Thunder Energies Corp - Quarter Report: 2020 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

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

For the transition period from ____________to _____________

Commission file number 000-54464

Registrant’s telephone number, including area code: 800 791 0270

Securities registered under Section 12(b) of the Exchange Act:

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

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 checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T 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, emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “emerging growth company” and “smaller reporting 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 Act). ☐ Yes ☒ No

The number of shares outstanding of the issuer’s Common Stock, $0.001 par value, as of April 29, 2021 was 76,340,735 shares.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This quarterly report on Form 10-Q contains certain forward-looking statements. Forward-looking statements may include our statements regarding our goals, beliefs, strategies, objectives, plans, including product and service developments, future financial conditions, results or projections or current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other comparable terminology. For example, when we discuss our pursuit of strategic transactions including acquisitions, dispositions, capital raising and debt restructuring, that our revenues will increase in 2020, and that we intend to invest in sales, marketing, product development and innovation, we are using forward-looking statements. These statements are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements. These factors include, but are not limited to, our ability to implement our strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. The business and operations of Thunder Energies Corporation are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under “Item 1A. Risk Factors” in our restated annual report on Form 10-K as filed with the Securities and Exchange Commission, or the SEC, on May 15, 2020 and in this quarterly report on Form 10-Q. Readers are also urged to carefully review and consider the various disclosures we have made in this report and in our restated annual report on Form 10-K.”

THUNDER ENERGIES CORPORATION

Quarterly Period Ended September 30, 2020

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Condensed Financial Statements.

THUNDER ENERGIES CORPORATION

Condensed Balance Sheets

See notes to financial statements

THUNDER ENERGIES CORPORATION

Condensed Statements of Operations

See notes to financial statements

THUNDER ENERGIES CORPORATION

Condensed Statements of Changes in Stockholders’ Equity (Deficit)

(continued)

See notes to financial statements

THUNDER ENERGIES CORPORATION

Condensed Statements of Cash Flows

See notes to financial statements

THUNDER ENERGIES CORPORATION

Notes to Condensed Financial Statements

For the Three and Nine Months Ended September 30, 2020 and 2019

NOTE 1 – NATURE OF BUSINESS

Corporate History and Background

Thunder Energies Corporation (“we”, “us”, “our”, “TEC” or the “Company”) was incorporated in the State of Florida on April 21, 2011.

On July 29, 2013, the Company filed with the Florida Secretary of State, Articles of Amendment to its Articles of Incorporation (the “Amendment”) which changed the name of the Company from CCJ Acquisition Corp. to Thunder Fusion Corporation. The Amendment also changed the principal office address of the Company to 150 Rainville Road, Tarpon Springs, Florida 34689. On May 1, 2014, the Company filed with the Florida Secretary of State, Articles of Amendment to its Articles of Incorporation (the “Amendment”) which changed the name of the Company from Thunder Fusion Corporation to Thunder Energies Corporation. The Company subsequently changed its principal office address to 3017 Greene St., Hollywood, Florida 33020.

Acquisition of TNRG Preferred Stock

On July 1, 2020, Yogev Shvo, a third party individual and principal shareholder of Nature Consulting LLC (“Nature” or “Purchaser”) personally acquired 100% of the issued and outstanding shares of preferred stock (the “Preferred Stock”) of TNRG from Saveene Corporation, a Florida corporation (the “Seller”) (The “Purchase”). The purchase price of $250,000 for the Preferred Stock was paid in cash and was provided from the individual private funds of Purchaser.

The Preferred Stock acquired by the Purchaser consisted of:

Acquisition of Assets of Nature

On August 14, 2020 (the “Closing Date”), TNRG and the members of Nature entered into an Interest Purchase Agreement (the “Interest Purchase Agreement”), which closed on the same date.  Pursuant to the terms of the Interest Purchase Agreement, the members of Nature sold all of their membership interests in Nature to TNRG in exchange for sixty million (60,000,000) shares of TNRG’s Common Stock.  As a result of this transaction, Nature became a wholly-owned subsidiary of TNRG.

The Interest Purchase Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions.  Breaches of the representations and warranties will be subject to customary indemnification provisions, subject to specified aggregate limits of liability.

The membership Interest Purchase Agreement will be treated as an asset acquisition by the Company for financial accounting purposes.  Nature will be considered the acquirer for accounting purposes, and the historical financial statements of Nature, before the membership exchange will replace the historical financial statements of TNRG before the membership exchange and in all future filings with the SEC.

Immediately following the Interest Purchase Agreement, the business of Nature became TNRG’s main operation.  Nature is the premier source of turnkey CBD and Hemp extract solutions. The Company was formed on January 19, 2019.

Description of Business, Principal Products, Services

Nature Consulting LLC’s Mission

Our mission is to be the leading seed-to-sale manufacturer and supplier of high-quality CBD and hemp products in the industry. We have identified the following issues as our critical drivers:

Nature Consulting LLC’s Product Portfolio

On August 14, 2020, we announced the closing of the acquisition of Nature. Nature manufactures, markets and distributes U.S. hemp-derived supplements and cosmetic products through e-commerce and wholesale distribution in the U.S. under the brand The Hemp Plug.

The Company has prepared its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

NOTE 2 – Basis of Presentation

The accompanying interim unaudited condensed financial statements (“Interim Financial Statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Rule 10-01 of Regulation S-X. Accordingly, these Interim Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. These Interim Financial Statements should be read in conjunction with the financial statements and notes thereto for the period January 19, 2019 (date of formation) to December 31, 2019 included in the Form 8-K filed with the SEC on March 5, 2021. In the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented. The operating results and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

The Company currently operates in one business segment. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer, who comprehensively manages the entire business. The Company does not currently operate any separate lines of businesses or separate business entities.

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

Going Concern

The Company had accumulated earnings of approximately $624,000 at September 30, 2020, had a working capital deficit of approximately $963,000 at September 30, 2020, had net loss of approximately $102,000 and approximately $282,000 for the three months ended September 30, 2020 and 2019, respectively, net income of approximately $722,000 and a net loss of $167,000 for the nine months ended September 30, 2020 and 2019, respectively, and net cash provided by operating activities of approximately $520,000 for the nine months ended September 30, 2020 and net cash used in operating activities of approximately $155,000 for the nine months ended September 30, 2019, with limited revenue earned since inception, and a lack of operational history. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating cost and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan to obtain such resources for the Company include, obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.

There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the financial statements.

Use of Estimates

The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the financial statements. The more significant estimates and assumptions by management include among others: inventory valuation, amortization of intangible assets, depreciation of property and equipment, allowance for doubtful accounts, the recoverability of intangibles, derivative valuation, and lease asset amortization. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.

Reverse Stock Split

On May 14, 2019, the Board of Directors of the Company approved Articles of Amendment to the Company’s Articles of Incorporation that provided for a 1 for 20 reverse stock split of the Company’s Common Stock. The Company’s Articles of Amendment were filed with the Secretary of State of the State of Florida on May 17, 2019. The effective date of the reverse stock split was subject to approval by FINRA, and the reverse stock split was published to the market and effective on June 24, 2019. At the effective time of the reverse stock split, every 20 issued and outstanding shares of the Company’s Common Stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share or number of authorized shares of Common Stock. All share and per share amounts contained in this Quarterly Report on Form 10-Q and the accompanying Financial Statements have been adjusted to reflect the Reverse Stock Split for all prior periods presented.

Cash

The Company’s cash is held in bank accounts in the United States and is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company has not experienced any cash losses.

Accounts Receivable

Accounts receivable are non-interest-bearing obligations due under normal course of business. Management reviews accounts receivable on a monthly basis to determine if any receivables will be potentially uncollectible. Historical bad debts and current economic trends are used in evaluating the allowance for doubtful accounts. The Company includes any accounts receivable balances that are determined to be uncollectible in its overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, the Company has an allowance for doubtful accounts of $28,700 and $29,548 as of September 30, 2020 and December 31, 2019, respectively.

Cash Flows Reporting

The Company follows ASC 230, Statement of Cash Flows, for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by ASC 230, Statement of Cash Flows, to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.

Related Parties

The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company.

Income Taxes

As a result of the Company’s Interest Purchase Agreement, the Company converted to a corporation (“Conversion”). Beginning on August 14, 2020, the Company’s results of operations are taxed as a C Corporation. Prior to the Conversion, the Company’s operations were taxed as a limited liability company, whereby the Company elected to be taxed as a partnership and the income or loss was required to be reported by each respective member on their separate income tax returns. Therefore, no provision for income taxes has been provided in the accompanying consolidated financial statements for periods prior to August 14, 2020.

