Significant components of the deferred tax assets at an anticipated tax rate 21% for the period ended December 31, 2019 and September 30, 2019 are as follows:
At December 31, 2019 and September 30, 2019, the Company has net operating loss carryforwards of approximately $7,785,356 and $7,079,690 which will begin to expire in the year 2031. The change in the allowance account from September 30, 2019 to December 31, 2019 was $148,190.
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowered the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company will compute its income tax expense for the December 31, 2017 fiscal year using a Federal Tax Rate of 21%. The remeasurement of the deferred tax assets resulted in a $68,010 reduction in tax assets to $885,961 from an estimate of $953,971 that the assets would have been using a 35% effective tax rate.
NOTE 11 – SUBSEQUENT EVENTS
On or about January 17, 2020, the Company issued a convertible promissory note to an institutional investor for the principal sum of $50.000, together with interest at the rate of 10% per annum with a maturity date of October 11, 2020. If the note is not paid or converted when due, the interest rate shall increase to 22%. The investor has the right at any time which is 180 days following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal to 50% of the average of the lowest trading price for the Company’s Common Stock during the preceding 30 trading day period prior to the Conversion Date, but in no event will the conversion price exceed $0.02 per share.
The conversion feature of the note represents an embedded derivative, which will be calculated at a later date.
On or about January 21, 2020, the Company issued a convertible promissory note to an institutional investor for the principal sum of $115,000, together with interest at the rate of 8% per annum with a maturity date of January 21, 2021. If the note is not paid or converted when due, the interest rate shall increase to 24%. The investor has the right at any time following the date of the Note to convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and non-assessable shares of Common Stock at a Variable Conversion Price which is equal to 60% of the lowest closing bid price for the Company’s Common Stock during the preceding 20 trading day period prior to and including the Conversion Date. The Company paid $10,000 in original issue discount and fees of $2,500 which are recorded as a debt discount and being amortized over the life of the loan.
The conversion feature of the note represents an embedded derivative, which will be calculated at a later date.
On January 21, 2020, an investor converted $4,050 of accrued interest and $750 of fees into 1,000,000 shares of common stock at a conversion price of $0.0048.
On January 29, 2020, and investor converted $15,000 of convertible debt principal, $3,352 of accrued interest and $500 in fees into 1,570,967 shares of common stock at a conversion price of $0.012.
Management's Discussion and Analysis of Financial Condition and Results of Operations General
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our financial statements and the notes to those statements.
In addition to historical financial information,
this discussion contains forward-looking statements reflecting our management’s current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under the heading “Risk Factors” in our Consolidated Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on January 15, 2019.
Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company” or “our Company,” “Quad M” or “Mineral Mountain” refer to Quad M Solutions, Inc. f/k/a Mineral Mountain Mining & Milling Company, an Idaho corporation.
New Business Developments
On March 27, 2019, the Company filed a Form 8-K with the SEC reporting that the Company entered into two separate Share Exchange Agreements dated March 22, 2019 (the “Agreements”) with unaffiliated third parties, one with PR345, Inc. (“PR345”), a newly organized Texas corporation, and one with NuAxess 2, Inc. (“NuAxess”), a newly organized Delaware corporation. Pursuant to these Agreements, the Company agreed to acquire the all of the capital stock of P3R45 and NuAxess in exchange of the issuance of newly authorized shares of Series C and D Preferred Stock, par value $0.10 per share, to the shareholders of PR345 and NuAxess. The entry into the two Agreements was authorized and approved by the Company’s Board in furtherance of the Company’s plan, as disclosed in its registration statement declared effective by the SEC on March 8, 2019, Registration No. 333-227839 (the “Registration Statement”), to diversify its business beyond its historic mining operations of its two subsidiaries, Nomadic Gold Mines, Inc. and Lander Gold Mines, Inc. (the “MMMM Mining Subsidiaries”). The Company also granted Sheldon Karasik or an entity to be formed by him to acquire for a nominal amount 75% of the capital stock of the MMMM Mining Subsidiaries, with the Company retaining 25% of its capital stock.
