and 2020 are based on the comparative unaudited condensed consolidated financial statements, footnotes, and related information for the periods identified. This analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this filing.
The following table shows our results of operations of the Company for the periods indicated.
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The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
| Three
Months Ended June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | Percentage | |||||||||||||
| Revenue | $ | — | $ | — | — | — | ||||||||||
| Cost of revenue | — | — | — | — | ||||||||||||
| Selling, general and administrative | 2,046,330 | 5,105,903 | (3,059,573 | ) | (60 | %) | ||||||||||
| Operating expenses | 2,046,330 | 5,105,903 | (3,059,573 | ) | (60 | %) | ||||||||||
| Other (expense) income, net | 12,453,871 | 82,828 | 12,371,043 | 14936 | % | |||||||||||
| Income (loss) from continuing operations before income taxes | 10,407,541 | (5,023,075 | ) | 15,430,616 | (307 | %) | ||||||||||
| Income tax benefit | — | 47,620 | (47,620 | ) | (100 | %) | ||||||||||
| Net income (loss) from continuing operations | 10,407,541 | (4,975,455 | ) | 15,382,996 | (309 | %) | ||||||||||
| Net income (loss) from discontinued operations | (4,264,548 | ) | (1,147,124 | ) | (3,117,424 | ) | 272 | % | ||||||||
| Net loss | $ | 6,142,993 | $ | (6,122,579 | ) | 12,265,572 | (200 | %) | ||||||||
Operating expenses
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the three months ended June 30, 2021 was $2 million representing a decrease of $3.1 million or a 60% decrease, as compared to $5.1 million for the three months ended June 30, 2020. The primary component of the net decrease is due to the overall decrease of our operating activities as depreciation & amortization, Legal & Professional Fees and Salaries and wages. This decrease of our operating activities is attributed to the migration of activities to Brazil.
Other (expense) income, net
Other (expense) income, net for the three months ended June 30, 2021 and 2020 was $12 million and $82 thousand, respectively. The increase in other (expense) income, net was primarily attributable to write off Airtoken Project (discontinued).
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Income Tax Benefit
Income tax benefit for the three months ended June 30, 2021 and 2020 was $0 thousand and $47 thousand, respectively.
The following table shows our results of operations of The Company for the periods indicated. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
| Nine Months
Ended June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | Percentage | |||||||||||||
| Revenue | $ | — | $ | — | — | — | ||||||||||
| Cost of revenue | — | — | — | — | ||||||||||||
| Selling, general and administrative | 7,714,303 | 12,283,660 | (4,569,357 | ) | (37 | %) | ||||||||||
| Operating expenses | 7,714,303 | 12,283,660 | (4,569,357 | ) | (37 | %) | ||||||||||
| Other (expense) income, net | 12,652,531 | 1,504 | 12,651,027 | 841159 | % | |||||||||||
| Income (loss) from continuing operations before income taxes | 4,938,228 | (12,282,156 | ) | 17,220,384 | (140 | %) | ||||||||||
| Income tax benefit | 178,662 | 129,661 | 49,001 | 38 | % | |||||||||||
| Net income (loss) from continuing operations | 5,116,890 | (12,152,495 | ) | 17,269,385 | (142 | %) | ||||||||||
| Net income (loss) from discontinued operations | (10,851,961 | ) | (4,614,960 | ) | (6,237,001 | ) | 135 | % | ||||||||
| Net loss | $ | (5,735,071 | ) | $ | (16,767,455 | ) | 11,032,384 | (66 | %) | |||||||
Operating expenses
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the nine months ended June 30, 2021 was $7.7 million representing a decrease of $4.5 million or a 37% decrease, as compared to $12.3 million for the nine months ended June 30, 2020. The primary component of the net decrease is due to the overall decrease of our operating activities, Legal & Professional Fees and Salaries and wages. This decrease of our operating activities is attributed to the migration of activities to Brazil.
Other (expense) income, net
Other (expense) income, net for the nine months ended June 30, 2021 and 2020 was $12.6 million and $1 thousand, respectively. The increase in other (expense) income, net was primarily attributable to write off AirToken Project (discontinued).
Income Tax Benefit
Income tax benefit for the nine months ended June 30, 2021 and 2020 was $178 thousand and $129 thousand, respectively.
Discontinued Operations
Primarily due to the cancellation of the AirToken project, among other reasons, the Company's main functions and activities relating to the development and management of a software technology platform consisting of a digital wallet application and an alternative credit scoring and lending application are migrating to the banQi entity in Brazil.
In connection with the above strategy, the Company is gradually transferring contracts with some suppliers to Brazil.
So, certain new features and enhancements for the VV digital wallet and for the personal loan product have been developed in Brazil.
In Brazil, the operation has been growing consistently, with an increase in VV digital wallet customers. All these factors explain the growth in revenue and in costs and expenses of the operation in Brazil (banQi), as can be seen in the results presented in Note 4.
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LIQUIDITY AND CAPITAL RESOURCES
Our working capital deficit increased $4.1 million or 343%, to $5.4 million as of June 30, 2021 from $1.2 million as of September 30, 2020. The increase in working capital deficit is mainly attributable to the increase in accrued liabilities and due to related party.
We have historically experienced recurring losses and negative cash flows from operations. At June 30, 2021, we had a working capital deficit of $5.4 million which included cash and cash equivalents of $378 thousand. The following table summarizes total current assets, liabilities and working capital deficit for the periods indicated:
| June 30,
2021 (unaudited) | September
30, 2020 (audited) | Change Dollars | Change Percentage | |||||||||||||
| Current assets | $ | 1,151,049 | $ | 5,530,443 | $ | (4,379,394 | ) | -79 | % | |||||||
| Current liabilities | $ | 6,549,115 | $ | 6,749,448 | $ | (200,333 | ) | -3 | % | |||||||
| Working capital deficit | $ | (5,398,066 | ) | $ | (1,219,005 | ) | $ | (4,179,061 | ) | 343 | % | |||||
Cash Flows
We have historically financed operations through cash flows from investing and financing activities. At June 30, 2021, our principal source of liquidity was $1 million in cash and cash equivalents. Other uses of cash may include capital expenditures and products technology expansion.
| Nine Months Ended June 30, (unaudited) |
Change | |||||||||||
| 2021 | 2020 | Dollars | ||||||||||
| Net cash (used in) provided by operating activities | $ | (3,994,863 | ) | $ | (1,686,446 | ) | (2,308,417 | ) | ||||
| Net cash used in investing activities | $ | (1,980,976 | ) | $ | (2,684,767 | ) | 703,791 | |||||
| Net cash provided by financing activities | $ | 3,956,672 | $ | 2,109,384 | 1,847,288 | |||||||
Operating Activities
Net cash used in operating activities for the nine months ended June 30, 2021 was $3.9 million. Cash was consumed by accrued liabilities $5.8 million, Due from related party $1.4 million and Due to related party $11 million.
Investing Activities
Net cash used in investing activities during the nine months ended June 30, 2021 was $1 million which substantially consisted of the acquisition of capitalized software costs relating to the Via Varejo Services Agreement.
Financing Activities
Net cash provided by financing activities related primarily to $3.9 million in capital contributions relating to the Via Varejo Services Agreement for the nine months ended June 30, 2021.
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies, including the assumptions and judgements underlying them, are disclosed in the Notes to the Condensed Consolidated Financial Statements. We have consistently applied these policies in all material respects. We do not believe that our operations to date have involved uncertainty of accounting treatment, subjective judgement, or estimates, to any significant degree.
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OFF-BALANCE SHEET ARRANGEMENTS
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2021, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board include the following:
For the year ended September 30, 2020, we did not effectively apply the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO framework, due primarily to an insufficient complement of personnel possessing the appropriate accounting and financial reporting knowledge and experience to determine the appropriate accounting for non-recurring transactions and transactions requiring more complex accounting judgment. The Company has not established an audit committee which led to ineffective oversight in the establishment and monitoring of required internal controls and procedures.
We did not maintain an appropriate level of evidence of the effectiveness of controls over the preparation and review of certain reconciliations utilized in the financial close processes to ensure that the information recorded in the general ledger was complete and accurate, including the stock-based compensation process. In addition, we did not maintain effective controls over the preparation and review of the condensed consolidated financial statements to ensure that we identified and accumulated all required supporting information to ensure the completeness and accuracy of the information contained in the condensed consolidated financial statements.
Lastly, we did not implement appropriate general information technology controls as the Company did not maintain effective logical access and program change controls over our third-party systems, including the general ledger system.
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Management’s Remediation Initiatives:
In an effort to remediate the identified material weakness and enhance our internal controls, we
| ● | will continue to utilize an accounting and financial reporting advisory firm with significant experience with publicly held companies to assist our management in evaluating significant transactions and conclusions reached regarding technical accounting matters and financial reporting disclosures for the foreseeable future until our internal team is fully staff. |
Changes in Internal Control Over Financial Reporting
Except as set forth above, there were no changes to our internal control over financial reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 37 |
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time our Company may become involved in legal proceedings or be subject to claims arising in the ordinary course of its business. For information regarding existing and potential claims against our Company, see Note 13 - Commitments and Contingencies - Legal Proceedings in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
Not Applicable
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
| 38 |
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
| 39 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Carrier EQ, LLC. | ||
| Date: September 24, 2021 | By: | /s/ Lisbeth Reimer |
| Lisbeth Reimer | ||
|
PEO/ PFO (Principal Executive and Financial Officer) | ||
40
Exhibit 31.1
CERTIFICATION
I, Lisbeth Reimer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Carrier EQ, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and,
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: September 24, 2021 | |
| /s/ Lisbeth Reimer | |
|
Lisbeth Reimer PEO |
|
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Lisbeth Reimer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Carrier EQ, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and,
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: September 24, 2021 | |
| /s/ Lisbeth Reimer | |
|
Lisbeth Reimer PFO |
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| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Lisbeth Reimer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Carrier EQ, LLC on Form 10-Q for the quarterly period ended June 30, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of CarrierEQ, LLC.
| /s/ Lisbeth Reimer | |
| Lisbeth Reimer | |
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PEO (Principal Executive Officer) |
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| Date: September 24, 2021 |
This certification is furnished with this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference.
Exhibit 32.2
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Lisbeth Reimer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Carrier EQ, LLC on Form 10-Q for the quarterly period ended June 30, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of CarrierEQ, LLC.
| /s/ Lisbeth Reimer | |
| Lisbeth Reimer | |
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PFO (Principal Financial Officer) |
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| Date: September 24, 2021 |
This certification is furnished with this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - shares |
Jun. 30, 2021 |
Sep. 30, 2020 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Units outstanding | 1,277,635 | 1,277,635 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Income Statement [Abstract] | ||||
| Revenue | ||||
| Operating expenses: | ||||
| Cost of revenue | ||||
| Selling, general and administrative | 2,046,330 | 5,105,903 | 7,714,303 | 12,283,660 |
| Total operating expenses | 2,046,330 | 5,105,903 | 7,714,303 | 12,283,660 |
| Loss from operations | (2,046,330) | (5,105,903) | (7,714,303) | (12,283,660) |
| Other (expense) income: | ||||
| Realized loss on sale of digital assets | (1,392) | |||
| Foreign currency transaction loss | (507,761) | (418,604) | ||
| Other miscellaneous income | 12,978,884 | 12,978,884 | ||
| Interest income (expense), net | (17,252) | 82,828 | 92,251 | 2,896 |
| Other (expense) income, net | 12,453,871 | 82,828 | 12,652,531 | 1,504 |
| Income (loss) from continuing operations before income taxes | 10,407,541 | (5,023,075) | 4,938,228 | (12,282,156) |
| Income tax benefit | 47,620 | 178,662 | 129,661 | |
| Net income (loss) from continuing operations | 10,407,541 | (4,975,455) | 5,116,890 | (12,152,495) |
| Net loss from discontinued operations | (4,264,548) | (1,147,124) | (10,851,961) | (4,614,960) |
| Net loss (income) attributable to non-controlling interest | (1,693) | (44) | (1,035) | (461) |
| Net income (loss) attributable to Carrier EQ, LLC. | 6,141,300 | (6,122,623) | (5,736,106) | (16,766,994) |
| Other comprehensive income | ||||
| Foreign currency translation adjustment - discontinued operations | (527,484) | 120,645 | (875,085) | 1,118,914 |
| Total comprehensive income (loss) | $ 5,613,816 | $ (6,001,978) | $ (6,611,191) | $ (15,648,080) |
Organization and Nature of Operations |
9 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Organization and Nature of Operations | Note 1 - Organization and Nature of Operations
Carrier EQ, LLC, doing business as Airfox (the “Company”), was incorporated in Delaware on May 21, 2020 with a principal place of business in Boston, Massachusetts. Airfox was previously formed as a corporation, CarrierEQ, Inc. and was incorporated in Delaware on January 19, 2016.