The unaudited computation of income taxes included in the Statements of Operations, represents the tax effects that would have been reported had the Company been subject to U.S. federal and state income taxes as a corporation for all periods presented. Taxes are based upon the statutory income tax rates and adjustments to income for estimated permanent differences occurring during each period. Actual rates and expenses could have differed had the Company actually been subject to U.S. federal and state income taxes for all periods presented.

Income taxes are accounted for under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Balance Sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The likelihood that its deferred tax assets will be recovered from future taxable income must be assessed and, to the extent that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance in a period are recorded through the income tax provision in the consolidated Statements of Operations.

ASC 740-10-30 was adopted from the date of its inception. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s consolidated financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of ASC 740-10 and currently, the Company does not have a liability for unrecognized income tax benefits.

Advertising and Marketing Expenses

Advertising and marketing expenses are recorded as marketing expenses when they are incurred. Advertising and marketing expense was $151,600 and $325,245, and $130,239 and $222,114 for the three and nine months ended September 30, 2020 and 2019, respectively.

Revenue Recognition

On January 19, 2019 (date of formation), the Company adopted Accounting Standards Codification ASC 606 (“ASC 606”), Revenue from Contracts with Customers. Results for the reporting periods beginning on January 19, 2019 (date of formation) are presented under ASC 606.

The Company generates all of its revenue from contracts with customers. The Company recognizes revenue when we satisfy a performance obligation by transferring control of the promised services to a customer in an amount that reflects the consideration that we expect to receive in exchange for those services. The Company determines revenue recognition through the following steps:

At contract inception, the Company assesses the services promised in our contracts with customers and identifies a performance obligation for each promise to transfer to the customer a service (or bundle of services) that is distinct. To identify the performance obligations, the Company considers all of the services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company allocates the entire transaction price to a single performance obligation.

A description of our principal revenue generating activities are as follows:

Other sales – The Company offers consumer CBD and hemp products through its online websites. During the nine months ended December 31, 2020 and 2019, the Company recorded other sales of $3,522,961 and $1,747,931, respectively.

Mask sales – As a result of the COVID 19 pandemic, in 2020, the Company entered into the sale of KN95 masks but had to dispose of them at a loss. During the nine months ended December 31, 2020 and 2019, the Company recorded mask sales of $3,054,201 and $0, respectively.

The Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the Company is primarily obligated in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sale price. The Company generally records the net amounts as commissions earned if we are not primarily obligated and do not have latitude in establishing prices.

Revenue is recognized when the product is shipped to the customer, provided that collection of the resulting receivable is reasonably assured. The Company primarily provides for no credit terms as it collects a deposit of 50% upon order and requires the remaining 50% be paid before the order is shipped. When credit terms are granted, terms of up to 120 days are provided, based on credit evaluations. No allowance has been provided for uncollectible accounts. Management has evaluated the receivables and believes they are collectible based on the nature of the receivables, historical experience of credit losses, and all other currently available evidence. Discounts are recorded as a reduction of the transaction price. Revenue excludes any amounts collected on behalf of third parties, including sales taxes.

Customer Advance Payments

Customer advance payments consists of customer orders paid in advance of the delivery of the order. Customer advance payments are classified as short-term as the typical order ships within approximately three weeks of placing the order. Customer advance payments are recognized as revenue when the product is shipped to the customer and all other revenue recognition criteria have been met. Customer advance payments were $436,699 and $73,836, as of September 30, 2020 and December 31, 2019, respectively, which were recognized as revenue during the subsequent period. Customer advance payments are included in current liabilities in the accompanying condensed consolidated Balance Sheets.

Inventories

The Company manufactures its own products made to order and when completed are shipped to the customer. The Company's inventories are valued by the first-in, first-out ("FIFO") cost method and are stated at the lower of cost or net realizable value. The Company had inventory of $52,184 and $57,364, mostly consisting finished goods, as of September 30, 2020 and December 31, 2019, respectively.

Property and Equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, generally five years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Fixed assets are examined for the possibility of decreases in value when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Intangible Assets

Intangible assets consist primarily of developed technology – website applications. Our intangible assets are being amortized on a straight-line basis over a period of five years.

Impairment of Long-lived Assets

We periodically evaluate whether the carrying value of property, equipment and intangible assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable.  The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value. There are no impairments as of September 30, 2020 and December 31, 2019.

Our impairment analyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third-party comparable sales and discounted cash flow models.  If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.

Leases

In accordance with ASC 842, Leases, the Company determines whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, the Company determines whether it should be classified as an operating or finance lease. Operating leases are recorded in the balance sheet as: right-of-use asset (“ROU asset”) and operating lease liability. ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measured based on the present value of lease payments over the lease term. The ROU asset also includes deferred rent liabilities. The Company’s lease arrangement generally do not provide an implicit interest rate. As a result, in such situations the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU asset and liability. Lease expense for the operating lease is recognized on a straight-line basis over the lease term. The Company has a lease agreement with lease and non-lease components, which are accounted for as a single lease component.

Fair Value of Financial Instruments

The provisions of accounting guidance, FASB Topic ASC 825 requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2020, the fair value of cash, accounts receivable, accounts payable, accrued expenses, and notes payable approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. There were no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. There have been no transfers between levels.

The derivatives are evaluated under the hierarchy of ASC 480-10, ASC Paragraph 815-25-1 and ASC Subparagraph 815-10-15-74 addressing embedded derivatives. The fair value of the Level 3 financial instruments was performed internally by the Company using Monte Carlo valuation method.

The following table summarize the Company’s fair value measurements by level at September 30, 2020 for the assets measured at fair value on a recurring basis:

The following table summarize the Company’s fair value measurements by level at December 31, 2019 for the assets measured at fair value on a recurring basis:

The carrying values of the Company’s financial instruments, including cash, other current assets, accounts payable, accruals, and other current liabilities approximate their fair values due to the short period of time to maturity or repayment. 

Debt

The Company issues debt that may have separate warrants, conversion features, or no equity-linked attributes.

Debt with warrants – When the Company issues debt with warrants, the Company treats the warrants as a debt discount, record as a contra-liability against the debt, and amortize the balance over the life of the underlying debt as amortization of debt discount expense in the statements of operations.  When the warrants require equity treatment under ASC 815, the offset to the contra-liability is recorded as additional paid in capital in our balance sheet.  When the Company issues debt with warrants that require liability treatment under ASC 815, such as a clause requiring repricing, the warrants are considered to be a derivative that is recorded as a liability at fair value.  If the initial value of the warrant derivative liability is higher than the fair value of the associated debt, the excess is recognized immediately as interest expense.  The warrant derivative liability is adjusted to its fair value at the end of each reporting period, with the change being recorded as expense or gain to Other (income) expense in the Statements of Operations.  If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the statement of operations.  The debt is treated as conventional debt.

Convertible debt – derivative treatment – When the Company issues debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in shareholders’ equity in its statement of financial position.

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using Monte Carlo Method upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt.

Convertible debt – beneficial conversion feature – If the conversion feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF”). A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible, and is recorded as additional paid in capital and as a debt discount in the balance sheet. The Company amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the statement of operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the Statement of Operations.

If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt.

Earnings per Share

The unaudited computation of net profit (loss) per share included in the Statements of Operations, represents the net profit (loss) per share that would have been reported had the Company been subject to ASC 260, “Earnings Per Share as a corporation for all periods presented.

Diluted earnings (loss) per share are computed on the basis of the weighted average number of common shares (including common stock subject to redemption) plus dilutive potential common shares outstanding for the reporting period. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

The total number of potential additional dilutive securities outstanding for the three and nine months ended September 30, 2020 and 2019, was none since the Company had net losses and any additional potential common shares would have an anti-dilutive effect.

The following potentially dilutive securities were excluded from the calculation of diluted net loss per share because the effects were anti-dilutive based on the application of the treasury stock method and because the Company incurred net losses during the period:

Commitments and Contingencies

The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no known commitments or contingencies as of September 30, 2020 and December 31, 2019.

Concentrations, Risks, and Uncertainties

Business Risk

Substantial business risks and uncertainties are inherent to an entity, including the potential risk of business failure.

The Company is headquartered and operates in the United States. To date, the Company has generated limited revenues from operations. There can be no assurance that the Company will be able to successfully continue to produce its products and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, price of raw material, competition, and governmental and political conditions.

Interest rate risk

Financial assets and liabilities do not have material interest rate risk.

Credit risk

The Company is exposed to credit risk from its cash in banks and accounts receivable. The credit risk on cash in banks is limited because the counterparties are recognized financial institutions.

There was one customer that accounted for 10%, comprising 18.8% and 25.3%, or more of total revenue for the nine months ended September 30, 2020 and 2019. There were no customers that accounted for 10% or more of total revenue for the three months ended September 30, 2020. There were two customers that accounted for 10%, comprising 30.2%, or more of total revenue for the three months ended September 30, 2019. There was one customer that comprised 10%, comprising 96.0%, or more of accounts receivable at September 30, 2020. There were no customers that comprised 10% or more of accounts receivable at September 30, 2019.

