CORPORATE UNIVERSE INC - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Or

Commission File Number: 000-56271

(302) 273-1150

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 ☒

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

The number of shares outstanding of the registrant’s common stock, par value of $0.0001 on November 21, 2022 was 553,099,670.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Financial Statements

Corporate Universe, Inc.

(See accompanying notes to the unaudited consolidated financial statements)                                                     

(See accompanying notes to the unaudited consolidated financial statements) 

(See accompanying notes to the unaudited consolidated financial statements) 

Corporate Universe, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements

For The Nine Months Ended September 30, 2022

(1) Organization and Business Description

Corporate Universe, Inc. ("COUV”) was incorporated in Delaware on May 28, 1986. On July 17, 2020, the Company changed its name from Carrier Alliance Group Inc. to Corporate Universe, Inc.

The accompanying consolidated financial statements include COUV and its wholly-owned subsidiary Carbon-Ion Energy, Inc. (“CIE”), which includes its wholly owned subsidiary Oxcion Limited (“OXC”) (collectively, the “Company”).

CIE was incorporated under the laws of the State of Delaware on December 29, 2020 and operates as a holding company for OXC, which was incorporated under the laws of England and Wales on February 20, 2009. OXC operated as a business consulting entity until December 31, 2020. Effective March 11, 2021, OXC became a wholly-owned subsidiary of CIE pursuant to a share exchange agreement whereby the existing stockholders of OXC received the same pro-rata equity interests in CIE. Going forward, OXC plans to market its patented super capacitor technology to customers worldwide.

Effective November 12, 2021, CIE became a wholly-owned subsidiary of COUV pursuant to a share exchange agreement whereby the existing stockholders of CIE obtained control of COUV. The transaction was accounted for as a change in control with COUV being considered the accounting acquired company and CIE being considered the accounting acquirer. The fiscal year end of the consolidated Company is December 31st.

(2) Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

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

Cash

For financial statement presentation purposes, the Company considers all short-term investments with an original maturity date of three months or less to be cash equivalents.

Inventory

Inventory, which consists substantially of raw materials, is stated at the lower of cost (first-in, first-out basis) or market (net realizable value). The inventory is valued at the end of each fiscal period for the purpose of determining if a reserve for obsolescence needs to be recorded. There is no reserve for obsolescence as of September 30, 2022 and December 31, 2021.

Property and Equipment

Property and equipment is stated at cost. Maintenance and repairs are expensed as incurred. Upon sale or disposition of assets, any gain or loss is included in the consolidated statements of operations. The cost of property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets when placed in service, which range from three to seven years.

Income Taxes

The Company has adopted Financial Accounting Standards Board (“FASB”) Account Standards Codification (“ASC”) 740-10, “Accounting for Income Taxes”, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually from differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as a component of general and administrative expenses. The Company’s federal tax return and any state tax returns are not currently under examination.

OXC accrues research and development (“R&D”) tax credits receivable from the HM Revenue and Customs (“HMRC”) in England based on 14.50% of qualified R&D payroll costs. OXC, at its sole discretion, can elect to forego the tax credit and, instead, carry forward the qualified R&D payroll costs to offset future taxable income in England.

Intellectual Property

The Company’s intangible assets consist of patents on its technology, recorded at cost. Cost is based on third party expenditures for patent acquisitions and applications. OXC will begin amortizing the intangibles over their estimated remaining useful life when they commence revenue-producing activities. OXC will determine the useful lives of its intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors that will be considered when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the long-term strategy for using the asset, any laws or other local regulations that could impact the useful life of the asset, and other economic factors, including competition and specific market conditions.

Impairment of Long-lived Assets

Potential impairments of long-lived assets are reviewed when events or changes in circumstances indicate a potential impairment may exist. In accordance with ASC 360-10, “Property, Plant and Equipment – Overall,” impairment is determined when estimated future undiscounted cash flows associated with an asset are less than the asset’s carrying value. There is no reserve for impairment as of September 30, 2022 and December 31, 2021.

Revenue Recognition

The Company recognizes revenue in accordance with FASB ASC 606, “Revenue from contracts with customers.” Revenue is recognized when a customer obtains control of promised goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of FASB ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company expects to recognize revenues as the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied.

Stock Based Compensation Expense

The Company records stock-based compensation in accordance with the provisions of FASB ASC 718, “Accounting for Stock Compensation,” which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. In accordance with guidance provided under ASC Topic 718, the Company recognizes an expense for the fair value of its stock awards at the time of grant and the fair value of its outstanding stock options as they vest, whether held by employees or others. As of September 30, 2022 and December 31, 2021, there were no options outstanding.