Airfox had at that time a 100% ownership interest in AirToken GmbH, a Swiss GmbH. Airfox and Airtoken GmbH are collectively referred to herein, as the “Company.” On April 6, 2020, Airtoken GmbH was dissolved.
On May 21, 2020, Airfox filed a certificate of conversion (the “Certificate of Conversion”) to convert the Corporation to a Limited Liability Company and to change the Airfox’s name from “CarrierEQ, Inc.” to “Carrier EQ, LLC” The conversion and name change became effective on May 21, 2020. Airfox (the Company) filed a certificate of formation of Carrier EQ, LLC (the “Certificate of Formation”) on May 21, 2020.
On May 21, 2020, the Company was fully acquired by Via Varejo S.A, a corporation organized under the laws of the Federative Republic of Brazil (“Via Varejo”) through Lake Niassa Empreendimentos e Participações Ltda. ("Lake Niassa"), a limited liability company duly organized under the laws of the Federative Republic of Brazil and wholly-owned by Via Varejo (the "Transaction").
On June 14, 2021, the Company, Lake Niassa and banQi Instituição de Pagamento Ltda (formerly known as AirFox Servicos E Intermediacoes Ltda (“banQi”), a limited liability company organized under the laws of the Federative Republic of Brazil entered into the 7th Amendment and Consolidation of the Articles of Association of banQi (the “7th Amendment”). Pursuant to the terms of the 7th Amendment, the banQi and Lake Niassa (i) increased banQi 's share capital from BRL 1,000,000.00 (one million reais) to BRL 69,870,000.00 (sixty-nine million, eight hundred and seventy thousand reais), which represents an increase of BRL 68,870,000.00 (sixty-eight million, eight hundred and seventy thousand reais); and (ii) issued 68,870,000 (sixty-eight million, eight hundred and seventy thousand) new quotas, with par value of BRL 1.00 (one real) each, fully subscribed and paid up, in Brazilian currency, through the capitalization of Advances for Future Capital Increase ("AFAC") made by Lake Niassa.
Prior to entering into the 7th Amendment, the Company had a 99.99% ownership interest in banQi and Lake Niassa had a 0.01% ownership interest in banQi. Pursuant to the 7th Amendment, and the transfer of banQi’s share capital to Lake Niassa, the Company’s ownership interest in banQi decreased to 1.43% of the share capital of banQi, and Lake Niassa’s ownership interest in banQi increased to 98.57% of the share capital of banQi, which makes Lake Niassa the controlling owner of banQi.
As a result of this change in control, on June 14, 2021, the Company determined that it did not have a controlling interest over banQi, and banQi was deconsolidated from the Company's condensed consolidated financial statements and presented as discontinued operations in the Company’s condensed consolidated financial information presented within this quarterly report. The presentation of the operations and results of banQi is further explained in Note 3.
Beginning in February 2017, the Company began exploring consumer applications of its legacy prepaid mobile applications. The Company initiated a business plan to introduce a mobile application that would allow users to earn digital tokens, exchange them for free or discounted mobile data and, ultimately, other goods and services in South America as part of a new international business and ecosystem (the “AirToken Project”). The AirToken Project included the issuance of digital tokens (“AirToken(s)”). The AirToken is an ERC-20 token issued on the Ethereum blockchain.
The Company obtained Ether and Bitcoin (collectively referred therein as the “Digital Assets”), in August 2017 through early October 2017 from those interested in obtaining AirTokens. The Company raised approximately $15.4 million for the purpose of developing the AirToken Project.
On June 30, 2021, Lake Niassa the sole member of Carrier EQ, LLC determined to discontinue the development of AirTokens and end the AirToken project related to the Company’s business. At this time, the Company does not have the ability to further develop AirTokens as part of its business plan in the absence of new laws or a definitive regulatory regime (in both the U.S. and Brazil) regarding the use and transferability of AirTokens (and other similar tokens issued on the Ethereum block chain that are classified as securities). Current laws and regulatory regimes do not provide for the Company to utilize the AirTokens as envisioned by the Company since AirTokens are no longer freely transferable and the previous market for AirTokens no longer exists. AirTokens were never fully developed and never gained full functionality. As previously stated, AirTokens are not currently freely transferable, and no market exists for AirTokens.
As a result of the Company discontinuing the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable.
Since the Company is no longer continuing with the AirToken project, the Company should not recognize any revenue related to the research and development of the AirToken project, and the deferred revenue is no longer appropriate to be recorded on the balance sheet. The liability - AirToken Project, of approximately $12.5 million was extinguished and charged to Other Income in the Condensed Consolidated Statements of Comprehensive Loss.
Currently, the Company's main functions and activities comprise of supporting banQi’s operation in Brazil, including assisting banQi with the management of the digital wallet application and the financial services provided to those without bank accounts or credit cards. Primarily due to the cancellation of the AirToken project and since the main features of the Company’s software and technology platform have been developed and funded to be applied in the Brazilian market (as per the Services Agreement and the Call Option Agreement), the Company's main functions and activities relating to the development and management of a software technology platform consisting of a digital wallet application and an alternative credit scoring and lending application have substantially migrated to the banQi entity in Brazil.
In connection with the above strategy, the Company is gradually transferring contracts with some suppliers to Brazil and reducing its activities in the US.
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Financial Condition and Management’s Plans |
9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Jun. 30, 2021 | |||||||
| Financial Condition And Managements Plans | |||||||
| Financial Condition and Management’s Plans | Note 2 - Financial Condition and Management’s Plans
The Company has experienced recurring losses and negative cash flows from operations. At June 30, 2021, the Company had cash and cash equivalents of $378.4 thousands, a working capital deficit of $5.4 million, and total member's deficit of $1.5 million. Additionally, the Company may be subject to other legal liabilities (see Note 13).
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business.
The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results. The condensed financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
In the event the Company is unable to raise additional debt or equity financing, it may:
COVID-19 Risks, Impacts and Uncertainties
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 Outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 Outbreak as a pandemic, based on the rapid increase in exposure globally. The Commonwealth’s “Reopening Massachusetts” process is underway. The Company is subject to the risks arising from the COVID-19 Outbreak’s social and economic impacts.
The Company’s management believes that the social and economic impacts, which include but are not limited to the following, could have a significant impact on future financial condition, liquidity, and results of operations: (i) the duration and scope of the pandemic; (ii) governmental, business and individual actions that have been and continue to be taken in response to the pandemic, including travel restrictions, quarantines, social distancing, work-from-home and shelter-in-place orders and shut-downs; (iii) the impact on U.S. and global economies and the timing and rate of economic recovery; (iv) potential adverse effects on the financial markets and access to capital; (v) potential goodwill or other impairment charges; (vi) increased cybersecurity risks as a result of pervasive remote working conditions; and (vii) the Company’s ability to effectively carry out its operations due to any adverse impacts on the health and safety of the Company’s employees and their families.
In response to the COVID-19 Outbreak, the Company’s employees have been required to work from home. The significant increase in remote working, particularly for an extended period of time, has been exacerbating certain risks to the Company’s business, including an increased risk of cybersecurity events and improper dissemination of personal or confidential information.
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Summary of Significant Accounting Policies |
9 Months Ended | |||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | Note 3 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements (“interim statements”) of Airfox have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as determined by Financial Accounting Standards Board (the “FASB”) within its Accounting Standards Codification (“ASC”) and under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended September 30, 2020.
The Company has elected not to apply pushdown accounting to the accompanying standalone condensed consolidated financial statements in accordance with ASC 805 Business Combinations ("ASC 805").
The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act, enacted on April 5, 2012 and has elected to comply with certain reduced public company reporting requirements, however, the Company may adopt accounting standards based on the effective dates for public entities.
As of June 14, 2021, the operations of banQi were deconsolidated from the Company, as the Company no longer had a controlling interest in banQi. The Company accounted for the loss in controlling interest as discontinued operations in banQi in accordance with Accounting Standards Codification, ASC 205, Discontinued Operations and Accounting Standards Update, ASU, No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASC 205 requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items, net of tax, in the unaudited condensed consolidated statements of comprehensive loss. Assets and liabilities are also reclassified into separate line items on the related condensed consolidated balance sheets for the periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of discontinued operations as separate line items. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.
Due to the deconsolidation of banQi during the third quarter of fiscal 2021, in accordance with ASC 205, Discontinued Operations, the Company has classified the results of banQi as discontinued operations in our unaudited condensed consolidated statements of operations and cash flows for all periods presented. All assets and liabilities associated with banQi were therefore classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets for the periods presented. All amounts included in the notes to the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted. For additional information, see Note 4, Discontinued Operations.
Principles of Consolidation
Prior to June 14, 2021 the Company had a controlling interest in banQi and, prior to April 6, 2020, had a 100% interest in AirToken GmbH; accordingly, the Company consolidated these entities and records non-controlling interests to reflect the economic interest of the non-controlling equity holders. On April 6, 2020, Airtoken GmbH was dissolved.
On June 14, 2021, the Company’s ownership of banQi was reduced from 99.99% to 1.43% and thus the Company effectively lost a controlling interest over banQi. The net assets of banQi were deconsolidated from the condensed consolidated financial statements on that date, and the Company's current 1.43% interest in banQi is recorded as an investment under the cost method on the Company’s condensed consolidated balance sheets.
The change in ownership represents a transfer of net assets between entities under common control, because all entities are owned by the same common parent entity, Lake Niassa, and thus the gain on deconsolidation of banQi was recorded against accumulated deficit The Company will also record a cost method investment in banQi for their respective investment in the entity, and any previously recorded non-controlling interest will be removed from the balance sheet.
All intercompany transactions have been eliminated in consolidation. The Company is not involved with variable interest entities.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. The most significant accounting estimates inherent in the preparation of the Company's financial statements includes, but not limited to, estimated lives of intangible assets, intangible asset impairment, revenue recognition and deferred tax valuation allowance.
Foreign Currency
The Company had operations in Brazil until June 14, 2021, where the local currency is used to prepare the financial statements which are translated into the Company’s reporting currency, U.S. dollars. The local currency is the functional currency for the operations outside the United States. Changes in the exchange rates between this currency and the Company’s reporting currency, are partially responsible for some of the periodic changes in the condensed consolidated financial statements prior to June 14, 2021. Assets and liabilities of the Company’s foreign operations until June 14, 2021 are translated into U.S. dollars at the spot rate in effect at the applicable reporting date. Revenues and expenses of the Company’s foreign operations are translated at the average exchange rate during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (loss) in the period in which they occur.
Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
ASC 606 prescribes a 5-step process to achieve its core principle:
AirToken Project Development Services (Non ASC 606 Revenue)
The Company determined that its token issuances represented obligations to perform software development services and accounts for the proceeds received in the token issuances in accordance with ASC 730-20, Research and Development – Research and Development Arrangements (“ASC 730-20”). At the time of, and in conjunction with the token issuances, the Company’s obligation was to develop a live, operational, de-centralized network with token functionality including, at a minimum, features including a digital wallet, credit scoring and peer-to-peer networking (collectively, the “AirToken Project”). Due to the significant hurdles in developing the AirToken Project, technological feasibility had not been established at the time of the token issuances and, therefore, all of the Company’s development costs were expensed.
The Company, beginning in August 2017 through early October 2017, obtained Ether and Bitcoin totaling approximately $15.3 million (and cash of $0.1 million) towards the development of the AirToken Project. Pursuant to the terms of the AirTokens, there is no form of partnership, joint venture, agency or any similar relationship between a holder of an AirToken and the Company and/or other individuals or entities involved with the AirToken Project. AirTokens are non-refundable and do not pay interest and have no maturity date. AirTokens confer only the right to services in the AirToken Project and confer no other rights of any form with respect to the Company, including, but not limited to, any voting, distribution, redemption, liquidation, proprietary (including all forms of intellectual property), or other financial or legal rights. Subsequent to the distribution of AirTokens to those parties who contributed towards the funding of the AirToken Project, no AirTokens were sold by the Company.
Pursuant to the Settlement Agreement (as defined and described further in Note 13), the Company was obligated to refund amounts raised for the purpose of developing the AirToken Project if valid claims were submitted.