Seasonality

The business is not subject to seasonal fluctuations. However, as a result of the COVID 19 pandemic, in 2020, the Company entered into the sale of KN95 masks but had to dispose of them at a loss.

Major Suppliers

In producing our supplement products, we source our ingredients from our suppliers on an ongoing as-needed basis. We have not entered into any contracts that obligate us to purchase a minimum quantity or exclusively from any food service distributor. Our supplements are manufactured at our facilities in Hollywood, Florida.

We rely on a variety of suppliers. Should the relationship with an industry vendor be interrupted or discontinued, it is believed that alternate component suppliers could be identified to support the continued advancement of the Company.

There were no suppliers that accounted for 10% or more of total expenditures for the nine months ended September 30, 2020. There were three suppliers that accounted for 10% or more, comprising 69.8% of total expenditures for the nine months ended September 30, 2019. There were no suppliers that accounted for 10% or more of total expenditures for the three months ended September 30, 2020. There were two suppliers that accounted for 10% or more, comprising 67.8% of total expenditures for the three months ended September 30, 2019. There were four suppliers that accounted for 67.2% of accounts payable at September 30, 2020 and one supplier that accounted for 78.4% of accounts payable at September 30, 2019.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and the impact from this standard was immaterial.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, while also clarifying and amending existing guidance, including interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company plans to adopt ASU No. 2019-12 in the first quarter of fiscal 2021, coinciding with the standard’s effective date, and expects the impact from this standard to be immaterial.

Other recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 4 – Equipment

Equipment consisted of the following as of:

Depreciation expense was $3,222 and $6,411 for the three and nine months ended September 30, 2020, respectively, and $656 and $656 for the three and nine months ended September 30, 2019, respectively, and is classified in general and administrative expenses in the Statements of Operations.

NOTE 5 – INTANGIBLE ASSETS

Intangible assets consisted of the following as of:

Amortization expense was $1,207 and $1,817 for the three and nine months ended September 30, 2020, respectively, and $0 and $0 for the three and nine months ended September 30, 2019, respectively, and is classified in general and administrative expenses in the Statements of Operations.

NOTE 6 – DEBT TO FORMER SHAREHOLDER

Om March 1, 2020, the members’ of Nature entered into the Ownership Interest Purchase Agreement (“Ownership Agreement”) whereby Yogev Shvo, a member of the Company, acquired the remaining 50% member ownership (“Seller”) giving Mr. Shvo 100% member ownership of the Company. As consideration for the Ownership Agreement, the Seller received a Promissory Note of $750,000. The Promissory Note bears interest at 15% per annum and matures March 1, 2021. During the nine months ended September 30, 2020, the Company made repayments of $269,257 for a balance of $480,743 as of September 30, 2020. As of the date of this filing, the Company has made repayments totaling $484,257 for a balance of $265,743. The Note is secured with the assets of the Company pursuant to a security agreement dated March 1, 2020. In addition, the Company’s Chairman has personally guaranteed the Note.

The Company borrows funds from related parties for working capital purposes from time to time. The Company has recorded the principal balance due of $165,099 under Due to Related Parties in the accompanying Balance Sheet at September 30, 2020. The Company received advances of $182,599 and made repayments of $17,500 for the nine months ended September 30, 2020. Advances are non-interest bearing and due on demand.

NOTE 7 – LOANS PAYABLE

Loan Payable to Shareholder

The Company borrows funds from its shareholders from time to time for working capital purposes. As of December 31, 2019, the Company had outstanding borrowings of $20,000. During the nine months ended September 30, 2020, the Company had additional borrowings of $77,500 and made repayments of $20,000 for a balance of $77,500 at September 30, 2020. Advances are non-interest bearing and due on demand.

Economic Injury Disaster Loan 

On May 14, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. 

Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company borrowed an aggregate principal amount of the EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 14, 2021 (twelve months from the date of the SBA Note) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Note. In connection therewith, the Company also received a $7,000 grant, which does not have to be repaid.  During the three and nine months ended September 30, 2020, the $0 and $7,000, respectively, was recorded in Other Income in the Statements of Operations.

In connection therewith, the Company executed (i) a note for the benefit of the SBA (the “SBA Note”), which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events of default (the “SBA Security Agreement”).

Paycheck Protection Program Loan 

On May 6, 2020, the Company executed a note (the “PPP Note”) for the benefit of TD Bank, N.A. (the “Lender”) in the aggregate amount of $51,065 under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP is administered by the U.S. Small Business Administration (the “SBA”). The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing seven months after the effective date of the PPP Note, the Company is required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the PPP Note (the “Maturity Date”). The PPP Note contains customary events of default relating to, among other things, payment defaults, making materially false or misleading representations to the SBA or the Lender, or breaching the terms of the PPP Note. The occurrence of an event of default may result in the repayment of all amounts outstanding under the PPP Note, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. Recent modifications to the PPP by the U.S. Treasury and Congress have extended the time period for loan forgiveness beyond the original eight-week period, making it possible for the Company to apply for forgiveness of its PPP loan. No assurance can be given that the Company will be successful in obtaining forgiveness of the loan in whole or in part. The PPP Note of $51,065 was repaid in February 2021.

NOTE 8 – CONVERTIBLE NOTES PAYABLE

Convertible Note Payable

Short Term

On April 22, 2019, the Company executed a convertible promissory note with GHS Investments, LLC (“GHS Note”). The GHS Note carries a principal balance of $57,000 together with an interest rate of eight (8%) per annum and a maturity date of February 21, 2020. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share) in accordance with the terms of the note agreement shall be made in lawful money of the United States of America. Any amount of principal or interest on this GHS Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid. As of December 31, 2019, the principal balance outstanding was $57,000.

The holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this note, to convert all or any part of the outstanding and unpaid principal amount into Common Stock. The conversion shall equal sixty-five percent (65%) of the lowest trading prices for the Common Stock during the twenty (20) day trading period ending on the latest complete trading day prior to the conversion date, representing a discount rate of thirty-five percent (35%).

On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares into series B and 10,000 shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766 as of December 31, 2020.

As a result of the failure to timely file our Form 10-Q for the three month period ended September 30, 2020, the Convertible Notes Payable were in default. The Company is currently in discussions to restructure the terms of the note.

Long Term

On September 21, 2020, the Company issued a convertible promissory note in the principal amount of $220,000. The convertible promissory note bears interest at 8% per annum and is due and payable in twenty-four (24) months. The holder of this note has the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05 per share. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading.  If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.

The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting. The Company therefore performed an analysis to determine if the conversion option was subject to a beneficial conversion feature (“BCF”) and determined that the instrument does have a BCF. A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible, and is recorded as additional paid in capital and as a debt discount in the Balance Sheet. As such, the proceeds of the notes were allocated, based on fair values, as $220,000 to the debt discount. The debt discount is accreted over the term of the convertible notes to interest expense in the accompanying condensed consolidated Statements of Operations.

The principal balance due at September 30, 2020 is $220,000 and is presented as a long term liability in the balance sheet of $2,712, net of unamortized debt discount of $217,288.

As a result of the failure to timely file our Form 10-Q for the three month period ended September 30, 2020, the Convertible Notes Payable were in default. On October 30, 2020, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the Notes related to the Company’s failure to timely file its Form 10-Q for the three month period ended September 30, 2020.

Promissory Debenture

On February 15, 2020 and on May 14, 2020, the Company entered into Promissory Agreement and Convertible Debentures (“Promissory Debentures”) with Emry for a principal sum of $70,000 (which was paid in two tranches: $50,000, paid on February 15, 2020, and $20,000, paid in April 2020) and $48,000 (which was paid in three tranches: $23,000, paid on May 14, 2020, $15,000, paid on May 22, 2020, and $10,000, paid on June 8, 2020), respectively. The Promissory Debentures bear interest, both before and after default, at 15% per month, calculated and compounded monthly. At the election of the holder, at any time during the period between the date of issuance and the one year anniversary of the Promissory Debentures, the Promissory Debentures are convertible into shares of the Company’s common stock at any time at a conversion price of $0.001 per share. In addition, the Promissory Debentures provide for an interest equal to 15% of the TNRG annual sales, payable on the 2^nd day following the date of issuance of the Company’s audited financial statements.

On June 24, 2020, Emry, holder of (i) Promissory Debentures in principal amount of $70,000 dated February 15, 2020, and (ii) that certain convertible promissory note in principal amount of $57,000 dated April 22, 2019, sold 50% of each (Promissory Debentures and convertible promissory note), including accrued and unpaid interest, fees and penalties, in separate transactions to third party companies, SP11 Capital Investments and E.L.S.R. CORP, Florida companies, such that SP11 Capital Investments and E.L.S.R. CORP each hold 50% of each respective debt instrument.