The Company also agreed that upon the closing of the Agreements, among other conditions, that: (i) Sheldon Karasik shall resign as CEO and Chairman, but shall continue to serve as a director, as will Michael Miller, an independent director; (ii) Felix Keller shall resign as a director; and (iii) Pat Dileo, Carl Dorvil and Derrick Chambers would be appointed to the newly constituted 5 person Board and Pat Dileo would be appointed as CEO and Chairman of the Board.
As disclosed under Note 9-Subsequent Events, below, on April 24, 2019, the Company filed a Form 8-K reporting that: (i) on April 16, 2019, it entered into a Share Exchange and Assignment Agreement, also referred to as the MBO Agreement with Aurum, an entity formed by Sheldon Karasik for the purpose of acquiring 75% of the capital stock of the MMMM Mining Subsidiaries from the Company; (ii) effective April 16, 2019, Felix Keller resigned as a director; (iii) effective April 17, Sheldon Karasik resigned as CEO and Board Chairman (but continued to serve on the Board); (iii) effective April 17, 2019, Pat Dileo was appointed as CEO and Chairman of the Board and Carl Dorvil and Derrick Chambers were appointed to as members of the 5 person Board, joining Sheldon Karasik and Michael Miller; and (v) effective April 16, 2019, Sheldon Karasik transferred and assigned the Series B Super Voting Preferred Stock to Pat Dileo.
As a result of the execution of the MBO Agreement and the closing of the March 22, 2019 Share Exchange Agreements, the Company’s resources will be devoted to the business operations of NuAxess and PR345, as follows:
(i) NuAxess’ business plan is to serve as a full service financial, employee benefit and insurance consulting company offering, either directly or through proven third parties, innovative ways to provide its clients’ employees with affordable and manageable health plans and comprehensive benefits, based upon a new system being developed throughout the country for the rapidly expanding market of small and medium-sized businesses (SMBs) which are experiencing significant problems with their existing programs, to the extent that they even provide programs because of their costs and complexities. NuAxess also intends to create an international professional employer association (IPEA) headquartered in San Juan, Puerto Rico, that will sponsor and provide professional outreach programs offering health insurance, healthcare and financial education to its PEO and financial services members globally; and (iii) additionally, the IPEA will offer these and other services to leading rural hospital providers via a proprietary program called ‘Community Health Exchanges’, which will work directly with SMB employers in rural communities providing access to private insured health plans with contracted medical services through the rural hospitals.
(ii) PR345, a business enterprise consulting firm, plans to provide: (a) specialized staffing services for a variety of professional industries including, but not limited to, medical, education, financial services, technology and hospitality, among others; (b) specific back office services including accounting, payroll, and a full complement of Human Resource (HR) benefits; and (iii) serve as a Professional Employer Organization (PEO).
The Company understands that Aurum, 75% owner of the MMMM Mining Subsidiaries, Lander Gold Mines, Inc. and Nomadic Gold Mines, Inc., will continue to operate its leases and staked claims of such entities. Under the MBO Agreement, the Company retained a 25% equity interest in the Mining Subsidiaries and effective on September 15, 2019, the Company sold, transferred and assigned to an unaffiliated third party 6% of its equity interest in the Mining Subsidiaries to an unaffiliated third party for $1,000, evidenced by a promissory note due on September 30, 2020, reducing the Company’s equity interest in the former Mining Subsidiaries from 25% to 19%.
Reference is made to the Company’s Form 8-K and 8-K/A filed with the SEC on October 22, 2019 and December 2, 2019 reporting the resignations of Sheldon Karasik and Michael Miller as member of the Board of Directors.
Results of Operations For the Three Months Ended
December 31 2019 compared to the Three Month Ended December 31, 2018
The Company generated no revenues from its former mining operations during the two periods ended December 31, 2019 and 201. In April 2019, the Company experienced a change in control transaction, as reported in its Forms 8-K filed in March and April 2019, referenced above, as a result of which it divested 75% of the MMMM Mining Subsidiaries to an entity formed and controlled by the Company’s former CEO and Chairman, Sheldon Karasik. At the same time, the Company commenced operations of its health insurance and employee benefits subsidiaries.