On or before December 28, 2019, the Company paid all approved claims to approved claimants who returned their AirTokens to the Company (approximately 93.5% of the total dollar amount of all approved claim refunds). All amounts were refunded in cash and paid through the Company’s existing cash and cash equivalent reserves. The total claim amounts including interest, totaled $3.3 million on December 28, 2019. Certain approved claimants did not return their AirTokens to the Company. The Company did not pay approved claims to approved claimants who did not return their AirTokens to the Company. As of June 30, 2021, the amount that was not paid was approximately $0.2 million.
Effective October 1, 2019, the Company was not able to estimate a date to conclude the development of the AirToken Project due to regulatory matters that affect the continuity of the development process. Due to this reason, the AirToken Project was on hold and no revenue has been recognized from the AirToken Project.
On June 30, 2021, Lake Niassa determined to discontinue the development of AirTokens and end the AirToken project related to the Company’s business. At this time, the Company does not have the ability to further develop AirTokens as part of its business plan in the absence of new laws or a definitive regulatory regime (in both the U.S. and Brazil) regarding the use and transferability of AirTokens (and other similar tokens issued on the Ethereum block chain that are classified as securities). Current laws and regulatory regimes do not provide for the Company to utilize the AirTokens as envisioned by the Company since AirTokens are no longer freely transferable and the previous market for AirTokens no longer exists. AirTokens were never fully developed and never gained full functionality. As previously stated, AirTokens are not currently freely transferable and no market exists for AirTokens. As a result of the discontinuation of the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable.
Since the Company is no longer continuing with the AirToken project, the Company has not recognized any revenue related to the research and development of the AirToken project, and the deferred revenue is no longer appropriate to be recorded on the balance sheet. The liability, Deferred revenue - AirToken Project, of approximately $12.5 million are extinguished and charged to Other Income in the Condensed Consolidated Statements of Comprehensive Loss.
Mastercard Revenue and Sale Incentives (ASC 606 Revenue)
On December 16, 2019, banQi, received R$65 million (approximately U.S. $16 million in December 2019) from Mastercard Brasil Soluções de Pagamento Digital Ltda. (“Mastercard Brasil”) pursuant to a Strategic Alliance and Incentive Program Agreement (the “Program Agreement”) entered into between banQi, Mastercard Brasil and Via Varejo S.A. (“Via Varejo”) on June 12, 2019 (See Note 5).
Pursuant to the Program Agreement, banQi, as a licensee of MasterCard International, Inc. and a business partner of Mastercard Brasil, entered into the Incentive Program (as defined in the Program Agreement) in order to issue, expand and boost the prepaid card (“Airfox Card”) base of banQi, as well as the number of transactions and turnover (sales revenue) generated by MasterCard Cards.
As a Mastercard prepaid card issuer, banQi is entitled to receive Sales Revenue Incentives pursuant to the Program Agreement. As a result, the Sales Revenue Incentives is used to amortize the Sales Revenue Incentive Prepayment received on December 11, 2019. Upon complete amortization of Incentive Prepayment, Mastercard makes quarterly payments of the Sales Revenue Incentive, calculated according to the value of transactions completed with the prepaid cards issued by the banQi. banQi have no minimum commitment of transaction volumes to be completed with the prepaid cards.
The revenue from the Program Agreement was recognized until June 14, 2021, the date on which the Company no longer had a controlling interest over banQi, thus no additional revenue was recognized from that date through June 30, 2021.
The Company recognizes the revenue as earned on a monthly basis, based on a fixed percentage of the total dollar value of card transactions completed during the month in accordance with the terms in the agreement. The Company has identified one performance obligation that meets the series provision and recognizes revenue over time. The Company Sales incentives totaling $343 thousand and $10 thousand have been earned for the three and nine months ended June 30, 2021, respectively, and $3,085 and $6,802 has been earned for the three and nine months ended June 30, 2020, respectively, and meets the guidance to be classified as a series.
In connection to the Program Agreement, the Company also entered into an agreement with Mastercard, an Interchange Manual (“Interchange Fee Agreement”) from Mastercard dated June 18, 2019, which details the fees paid by a merchant’s bank to banQi to compensate for the value and benefits that merchant receives when it accepts electronic payments.
The fee is a specified percentage of the total dollar amount of a card transaction, and a fixed percentage based on the type of card transaction (i.e. merchant type, national vs. international, etc.), based on the schedule of fees outlined in the Interchange Fee Agreement (“Interchange Fee Revenue”).
On a monthly basis, the Company earns revenue from the Interchange Fee received. The Company has identified one performance obligation that meets the series provision and recognizes revenue over time. Interchange Fee Revenue totaling $94 thousand and $3,085 has been earned for the three months ended June 30, 2021 and 2020, respectively, and meets the guidance to be classified as a series. Interchange Fee Revenue totaling $66 thousand and $6,802 has been earned for the nine months ended June 30, 2021, and 2020, respectively, and meets the guidance to be classified as a series. The revenue from the Interchange Fee Revenue was recognized until June 14, 2021, the date on which the Company no longer had a controlling interest over banQi, thus no additional revenue was recognized from that date through June 30, 2021.
Via Varejo Services Agreement Revenue (ASC 606 Revenue)
The Company entered into a Services Agreement (the “Services Agreement”) as of September 11, 2018 (“the Agreement Effective Date”) with Via Varejo (the “Client”).
The Company was engaged to design and develop a mobile software module and application programming interface that provides the Client’s customers with access to certain mobile payment functionality, and that integrates banQi (“VV Wallet Services”). The Company provided certain services, including hosting, maintenance and operation of banQi, The VV Wallet Services were structured into four phases. The Phases are - Phase 1: Specifications and Customization; Phase 2: Features; Phase 3: License and Maintenance Services and Phase 4: Rollout.
The development of the VV Wallet Services was considered a bundled performance obligation that included the development of the API and software as a service which is hosted on the Company’s servers. In addition to the software as a service performance obligation, the Company provided support services for the software as a service. The Client was considered to simultaneously receive and consume the benefits provided by the Company’s performance as the Company performed the services. Accordingly, the revenue from Service Charges was recognized over time based on the number of transactions made by Client customers with banQi.
During Phase 1, there was a payment of $0.3 million (“Upfront Payment”) from the Client to be recognized as revenue commencing when the product was ready for its intended use and ratably over the remaining term of the Services Agreement through the duration of the Services Agreement. The total revenue recognized for the three months ended June 30, 2021 and 2020 totaled $159 thousand and $12.1 thousand, respectively. The total revenue recognized for the nine months ended June 30, 2021 and 2020 totaled $202 thousand and $24.9 thousand, respectively. The revenue from the Upfront Payment was recognized through June 14, 2021, the date on which the Company no longer had a controlling interest over banQi, thus no additional revenue was recognized from that date through June 30, 2021.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments.
Accounts Receivable and Allowance for Doubtful Accounts
As of June 30, 2021, there was a minimal amount of accounts receivable as the Company no longer consolidates the operations of banQi.
Concentrations of Credit Risk and Off-Balance Sheet Risk
The Company is subject to concentration of credit risk with respect to their cash and cash equivalents, which the Company attempts to minimize by maintaining cash and cash equivalents with institutions of sound financial quality. At times, cash balances may exceed limits federally insured by the Federal Deposit Insurance Corporation. The Company had cash and cash equivalents, including amounts held in financial institutions in the USA that totaled $ 378 thousand.
The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the funds are held. The Company has no financial instruments with off-balance sheet risk of loss.
Long-Lived Assets, Including Definite Intangible Assets
Long-lived assets and other indefinite-lived intangibles are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. The Company’s definite-lived intangible assets primarily consist of various domain names and websites. For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
Security Deposits
Security deposits primarily include monies being held subject to a security agreement (“Security Agreement”) with Mastercard, Inc. executed on June 7, 2019. The Security Agreement is related to the Services Agreement to ensure a minimum amount of users for the cards. On April 22, 2020 Mastercard returned $1.2 million plus interest in cash deposit to the Company. Upon Mastercard issuing the minimum number of cards to users, the $0.3 million will be paid back to the Company in full. The Company has classified this amount as non-current assets as these funds are not highly liquid and cannot be easily converted into cash.
Included in the security deposits balance as of June 30, 2021 are $281 thousand associated with the VV Wallet, which is being operated by banQi in Brazil. Airfox has entered into discussions with Mastercard and banQi to transfer this asset to banQi. The companies are still working out the final details, which should close prior to the Airfox's September 30, 2021 year-end.
Investment in related affiliate
After the deconsolidation of banQi, the Company's remaining investment in banQi of $252 thousand is recorded on the cost method, since the Company no longer has control of banQi and has an ownership percentage of 1.43% as of June 30, 2021.
Due to Related Party
Amounts due to banQi as of June 30, 2021 are $5.5 million and have been calculated based on the loan agreements between the companies. The loan must be refunded for its amount in Brazilian currency (Real) until April, 2025, by a single payment (principal plus accrued interest) or by advance payments. The current interest rate determined in the agreements is 1.0% per year and, as the debt amount is in Brazilian currency, the effect of exchange variation is also considered, totaling $92 thousand and $47 thousand, for the three and nine months ended June 30, 2020, respectively.
Software Development Costs
The Company capitalizes costs related to software developed or obtained for internal use in accordance with the ASC 350-40, Internal-Use Software (“ASC 350-40”). The following illustrates the various stages and related processes of computer software development in accordance with ASC 350-40: ·
Certain costs incurred are considered enhancements, modifications to existing internal-use software that result in additional functionality. Enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications. When this additional functionality is determinable, the related costs are capitalized. Otherwise, costs are expensed as incurred. Capitalization of internal-use software costs ceases when a computer software project is substantially complete and ready for its intended use. The Company begins amortization when the product is available for general release or use.
The Company has capitalized software costs relating to the Via Varejo Services Agreement and began amortization on January 1, 2020 as the product was ready for its intended use and has been amortized through the contract term until September 2023. The amortization expense related to the Via Varejo Services Agreement capitalized software for the three and nine months ended June 30, 2021 totaled $0.4 million and $1.4 million, respectively.
The Company capitalizes costs related to the development and maintenance of its website in accordance with ASC 350-50, Website Development Costs. Accordingly, costs expensed as incurred include planning the website, developing the applications and infrastructure until technological feasibility is established and operating the site such as training administration and maintenance.
Included in the net intangibles balance as of June 30, 2021 are $3,295,256 of capitalized software costs (Note 7) associated with the VV Wallet, which is being operated by banQi in Brazil. Thus, Airfox has entered into discussions with Via Varejo and Lake Niassa to transfer these assets to banQi. The companies are still working out the final details, which should close prior to Airfox's September 30, 2021 year-end. In addition, effective June 14, 2021, Airfox ceased recognizing amortization expense on these capitalized software costs..
Capitalizing Software Costs in Connection with Hosting Arrangements and Software as a Service Arrangements
For the operation in Brazil at banQi, the Company developed certain software that are considered to be part of cloud computing arrangement (or hosting arrangement), whereby, a user or a customer of software does not take possession of the Company’s software; rather, the software is accessed on an as-needed basis over the Internet.
Therefore, when the software is used to produce a product or in a process to provide a service to a customer, and the customer is not given the right to obtain or use the software, the related costs are accounted for in accordance with ASC 350-40. When a hosting arrangement includes multiple modules or components, capitalized costs are amortized on a module-by-module basis. When a module or component is substantially ready for its intended use, amortization begins, regardless of whether the overall hosting arrangement is being placed in service in planned stages. If the module’s functionality is entirely dependent on the completion of one or more other modules, then amortization does not begin until that group of interdependent modules is substantially ready for use.
Impairment of Long-term Assets
The Company evaluates the recoverability of tangible and intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
Leases
The Company categorizes leases at their inception as either operating or finance leases based on the criteria in ASC 842, Leases (“ASC 842”). The Company adopted ASC 842 on October 1, 2019, using the modified retrospective approach, and has established a Right-of-Use (“ROU”) Asset and a current and non-current Lease Liability for each lease arrangement identified. The lease liability is recorded at the present value of future lease payments discounted using the discount rate that approximates the Company’s incremental borrowing rate for the lease established at the commencement date, and the ROU asset is measured as the lease liability plus any initial direct costs, less any lease incentives received before commencement. The Company recognizes a single lease cost, so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis.
Advertising
Advertising costs are expensed as incurred and included in selling, general and administrative expenses and amounted to a reversal of $0.7 million and expenses of $ 29 thousand for the three months ended June 30, 2021 and 2020, respectively and expenses of $179 thousand and $75 thousand for the nine months ended June 30, 2021 and 2020, respectively.
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes any interest and penalties accrued related to unrecognized tax benefits as income tax expense.
