CORETEC GROUP INC. - Quarter Report: 2020 September (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

☒

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

OR

 

☐

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

COMMISSION FILE NUMBER 000-54697

  

THE CORETEC GROUP INC. 

(Exact Name of small business issuer as specified in its charter)

 

Oklahoma	73-1479206
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

 

333 Jackson Plaza, Suite 1200, Ann Arbor, MI 48103

(Address of principal executive offices) (Zip Code)

 

	(918) 494-0509
	(Registrant’s telephone number, including area code)
	Former address: 6804 South Canton Avenue, Suite 150, Tulsa, Oklahoma 74136
	(Former name , former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
None		None		None

 

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes    ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b- 2 of the Exchange Act.

 

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☒		Smaller reporting company	☒
			Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

   

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐  No ☐

 

As of November 12, 2020, the issuer had 204,950,642 outstanding shares of Common Stock.

 

 

 

Table of Contents

 

		Page
PART I - Financial Information
Item 1.	Financial Statements.	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	6
Item 4.	Controls and Procedures.	6
PART II - Other Information
Item 1.	Legal Proceedings.	8
Item 1A.	Risk Factors.	8
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	8
Item 3.	Defaults Upon Senior Securities.	8
Item 4.	Mine Safety Disclosure.	8
Item 5.	Other Information.	8
Item 6.	Exhibits.	9
SIGNATURES		9

 

 

 

 

		September 30,				December 31,
		2020				2019
Assets
Current assets:
Cash		$	23,655			$	58,149
Prepaid expenses			178,400				88,821
Total current assets			202,055				146,970
Property and equipment, net			-				126
Other assets:
Patents, net			1,079,083				1,139,255
Goodwill			166,000				166,000
Deposits-other			1,260				3,575
Total other assets			1,246,343				1,308,830
Total Assets		$	1,448,398			$	1,455,926
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable		$	69,545			$	39,138
Accounts payable and accrued expenses			491,654				615,815
Total current liabilities			561,199				654,953
Long term debt:
Notes payable - related party, net of discounts			240,973				120,508
Total Liabilities			802,172				775,461
Stockholders' equity:
Preferred stock, Series A convertible, $0.0002 par value, 500,000 shares authorized; 345,000 shares issued and outstanding at September 30, 2020 and December 31, 2019			69				69
Common stock $0.0002 par value, 1,500,000,000 shares authorized; 204,450,642 and 193,521,506 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively			40,890				38,704
Additional paid-in capital			7,353,503				6,135,885
Accumulated deficit			(6,748,236	)			(5,494,193	)
Total Stockholders' Equity			646,226				680,465
Total Liabilities and Stockholders' Equity		$	1,448,398			$	1,455,926

 

		Three Months Ended								Nine Months Ended
		September 30, 2020				September 30, 2019				September 30, 2020				September 30, 2019
Income:
Revenue		$	-			$	-			$	-			$	-
Expenses:
Research and development			37,197				25,623				117,187				77,740
General and administrative			316,376				868,556				780,491				1,211,810
Interest			80,531				41,209				357,615				230,011
Total expenses			434,104				935,388				1,255,293				1,519,561
Other income			-				-				1,250				-
Net loss		$	(434,104	)		$	(935,388	)		$	(1,254,043	)		$	(1,519,561	)
Loss per share:
Basic and diluted		$	(0.002	)		$	(0.013	)		$	(0.006	)		$	(0.022	)
Weighted average shares outstanding, basic and diluted			203,710,642				70,103,698				200,016,816				69,358,355

 