Convertible Debentures

If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature ("BCF"). A BCF is recorded by the Company as a debt discount pursuant to FASB ASC 470-20 "Debt with Conversion and Other Options". In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt. As of September 30, 2022 and December 31, 2021, there were no convertible debentures outstanding.

Leases

The Company accounts for leases in accordance with FASB ASC 842, “Leases”. Based on this standard, the Company determines if an agreement is a lease at inception. Operating leases are included in right-of-use assets, current portion of operating lease liabilities, and operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property and equipment, current portion of long-term debt, and long-term debt in the Company’s consolidated balance sheets.

As permitted under FASB ASC 842, the Company has made an accounting policy election not to apply the recognition provisions to short term leases (leases with a lease term of 12 months or less that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise); instead, the Company will recognize the lease payments for short term leases on a straight-line basis over the lease term. The Company did not have any short-term leases at September 30, 2022 and December 31, 2021.

Foreign Currency Translation

Assets and liabilities of CIE’s U.K. subsidiary are translated from pounds sterling to United States dollars at the exchange rate in effect at the consolidated balance sheet date. Income and expenses are translated at average exchange rates during the year. The translation adjustment for the reporting period is included in the Company’s consolidated statements of operations and comprehensive loss, and the cumulative effect of these adjustments are reported in the Company’s consolidated balance sheets as a cumulative translation adjustment within stockholders’ deficit.

Net Income (Loss) Per Common Share

The Company computes loss per common share, in accordance with FASB ASC 260, “Earnings Per Share”, which requires dual presentation of basic and diluted earnings per share. Basic income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted income or loss per common share is computed by dividing net income or loss by the weighted average number of common shares outstanding, plus the issuance of common shares, if dilutive, that could result from the exercise of outstanding stock options, warrants and convertible preferred stock.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

(3) Going Concern

As of September 30, 2022, the Company has accumulated operating losses of $4,973,860, has yet to commence operations and has no product sales related to its patented battery storage technology that was acquired on September 11, 2020, all of which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. However, the Company is currently addressing its liquidity issues by continually seeking investment capital through private placement of common stock and debt. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that the Company will be able to complete any additional sales of equity securities or be able to arrange for other financing to fund planned business activities.

(4) Property and Equipment

Property and equipment consisted of the following:

Property and equipment has not been placed in service and, as such, there was no depreciation expense for the three and nine months ended September 30, 2022 and 2021.

(5) Intellectual Property

Intellectual property at September 30, 2022 and December 31, 2021 in the amounts of $660,478 and $613,204 are presented net of impairment reserves of $28,285 and $33,412, respectively. The intellectual property includes various super capacitor technology patents that were acquired on September 11, 2020 for $309,783 as part of the ZapGo Ltd (“ZapGo”) acquisition, plus $378,980 of legal fees subsequently incurred directly related to these patents and additional patent applications. The Company has deferred amortizing the intellectual property until it begins revenue operations in order to more accurately match the expense with the revenue. As such, there was no amortization expense for the three and nine months ended September 30, 2022 and 2021.

(6) Operating Lease Right-of-Use Assets and Operating Lease Liabilities

OXC entered into two third-party lease agreements for laboratory equipment. Both leases commenced on May 5, 2021, with one through April 5, 2023 and the other through May 5, 2023, with monthly rental payments of $1,221 and $605, respectively.

In July 2021, OXC executed a thirty-six-month non-cancellable operating lease for laboratory equipment. Monthly payments are approximately $4,600, including VAT, beginning August 1, 2021 through July 31, 2024.

On August 2, 2021, OXC entered into a five-year non-cancellable operating lease for laboratory space in Oxfordshire, England. The cost of this space is an average monthly rent of approximately $8,500 over the lease term, including VAT, plus utilities and a pro-rata share of any joint charges as reasonably determined by the landlord.

Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is the Company’s incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most of the Company’s leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. For the three months ended September 30, 2022 and 2021, the Company recorded operating lease expense for the leases described above in the amounts of $41,753 and $33,411, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded operating lease expense for the leases described above in the amounts of and $125,259 and $37,063, respectively. Operating lease expense for the leases described above are included in general and administrative expenses on the consolidated statements of operations and comprehensive loss.