During the three months ended December 31, 2019 the Company received $221,358 in revenue principally from insurance premiums and we incurred $211,377 in expense directly related to this revenue. No such revenue was earned in the three-month period ended December 31, 2018.
Operating expenses for the three-month period ended December 31, 2019 were $460,599 compared to $260,544 for the same period of the prior year, representing an increase of 78%, due principally to an increase in expense related to the new revenue stream.
The main components of general and administrative expenses for the three-month period ended December 31, 2019 consisted of approximately $215,405 in consulting fees and approximately $6,530 in marketing fees. During the prior year, the Company’s legal and professional fees were minimal 74,662.
The Company’s net loss for the three-month period ended December 31, 2019 was $705,666, representing a 135% increase over the net loss of $300,797 at December 31, 2018. The increase in net loss is due primarily to an increase in non-cash gains and losses related to new convertible debt financings and acquisition and disposal of subsidiaries and also to an increase in general and administrative expenses as a result of the change in business focus.
During the three-months ended December 31, 2019, our principal sources of liquidity included cash received from convertible notes payable, and assignment of future receivables. During the three-months ended December 31, 2018 our principal source of liquidity included proceeds from sales of our common stock and proceeds from convertible debt. We intend to use new capital in the form of new equity or debt to further advance objectives. Net cash used by operating activities totaled $154,296 and $139,229 for the three-months ending December 31, 2019 and 2018, respectively. Net cash provided by financing activities totaled $193,085 and $179,000 for the three-month periods ending December 31, 2019 and 2018, respectively. The change between 2019 and 2018 is primarily attributed to an increase in convertible debt financing and assignment of future receivables in 2019 as compared to 2018. The cash increased to $53,489 at December 31, 2019 from $14,700 at September 30, 2019.
As reflected in our accompanying financial statements, other than approximately $203,851 received from the issuance of convertible notes and assignment of receivables during the three-month period ended December 31, 2019, we have limited cash, negative working capital, no revenues and an accumulated deficit of $7,785,356 and $7,079,690 for the three-month period ending December 31, 2019 and year ended September 30, 2019, respectively. Notwithstanding our belief that we will be able to continue to raise capital through the issuance of convertible notes at terms and condition acceptable to the Company, of which there can be no assurance, these factors indicate that we may be unable to continue in existence in the absence of receiving additional funding. In addition to our operating expenses which average approximately $165,000 per month, management’s plans for the next twelve months include approximately $2.5 million of cash expenditures for development and expansion of our health insurance and employee benefits business operations. While there can be no assurance, the Company believes that it will be able to generate sufficient capital from operations, equity and/or debt financing to fully-implement its business plan of offering principally to smaller and mid-sized employers a full spectrum of employee benefit and insurance services enabling employers to offer a variety of plans providing their employees with multiple levels of benefits including major medical health insurance, as well as providing financial and business consulting services.
Other than lease obligations stated above, as of December 31, 2019, we have contractual obligations relating to debt or anticipated debt, as follows:
The Company entered into an Equity Purchase Agreement, dated as of October 1, 2018 (the “Equity Purchase Agreement”), by and between the Company and Crown Bridge Partners, LLC (the “Crown Bridge”) pursuant to which the Company has agreed to issue to Crown Bridge shares of the Company's Common Stock, $0.001 par value (the “Common Stock”), in an amount up to Five Million Dollars ($5,000,000.00) (the “Shares”), in accordance with the terms of the Equity Purchase Agreement. In connection with the transactions contemplated by the Equity Purchase Agreement, the Company is required to register with the SEC the following shares of Common Stock: (1) 8,000,000 Put Shares to be issued to the Investors upon purchase from the Company by the Investors from time to time pursuant to the terms and conditions of the Equity Purchase Agreement; (2) 1,428,571 shares of Common Stock to be issued by the Company to the Investors as a commitment fee pursuant to the Equity Purchase Agreement; and (3) the Company also has entered into a Registration Rights Agreement, of even date with the Equity Purchase Agreement with the Investors (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Put Shares under the Securities Act of 1933, as amended (the “Securities Act”) relating to the resale of the Put Shares.
The Company intends to use the proceeds of the revolving credit line for general corporate purposes, which may include (i) acquisitions, (ii) refinancing or repayment of indebtedness, (iii) capital expenditures and working capital, (iv) investing in equipment and property development (which may include funding associated with exploration), and (v) pursuing other business opportunities both related and unrelated to our existing mining activities.
The following is a listing of the convertible debt principal amounts outstanding at December 31, 2019.
Auctus Fund LLC
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|
$
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75,000
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BHP Capital NY, Inc
|
|
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95,760
|
|
Cavalry Fund I, LP
|
|
|
225,000
|
|
Cavalry Fund I, LP
|
|
|
33,333
|
|
Crossover Capital Fund I, LLC
|
|
|
50,000
|
|
GS Capital Partners, LLC
|
|
|
68,000
|
|
Harbor Gates Capital, LLC
|
|
|
110,000
|
|
Jefferson Street Capital, LLC
|
|
|
66,000
|
|
Jefferson Street Capital, LLC
|
|
|
59,400
|
|
KinerjaPay Corp
|
|
|
96,816
|
|
KinerjaPay Corp
|
|
|
94,000
|
|
Labrys Fund, LP
|
|
|
112,500
|
|
LG Capital Funding, LLC
|
|
|
55,000
|
|
Sunshine Equity Partners LLC
|
|
|
50,000
|
|
|
|
|
|
|
Total
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|
$
|
1,190,809
|
|
The following is a listing of loan amounts (all of which are unsecured) due to related parties (each of whom are either a shareholder or related to a shareholder of Mineral Mountain Mining & Milling Company) and the dates that these loans were made to the Company:
Name
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|
|
|
|
|
|
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Premium Exploration
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|
03/27/17
|
|
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15,000
|
|
|
|
15,000
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|
|
|
08/02/17
|
|
|
35,000
|
|
|
|
35,000
|
|
John J. Ryan, adult son of a former officer and director
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|
2/23/2016
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable - shareholders
|
|
|
|
$
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57,000
|
|
|
$
|
57,000
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|
The loan from John J. Ryan bears interest at 10% per annum and is due upon demand. $3,000 was converted to 300,000,000 shares of common stock and $5,000 was repaid in cash. The note bears interest at a rate of 10% beginning on July 24, 2016 and, in the event of demand for payment, a default interest rate of 15% applies. the balance of principal and interest at December 31, 2019 was $9,992. The loans from Premium Exploration bear interest at 5% and 10% per annum. Pursuant to the terms of the loan agreements, interest on the unpaid balance increase from 5% to 10% for the $35,000 note on August 2, 2018 and interest increased from 5% to 10% for the $15,000 note on September 27, 2018. The outstanding principal and interest are due, upon demand of payment of Premium Exploration, on July 1, 2019. The outstanding principal will continue to earn 10% interest if demand for payment is not made on July 1, 2019 or in the event of default pursuant to the terms of the agreements the balance of principal and interest at December 31, 2019 was $60,073.
Off-Balance Sheet Arrangements
The Company has not undertaken any off-balance sheet transactions or arrangements. We have no guarantees or obligations other than those which arise out of normal business operations.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in Note 2 to our Unaudited Condensed Consolidated Financial Statements.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Disclosure Controls and Procedures
As of December 31, 2019, we conducted an evaluation, under the supervision and participation of management including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended). Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
The management of the Company assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in SEC guidance on conducting such assessments. Based on this assessment, management determined that, during the three months ended December 31, 2019 our internal controls and procedures require additional improvement due to deficiencies in the design or operation of the Company’s internal controls. Management identified the following areas of improvement in internal controls over financial reporting:
1. The Company did not have a written internal control procedurals manual which outlines the duties and reporting requirements of the Directors and any staff to be hired in the future. This lack of a written internal control procedurals manual does not meet the requirements of the SEC or good internal controls.