		Series A Preferred Stock								Common Stock								Additional
						Par								Par				Paid-In				Accumulated
		Shares				Value				Shares				Value				Capital				Deficit				Total
Balance December 31, 2019			345,000			$	69				193,521,506			$	38,704			$	6,135,885			$	(5,494,193	)		$	680,465
Warrants issued			-				-				-				-				53,447				-				53,447
Notes payable converted to common stock			-				-				9,129,136				1,826				298,174				-				300,000
Beneficial converson feature of note payable			-				-				-				-				310,303				-				310,303
Net loss for the period			-				-				-				-				-				(530,307	)			(530,307	)
Balance March 31, 2020			345,000			$	69				202,650,642			$	40,530			$	6,797,809			$	(6,024,500	)		$	813,908
Warrants issued			-				-				-				-				23,692				-				23,692
Beneficial converson feature of note payable			-				-				-				-				191,839				-				191,839
Exchange of stock options for common shares			-				-				900,000				180				(180	)			-				-
Net loss for the period			-				-				-				-				-				(289,632	)			(289,632	)
Balance June 30, 2020			345,000			$	69				203,550,642			$	40,710				7,013,160				(6,314,132	)			739,807
Warrants issued			-				-				-				-				31,454				-				31,454
Beneficial converson feature of note payable			-				-				-				-				235,296				-				235,296
Options issued for compensation and services																			73,773								73,773
Exchange of stock options for common shares			-				-				900,000				180				(180	)			-				-
Net loss for the period			-				-				-				-				-				(434,104	)			(434,104	)
Balance September 30, 2020			345,000			$	69				204,450,642			$	40,890			$	7,353,503			$	(6,748,236	)		$	646,226
Balance December 31, 2018			345,000			$	69				68,474,520			$	13,695			$	2,166,745			$	(3,639,808	)		$	(1,459,299	)
Common stock issued for liabilities			-				-				199,017				40				7,822				-				7,862
Net loss for the period			-				-				-				-				-				(298,323	)			(298,323	)
Balance March 31, 2019			345,000			$	69				68,673,537			$	13,735				2,174,567				(3,938,131	)			(1,749,760	)
Common stock issued for services			-				-				972,668				195				29,496				-				29,691
Common stock issued for liabilities			-				-				273,469				54				11,138				-				11,192
Net loss for the period			-				-				-				-				-				(285,850	)			(285,850	)
Balance June 30, 2019			345,000			$	69				69,919,674			$	13,984				2,215,201				(4,223,981	)			(1,994,727	)
Common stock issued for services			-				-				271,025				54				10,062				-				10,116
Options issued for compensation and services			-				-				-				-				840,500				-				840,500
Net loss for the period			-				-				-				-				-				(935,388	)			(935,388	)
Balance September 30, 2019			345,000			$	69				70,190,699			$	14,038			$	3,065,763			$	(5,159,369	)		$	(2,079,499	)

 

		Nine Months Ended September 30,
		2020				2019
Cash Flows from Operating Activities
Net loss		$	(1,254,043	)		$	(1,519,561	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			126				567
Amortization - patents			60,172				60,172
Amortization - debt discount			296,738				45,134
Options issued for services			73,773				724,631
Common stock issued for services			-				39,807
Change in:
Prepaid expenses			(89,579	)			11,229
Deposits			2,315				-
Accounts payable and accrued liabilities			(124,160	)			409,381
Net cash used in operating activities			(1,034,659	)			(228,640	)
Cash Flows from Financing Activities
Payments on insurance premium financing			(46,986	)			(36,680	)
Proceeds from debt and warrants issued			1,047,151				270,000
Net cash provided by financing activities			1,000,165				233,320
Net change in cash			(34,494	)			4,680
Cash, beginning of period			58,149				4,001
Cash, end of period		$	23,655			$	8,681
Supplemental Disclosure of Cash flow Information
Cash paid during the period for interest		$	50,271			$	2,921
Non-Cash Financing Activities
Notes payable converted to common stock		$	300,000			$	-
Stock options exchanged for common stock		$	360			$	-
Options issued for accounts payable		$	-			$	115,869
Common stock issued to satisfy liabilities		$	-			$	19,054
Recognition of beneficial conversion feature		$	737,437			$	-

 

Note 1 – Business Organization, Nature of Business and Basis of Presentation  

 

Nature of Business

 

The Coretec Group Inc. (the “Group”) (formerly 3DIcon Corporation) (“3DIcon”) was incorporated on August 11, 1995, under the laws of the State of Oklahoma as First Keating Corporation. The articles of incorporation were amended on August 1, 2003 to change the name to 3DIcon Corporation. During 2001, First Keating Corporation began to focus on the development of its 360-degree holographic technology. From January 1, 2001, 3DIcon’s primary activity has been the raising of capital in order to pursue its goal of becoming a significant participant in the development, commercialization, and marketing of next generation 3D display technologies.