Right-of-use assets are summarized as follows:

Operating lease liabilities are summarized as follows:

Maturity of lease liabilities for the years ending December 31^st are as follows:

(7) Payroll Taxes Payable

On August 27, 2021, OXC entered into an installment payment arrangement with the HM Revenue & Customs (“HMRC”) in England for the payroll taxes balance due of $364,538 at September 30, 2021 plus approximately $54,600 for the July payroll tax liability. Payments are to be made in five monthly installments of approximately $76,120 beginning in October 2021 with the final installment due in March 2022 of approximately $38,600 plus any interest that will be due. This final balance was not paid when due and, as such, was added to the additional installment payment arrangement with the HMRC dated April 2, 2022.

On April 2, 2022, OXC entered into an additional installment payment arrangement with HMRC for payroll taxes liabilities of approximately $277,000, including the $38,600 balance due from the previous installment payment arrangement. Payments were to be in made in four monthly installments of approximately $69,250 each beginning in May 2022 through August 2022, but were put on hold while the R&D income tax credits through March 31, 2022 were being processed by the HM Revenue & Customs. Although the R&D income tax credits were finalized and remitted to OXC on August 24, 2022, an updated installment payment arrangement has yet to be established with HM Revenue & Customs.

Payroll taxes payable at September 30, 2022 and December 31, 2021 were $552,280 and $398,299, respectively.

(8) Due to Stockholders

The balance at September 30, 2022 and December 31, 2021 of $0 and $5,859, respectively, represents monies advanced to the Company by a stockholder, who is also an officer, for working capital purposes. This amount was an unsecured, non-interest bearing and payable upon demand. As such, this balance was classified as a current liability.

During the nine months ended September 30, 2022, an additional $247,804 was advanced by the President of the Company, who is also a director and stockholder, for working capital purposes. This amount is unsecured, non-interest bearing and payable on demand. As such, this balance has been classified as a current liability.

(9) Notes Payable Related Party

On December 31, 2021, OXC executed a promissory note with an entity that is beneficially owned and controlled by the President of the Company, who is also a director and stockholder, in the amount of $585,000. This note is unsecured, accrues interest at a rate of 1.9% per annum and is payable on demand. As such, this balance has been classified as a current liability at September 30, 2022 and December 31, 2021. The Company recorded interest expense in connection with this note for the three and nine months ended September 30, 2022 in the amounts of $2,779 and $8,336, respectively, and accrued interest at September 30, 2022 and December 31, 2021 totaled $8,336 and $0, respectively.

(10) Notes Payable

On February 16, 2022, CIE received $75,000 pursuant to an additional promissory note with an unrelated party for working capital purposes. This note accrues interest at a rate of 3% per annum, is unsecured and is payable on demand. As such, this balance has been classified as a current liability at September 30 2022. During the three and nine months ended September 30, 2022, the Company recorded interest expense of $567 and $1,393, respectively, and accrued interest at September 30, 2022 of $1,393.

On April 5, 2022, CIE received $250,000 pursuant to a promissory with an unrelated party with an original principal amount of $275,000 dated March 6, 2022. This note accrues interest at a rate of 15% per annum and is payable on May 5, 2023. The discount of $25,000 is being accreted to interest expense on a straight-line basis. During the three and nine months ended September 30, 2022, the Company recorded total interest expense of $16,280 and $30,790, respectively, and accrued interest at September 30, 2022 of $19,664.

From July 14, 2022 to September 12, 2022, CIE raised gross proceeds of $175,000 related to a private placement offering of convertible notes that expires on December 31, 2022. Each note accrues interest at a rate of 10% per annum and matures on June 15, 2024. The maximum offering is $7,000,000 and requires a minimum investment of $5,000 from only accredited investors. Each note provides its holder the right to acquire certain shares of CIE’s Equity Securities based on a future qualified financing. Each note will convert into shares of Equity Securities at a discount of twenty percent (20%) off the cash price paid per share for the Equity Securities by the new investors in the qualified financing. The Company recorded interest expense in connection with this note for the three and nine months ended September 30, 2022 in the amounts of $3,929 and $3,929, respectively, and accrued interest at September 30, 2022 totaled $3,929.

On June 24, 2022, CIE received $100,000 pursuant to a promissory note with an unrelated party for working capital purposes. This note accrues interest at a rate of 15% per annum and is payable on June 24, 2023. During the three and nine months ended September 30, 2022, the Company recorded interest expense of $3,750 and $4,000, respectively, and accrued interest at September 30, 2022 of $4,000.

On August 10, 2022, CIE received $125,000 pursuant to a promissory note dated June 28, 2022 with an unrelated party. This note accrues interest at a rate of 15% per annum and is payable on June 28, 2023. During the three and nine months ended September 30, 2022, the Company recorded interest expense of $2,620 and $2,620, respectively, and accrued interest at September 30, 2022 of $2,620.