Gain on issuance of AirTokens for services
AirTokens issued to vendors for services in connection with raising monies for the purpose of developing the AirToken Project were accounted for in accordance with ASC 845-30-1, Nonmonetary Transactions, which requires that the AirTokens to be recognized at fair value and resulted in recognizing a deferred gain of approximately $1.7 million in October 2017. The fair value of the AirTokens issued was based on the last price paid ($0.02) by initial investors in acquiring.
On June 30, 2021, Lake Niassa determined to discontinue the development of AirTokens and end the AirToken project related to the Company’s business. At this time, the Company does not have the ability to further develop AirTokens as part of its business plan in the absence of new laws or a definitive regulatory regime (in both the U.S. and Brazil) regarding the use and transferability of AirTokens (and other similar tokens issued on the Ethereum block chain that are classified as securities). Current laws and regulatory regimes do not provide for the Company to utilize the AirTokens as envisioned by the Company since AirTokens are no longer freely transferable and the previous market for AirTokens no longer exists. AirTokens were never fully developed and never gained full functionality. As previously stated, AirTokens are not currently freely transferable, and no market exists for AirTokens. As a result of the Company discontinuing the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable.
Since the Company is no longer continuing with the AirToken project, the Company should not recognize any revenue related to the research and development of the AirToken project, and the deferred revenue is no longer appropriate to be recorded on the balance sheet. The liability, Deferred revenue - AirToken Project, of approximately $13 million, as of June 30, 2021, was extinguished and charged to Other Income in the Condensed Consolidated Statements of Comprehensive Loss.
Distinguishing Liabilities from Equity
The Company relies on the guidance provided by ASC 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.
Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet. The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e., at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
The Company records its financial instruments classified as liabilities at their fair value at each subsequent measurement date. The changes in fair value of these financial instruments are recorded as other expense/income.
Hedging
The Company does not use derivative instruments to hedge exposures to cash flows, market or foreign currency risks. The Company evaluates its financial instruments, including equity-linked financial instruments, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
The Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of ASC 718, Compensation - Stock Based Compensation. The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Stock-based awards are recognized on a straight-line basis over the requisite service period. For stock-based employee compensation cost recognized at any date will be at least equal to the amount attributable to share-based compensation that is vested at that date. The Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Common shares issued to third parties for services provided are valued based on the estimated fair value of the Company’s common shares.
All stock-based compensation costs are recorded in selling, general and administrative expenses in the consolidated statements of operations. All stock-based compensation awards were cancelled pursuant to the Transactions which occurred on May 21, 2020.
In August 2020, the Company established the Share Based Payment Program with Cash Settlement - Phantom Shares of Via Varejo S.A. (the "Plan"). Pursuant to the Plan, the Company's Board of Directors may grant cash-settled shares, referred to as "Phantom Shares," to the Company's employees as part of the employees' remuneration package. Each Phantom Share will represent the employee's right to receive the full amount corresponding to the average quotation of 3 (three) common shares of Via Varejo S.A. in the 20 (twenty) trading sessions at B3 - Brazil, Bolsa, Balcão immediately prior to vesting, as established in the Plan. The Phantom Shares vest over a service period of five years.
As of June 14, 2021, there is no liability reported related to the Phantom Shares due the deconsolidation of banQi. No Phantom Shares have vested as of June 30, 2021.
Fair Value Measurement
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short and long-term debt. The fair values of cash and cash equivalents, accounts receivable, and accounts payable approximate their stated amounts because of the short maturity of these financial instruments.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy under ASC 820 are described below:
Adoption of Recent Accounting Pronouncements
In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02 (“ASU 2016-02”), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for Lessors. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The Company adopted ASU 2016-02 effective October 1, 2019 using the modified retrospective approach whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, the Company elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, the Company adopted a short-term lease exception policy, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets.
Adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities related to the Company’s operating leases, totaling $2.3 and $2.4 million, respectively, recorded on the Company’s consolidated balance sheet as of October 1, 2019. The standard did not materially affect the Company's consolidated net earnings or cash flows.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends disclosure requirements on fair value measurements in Topic 820. This amendment modifies the valuation process of fair value measurements by removing the disclosure requirements for the valuation processes for Level 3 fair value measurements, clarifying the timing of the measurement uncertainty disclosure, and including the changes in unrealized gains and losses for recurring Level 3 fair value measurements in other comprehensive income if held at the end of the reporting period. It also allows the disclosure of other quantitative information in lieu of the weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and should be applied prospectively for the most recent period presented in the initial fiscal year of adoption. The Company adopted ASU 2018-13 effective October 1, 2020 and there was no material impact on the Company's results of operations, financial position and cash flows.
In August 2018, the FASB issued ASU 2018-15, Intangibles, Goodwill and Other (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance in ASC 350-40. The new standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU 2018-15 effective October 1, 2020 and there was no material impact on the Company's results of operations, financial position and cash flows.
Recent Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company's financial reporting, the Company undertakes a study to determine the consequences of the change to its condensed consolidated financial statements and assures that there are proper controls in place to ascertain that the Company's condensed consolidated financial statements properly reflect the change.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of the pending adoption of the new standard on its condensed consolidated financial statements and intends to adopt the standard on October 1, 2023.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for the Company for interim and annual reporting periods beginning after December 15, 2021. The Company is currently assessing the impact of ASU 2019-12, but it is not expected to have a material impact on the Company’s condensed consolidated financial statement.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard on its financial statements and intends to adopt the standard as of October 1, 2024.
Reclassifications
Certain reclassifications have been made to the 2020 consolidated financial statements in order to conform to the 2021 financial statement presentation.
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| Discontinued Operations | Note 4 – Discontinued Operations
The Company has determined the loss of a controlling interest and deconsolidation of the operations of banQi as of June 14, 2021 represents a strategic shift that will have a major effect on the business and therefore meets the criteria for classification as discontinued operations at June 30, 2021 and prior periods presented in the condensed consolidated financial information. Accordingly, the assets and liabilities associated with the operations of banQi have been classified as discontinued operations in the accompanying condensed consolidated balance sheets, condensed consolidated statements of comprehensive loss, and condensed consolidated cash flows for all periods presented.
The assets and liabilities that were included in the June 14, 2021 deconsolidation of banQi consist of the following:
The results from the discontinued operations have been reflected in the Consolidated Statement of Comprehensive Loss for the three- and nine-month periods ended June 30, 2021 consist of the following:
As a result of the discontinued operations, the previously presented 2020 financial statements have been revised to present the consolidated financial statements of the continuing operations separate from the discontinued operations. The effects on the Consolidated Balance Sheet as of September 30, 2020 were as follows:
The effects on the Consolidated Statement of Comprehensive Loss for the three- and nine-month periods ended June 30, 2020 were as follows:
The depreciation, amortization and significant operating noncash items of the discontinued operations were as follows:
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Mastercard Program Agreement |
9 Months Ended |
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Jun. 30, 2021 | |
| Mastercard Program Agreement | |
| Mastercard Program Agreement | Note 5 – Mastercard Program Agreement
On December 16, 2019, banQi, received R$65 million (approximately $16 million in December 2019) from Mastercard Brasil pursuant to the “Program Agreement” entered into between banQi, Mastercard Brasil and Via Varejo Via Varejo on June 12, 2019.
Pursuant to the Program Agreement, banQi, as a licensee of MasterCard International, Inc. and a business partner of Mastercard Brasil, entered into the Incentive Program (as defined in the Program Agreement) in order to issue, expand and boost the prepaid card (“Airfox Card”) base of banQi as well as the number of transactions and turnover (sales revenue) generated by MasterCard Cards. The Program Incentives monies (as defined in the Program Agreement) cannot be used for the benefit of any product of any Mastercard competitor and/or any card brand other than the Mastercard Network. As an incentive to support the launching of Airfox Card, on December 16, 2019 Mastercard Brasil made to BanQi the incentive prepayment per sales revenue ("Sales Revenue Incentive Prepayment") totaling R$65 million.
As a Mastercard prepaid card issuer, banQi will be entitled to receive Sales Revenue Incentive pursuant to the Program Agreement. As a result, the Sales Revenue Incentive will be used to amortize the Sales Revenue Incentive Prepayment received on December 11, 2019. Upon complete amortization of Incentive Prepayment, Mastercard will make quarterly payments of the Sales Revenue Incentive, calculated according to the value of transactions completed with the prepaid cards issued by the banQi. banQi will have no minimum commitment of transaction volumes to be completed with the prepaid cards.
The Sales Revenue Incentive Prepayment constitutes the creation of a direct financial obligation on banQi since it constitutes prepaid sales revenue from Mastercard Brasil to banQi. Via Varejo has agreed to act as a guarantor of banQi’s Sales Revenue Incentive Prepayment obligations to Mastercard Brasil pursuant to the Program Agreement and a Guaranty Letter.
The Program Agreement has a term of ten years, unless earlier terminated by either party in accordance with specific provisions of the Program Agreement. The Program Agreement also establishes that the remaining balance of the prepaid incentive amount shall be updated every twelve months at 72% of the Brazilian federal funds rate, the "SELIC" rate (or 'over Selic') as of the payment date of the incentive, which turns the incentive agreement into a financial debt instrument. If the Agreement was ever terminated, even as of the ending of the effective term of ten years or before, the Company shall make the full payment of the remaining sales incentive prepaid balance at the actual termination date.
The Company will recognize the revenue as earned on a monthly basis, based on a fixed percentage of the total dollar value of card transactions completed during the month in accordance with the terms in the agreement. Also, the company will recognize finance expenses related to the SELIC adjustment on a yearly basis, as stated by the agreement. The Company has identified one performance obligation that meets the series provision and recognizes revenue over time. The Company Sales incentives totaling $343 thousand and $429, for the three months ended June 30, 2021 and 2020 respectively, and meets the guidance to be classified as a series. The Interchange Fee received totaling $10 thousand and $6 thousand, for the nine months ended June 30, 2021 and 2020 respectively, and meets the guidance to be classified as a series.
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Prepaid Expenses and Other Current Assets |
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| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepaid Expenses and Other Current Assets | Note 6 - Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
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Intangible Assets, Net |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets, Net | Note 7 - Intangible Assets, Net
The following table summarizes the Company’s definite-lived intangible assets:
The Company uses the straight-line method to determine the amortization expense for its definite-lived intangible assets. The amortization expense related to the definite-lived intangible assets was $0.4 million and $1.2 million for the three and nine months ended June 30, 2021, and $0.3 million and $0.6 million for the three and nine months ended June 30, 2020. The Company also recorded an impairment of $0.7 million and an effect of the banQi’s deconsolidation of $42.1 thousands for the nine months ended June 30, 2021.
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Accrued liabilities |
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| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued liabilities | Note 8 - Accrued liabilities
Accrued liabilities consisted of the following:
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Preferred Stock |
9 Months Ended |
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Jun. 30, 2021 | |
| Equity [Abstract] | |
| Preferred Stock | Note 9 - Preferred Stock
Series One and One-A Preferred Stock Purchase Agreement
On July 15, 2016, the Company sold to accredited investors an aggregate of shares of Series One and of Series One-A Preferred Shares (collectively, “Preferred Stock”).
The Preferred Stock was convertible into the Company’s Common Stock on a 1 for 1 basis at the holders’ option. The Preferred Stock did not contain any redemption provisions. The Preferred Stock did not pay dividends and vote together with the common stock of the Company as a single class on all actions to be taken by the stockholders of the Company.
On May 21, 2020, in connection with the February 7, 2020 written Call Exercise Notice from Via Varejo (“Call Exercise Notice”), the aggregate of 2,652,072 shares of Series One and 1,046,146 of Series One-A Preferred Shares were converted into the Company’s Common Stock during the Transaction which were subsequently cancelled.
The Company amended its Certificate of Incorporation and filed the Second Restated Certificate of Incorporation (the “Restated Certificate of Incorporation”) with the Delaware Secretary of State on May 21, 2020, to provide for (i) a single class of common stock (and automatic conversion of any and all outstanding shares of preferred stock into common stock) and (ii) no preferential rights in favor of any shareholder.
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Common Stock |
9 Months Ended |
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Jun. 30, 2021 | |
| Common Stock | |
| Common Stock | Note 10 - Common Stock
On January 25, 2016, the Company issued shares of common stock to an investor (the “Investor”) for a purchase price of $20 thousand, which at the time represented 6% of the capital stock of the Company. As part of this transaction, the Company agreed to issue additional shares of common stock (for no additional consideration) to maintain the investor’s ownership interest at 6% of the total capital stock upon a subsequent equity financing greater than $250 thousand. This 6% ownership is calculated on a fully diluted basis, including all outstanding shares of common and preferred stock, all outstanding options and warrants, phantom stock, stock appreciation rights, and any shares reserved for issuance under the Company’s equity incentive plans. However, the capital stock excluded shares issuable, but contingent on conversion of any current or future convertible debt and equity instruments (which would include the SAFE’s).