 

Coretec Industries, LLC (“Coretec”), a wholly owned subsidiary of the Group (collectively the “Company”), was organized on June 2, 2015 in the state of North Dakota. Coretec is currently developing, testing, and providing new and/or improved technologies, products, and service solutions for energy-related industries including, but not limited to oil/gas, renewable energy, and distributed energy industries. Many of these technologies and products also have application for medical, electronic, photonic, display, and lighting markets among others. Early adoption of these technologies and products is anticipated in markets for energy storage (Li-ion batteries), renewable energy (BIPV), and electronics (Asset Monitoring).

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements of the Company have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s year-end audited consolidated financial statements and related footnotes included in the previously filed Form 10-K, and in the opinion of management, reflects all adjustments necessary to present fairly the consolidated financial position of the Company. The consolidated results of operations for interim periods may not be indicative of the results which may be realized for the full year.  

 

Note 2 – Going Concern and Management’s Plans

 

The Company has realized a cumulative net loss of $6,748,236 for the period from its inception (June 2, 2015) to September 30, 2020, has negative working capital of $359,144 and no revenues. The Company has insufficient revenue and capital commitments to fund the development of its planned products and pay operating expenses. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a year following the issuance of these condensed consolidated financial statements. 

 

The ability of the Company to continue as a going concern depends on the successful completion of the Company's capital raising efforts to fund the development of its planned products. The Company intends to continue to raise additional capital through debt and equity financings. There is no assurance that these funds will be sufficient to enable the Company to fully complete its development activities or attain profitable operations. If the Company is unable to obtain such additional financing on a timely basis or, notwithstanding any request the Company may make, the Company’s debt holders do not agree to convert their notes into equity or extend the maturity dates of their notes, the Company may have to curtail its development, marketing and promotional activities, which would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to discontinue its operations and liquidate.

 

 

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates the continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

 

 Note 3 – Summary of Significant Accounting Policies

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Group and its wholly owned subsidiary, Coretec. Intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from the estimates and assumptions used.

 

Long-Lived Assets

 

Long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require that a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated with that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

 

Reclassification

 

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements. These reclassifications apply only to the Statement of Operations and have no effect on the previously reported net loss.

 

Fair Value of Financial Instruments

 

The following methods and assumptions were used to estimate the fair value of each class of financial instrument held by the Company:

 

Current assets and current liabilities - The carrying value approximates fair value due to the short maturity of these items.

 

Notes payable - The fair value of the Company’s notes payable has been estimated by the Company based upon the liability’s characteristics, including interest rates, embedded instruments and conversion discounts. The carrying value approximates fair value.

 

Beneficial Conversion Feature of Convertible Notes Payable

 

The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options. The beneficial conversion feature of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a beneficial conversion feature related to the issuance of a convertible note when issued.

 

 

The beneficial conversion feature of a convertible note is credited to additional paid-in-capital.  The intrinsic value is recorded in the condensed consolidated financial statements as a debt discount and such discount is amortized over the expected term of the convertible note and is charged to interest expense.  

 

Earnings(Loss) Per Common Share 

 

Basic earnings (loss) per common share is computed by dividing net income or loss by the weighted average number of vested common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock.  

 

Diluted loss per common share is calculated the same as basic loss per common share for all periods presented because the exercise or conversion of the securities and other instruments would be anti-dilutive due to the net loss. 

 

The following securities and other instruments to issue common stock are excluded from the calculation of weighted average dilutive common shares: 

 

 

Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date but before the condensed consolidated financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, except as disclosed in Note 6. 

 

Recent Accounting Pronouncements

 

The following is a summary of recent accounting pronouncements that are relevant to the Company:  

 

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, an entity should measure goodwill impairment and test by comparing the fair value of a reporting unity with its carrying amount. The Company adopted this standard effective January 1, 2020 and will apply the standard on a prospective basis. The adoption of this standard did not have a material impact on the Company's consolidated financial position and results of operations.  