(11) Equity

Preferred Stock

The Company has 1,000,000 Shares of Preferred Stock authorized with a par value of $0.0001. The Company has allocated 100,000 Shares for Series C Preferred, 100,000 Shares for Series D Preferred, 81,100 Shares for Series E Preferred, 100,000 Shares for Series F Preferred and 25 Shares for Series G Preferred.

On January 10, 2022, the Company sold and issued .075 shares of Series G Convertible Preferred Stock at $100,000 per share for a total of $7,500.

Series C — As of September 30, 2022 and December 31, 2021 there are no Series C shares outstanding. The Series C Preferred has the following designations:

Series D — As of September 30, 2022 and December 31, 2021 there were 100,000 shares issued and outstanding. The Series D Preferred has the following designations:

Series E — As of September 30, 2022 and December 31, 2021 there are 81,032 shares issued and outstanding. The Series E Preferred has the following designations:

Additionally, on September 28, 2022, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment of Certificate of Designation of the Rights, Preferences, Privileges and Restrictions of the Series E Convertible Preferred Stock (the “Series E Certificate of Amendment”), to (i) include an adjustment provision upon a stock split or reverse stock split; (ii) include a revised voting provision whereby the amount of votes each holder of Series E Preferred Stock is entitled to vote on matters brought before our Common stockholders equals votes equal to the amount of shares into which their shares of Series E Preferred Stock are convertible and (iii) include a new protective provision under Section 8 of Series E Certificate of Amendment to provide Series E Preferred stockholder with a class vote approving any reverse stock split of our Common Stock.

Series F —As of September 30, 2022 and December 31, 2021 there were 100,000 shares issued and outstanding. The Series F Preferred has the following designations:

Additionally, on September 28, 2022, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment of Certificate of Designation of the Rights, Preferences, Privileges and Restrictions of the Series F Convertible Preferred Stock (the “Series F Certificate of Amendment”), to (i) include an adjustment provision upon a stock split or reverse stock split; (ii) include a revised voting provision whereby the amount of votes each holder of Series F Preferred Stock is entitled to vote on matters brought before our Common stockholders equals votes equal to the amount of shares into which their shares of Series F Preferred Stock are convertible and (iii) include a new protective provision under Section 8 of the Series F Certificate of Amendment to provide Series F Preferred stockholder with a class vote approving any reverse stock split of our Common Stock.

Series G — As of September 30, 2022 and December 31, 2021 there were 20 shares issued and outstanding. The Series G Preferred has the following designations:

Additionally, on September 28, 2022, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment of Certificate of Designation of the Rights, Preferences, Privileges and Restrictions of the Series G Convertible Preferred Stock (the “Series G Certificate of Amendment”), to (i) include an adjustment provision upon a stock split or reverse stock split; (ii) include a revised voting provision whereby the amount of votes each holder of Series G Preferred Stock is entitled to vote on matters brought before our Common stockholders equals votes equal to the amount of shares into which their shares of Series G Preferred Stock are convertible and (iii) include a new protective provision under Section 8 of the Series G Certificate of Amendment to provide Series G Preferred stockholders with a class vote approving any reverse stock split of our Common Stock.

The Company has evaluated each series of the Preferred Stock for proper classification under FASB ASC 480 “Distinguishing Liabilities from Equity” and FASB ASC 815 “Derivatives and Hedging”.

FASB ASC 480 generally requires liability classification for financial instruments that are certain to be redeemed, represent obligations to purchase shares of stock or represent obligations to issue a variable number of common shares. The Company concluded that each series of Preferred Stock was not within the scope of ASC 480 because none of the three conditions for liability classification was present.

FASB ASC 815 generally requires an analysis of embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. However, in order to perform this analysis, the Company was first required to evaluate the economic risks and characteristics of each series of the Preferred Stock in its entirety as being either akin to equity or akin to debt. The Company’s evaluation concluded that each series of Preferred Stock was more akin to an equity-like contract largely due to the fact the financial instrument is not mandatorily redeemable for cash and the holders are not entitled to any dividends. Other features of the Preferred Stock that operate like equity, such as the conversion option and voting feature, afforded more evidence, in the Company’s view, that the instrument is more akin to equity. As a result, the embedded conversion features are clearly and closely related to their equity host instruments. Therefore, the embedded conversion features do not require bifurcation and classification as derivative liabilities.