The contingent issuance of shares of common stock to the Investor was evaluated to determine whether the embedded feature would be required to be recorded as a derivative liability. It was determined the embedded feature qualifies for equity classification.
On February 28, 2018 the Company repurchased shares of common stock which it had previously granted to an independent entity in exchange for $0.2 million. The Company recorded these repurchased shares as Treasury shares in its consolidated balance sheet.
On May 21, 2020, in connection with the Call Exercise Notice, all of the Company’s previously outstanding common stock was purchased by the Buyer, which is included in the total aggregate of 25,265,794 of the Company’s Common Stock that was purchased by the Buyer during the Transaction. All shares of common stock were immediately then cancelled, including the shares held in treasury.
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Stock Based Compensation |
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| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Based Compensation |
The Company established a 2016 Equity Incentive Plan (the “Plan”) during 2016 and issued stock-based awards to certain employees and non-employees under this plan. The Plan provided for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units and other stock awards.
On February 3, 2020, the Company’s Board of Directors approved an amendment to the Plan to decrease the aggregate number of shares of the Company’s common stock that may be issued pursuant to Stock Awards (as defined in the Plan) from to ; and waived the restrictions on transfer and right of first refusal in favor of the Company, as set forth in the Company’s Amended and Restated Bylaws, for certain stockholders.
Additionally, on February 3, 2020, the Company’s Board of Directors approved the acceleration of vesting of outstanding stock option awards awarded to employees and a third-party.
On February 6, 2020, the Board approved the acceleration of vesting of outstanding stock options awarded to a third-party.
On February 26, 2020, the Board approved the acceleration of vesting of outstanding stock options awarded to employees and other third-parties.
On May 21, 2020, concurrently with the consummation of the Transaction and as a condition precedent under the September 11, 2018 convertible note purchase and call option agreement (the “Call Option Agreement”), the Company’s Board of Directors cancelled all outstanding options to purchase the Company’s Common Stock granted under the Plan. All of the holders of the outstanding options issued under the Plan were immediately cancelled and, in consideration for such cancellation were entitled to a lump sum cash payment from the Company.
The Company lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a set of publicly traded peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield was zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The fair value of the Company’s common stock was estimated to be $0.29 at September 30, 2019. There was no common stock outstanding at September 30, 2020 and June 30, 2021. In order to determine the fair value, the Company considered, among other things, the Company’s business, financial condition and results of operations; the lack of marketability of the Company’s common stock; the market performance of comparable publicly traded companies; and U.S. and global economic and capital market conditions.
The Company used the Black-Scholes option-pricing model to estimate the fair value of options issued using the following assumptions:
On May 21, 2020, as a result of the Transaction, there was a change in control when the Company was fully acquired by Via Varejo, and as a condition precedent under the Call Option Agreement, the Company’s Board of Directors cancelled all outstanding options. As noted in the 2016 Equity Incentive Plan Amendment, for instances where a change in control occurs, vesting will be accelerated for all outstanding stock award and a cash payment will be paid to all Option Stockholders by Via Varejo. The total unrecognized compensation cost based on the fair value of the options was recognized as stock-based compensation expense on May 21, 2020 totaling $ million. Additionally, all of the holders of the outstanding options issued under the Plan (“Option Holders”) were immediately cancelled and, in consideration for such cancellation, were entitled to a lump sum cash payment totaling $3.3 million, contributed by Via Varejo to the Company and paid from the Company to the Option Holders. The conversion price per option was determined pursuant to the terms of the Call Exercise Notice. Any additional payment over the original fair value of the stock options ($0.2 million) was recognized by the Company as additional stock-based compensation expense due to the cancellation of stock options, which totaled $3.1 million at May 21, 2020. There were options issued or outstanding for the three and nine months ended June 30, 2021. The expense for stock-based compensation awards was $ and $million for the three months ended June 30, 2021 and 2020 respectively. The expense for stock-based compensation awards was $ and $million for the nine months ended June 30, 2021 and 2020, respectively. The expense for stock-based compensation related to the Phantom Shares was $ thousand and $ for the three months ended June 30, 2021 and 2020, respectively. The expense for stock-based compensation related to the Phantom Shares was $ thousand and $ for the nine months ended June 30, 2021 and 2020, respectively.
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Concentrations |
9 Months Ended |
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Jun. 30, 2021 | |
| Risks and Uncertainties [Abstract] | |
| Concentrations | Note 12 – Concentrations
Accounts Payable
As of June 30, 2021, and September 30, 2020, the Company had approximately 99% and 85%, respectively, of its accounts payable balances held by its top five vendors. During each of the same aforementioned periods, the Company had three and one of its vendors accounting for more than 10% each of the Company’s accounts payables balances, respectively.
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Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | Note 13 - Commitments and Contingencies
Operating Leases
The Company has operating leases primarily consisting of office space with remaining lease terms of 1 to 8 years, subject to certain renewal options as applicable.
Leases with an initial term of twelve months or less are not recorded on the balance sheet, and the Company does not separate lease and non-lease components of contracts. There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord, as is customary with these types of charges for office space.
The Company determined that the exercise of the renewal option became reasonably certain for its office space in Boston and Brazil; therefore, the payments associated with the renewal are now included in the measurement of the lease liability and ROU asset for those locations. The useful life of the Boston and Brazil office spaces will extend through February 2028 and September 2021, respectively. In February 2021, the Company modified the terms of Brazilian Lease agreement with the landlord, and the Company decided to reduce the length of the contract to April 30, 2021, as the remote work has been practiced by mostly employees and the office facilities are not being fully used. Considering the new terms, this agreement specifically is not applicable to the Operating Lease approach and its ROU was fully amortized in the current quarter. The Company is evaluating options of other locations. The remaining amounts of this agreement of lease liabilities and ROU were fully amortized.
The Company’s lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate imputed discount rate. The Company benchmarked itself against other companies of similar credit ratings and comparable quality and derived imputed rates, which were used to discount its real estate lease liabilities. The Company used estimated incremental borrowing rates of 7.52%, 5.73%, and 9.68% on October 1, 2019 for all leases that commenced prior to that date, for two office spaces in Boston, Massachusetts, and one office space in Brazil, respectively.
The Company entered into a sublease agreement with a subtenant on March 1, 2020, the rent commencement date was April 1, 2020, and the lease terminated on December 31, 2020. There was approximately $0 and $0 thousand of sublease income recognized related to this agreement for the three and nine months ended June 30, 2021 respectively, which was recorded as a reduction to rent expense on the Consolidated Statements of Comprehensive Loss. No related party transactions for lease arrangements have occurred.
Lease Costs
The table below presents certain information related to the lease costs for the Company’s operating leases:
Lease Position as of June 30, 2021
Right of use lease assets and lease liabilities for our operating leases were recorded in the condensed consolidated balance sheet as follows:
Lease Terms and Discount Rate
The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases as of June 30, 2021:
Undiscounted Cash Flows
Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of June 30, 2021, for the following five fiscal years and thereafter were as follows:
Legal Proceedings
The Company may be involved in various lawsuits, claims and proceedings incidental to the ordinary course of business. The Company accounts for such contingencies when a loss is considered probable and can be reasonably estimated.
Between August and October 2017, the Company offered and sold AirTokens pursuant to the 2017 ICO and raised approximately $15 million in capital. The SEC determined that the AirToken offering was an offer and sale of “securities” as defined by Section 2(a)(1) of the Securities Act. On November 16, 2018 the Company settled the 2017 ICO matter with the SEC pursuant to the Settlement Agreement. As part of the Settlement Agreement, Airfox agreed to offer rescission rights to the Potential AirToken Claimants and paid a penalty of $0.3 million to the SEC.
On March 15, 2019, the Company filed an initial registration statement on Form 10 with the SEC under the Exchange Act on a voluntary basis in connection with the Settlement Agreement and to provide current information to Potential AirToken Claimants pursuant to Section 12(a) of the Securities Act. The Form 10 registration statement became effective on May 14, 2019, and on October 18, 2019 we were notified that the SEC had completed its review of the Form 10 registration statement.
In conjunction with the Settlement Agreement, Potential AirToken Claimants were entitled to return their AirTokens to the Company and receive a refund in the amount of consideration paid, plus interest, less the amount of any income received thereon. Pursuant to the Settlement Agreement, as modified in May 2019, our Company timely distributed the claim forms on June 28, 2019. The claims period closed on September 28, 2019. All forms were processed in accordance with the terms and provisions set forth by the Settlement Agreement. The Company received claim forms from 174 Potential AirToken Claimants during the claims period and the Company determined to approve payment on 163 out of the 174 claims, which is approximately 93% of the claim forms received during the claims period. On December 11, 2019, the Company commenced the process of notifying, via email only, all 174 Potential AirToken Claimants of the Company’s resolution of their claim.
On or before December 28, 2019 the Company paid all approved claims to approved claimants who returned their AirTokens to us (approximately 93.5% of the total dollar amount of all approved claim refunds). All amounts were refunded in cash and paid through the Company's existing cash and cash equivalent reserves. The total claim amounts including interest, totaled $3.3 million on December 28, 2019. Certain approved claimants did not return their AirTokens to the Company. The Company did not pay approved claims to approved claimants who did not return their AirTokens to the Company. As of June 30, 2021, the amount that was not paid was approximately $0.2 million.
Additionally, the Settlement Agreement requires our Company to:
Also, on November 16, 2018, The Company entered into a settlement with the Massachusetts Securities Division related to the issuance of AirTokens in the 2017 ICO whereby the Company agreed to pay a penalty of $0.1 million to the Commonwealth of Massachusetts.
As a result of the Company’s inability to timely resolve these accounting issues, the Company did not timely file with the SEC the Company’s Quarterly Reports on Form 10-Q for the quarters ended June 30, 2019 and June 30, 2019, and the Company’s annual report on Form 10-K for the year ended September 30, 2019, which puts the Company in violation of Section 13(a) of the Exchange Act and the Settlement Agreement. In addition, the Company did not timely file certain Current Reports on Form 8-K. As a result of the Company’s failure to timely file these various reports, the SEC may through civil or administrative actions seek monetary and non-monetary relief from the Company, including fines, penalties, undertakings and conduct-based injunctions, and officer and director bars and suspensions.
On December 30, 2019 a claimant who purchased AirTokens in the 2017 ICO whose claim was denied for failure to comply with the deadlines and the claim process filed a civil lawsuit against the Company in the Supreme Court of the State of New York, County of New York. The lawsuit alleges a claim of sale of unregistered securities to the plaintiff under Section 12(a) of the Securities Act of 1933 in connection with the plaintiff’s purchase of AirTokens in the 2017 ICO. The plaintiff demands a full refund in the amount of consideration paid, plus interest and other costs. On February 25, 2020 the Company settled this claim with the plaintiff and the lawsuit was dismissed.
The claims period officially came to a close on September 28, 2019. All claims were processed in accordance with the terms and provisions set forth in the SEC Order.
Other than with respect to the matters described above, the Company is not aware of any pending or threatened claims that we violated any federal or state securities laws. However, the Company cannot assure that any such claim will not be asserted in the future or that the claimant in any such action will not prevail. The possibility that such claims may be asserted in the future will continue until the expiration of the applicable federal and state statutes of limitations. If the payment of additional rescission claims or fines is significant, it could have a material adverse effect on the Company cash flow, financial condition or prospects and the value of the AirTokens.
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Income Taxes |
9 Months Ended |
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Jun. 30, 2021 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | Note 14 - Income Taxes
A nominal provision for taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets as of December 31, 2020 and September 30, 2020 consist of income tax loss carryforwards. These amounts are available for carryforward indefinitely for use in offsetting taxable income. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Prior to May 21, 2020 the Company was organized as a C Corporation for tax purposes. As of May 21, 2020, the Company was converted from a C Corporation to a limited liability company ("LLC"). As a result of this transaction the Company believes it has lost the right to utilize its net operating loss carryovers, non-refundable tax credits and charitable contribution carryover assets associated with the original corporation with which the Company was organized within. Generally, only a Company that has generated a net operating loss should be able to then utilize that net operating loss to reduce its own future profits. In late December 2020, the Company filed Form 8832 with the Internal Revenue Service in order to elect C corporation tax classification for the LLC. The Company filed this request within the 90-day time period allowed for automatic approval of the Company’s tax classification request. On May 21, 2020, the Company was fully acquired by Via Varejo S.A, a corporation organized under the laws of the Federative Republic of Brazil (“Via Varejo”) through Lake Niassa Empreendimentos e Participações Ltda., a limited liability company duly organized under the laws of the Federative Republic of Brazil and wholly-owned by Via Varejo (“Transaction”). As a result of the Transaction, the utilization of some of the net operating loss carryforwards generated in both prior and the current fiscal years may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. As of the date of these financial statements, the Company has not undertaken an effort to convince the IRS that the Company’s net operating losses prior to and through May 21, 2020 should be maintained and available for the Company’s future benefit. The Company may or may not do this in the future. The Company may also have lost the use of the net operating loss assets as a result of IRC 382. The Company may undertake an Internal Revenue Code (“IRC”) 382 study to estimate the amount of the net operating losses that may be utilized in the future. However, whatever the outcome of the IRC 382 study is, the IRS would still have to approve the Company’s right to utilize such carryovers in the future. However, throughout the Company’s history the Company has generated substantial net operating losses. These deferred tax assets arising from the future tax benefits are currently considered not likely to be realized and are thus reduced to zero by an offsetting valuation allowance. As a result, there is no provision for income taxes other than those amounts required to properly accrued for the various state minimum income taxes owed by the Company to the jurisdictions in which it operates. The income tax benefit for the three and nine months ended June 30, 2021 and 2020 is the result of research and development tax credits.
Brazil Income Taxation
The Company operates a subsidiary in Brazil. All Brazilian resident companies are taxed on their world-wide income. Corporate income tax (IRPJ) is generally assessed at a fixed rate of 15% on annual taxable income, using either the 'actual profits' method (APM) or the 'presumed profits' method (PPM). All legal entities are further subject to Social Contribution on Net Income (CSLL) at the rate of 9% (except for financial institutions, private insurance, as well as certain other prescribed entities, who are taxed at a 15% rate). This amount is not deductible for IRPJ purposes. The tax base is therefore the profit before income tax, after some adjustments, depending on the calculation method (i.e. APM or PPM).
Corporate taxpayers may also be subject to a surcharge of 10% on annual taxable income in excess of 240,000 Brazilian reais (BRL).
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Related Party Transaction |
9 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Related Party Transactions [Abstract] | |
| Related Party Transaction | Note 15 – Related Party Transaction
The related party transactions between the Company and Via Varejo were revenue totaling $32.3 thousand recognized from the upfront payment for software development services and $361.9 thousand from transactional fees related to the Via Varejo service agreement as of June 30, 2021.
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Subsequent Events |
9 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 16 – Subsequent Events
On July 8, 2021, Lake Niassa made a capital contribution to Airfox in the amount of $480 thousand, with no additional membership interests issued or ownership rights granted. |
Summary of Significant Accounting Policies (Policies) |
9 Months Ended | |||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||
| Basis of Presentation | Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements (“interim statements”) of Airfox have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as determined by Financial Accounting Standards Board (the “FASB”) within its Accounting Standards Codification (“ASC”) and under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended September 30, 2020.
The Company has elected not to apply pushdown accounting to the accompanying standalone condensed consolidated financial statements in accordance with ASC 805 Business Combinations ("ASC 805").
The Company is an emerging growth company as the term is used in The Jumpstart Our Business Startups Act, enacted on April 5, 2012 and has elected to comply with certain reduced public company reporting requirements, however, the Company may adopt accounting standards based on the effective dates for public entities.
As of June 14, 2021, the operations of banQi were deconsolidated from the Company, as the Company no longer had a controlling interest in banQi. The Company accounted for the loss in controlling interest as discontinued operations in banQi in accordance with Accounting Standards Codification, ASC 205, Discontinued Operations and Accounting Standards Update, ASU, No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASC 205 requires that a component of an entity that has been disposed of or is classified as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified as held for sale, the results of operations for the periods presented are reclassified into separate line items, net of tax, in the unaudited condensed consolidated statements of comprehensive loss. Assets and liabilities are also reclassified into separate line items on the related condensed consolidated balance sheets for the periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of discontinued operations as separate line items. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations.
Due to the deconsolidation of banQi during the third quarter of fiscal 2021, in accordance with ASC 205, Discontinued Operations, the Company has classified the results of banQi as discontinued operations in our unaudited condensed consolidated statements of operations and cash flows for all periods presented. All assets and liabilities associated with banQi were therefore classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets for the periods presented. All amounts included in the notes to the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted. For additional information, see Note 4, Discontinued Operations.
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| Principles of Consolidation | Principles of Consolidation
Prior to June 14, 2021 the Company had a controlling interest in banQi and, prior to April 6, 2020, had a 100% interest in AirToken GmbH; accordingly, the Company consolidated these entities and records non-controlling interests to reflect the economic interest of the non-controlling equity holders. On April 6, 2020, Airtoken GmbH was dissolved.
On June 14, 2021, the Company’s ownership of banQi was reduced from 99.99% to 1.43% and thus the Company effectively lost a controlling interest over banQi. The net assets of banQi were deconsolidated from the condensed consolidated financial statements on that date, and the Company's current 1.43% interest in banQi is recorded as an investment under the cost method on the Company’s condensed consolidated balance sheets.
The change in ownership represents a transfer of net assets between entities under common control, because all entities are owned by the same common parent entity, Lake Niassa, and thus the gain on deconsolidation of banQi was recorded against accumulated deficit The Company will also record a cost method investment in banQi for their respective investment in the entity, and any previously recorded non-controlling interest will be removed from the balance sheet.
All intercompany transactions have been eliminated in consolidation. The Company is not involved with variable interest entities.
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| Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. The most significant accounting estimates inherent in the preparation of the Company's financial statements includes, but not limited to, estimated lives of intangible assets, intangible asset impairment, revenue recognition and deferred tax valuation allowance.
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| Foreign Currency | Foreign Currency
The Company had operations in Brazil until June 14, 2021, where the local currency is used to prepare the financial statements which are translated into the Company’s reporting currency, U.S. dollars. The local currency is the functional currency for the operations outside the United States. Changes in the exchange rates between this currency and the Company’s reporting currency, are partially responsible for some of the periodic changes in the condensed consolidated financial statements prior to June 14, 2021. Assets and liabilities of the Company’s foreign operations until June 14, 2021 are translated into U.S. dollars at the spot rate in effect at the applicable reporting date. Revenues and expenses of the Company’s foreign operations are translated at the average exchange rate during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized and unrealized transaction gains and losses generated by transactions denominated in a currency different from the functional currency of the applicable entity are recorded in other income (loss) in the period in which they occur.
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| Revenue Recognition | Revenue Recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
ASC 606 prescribes a 5-step process to achieve its core principle:
AirToken Project Development Services (Non ASC 606 Revenue)
The Company determined that its token issuances represented obligations to perform software development services and accounts for the proceeds received in the token issuances in accordance with ASC 730-20, Research and Development – Research and Development Arrangements (“ASC 730-20”). At the time of, and in conjunction with the token issuances, the Company’s obligation was to develop a live, operational, de-centralized network with token functionality including, at a minimum, features including a digital wallet, credit scoring and peer-to-peer networking (collectively, the “AirToken Project”). Due to the significant hurdles in developing the AirToken Project, technological feasibility had not been established at the time of the token issuances and, therefore, all of the Company’s development costs were expensed.
The Company, beginning in August 2017 through early October 2017, obtained Ether and Bitcoin totaling approximately $15.3 million (and cash of $0.1 million) towards the development of the AirToken Project. Pursuant to the terms of the AirTokens, there is no form of partnership, joint venture, agency or any similar relationship between a holder of an AirToken and the Company and/or other individuals or entities involved with the AirToken Project. AirTokens are non-refundable and do not pay interest and have no maturity date. AirTokens confer only the right to services in the AirToken Project and confer no other rights of any form with respect to the Company, including, but not limited to, any voting, distribution, redemption, liquidation, proprietary (including all forms of intellectual property), or other financial or legal rights. Subsequent to the distribution of AirTokens to those parties who contributed towards the funding of the AirToken Project, no AirTokens were sold by the Company.
Pursuant to the Settlement Agreement (as defined and described further in Note 13), the Company was obligated to refund amounts raised for the purpose of developing the AirToken Project if valid claims were submitted.
On or before December 28, 2019, the Company paid all approved claims to approved claimants who returned their AirTokens to the Company (approximately 93.5% of the total dollar amount of all approved claim refunds). All amounts were refunded in cash and paid through the Company’s existing cash and cash equivalent reserves. The total claim amounts including interest, totaled $3.3 million on December 28, 2019. Certain approved claimants did not return their AirTokens to the Company. The Company did not pay approved claims to approved claimants who did not return their AirTokens to the Company. As of June 30, 2021, the amount that was not paid was approximately $0.2 million.
Effective October 1, 2019, the Company was not able to estimate a date to conclude the development of the AirToken Project due to regulatory matters that affect the continuity of the development process. Due to this reason, the AirToken Project was on hold and no revenue has been recognized from the AirToken Project.
On June 30, 2021, Lake Niassa determined to discontinue the development of AirTokens and end the AirToken project related to the Company’s business. At this time, the Company does not have the ability to further develop AirTokens as part of its business plan in the absence of new laws or a definitive regulatory regime (in both the U.S. and Brazil) regarding the use and transferability of AirTokens (and other similar tokens issued on the Ethereum block chain that are classified as securities). Current laws and regulatory regimes do not provide for the Company to utilize the AirTokens as envisioned by the Company since AirTokens are no longer freely transferable and the previous market for AirTokens no longer exists. AirTokens were never fully developed and never gained full functionality. As previously stated, AirTokens are not currently freely transferable and no market exists for AirTokens. As a result of the discontinuation of the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable.
Since the Company is no longer continuing with the AirToken project, the Company has not recognized any revenue related to the research and development of the AirToken project, and the deferred revenue is no longer appropriate to be recorded on the balance sheet. The liability, Deferred revenue - AirToken Project, of approximately $12.5 million are extinguished and charged to Other Income in the Condensed Consolidated Statements of Comprehensive Loss.
Mastercard Revenue and Sale Incentives (ASC 606 Revenue)
On December 16, 2019, banQi, received R$65 million (approximately U.S. $16 million in December 2019) from Mastercard Brasil Soluções de Pagamento Digital Ltda. (“Mastercard Brasil”) pursuant to a Strategic Alliance and Incentive Program Agreement (the “Program Agreement”) entered into between banQi, Mastercard Brasil and Via Varejo S.A. (“Via Varejo”) on June 12, 2019 (See Note 5).
Pursuant to the Program Agreement, banQi, as a licensee of MasterCard International, Inc. and a business partner of Mastercard Brasil, entered into the Incentive Program (as defined in the Program Agreement) in order to issue, expand and boost the prepaid card (“Airfox Card”) base of banQi, as well as the number of transactions and turnover (sales revenue) generated by MasterCard Cards.
As a Mastercard prepaid card issuer, banQi is entitled to receive Sales Revenue Incentives pursuant to the Program Agreement. As a result, the Sales Revenue Incentives is used to amortize the Sales Revenue Incentive Prepayment received on December 11, 2019. Upon complete amortization of Incentive Prepayment, Mastercard makes quarterly payments of the Sales Revenue Incentive, calculated according to the value of transactions completed with the prepaid cards issued by the banQi. banQi have no minimum commitment of transaction volumes to be completed with the prepaid cards.
The revenue from the Program Agreement was recognized until June 14, 2021, the date on which the Company no longer had a controlling interest over banQi, thus no additional revenue was recognized from that date through June 30, 2021.
The Company recognizes the revenue as earned on a monthly basis, based on a fixed percentage of the total dollar value of card transactions completed during the month in accordance with the terms in the agreement. The Company has identified one performance obligation that meets the series provision and recognizes revenue over time. The Company Sales incentives totaling $343 thousand and $10 thousand have been earned for the three and nine months ended June 30, 2021, respectively, and $3,085 and $6,802 has been earned for the three and nine months ended June 30, 2020, respectively, and meets the guidance to be classified as a series.
In connection to the Program Agreement, the Company also entered into an agreement with Mastercard, an Interchange Manual (“Interchange Fee Agreement”) from Mastercard dated June 18, 2019, which details the fees paid by a merchant’s bank to banQi to compensate for the value and benefits that merchant receives when it accepts electronic payments.
The fee is a specified percentage of the total dollar amount of a card transaction, and a fixed percentage based on the type of card transaction (i.e. merchant type, national vs. international, etc.), based on the schedule of fees outlined in the Interchange Fee Agreement (“Interchange Fee Revenue”).
On a monthly basis, the Company earns revenue from the Interchange Fee received. The Company has identified one performance obligation that meets the series provision and recognizes revenue over time. Interchange Fee Revenue totaling $94 thousand and $3,085 has been earned for the three months ended June 30, 2021 and 2020, respectively, and meets the guidance to be classified as a series. Interchange Fee Revenue totaling $66 thousand and $6,802 has been earned for the nine months ended June 30, 2021, and 2020, respectively, and meets the guidance to be classified as a series. The revenue from the Interchange Fee Revenue was recognized until June 14, 2021, the date on which the Company no longer had a controlling interest over banQi, thus no additional revenue was recognized from that date through June 30, 2021.
Via Varejo Services Agreement Revenue (ASC 606 Revenue)
The Company entered into a Services Agreement (the “Services Agreement”) as of September 11, 2018 (“the Agreement Effective Date”) with Via Varejo (the “Client”).
The Company was engaged to design and develop a mobile software module and application programming interface that provides the Client’s customers with access to certain mobile payment functionality, and that integrates banQi (“VV Wallet Services”). The Company provided certain services, including hosting, maintenance and operation of banQi, The VV Wallet Services were structured into four phases. The Phases are - Phase 1: Specifications and Customization; Phase 2: Features; Phase 3: License and Maintenance Services and Phase 4: Rollout.
The development of the VV Wallet Services was considered a bundled performance obligation that included the development of the API and software as a service which is hosted on the Company’s servers. In addition to the software as a service performance obligation, the Company provided support services for the software as a service. The Client was considered to simultaneously receive and consume the benefits provided by the Company’s performance as the Company performed the services. Accordingly, the revenue from Service Charges was recognized over time based on the number of transactions made by Client customers with banQi.
During Phase 1, there was a payment of $0.3 million (“Upfront Payment”) from the Client to be recognized as revenue commencing when the product was ready for its intended use and ratably over the remaining term of the Services Agreement through the duration of the Services Agreement. The total revenue recognized for the three months ended June 30, 2021 and 2020 totaled $159 thousand and $12.1 thousand, respectively. The total revenue recognized for the nine months ended June 30, 2021 and 2020 totaled $202 thousand and $24.9 thousand, respectively. The revenue from the Upfront Payment was recognized through June 14, 2021, the date on which the Company no longer had a controlling interest over banQi, thus no additional revenue was recognized from that date through June 30, 2021.
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| Cash and Cash Equivalents | Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments.
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| Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts
As of June 30, 2021, there was a minimal amount of accounts receivable as the Company no longer consolidates the operations of banQi.
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| Concentrations of Credit Risk and Off-Balance Sheet Risk | Concentrations of Credit Risk and Off-Balance Sheet Risk
The Company is subject to concentration of credit risk with respect to their cash and cash equivalents, which the Company attempts to minimize by maintaining cash and cash equivalents with institutions of sound financial quality. At times, cash balances may exceed limits federally insured by the Federal Deposit Insurance Corporation. The Company had cash and cash equivalents, including amounts held in financial institutions in the USA that totaled $ 378 thousand.
The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the funds are held. The Company has no financial instruments with off-balance sheet risk of loss.
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| Long-Lived Assets, Including Definite Intangible Assets | Long-Lived Assets, Including Definite Intangible Assets
Long-lived assets and other indefinite-lived intangibles are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. The Company’s definite-lived intangible assets primarily consist of various domain names and websites. For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.
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| Security Deposits | Security Deposits
Security deposits primarily include monies being held subject to a security agreement (“Security Agreement”) with Mastercard, Inc. executed on June 7, 2019. The Security Agreement is related to the Services Agreement to ensure a minimum amount of users for the cards. On April 22, 2020 Mastercard returned $1.2 million plus interest in cash deposit to the Company. Upon Mastercard issuing the minimum number of cards to users, the $0.3 million will be paid back to the Company in full. The Company has classified this amount as non-current assets as these funds are not highly liquid and cannot be easily converted into cash.
Included in the security deposits balance as of June 30, 2021 are $281 thousand associated with the VV Wallet, which is being operated by banQi in Brazil. Airfox has entered into discussions with Mastercard and banQi to transfer this asset to banQi. The companies are still working out the final details, which should close prior to the Airfox's September 30, 2021 year-end.
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| Investment in related affiliate | Investment in related affiliate
After the deconsolidation of banQi, the Company's remaining investment in banQi of $252 thousand is recorded on the cost method, since the Company no longer has control of banQi and has an ownership percentage of 1.43% as of June 30, 2021.
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| Due to Related Party | Due to Related Party
Amounts due to banQi as of June 30, 2021 are $5.5 million and have been calculated based on the loan agreements between the companies. The loan must be refunded for its amount in Brazilian currency (Real) until April, 2025, by a single payment (principal plus accrued interest) or by advance payments. The current interest rate determined in the agreements is 1.0% per year and, as the debt amount is in Brazilian currency, the effect of exchange variation is also considered, totaling $92 thousand and $47 thousand, for the three and nine months ended June 30, 2020, respectively.
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| Software Development Costs | Software Development Costs
The Company capitalizes costs related to software developed or obtained for internal use in accordance with the ASC 350-40, Internal-Use Software (“ASC 350-40”). The following illustrates the various stages and related processes of computer software development in accordance with ASC 350-40: ·
Certain costs incurred are considered enhancements, modifications to existing internal-use software that result in additional functionality. Enhancements normally require new software specifications and may also require a change to all or part of the existing software specifications. When this additional functionality is determinable, the related costs are capitalized. Otherwise, costs are expensed as incurred. Capitalization of internal-use software costs ceases when a computer software project is substantially complete and ready for its intended use. The Company begins amortization when the product is available for general release or use.
The Company has capitalized software costs relating to the Via Varejo Services Agreement and began amortization on January 1, 2020 as the product was ready for its intended use and has been amortized through the contract term until September 2023. The amortization expense related to the Via Varejo Services Agreement capitalized software for the three and nine months ended June 30, 2021 totaled $0.4 million and $1.4 million, respectively.
The Company capitalizes costs related to the development and maintenance of its website in accordance with ASC 350-50, Website Development Costs. Accordingly, costs expensed as incurred include planning the website, developing the applications and infrastructure until technological feasibility is established and operating the site such as training administration and maintenance.
Included in the net intangibles balance as of June 30, 2021 are $3,295,256 of capitalized software costs (Note 7) associated with the VV Wallet, which is being operated by banQi in Brazil. Thus, Airfox has entered into discussions with Via Varejo and Lake Niassa to transfer these assets to banQi. The companies are still working out the final details, which should close prior to Airfox's September 30, 2021 year-end. In addition, effective June 14, 2021, Airfox ceased recognizing amortization expense on these capitalized software costs..
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| Capitalizing Software Costs in Connection with Hosting Arrangements and Software as a Service Arrangements | Capitalizing Software Costs in Connection with Hosting Arrangements and Software as a Service Arrangements
For the operation in Brazil at banQi, the Company developed certain software that are considered to be part of cloud computing arrangement (or hosting arrangement), whereby, a user or a customer of software does not take possession of the Company’s software; rather, the software is accessed on an as-needed basis over the Internet.
Therefore, when the software is used to produce a product or in a process to provide a service to a customer, and the customer is not given the right to obtain or use the software, the related costs are accounted for in accordance with ASC 350-40. When a hosting arrangement includes multiple modules or components, capitalized costs are amortized on a module-by-module basis. When a module or component is substantially ready for its intended use, amortization begins, regardless of whether the overall hosting arrangement is being placed in service in planned stages. If the module’s functionality is entirely dependent on the completion of one or more other modules, then amortization does not begin until that group of interdependent modules is substantially ready for use.
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| Impairment of Long-term Assets | Impairment of Long-term Assets
The Company evaluates the recoverability of tangible and intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
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| Leases | Leases
The Company categorizes leases at their inception as either operating or finance leases based on the criteria in ASC 842, Leases (“ASC 842”). The Company adopted ASC 842 on October 1, 2019, using the modified retrospective approach, and has established a Right-of-Use (“ROU”) Asset and a current and non-current Lease Liability for each lease arrangement identified. The lease liability is recorded at the present value of future lease payments discounted using the discount rate that approximates the Company’s incremental borrowing rate for the lease established at the commencement date, and the ROU asset is measured as the lease liability plus any initial direct costs, less any lease incentives received before commencement. The Company recognizes a single lease cost, so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis.
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| Advertising | Advertising
Advertising costs are expensed as incurred and included in selling, general and administrative expenses and amounted to a reversal of $0.7 million and expenses of $ 29 thousand for the three months ended June 30, 2021 and 2020, respectively and expenses of $179 thousand and $75 thousand for the nine months ended June 30, 2021 and 2020, respectively.
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| Income Taxes | Income Taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes any interest and penalties accrued related to unrecognized tax benefits as income tax expense.
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| Gain on issuance of AirTokens for services | Gain on issuance of AirTokens for services
AirTokens issued to vendors for services in connection with raising monies for the purpose of developing the AirToken Project were accounted for in accordance with ASC 845-30-1, Nonmonetary Transactions, which requires that the AirTokens to be recognized at fair value and resulted in recognizing a deferred gain of approximately $1.7 million in October 2017. The fair value of the AirTokens issued was based on the last price paid ($0.02) by initial investors in acquiring.
On June 30, 2021, Lake Niassa determined to discontinue the development of AirTokens and end the AirToken project related to the Company’s business. At this time, the Company does not have the ability to further develop AirTokens as part of its business plan in the absence of new laws or a definitive regulatory regime (in both the U.S. and Brazil) regarding the use and transferability of AirTokens (and other similar tokens issued on the Ethereum block chain that are classified as securities). Current laws and regulatory regimes do not provide for the Company to utilize the AirTokens as envisioned by the Company since AirTokens are no longer freely transferable and the previous market for AirTokens no longer exists. AirTokens were never fully developed and never gained full functionality. As previously stated, AirTokens are not currently freely transferable, and no market exists for AirTokens. As a result of the Company discontinuing the development of AirTokens, AirTokens will lose their functionality in full, and it is likely that no market for AirTokens will ever be re-created and that AirTokens will not again ever be freely transferable.
Since the Company is no longer continuing with the AirToken project, the Company should not recognize any revenue related to the research and development of the AirToken project, and the deferred revenue is no longer appropriate to be recorded on the balance sheet. The liability, Deferred revenue - AirToken Project, of approximately $13 million, as of June 30, 2021, was extinguished and charged to Other Income in the Condensed Consolidated Statements of Comprehensive Loss.
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| Distinguishing Liabilities from Equity | Distinguishing Liabilities from Equity
The Company relies on the guidance provided by ASC 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.
Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet. The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e., at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
The Company records its financial instruments classified as liabilities at their fair value at each subsequent measurement date. The changes in fair value of these financial instruments are recorded as other expense/income.
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| Hedging | Hedging
The Company does not use derivative instruments to hedge exposures to cash flows, market or foreign currency risks. The Company evaluates its financial instruments, including equity-linked financial instruments, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
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| Stock-based Compensation |
The Company accounts for stock-based compensation to employees and non-employees in conformity with the provisions of ASC 718, Compensation - Stock Based Compensation. The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Stock-based awards are recognized on a straight-line basis over the requisite service period. For stock-based employee compensation cost recognized at any date will be at least equal to the amount attributable to share-based compensation that is vested at that date. The Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Common shares issued to third parties for services provided are valued based on the estimated fair value of the Company’s common shares.
All stock-based compensation costs are recorded in selling, general and administrative expenses in the consolidated statements of operations. All stock-based compensation awards were cancelled pursuant to the Transactions which occurred on May 21, 2020.
In August 2020, the Company established the Share Based Payment Program with Cash Settlement - Phantom Shares of Via Varejo S.A. (the "Plan"). Pursuant to the Plan, the Company's Board of Directors may grant cash-settled shares, referred to as "Phantom Shares," to the Company's employees as part of the employees' remuneration package. Each Phantom Share will represent the employee's right to receive the full amount corresponding to the average quotation of 3 (three) common shares of Via Varejo S.A. in the 20 (twenty) trading sessions at B3 - Brazil, Bolsa, Balcão immediately prior to vesting, as established in the Plan. The Phantom Shares vest over a service period of five years.
As of June 14, 2021, there is no liability reported related to the Phantom Shares due the deconsolidation of banQi. No Phantom Shares have vested as of June 30, 2021.
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| Fair Value Measurement | Fair Value Measurement
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short and long-term debt. The fair values of cash and cash equivalents, accounts receivable, and accounts payable approximate their stated amounts because of the short maturity of these financial instruments.
The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy under ASC 820 are described below:
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| Adoption of Recent Accounting Pronouncements | Adoption of Recent Accounting Pronouncements
In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02 (“ASU 2016-02”), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; ASU No. 2018-11, Targeted Improvements; and ASU No. 2018-20, Narrow-Scope Improvements for Lessors. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The Company adopted ASU 2016-02 effective October 1, 2019 using the modified retrospective approach whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, the Company elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, the Company adopted a short-term lease exception policy, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets.
Adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities related to the Company’s operating leases, totaling $2.3 and $2.4 million, respectively, recorded on the Company’s consolidated balance sheet as of October 1, 2019. The standard did not materially affect the Company's consolidated net earnings or cash flows.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends disclosure requirements on fair value measurements in Topic 820. This amendment modifies the valuation process of fair value measurements by removing the disclosure requirements for the valuation processes for Level 3 fair value measurements, clarifying the timing of the measurement uncertainty disclosure, and including the changes in unrealized gains and losses for recurring Level 3 fair value measurements in other comprehensive income if held at the end of the reporting period. It also allows the disclosure of other quantitative information in lieu of the weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and should be applied prospectively for the most recent period presented in the initial fiscal year of adoption. The Company adopted ASU 2018-13 effective October 1, 2020 and there was no material impact on the Company's results of operations, financial position and cash flows.
In August 2018, the FASB issued ASU 2018-15, Intangibles, Goodwill and Other (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”), which requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance in ASC 350-40. The new standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU 2018-15 effective October 1, 2020 and there was no material impact on the Company's results of operations, financial position and cash flows.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company's financial reporting, the Company undertakes a study to determine the consequences of the change to its condensed consolidated financial statements and assures that there are proper controls in place to ascertain that the Company's condensed consolidated financial statements properly reflect the change.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of the pending adoption of the new standard on its condensed consolidated financial statements and intends to adopt the standard on October 1, 2023.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for the Company for interim and annual reporting periods beginning after December 15, 2021. The Company is currently assessing the impact of ASU 2019-12, but it is not expected to have a material impact on the Company’s condensed consolidated financial statement.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification and makes targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance. This update will be effective for the Company’s fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Entities can elect to adopt the new guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact of the pending adoption of the new standard on its financial statements and intends to adopt the standard as of October 1, 2024.
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| Reclassifications | Reclassifications
Certain reclassifications have been made to the 2020 consolidated financial statements in order to conform to the 2021 financial statement presentation.
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Discontinued Operations (Tables) |
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| Schedule of discontinued operations |
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| Disposal Groups, Including Discontinued Operations [Table Text Block] |
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| Schedule of discontinued operations, previously presented |
The effects on the Consolidated Statement of Comprehensive Loss for the three- and nine-month periods ended June 30, 2020 were as follows:
The depreciation, amortization and significant operating noncash items of the discontinued operations were as follows:
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Prepaid Expenses and Other Current Assets (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Prepaid expenses and other current assets |
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Intangible Assets, Net (Tables) |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets, Net |
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Accrued liabilities (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued liabilities |
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Stock Based Compensation (Tables) |
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option valuation assumptions |
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Commitments and Contingencies (Tables) |
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Jun. 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease cost |
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| Leases Recorded Balance Sheet |
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| Weighted average remaining lease term and weighted average discount rate |
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| Future lease payments |
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Organization and Nature of Operations (Details Narrative) - USD ($) |
6 Months Ended | 9 Months Ended | |
|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2021 |
Sep. 30, 2018 |
|
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | |||
| Organization and nature of operations, description | Pursuant to the terms of the 7th Amendment, the banQi and Lake Niassa (i) increased banQi 's share capital from BRL 1,000,000.00 (one million reais) to BRL 69,870,000.00 (sixty-nine million, eight hundred and seventy thousand reais), which represents an increase of BRL 68,870,000.00 (sixty-eight million, eight hundred and seventy thousand reais); and (ii) issued 68,870,000 (sixty-eight million, eight hundred and seventy thousand) new quotas, with par value of BRL 1.00 (one real) each, fully subscribed and paid up, in Brazilian currency, through the capitalization of Advances for Future Capital Increase ("AFAC") made by Lake Niassa. | ||
| AirToken obligation | $ 15,400,000 | ||
| Extinguished charged | $ 12,500,000 | ||
| Air Token Gmbh [Member] | |||
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | |||
| Ownership percentage | 100.00% | ||
| Air Fox Brazil [Member] | |||
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | |||
| Ownership percentage | 99.99% |
Financial Condition and Management’s Plans (Details Narrative) - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2020 |
Jun. 30, 2020 |
Sep. 30, 2019 |
|---|---|---|---|---|
| Financial Condition And Managements Plans | ||||
| Cash and Cash Equivalents, at Carrying Value | $ 378,411 | $ 3,272,664 | $ 2,746,009 | $ 5,451,348 |
| Working Capital Deficit | 5,400,000 | |||
| Members' Equity | $ 1,475,038 | $ 19,327,522 |
Mastercard Program Agreement (Details Narrative) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
|
Dec. 16, 2019
USD ($)
|
Dec. 16, 2019
BRL (R$)
|
Jun. 30, 2021
USD ($)
|
Jun. 30, 2020
USD ($)
|
Jun. 30, 2021
USD ($)
|
Jun. 30, 2020
USD ($)
|
|
| Prepayment Incentive Agreement | $ 16,000,000 | |||||
| Sales incentives | $ 343,000 | $ 429 | $ 10,000 | $ 6,000 | ||
| Brazil, Brazil Real | ||||||
| Prepayment Incentive Agreement | R$ | R$ 65,000,000 | |||||
Prepaid Expenses and Other Current Assets (Details) - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2020 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Service contract | $ 349,000 | |
| Research and Development tax credit | 675,627 | 496,965 |
| Prepaid expense | 95,893 | 237,562 |
| Total Prepaid expenses and other current assets | $ 771,520 | $ 1,083,527 |
Intangible Assets, Net (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||
| Amortization expense | $ 400,000 | $ 300,000 | $ 1,200,000 | $ 600,000 |
| Impairment | $ 700,000 | |||
| Effect of deconsolidation | $ 42,100 | |||
Accrued liabilities (Details) - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2020 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Customer deposits | ||
| Accrued compensation | 378,463 | 779,114 |
| Other accrued liabilities | 183 | 183 |
| Operating third parties' liabilities | ||
| Accrued accounts payable | 160,629 | 196,609 |
| Tax and licenses | ||
| Credit card payable | 16,616 | 23,261 |
| Legal and professional | 130,347 | |
| Total accrued liabilities | $ 555,891 | $ 1,149,514 |
Preferred Stock (Details Narrative) - shares |
May 21, 2020 |
Jul. 15, 2016 |
Jan. 25, 2016 |
|---|---|---|---|
| Class of Stock [Line Items] | |||
| Stock sold | 497,873 | ||
| Convertible Preferred Stock Series One [Member] | |||
| Class of Stock [Line Items] | |||
| Stock sold | 2,652,072 | ||
| Stock cancelled | 2,652,072 | ||
| Convertible Preferred Stock Series Onea [Member] | |||
| Class of Stock [Line Items] | |||
| Stock sold | 1,046,147 | ||
| Stock cancelled | 1,046,146 |
Common Stock (Details Narrative) - USD ($) |
May 21, 2020 |
Feb. 28, 2018 |
Jan. 25, 2016 |
|---|---|---|---|
| Common Stock | |||
| Stock shares sold | 497,873 | ||
| Stock sold | $ 20,000 | ||
| Purchase of treasury stock shares | 414,893 | ||
| Purchase of treasury stock | $ 200,000 | ||
| Common stock cancelled | 25,265,794 |
Stock Based Compensation (Details) - $ / shares |
9 Months Ended | |
|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Price of Common Stock | ||
| Volatility | ||
| Risk free interest rate | ||
| Minimum [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Price of Common Stock | $ 0.25 | |
| Volatility | 60.00% | |
| Risk free interest rate | 1.39% | |
| Maximum [Member] | ||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Price of Common Stock | $ 0.29 | |
| Volatility | 72.00% | |
| Expected term (in years) | 6 years 10 months 24 days | |
| Risk free interest rate | 1.74% | |
Stock Based Compensation (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
May 21, 2020 |
Feb. 26, 2020 |
Feb. 06, 2020 |
Feb. 03, 2020 |
May 21, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
Sep. 30, 2019 |
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||||||
| Common stock authorized under plan | 2,676,126 | 2,834,837 | ||||||||
| Accelerated vested shares | 277,564 | 149,564 | 751,849 | |||||||
| Fair value of stock | $ 0.29 | |||||||||
| Unrecognized compensation | $ 100,000 | $ 100,000 | ||||||||
| Lump sum cash payment | 3,300,000 | |||||||||
| Original fair value of the stock options | $ 200,000 | |||||||||
| Additional stock based compensation | $ 3,100,000 | |||||||||
| Outstanding | 0 | 0 | ||||||||
| Issued | 0 | |||||||||
| Compensation expense | $ 325,582 | |||||||||
| Equity Option [Member] | ||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||||||
| Compensation expense | $ 0 | $ 3,200,000 | 0 | 3,400,000 | ||||||
| Phantom Share Units (PSUs) [Member] | ||||||||||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||||||
| Compensation expense | $ 0 | $ 0 | $ 0 | $ 0 | ||||||
Concentrations (Details Narrative) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2021 |
Sep. 30, 2020 |
|
| Liabilities, Total [Member] | ||
| Concentration Risk [Line Items] | ||
| Percentage | 99.00% | 85.00% |
Commitments and Contingencies (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2021 |
Jun. 30, 2020 |
Jun. 30, 2021 |
Jun. 30, 2020 |
|
| Commitments and Contingencies Disclosure [Abstract] | ||||
| Operating lease expense | $ 214,604 | $ 168,115 | $ 294,133 | $ 504,345 |
| Total lease cost | $ 214,604 | $ 168,115 | $ 294,133 | $ 504,345 |
Commitments and Contingencies (Details 1) - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|---|---|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |||
| Operating lease right of use assets | $ 1,636,515 | $ 1,979,658 | $ 2,300,000 |
| Lease liability, current portion | 212,450 | 393,468 | |
| Lease liability, net of current portion | 1,601,564 | $ 1,758,196 | |
| Total lease liability | $ 1,814,014 | $ 2,400,000 |
Commitments and Contingencies (Details 2) |
Jun. 30, 2021 |
|---|---|
| Commitments and Contingencies Disclosure [Abstract] | |
| Weighted average remaining lease term (in years) - operating leases | 6 years 7 months 9 days |
| Weighted average discount rate - operating leases | 7.50% |
Commitments and Contingencies (Details 3) - USD ($) |
Jun. 30, 2021 |
Sep. 30, 2019 |
|---|---|---|
| Commitments and Contingencies Disclosure [Abstract] | ||
| Remaining 2021 | $ 803,668 | |
| 2022 | 326,453 | |
| 2023 | 333,104 | |
| 2024 | 339,755 | |
| 2025 | 346,406 | |
| 2026 | 353,055 | |
| 2027 | 359,714 | |
| 2028 | 152,420 | |
| Total Minimum Lease Payments | 2,291,273 | |
| Less effects of discounting | (477,259) | |
| Present value of future minimum lease payments | $ 1,814,014 | $ 2,400,000 |
Commitments and Contingencies (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2021 |
Oct. 31, 2017 |
Jun. 30, 2021 |
Sep. 30, 2020 |
Nov. 16, 2018 |
|
| Commitments and Contingencies Disclosure [Abstract] | |||||
| Incremental borrowing rate lease one | 7.52% | ||||
| Incremental borrowing rate lease two | 5.73% | ||||
| Incremental borrowing rate lease three | 9.68% | ||||
| Sublease income | $ 0 | $ 0 | |||
| Capital raised sale of AirTokens | $ 15,000,000 | ||||
| Penalties to the SEC | $ 300,000 | ||||
| AirToken refunds not paid | $ 200,000 | ||||
| Penalties Commonwealth of Massachusetts | $ 100,000 | ||||
Related Party Transaction (Details Narrative) |
9 Months Ended |
|---|---|
|
Jun. 30, 2021
USD ($)
| |
| Related Party Transactions [Abstract] | |
| Upfront payment for software development services | $ 32,300 |
| Transactional fees | $ 361,900 |
Subsequent Events (Details Narrative) |
Jul. 08, 2021
USD ($)
|
|---|---|
| Subsequent Event [Member] | |
| Subsequent Event [Line Items] | |
| Proceeds from Contributed Capital | $ 480,000 |
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