UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
COMMISSION FILE NUMBER
(Exact Name of small business issuer as specified in its charter)
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incorporation or organization) |
Identification No.) |
(Address of principal executive offices) (Zip Code)
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(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange on Which Registered |
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Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b- 2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
As of July 27, 2022, the issuer had
TABLE OF CONTENTS
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Page |
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PART I – Financial Information |
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Item 1. |
Financial Statements. |
F-1 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
3 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk. |
8 |
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Item 4. |
Controls and Procedures. |
8 |
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PART II – Other Information |
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Item 1. |
Legal Proceedings. |
9 |
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Item 1A. |
Risk Factors. |
9 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
9 |
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Item 3. |
Defaults Upon Senior Securities. |
9 |
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Item 4. |
Mine Safety Disclosure. |
9 |
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Item 5. |
Other Information. |
9 |
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Item 6. |
Exhibits. |
10 |
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SIGNATURES |
11 |
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PART I
Item 1. Financial Statements.
THE CORETEC GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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June 30, 2022 |
December 31, 2021 |
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| Assets | ||||||||
| Current assets: | ||||||||
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Cash |
$ | $ | ||||||
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Prepaid expenses |
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Total current assets |
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Property and equipment, net |
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| Other assets: | ||||||||
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Intangibles, net |
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Goodwill |
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Deposits-other |
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Total other assets |
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Total Assets |
$ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
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Accounts payable and accrued expenses |
$ | $ | ||||||
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Total current liabilities |
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Long term debt, net |
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Total Liabilities |
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| Stockholders' equity: | ||||||||
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Preferred stock, Series A convertible, $ |
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Common stock $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
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Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity |
$ | $ | ||||||
See notes to unaudited condensed consolidated financial statements
THE CORETEC GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2022 |
2021 |
2022 |
2021 |
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| Income: | ||||||||||||||||
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Revenue |
$ | $ | $ | $ | ||||||||||||
| Expenses: | ||||||||||||||||
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Research and development |
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General and administrative |
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Interest |
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Total expenses |
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Other income |
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Net loss |
$ | ( |
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| Loss per share: | ||||||||||||||||
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Basic and diluted |
$ | ( |
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) | $ | ( |
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Weighted average shares outstanding, basic and diluted |
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See notes to unaudited condensed consolidated financial statements
THE CORETEC GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022 and SIX MONTHS ENDED JUNE 30, 2021
(unaudited)
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Series A Preferred Stock |
Common Stock |
Additional |
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Par |
Par |
Paid-In |
Accumulated |
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Shares |
Value |
Shares |
Value |
Capital |
Deficit |
Total |
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Balance December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
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Options issued for compensation and services |
- | - | ||||||||||||||||||||||||||
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Common stock issued for liabilities |
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Exchange of stock options for common stock |
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Net loss for the period |
- | - | ( |
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Balance March 31, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
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Common stock issued for liabilities |
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Options issued for compensation and services |
- | - | - | |||||||||||||||||||||||||
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Net loss for the period |
- | - | ( |
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Balance June 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
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Balance December 31, 2020 |
$ | $ | $ | $ | ( |
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Cumulative change in accounting for beneficial conversion feature |
- | - | ( |
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Debt converted to common stock |
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Common stock issued for liabilities |
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Exchange of stock options for common stock |
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Private placement stock issuance |
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Warrants issued |
- | - | ||||||||||||||||||||||||||
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Options issued for compensation and services |
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Net loss for the period |
- | - | ( |
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Balance March 31, 2021 |
$ | $ | $ | ( |
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Debt converted to common stock |
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Common stock issued for liabilities |
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Exchange of stock options for common stock |
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Options issued for compensation and services |
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Net loss for the period |
- | - | ( |
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Balance June 30, 2021 |
$ | $ | $ | ( |
) | $ | ||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
THE CORETEC GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Six Months Ended June 30, |
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2022 |
2021 |
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| Cash Flows from Operating Activities | ||||||||
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Net loss |
$ | ( |
) | $ | ( |
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| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
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Depreciation |
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Amortization - patents and other intangibles |
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Amortization - debt discount |
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Options issued for compensation and services |
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| Change in: | ||||||||
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Prepaid expenses |
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Deposits |
( |
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Accounts payable and accrued liabilities |
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Net cash used in operating activities |
( |
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| Cash Flows from Investing Activities | ||||||||
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Capitalized website costs |
( |
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Purchases of equipment |
( |
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Net cash used in investing activities |
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| Cash Flows from Financing Activities | ||||||||
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Payments on notes payable |
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Proceeds from debt and warrants issued |
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Proceeds from private placement stock issued |
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Net cash provided by financing activities |
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Net change in cash |
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Cash, beginning of period |
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Cash, end of period |
$ | $ | ||||||
| Supplemental Disclosure of Cash flow Information | ||||||||
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Cash paid during the period for interest |
$ | $ | ||||||
| Non-Cash Financing Activities | ||||||||
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Notes payable converted to common stock |
$ | $ | ||||||
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Stock options exchanged for common stock |
$ | $ | ||||||
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Common stock issued to satisfy liabilities |
$ | $ | ||||||
See notes to unaudited condensed consolidated financial statements
THE CORETEC GROUP INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Business Organization, Nature of Business and Basis of Presentation
Nature of Business
The Coretec Group Inc. (the “Group”) (formerly 3DIcon Corporation) (“3DIcon”) was incorporated on August 11, 1995, under the laws of the State of Oklahoma as First Keating Corporation. The articles of incorporation were amended August 1, 2003 to change the name to 3DIcon Corporation. During 2001, First Keating Corporation began to focus on the development of 360-degree holographic technology. From January 1, 2001, 3DIcon’s primary activity has been the raising of capital in order to pursue its goal of becoming a significant participant in the development, commercialization and marketing of next generation 3D display technologies.
Coretec Industries, LLC (“Coretec”), a wholly owned subsidiary of the Group (collectively the “Company”), was organized on June 2, 2015 in the state of North Dakota. Coretec is currently developing, testing, and providing new and/or improved technologies, products, and service solutions for energy-related industries including, but not limited to oil/gas, renewable energy, and distributed energy industries. Many of these technologies and products also have application for medical, electronic, photonic, display, and lighting markets among others. Early adoption of these technologies and products is anticipated in markets for energy storage (Li-ion batteries), renewable energy (BIPV), and electronics (Asset Monitoring).
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s year-end audited consolidated financial statements and related footnotes included in the previously filed Form 10-K, and in the opinion of management, reflects all adjustments necessary to present fairly the consolidated financial position of the Company. The consolidated results of operations for interim periods may not be indicative of the results which may be realized for the full year.
Note 2 – Summary of Significant Accounting Policies
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June 30, |
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2022 |
2021 |
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Options |
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Warrants |
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Series A convertible preferred stock |
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Convertible debt |
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Total potentially dilutive shares |
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Note 3 – Intangibles
The following table sets forth patents:
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June 30, |
December 31, |
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Patents |
2022 |
2021 |
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Gross Carrying Amount |
$ | $ | ||||||
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Accumulated Amortization |
( |
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) | ||||
| $ | $ | |||||||
The patents were obtained with the September 30, 2016 reverse acquisition of the 3DIcon Corporation. Amortization expense for the next five fiscal years and thereafter is expected to be approximately $
Intangible assets include $
Note 4 –Notes Payable
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June 30, |
December 31, |
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Long term debt: |
2022 |
2021 |
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$ | $ | ||||||
| Less: | ||||||||
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Warrants issued |
( |
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Debt issue costs |
( |
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Total long term debt |
$ | $ | ||||||
10% Promissory note due January 2024, net
On October 4, 2019, the Company entered into a Credit Agreement and related Promissory Note with Diversified Alpha Fund of Navigator Global Fund Manager Platform SPC (“DAF”), the Lender. DAF is a segregated portfolio fund of Navigator Global Fund Manager Platform SPC. DAF is managed and controlled by Mollitium Investment Management (Mollitium). Mollitium utilizes Diversified Global Investment Advisors Ltd. (“DGIA”) to act in an advisory role. DGIA maintains an Investment Committee to support the services to Mollitium. Simon Calton serves as part of this five-member investment committee and in accordance with the investment committee’s guidelines, Mr. Calton does not participate in matters or voting that pertain to the Company due to his conflict of interest. Investment advice provided by DGIA to Mollitium are recommendations only and the final decision on actions are the responsibility of Mollitium. Carlton James Global Management, Ltd (CJGM) serves as a distributer of investments by introducing funds available to the market of which DAF is included in CJGM’s group of funds. Compensation to CJGM occurs when investments are made into funds that they introduce. CJGM is part of the Carlton James Group of which Mr. Calton is CEO.
The
On November 16, 2021, the Company countersigned a letter of variation (the “Variation”) to the credit agreement entered into, on October 4, 2019, with DAF. Pursuant to the Variation, the Lender agreed to extend the repayment days for each advance made by Lender under the credit agreement until the fourth anniversary of such advance. DAF has also communicated to the Company that interest only payments will be due on a quarterly basis, effective in January of 2022.
Under the terms of the Promissory Note, DAF has the right to elect to convert all or part of the Promissory Notes at a price equal to seventy percent of the average closing price of the Company’s common stock as reported on the over-the-counter quotation system on the OTC Markets during the fifteen calendar days prior to the loan closing date of October 4, 2019, which calculates to $
Under the terms of the Credit Agreement, warrants to subscribe for and purchase
There were warrants issued under the Credit Agreement during the six months ended June 30, 2022. The allocated cost of the warrants is amortized over the life of the debt, with $
Additionally, under the terms of the Credit Agreement, the Company agreed to pay a commitment fee of
Note 5 – Commitments and Contingencies
Warrants
Warrants to subscribe for and purchase up to
On March 2, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with a single institutional investor in a private placement to sell (i)
Warrants Summary
There was no warrant activity for the six months ended June 30, 2022. The following table summarizes the Company’s warrants as of the June 30, 2022:
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Weighted |
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| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Life | Intrinsic | |||||||||||||
| Warrants | Price | In Years | Value | |||||||||||||
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Outstanding, June 30, 2022 |
$ | $ | ||||||||||||||
Options
Stock options for employees, directors or consultants are valued at the date of award, which does not precede the approval date, and compensation cost is recognized in the period the options are vested. Stock options generally become exercisable on the date of grant and expire based on the terms of each grant.
The estimated fair value of options for common stock granted is determined using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based on historical exercise behavior and expected future experience.
On June 8, 2020, the Board of Directors consented to a share exchange agreement with holders of
On March 23, 2022 the Company granted
The following table summarizes the Company’s option activity during the six-month period ended June 30, 2022:
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Weighted |
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| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Life | Intrinsic | |||||||||||||
| Options | Price | In Years | Value | |||||||||||||
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Outstanding, December 31, 2021 |
$ | |||||||||||||||
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Options granted |
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Options expired |
( |
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Exchanged for common stock |
( |
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Outstanding, June 30, 2022 |
$ | $ | ||||||||||||||
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Exercisable, June 30, 2022 |
$ | $ | ||||||||||||||
The following table summarizes the Company’s options as of June 30, 2022:
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Weighted |
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| Outstanding | Average | Exercisable | ||||||||||||
| Exercise | Number of | Remaining Life | Number of | |||||||||||
| Price | Options | In Years | Options | |||||||||||
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Total |
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Litigation, Claims, and Assessments
The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. In the opinion of management, such matters are currently not expected to have a material impact on the Company’s condensed consolidated financial statements. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.
Leases
The Company is headquartered in Ann Arbor, Michigan where it currently leasing office space and a wet laboratory in the same facility, under gross lease terms. On December 14, 2021, the Company entered into an annual lease for the wet laboratory. The annual rent obligation is $
Rent expense for the operating leases was $
Note 6 – Subsequent Events
On July 15, 2022, DAF advanced gross proceeds of $
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” “anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.
This Quarterly Report on Form 10-Q includes the accounts of The Coretec Group Inc., an Oklahoma corporation, together with its wholly owned subsidiary, Coretec Industries LLC, a North Dakota limited liability corporation formed in North Dakota (individually referred to as “Coretec”). References in this Report to “we,” “our,” “us” or the “Group” refer to The Coretec Group Inc. and its consolidated subsidiary unless context dictates otherwise. The following discussion and analysis should be read in conjunction with our consolidated financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
Plan of Operation
Background:
On June 22, 2017, the Group filed an Amended Certificate of Incorporation (the “Amendment”) with the Secretary of State of the State of Oklahoma, to (i) change its name from “3DIcon Corporation” to “The Coretec Group Inc.” and to (ii) effect a 1-for-300 reverse stock split. The Name Change and Reverse Split became effective with the State of Oklahoma on June 28, 2017 and with FINRA on June 29, 2017.
The Group was incorporated on August 11, 1995, under the laws of the State of Oklahoma as First Keating Corporation. The articles of incorporation were amended August 1, 2003 to change the name to 3DIcon Corporation. During 2001, First Keating Corporation began to focus on the development of 360-degree holographic technology. On July 15, 2005, the Group entered into a Sponsored Research Agreement (“SRA”) with the University of Oklahoma (the “University” or “OU”), which expired on January 14, 2007, under which they conducted a research project entitled "Investigation of 3-Dimensional Display Technologies”. On February 23, 2007, they entered into an SRA with the University, which expired on March 31, 2010, under which they conducted a research project entitled "3-Dimensional Display Development". The development to date has resulted in multiple new technologies, two working laboratory prototypes (Lab Proto 1 and Lab Proto 2), and eight provisional patents; five of the eight provisional patents have been combined and converted to five utility patents. Under the SRA, the Group has obtained the exclusive worldwide marketing rights to these 3D display technologies.
Cyclohexasilane Business
The Company’s business model is to identify and commercialize disruptive technologies in silicon serving advanced technology markets. Sources of disruptive technology are licensed technology created by major universities, institutes, national laboratories and other research centers. Where technology does not already exist, the Company intends to sponsor and jointly develop research with its customers.
Coretec is developing, testing, and providing new and/or improved technologies and resulting product solutions for energy-related industries including, but not limited to energy storage, renewable energy, energy conservation, and distributed energy industries. Many of these technologies and resulting product solutions can also be applied to the broader markets of anti-counterfeit packaging, medical devices, electronics, photonics, and displays. The initial technologies and product solutions are based on new innovations in:
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Cyclohexasilane (Si6H12) |
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Silicon quantum dots (Si QDs) |
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“Stacked” polysilane ((R2Si)n) |
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Doped alloy variants of the various silicon innovations |
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Future, high-refractive-index siloxane polymers (HRISP) |
Early adoption of these technologies and resulting product solutions is anticipated in markets for energy storage (lithium-ion batteries), solid-state lighting (LEDs), solar energy and printable electronics.
Battery Development Business
The Company is developing a lithium-ion battery with a silicon anode under the name of Endurion. The battery industry acknowledges silicon as the next frontier in increasing battery life and utility. To date, battery developers have experienced expansion and contraction problems with silicon anodes as lithium-ions are absorbed and discharged. During this process, larger silicon particles break down, immediately reducing the charging capacity of the anodes. The Company’s battery development program, Endurion, addresses this problem by using silicon-based nanoparticles to mitigate the swelling and pulverization issues that are common in early iterations of silicon anodes. Additionally, Endurion nanoparticles are being engineered to reduce silicon breakdown and will allow lithium-ions to travel faster to the necessary silicon atoms, leading to faster charging times.
Endurion is being designed to improve battery cycling stability, enable longer run times, and allow for greater energy density in applications such as electric vehicles, military technologies, mobile devices, and space exploration.
Coretec’s management leverages years of expertise and experience in equipment and services for the energy storage industry, procuring and managing investments and financial services, and in R&D and commercialization of material and chemical technologies.
Volumetric 3D Display Business
The Company owns the rights to a patented volumetric 3D display technology that was developed by and with the University of Oklahoma (the “University”) under a Sponsored Research Agreement (“SRA”). The development to date has resulted in multiple technologies, two working laboratory prototypes (Lab Proto 1 and Lab Proto 2), and eight provisional patents. Five of the eight provisional patents have been combined and converted to five utility patents. Under the SRA, the Company has obtained the exclusive worldwide marketing rights to these 3D display technologies.
On May 26, 2009, the United States Patent and Trademark Office ("USPTO") approved the patent called "Volumetric Liquid Crystal Display" for rendering a three-dimensional image and converted it to U.S. patent No. 7,537,345. On December 28, 2010, USPTO approved the patent called “Light Surface Display for Rendering a Three-Dimensional Image,” and issued the United States Patent No. 7,858,913. On August 21, 2012, the USPTO approved a continuation patent called “3D Volumetric Display” and issued the US Patent No. 8,247,755. These patents describe the foundation of what is called CSpace® technology (“CSpace”).
The Company plans to commercialize the CSpace volumetric 3D technology through customer-funded research-and-development contracts and technology licensing agreements for such high-value applications as air-traffic control, design visualization, and medical imaging. The Company plans to develop products for contract engineering and with joint development customers. At this time the Company does not have any commercialized products and does not plan to develop its own products based on the CSpace technology due to the high –value, low-volume nature of the best-fit initial applications for this technology. These applications include but are not limited to the following:
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Healthcare (diagnostics, surgical planning, training, telemedicine, bio surveillance) |
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Cybersecurity data visualization |
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Military (operational planning, training, modeling and simulation, battlespace awareness, damage assessment, autonomous piloting) |
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Physical security (passenger, luggage & cargo screening) |
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Mining, oil & gas exploration |
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Meteorological and oceanographic data visualization |
Near-Term Revenue Opportunities
Opportunities for near-term revenue continue to be explored in battery and microelectronic markets. Interest in the use of silicon in Li-ion batteries continues to increase driven by the growing demand for electrical vehicles, the exploitation of mobile electronics, and energy storage systems for backup power and improved efficiency of home and commercial wind and solar systems. Discussions are ongoing with suppliers of Li-ion battery anode materials that are seeking next generation materials to further increase performance while improving lifetime, charging time, safety and reliability. We believe these suppliers will be well positioned to take advantage of the benefits provided by cyclohexasilane (CHS) when combined as a liquid with other solid-based materials. While we believe the use of CHS in Li-ion batteries will provide near term revenue, we also continue to explore revenue opportunities in microelectronics and especially those early adopter markets where advanced microelectronics are being developed in lower volumes and with less price sensitivity.
Recent Developments.
On January 11, 2022, the Company announced that it had partnered with The University of Adelaide, one of the global top universities in the field of applied glass science and photonics, to develop a glass to be used in the Company’s CSpace, a 3D static volumetric display technology. This project will be jointly funded by The University of Adelaide.
On January 25, 2022, the Company named Katie Merx its Vice President of Communications. Merx will have overall responsibility for the Company’s global communications, including brand messaging, corporate and financial communications, executive support, and media relations.
On February 24, 2022, the Company announced the hiring of a full time research scientist and opening of a new wet laboratory. The Company plans to use the lab to develop CHS, create silicon quantum dots, and create silicon-anode active materials for lithium-ion batteries. The lab design includes a fume hood and glove box, which is necessary to handle pyrophoric materials such as silane gases and certain hydrides.
On February 28, 2022, the Company filed a full utility patent on its provisional patent for the development of advanced silicon anodes using CHS and other silanes. This patent application covers the use of CHS to produce a wide variety of silicon anodes for use in lithium-ion batteries.
On March 16, 2022 the Company presented at a two-day U.S. conference on accelerating the development of a domestic battery supply chain. Representing the Company was Dr. Michelle Tokarz, Vice President of Partnerships and Innovation. Tokarz spoke about The Company’s development of a lithium-ion battery with a silicon anode. The Company is using the unique characteristics of cyclohexasilane and similar molecules to enhance the performance of silicon anodes. The Company’s approach is new to the industry and protected by the company’s recent application for a full utility patent.
On April 29, 2022 the Company held its Q1 2022 shareholder call and announced its battery development program, Endurion. Endurion is being designed to improve battery cycling stability, enable longer run times, and allow for greater energy density in applications such as electric vehicles, military technologies, mobile devices, and space exploration.
On June 3, 2022 the Company filed a trademark application with the U.S. Patent and Trademark Office for Endurion.
On June 7, 2022 the Company announced its participation and planned attendance in electric vehicles and battery conferences and tradeshows. The Company plans to leverage the EV and battery industries’ top technical, business, and networking events to strengthen and expand its relationships, meet potential partners and clients, and grow awareness of the Company’s Endurion battery development program.
On June 28, 2022 the Company announced the appointment of cleantech public relations firm FischTank PR to bolster visibility in cleantech, automotive and electric vehicle sectors. FischTank PR will cover the responsibilities of Katie Merx, Vice President of Communications who left the Company in June of 2022.
Results of Operations
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2021.
Revenue
We did not have revenue for the three-month periods ended June 30, 2022 and 2021.
Research and Development Expenses
The research and development expenses were approximately $122,000 and $198,000 for the three months ended June 30, 2022 and June 30, 2021, respectively. The approximately $76,000 decrease is related to a decrease of $129,000 of stock option expense which was offset by increases of approximately $25,000 for labor costs and approximately $28,000 for wet laboratory operations.
General and Administrative Expenses
Our general and administrative expenses were approximately $438,000 for the three months ended June 30, 2022, as compared to $2,517,000 for the three months ended June 30, 2021.
The approximate $2,079,000 expense reduction includes a decrease in stock option expense of approximately $2,194,000 and a decrease in discretionary marketing expenses of $27,000. These reductions were offset by approximate increases of $116,000 for professional fees, an increase in labor and consultant expenses of approximately $9,000, an increase in rent expenses of approximately $7,000, an increase in travel and meal expenses of approximately $6,000, and an aggregate increase of approximately $4,000 for other costs.
Interest Expense
Interest expense for the three months ended June 30, 2022 was approximately $47,000 as compared to $73,000 for the three months ended June 30, 2021. The approximately $25,000 net decrease was the result of a reduction in interest charges and amortization costs pursuant to the DAF promissory note terms and conditions.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2021.
Revenue
We did not have revenue for the three-month periods ended June 30, 2022 and 2021.
Research and Development Expenses
The research and development expenses were $320,000 and $236,000 for the six months ended June 30, 2022 and June 30, 2021, respectively.
The approximate $84,000 increase includes an increase in sponsored research expenses of approximately $126,000, an increase of labor related expenses of approximately $40,000, an increase of wet laboratory operations of approximately $28,000, and an aggregate increase of approximately $8,000 for other costs. These increases were offset by approximately $118,000 of stock option expense.
General and Administrative Expenses
Our general and administrative expenses were $871,000 for the six months ended June 30, 2022, as compared to $2,860,000 for the six months ended June 30, 2021.
The approximate $1,988,000 expense decrease includes decrease in stock option expense of approximately $2,152,000, a decrease in discretionary marketing expenses of $30,000, and an aggregate decrease of approximately $4,000 for other costs. These cost reductions were offset by increases of approximately $135,000 for professional fees, an increase of in recruiting expenses of approximately $26,000, an increase in travel and meal expenses of approximately $14,000, an increase in consulting expenses of approximately $9,000, an increase in rent expenses of approximately $7,000, and an increase in labor related expenses of approximately $7,000.
Interest Expense
Interest expense for the six months ended June 30, 2022 was approximately $95,000 as compared to approximately $131,000 for the six months ended June 30, 2021. The approximately $36,000 net decrease was the result of a reduction in interest charges and amortization costs pursuant to the DAF promissory note terms and conditions.
Financial Condition, Liquidity and Capital Resources
Management remains focused on controlling cash expenses. As a result of the securities purchase agreement and capital raise of $6,000,000 in March of 2021, management believes that the Company has sufficient capital commitments to fund the development of its planned products and to pay operating expenses for a period of more than one year following the issuance of these consolidated financial statements. In addition, the Company will continue to leverage stock-for-services whenever possible.
The operating budget consists of the following expenses:
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General and administrative expenses: salaries, insurance, investor related expenses, rent, travel, website, etc. |
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Hiring and retaining executive officers for technology, operations and finance. |
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Professional fees for accounting, audit, and mergers and acquisitions; legal services for securities and financing; patent research and protection. |
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Continued development of CHS and similar silicon technologies. |
We had net cash of $3,104,112 at June 30, 2022.
We had positive working capital of $2,732,370 at June 30, 2022.
During the six months ended June 30, 2022, we used $875,933 of cash for operating activities, a net increase of $481,178 or 122% compared to the six months ended June 30, 2021.
The net increase in the use of cash for operating activities was a result of a decrease in the net loss of $1,940,251, a decrease in amortization and depreciation of $24,980, a decrease in expense of options of $2,269,750, a decrease in the change in prepaid expenses of $7,747, an increase in the change in deposits of $24,543, and a decrease in the change in accounts payable and accrued liabilities of $143,495.
During the six months ended June 30, 2022, we used $73,282 of cash for investing activities, a net increase of $61,275 or 510% compared to the six months ended June 30, 2021.
The net increase in the use of cash for investing activities was a result of $73,282 used for equipment during the six months ended June 30, 2022 compared to $0 for the six months ended June 30, 2021. This equipment cash use was offset by $0 used for capitalized website costs compared to $12,007 for the six months ended June 30, 2021
During the six months ended June 30, 2022, there was $0 of net cash provided by financing activities, a decrease of $5,201,271 compared to the six months ended June 30, 2021. The decrease was a result of $4,913,200 in net proceeds of private placement stock issued and $334,651 in net proceeds of debt and warrants issued, offset by $46,580 of payments on notes payable for the six months ended June 30, 2021.
We expect to fund the ongoing operations through the existing cash on hand and financing in place.
Our ability to fund the operations of the Company is highly dependent on the underlying stock price of the Company.
Off Balance Sheet Arrangements
We do not engage in any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
Significant Accounting Policies
There has been no change in the significant accounting policies summarized in our Form 10-K for the year ended December 31, 2021, which was filed on March 21, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is a smaller reporting company, as defined by Rule 229.10(f)(1) and is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls. In designing and evaluating our disclosure controls and procedures, management recognizes 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.
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 of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, our disclosure controls and procedures were not effective at a reasonable assurance level as we do not have sufficient resources in our accounting function, which restricts the Company’s ability to gather, analyze and properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, management will engage financial consultants and perform additional analysis and other procedures to help address this material weakness. Until remediation actions are fully implemented, and the operational effectiveness of related internal controls are validated through testing, the material weaknesses described above will continue to exist.
Notwithstanding the assessment that our disclosure controls and procedures were not effective and that there is a material weakness as identified herein, we believe that our consolidated financial statements contained in this Quarterly Report fairly present our consolidated financial position, results of operations and cash flows for the periods covered thereby in all material respects.
Changes in Disclosure Controls and Procedures. There has been no change in our disclosure controls and procedures identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, our disclosure controls and procedures.
PART II
Item 1. Legal Proceedings.
We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
Item 1A. Risk Factors.
Not Applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosure.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
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Exhibit |
Description of Exhibit |
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31.1* |
Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer. |
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31.2* |
Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer. |
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32.1* |
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32.2* |
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101.INS |
Inline XBRL Instance |
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101.SCH |
Inline XBRL Taxonomy Extension Schema |
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101.CAL |
Inline XBRL Taxonomy Extension Calculation |
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101.DEF |
Inline XBRL Taxonomy Extension Definition |
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101.LAB |
Inline XBRL Taxonomy Extension Labels |
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101.PRE |
Inline XBRL Taxonomy Extension Presentation |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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Filed herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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THE CORETEC GROUP INC. |
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Date: July 27, 2022 |
/s/ Matthew J. Kappers |
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Name: |
Matthew J. Kappers |
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Title: |
Chief Executive Officer |
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/s/ Matthew L. Hoffman |
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Name: |
Matthew L. Hoffman |
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Title: |
Chief Financial Officer |
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Matthew J. Kappers, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Coretec Group Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange46 Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
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all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and |
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
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Dated: July 27, 2022 |
By: |
/s/ Matthew J. Kappers |
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Matthew J. Kappers |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Matthew L. Hoffman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Coretec Group Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
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all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and |
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b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
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Dated: July 27, 2022 |
By: |
/s/ Matthew L. Hoffman |
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Matthew L. Hoffman |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Coretec Group Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew J. Kappers, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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Date: July 27, 2022 |
By: |
/s/ Matthew J. Kappers |
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Matthew J. Kappers |
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Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Coretec Group Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew L. Hoffman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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Date: July 27, 2022 |
By: |
/s/ Matthew L. Hoffman |
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Matthew L. Hoffman |
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Chief Financial Officer |