On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 per share into 3,500,000 shares of the Company’s common stock.

The Company accounts for this embedded conversion feature as a derivative under ASC 815-10-15-83 and valued separately from the note at fair value. The embedded conversion feature of the note is revalued at each subsequent reporting date at fair value and any changes in fair value will result in a gain or loss in those periods. The Company recorded derivative liability of $102,735 and $0 during the nine months ended September 30, 2020 and 2019, respectively, recorded a change in derivative liability of $21,480 and $21,480, and $0 and $0 during the three and nine months ended September 30, 2020 and 2019, respectively and has $124,215 of unamortized debt discount remaining as of September 30, 2020.

As a result of the failure to timely file our Form 10-Q for the three month period ended September 30, 2020, the Promissory Debentures were in default. The Company is currently in discussions to restructure the terms of the note.

NOTE 9 – STOCKHOLDERS’ EQUITY

Common Stock

The Company has been authorized to issue 900,000,000 shares of common stock, $0.001 par value. Each share of issued and outstanding common stock shall entitle the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation upon liquidation or dissolution.

On May 14, 2019, the Board of Directors of the Company approved Articles of Amendment to the Company’s Articles of Incorporation that provided for a 1 for 20 reverse stock split of the Company’s Common Stock. The Company’s Articles of Amendment were filed with the Secretary of State of the State of Florida on May 17, 2019. All share and per share amounts contained in this Annual Report on Form 10-K and the accompanying Financial Statements have been adjusted to reflect the Reverse Stock Split for all prior periods presented.

On August 14, 2020, the Company issued 60,000,000 common shares in conjunction with acquisition (see Note 1).

Preferred Stock

The Company has been authorized to issue 50,000,000 shares of $0.001 par value Preferred Stock. The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established, within certain guidelines established in the Articles of Incorporation.

Series A: The certificate of designation for the Preferred A Stock provides that as a class it possesses a number of votes equal to fifteen (15) votes per share and may be converted into ten (10) $0.001 par value common shares.

On October 10, 2013, the Company issued fifty million (50,000,000) shares of our Series “A” Convertible Preferred Stock to Hadronic, a Florida corporation maintaining its principal place of business at 35246 US Highway 19 North, Suite #215, Palm Harbor, Florida 34684. Our previous Directors, Dr. Ruggero M. Santilli and Mrs. Carla Santilli each own fifty percent of the equity in Hadronic. The Series “A” Convertible Preferred Stock has 15 votes per share and is convertible into 10 shares of our common stock at the election of the shareholder. Shares were valued at the par value of the common stock equivalents, $500,000.

On January 9, 2020, Mina Mar (the “Purchaser”) acquired 50,000,000 shares of Series A Convertible Preferred Stock of the Company from Hadronic. Each share of Preferred Stock is entitled to fifteen (15) votes per share and at the election of the holder converts into ten (10) shares of Company common stock, so at completion of the stock purchase the Purchaser owns approximately 98.6% of the fully diluted outstanding equity securities of the Company and approximately 99% of the voting rights for the outstanding equity securities. The purchase price of $94,766 for the Preferred Stock was paid by the assumption of a Company note obligation of $85,766 by Emry, with the balance paid in cash. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser. The purchase of the Preferred Stock was the result of a privately negotiated transaction and consummation of the purchase resulted in a change of control of the Company.

On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares into series B and 10,000 shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766.

On March 24, 2020, Saveene (“Purchaser”) acquired 50,000,000 shares of Series A Convertible Preferred Stock of Company, from Mina Mar. Each share of Preferred Stock is entitled to fifteen (15) votes per share and at the election of the holder converts into ten (10) shares of Company common stock, so at the completion of the stock purchase, the Purchaser owns approximately 98.6% of the fully diluted outstanding equity securities of the Company and approximately 99% of the voting rights for the outstanding equity securities. The purchase price of $500,000 for the Preferred Stock was paid in cash. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser. The purchase of the Preferred Stock was the result of a privately negotiated transaction and consummation of the purchase resulted in a change of control of the Company.

Series B Convertible Preferred Stock was authorized for 10,000,000 shares of the “Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder converts into one thousand (1,000) shares of Company common stock, so at the completion of the stock purchase, the Purchaser owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser.

Series C Non-Convertible Preferred Stock was authorized for 10,000,000 shares of the Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder. The series C is Non-Convertible Preferred Stock. The Purchaser owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser.

On July 1, 2020, Yogev Shvo, a third party individual and principal shareholder of Nature personally acquired 100% of the issued and outstanding shares of preferred stock (the “Preferred Stock”) of TNRG from Saveene Corporation, a Florida corporation (the “Seller”) (The “Purchase”). The purchase price of $250,000 for the Preferred Stock was paid in cash and was provided from the individual private funds of Purchaser.

The Preferred Stock acquired by the Purchaser consisted of:

Change in Control

On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares of series B and 10,000 shares of series C shares. As a result, the Series B and C voting ownership approximates 57% and therefore, the Company has a change in ownership resulting in the recognition of a gain or loss on the sale of the interest sold and on the revaluation of any retained noncontrolling investment in accordance with ASC 810-10-40-5.

The Company’s stock price on March 24, 2020 was $0.03, giving the Company a value of $0.03 per share times 11,244,923 shares outstanding or $337,348. The transaction was booked to loss on extinguishment of change in control and with the off-setting entry to additional paid-in capital due to it being a related party transaction.

NOTE 10 – OPERATING LEASES

The Company adopted ASC 842 as of December 31, 2019. The Company has an operating lease for the Company’s warehouse and office and accounts for this lease in accordance with ASC 842. Adoption of the standard resulted in the initial recognition of operating lease ROU asset of $344,203 and operating lease liability of $344,203 as of December 31, 2019.

Effective July 1, 2019, the Company’s customer service and distribution facility is located at 3017 Greene Street, Hollywood, Florida 33020. This facility is leased in monthly installments of approximately$10,319 plus Florida Sales Tax. The monthly rent shall be increased by four percent (4%) per annum each succeeding lease year.

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components. We have elected to account for these lease and non-lease components as a single lease component. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.

The components of lease expense and supplemental cash flow information related to leases for the period are as follows:

In accordance with ASC 842, the components of lease expense were as follows:

In accordance with ASC 842, other information related to leases was as follows:

In accordance with ASC 842, maturities of operating lease liabilities as of June 30, 2020 were as follows:

Operating lease cost was $58,821 and $123,243, and $21,474 and $21,474 for the three and nine months ended September 30, 2020 and 2019, respectively.

NOTE 11 – Related Party Transactions

Other than as set forth below, and as disclosed in Notes 6, 7, 9, and 11, there have not been any transaction entered into or been a participant in which a related person had or will have a direct or indirect material interest.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Legal

From time to time, various lawsuits and legal proceedings may arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition or operating results, except as disclosed in Note 13, Subsequent Events.

Guarantees

The Company's Promissory Note is collateralized by substantially all of the Company's assets and is personally guaranteed by the Company's Chairman.

Employment Contracts

The Company has no employment contracts with its key employees.

NOTE 13 – SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after September 30, 2020 up through the date the financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events required to be disclosed as of and for the period ended September 30, 2020 except for the following:

Common Stock

On October 13, 2020, the Company issued 195,480 common shares, valued at $33,232 (based on the Company’s stock price on the date of issuance), to GHS Investments in settlement of services provided to the Company.

On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 per share into 3,500,000 shares of the Company’s common stock.

Convertible Note Payable

On October 9 and October 16, 2020, the Company issued a convertible promissory note in the principal amount totaling $600,000. The convertible promissory note bears interest at 8% per annum and is due and payable in twenty-four (24) months. The holder of this note has the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05 per share. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading.  If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.

The Company will analyze the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determine if the instrument qualifies for derivative accounting.

As a result of the failure to timely file our Form 10-Q for the three month period ended September 30, 2020, the Convertible Notes Payable were in default. On October 30, 2020, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in several of the Notes related to the Company’s failure to timely file its Form 10-Q for the three month period ended September 30, 2020. The remaining Notes are in default and the Company is currently in discussions to restructure the terms of these Notes.

Paycheck Protection Program Loan Round 2

On April 2, 2021, the Company executed a note (the “PPP Note”) for the benefit of First Federal Bank (the “Lender”) in the aggregate amount of $200,000 under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) through a second draw. The PPP is administered by the U.S. Small Business Administration (the “SBA”). The terms of the second draw have the same general loan terms as the first draw PPP loan.

Lawsuit

On November 3, 2020, First Capital Venture Co., a subsidiary of the client, d/b/a Diamond CBD, filed a civil complaint against Thunder Energies Corporation (the “Defendants”), in the pending 17th Judicial Circuit Court in and for Broward County, Florida, (the “Florida Court”), Case Number CACE-20-019111 (the “Complaint”).

On January 26, 2021 Plaintiffs were erroneously granted an Order of Default to which the Defendants immediately pointed out to the Court and on February 23, 2021 an Order Vacating the Default was granted in favor of the Defendants. The Plaintiff knew, or should have known, that the Order of Default was not valid but they proceeded on February 9, 2021 to publish false and misleading press releases.

Thunder Energies Corporation is proceeding through discovery and is of the belief the suit will be decided in their favor. A pending Motion to Dismiss is before the Court. Plaintiff’s Complaint is based on a claim for tortious interference and misappropriation of trade secrets. Neither claim is supported by the Complaint.

Thunder Energies Corporation has issued a cease and desist to the Plaintiff and is considering a counter claim concerning the false information and disclosures made by the Plaintiff that may have affected the Company’s business and shareholders.

The Company is unable to predict the financial outcome of this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.

There were no other events subsequent to September 30, 2020, and up to the date of this filing that would require disclosure.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Special Note Regarding Forward Looking Statements.

This quarterly report on Form 10-Q of Thunder Energies Corporation for the period ended September 30, 2020 contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition, involve risks and uncertainties. In particular, statements under the Sections; Description of Business, Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward looking statements. Where in any forward-looking statements, the Company expresses an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.

The following are factors that could cause actual results or events to differ materially from those anticipated and include but are not limited to: general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in tax laws; and the cost and effects of legal proceedings.

You should not rely on forward looking statements in this quarterly report. This quarterly report contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report. Our actual results could differ materially from those anticipated in these forward-looking statements.

Our Business Overview.

Thunder Energies Corporation (“we”, “us”, “our”, “TEC” or the “Company”) was incorporated in the State of Florida on April 21, 2011.

On July 29, 2013, the Company filed with the Florida Secretary of State, Articles of Amendment to its Articles of Incorporation (the “Amendment”) which changed the name of the Company from CCJ Acquisition Corp. to Thunder Fusion Corporation. The Amendment also changed the principal office address of the Company to 150 Rainville Road, Tarpon Springs, Florida 34689. On May 1, 2014, the Company filed with the Florida Secretary of State, Articles of Amendment to its Articles of Incorporation (the “Amendment”) which changed the name of the Company from Thunder Fusion Corporation to Thunder Energies Corporation. The Company subsequently changed its principal office address to 3017 Greene St., Hollywood, Florida 33020.

Recent Developments

Acquisition of TNRG Preferred Stock

On July 1, 2020, Yogev Shvo, a third party individual and principal shareholder of Nature Consulting LLC (“Nature” or “Purchaser”) personally acquired 100% of the issued and outstanding shares of preferred stock (the “Preferred Stock”) of TNRG from Saveene Corporation, a Florida corporation (the “Seller”) (The “Purchase”). The purchase price of $250,000 for the Preferred Stock was paid in cash and was provided from the individual private funds of Purchaser.

The Preferred Stock acquired by the Purchaser consisted of:

Acquisition of Assets of Nature

On August 14, 2020 (the “Closing Date”), TNRG and the members of Nature entered into an Interest Purchase Agreement (the “Interest Purchase Agreement”), which closed on the same date.  Pursuant to the terms of the Interest Purchase Agreement, the members of Nature sold all of their membership interests in Nature to TNRG in exchange for sixty million (60,000,000) shares of TNRG’s Common Stock.  As a result of this transaction, Nature became a wholly-owned subsidiary of TNRG.

The Interest Purchase Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions.  Breaches of the representations and warranties will be subject to customary indemnification provisions, subject to specified aggregate limits of liability.

The membership Interest Purchase Agreement will be treated as an asset acquisition by the Company for financial accounting purposes.  Nature will be considered the acquirer for accounting purposes, and the historical financial statements of Nature, before the membership exchange will replace the historical financial statements of TNRG before the membership exchange and in all future filings with the SEC.

Immediately following the Interest Purchase Agreement, the business of Nature became TNRG’s main operation.  Nature is the premier source of turnkey CBD and Hemp extract solutions. The Company was founded in February 2019.

Convertible Note Payable

Short Term

On April 22, 2019; The Company executed a convertible promissory note with GHS Investments, LLC (“GHS Note”). The GHS Note carries a principal balance of $57,000 together with an interest rate of eight (8%) per annum and a maturity date of February 21, 2020. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share) in accordance with the terms of the note agreement shall be made in lawful money of the United States of America. Any amount of principal or interest on this GHS Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid. As of December 31, 2019, the principal balance outstanding was $57,000.

The holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this note, to convert all or any part of the outstanding and unpaid principal amount into Common Stock. The conversion shall equal sixty-five percent (65%) of the lowest trading prices for the Common Stock during the twenty (20) day trading period ending on the latest complete trading day prior to the conversion date, representing a discount rate of thirty-five percent (35%).

On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares into series B and 10,000 shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766.

As a result of the failure to timely file our Form 10-Q for the three month period ended September 30, 2020, the Convertible Notes Payable were in default. The Company is currently in discussions to restructure the terms of the note.

Long Term

On September 21, 2020, the Company issued a convertible promissory note in the principal amount of $220,000. The convertible promissory note bears interest at 8% per annum and is due and payable in twenty-four (24) months. The holder of this note has the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05 per share. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading.  If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.

As a result of the failure to timely file our Form 10-Q for the three month period ended September 30, 2020, the Convertible Notes Payable were in default. On October 30, 2020, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the Notes related to the Company’s failure to timely file its Form 10-Q for the three month period ended September 30, 2020.

On October 9 and October 16, 2020, the Company issued a convertible promissory note in the principal amount totaling $600,000. The convertible promissory note bears interest at 8% per annum and is due and payable in twenty-four (24) months. The holder of this note has the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05 per share. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading.  If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.

As a result of the failure to timely file our Form 10-Q for the three month period ended September 30, 2020, the Convertible Notes Payable were in default. On October 30, 2020, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the Notes related to the Company’s failure to timely file its Form 10-Q for the three month period ended September 30, 2020.

Promissory Debenture

On February 15, 2020 and on May 14, 2020, the Company entered into Promissory Agreement and Convertible Debentures (“Promissory Debentures”) with Emry for a principal sum of $70,000 (which was paid in two traunches: $50,000, paid on February 15, 2020, and $20,000, paid in April 2020) and $48,000 (which was paid in three traunches: $23,000, paid on May 14, 2020, $15,000, paid on May 22, 2020, and $10,000, paid on June 8, 2020), respectively. The Promissory Debenture bears interest, both before and after default, at 15% per month, calculated and compounded monthly. At the election of the holder, at any time during the period between the date of issuance and the one year anniversary of the Promissory Debenture, the Promissory Debenture is convertible into shares of the Company’s common stock at any time at a conversion price of $0.0001 per share. In addition, the Promissory Debenture provides for an interest equal to 15% of the Company’s annual sales, payable on the 2^nd day following the date of issuance of the Company’s audited financial statements.

On June 24, 2020, Emry, holder of (i) Promissory Debentures in principal amount of $70,000 dated February 15,2020, and (ii) that certain convertible promissory note in principal amount of $57,000 dated April 22, 2019, sold 50% of each (Promissory Debentures and convertible promissory note), including accrued and unpaid interest, fees and penalties, in separate transactions to third party companies, SP11 Capital Investments and E.L.S.R. CORP, Florida companies, such that SP11 Capital Investments and E.L.S.R. CORP each hold 50% of each respective debt instrument. The Promissory Debenture bears interest, both before and after default, at 10% per annum.

On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 per share into 3,500,000 shares of the Company’s common stock.

The Company accounts for this embedded conversion feature as a derivative under ASC 815-10-15-83 and valued separately from the note at fair value. The embedded conversion feature of the note is revalued at each subsequent reporting date at fair value and any changes in fair value will result in a gain or loss in those periods. The Company recorded derivative liability of $102,735 and $0 during the nine months ended September 30, 2020 and 2019, respectively, recorded a change in derivative liability of $21,480 and $21,480, and $0 and $0 during the three and nine months ended September 30, 2020 and 2019, respectively and has $124,215 of unamortized debt discount remaining as of September 30, 2020.

As a result of the failure to timely file our Form 10-Q for the three month period ended September 30, 2020, the Promissory Debentures were in default. The Company is currently in discussions to restructure the terms of the note.

Common Stock

On August 14, 2020, the Company issued 60,000,000 common shares in conjunction with acquisition.

On October 13, 2020, the Company issued 195,480 common shares, valued at $33,232 (based on the Company’s stock price on the date of issuance), to GHS Investments in settlement of services provided to the Company.

On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 per share into 3,500,000 shares of the Company’s common stock.

Preferred Stock

On March 24, 2020, Saveene (the “Purchaser”) acquired 50,000,000 shares of Series A Convertible Preferred Stock of the Company, from Mina Mar. Each share of Preferred Stock is entitled to fifteen (15) votes per share and at the election of the holder converts into ten (10) shares of Company common stock, so at the completion of the stock purchase, the Purchaser owns approximately 98.6% of the fully diluted outstanding equity securities of the Company and approximately 99% of the voting rights for the outstanding equity securities. The purchase price of $500,000 for the Preferred Stock was paid in cash. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser. The purchase of the Preferred Stock was the result of a privately negotiated transaction and consummation of the purchase resulted in a change of control of the Company.

On March 24, 2020, Thunder Energies, Inc. held a meeting and voted to create two separate classes of preferred shares. Class “B” and class “C’ preferred shares. One class of shares B would be used to offer securitization for the watercraft while class C preferred shares would be used in conjunction with the securitization of air crafts.

Series B Convertible Preferred Stock was authorized for 10,000,000 shares of the Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder converts into one thousand (1,000) shares of Company common stock, so at the completion of the stock purchase, the Purchaser owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser.

Series C Non-Convertible Preferred Stock was authorized for 10,000,000 shares of the “Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder. The series C is Non-Convertible Preferred Stock. The Purchaser owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser.

On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares into series B and 10,000 shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766.

Change in Control

On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares of series B and 10,000 shares of series C shares. As a result, the Series B and C voting ownership approximates 57% and therefore, the Company has a change in ownership resulting in the recognition of a gain or loss on the sale of the interest sold and on the revaluation of any retained noncontrolling investment in accordance with ASC 810-10-40-5.

The Company’s stock price on March 24, 2020 was $0.03, giving the Company a value of $0.03 per share times 11,244,923 shares outstanding or $337,348. The transaction was booked to loss on extinguishment of change in control and with the off-setting entry to additional paid-in capital due to it being a related party transaction.

Limited Operating History; Need for Additional Capital

There is limited historical financial information about us on which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, and possible cost overruns due to increases in the cost of services. To become profitable and competitive, we must receive additional capital. We have no assurance that future financing will materialize. If that financing is not available, we may be unable to continue operations.

Description of Business, Principal Products, Services

Overview

We are a CBD and hemp company with production and distribution in the United States. We are a leader in the CBD and hemp consumer products segment, which includes the production, distribution and sale of a diverse range of CBD and hemp-based consumer products in the United States. Our mission is to become the leading seed-to-sale manufacturer and supplier of high quality CBD products.

TNRG operates in the U.S. market for U.S. hemp-derived consumer products through Nature Consulting.

Nature Consulting LLC’s Mission

Our mission is to be the leading seed-to-sale manufacturer and supplier of high-quality CBD and hemp products in the industry. We have identified the following issues as our critical drivers:

Nature Consulting LLC’s Product Portfolio

On August 14, 2020, we announced the closing of the acquisition of Nature Consulting (“Nature”). Nature manufactures, markets and distributes U.S. hemp-derived supplements and cosmetic products through e-commerce and wholesale distribution in the U.S. under the brand The Hemp Plug. Nature is an innovative leader in quality extraction and sourcing, expert brand building, and targeted marketing for retailers and wholesalers throughout the world. From customization to order fulfillment to brand development and label design, THP provides guided support every step of the way through tailored business strategy. It features the largest collection of customizable CBD and hemp products on the market.

We are committed to building a portfolio of iconic brands that responsibly elevate the consumer experience.

In the U.S., we market and distribute solely U.S. hemp-derived supplements and cosmetics products through e-commerce and wholesale distribution under the brands The Hemp Plug.

We sell a variety of CBD and hemp products, including hemp flower, pre-rolls and hemp extracts (in the form of tinctures and vaporizers), U.S. hemp-derived supplements, and cosmetics through wholesale and direct-to-client channels.

The Company has begun its planned principal operations, and accordingly, the Company has prepared its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Distribution Methods Of The Products and Services

Market and Distribution

Through Nature, the Company manufactures, markets and distributes a variety of CBD and hemp products, including hemp flower, pre-rolls and hemp extracts (in the form of tinctures and vaporizers), U.S. hemp-derived supplements and cosmetics products through e-commerce and wholesale distribution ls in the U.S. under the brand, The Hemp Plug. Nature’s products use pure U.S. hemp extract that contains natural phytocannabinoids and terpenes found in the plant. We plan to use our resources to capitalize on the demand to further create and scale U.S. hemp-derived consumer products and brands. We do not engage in any commercial activities related to the cultivation, distribution or possession of U.S. Schedule I cannabis in the U.S. The rate of the Company’s expansion of distribution remains subject to factors that are beyond the Company’s control, including evolving regulations, the development of sufficient supply chain and manufacturing infrastructure and development of distribution and retail channels across the United States.

Supply Chain

In producing our supplement products, we source our ingredients from our suppliers on an ongoing as-needed basis. We have not entered into any contracts that obligate us to purchase a minimum quantity or exclusively from any food service distributor. Our supplements are manufactured at our facilities in Hollywood, Florida following to Good Manufacturing Practices (“GMP”).

We rely on a variety of suppliers. Should the relationship with an industry vendor be interrupted or discontinued, it is believed that alternate component suppliers could be identified to support the continued advancement of the Company.

Branding Strategy

Branding plays a critical role in our success.

We have performed marketing and capabilities landscape assessments based upon consumer immersion and research and designed to understand consumer purchase behaviors and values, assess short and long term socio-cultural and market trends, and analyze the marketplace and competitive landscape.

We have developed comprehensive, consumer-oriented toolkit using consistent language and tone for printed and online media and to target retailers on a sell-in, exclusive basis.

We develop advertisements for print and online media, and sales materials for retail strategic partners. We maintain a graphics library to be used on all touch points.

Social Media

Our marketing team works on several social media initiatives that target current and future consumers and support the promotion and sale of our product brands. Our campaigns are focused on driving a consistent message emphasizing the ethical origins of our products, their everlasting beauty, and overall value. We use various forms of digital and social media outreach to accomplish greater awareness of the value proposition we offer.

Internet Marketing

We maintain presence on Google, Bing, Yahoo and all other online search engines that are used to search for CBD and hemp. We engage in significant search engine optimization marketing efforts to ensure that we have strong results upon natural searches related to our products. We utilize pay per click advertising, display advertising, and article marketing. Our websites display a full catalogue of our products, background information regarding the manufacturing of the products, information about the Company and management team, and contact information. We also maintain a social media presence on Facebook, Twitter, and other social media websites to have an interactive presence.

Public Relations

We engage in activities to gain public awareness and credibility through our internally managed public relations (“PR”) campaigns to establish relationships with the local market. We attend editor events and engage in strategic media outreach planning and strive to be a valued member of the community through community service offerings and support. work to obtain interviews, print articles, and featured spots in leading fashion, luxury, and bridal magazines, industry publications, television news, radio programming, periodicals, and online websites and publications. We have developed short-lead and long-lead editorials and long lead editorials. The purpose of the PR campaign is to highlight the strength and innovation of our products.

Promotions

We activate promotional platforms to include sales during and after holidays, discounted prices on particular products, and discounts for repeat customers.

Competitive Analysis and Strategy

Overall, we believe we have a competitive advantage by providing a range of goods and services to the CBD and hemp industry. This allows us to provide integrated solutions to our customers, as well as sell additional goods and services to customers of a single segment. There is no aspect of our business, however, that is protected by patents or copyrights. As a result, our competitors could duplicate our business model with little effort.

The industry in which we compete is highly competitive. We believe that the most important competitive factors in our industry include the ability to control as much as possible of the supply chain.

We believe that our competitors have certain existing advantages such as history and heritage; strong ecommerce and mobile presence; wholesale and flagship retail presence; strong social presence; a wide range of ancillary product offerings; strong public relations and marketing efforts; a balanced range of price points across the board; and consumer trust and recognition. However, we set ourselves apart with strong brand identity and visuals, unique design and quality and brand awareness through traditional and social media.

Because we are a small company with a limited operating history, we are at a competitive disadvantage against larger and well-capitalized companies which have a track record of success and operations. Therefore, our primary method of competition involves promoting our direct to consumer offering.

Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements Or Labor Contracts, Including Duration

None.

Effect Of Existing Or Probable Governmental Regulations On The Business

The Agriculture Improvement Act of 2018, Public Law 115-334 (the “AIA”), was signed into law on December 20, 2018. It provided a new statutory definition of “hemp” and amended the definition of marihuana under 21 U.S.C. 802(16) and the listing of tetrahydrocannabinols under 21 U.S.C. 812(c). The AIA thereby amends the regulatory controls over marihuana, tetrahydrocannabinols, and other marihuana-related constituents in the Controlled Substances Act (CSA).