Common Stock

The Company has 2,500,000,000 shares of Common Stock authorized with a par value of $0.0001. As of September 30, 2022 and December 31, 2021 there are 553,099,670 and 533,549,670 shares issued and outstanding, respectively.

From January 1, 2022 through September 30, 2022, the Company sold and issued 29,550,000 shares of restricted common stock to unrelated third parties in a series of private placements for $0.04 per share totaling $1,182,000.

On June 19, 2022, the former CEO of COUV agreed to return 10,000,000 of the 15,600,000 shares of the Company’s common stock he received related to the investment in Medicevo in 2020 and the subsequent impairment of that investment.

(12) Income Taxes

The Company adopted the provisions of uncertain tax positions as addressed in FASB ASC 740-10-65-1. As a result of the implementation of FASB ASC 740-10-65-1, the Company recognized no increase in the liability for unrecognized tax benefits. As of September 30, 2022, the Company had net operating loss carry forwards of $4,973,860 that may be available to reduce future years’ taxable income in varying amounts through 2036. Future tax benefits which may arise as a result of these losses have not been recognized in these consolidated financial statements, as their realization is determined not likely to occur and, accordingly, the Company has recorded a full valuation allowance equal to the deferred tax asset relating to these tax loss carry-forwards of approximately $1,045,000 and $625,000 as September 30, 2022 and December 31, 2021, respectively.

The Company periodically evaluates the likelihood of the realization of deferred tax assets and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carryforward periods available to the Company for tax reporting purposes, and other relevant factors.

Future changes in the unrecognized tax benefit will have no impact on the effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change significantly within the next twelve months. The Company will continue to classify income tax penalties and interest as part of general and administrative expense in its consolidated statements of operations and comprehensive loss. There were no interest or penalties accrued as of September 30, 2022 and December 31, 2021.

The Company recorded R&D income tax credits for the three and nine months ended September 30, 2022 of $56,401 and $74,912, respectively, and for the three and nine months ended September 30, 2021 of $238,714, and $300,413, respectively. The balance due from the HMRC for these R&D income tax credits as of September 30, 2022 and December 31, 2021 was $187,518 and $590,132, respectively.

(13) Commitments and Contingencies

During the normal course of business, the Company may be exposed to litigation. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with FASB ASC 450-20-50, “Contingencies”. The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. As of September 30, 2022, the Company is not aware of any contingent liabilities that should be reflected in the consolidated financial statements.

On March 31, 2021, CIE entered into an employment agreement with the Chief Executive Officer (“CEO”), who is also a director, for an initial term of one year with a base salary of $465,000 per annum paid in equal monthly installments, less applicable withholdings and deductions as required by law. The Company shall review the base salary on an annual basis and has the right, but not the obligation to increase it, but has no right to decrease the base salary. This agreement automatically extends for additional terms of one year unless either party gives at least six months prior written notice of non- renewal during the initial term or the then current renewal term. In addition, the CEO is entitled to receive an annual bonus up to $400,000 if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors.

On April 12, 2021, CIE entered into an employment agreement with the Chief Financial Officer (“CFO”) who is also a director, for an initial term of one year with a base salary of $250,000 per annum paid in equal monthly installments, less applicable withholdings and deductions as required by law. The Company is also obligated to increase the base salary on an annual basis between $15,000 and $30,000 at the discretion of the Compensation Committee of the Board of Directors. The CFO is also entitled to receive a car allowance of $1,000 per month and five weeks paid vacation per year. This agreement automatically extends for additional terms of one year unless either party gives at least six months prior written notice of non-renewal during the initial term or the then current renewal term. In addition, the CFO is entitled to receive an annual bonus determined by the Compensation Committee of the Board of Directors.

On February 23, 2022, OXC formally settled a legal dispute with the two former executives and directors of ZapGo Limited for compensation obligations post acquisition and agreed to an Ex Gratia Payment of $121,221 each. The total balance of $242,442 was recorded as salaries and wages on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021 and included in accounts payable and accrued expenses on the consolidated balance sheets as of December 31, 2021. This total balance was fully paid as of September 30, 2022.

(14) Concentration of Credit Risk

The Company maintains cash balances in interest and non-interest-bearing bank accounts, none of which exceeded federally insured limits as of September 30, 2022. The Company has not experienced any losses in any of its accounts and management believes not to be exposed to any significant credit risk on cash.

(15) Subsequent Events

On October 26, 2022, CIE received $15,000 pursuant to a promissory note with an unrelated party. This note accrues interest at a rate of 15% per annum and is payable on March 26, 2023.