2. The Company should further improve maintenance and access to a centralized location for current and historical business records.
Changes in Internal Control over Financial Reporting
We have evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls as of December 31, 2019.
The Company received letter notice dated February 14, 2020 from counsel to Sheldon Karasik, a former director, stating that their belief that the Company owes additional monies to Mr. Karasik or Aurum LLC, a newly formed entity controlled by Mr. Karasik (“Aurum”) and, as a result, the Company should renegotiate certain terms in the Share Exchange and Assignment Agreement dated April 16, 2019, attached as Exhibit 99.4 to the Company’s Form 8-K filed with the SEC on April 24, 2019, in connection with a change in control transaction (the “MBO Agreement”). Pursuant to the MBO Agreement with Mr. Karasik, the Company transferred and assigned 75% of the Company’s former Mining Subsidiaries to Aurum LLC, a newly formed entity controlled by Mr. Karasik, for $10 plus the assumption by Aurum of the liabilities of the Company’s former wholly-owned Mining Subsidiaries. The Company believes that it has meritorious defenses to any claims by Mr. Karasik and Aurum and, indeed, has affirmative defenses in connection with any such claims. The Company believes that there will be no material adverse consequences in connection with any claims by or on behalf of Mr. Karasik.
Under the MBO Agreement, the Company retained a 25% equity interest in the Mining Subsidiaries and effective on September 15, 2019, the Company sold, transferred and assigned to an unaffiliated third party 6% of its 25% equity interest in the Mining Subsidiaries to an unaffiliated third party for $1,000, evidenced by a promissory note due on September 30, 2020, reducing the Company’s equity interest to 19% in the former Mining Subsidiaries.
Other than as set forth above, it is possible that from time to time in the ordinary course of business we may be involved in legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business. However, we are not aware of any such legal proceedings or investigations and, in the opinion of our Board of Directors, legal proceedings are not expected to have a material adverse effect on our financial position or results of operations.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
The Company intends to file a post-effective amendment to its registration statement, registration file no.
333-227839
, declared effective by the SEC (the “Registration Statement”) on March 8, 2019, for among other purposes of: (i) including its audited financial statements for the years ended September 30, 2019 and 2018 and the interim financial statements for the three months ended December 31, 2019 and 2018; (ii) fully-updating the disclosure of the Company’s new business operations contained in the Company’s Form 10-K filed with the SEC on January 16, 2020; (iii) disclosing the fact that the Company has no involvement in the operations of the former wholly-owned Mining Subsidiaries; and (iv) disclosure of new management and risk factors related to the new business operations, among other material information.
Pursuant to the terms of the Registration Statement, which may be amended, we may offer and sell to Crown Bridge Partners, LLC (“CBP”), from time to time, shares of our Common Stock at fixed prices and prevailing market prices at the time of sale, at varying prices, or at negotiated prices. While we will not receive any proceeds from the sale of the shares of our Common Stock by CBP, we will receive proceeds from our initial sale of shares to CBP pursuant to the Equity Financing Agreement. We will sell shares to CBP at a price equal to 75% of the lesser of (1) the lowest traded price of our Common Stock during the fifteen (15) consecutive trading day period beginning on the date on which we deliver a put notice to CBP (the “Market Price”) or (2) the lowest traded price of our Common Stock during the fifteen (15) consecutive trading day period following the Clearing Date of the put notice (“Valuation Price”). There will be a minimum of twenty (20) trading days between purchases.
None
None
None
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q.
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.
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Dated: February 19, 2020
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By:
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/s/ Pasquale Dileo
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Pasquale Dileo
|
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Chief Executive Officer (Principal Executive Officer
and Principal Financial Officer and Accounting Officer)
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