 

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. As a result, after adopting ASU No. 2020-06, the Company will no longer separately present the embedded conversion feature of its convertible debt within stockholders’ equity and interest expense is expected to decrease due to the elimination of debt discount amortization. ASU No. 2020-06 is effective for the Company in the first quarter of 2024, with early adoption permitted for the Company in the first quarter of 2021, and may be adopted using either a full or modified retrospective approach. The Company is currently evaluating the full effect adopting ASU No. 2020-06, including the quantitative impact, will have on its consolidated financial statements, including the timing and adoption approach.

 

 

 

Note 4 – Notes Payable 

 

 

 

6.3% Insurance premium finance agreement, due July 2020 

 

The Company entered into an insurance financing agreement in September 2019 totaling $61,503. The monthly payments under the agreement were due in eleven installments of $5,591. The Company fully paid off the note in the planned installments with the last payment in July 2020.

 

3.8% Insurance premium finance agreement, due June 2021 

 

The Company entered into an insurance financing agreement in August 2020 totaling $77,151. The monthly payments under the agreement are due in ten installments of $7,849. The Company made the first installment payment in September 2020.

 

10% Promissory note due January 2024, net

 

On October 4, 2019, the Company entered into a Credit Agreement and related Promissory Note with DAF, the Lender. DAF is managed by Carlton James, Ltd, a UK-based company of which Simon Calton is the Chief Executive Officer. Mr. Calton is Co-Chairman of Coretec. The 10% Promissory Note, in a principal amount of $2,500,000, is due January 15, 2024 and has attached warrants to subscribe for and purchase 3,000,000 shares of common stock at an exercise price of $0.052 per share. Under the terms of the Credit Agreement, DAF will fund the Promissory Note in sixteen (16) tranches in amounts of $125,000 and $175,000 per month beginning in October 2019. Interest is accrued monthly and paid in advance for the first 12 months and thereafter principal and interest payments shall be paid monthly in equal amounts, amortized over a 36-month period.

 

Under the terms of the Promissory Note, DAF has the right to elect to convert all or part of the Promissory Note at a price equal to seventy percent (70%) of the average closing price of the Company’s common stock as reported on the over-the-counter quotation system on the OTC Markets during the fifteen (15) calendar days prior to the loan closing date of October 4, 2019, which calculates to $0.0329 per share.

 

The embedded conversion option was deemed to be a beneficial conversion feature because the active conversion price was less than the commitment date market price of the common stock. Given the terms and related-party nature of the agreement, the commitment date was determined to be the date the funds are advanced to the Company and is limited to the funding value less other debt discounts (see below). A debt discount of $737,437 and $281,837 was recorded, with a corresponding credit to additional paid-in capital for the beneficial conversion feature for the nine months ended September 30, 2020 and the year ended December 31, 2019, respectively. The debt discount will be amortized over the life of the debt and $107,552 was amortized to interest expense during the nine months ended September 30, 2020.

 

 

Under the terms of the DAF Credit Agreement, warrants to subscribe for and purchase 3,000,000 shares of common stock at an exercise price of $0.052 per share are available to be issued to DAF. The warrants will be issued in amounts of 150,000 and 210,000 per month as the advance is received during the funding period. In the event that funding advances deviate from the planned schedule then warrants will be issued pro-rata at 1.2 warrants for every $1 of funding. As of September 30, 2020, 1,770,000 warrants have been granted under the terms of the DAF Credit Agreement. The estimated value of the warrants granted monthly, with each advance, is calculated using the Black-Scholes option pricing model. The resulting estimated value of the warrant is used to proportionally allocate the fair value of the debt advance and the fair value of the warrants. The allocated cost of the warrants amounted to $108,594 and $60,593 during the nine months ended September 30, 2020 and the year ended December 31, 2019, respectively, and is being amortized over the life of the debt. $19,398 was amortized during the nine months ended September 30, 2020.

 

Additionally, under the terms of the Credit Agreement, the Company agreed to pay a commitment fee of 3% of each advance and reimburse DAF for certain expenses in connection with the preparation, interpretation, performance and enforcement of the Credit Agreement. Those costs amounted to $30,000 and $22,767 for the nine months ended September 30, 2020 and the year ended December 31, 2019 and are being amortized over the life of the debt with $6,080 being amortized during the nine months ended September 30, 2020.

 

On March 31, 2020, under the terms of the Credit Agreement, DAF converted $300,000 of the principle of the Promissory Note into 9,129,136 shares of common stock at $0.0329 per share. A related charge of $130,370 of the beneficial conversion feature was made to interest expense along with debt issue related charges of $25,523 for the warrants and $8,123 for the deferred cost at the time of the conversion.

 

 

 

Note 5 – Commitments and Contingencies

 

Warrants

 

Under the terms of the DAF Credit Agreement, warrants to subscribe for and purchase 3,000,000 shares of common stock at an exercise price of $0.052 per share are available to be issued to DAF. The warrants are being issued in amounts of 150,000 and 210,000 per month during the funding period. In the event that funding advances deviate from the planned schedule then warrants will be issued pro-rata at 1.2 warrants for every $1 of funding. As of September 30, 2020, 1,770,000 warrants have been granted under the terms of the DAF Credit Agreement. The estimated value of the warrants granted monthly, with each advance, is calculated using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The resulting estimated value of the warrant is used to proportionally allocate the fair value of the debt advance and the fair value of the warrant.

 

Warrants Summary

 

The following table summarizes the Company’s warrant activity during the nine months ended September 30, 2020:

 

 

 

Options

 

Stock options for employees, directors or consultants that vest immediately, are valued at the date of award, which does not precede the approval date, and compensation cost is recognized in the period the options are vested. For options subject to future service conditions, compensation cost is recognized over the vesting period on a straight-line basis.  Stock options generally become exercisable on the date of grant and expire based on the terms of each grant.

 

The estimated fair value of options for common stock granted is determined using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based on historical exercise behavior and expected future experience.

 

 

The following table summarizes the Company’s option activity during the nine months ended September 30, 2020:

 

 

On June 8, 2020, the Board of Directors consented to a share exchange agreement with holders of 21,500,000 options awarded on August 7, 2019.  The agreement allows for holders to exchange their options for rule 144 common stock at an exchange rate of 0.6 shares per 1 option.  The modification of these options did not result in any additional compensation because there was no change in the fair value. As of September 30, 2020, 3,000,000 options have been exchanged for 1,800,000 shares that were issued under the executed exchange agreement.

 

The following table summarizes the Company’s options as of September 30, 2020:

 

 

Litigation, Claims, and Assessments

 

The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. In the opinion of management, such matters are currently not expected to have a material impact on the Company’s condensed consolidated financial statements. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements. 

 

 

Office Leases and rent expenses

 

The Company had an amended office lease in Tulsa, Oklahoma that expired on July 31, 2018. The Company was on a month to month basis at $1,980 per month under the terms of the Tulsa lease. The Company gave notice of termination of the Tulsa office lease and vacated the property on June 23, 2020 and the security deposit has been refunded.

 

Additionally, on December 3, 2019, the Company signed a one-year office lease in Ann Arbor, Michigan commencing January 1, 2020. The remaining rent obligation on the Ann Arbor office is $7,560 ($1,260 per month) as of September 30, 2020.

 

Rent expense for the operating leases was $22,134 and $17,820 for the nine months ended September 30, 2020 and 2019, respectively.

 

Supply Agreement

 

During June 2020, the Company entered into a supply agreement with Evonik Operations GmbH to purchase cyclohexasilane, Si6H12 (CHS) for $185,000 per 500 grams. The supply agreement is valid until March 31, 2021. The Company paid Evonik Operations GmbH $92,500 on July 20, 2020, to initiate production of CHS, in accordance with the agreement.

 

Note 6 – Subsequent Events

 

Common stock issuance

 

Subsequent to September 30, 2020, the company issued 500,000 shares to a consultant in connection with services provided.

 

Securities Market

  

On October 29, 2020, the Company moved the trading of its securities to the OTCQB, also known as the Venture Market, from OTC Pink market. The fees for listing on OTCQB markets is $12,000 per annum, with a one-time application fee of $2,500. The OTCQB market is the middle tier of the OTC Markets and consists of early-stage and developing U.S. and international companies.

 

Conversion of convertible debt

 

On October 30, 2020, DAF provided notice to convert $250,000 of debt at the stated conversion price of $0.0329 per share, resulting in an issuance of 7,598,784 shares.