Management has evaluated subsequent events through November 21, 2022, the date the consolidated financial statements were available to be issued, and has determined that there are no other events that would require an adjustment to, or disclosure in, the consolidated financial statements as of September 30, 2022.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the section titled “Risk Factors” of our Annual Report on Form 10K filed on July 29, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements

Forward-Looking Statements

Some of the statements under “Management's Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” and “would” or the negatives of these terms or other comparable terminology.

You should not place undue reliance on forward-looking statements. The cautionary statements set forth in this Quarterly Report on Form 10-Q identify important factors, which you should consider in evaluating our forward-looking statements. These factors include, among other things:

Although the forward-looking statements in this Quarterly Report on Form 10-Q are based on our beliefs, assumptions and expectations, taking into account all information currently available to us, we cannot guarantee future transactions, results, performance, achievements or outcomes. No assurance can be made to any investor by anyone that the expectations reflected in our forward-looking statements will be attained, or that deviations from them will not be material and adverse. We undertake no obligation, other than as may be required by law, to update this Quarterly Report on Form 10-Q or otherwise make public statements updating our forward-looking statements.

Organization and Nature of Business

DESCRIPTION OF COMPANY

Carbon Ion is developing next generation supercapacitor technology aimed at the grid and other energy storage applications.

We see ‘Hybrid’ solutions, by combining the best in class battery solutions with super capacitors, as the way forward to deliver sustainable energy for the next three decades and a grid which is fit for the future. Super Capacitors are different but complimentary technology to batteries.

We are at the beginning of a forecasted once-in-a-century shift in moving away from fossil fuels to power our energy requirements across all demands for electricity.

For example, while current battery technology has demonstrated the benefits of EVs, principally in the premium passenger car market, there are fundamental limitations inhibiting widespread adoption of battery technology. They can catch fire easily, they use rare earth materials and have limited life span and the power delivery is compromised. They are not a universally applicable energy store.

Lamborghini recognized this in their recently launched supercar costing $3.5m the ‘Sian’ that has adopted regenerative braking using super capacitors as their first move to electric powertrains. Supercapacitors can deliver more power, more quickly than a battery solution. As part of the VW Group, Lamborghini elected to go a different route to the rest with their first ever hybrid car, and not follow the industry orthodoxy of a Lithium battery solution. As a result, we believe a hybrid solution using new super capacitor technology with complimentary battery technology represents the most promising path to unlock a mass market shift. A super capacitor can provide that immediate fast delivery (kick) mechanism and then once momentum and velocity is achieved the system moves over to battery power. In this way, the system can be better optimized for both cost and performance.

After 30 years of gradual improvements in conventional lithium-ion batteries we believe (like others in the industry) the market needs a step change in battery technology to make mass market EVs competitive with the fossil fuel alternative. We have gone, like Lamborghini’s Terzo Millenio does, down a direct route to achieve this goal.

We have spent the last decade developing a proprietary supercapacitor technology to meet this challenge. We believe that our technology enables a new category of supercapacitor that meets the requirements for broader market adoption. The Carbon-ion (C-ion) Super Capacitor technology that we are developing is being designed to offer greater energy density and safety when compared to today’s conventional super capacitors and longer life and faster charging than batteries.

We are focused on energy storage applications, which have a stringent set of requirements for super capacitor but our super capacitor technology also has applicability in other large and growing markets such as frequency response and fast recovery storage. Supercapacitors are best used when you need energy fast.

We will continue developing our C-ion super capacitor carbon-ion technology with the goal of beginning transfer to commercial production in the first half of 2025. We have evaluated each of the elements required for initial success and calculated the high performance which we expect from their combination. We are now working to combine and optimize all components of the cell. We will then further develop volume manufacturing processes to enable high volume manufacturing and minimize manufacturing costs.

We are looking to raise funds that will enable us to expand and accelerate research and development activities and undertake additional initiatives. As well as continuing to develop our scientific and engineering capabilities at Milton Park Abingdon England, we will use third party pilot lines, to achieve our goal of being prepared to begin the transition to high volume manufacturing capability from 2025.

We intend to work closely with original equipment manufacturers (“OEMs”) to make our cells widely available over time. We recognize that our super capacitor technology has applicability in other large and growing markets including energy storage and other electricity grid type environments such a frequency response. We expect that the heavy transport industries such as shipping, trains, planes and nascent infrastructure charging will also feature.

Our technology enables a variety of business models. In addition to joint ventures, we may look to operate solely-owned manufacturing facilities or license technology to other manufacturers. Where appropriate, we may sell know how, electrodes or other subassemblies rather than complete super capacitor cells. We intend to continue to invest in research and development beyond Gen 4.0 to improve super capacitor cell performance, improve manufacturing processes, and reduce cost subject to having raised sufficient funds to do this.

Carbon-Ion was founded to develop a new class of energy storage device with considerable functional improvements over commercially available supercapacitors or ‘ultra-capacitors’.

The C-Ion cell will provide specific power characteristics much higher than a Li-ion cell. It is designed to be classified as non-flammable and non-hazardous for transport, allowing the product to be shipped easily and to comply with both current and future regulations.

Due to the method of energy storage, the cell has fewer moving parts electrochemically and can go through significantly more charge/discharge cycles and/or operate for many years of normal use. 

The C-Ion cell is being designed for manufacture using technologies well known in high volume manufacture. This will enable Carbon-Ion to quickly scale-up production. Carbon-ion allows new products to be made and extra functions to be added to existing products, for example:

Results of Operations

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Revenues

Revenues for the three months ended September 30, 2022 were $0 as compared with $0 for the comparable prior period, a change of $0, or 0%. The lack of revenue is due to the fact that the Company did not generate any sales for the three months ended September 30, 2022 and 2021 from its supercapacitor technology.

Operating Expenses

Operating expenses for the three months ended September 30, 2022 were $672,539 as compared with $557,510 for the comparable prior period, an increase of $115,029, or approximately 21%. The increase in operating expenses resulted primarily from a $101,430 decrease in salaries and wages, a $230,435 increase in legal and professional fees, and a $58,530 decrease in general and administrative expenses compared to the comparable prior period. Such changes result from a reduction in staff in the third quarter of 2022 and an increased in legal and professional fees and general and administrative expenses in the third quarter of 2022 in anticipation of commencing operations in the fourth quarter of 2022.

Net Operating Loss

Our net operating loss for the three months ended September 30, 2022 was $672,539 as compared with a net operating loss of $557,510 for the comparable prior period, an increase of $115,029, or approximately 21%. The increase in net operating loss is directly due to the overall net increase in operating expenses recorded in the current period compared to the comparable prior period as described in the caption immediately above.

Other Income (Expenses)

Other expenses for the three months ended September 30, 2022 was $34,998 as compared with $31,183 for the comparable prior period, an increase of $3,815, or approximately 12%, and is directly related to interest expense being consistent to the comparable period.

Net Loss

Our net loss for the three months ended September 30, 2022 was $651,136 as compared with a net loss of $513,781 for the comparable prior year period, an increase of $137,355, or approximately 27%. The increase in net loss is primarily related to the increase net operating loss as described in the captions above.

Comprehensive Loss

Our net comprehensive loss for the three months ended September 30, 2022 was $651,271 as compared with a net loss of $644,714 for the comparable prior year period, an increase of $6,557 or approximately 1%. The increase in net comprehensive loss is comprised of the change in net loss described above plus a decrease of $130,798 in the foreign currency translation adjustment which is attributable to changes in exchange rates.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Revenues

Revenues for the nine months ended September 30, 2022 were $0 as compared with $0 for the comparable prior period, a change of $0, or 0%. The lack of revenue is due to the fact that the Company did not generate any sales for the nine months ended September 30, 2022 and 2021 from its supercapacitor technology.

Operating Expenses

Operating expenses for the nine months ended September 30, 2022 were $2,191,708 as compared with $1,874,412 for the comparable prior period, an increase of $317,296, or approximately 17%. The increase in operating expenses resulted primarily from a $203,144 increase in officers’ salaries, a $372,571 decrease in salaries and wages, a $346,004 increase in legal and professional fees, and a $145,636 increase in general and administrative expenses compared to the comparable prior period. Such changes result from a reduction in staff in the first nine months of 2022 and an increased in legal and professional fees and general and administrative expenses in the first nine months of 2022 in anticipation of commencing operations in the fourth quarter of 2022.

Net Operating Loss

Our net operating loss for the nine months ended September 30, 2022 was $2,191,708 as compared with a net operating loss of $1,874,412 for the comparable prior period, an increase of $317,296, or approximately 17%. The increase in net operating loss is directly due to the overall net increase in operating expenses recorded in the current period compared to the comparable prior period as described in the caption immediately above.

Other Income (Expenses)

Other expenses for the nine months ended September 30, 2022 was $44,093 as compared with $68,193 for the comparable prior period, a decrease of $24,100, or approximately 35%, directly related to decreased interest expense.

Net Loss

Our net loss for the nine months ended September 30, 2022 was $1,997,087 as compared with a net loss of $1,642,192 for the comparable prior year period, an increase of $354,895, or approximately 22%. The increase in net loss is primarily related to the increase net operating loss as described in the captions above.

Comprehensive Loss

Our net comprehensive loss for the nine months ended September 30, 2022 was $2,134,528 as compared with a net loss of $1,781,493 for the comparable prior year period, an increase of $353,035 or approximately 20%. The increase in net comprehensive loss is comprised of the change in net loss described in the caption immediately above.

Current Liquidity and Capital Resources for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Operating Activities

Cash used in operations of $1,031,840 during the nine months ended September 30, 2022 was primarily a result of our $1,997,087 net loss reconciled with our net non-cash expenses relating to prepaid expenses, value added taxes receivable, income tax credits receivables, accounts payable and accrued expenses and payroll taxes payable. Cash used in operations of $1,110,831 during the nine months ended September 30, 2021 was primarily a result of our $1,642,192 net loss reconciled with our net non-cash expenses relating to income tax credits receivable, accounts payable and accrued expenses, and payroll taxes payable.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2022 of $647,444 resulted primarily from the acquisition of property and equipment of $599,990. Net cash used in investing activities for the nine months ended September 30, 2021 of $227,248 resulted primarily from the addition to intellectual property in the amount of $214,341.

Financing Activities

Net cash provided by financing activities of $2,086,406 for nine months ended September 30, 2022, which consisted primarily of $479,961 in proceeds from the issuance of notes payable and $1,182,000 from the issuance of common stock. Net cash provided by financing activities of $1,618,339 for nine months ended September 30, 2021, consisted primarily of $1,495,735 in proceeds from the issuance of convertible notes.

Future Capital Requirements

Our current available cash and cash equivalents are insufficient to satisfy our liquidity requirements. Our capital requirements through the end of fiscal year 2022 and into fiscal year 2023 will depend on numerous factors, including management’s evaluation of the timing of projects to pursue. Subject to our ability to generate revenues and cash flow from operations and our ability to raise additional capital (including through possible joint ventures and/or partnerships), we expect to incur substantial expenditures to carry out our business plan, as well as costs associated with our capital raising efforts and being a public company.

Our plans to finance our operations include seeking equity and debt financing, alliances or other partnership agreements, or other business transactions, that would generate sufficient resources to ensure continuation of our operations.

The sale of additional equity or debt securities may result in additional dilution to our shareholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. Any such required additional capital may not be available on reasonable terms, if at all. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned activities and limit our operations which could have a material adverse effect on our business, financial condition and results of operations.

Inflation

The amounts presented in our consolidated financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis. For the nine months ended September 30, 2022, the Company had a net loss of $1,997,087, had net cash used in operating activities of $1,031,840, had negative working capital of $3,282,929, an accumulated deficit of $4,973,860, and stockholders’ deficit of $1,733,599. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of this filing. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, to fund possible future acquisitions, and to generate profitable operations in the future. Management plans to provide for the Company’s capital requirements by continuing to issue additional equity and debt securities. The outcome of these matters cannot be predicted at this time and there are no assurances that, if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Quantitative and Qualitative Disclosures about Market Risk

In the ordinary course of our business, we are not exposed to market risk of the sort that may arise from changes in interest rates or foreign currency exchange rates, or that may otherwise arise from transactions in derivatives.

The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our significant estimates and assumptions include the fair value of our common stock, stock-based compensation, the recoverability and useful lives of long-lived assets, and the valuation allowance relating to our deferred tax assets.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. Our management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in our financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

As a smaller reporting company, the Company has elected not to provide the disclosure required by this item.

Disclosure Controls and Procedures

Our management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Registrant files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Registrant's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

At September 30, 2022, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act) was carried out under the supervision and with the participation of Andrew Sispoidis our Chief Executive Officer and Adrian Jones our Chief Financial Officer. Based on his evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that at September 30, 2022, our disclosure controls and procedures are not effective due to material weaknesses in our internal controls over financial reporting discussed directly below.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; (iii) provide reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and (iv) provide reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes in conditions may occur or the degree of compliance with the policies or procedures may deteriorate.

Our management has conducted an evaluation, under the supervision and with the participation of Andrew Sispoidis our Chief Executive Officer and Adrian Jones our Chief Financial Officer of the effectiveness of our internal control over financial reporting as of September 30, 2022. This evaluation was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, Internal Control-Integrated Framework.

This Report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. The rules of the Securities and Exchange Commission do not require an attestation of the Management's report by our registered public accounting firm in this quarterly report.

Changes in Internal Control Over Financial Reporting