This rulemaking makes four conforming changes to the Drug Enforcement Administration’s (“DEA”) existing regulations:

The DEA’s interim rule also includes changes how it implements the CSA:

Changes to the Definition of Tetrahydrocannabinols:

The AIA also modified the listing for tetrahydrocannabinols under 21 U.S.C. 812(c) by stating that the term tetrahydrocannabinols does not include tetrahydrocannabinols in hemp. Specifically, 21 U.S.C. 812(c) Schedule I now lists as schedule I controlled substances: ‘‘Tetrahydrocannabinols, except for tetrahydrocannabinols in hemp (as defined under section 1639o of Title 7).’’ Therefore, the AIA limits the control of tetrahydrocannabinols (for Controlled Substance Code Number 7370). For tetrahydrocannabinols that are naturally occurring constituents of the plant material, Cannabis sativa L., any material that contains 0.3% or less of D9-THC by dry weight is not controlled, unless specifically controlled elsewhere under the CSA. Conversely, for tetrahydrocannabinols that are naturally occurring constituents of Cannabis sativa L., any such material that contains greater than 0.3% of D9-THC by dry weight remains a controlled substance in schedule I. The AIA does not impact the control status of synthetically derived tetrahydrocannabinols (for Controlled Substance Code Number 7370) because the statutory definition of ‘‘hemp’’ is limited to materials that are derived from the plant Cannabis sativa L. For synthetically derived tetrahydrocannabinols, the concentration of D9- THC is not a determining factor in whether the material is a controlled substance. All synthetically derived tetrahydrocannabinols remain schedule I controlled substances. This rulemaking is modifying 21 CFR 1308.11(d) to reflect this statutory change. By this rulemaking, 21 CFR 1308.11(d)(31) is being modified via the addition of subsection (11) which reads: “Tetrahydrocannabinols does not include any material, compound, mixture, or preparation that falls within the definition of hemp set forth in 7 U.S.C. 1639o.”

Stated simply, the above language from the DEA provides that any cannabis or cannabis derivative containing more than 0.3% ∆-9 THC fails to meet the AIA definition of hemp and therefore remains a controlled substance under the CSA. In other words, this proposed rule directly conflicts with the AIA’s definition of hemp which defines hemp as the “plant Cannabis sativa L and any part of that plant including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delat-9 tetrahydrocannabinol concentration of not more than .3 percent on a dry weight basis.” 7 U.S.C definition § 1639o, subsection 1. Further, Congress expressly exempted hemp derivatives and hemp extracts from the federal Controlled Substances Act, as well as “hemp” itself: “(A) Subject to subparagraph (B), the term “marihuana” means all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. (B) The term "marihuana" does not include— (i) hemp, as defined in section 1639o of title 7; or (ii) the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.” See 21 U.S.C. 802, subdivision (16). Further, Congress also expressly exempted the AIA’s definition of “hemp,” “hemp derivatives,” and “hemp extracts” from the Controlled Substances Act list of Schedule 1 drugs providing: “(c) Unless specifically excepted or unless listed in another schedule, any material, compound, mixture, or preparation, which contains any quantity of the following hallucinogenic substances, or which contains any of their salts, isomers, and salts of isomers whenever the existence of such salts, isomers, and salts of isomers is possible within the specific chemical designation: (17) Tetrahydrocannabinols, except for tetrahydrocannabinols in hemp (as defined under section 297A of the Agricultural Marketing Act of 1946 [7 USCS § 1639o]).” See 21 U.S.C. 812, subdivision (C), subpart (17).

Given that Congress explicitly defined “hemp” to include “hemp derivatives” and “hemp extracts,” as long as delta-8 tetrahydrocannabinol (delta- 8 THC) is extracted or derived from hemp or is extracted or derived from extract or derivative of “hemp,” it cannot be criminalized under the federal Controlled Substances Act, until Congress either further amends the AIA of 2018 or amends the existing CSA. There is case law precedent to support the proposition that a government agency, in this case the DEA, cannot make a rule that directly conflicts an existing federal statute. In determining whether to give deference to an agency rule with a federal statute, Courts apply the Chevron Doctrine set forth by the Supreme Court in Chevron U.S.A., Inc. v. Natural Res. Def. Council. See 467 U.S. 837, 842-4 (1984).

Courts must employ a two-step analysis under the Chevron Doctrine. First, if the statute speaks clearly “to the precise question at issue," the Court must give effect to the unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842-43. Second, where the statute is “silent or ambiguous with respect to the specific issue,” the Court must sustain the agency determination if it is based on a “permissible construction” of the statute. Id. at 843. A court does not need to reach this second step if, “employing traditional tools of statutory construction, [it] ascertains that Congress had an intention on the precise question at issue ” Id. at 843 n.9. Similarly, in Lamie v. United States Trustee, the Court noted that when a “statute’s language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.” 540 U.S. 526, 534 (2004). Furthermore, in America's Cmty. Bankers v. F.D.I.C., the Court explained that when a federal statute is clear and unambiguous then there is nothing for an agency to interpret and the court must give effect to that unambiguous expression of Congress. 200 F.3d 822, 833-34 (2000). This remains the case even when the executive agency at issue is the one tasked with enforcing that particular federal statute. Id.

As it pertains to the issue at hand, the DEA cannot promulgate a rule the directly conflicts the will of Congress as expressed by the AIA and the CSA. As previously noted, Congress expressly exempted hemp plants, including hemp derivatives and extracts, from the CSA. This exemption presumably encompasses all products that can be derived from hemp including THCs or salts (to the extent that both products are derived or extracted from hemp). There can be no assurance that the AIA will not be modified to conform to the DEA’s regulations regarding the regulatory controls over marihuana, tetrahydrocannabinols, and other marihuana-related constituents in the CSA.

Estimate Of The Amount Of Money Spent During Each Of The Last Two Fiscal Years On Research And Development

Other than time spent researching our business and proposed markets and segmentation, we have not spent any funds on research and development activities to date. In the event opportunities arise from our operations, we may elect to initiate research and development activities, but we have no plans for any activities to date.

Costs and Effects Of Compliance With Environmental Laws

Our operations are not subject to any environmental laws or regulations.

Number Of Total Employees And Number Of Full-Time Employees

At this time, the Company has 33 full time employees and no persons working part time in various functions.

We do not provide an employer contribution for healthcare, pension, annuity, insurance, profit sharing, or similar benefit plans; however, we may adopt plans in the future.

Implications of Being an Emerging Growth Company

We qualify as an emerging growth company as that term is used in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

We have already taken advantage of these reduced reporting burdens in this Form 10-Q, which are also available to us as a smaller reporting company as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. We are choosing to utilize the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act. This election allows our Company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

We are a reporting company and file all reports required under sections 13 and 15d of the Exchange Act.

Overview of Presentation

The following Management’s Discussion and Analysis (“MD&A”) or Plan of Operations includes the following sections:

Plan of Operations

Our plan of operations consists of:

How We Generate Revenue

On January 19, 2019 (date of formation), the Company adopted Accounting Standards Codification ASC 606 (“ASC 606”), Revenue from Contracts with Customers, using the modified retrospective approach for all contracts not completed as of the date of adoption. Results for the reporting periods beginning on January 19, 2019 (date of formation) are presented under ASC 606.

The Company generates all of its revenue from contracts with customers. The Company recognizes revenue when we satisfy a performance obligation by transferring control of the promised services to a customer in an amount that reflects the consideration that we expect to receive in exchange for those services. The Company determines revenue recognition through the following steps:

At contract inception, the Company assesses the services promised in our contracts with customers and identifies a performance obligation for each promise to transfer to the customer a service (or bundle of services) that is distinct. To identify the performance obligations, the Company considers all of the services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company allocates the entire transaction price to a single performance obligation.

A description of our principal revenue generating activities are as follows:

Other sales – The Company offers consumer CBD and hemp products through its online websites. During the nine months ended December 31, 2020 and 2019, the Company recorded other sales of $3,522,961 and $1,747,931, respectively.

Mask sales – As a result of the COVID 19 pandemic, in 2020, the Company entered into the sale of KN95 masks but had to dispose of them at a loss. During the nine months ended December 31, 2020 and 2019, the Company recorded mask sales of $3,054,201 and $0, respectively.

The Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the Company is primarily obligated in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sale price. The Company generally records the net amounts as commissions earned if we are not primarily obligated and do not have latitude in establishing prices.

Revenue is recognized when the product is shipped to the customer, provided that collection of the resulting receivable is reasonably assured. The Company primarily provides for no credit terms as it collects a deposit of 50% upon order and requires the remaining 50% be paid before the order is shipped. When credit terms are granted, terms of up to 120 days are provided, based on credit evaluations. No allowance has been provided for uncollectible accounts. Management has evaluated the receivables and believes they are collectible based on the nature of the receivables, historical experience of credit losses, and all other currently available evidence. Discounts are recorded as a reduction of the transaction price. Revenue excludes any amounts collected on behalf of third parties, including sales taxes.

Results of Operations

Results of Operations for the Three Months ended September 30, 2020 and 2019.

The following discussion represents a comparison of our results of operations for the three months ended September 30, 2020 and 2019.  The results of operations for the periods shown in our audited consolidated financial statements are not necessarily indicative of operating results for the entire period.  In the opinion of management, the audited consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.

Net Revenues

Net revenues increased by $785,557, or 153.8%, to $1,296,431 for the three months ended September 30, 2020 from $510,874 for the three months ended September 30, 2019. The increase in revenue is primarily the result of an increase in customer purchases of our other products. As a result of the COVID 19 pandemic, in 2020, the Company entered into the sale of KN95 masks but had to dispose of them at a loss through June 30, 2020. Therefore, we had no mask sales in the three months ended September 30, 2020.

Cost of Sales

Cost of sales decreased by $175,575, or 31.4%, to $383,790 for the three months ended September 30, 2020 from $559,365 for the three months ended September 30, 2019. The decrease in cost of sales was primarily due to the reduced cost of product, offset partially by the increase in revenue. As a percentage of revenue, cost of sales was 29.6% and 109.5% resulting in a gross margin of 70.4% and (9.5)% for the three months ended September 30, 2020 and 2019, respectively, primarily due to reduced cost of product, offset partially by the increase in revenue.

Operating expenses

Operating expenses increased by $523,651, or 233.9%, to $757,577 for the three months ended September 30, 2020 from $233,926 for the three months ended September 30, 2019 primarily due to increases in marketing costs of $21,361, consulting costs of $47,687, investor relations costs of $1,400, depreciation and amortization costs of $3,773, professional fees of $71,409, compensation costs of $245,167, travel expenses of $2,100, operating lease costs of $37,347, bad debt expense of $28,700, shipping charges of $8,911, and general and administration costs of $55,796, as a result of reorganizing our administrative infrastructure, primarily employee costs, and refocusing our marketing initiatives to generate sales growth.

For the three months ended September 30, 2020, we had marketing expenses of $151,600 and general and administrative expenses of $605,977 primarily due to compensation costs of $262,840, consulting costs of $47,687, travel expenses of $3,714, operating lease costs of $58,821, professional fees of $97,311, depreciation and amortization costs of $4,429, investor relations costs of $1,400, shipping charges of $27,658, bad debt expense of $28,700, and general and administration costs of $73,417 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.

For the three months ended September 30, 2019, we had marketing expenses of $130,239 and general and administrative expenses of $103,687 primarily due to compensation costs of $17,673, travel expenses of $1,614, operating lease costs of $21,474, professional fees of $25,902, depreciation and amortization costs of $656, shipping charges of $18,747, and general and administration costs of $17,621 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.

Other (Income) Expense

Other expense for the three months ended September 30, 2020 totaled $256,736 primarily due to interest expense in conjunction with debt discount of $61,262, the change in derivative liability of $21,480, interest expense on notes payable of $117,494, and other expense of $56,500. Other expense for the three months ended September 30, 2018 was none.

Net loss before income taxes

Net loss before income taxes for the three months ended September 30, 2020 totaled $101.672 primarily due to revenue of $1,296,431 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, investor relations costs, operating lease costs, travel costs, and general and administration costs compared to a loss of $282,417 for the three months ended September 30, 2019 primarily due to revenue of $510,874 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, operating lease costs, investor relations costs, travel costs, and general and administration costs.

Assets and Liabilities

Assets were $1,684,323 as of September 30, 2020. Assets consisted primarily of cash of $55,841, accounts receivable of $722,063, net of allowance of $28,700, inventories of $52,184, prepaid expenses of $169,985, equipment of $72,418, intangible assets of $75,733, operating lease right-of-use assets of $511,300, and other assets of $24,799. Liabilities were $2,481,268 as of September 30, 2020. Liabilities consisted primarily of accounts payable of $41,467, due to related party of $645,842, loan payable to shareholder of $77,500, customer advance payments of $436,699, derivative liability of $124,215, accrued interest of $221,023, long term notes payable of $201,065, convertible notes payable of $145,909, net of unamortized debt discount of $277,857, operating lease liabilities of $517,309, and other current liabilities of $70,239.

Results of Operations for the Nine Months ended September 30, 2020 and 2019.

The following discussion represents a comparison of our results of operations for the nine months ended September 30, 2020 and 2019.  The results of operations for the periods shown in our audited consolidated financial statements are not necessarily indicative of operating results for the entire period.  In the opinion of management, the audited consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.

Net Revenues

Net revenues increased by $4,829,231, or 276.3%, to $6,577,162 for the nine months ended September 30, 2020 from $1,747,931 for the nine months ended September 30, 2019. The increase in revenue is primarily the result of an increase in customer purchases of our other products of $1,775,030 or 101.6%, to $3,522,961 for the nine months ended December 31, 2020 from $1,747,931 for the nine months ended December 31, 2020 and an increase in mask sales of $3,054,201, or 100.0%, for the nine months ended December 31, 2020 from $0 for the year ended December 31, 2019. As a result of the COVID 19 pandemic, in 2020, the Company entered into the sale of KN95 masks but had to dispose of them at a loss.

Cost of Sales

Cost of sales increased by $2,283,040, or 156.3%, to $3,743,271 for the nine months ended September 30, 2020 from $1,460,231 for the nine months ended September 30, 2019. The decrease in other products cost of sales was primarily due to the reduced cost of product, offset partially by the increase in revenue. As a percentage of revenue, other products cost of sales was 14.2% and 83.5% resulting in a gross margin of 85.8% and 16.5% for the nine months ended September 30, 2020 and 2019, respectively, primarily due to reduced cost of other products, offset partially by the increase in revenue. As a percentage of revenue, mask cost of sales was 106.2% and 0% resulting in a gross margin of (6.2)% and 0% for the nine months ended September 30, 2020 and 2019, respectively, primarily due to the sales of masks at a loss.

Operating expenses

Operating expenses increased by $1,373,243, or 301.9%, to $1,828,122 for the nine months ended September 30, 2020 from $454,879 for the nine months ended September 30, 2019 primarily due to increases in marketing costs of $103,131, consulting costs of $122,901, investor relations costs of $1,400, depreciation and amortization costs of $7,572, professional fees of $74,646, compensation costs of $703,489, travel expenses of $30,642, operating lease costs of $101,769, shipping charges of $88,957, bad debt expense of $28,700, and general and administration costs of $110,036, as a result of reorganizing our administrative infrastructure, primarily employee costs, and refocusing our marketing initiatives to generate sales growth.

For the nine months ended September 30, 2020, we had marketing expenses of $325,245 and general and administrative expenses of $1,502,877, primarily due to compensation costs of $749,584, consulting costs of $122,901, travel expenses of $45,117, operating lease costs of $123,243, professional fees of $113,311, depreciation and amortization costs of $8,228, investor relations costs of $1,400, shipping charges of $139,023, bad debt expense of $28,700, and general and administration costs of $171,370 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.

For the nine months ended September 30, 2019, we had marketing expenses of $222,114 and general and administrative expenses of $232,765 primarily due to compensation costs of $46,095, travel expenses of $14,475, operating lease costs of $21,474, professional fees of $38,665, depreciation and amortization costs of $656, shipping charges of $50,066, and general and administration costs of $61,334 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.

Other (Income) Expense

Other expense for the nine months ended September 30, 2020 totaled $284,213 primarily due to interest expense in conjunction with debt discount of $61,262, the change in derivative liability of $21,480, interest expense on notes payable of $147,471, other expense of $61,000, and other income of $7,000. Other expense for the nine months ended September 30, 2019 was none.

Net loss before income taxes

Net income before income taxes for the nine months ended September 30, 2020 totaled $721,556 primarily due to revenue of $6,577,162 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, investor relations costs, operating lease costs, travel costs, shipping charges, and general and administration costs compared to a loss of $167,179 for the three months ended September 30, 2019 primarily due to revenue of $1,747,931 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, operating lease costs, investor relations costs, travel costs, shipping charges, and general and administration costs.

Liquidity and Capital Resources.

General – Overall, we had an increase in cash flows of $19,781 in the nine months ended September 30, 2020 resulting from cash provided by operating activities of $520,327, cash used in investing activities of $142,262, and cash used in financing activities of $358,284.

The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated: