TORtec Group Corp - Quarter Report: 2019 December (Form 10-Q)

FORWARD-LOOKING STATEMENTS

In this Quarterly Report on Form 10-Q, references to “TORtec Group Corporation,” the “Registrant,” the “Company,” “we,” “us,” “our” and words of similar import refer to TORtec Group Corporation, a Nevada corporation, unless the context requires otherwise.

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Quarterly Report. These factors include, among others:

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our ability to raise capital;

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our ability to identify suitable acquisition targets;

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our ability to successfully execute acquisitions on favorable terms;

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declines in general economic conditions in the markets where we may compete;

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unknown environmental liabilities associated with any companies we may acquire; and

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significant competition in the markets where we may operate.

You should read any other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate, and therefore, prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Quarterly Report completely, and it should be considered in light of all other information contained in the reports or registration statement that we file with the Securities and Exchange Commission (the “SEC”), including all risk factors outlined therein. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

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JUMPSTART OUR BUSINESS STARTUPS ACT DISCLOSURE

We qualify as an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act by the Jumpstart Our Business Startups Act (the “JOBS Act”). An issuer qualifies as an “emerging growth company” if it has total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year, and will continue to be deemed an emerging growth company until the earliest of:

As an emerging growth company, we are exempt from various reporting requirements. Specifically, we are exempt from the following provisions:

Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

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 PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

The accompanying consolidated balance sheets of TORtec Group Corporation at December 31, 2019 and March 31, 2019, and the related consolidated statements of operations and stockholders' equity for the three and nine months ended December 31, 2019 and 2018 and the related consolidated statements of cash flows for the nine months ended December 31, 2019 and 2018 have been prepared by management in conformity with United States generally accepted accounting principles.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.  Operating results for the periods ended December 31, 2019, are not necessarily indicative of the results that can be expected for the fiscal year ending March 31, 2020.

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TORTEC GROUP CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

See accompanying notes to the consolidated financial statements.

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TORTEC GROUP CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

See accompanying notes to the consolidated financial statements.

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TORTEC GROUP CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

See accompanying notes to the consolidated financial statements.

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TORTEC GROUP CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

See accompanying notes to the consolidated financial statements.

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TORTEC GROUP CORPORATION

Notes to the Consolidated Financial Statements (Unaudited)

December 31, 2019 and March 31, 2019

NOTE 1 – ORGANIZATION AND BUSINESS

On June 13, 2012, the Board of Directors of Geo Point Technologies, Inc., a Utah corporation (“Geo Point Utah”), approved a stock dividend that resulted in a spin-off (“Spin-Off”) of TORtec Group Corporation (formerly Geo Point Resources, Inc.) (the "Company") common stock to the Geo Point Utah stockholders, pro rata, on the record date (the “Record Date”). Prior to the Spin-Off, the Company was a wholly-owned subsidiary of Geo Point Utah. The Company was incorporated on June 13, 2012, comprising all of Geo Point Utah’s Environmental and Engineering Divisions’ assets, business, operations, rights or otherwise, along with its “Hydrocarbon Identification Technology” License Agreement with William C. Lachmar dated January 31, 2008.  The Spin-Off had a “Record Date” of January 17, 2013; an ex-dividend date of January 15, 2013; and a Spin-Off payment date of April 22, 2013.

On November 22, 2017, the Company entered into a Share Exchange Agreement (the “Agreement”). The transaction closed on December 4, 2017, with TORtec Group, Inc., a Wyoming corporation (“TORtec”) and all of the shareholders of TORtec, pursuant to which the Company acquired 100% of the issued and outstanding shares of common stock of TORtec. Under the terms of the Agreement, a total of 90,000,000 shares of the Company’s common stock were issued to the TORtec shareholders as consideration in exchange for all 10,000,000 issued and outstanding shares of TORtec common stock being transferred to the Company, making TORtec a wholly-owned subsidiary of the Company.  As a result, the TORtec shareholders collectively own ninety percent (90.0%) of our issued and outstanding shares of our common stock immediately following the acquisition. Effective November 16, 2018, the Company changed its name from Geo Point Resources, Inc. to TORtec Group Corporation.

TORtec Group, Inc.

On September 9, 2017, TORtec entered into General Agreement No. US-17 on cooperation and joint activities on commercialization of TOR-technologies, introduction of new productions, products and services in the markets of North, Central and South America (the “Exclusive License Agreement”) with the parties that invented the TOR-technology.  The Exclusive License Agreement grants to TORtec an exclusive license to utilize the technology for certain purposes throughout North, Central and South America.

The TOR-technology equipment is best described as a cascaded adiabatic resonance vortex mill utilizing compressed air as the energy in the system.  This proprietary technology includes the ability to size and classify material processed by elemental composition and specific gravity. 

In some cases, the quality and composition of the materials and liquids processed are new.  This TOR-technology has the potential to influence the efficiency and quality of the micro-pulverization industry for re-mineralizing soil, conserve energy, cleanup and extract value from mining waste piles and to create new bio-products and metal-ceramic composites.

Discontinued Operations

In February 2018, due to the untimely death of Bill Lachmar, the Company’s president, the Company ceased the operations of the Environmental and Engineering Divisions. The Company has reflected these operations as discontinued operations in the accompanying consolidated financial statements. The following is a summary of discontinued operations included within the consolidated financial statements as of December 31, 2019 and March 31, 2019:

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The gain on discontinued operations during the three and nine months ended December 31, 2019 related to liabilities to which the statue of limitations had expired. Discontinued operations did not impact the consolidated statements of cash flows during the nine months ended December 31, 2019 and 2018.

Pending Transaction

On May 22, 2019, the Company entered into a Share Exchange Agreement with TORtec Central Asia, a Wyoming corporation, and the sole shareholder of TORtec Central Asia pursuant to which the Company has agreed to acquire 100% ownership of the outstanding shares of TORtec Central Asia stock in exchange for issuing 2,000,000 shares of the Company’s common stock to Merdan Atayev who is the sole shareholder of TORtec Central Asia.  The Share Exchange Agreement is subject to certain terms and conditions which have not yet been completed.  The Share Exchange Agreement also provides that the Company will elect Merdan Atayev as a Vice President of the Company as a condition to the Closing of the proposed acquisition of TORtec Central Asia. As of the date of this filing the transaction has yet to close.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the consolidated financial statements, the Company has incurred significant current period losses, negative cash flows from operating activities, has negative working capital, and an accumulated deficit. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters, if needed, include raising additional debt or equity financing. The terms of which might not be acceptable to the Company. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Interim Consolidated Financial Statements

The accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  The accompanying consolidated balance sheet as of December 31, 2019, and the consolidated statements of operations, stockholders' equity for the three and nine months ended December 31, 2019, and 2018, and the consolidated statements of cash flows for the nine months ended December 31, 2019, and 2018, are unaudited. The consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position, results of operations, and cash flows for such periods.  The financial data and other information disclosed in these notes to the consolidated financial statements related to the three and nine month period are unaudited. The results of the three and nine months ended December 31, 2019, are not necessarily indicative of the results to be expected for the year ending March 31, 2020, any other interim period, or any other future year.

Basis of Accounting

The Company’s consolidated financial statements are stated in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries TORtec, TORtec Titan+, and its 84% owned subsidiary, TORtec Nanosynthesis Corp. All significant intercompany transactions have been eliminated in the consolidation. TORtec's operations have been included from its date of acquisition, see Note 1 for additional information. TORtec Titan+ does not have any operations. TORtec Nanosynthesis Corp. commenced operations during the three months ended December 31, 2019 which consisted primarily of research and development expenditures.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes to consolidated financial statements.  Actual results could differ from those estimates. Significant estimates made by management include allowance for doubtful accounts and the useful life of property and equipment.

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Fair Value of Financial Instruments

The Company complies with the accounting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements, as well as certain related FASB staff positions.  This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

The guidance also establishes a fair value hierarchy for measurements of fair value as follows:

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Level 1 - quoted market prices in active markets for identical assets or liabilities

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Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of December 31, 2019 and March 31, 2019, the Company did not have Level 1, 2, or 3 financial assets or liabilities.  Financial instruments consist of cash, accounts receivable, payables, and a line of credit.  The fair value of financial instruments approximated their carrying values as of December 31, 2019 and March 31, 2019, due to the short-term nature of these items.

Revenue Recognition

The Company will recognize revenue when the earnings process is complete. This generally will occur as services are performed. Currently, the Company does not have any revenue producing activities.

Basic and Diluted (Income) Loss per Common Share

Basic income (loss) per common share is calculated by dividing net loss by the weighted average common shares outstanding during the period.  Diluted income (loss) per common share reflects the potential dilution to basic earnings per share that could occur upon conversion or exercise of securities, options, or other such items to common shares using the treasury stock method, based upon the weighted average fair value of the Company’s common shares during the period.  For the three and nine months ended December 31, 2019 and 2018, the Company did not have any dilutive securities.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standard Updates (“ASUs”) 2016-02, Leases (Topic 840), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for a public entity. Early adoption of the amendments in this standard is permitted for all entities and the Company must recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company adopted this standard during the first quarter with no impact on its financial statements and related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting. The guidance expands the scope of the topic to include share-based payments granted to non-employees in exchange for goods or services. Upon adoption, the fair value of awards granted to non-employees will be determined as of the grant date, which will be recognized over the service period. Previous guidance required the awards to be remeasured at fair value periodically when determining the related expense. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted this standard during the first quarter with no impact on its financial statements and related disclosures.

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Recent Accounting Pronouncements

The FASB issued ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company's operations.

NOTE 3 – FINANCIAL STATEMENT ELEMENTS

Property and Equipment

Property and equipment consist of the Company's Tornado M which was received during fiscal 2019. The Company is currently making additional expenditures in order for the Tornado M to be put into production. Thus, as of December 31, 2019 and March 31, 2019, the Tornado M is considered construction in progress for which depreciation hasn't commenced. The Company expects to depreciate costs related to the Tornado M over the period of ten years. See Note 1 for additional information.

License

On April 12, 2019, the Company, through TORtec Titan+, entered into a perpetual license for the use of certain technologies with an entity controlled by the Chairman of the Board of Directors. Under the terms of the agreement, the Company paid $35,051 for the rights and will provide future royalties of 10% of the subsidiaries' net income. The Company expects to use the technology in connection with its Tornado M.

Common Stock to be Issued

See Note 6 for disclosure.

NOTE 4 – SHORT TERM ADVANCES

From time to time, Capital Vario, a shareholder of the Company, advances monies for operations. The advances do not incur interest and are due on demand.  During the nine months ended December 31, 2019, Capital Vario advanced the Company an additional $63,700 for a total of $388,690 due at December 31, 2019. The balance due to Capital Vario at March 31, 2019 was $324,990. The advances have been reflected as "short term advances - related parties" on the accompanying consolidated balance sheets.  No amounts have been advanced by Capital Vario subsequent to December 31, 2019.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

The Company does not have any pending or threatened litigation.

In October 2019, the Company entered into a lease within an initial term of two years. The lease required a deposit of $3,000 and a minimum monthly lease payment of $2,500. In addition, the Company is liable for 50% of property taxes, utilities, etc. which are payable to the landlord.

NOTE 6 - SHAREHOLDERS’ EQUITY

Effective November 14, 2018, the Company increased its authorized common shares to 200,000,000.

In May 2019, the Company sold 15,000 shares of common stock for proceeds of $150,000. Included in the stock purchase agreement was the sale of 10% interest in TORtec Nanosynthesis Corp., which was incorporated in May 2019. As of the date of this filing, the Company hasn't issued the shares of common stock and thus has reflected the amount received as common stock to be issued on the accompanying consolidated balance sheet. The subsidiary recently commenced research and development operations, however, a former certificate of ownership has yet to be issued.

In October 2019, the Company sold 6,000 shares of common stock for proceeds of $60,000 to a significant shareholder and the Chief Executive Officer of the Company. Included in the stock purchase agreement was the sale of 10% interest in TORtec Nanosynthesis Corp., which was incorporated in May 2019. As of the date of this filing, the Company hasn't issued the shares of common stock and thus has reflected the amount received as common stock to be issued – related parties on the accompanying consolidated balance sheet. The subsidiary recently commenced research and development operations, however, a former certificate of ownership has yet to be issued.

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See Note 1 for disclosure of additional shares.

NOTE 7 - RELATED PARTY TRANSACTION

See Notes 1, 3, 4 and 6, for additional related party transactions.

NOTE 8 - SUBSEQUENT EVENTS

Subsequent to December 31, 2019, the Company's Chief Executive Officer advanced the Company $40,000 for operations.  Currently, there isn't an executed agreement for such but the terms are expected to be similar to those disclosed above.

The Company has evaluated subsequent events after December 31, 2019, through the date of this filing, noting no additional items which need to be disclosed within the accompanying notes to the consolidated financial statements other than those disclosed above.

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

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes forward-looking statements based on management’s beliefs, assumptions and plans for the future, information currently available to management and other statements that are not historical in nature.  Forward-looking statements include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” estimate,” “consider,” or similar expressions are used.  These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions, including among others: a general economic downturn; a downturn in the securities markets; regulations that affect trading in the securities of “penny stocks” the enactment of United States or foreign laws, rules and regulations that could have a materially adverse impact on current and intended operations; and other risks and uncertainties.  For additional forward-looking statement information, see the heading “Forward-Looking Statements” at the forepart of this Quarterly Report on page 4.

Our future results and stockholder values may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict.  We may be required to update these forward-looking statements from time to time as circumstances change.  

References to “we,” “our” or “us” and words of similar import under this heading refer to the “Company” unless the context implies otherwise.

Past Plan of Operation

On June 13, 2012, we were formed as a wholly-owned subsidiary of Geo Point Technologies, Inc., a Utah corporation (“Geo Point Utah”), and into which Geo Point Utah simultaneously authorized the conveyance of the segment of its business comprising all of its Environmental and Engineering Divisions’ assets, business, operations, rights or otherwise, along with its “Hydrocarbon Identification Technology” (“HI Technology”) License Agreement dated January 31, 2008 (the “License Agreement”), subject to the assumption by us of all related liabilities and the indemnification of Geo Point Utah by us from any liabilities relating to these assets and operations. Also on June 13, 2012, the Board of Directors of Geo Point Utah approved a stock dividend that resulted in a spin-off of all of our shares of common stock to the Geo Point Utah stockholders, pro rata, on a one share for one share basis, on the record date (the “Spin-Off”).  The Spin-Off had a record date of January 17, 2013; and ex-dividend date of January 15, 2013; and a Spin-Off payment date of April 22, 2013.  On the effective date of the Spin-Off, there were approximately 1,002,167 outstanding shares of our common stock.  For additional information about the Spin-Off, see our Prospectus dated January 7, 2013, and filed with the SEC on January 8, 2013; and our 8-K Current Report dated April 22, 2013, and filed with the SEC on such date.  See Part IV, Item 15.  

The Environmental and Engineering Divisions comprised the initial operations of Geo Point Utah at its inception and were commenced as a “DBA” in 1997, by Geo Point Utah’s founder, William C. Lachmar, who then served as our President and sole director, in the State of California.  The Company operated this business until February 2018 when Mr. Lachmar died.  The Company has no plans to continue this business following Mr. Lachmar’s death.

Acquisition of TORtec Group

On November 22, 2017, (the Company entered into a Share Exchange Agreement (the “Agreement”) with TORtec Group, a Wyoming corporation (“TORtec”) and all of the shareholders of TORtec, pursuant to which the Company acquired 100% of the issued and outstanding shares of common stock of TORtec.  The acquisition of TORtec by the Company was successfully consummated on December 4, 2017.  

Under the terms of the Agreement, a total of 90,000,000 shares of the Company’s restricted common stock were issued to the seventeen TORtec shareholders as consideration in exchange for all 10,000,000 issued and outstanding shares of TORtec common stock being transferred to the Company, making TORtec a wholly-owned subsidiary of the Company.  As a result, the former TORtec shareholders collectively owned ninety percent (90.0%) of our issued and outstanding shares of our common stock immediately following the acquisition. New directors and officers of the Company were appointed in connection with the acquisition.

Stephen Smoot was a former consultant and officer of Capital Vario CR S.A. (Capital Vario), which was the controlling shareholder of the Company prior to the acquisition, but resigned from his affiliation with Capital Vario prior to a $500,000 debt-to-equity conversion by Capital Vario with the Company.   Smoot became the President/CEO and Director of TORtec Group on September 8, 2017.  

As part of the closing of the acquisition, the Company’s then sole director (William C. Lachmar) elected Franc Smidt, Alex Schmidt, Maksim Goncharenko, Jeffrey R. Brimhall, Stephen H. Smoot, and Irina Kochetkova to the Company’s Board of Directors before

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resigning as an officer and director of the Company.  The following persons were then elected as officers of the Company: Franc Smidt – Chairman of the Board of Directors, Stephen H. Smoot - President and CEO, Alex Schmidt – Vice President, and Irina Kochetkova – Secretary and Treasurer.  Jeffrey R. Brimhall resigned as an officer of the Company but has been appointed to serve as a director.  Maksim Goncharenko subsequently resigned as a director on July 3, 2018.

For additional information concerning the acquisition of TORtec, see the Company’s Current Report on Form 8-K dated December 4, 2017 and filed with the SEC on December 8, 2017, as amended in a Form 8-K/ Amendment dated June 22, 2018 and filed with the SEC on June 22, 2018.

Future Plan of Operations

Now that the acquisition of TORtec is complete, we will become engaged, through our subsidiary TORtec Group, in the business of harnessing the natural implosion forces of a vortex (tornado), employing resonating frequencies, to disintegrate soft to ultra-hard materials into micron or nano-sized particles.

On September 9, 2017, TORtec Group entered into General Agreement No. US-17 on cooperation and joint activities on commercialization of TOR-technologies, introduction of new productions, products and services in the markets of North, Central and South America (the “Exclusive License Agreement”) with the parties that invented the TOR-technology.  The Exclusive License Agreement grants to TORtec Group an exclusive license to utilize the technology for certain purposes throughout North, Central and South America.  The ‘TOR-technology’ equipment is best described as a cascaded adiabatic resonance vortex mill utilizing compressed air as the energy in the system.  This proprietary technology includes the ability to size and classify material processed by elemental composition and specific gravity.  A more detailed description of the acquisition is included in the Company’s two Current Reports on Form 8-K: (a) dated November 22, 2017 and filed with the SEC on November 29, 2017; and (b) dated December 4, 2017 and filed with the SEC on December 8, 2017, as amended in a Form 8-K/ Amendment dated June 22, 2018 and filed with the SEC on June 22, 2018; both of which are incorporated herein by this reference.

On June 18, 2018, TORtec Group entered into License Agreement No. W-1/18 with Forschunginstitut GmbH pursuant to which it was granted a license to use the TOR technology and the utility model “Tornado” documentation for certain purposes, for which TORtec Group paid an initial royalty of 30,000 Euros, and agreed to pay an annual royalty equal to 10% of any after tax profit received by TORtec Group (and any subsidiaries) by the year’s result.  This License Agreement expanded the licensed territory from North, Central and South America to the entire world.  A copy of this License Agreement is attached to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018 as Exhibit 10.1.  

On September 9, 2017, TORtec entered into an agreement with MTM Center GmbH, then a shareholder of TORtec, for the construction of a mobile machine that utilizes the TORtec technology, referred to as the Tornado M. The total purchase price is 394,000 Euros ($474,159 as of September 9, 2017 date of the agreement).  On March 3, 2018, the agreement was amended to the amount of 305,535 Euros or $367,696 representing the original amount of 394,000 Euros or $474,159 less the amount of 88,465 Euros or $106,463 originally allocated to the Kaeser screw-compressor, plus the additional amount of 48,040 Euros or $57,814 in the form of prepayment for transportation and expenses of technical personnel to come to the USA to commission the mobile “TORNADO M” unit and payment in advance for an additional vortex chamber with resonating frequency rings for additional applications for the mobile “TORNADO M” unit, including transportation & insurance to Idaho.

The Company has paid the total amount of two (2) payments totaling 354,600 euros or $425,510 plus an additional payment of 30,000 Euros or $35,947 for the one-time License fee. The Company received the Tornado M machine in second fiscal quarter of 2019. The Tornado M is currently being prepared to be used in the Company's operations.

On February 19, 2019, TORtec Group entered into an agreement with TORtec Forschungsinstitut GmbH, the successor-in-interest to Scientific Research Institute of Technological Progress (“SRITP”), a Cyprus entity, controlled by the same shareholder.  A copy is attached to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 as Exhibit 10.3. This license enlarged the original license with TORtec Forschungsinstitut GmbH and SRITP and granted exclusive worldwide rights to use the TOR-technology in the following applications:

Mining industry and mineral processing, including: methods of disintegration of mineral raw materials, methods and technologies of further enrichment of rocks, minerals and processing of technogenic accumulations under the code name "TOR-technology" exploitation of specialized mineral processing "Tornado" utility models and the subsequent recipience of the products by the disintegration of mineral raw materials, mechanical activation, mechanochemical activation and mechanosynthesis to receive a large range of finished products, blends, composites and solutions; commercialization of licensor's technological solutions and projects in the mining industry and in the processing of mineral raw materials and technogenic accumulations to wit:

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methods, techniques and technologies of disintegration of materials, minerals and rocks, mining;

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industrial waste with subsequent enrichment and/or with the recipience of the product;

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methods and technologies of mechanical activation, mechanochemical activation, and;

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mechanosynthesis of mineral raw materials, obtaining materials with new properties and new;

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materials, composites, mixtures, solutions;

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methods and technologies of deep processing and decontamination of contaminated materials, waste, and water reclamation;

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methods and technologies of restoration of the fertility of the land, obtaining new classes of mineral and biomineral fertilizers and mixtures and mineral protection of soil and plants;

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all or some know-how’s, trademarks, design development and technical knowledge.

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Field of disintegration (micronization) of various non-mineral material

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Production of non-mineral micro- and nano-structured micro powders of metal ceramics, carbides, metal oxides and their mixtures for powder, laser and plasma metallurgy

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Related documentation, development and production of unique installations of resonant gas-dynamic grinding of different types of non-mineral materials, united under a common understanding "tornado"

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The technologies for grinding non-mineral materials, including multi-component and various-phase materials, their functionalization and modification, their mechanical, mechanochemical activation and mechanosynthesis

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The production of dispersed new non-mineral materials and non-mineral materials with new properties.

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All know-how’s, trademarks, design development and technical knowledge relating to the applications above

The TORtec Technology Business

As described above, the Company s wholly-owned subsidiary, TORtec Group, entered into an Exclusive License Agreement on cooperation and joint activities on commercialization of TOR-technologies, introduction of new productions, products and services in the markets of North, Central and South America with the parties that invented the TOR-technology. The Exclusive License Agreement grants to TORtec Group an exclusive license to utilize the technology for certain purposes throughout North, Central and South America.  The ‘TOR-technology’ equipment is best described as a cascaded adiabatic resonance vortex mill utilizing compressed air as the energy in the system. This proprietary technology includes the ability to size and classify material processed by elemental composition and specific gravity.

The TOR Technology

A new technology is being used inside the resonance “Tornado” mills, a noncontact material grinding, where the grinding processes are performed by means of an air vortex, artificially produced in an enclosed space within the processing chamber.

As an energy carrier (fuel), the following may be used:

• pressurized air (compressor or a turbine);

• any inert gas supplied under pressure

• high-pressure steam (superheated steam);

• the medium in the supercritical state (fluids), such as (CO2);

• cooling agents

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The resonant vortex “TORNADO” installation is a gas-dynamic mill in which the technology of cascaded adiabatic resonance impact grinding is implemented, impact velocities of which are close to a breakdown threshold. The installation is designed in a way so that any particle of the input material gets literally torn by the repeated crossing of the differential pressure zones in the intervortex vacuum chamber, which produces ultrahigh gradient (pressure drops) at the interface (up to hundreds of thousands atmospheres).

When the material is injected into such area of pressure differential, a rupture of the material’s structure and clusters occurs. Such mechanism can be compared to the mechanism of material’s sample destruction, which is done in order to determine its strength characteristics at tensile test plants. That is, the grinding occurs not due to the friction or any other mechanic force, but by “air” and resonances, which provide a high and efficient performance, great flow rate of raw material as well as inexpensive exploitation (no rubbing parts) with low power consumption.

The TOR technology can be used for: (1) micropulverization; (2) blending of materials; and (3) concentrating of materials.

Principal Products or Services and their Markets

The Company has no present contracts to provide any products or services.  The Company has been in contact with companies that sell zeolites about the possibility of using the TOR technology to break down or reduce the size of zeolites to approximately 3 to 5 microns in size, which can then be used for different commercial purposes. The Company tested the Tornado M machine on zeolites. The technology was successful in pulverizing the zeolite, however, it was determined that the cyclone and air filtration systems were inadequate to handle the amount of air introduced into the vortex mill. Without the properly sized air filtration system, the Company will not be able to process material and comply with air quality industry standards. After the purchase and installation of additional air handling and filtration equipment, the Company may pursue a contract with third parties to generate revenues.

According to Explainthatstuff.com, “zeolites are hydrated aluminosilicate minerals made from interlinked tetrahedra of alumina (AlO4) and silica (SiO4). In simpler words, they're solids with a relatively open, three-dimensional crystal structure built from the elements aluminum, oxygen, and silicon, with alkali or alkaline-Earth metals (such as sodium, potassium, and magnesium) plus water molecules trapped in the gaps between them. Zeolites form with many different crystalline structures, which have large open pores (sometimes referred to as cavities) in a very regular arrangement and roughly the same size as small molecules.  There are about 40 naturally occurring zeolites, forming in both volcanic and sedimentary rocks; according to the US Geological Survey, the most commonly mined forms include chabazite, clinoptilolite, and mordenite. Dozens more artificial, synthetic zeolites (around 150) have been designed for specific purposes, the best known of which are zeolite A (commonly used as a laundry detergent), zeolites X and Y (two different types of faujasites, used for catalytic cracking), and the petroleum catalyst ZSM-5 (a branded name for pentasil-zeolite).”

Results of Operations

Three Months Ended December 31, 2019 compared to the Three Months Ended December 31, 2018

We reported no sales for the three months ended December 31, 2019 and 2018 due to the lack of revenue generating activities.

Research and development expenses during the three months ended December 31, 2019 were $48,175, compared to $0 during the three months ended December 31, 2018, an increase of $48,175.  The increase was related to the receipt of the Tornado M unit after December 31, 2018 to which we have incurred expenditures to modify and improve our process. We expect to incur additional costs until the Tornado M unit is ready for production.

General and administrative expenses during the three months ended December 31, 2019, were $25,183, compared to $33,057, during the three months ended December 31, 2018, a decrease of $7,874.  The decrease in general and administrative expenses during the three months ended December 31, 2019 as compared to the prior period, was directly related to additional professional costs incurred in the prior period related to the acquisition of TORtec and related public filings.

Income from discontinued operations during the three months ended December 31, 2019 were $6,858 due to the relief of liabilities due to the expiration of the statute of limitations. There were no such expirations in the prior period.

The Company incurred a net loss of $66,500 in the three months ended December 31, 2019, compared to a net loss of $33,177 incurred in the three months ended December 31, 2018, an increase of $33,323.  The increase in net loss is primarily attributable to the increase in research and development expenses during the later period partially offset by a decrease in general and administrative expenses in the later period.

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Nine Months Ended December 31, 2019 compared to the Nine Months Ended December 31, 2018

We reported no sales for the nine months ended December 31, 2019 and 2018 due to the lack of revenue generating activities.

Research and development expenses during the nine months ended December 31, 2019 were $60,307, compared to $0 during the nine months ended December 31, 2018, an increase of $60,307.  The increase was related to the receipt of the Tornado M unit after December 31, 2018 to which we have incurred expenditures to modify and improve our process. We expect to incur additional costs until the Tornado M unit is ready for production.

General and administrative expenses during the nine months ended December 31, 2019 were $86,891, compared to $107,222 during the nine months ended December 31, 2018, a decrease of $20,331.  The consistency in general and administrative expenses during the nine months ended December 31, 2019 as compared to the prior period, was directly related to additional professional costs incurred in the prior period related to the acquisition of TORtec and related public filings.

Income from discontinued operations during the nine months ended December 31, 2019 were $6,858 due to the relief of liabilities due to the expiration of the statute of limitations. There were no such expirations in the prior period.

The Company incurred a net loss of $140,340 in the nine months ended December 31, 2019, compared to a net loss of $107,342 incurred in the nine months ended December 31, 2018, an increase of $32,998.  The increase in net loss is primarily attributable to the increase in research and development expenses during the later period partially offset by a decrease in general and administrative expenses in the later period.

Liquidity

Current assets at December 31, 2019, included cash of $32,389.  At December 31, 2019, we had a negative working capital of $576,402, as compared a negative working capital of $364,211 at March 31, 2019.  The decrease in working capital is mostly due an investment in common stock currently reflected as a current liability until the shares of common stock are issued.

Capital Resources

During the nine months ended December 31, 2019, operating activities used cash of $176,937 compared to $114,202 net cash used in the nine months ended December 31, 2018, an increase of $62,735. The increase was primary related to increase in net loss due to research and development activities and the payment of accounts payable.

During the nine months ended December 31, 2019, investing activities consisted of costs expended in connection with the Company obtaining a license for which the term is perpetual. In the prior comparable period, there were no such expenditures. In addition, during the current period the Company continues to purchase equipment in connection with the Tornado M.

During the nine months ended December 31, 2019, we received cash from financing activities of $273,700 of which $63,700 was from Capital Vario and $150,000 from the sale of common stock to a third party and $60,000 to related parties. The proceeds have been used to fund operations.  

As reflected in the consolidated financial statements, the Company has incurred significant current period losses, negative cash flows from operating activities, has negative working capital, and an accumulated deficit. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern.  We intend to fund future operations for the next 12 months through cash on hand, through additional advances from related parties and if needed from the sale of debt or equity securities.  Currently, we cannot provide assurance that such financing will be available to us on favorable terms, or at all.  If, after utilizing the existing sources of capital available to us, further capital needs are identified and if we are not successful in obtaining the required financing, we may be forced to curtail our existing or planned future operations.  We believe our plans will enable us to continue our current operations for in excess of one year from the issuance date of this Quarterly Report. However, those plans are dependent upon obtaining additional capital until cash flows from operations generated are sufficient to fund operations.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements during the quarter ended December 31, 2019.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

A “smaller reporting company” (as defined by Item 10 of Regulation S-K) is not required to provide the information required by this

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Item pursuant to Item 305(e) of Regulation S-K.

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.  In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2019, our disclosure controls and procedures were not effective, and provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (the “SEC”) rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The following material weakness was first identified by management during the fiscal year ended March 31, 2018 and still remains as of December 31, 2019.

·

Lack of Management review as the Company has one employee that enters into, reviews, and controls all transactions.  The individual is also responsible for financial and regulatory reporting.

We cannot remedy the weakness until additional employee(s) and/or consultants can be retained to adequately segregate duties.  Until such time, Management is maintaining adequate records to substantiate transactions.

Changes in Internal Control over Financial Reporting

Our management, with the participation of the chief executive officer and chief financial officer, has concluded there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.   Legal Proceedings

The Company is not a party to any other material pending legal proceedings.  To the best of the Company’s knowledge, no governmental authority or other party has threatened or is contemplating the filing of any material legal proceeding against the Company.

Item 1A.   Risk Factors

A “smaller reporting company” (as defined by Item 10 of Regulation S-K) is not required to provide the information specified by this Item.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended December 31, 2019, the Company accepted $210,000 in subscriptions to purchase shares of the Company’s restricted common stock at the purchase price of $10.00 per share from the following persons: (a) Rock and Frances Rice, existing shareholders already owning 3,375,000 shares, subscribed to purchase $150,000 of common stock; (b) the Sorenson Family Trust, an existing shareholder that already owns approximately 7,042,500 shares, subscribed to purchase $50,000 of common stock; and (c) Sherm Smoot, a brother to the Company’s President and Chief Executive Officer, subscribed to purchase $10,000 of common stock.  The shares have not yet been issued to these three subscribers.  We had no other unregistered sales of equity securities during the quarter ended December 31, 2019.

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For a description of any other sales of shares of the Company’s unregistered stock made by us in the past three years, please refer to the Company’s Annual Reports on Form 10-K, and the Company’s Quarterly Reports on Form 10-Q filed since March 31, 2016.

Item 3.   Defaults Upon Senior Securities

This Item is not applicable.

Item 4.   Mine Safety Disclosures

This Item is not applicable.

Item 5.   Other Information

This Item is not applicable.

Item 6.   Exhibits

(a)

Exhibits: