UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20212022
☐ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to _____________
Commission file number 000-54464
| THUNDER ENERGIES CORPORATION |
| (Exact Name of Registrant as specified in its charter) |
| Florida | 45-1967797 | |
(State or jurisdiction of Incorporation or organization | (I.R.S Employer Identification No.) |
| PMB 388, 8570 Stirling Rd., Suite 102, Hollywood, FL | 33024 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:code 786-855 6190855-6190
Securities registered under Section 12(b) of the Exchange Act:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A |
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☒ No ☐ No
Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☒ No ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”, “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | Smaller reporting company | ☒ | ||
| Emerging Growth Company | ☒ |
If an emerging growth company, indicate by check mark if the registrantRegistrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒☐ No☒
The numberAs of December 14, 2022, there were shares outstanding of the issuer’s Common Stock, $0.001 par value, as of November 22, 2021 was shares.common stock outstanding.
CAUTIONARY STATEMENTDISCLOSURE REGARDING FORWARD-LOOKING INFORMATIONFORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking statements. Forward-lookingThe forward-looking statements are contained principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may includecause our statements regarding our goals, beliefs, strategies, objectives, plans, including product and service developments,actual results, performance or achievements to be materially different from any future financial conditions, results, performances or projectionsachievements expressed or current expectations.implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminologyterms such as “anticipates,” “believes,” “seeks,” “could,” “estimates,” “expects,” “intends,” “may,” “will,“plans,” “potential,” “predicts,” “projects,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms, or other comparable terminology. For example, when we discuss our pursuit of strategic transactions including acquisitions, dispositions, capital raising“would” and debt restructuring, that our revenues will increase in 2021, and that we intendsimilar expressions intended to invest in sales, marketing, product development and innovation, we are usingidentify forward-looking statements. TheseForward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to knownrisks and unknownuncertainties. These risks uncertainties, assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements. These factorsuncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” below. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Such statements may include, but are not limited to, information related to: anticipated operating results; licensing arrangements; relationships with our customers; consumer demand; financial resources and condition; changes in revenues; changes in profitability; changes in accounting treatment; cost of sales; selling, general and administrative expenses; interest expense; the ability to implementsecure materials and subcontractors; the ability to produce the liquidity or enter into agreements to acquire the capital necessary to continue our strategic initiatives, economic, politicaloperations and market conditionstake advantage of opportunities; legal proceedings and fluctuations, governmentclaims.
Also, forward-looking statements represent our estimates and industry regulation, interest rate risk, U.S. and global competition, and other factors. Mostassumptions only as of these factors are difficult to predict accurately and are generally beyond our control.the date of this report. You should considerread this report and the areas of risk described in connectiondocuments that we reference and filed as exhibits to this report completely and with any forward-looking statementsthe understanding that our actual future results may be made herein. The business and operations of Thunder Energies Corporation are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report.materially different from what we expect. Except as required by law, we undertakeassume no obligation to release publicly the result ofupdate any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereofpublicly, or to reflectupdate the occurrencereasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of unanticipated events. Further information on potential factors that could affect our businessthe Form 10-K (e.g., Part I, Part II, etc.) into which the documents is described under “Item 1A. Risk Factors” in our restatedincorporated: (1) Any annual report on Form 10-K asto security holders; (2) Any proxy or information statement; and (3) Any prospectus filed withpursuant to Rule 424(b) or (c) under the Securities and Exchange Commission, or the SEC, on August 2, 2021 and in this quarterly report on Form 10-Q. Readers are also urged to carefully review and consider the various disclosures we have made in this report and in ourAct of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report on Form 10-K.”to security holders for fiscal year ended December 24, 1980).
NONE
EXPLANATORY NOTE
On October 14, 2021 Nature Consulting, LLC (“Nature”), a wholly owned subsidiary, filed a complaint in the United States District Court of the Southern District of Florida against Or-El Ben Simon, individually, Adam Levy (previously the Chief Executive Officer of the Company), individually, Solange Baruk (previously a bookkeeper of the Company), individually, DVP Distro, LLC, a Florida limited liability company, Custom Graphics 2011, Inc. a Florida corporation, Beso Group, LLC, a Florida limited liability company, and Tops Consulting, LLC a Florida limited liability company (collectively, the “Defendants”). The complaint alleges that the Defendants assumed control of Nature Consulting, LLC and in doing so:
| (a) | Violated the Electronic Communications Privacy Act, 18 U.S.C. ss2511 |
| (b) | Violated the Stored Communications Act, 18 U.S.C. ss2701 |
| (c) | Violated the Computer Fraud and Abuse Act, 18 U.S.C. ss1030 |
| (d) | Committed Conversion in the taking control of Nature Consulting, LLC’s premises (Ben Simon, DVP, Custom, Beso and Tops) |
| (e) | Committed Tortious Interference with Prospective Economic Opportunities |
| (f) | Committed Breach of Fiduciary Duty of Loyalty (Baruk) |
| (g) | Committed Civil Conspiracy (Ben Simon, Levy and Baruk) |
| (h) | Violated the Defend Trade Secrets Act Theft of Trade Secrets, 18 U.S.C. ss1832 |
Ben Simon and those in active consort with him have effectively hijacked Nature’s assets under the threat of force and physical violence. Moreover, they have systematically divested Nature of its assets, moved into its physical location without reason, and have otherwise converted its assets.
During this time, Defendants also assumed control of all computers belonging to Nature – including its Office365 access and database registered to Nature and using the domains of “@thpcbd.com,” “@thehemplug.com,” and “@natureconsulting.com.”
Additionally, Defendants looted and destroyed the premises leased by Nature, as follows:
| a. | Defendants commandeered all inventory belonging to Nature and refused to distribute to clients; |
| b. | Defendants commandeered a forklift belonging to Nature; |
| c. | Defendants have taken possession of all of Nature’s furniture, computers, printers, packaging, machineries, office supplies, phone systems, televisions, security cameras and other electronics; |
| d. | Defendants have discarded in a large trash container Nature’s merchandise, customer labels, catalogues, business cards, desks, office decorations and other inventory; |
| e. | Defendants destroyed Nature’s property by stripping its headquarters of all aesthetic enhancements and signage; |
| f. | Defendants assumed control of all e-mail accounts belonging to Nature and have intercepted Nature’s communications sent to the domain “@thpcbd.com,” “@thehemplug.com,” and “@natureconsulting.com”; and, |
| g. | Defendants have terminated Nature’s contracts with other vendors – to do this, they have used the commandeered “@thpcbd.com,” “@thehemplug.com,” and “@natureconsulting.com” email addresses. |
Furthermore, Defendants’ conduct havehas impeded the fulfillment of orders already paid for by Nature’s clients. This has caused Nature’s clients to threaten Nature with suit and to otherwise end their business relationships with Nature due to Nature’s failure to satisfy orders. Even if Nature wanted to operate, due to the unlawful interception of its communications with clients and vendors, it would be impossible.
Nature Consulting, LLC has demanded a jury trial to adjudicate this complaint.
On February 28,2022, as part of acquisition of TNRG Preferred Stock with Bear Village, other than liabilities specifically identified in the acquisition, no debt or liability is assumed by the Purchaser (see Note 1 to the unaudited condensed consolidated financial statements).
As a result of the actions of the Defendants, the Company recorded an impairment charge of $510,182$195,347 during the three and nine monthyear ended September 30,December 31, 2021 comprised of the following:
| September 30, | December 31, | |||||||
| Impairment charges: | 2021 | 2021 | ||||||
| Prepaids | $ | (12,500 | ) | $ | (12,500 | ) | ||
| Inventories | (136,309 | ) | (136,309 | ) | ||||
| Net office equipment | (18,586 | ) | (18,586 | ) | ||||
| Net computer equipment | (15,283 | ) | (15,283 | ) | ||||
| Net machinery and equipment | (21,782 | ) | (21,782 | ) | ||||
| Net leasehold improvements | (79,665 | ) | (79,665 | ) | ||||
| Net website | (64,100 | ) | (64,100 | ) | ||||
| Net operating lease right-of-use assets | (306,902 | ) | (306,902 | ) | ||||
| Deposits | (24,799 | ) | (24,799 | ) | ||||
| Due to related party(1) | 169,744 | 169,744 | ||||||
| Current portion of operating lease liabilities(2) (3) | 187,754 | |||||||
| Operating lease liabilities net of current portion(2) (3) | 127,081 | |||||||
| Total impairment charges | $ | (510,182 | ) | $ | (195,347 | ) | ||
(1)The Company has included due to related party of $169,744 within the impairment charge above as these amounts have been used to settle the assets, as impaired, which have been commandeered, discarded, destroyed and taken possession of by the defendant. This amount related to working capital loan taken from the defendants.
(2) On October 22, 2021 the Company entered into a lease termination agreement (“Lease Termination”) with Canal Park Office to terminate the Company’s North Miami Beach, Florida office space. The Termination Agreement allows Canal Park Office to retain the security deposit of $24,799 and to be paid $21,000. The Company was released from any other obligations.
(3) In December 2021, the Company confirmed with the landlord that as of that time and on a going forward basis, the Company has no rental obligation, or past due rental obligation or any other related liability on its office/ warehouse space located at 3017 Greene Street, Hollywood, Florida.
THUNDER ENERGIES CORPORATION
Quarterly Period Ended September 30, 2021
TABLE OF CONTENTS
PART I –1. FINANCIAL INFORMATION
ItemITEM 1. Condensed Financial Statements.FINANCIAL STATEMENTS
THUNDER ENERGIES CORPORATION
Unaudited Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, | December 31, | |||||||||||||||
| 2021 | 2020 | September 30, | December 31, | |||||||||||||
| 2022 | 2021 | |||||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash | $ | 3,665 | $ | 97,503 | $ | 29,949 | $ | – | ||||||||
| Accounts receivable, net of allowance of $147,357 and $14,350, respectively | 0 | 68,403 | ||||||||||||||
| Inventories, net | 0 | 168,470 | ||||||||||||||
| Notes receivable - related party | 26,200 | – | ||||||||||||||
| Deferred offering costs | 9,000 | – | ||||||||||||||
| Prepaid expenses | 0 | 202,050 | 30,000 | – | ||||||||||||
| Total current assets | 3,665 | 536,426 | 95,149 | – | ||||||||||||
| Property and equipment, net | 0 | 164,938 | ||||||||||||||
| Intangible assets, net | 0 | 71,855 | ||||||||||||||
| Operating lease right-of-use assets, net | 0 | 461,695 | ||||||||||||||
| Other assets | 0 | 24,799 | ||||||||||||||
| Total assets | $ | 3,665 | $ | 1,259,713 | $ | 95,149 | $ | – | ||||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable | $ | 305,167 | $ | 152,146 | $ | 80,619 | $ | 70,971 | ||||||||
| Due to related party | 72,743 | 485,487 | ||||||||||||||
| Loan payable to shareholder | 1,805 | 68,405 | ||||||||||||||
| Customer advance payments | 150,018 | 522,258 | ||||||||||||||
| Derivative liability | 82,257 | 124,180 | 87,482 | 83,404 | ||||||||||||
| Convertible notes payable, net of discount of $107,288 and $24,730, respectively | 281,478 | 144,036 | ||||||||||||||
| Current portion of operating lease liabilities | 187,754 | 207,762 | ||||||||||||||
| Convertible notes payable, net of discount of $8,985 and $241,876, respectively | 1,173,281 | 508,890 | ||||||||||||||
| Accrued interest | 1,206,526 | 374,443 | 3,233,848 | 1,019,156 | ||||||||||||
| Other current liabilities | 0 | 26,997 | ||||||||||||||
| Current liabilities of discontinued operations | – | 901,000 | ||||||||||||||
| Total current liabilities | 2,287,748 | 2,105,714 | 4,575,230 | 2,583,421 | ||||||||||||
| Long-term liabilities: | ||||||||||||||||
| Convertible notes payable, net of discount of $315,150 and $727,096, respectively | 286,850 | 92,904 | ||||||||||||||
| Long term notes payable | 349,490 | 201,035 | ||||||||||||||
| Operating lease liabilities net of current portion | 127,081 | 260,931 | ||||||||||||||
| Total long-term liabilities | 763,421 | 554,870 | ||||||||||||||
| Total liabilities | 3,051,169 | 2,660,584 | 4,575,230 | 2,583,421 | ||||||||||||
| Commitments and contingencies | – | – | ||||||||||||||
| Commitments and contingencies (Note 14) | ||||||||||||||||
| Stockholders' deficit | ||||||||||||||||
| Preferred stock - Series A: $ par value, authorized; and shares issued and outstanding, respectively | 50,000 | 50,000 | 50,000 | 50,000 | ||||||||||||
| Preferred stock - Series B: $ par value, authorized; and shares issued and outstanding, respectively | 5 | 5 | 5 | 5 | ||||||||||||
| Preferred stock - Series C: $ par value, authorized; and shares issued and outstanding, respectively | 10 | 10 | 10 | 10 | ||||||||||||
| Common stock: $ par value authorized; and shares issued and outstanding, respectively | 76,340 | 76,340 | ||||||||||||||
| Common stock: $ par value authorized; and shares issued and outstanding, respectively | 72,140 | 80,140 | ||||||||||||||
| Additional paid-in-capital | (879,312 | ) | (879,312 | ) | 724,888 | (693,112 | ) | |||||||||
| Accumulated deficit | (2,294,547 | ) | (647,914 | ) | (5,327,124 | ) | (2,020,464 | ) | ||||||||
| Total stockholders' deficit | (3,047,504 | ) | (1,400,871 | ) | (4,480,081 | ) | (2,583,421 | ) | ||||||||
| Total liabilities and stockholders' deficit | $ | 3,665 | $ | 1,259,713 | $ | 95,149 | $ | – | ||||||||
See notes to unaudited condensed financial statements
THUNDER ENERGIES CORPORATION
Condensed Statements of Operations
(Unaudited)
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenues | $ | 3,777,276 | $ | 6,577,162 | $ | 335,095 | $ | 1,296,431 | ||||||||
| Cost of sales | 1,582,799 | 3,743,271 | 207,133 | 383,790 | ||||||||||||
| Gross Profit | 2,194,477 | 2,833,891 | 127,962 | 912,641 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Advertising and marketing expenses | 391,850 | 325,245 | 39,883 | 151,600 | ||||||||||||
| General and administrative | 1,816,578 | 1,502,877 | 457,463 | 605,977 | ||||||||||||
| Total operating expenses | 2,208,428 | 1,828,122 | 497,346 | 757,577 | ||||||||||||
| Profit from operations | (13,951 | ) | 1,005,769 | (369,384 | ) | 155,064 | ||||||||||
| Other expense (income): | ||||||||||||||||
| Change in derivative liability | (41,923 | ) | 21,480 | (38,673 | ) | 21,480 | ||||||||||
| Accretion of debt discount | 331,388 | 61,262 | 103,342 | 61,262 | ||||||||||||
| Impairment of assets | 510,182 | 0 | 510,182 | 0 | ||||||||||||
| Interest expense | 833,035 | 147,471 | 378,789 | 117,494 | ||||||||||||
| Other expense | 0 | 61,000 | 0 | 56,500 | ||||||||||||
| Other income | 0 | (7,000 | ) | 0 | 0 | |||||||||||
| Total other expense | 1,632,682 | 284,213 | 953,640 | 256,736 | ||||||||||||
| (Loss) profit before income taxes | (1,646,633 | ) | 721,556 | (1,323,024 | ) | (101,672 | ) | |||||||||
| Income taxes | 0 | 0 | 0 | 0 | ||||||||||||
| Net (loss) profit | $ | (1,646,633 | ) | $ | 721,556 | $ | (1,323,024 | ) | $ | (101,672 | ) | |||||
| Net (loss) profit per share, basic and diluted | $ | (0.02 | ) | $ | 0.03 | $ | (0.02 | ) | $ | (0.00 | ) | |||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic and diluted | 76,340,735 | 22,128,575 | 76,340,735 | 43,297,429 | ||||||||||||
See notes to unaudited condensed financial statements
THUNDER ENERGIES CORPORATION
Condensed Statements of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
| Members' | Preferred Stock A | Preferred Stock B | Preferred Stock C | |||||||||||||||||||||||||
| equity | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||
| Balance, December 31, 2019 | $ | – | – | $ | – | – | $ | – | – | $ | – | |||||||||||||||||
| Acquisition of common shares in exchange for due to related party | (750,000 | ) | – | – | – | – | – | – | ||||||||||||||||||||
| Members' distribution | (32,011 | ) | – | – | – | – | – | – | ||||||||||||||||||||
| Net income | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance, March 31, 2020 | $ | (782,011 | ) | – | $ | – | – | $ | – | – | $ | – | ||||||||||||||||
| Members' distribution | (556,180 | ) | – | – | – | – | – | – | ||||||||||||||||||||
| Net income | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance, June 30, 2020 | $ | (1,338,191 | ) | – | $ | – | – | $ | – | – | $ | – | ||||||||||||||||
| Acquisition of business | 1,338,191 | 50,000,000 | 50,000 | 5,000 | 5 | 10,000 | 10 | |||||||||||||||||||||
| Common shares issued for acquisition | – | – | – | – | – | – | – | |||||||||||||||||||||
| Liability paid by shareholder | – | – | – | – | – | – | – | |||||||||||||||||||||
| Debt discount issued in conjunction with debt | – | – | – | – | – | – | – | |||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance, September 30, 2020 | $ | – | 50,000,000 | $ | 50,000 | 5,000 | $ | 5 | 10,000 | $ | 10 | |||||||||||||||||
| Balance, December 31, 2020 | $ | – | 50,000,000 | $ | 50,000 | 5,000 | $ | 5 | 10,000 | $ | 10 | |||||||||||||||||
| Net loss | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance, March 31, 2021 | $ | – | 50,000,000 | $ | 50,000 | 5,000 | $ | 5 | 10,000 | $ | 10 | |||||||||||||||||
| Net loss | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance, June 30, 2021 | $ | – | 50,000,000 | $ | 50,000 | 5,000 | $ | 5 | 10,000 | $ | 10 | |||||||||||||||||
| Net loss | – | – | – | – | – | – | – | |||||||||||||||||||||
| Balance, September 30, 2021 | $ | – | 50,000,000 | $ | 50,000 | 5,000 | $ | 5 | 10,000 | $ | 10 | |||||||||||||||||
| Common Stock | Additional paid | Retained Earnings (Accumulated | ||||||||||||||||||
| Shares | Amount | in capital | Deficit) | Total | ||||||||||||||||
| Balance, December 31, 2019 | – | $ | – | $ | – | $ | (97,312 | ) | $ | (97,312 | ) | |||||||||
| Acquisition of common shares in exchange for due to related party | – | – | – | – | (750,000 | ) | ||||||||||||||
| Members' distribution | – | – | – | – | (32,011 | ) | ||||||||||||||
| Net income | – | – | – | 179,531 | 179,531 | |||||||||||||||
| Balance, March 31, 2020 | – | $ | – | $ | – | $ | 82,219 | $ | (699,792 | ) | ||||||||||
| Members' distribution | – | – | – | – | (556,180 | ) | ||||||||||||||
| Net income | – | – | – | 643,697 | 643,697 | |||||||||||||||
| Balance, June 30, 2020 | – | $ | – | $ | – | $ | 725,916 | $ | (612,275 | ) | ||||||||||
| Acquisition of business | 12,645,255 | 12,645 | (1,811,435 | ) | – | (410,584 | ) | |||||||||||||
| Common shares issued for acquisition | 60,000,000 | 60,000 | – | – | 60,000 | |||||||||||||||
| Liability paid by shareholder | – | – | 47,586 | – | 47,586 | |||||||||||||||
| Debt discount issued in conjunction with debt | – | – | 220,000 | – | 220,000 | |||||||||||||||
| Net loss | – | – | – | (101,672 | ) | (101,672 | ) | |||||||||||||
| Balance, September 30, 2020 | 72,645,255 | $ | 72,645 | $ | (1,543,849 | ) | $ | 624,244 | $ | (796,945 | ) | |||||||||
| Balance, December 31, 2020 | 76,340,735 | $ | 76,340 | $ | (879,312 | ) | $ | (647,914 | ) | $ | (1,400,871 | ) | ||||||||
| Net loss | – | – | – | (214,531 | ) | (214,531 | ) | |||||||||||||
| Balance, March 31, 2021 | 76,340,735 | $ | 76,340 | $ | (879,312 | ) | $ | (862,445 | ) | $ | (1,615,402 | ) | ||||||||
| Net loss | – | – | – | (109,078 | ) | (109,078 | ) | |||||||||||||
| Balance, June 30, 2021 | 76,340,735 | $ | 76,340 | $ | (879,312 | ) | $ | (971,523 | ) | $ | (1,724,480 | ) | ||||||||
| Net loss | – | – | – | (1,323,024 | ) | (1,323,024 | ) | |||||||||||||
| Balance, September 30, 2021 | 76,340,735 | $ | 76,340 | $ | (879,312 | ) | $ | (2,294,547 | ) | $ | (3,047,504 | ) | ||||||||
See notes to unaudited condensed financial statements
THUNDER ENERGIES CORPORATION
Unaudited Condensed Consolidated Statements of Operations
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net revenues | $ | – | $ | – | $ | – | $ | – | ||||||||
| Cost of sales | – | – | – | – | ||||||||||||
| Gross Profit | – | – | – | – | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Advertising and marketing expenses | 4,743 | – | 4,743 | – | ||||||||||||
| Stock based compensation | 1,410,000 | – | – | – | ||||||||||||
| General and administrative | 341,258 | 89,675 | 188,483 | 22,620 | ||||||||||||
| Total operating expenses | 1,756,001 | 89,675 | 193,226 | 22,620 | ||||||||||||
| Loss from operations | (1,756,001 | ) | (89,675 | ) | (193,226 | ) | (22,620 | ) | ||||||||
| Other (income) expense: | ||||||||||||||||
| Change in derivative liability | 4,078 | (41,923 | ) | (5,455 | ) | (38,673 | ) | |||||||||
| Accretion of debt discount | 232,891 | 331,388 | 76,685 | 103,342 | ||||||||||||
| Impairment of assets | – | 510,182 | – | 510,182 | ||||||||||||
| Interest expense | 2,214,690 | 808,284 | 1,049,317 | 374,570 | ||||||||||||
| Gain on disposal of discontinued operations | (901,000 | ) | – | – | – | |||||||||||
| Total other expense | 1,550,659 | 1,607,931 | 1,120,547 | 949,421 | ||||||||||||
| Loss before income taxes | (3,306,660 | ) | (1,697,606 | ) | (1,313,773 | ) | (972,041 | ) | ||||||||
| Income taxes | – | – | – | – | ||||||||||||
| Loss from continuing operations | (3,306,660 | ) | (1,697,606 | ) | (1,313,773 | ) | (972,041 | ) | ||||||||
| Discontinued operations | – | 50,973 | – | (350,983 | ) | |||||||||||
| Net loss | $ | (3,306,660 | ) | $ | (1,646,633 | ) | $ | (1,313,773 | ) | $ | (1,323,024 | ) | ||||
| Net loss per share from continuing operations, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Net loss per share from discontinued operations, basic and diluted | $ | $ | ) | $ | $ | ) | ||||||||||
| Net loss per share, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares outstanding | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
See notes to unaudited condensed financial statements
| 6 |
THUNDER ENERGIES CORPORATION
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Deficit
| Preferred Stock A | Preferred Stock B | Preferred Stock C | Common Stock | Additional Paid | Accumulated | Total Stockholders' | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | in Capital | Deficit | Deficit | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 50,000,000 | 50,000 | 5,000 | 5 | 10,000 | 10 | 76,340,735 | $ | 76,340 | $ | (879,312 | ) | $ | (647,914 | ) | $ | (1,400,871 | ) | ||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | (214,531 | ) | (214,531 | ) | |||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 50,000,000 | 50,000 | 5,000 | 5 | 10,000 | 10 | 76,340,735 | $ | 76,340 | $ | (879,312 | ) | $ | (862,445 | ) | $ | (1,615,402 | ) | ||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | (109,078 | ) | (109,078 | ) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 50,000,000 | 50,000 | 5,000 | 5 | 10,000 | 10 | 76,340,735 | $ | 76,340 | $ | (879,312 | ) | $ | (971,523 | ) | $ | (1,724,480 | ) | ||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | (1,323,024 | ) | (1,323,024 | ) | |||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 50,000,000 | 50,000 | 5,000 | 5 | 10,000 | 10 | 76,340,735 | $ | 76,340 | $ | (879,312 | ) | $ | (2,294,547 | ) | $ | (3,047,504 | ) | ||||||||||||||||||||||||||
| Balance, December 31, 2021 | 50,000,000 | 50,000 | 5,000 | 5 | 10,000 | 10 | 80,140,735 | $ | 80,140 | $ | (693,112 | ) | $ | (2,020,464 | ) | $ | (2,583,421 | ) | ||||||||||||||||||||||||||
| Common shares returned to treasury for cancellation | – | – | – | – | – | – | (55,000,000 | ) | (55,000 | ) | 55,000 | – | – | |||||||||||||||||||||||||||||||
| Issuance of fully vested common shares issued against employment services | – | – | – | – | – | – | 25,000,000 | 25,000 | 725,000 | – | 750,000 | |||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | (447,774 | ) | (447,774 | ) | |||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 50,000,000 | 50,000 | 5,000 | 5 | 10,000 | 10 | 50,140,735 | $ | 50,140 | $ | 86,888 | $ | (2,468,238 | ) | $ | (2,281,195 | ) | |||||||||||||||||||||||||||
| Issuance of fully vested common shares issued for consulting services | – | – | – | – | – | – | 22,000,000 | 22,000 | 638,000 | – | 660,000 | |||||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | (1,545,113 | ) | (1,545,113 | ) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 50,000,000 | 50,000 | 5,000 | 5 | 10,000 | 10 | 72,140,735 | $ | 72,140 | $ | 724,888 | $ | (4,013,351 | ) | $ | (3,166,308 | ) | |||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | – | (1,313,773 | ) | (1,313,773 | ) | |||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | 50,000,000 | 50,000 | 5,000 | 5 | 10,000 | 10 | 72,140,735 | $ | 72,140 | $ | 724,888 | $ | (5,327,124 | ) | $ | (4,480,081 | ) | |||||||||||||||||||||||||||
See notes to unaudited condensed financial statements
| 7 |
THUNDER ENERGIES CORPORATION
Unaudited Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,306,660 | ) | $ | (1,646,633 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Accretion of debt discount | 232,891 | 331,388 | ||||||
| Change in fair value of derivative liability | 4,078 | (41,923 | ) | |||||
| Gain on disposal of discontinued operations | (901,000 | ) | – | |||||
| Stock based compensation | 1,410,000 | – | ||||||
| Convertible notes payable issued for services | 1,500 | – | ||||||
| Impairment of assets | – | 510,182 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Notes receivable - related party | (26,200 | ) | – | |||||
| Deferred offering costs | (9,000 | ) | – | |||||
| Prepaid expenses | (30,000 | ) | – | |||||
| Accounts payable | 9,648 | 35,095 | ||||||
| Accrued interest | 2,214,692 | 807,332 | ||||||
| Net cash used in continuing operating activities | (400,051 | ) | (4,559 | ) | ||||
| Net cash used in operating activities - discontinued activities | – | 87,203 | ||||||
| Net cash (used in) provided by operating activities | (400,051 | ) | 82,644 | |||||
| Cash flows from investing activities: | ||||||||
| Net cash used in continuing investing activities | – | – | ||||||
| Net cash used in investing activities - discontinued activities | – | (15,337 | ) | |||||
| Net cash used in investing activities | – | (15,337 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from short term convertible notes payable | 430,000 | – | ||||||
| Net cash used in continuing financing activities | 430,000 | – | ||||||
| Net cash used in financing activities - discontinued activities | – | (161,145 | ) | |||||
| Net cash provided by (used in) financing activities | 430,000 | (161,145 | ) | |||||
| Net (decrease) increase in cash | 29,949 | (93,838 | ) | |||||
| Cash at beginning of period | – | 97,503 | ||||||
| Cash at end of period | $ | 29,949 | $ | 3,665 | ||||
| Non-cash investing and financing activities: | ||||||||
| Common shares returned to treasury for cancellation | $ | 55,000 | $ | – | ||||
For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (1,646,633 | ) | $ | 721,556 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation expense | 44,959 | 6,411 | ||||||
| Amortization expense | 7,755 | 1,817 | ||||||
| Accretion of debt discount | 331,388 | 61,262 | ||||||
| Change in fair value of derivative liability | (41,923 | ) | 21,480 | |||||
| Impairment of assets | 510,182 | 0 | ||||||
| Bad debt expense | 0 | (848 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 68,403 | (610,204 | ) | |||||
| Inventories, net | 32,161 | 5,180 | ||||||
| Prepaid expenses | 189,550 | (94,103 | ) | |||||
| Other current assets | 0 | (24,799 | ) | |||||
| Accounts payable | 153,021 | (191,615 | ) | |||||
| Customer advance payments | (372,240 | ) | 362,863 | |||||
| Accrued interest | 832,083 | 147,371 | ||||||
| Other current liabilities | (26,062 | ) | 113,956 | |||||
| Net cash provided by operating activities | 82,644 | 520,327 | ||||||
| Cash flows from investing activities: | �� | |||||||
| Purchase of intangible assets | 0 | (77,550 | ) | |||||
| Purchases of equipment | (15,337 | ) | (64,712 | ) | ||||
| Net cash used in investing activities | (15,337 | ) | (142,262 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loan payable to shareholder | 0 | 57,500 | ||||||
| Repayment of due from related party | (243,000 | ) | (286,757 | ) | ||||
| Repayments of loan payable to shareholder | (66,600 | ) | 0 | |||||
| Repayments of short term notes payable | (51,545 | ) | (20,000 | ) | ||||
| Proceeds from related party | 0 | 182,599 | ||||||
| Proceeds from short term convertible notes payable | 0 | 220,000 | ||||||
| Proceeds from short term notes payable | 0 | 221,065 | ||||||
| Proceeds from long term notes payable | 200,000 | 0 | ||||||
| Distributions to members, net | 0 | (732,691 | ) | |||||
| Net cash used in financing activities | (161,145 | ) | (358,284 | ) | ||||
| Net (decrease) increase in cash | (93,838 | ) | 19,781 | |||||
| Cash at beginning of period | 97,503 | 36,060 | ||||||
| Cash at end of period | $ | 3,665 | $ | 55,841 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 0 | $ | 0 | ||||
| Income taxes | $ | 0 | $ | 0 | ||||
| Non-cash investing and financing activities: | ||||||||
| Acquisition of common shares in exchange for due to related party | $ | 0 | $ | 750,000 | ||||
| Debt discount issued in conjunction with debt | $ | 0 | $ | 220,000 | ||||
| Common shares issued for acquisition | $ | 0 | $ | 60,000 | ||||
| Liability paid by shareholder | $ | 0 | $ | 47,586 | ||||
See notes to unaudited condensed financial statements
THUNDER ENERGIES CORPORATION
Notes to Condensed Financial Statements
For the Three and Nine Months Ended September 30, 20212022 and 20202021
(Unaudited)
NOTE 1 –NATURE OF BUSINESS
Corporate History and Background
Thunder Energies Corporation (“we”, “us”, “our”, “TEC” or the “Company”) was incorporated in the State of Florida on April 21, 2011.
On July 29, 2013, the Company filed with the Florida Secretary of State, Articles of Amendment to its Articles of Incorporation (the “Amendment”) which changed the name of the Company from CCJ Acquisition Corp. to Thunder Fusion Corporation. The Amendment also changed the principal office address of the Company to 150 Rainville Road, Tarpon Springs, Florida 34689. On May 1, 2014, the Company filed with the Florida Secretary of State, Articles of Amendment to its Articles of Incorporation (the “Amendment”) which changed the name of the Company from Thunder Fusion Corporation to Thunder Energies Corporation. The Company subsequently changed itsCompany’s principal office address to 3017 Greene St.is PMB 388, 8570 Stirling Rd., Suite 102, Hollywood, Florida 33020.FL, 33024.
Acquisition of TNRG Preferred Stock
Fiscal Year 2022
On February 28, 2022, Mr. Ricardo Haynes, Mr. Eric Collins, Mr. Lance Lehr, Ms. Tori White and Mr. Donald Keer, each as an individual and principal shareholder (“Shareholders”) of Bear Village, Inc., a Wyoming corporation, (the “Purchaser”) collectively acquired 100% of the issued and outstanding shares of preferred stock (the “Preferred Stock”) of Thunder Energies Corporation, a Florida corporation, (the “Company” or the “Registrant”) from Mr. Yogev Shvo, an individual domiciled in Florida (the “Seller”) (the “Purchase”). The consideration for the Purchase was provided to the Seller by the Purchaser on behalf of the Shareholders and was recorded as compensation expense.
The Preferred Stock acquired by the Purchaser consisted of:
1. 50,000,000 shares of Series A Convertible Preferred Stock wherein each share is entitled to fifteen (15) votes and converts into ten (10) shares of the Company’s common stock.
2. 5,000 shares of Series B Convertible Preferred Stock wherein each share is entitled to one thousand (1,000) votes and converts into one thousand (1,000) shares of the Company’s common stock.
3. 10,000 shares of Series C Non-Convertible Preferred Stock wherein each share is entitled to one thousand (1,000) votes and is non-convertible into shares of the Company’s common stock.
As part of the Purchase, Mr. Shvo submitted shares of restricted common stock to the Company’s treasury for cancellation, in consideration for the transfer to him by TNRG of all of the issued and outstanding membership interests, assets and liabilities of Nature and THEHEMPLUG, LLC a Florida limited liability company (“HP”), both of which are wholly-owned subsidiaries of TNRG.
| 9 |
The purchase price of $50,000 for the Preferred Stock was paid in cash as of September 30, 2022. The consideration for the purchase was provided to the Seller by the Purchaser on behalf of the Shareholders. The Company had been in discussions with the Shareholders for repayment and finalized the Employment Agreements (“Employment Agreements”) on October 1, 2022 for positions in the Company. As a result, the Company recorded the purchase price as compensation on March 1, 2022. The Purchase of the Preferred Stock was the result of a privately negotiated transaction which consummation resulted in a change of control of the Registrant.
1) Purchaser accepts TNRG subject to the following existing debt and obligations:
a. $35,000 Convertible Note held by ELSR plus accrued interest
b. $85,766 Convertible Note held by ELSR plus accrued interest
c. $220,000 Convertible Note held by 109 Canon plus accrued interest
d. $410,000 Convertible Note held by Moshe Zucker plus accrued interest of which $190,000 has recently been converted into shares of restricted common stock.
e. Auditor Invoice estimated at $30,000 past due and $37,000 for completion of 2021
f. Accountant Invoice estimated at $42,500 and approximately $4,500 for completion of 2021
g. No other debt or liability is being assumed by Purchaser
h. Purchaser specifically assumes no liability regarding any dispute between Orel Ben Simon and the Seller. Seller shall indemnify Company as required in the body of the Agreement.
i. Company may be subject to potential liability and legal fees and associated costs regarding the FCV Matter if in excess of the Seller indemnification provisions set forth in Section 11 of the Agreement
j. Purchaser on behalf of the Company is responsible for assuring the Company’s timely payment of all Company federal and state and any related tax obligations for fiscal year 2021 with the exception of taxes due relating to income, sales, license, business or any other taxes associated with Nature and HP
2) The transfer to Seller of all of TNRG’s security ownership interest in each of Nature and HP shall include the following existing Nature debt and related matters:
a. EIDL Loan ($149,490 plus $9,290 accrued interest)
b. $72,743 note due to Orel Ben Simon plus accrued interest
c. All cases in action and potential legal liabilities concerning current disputes with Nature, HP, Ben Simon, Seller and any other parties.
As a result of the Purchase and change of control of the Registrant, the existing officers and directors of the Company, Mr. Adam Levy, Mr. Bruce W.D. Barren, Ms. Solange Bar and Mr. Yogev Shvo (Chairman) have either resigned or been voted out of their positions.
Under the terms of the stock purchase agreement the new controlling shareholder was permitted to elect representatives to serve on the Board of Directors to fill the seat(s) vacated by prior directors. Mr. Ricardo Haynes became the sole Director, CEO and Chairman of the Board of the Registrant, and the acting sole officer of the Company.
Fiscal Year 2020
On July 1, 2020, Yogev Shvo, a third party individual and principal shareholder of Nature Consulting LLC (“Nature” or “Purchaser”) personally acquired 100% of the issued and outstanding shares of preferred stock (the “Preferred Stock”) of TNRG from Saveene Corporation, a Florida corporation (the “Seller”) (The “Purchase”). The purchase price of $250,000$250,000 for the Preferred Stock was paid in cash and was provided from the individual private funds of Purchaser.
| 10 |
The Preferred Stock acquired by the Purchaser consisted of:
| 1. | 50,000,000 shares of Series A Convertible Preferred Stock wherein each share is entitled to fifteen (15) votes and converts into ten (10) shares of the Company’s common stock. | |
| 2. | 5,000 shares of Series B Convertible Preferred Stock wherein each share is entitled to one thousand (1,000) votes and converts into one thousand (1,000) shares of the Company’s common stock. | |
| 3. | 10,000 shares of Series C Non-Convertible Preferred Stock wherein each share is entitled to one thousand (1,000) votes and is non-convertible into shares of the Company’s common stock. |
Acquisition of Assets of Nature
On August 14, 2020 (the “Closing Date”), TNRG and the members of Nature entered into an Interest Purchase Agreement (the “Interest Purchase Agreement”), which closed on the same date. Pursuant to the terms of the Interest Purchase Agreement, the members of Nature sold all of their membership interests in Nature to TNRG in exchange for sixty million () shares of TNRG’s Common Stock. As a result of this transaction, Nature became a wholly-owned subsidiary of TNRG.
The Interest Purchase Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions. Breaches of the representations and warranties will be subject to customary indemnification provisions, subject to specified aggregate limits of liability.
The membership Interest Purchase Agreement will be treated as a reverse acquisition by the Company for financial accounting purposes. Nature will be considered the acquirer for accounting purposes, and the historical financial statements of Nature, before the membership exchange will replace the historical financial statements of TNRG before the membership exchange and in all future filings with the SEC.
Immediately following the Interest Purchase Agreement, the business of Nature became TNRG’s main operation.
Filing of Complaint Against Certain Former Officers and Other Parties
On October 14, 2021 Nature Consulting, LLC, a wholly owned subsidiary, filed a complaint in the United States District Court of the Southern District of Florida against Or-El Ben Simon, individually, Adam Levy (previously the Chief Executive Officer of the Company), individually, Solange Baruk (previously a bookkeeper of the Company), individually, DVP Distro, LLC, a Florida limited liability company, Custom Graphics 2011, Inc. a Florida corporation, Beso Group, LLC, a Florida limited liability company, and Tops Consulting, LLC a Florida limited liability company (collectively, the “Defendants”).
Ben Simon and those in active consort with him have effectively hijacked Nature’s assets under the threat of force and physical violence. Moreover, they have systematically divested Nature of its assets, moved into its physical location without reason, and have otherwise converted its assets.
During this time, Defendants also assumed control of all computers belonging to Nature – including its Office365 access and database registered to Nature and using the domains of “@thpcbd.com,” “@thehemplug.com,” and “@natureconsulting.com.”
Additionally, Defendants looted and destroyed the premises leased by Nature, as follows:
Furthermore, Defendants’ conduct have impeded the fulfillment of orders already paid for by Nature’s clients. This has caused Nature’s clients to threaten Nature with suit and to otherwise end their business relationships with Nature due to Nature’s failure to satisfy orders. Even if Nature wanted to operate, due to the unlawful interception of its communications with clients and vendors, it would be impossible.
Nature Consulting, LLC has demanded a jury trial to adjudicate this complaint.
As a result of the actions of the Defendants, the Company recorded an impairment charge of $510,182 during the three and nine month ended September 30, 2021 comprised of the following:
Schedule of impairment charges
| September 30, | ||||
| Impairment charges: | 2021 | |||
| Prepaids | $ | (12,500 | ) | |
| Inventories | (136,309 | ) | ||
| Net office equipment | (18,586 | ) | ||
| Net computer equipment | (15,283 | ) | ||
| Net machinery and equipment | (21,782 | ) | ||
| Net leasehold improvements | (79,665 | ) | ||
| Net website | (64,100 | ) | ||
| Net operating lease right-of-use assets | (306,902 | ) | ||
| Deposits | (24,799 | ) | ||
| Due to related party(1) | 169,744 | |||
| Total impairment charges | $ | (510,182 | ) | |
_________________
NOTE 2 – BASIS OF PRESENTATIONBasis of Presentation
The accompanying interim unaudited condensed financial statements (“Interim Financial Statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are presented in accordance with the requirements of Rule 10-01 of Regulation S-X. Accordingly, these Interim Financial Statements do not include all of the information and notes required by GAAP for complete financial statements. These Interim Financial Statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 20202021 included in the Form 10-K filed with the SEC on August 2, 2021.October 18, 2022. In the opinion of management, the Interim Financial Statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented. The operating results and cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
The Company currently operates in one business segment. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer, who comprehensively manages the entire business. The Company does not currently operate any separate lines of businesses or separate business entities.
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of approximately $2,295,000 $2,294,5475,327,124 and $2,020,464 at September 30, 2022 and December 31, 2021, respectively, had a working capital deficit of approximately $2,284,0004,480,081 and $2,583,421 at September 30, 2022 and December 31, 2021, respectively, had net losslosses of approximately $1,323,000 $(1,323,024)1,313,773 and $1,647,000 $(1,646,633)3,306,660, and $1,323,024 and $1,646,633 for the three and nine months ended September 30, 2022 and 2021, respectively, and a net losscash used in operating activities of approximately $102,000 $(101,672)400,051 and a net profit of $722,000 721,556 for the three and nine months ended September 30, 2020, respectively, and net cash provided by operating activities of approximately $83,000 $82,644 and $520,000 520,327 for the nine months ended September 30, 20212022 and 2020,2021, respectively, with limited revenue earned since inception, and a lack of operational history. In addition, there are no assets to satisfy the liabilities that exist on September 30, 2021. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating cost and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
| 11 |
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan to obtain such resources for the Company include, obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance that the Company will attain profitability.
The condensedconsolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 –- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the consolidated financial statements.
Use of Estimates
The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the financial statements. The more significant estimates and assumptions by management include among others: inventory valuation, recoverability of all assets, amortization of intangible assets, depreciation of property and equipment, allowance for doubtful accounts,common stock valuation, the recoverability of intangibles, derivative valuation, and lease asset amortization. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Cash
The Company’s cash is held in bank accounts in the United States and is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company has not experienced any cash losses.
Accounts Receivable
Accounts receivable are non-interest-bearing obligations due under normal course of business. Management reviews accounts receivable on a monthly basis to determine if any receivables will be potentially uncollectible. Historical bad debts and current economic trends are used in evaluating the allowance for doubtful accounts. The Company includes any accounts receivable balances that are determined to be uncollectible in its overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, the Company has an allowance for doubtful accounts of $147,3570 and $14,350147,357 (from discontinued operations) as of September 30, 20212022 and December 31, 2020,2021, respectively.
Cash Flows Reporting
The Company follows ASC 230, Statement of Cash Flows, for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category. The Company uses the indirect or reconciliation method (“Indirect method”) as defined by ASC 230, Statement of Cash Flows, to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.
| 12 |
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company.
Income Taxes
As a result of the Company’s Interest Purchase Agreement, the Company converted to a corporation (“Conversion”). Beginning on August 14, 2020, the Company’s results of operations are taxed as a C Corporation. Prior to the Conversion, the Company’s operations were taxed as a limited liability company, whereby the Company elected to be taxed as a partnership and the income or loss was required to be reported by each respective member on their separate income tax returns. Therefore, no provision for income taxes has been provided in the accompanying consolidated financial statements for periods prior to August 14, 2020.
Income taxes are accounted for under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Consolidated Balance Sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The likelihood that its deferred tax assets will be recovered from future taxable income must be assessed and, to the extent that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance in a period are recorded through the income tax provision in the consolidatedCondensed Consolidated Statements of Operations.
ASC 740-10-30 was adopted from the date of its inception. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s consolidated financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of ASC 740-10, and currently, the Company does not have a liability for unrecognized income tax benefits.
Advertising and Marketing ExpensesCosts
Advertising and marketing expenses are recorded as marketing expenses when they are incurred. AdvertisingThe Company had advertising and marketing expense wasof $4,743 and $4,743, and $39,883 and $391,850, and $151,600 and $325,245 for the three and nine months ended September 30, 2022 and 2021, and 2020, respectively.respectively, as part of discontinued operations.
Revenue Recognition
On January 19, 2019 (date of formation), the Company adopted Accounting Standards Codification ASC 606 (“ASC 606”), Revenue from Contracts with Customers. Results for the reporting periods beginning on January 19, 2019 (date of formation) are presented under ASC 606.
The Company generates all of its revenue from contracts with customers. The Company recognizes revenue when we satisfy a performance obligation by transferring control of the promised services to a customer in an amount that reflects the consideration that we expect to receive in exchange for those services. The Company determines revenue recognition through the following steps:
| 1. | Identification of the contract, or contracts, with a customer. | |
| 2. | Identification of the performance obligations in the contract. | |
| 3. | Determination of the transaction price. | |
| 4. | Allocation of the transaction price to the performance obligations in the contract | |
| 5. | Recognition of revenue when, or as, we satisfy a performance obligation. |
At contract inception, the Company assesses the services promised in our contracts with customers and identifies a performance obligation for each promise to transfer to the customer a service (or bundle of services) that is distinct. To identify the performance obligations, the Company considers all of the services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company allocates the entire transaction price to a single performance obligation.
A description of our principal revenue generating activities are as follows:
Sales – The Company offers consumer CBD and hemp products through its online websites. During the three and nine months ended September 30, 2021 and 2020, the Company recorded sales of $335,095 and $3,777,276, and $1,296,431 and $3,577,162, respectively.
Mask sales – As a result of the COVID 19 pandemic, in 2020, the Company entered into the sale of KN95 masks but had to dispose of them at a loss. During the three and nine months ended September 30, 2021 and 2020, the Company recorded mask sales of $0 and $0, and $0 and $3,054,200, respectively.
The Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the Company is primarily obligated in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sale price. The Company generally records the net amounts as commissions earned if we are not primarily obligated and do not have latitude in establishing prices.
Revenue is recognized when the product is shipped to the customer, provided that collection of the resulting receivable is reasonably assured. The Company primarily provides for no credit terms as it collects a deposit of 50% upon order and requires the remaining 50% be paid before the order is shipped. When credit terms are granted, terms of up to 120 days are provided, based on credit evaluations. Allowances, though not material, has been provided for uncollectible accounts. Management has evaluated the receivables and believes they are collectible based on the nature of the receivables, historical experience of credit losses, and all other currently available evidence. Discounts are recorded as a reduction of the transaction price. Revenue excludes any amounts collected on behalf of third parties, including sales taxes.
Customer AdvanceAdvanced Payments – Discontinued Operations
Customer advanceadvanced payments consistsconsisted of customer orders paid in advance of the delivery of the order. Customer advanceadvanced payments are classified as short-term as the typical order ships within approximately three weeks of placing the order. Customer advanceadvanced payments are recognized as revenue when the product is shipped to the customer and all other revenue recognition criteria have been met. Customer advanceadvanced payments were $150,018 and $522,258, as of September 30, 20212022 and December 31, 2020, respectively, which2021 were recognized as revenue during the subsequent period.$0 and $203,518 (from discontinued operations), respectively. Customer advanceadvanced payments are included in current liabilities in the accompanying condensed consolidatedConsolidated Balance Sheets. The Company’s ability to fulfill these orders have been impaired (see Note 1)Explanatory Note).
Inventories – Discontinued Operations
The Company manufactures its own products, made to order, and when completed are shipped to the customer. The Company's inventories are valued by the first-in, first-out ("FIFO") cost method and are stated at the lower of cost or net realizable value. The Company had inventoryinventories of $0 and $168,4700, mostly consisting of raw materials, (from discontinued operations) as of September 30, 20212022 and December 31, 2020,2021, respectively. See Explanatory Note 1 along with Note 14 for impairment discussion as of September 30,December 31, 2021.
Property and Equipment
Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, generally five years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Fixed assets are examined for the possibility of decreases in value when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Intangible Assets
Intangible assets consistconsisted primarily of developed technology – website applications.website. Our intangible assets are being amortized on a straight-line basis over a period of 5 five years.
Impairment of Long-lived Assets
We periodically evaluate whether the carrying value of property, equipment and intangible assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value. ThereAll long-lived assets are 0 impairmentsimpaired as of September 30, 2022 and December 31, 2020.2021. See Explanatory Note 1 along with Note 14 for impairment discussion as of September 30,December 31, 2021.
Our impairment analysis requiresanalyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third-partythird party comparable sales and discounted cash flow models. If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.
Leases
In accordance with ASC 842, Leases, theThe Company determines whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, the Company determines whether it should be classified as an operating or finance lease. Operating leases are recorded in the balance sheet as: right-of-use asset (“ROU asset”) and operating lease liability.obligation. ROU asset representsassets represent the Company’s right to use an underlying asset for the lease term and lease liability representsliabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measured based on the present value of lease payments over the lease term. The ROU asset also includes deferred rent liabilities. The Company’s lease arrangements generally do not provide an implicit interest rate. As a result, in such situations the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU assetassets and liability.liabilities. Lease expense for the operating leaseleases is recognized on a straight-line basis over the lease term. The Company has asome lease agreementagreements with lease and non-lease components, which are accounted for as a single lease component. See Explanatory Note 1 along with Note 14 for impairment discussion as of September 30,December 31, 2021.
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Fair Value of Financial Instruments
The provisions of accounting guidance, FASB Topic ASC 825 requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2022 and December 31, 2021, the fair value of cash, accounts receivable, accounts payable, accrued expenses, derivative liability, and notes payable approximated carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate with market rates.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
| · | Level 1 – Quoted prices in active markets for identical assets or liabilities. | |
| · | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices 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. | |
| · | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or |
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. There were no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. There have been no transfers between levels.
The derivatives are evaluated under the hierarchy of ASC 480-10, ASC Paragraph 815-25-1 and ASC Subparagraph 815-10-15-74 addressing embedded derivatives. The fair value of the Level 3 financial instruments was performed internally by the Company using Black-Scholesthe Black Scholes valuation method.
The following table summarize the Company’s fair value measurements by level at September 30, 20212022 for the assets measured at fair value on a recurring basis:
| Schedule of fair value measurements | ||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Derivative liability | $ | 0 | $ | 0 | $ | 82,257 | $ | – | $ | – | $ | 87,482 | ||||||||||||
The following table summarize the Company’s fair value measurements by level at December 31, 20202021 for the assets measured at fair value on a recurring basis:
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liability | $ | 0 | $ | 0 | $ | 124,180 | ||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Derivative liability | $ | – | $ | – | $ | 83,404 | ||||||
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Debt
The Company issues debt that may have separate warrants, conversion features, or no equity-linked attributes.
Debt with warrants – When the Company issues debt with warrants, the Company treats the warrants as a debt discount, recordrecords them as a contra-liability against the debt, and amortizeamortizes the balancediscount over the life of the underlying debt as amortization of debt discount expense in the statementsCondensed Consolidated Statements of operations.Operations. When the warrants require equity treatment under ASC 815, the offset to the contra-liability is recorded as additional paid in capital in our balance sheet. When the Company issues debt with warrants that require liability treatment under ASC 815, such as a clause requiring repricing, the warrants are considered to be a derivative that is recorded as a liability at fair value. If the initial value of the warrant derivative liability is higher than the fair value of the associated debt, the excess is recognized immediately as interest expense. The warrant derivative liability is adjusted to its fair value at the end of each reporting period, with the change being recorded as expense or gain to Other (income)/ expense in the Condensed Consolidated Statements of Operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the statement of operations.expense. The debt is treated as conventional debt.
Convertible debt – derivative treatment – When the Company issues debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in shareholders’ equity in its statement of financial position.
If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using Monte Carlo Methodthe Black Scholes method upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statementConsolidated Statement of operations.Operations. The debt discount is amortized through interest expense over the life of the debt.
If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt.
The unaudited computation of net profit (loss)loss per share included in the Condensed Consolidated Statements of Operations, represents the net profit (loss) per share that would have beenis reported had the Company been subject toper ASC 260, “Earnings Per Share as a corporationShare” for all periods presented.
Diluted earnings (loss) per share are computed on the basis of the weighted average number of common shares (including common stock subject to redemption) plus dilutive potential common shares outstanding for the reporting period. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
The following potentially dilutive securities were excluded from the calculation of diluted net loss per share because the effects were anti-dilutive based on the application of the treasury stock method and because the Company incurred net losses during the period:
| Schedule of antidilutive shares | ||||||||||||||||
| September 30, 2021 | December 31, 2020 | September 30, 2022 | December 31, 2021 | |||||||||||||
| Options to purchase shares of common stock | – | – | ||||||||||||||
| Series A convertible preferred stock | 50,000,000 | 50,000,000 | 500,000,000 | 500,000,000 | ||||||||||||
| Series B convertible preferred stock | 5,000,000 | 5,000,000 | 5,000,000 | 5,000,000 | ||||||||||||
| Series C convertible preferred stock | 10,000,000 | 10,000,000 | 10,000 | 10,000 | ||||||||||||
| Total potentially dilutive shares | 65,000,000 | 65,000,000 | 505,010,000 | 505,010,000 | ||||||||||||
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Commitments and Contingencies
The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no known commitments or contingencies as of September 30, 2022 and December 31, 2020.2021. See Explanatory Note 1 along with Note 14 for impairment discussion as of September 30,December 31, 2021.
Discontinued Operations
As a result of the October 14, 2021 Complaint filed against Defendants, the Company determined that Nature would be accounted as a discontinued operation pursuant to ASC 205-20 Discontinued Operations. In determining whether a group of assets that is disposed (or to be disposed) should be presented as a discontinued operation, we analyzed whether the group of assets being disposed represents a component of the Company; that is, whether it had historic operations and cash flows that were clearly distinguished, both operationally and for financial reporting purposes. In addition, we considered whether the disposal represents a strategic shift that has or will have a major effect on our operations and financial results. The results of discontinued operations, as well as any gain or loss on the disposal, if applicable, are aggregated and separately presented in our condensed consolidated statements of operations, net of income taxes. The historical financial position of discontinued operations are aggregated and separately presented in our accompanying consolidated balance sheets.
Concentrations, Risks, and Uncertainties
Business Risk
Substantial business risks and uncertainties are inherent to an entity, including the potential risk of business failure.
The Company is headquartered and operates in the United States. To date, the Company has generated limited revenues from operations. There can be no assurance that the Company will be able to successfully continue to produce its products and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general economic conditions, price of raw material, competition, and governmental and political conditions.
Interest rate risk
Financial assets and liabilities do not have material interest rate risk.
Credit risk
The Company is exposed to credit risk from its cash in banks and accounts receivable. The credit risk on cash in banks is limited because the counterparties are recognized financial institutions.
There was one customer that accounted for 10% or more of total revenues, comprising of 12.6% and 22.3%, for the three and nine months ended September 30, 2021, respectively, and three and two customers that accounted for 49.4% and 35.4% of total revenue for the three and nine months ended September 30, 2020, respectively. There were no customers that accounted for 10% or more of accounts receivable of accounts receivable at September 30, 2021 and three customers that accounted for 78% of accounts receivable at December 31, 2020.
Seasonality
The business is not subject to seasonal fluctuations. However, as a result of the COVID 19 pandemic, in 2020, the Company entered into the sale of KN95 masks but had to dispose of them at a loss.
Major Suppliers
In producing our supplement products, we source our ingredients from our suppliers on an ongoing as-needed basis. We have not entered into any contracts that obligate us to purchase a minimum quantity or exclusively from any food service distributor. Our supplements are manufactured at our facilities in Hollywood, Florida.
We rely on a variety of suppliers. Should the relationship with an industry vendor be interrupted or discontinued, it is believed that alternate component suppliers could be identified to support the continued advancement of the Company.
There were no suppliers that accounted for 10% or more of total expenditures for the three and nine months ended September 30, 2021 and 2020. There were three suppliers that accounted for 42% and 60% of accounts payable at September 30, 2021 and December 31, 2020, respectively.
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Recent Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and the impact from this standard was immaterial.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, while also clarifying and amending existing guidance, including interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU No. 2019-12 in the first quarter of fiscal 2021, coinciding with the standard’s effective date, and thehad an immaterial impact from this standard was immaterial.standard.
AtIn August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning ofafter December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU No. 2020-06 in the first quarter of fiscal 2021, coinciding with the Company adopted the Financial Accounting Standards Board’s Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses on certain financial instruments. The Company adopted ASU 2016-13 utilizing the modified retrospective transition method. The adoption of ASU 2016-13 did not have a materialstandard’s effective date, and had an immaterial impact on the Company’s condensed consolidated financial statements.from this standard.
Other recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements.
NOTE 4 – PROPERTY AND EQUIPMENT – DISCONTINUED OPERATIONS
The Company had no
Property property and Equipment consistedequipment as of the following as of: September 30, 2022 and December 31, 2021:
| Schedule of Property and equipment | ||||||||||
| Estimated Life | September 30, 2021 | December 31, 2020 | ||||||||
| Office equipment and furniture | 5 years | $ | 0 | $ | 21,782 | |||||
| Computer equipment | 3 years | 0 | 24,727 | |||||||
| Machinery and equipment | 5 years | 0 | 17,415 | |||||||
| Leasehold Improvements | Shorter of the estimated useful life or lease term | 0 | 114,491 | |||||||
| Accumulated depreciation | 0 | (13,477 | ) | |||||||
| 0 | $ | 164,938 | ||||||||
Depreciation expense was $0 and $0, and $0 and $44,959 (from discontinued operations) for the three and nine months ended September 30, 2021, respectively,2022 and $3,222 and $6,411 for the three and nine months ended September 30, 2020,2021, respectively, and is classified in general and administrative expenses in the Condensed Consolidated Statements of Operations. See Explanatory Note 1 along with Note 14 for impairment discussion as of September 30,December 31, 2021.
NOTE 5 – INTANGIBLE ASSETS – discontinued operations
IntangibleThe Company had no intangible assets consistedas of the following as of: September 30, 2022 and December 31, 2021:
| Schedule of Intangible assets | ||||||||||
| Estimated Life | September 30, 2021 | December 31, 2020 | ||||||||
| Website | 5 years | $ | 0 | $ | 77,550 | |||||
| Accumulated amortization | 0 | (5,695 | ) | |||||||
| $ | 0 | $ | 71,855 | |||||||
| Schedule of amortization intangible assets | ||||
| Amortization | ||||
| Year ending: | Expense | |||
| 2021 (remaining three months) | $ | 0 | ||
| Total amortization | $ | 0 |
Amortization expense was $0 and $0, and $0 and $7,755 (from discontinued operations) for the three and nine months ended September 30, 2021, respectively,2022 and $1,207 and $1,817 for the three and nine months ended September 30, 2020,2021, respectively, and is classified in general and administrative expenses in the Condensed Consolidated Statements of Operations. See Explanatory Note 1 along with Note 14 for impairment discussion as of September 30,December 31, 2021.
On March 1, 2020, the members of Nature entered into the Ownership Interest Purchase Agreement (“Ownership Agreement”) whereby Yogev Shvo, a member of the Company, acquired the remaining 50% member ownership (“Seller”) giving Mr. Shvo 100% member ownership of the Company. As consideration for the Ownership Agreement, the Seller received a Promissory Note of $750,000. The Promissory Note bears interest at 15% per annum and matures March 1, 2022, as amended on June 30, 2021. During the nine months ended September 30,The Company included $72,743 in due to related party in discontinued operations as of December 31, 2021. This contingency will remain with Nature and not be a contingency for the Company made repayments of $193,000 and has a balance of $72,743 under Due to Related Parties inper the accompanying Balance Sheet at September 30, 2021. TheBear Village acquisition (see Note is secured with the assets of the Company pursuant to a security agreement dated March 1, 2020. In addition, the Company’s Chairman has personally guaranteed the Note.1).
The Company borrows funds from related parties for working capital purposes from time to time. The Company has recorded the principal balance due of $0under Due to Related Parties in the accompanying Consolidated Balance Sheet at September 30,December 31, 2021. The Company received 0no advances and made no repayments during the three and nine months ended September 30, 2022. The Company received no advances and made repayments of $50,000 and $50,000during the three and nine months ended September 30, 2021 and has a balance of $169,744 under Due to Related Parties in the Balance Sheet at September 30, 2021. Advances are non-interest bearing and due on demand. See Note 1 along with Note 14 for impairment discussion as of September 30, 2021.
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NOTE 7 – LOANS PAYABLE
Economic Injury Disaster Loan – Discontinued operations
On May 14, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business.
Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company borrowed an aggregate principal amount of the EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 14, 2021 (twelve months from the date of the SBA Note) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Note. In connection therewith, the Company also received a $7,000$7,000 grant, which does not have to be repaid, was recorded in Other Income in the Statements of Operations in April 2020. During the nine months ended September 30, 2021, the Company made repayments of $1,462 and has a balance of $149,490 under Long term notes payable in the accompanying Balance Sheet at September 30, 2021.repaid.
In connection therewith, the Company executed (i) a note for the benefit of the SBA (the “SBA Note”), which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events of default (the “SBA Security Agreement”). As a result of the failure to repay amounts based on the repayment schedule, on December 21, 2021, the Company was notified that it was in default of the EIDL Loan and that the entire balance of principal and unpaid interest of $155,598 is due. This contingency will remain with Nature and not be a contingency for the Company per the Bear Village acquisition (see Note 1).
Paycheck Protection Program Loan
Round 1– Discontinued operations
On May 6, 2020, the Company executed a note (the “PPP Note”) for the benefit of TD Bank, N.A. (the “Lender”) in the aggregate amount of $51,065 under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP is administered by the U.S. Small Business Administration (the “SBA”). The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing seven months after the effective date of the PPP Note, the Company is required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the PPP Note. The PPP Note of $51,06551,035 was repaid in February 2021.
Paycheck Protection Program Loan Round 2 – Discontinued operations
On April 2, 2021, the Company executed a note (the “PPP Note”) for the benefit of First Federal Bank (the “Lender”) in the aggregate amount of $200,000$200,000 under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) through a second draw. The PPP is administered by the U.S. Small Business Administration (the “SBA”). The terms of the second draw have the same general loan terms as the first draw PPP loan. On December 31, 2021, the PPP Round 2 loan was forgiven and $200,000 was recorded as Other Income in the Condensed Consolidated Statements of Operations for the year ended December 31, 2021.
| Schedule of Maturities of Long-term Debt | ||||||||||||
| Year ending: | EIDL | PPP | Total | |||||||||
| 2021 (remaining three months) | $ | 1,533 | $ | 0 | $ | 1,533 | ||||||
| 2022 | 3,203 | 0 | 3,203 | |||||||||
| 2023 | 3,327 | 0 | 3,327 | |||||||||
| 2024 | 3,440 | 0 | 3,440 | |||||||||
| 2025 | 3,588 | 0 | 3,588 | |||||||||
| Thereafter | 134,399 | 200,000 | 334,399 | |||||||||
| Total liability | $ | 149,490 | $ | 200,000 | $ | 349,490 | ||||||
The Company borrows funds from its shareholders from time to time for working capital purposes. During the three and nine months ended September 30, 2022 and 2021, the Company had no additional borrowings and made repayments of $ and has a balance of $1,805 at September 30, 2021.repayments. Advances are non-interest bearing and due on demand.
| 19 |
NOTE 9 –CONVERTIBLE NOTES PAYABLE
Convertible Note Payable
Short Term
$85,766 Note
On April 22, 2019; The Company executed a convertible promissory note with GHS Investments, LLC (“GHS Note”). The GHS Note carries a principal balance of $57,000 together with an interest rate of eight (8%) per annum and a maturity date of February 21, 2020. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share) in accordance with the terms of the note agreement shall be made in lawful money of the United States of America. Any amount of principal or interest on this GHS Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid. As of December 31, 2019, the principal balance outstanding was $57,000.
The holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this note, to convert all or any part of the outstanding and unpaid principal amount into Common Stock. The conversion shall equal sixty-five percent (65%) of the lowest trading prices for the Common Stock during the twenty (20) day trading period ending on the latest complete trading day prior to the conversion date, representing a discount rate of thirty-five percent (35%).
On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares into series B and 10,000 shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766 as of MarchDecember 31, 2021.
The Company accounts for an embedded conversion feature as a derivative under ASC 815-10-15-83 and valued separately from the note at fair value. The embedded conversion feature of the note is revalued at each subsequent reporting date at fair value and any changes in fair value will result in a gain or loss in those periods. The Company recorded a derivative liability of $82,25787,482, as of September 30, 2022, and recorded a change in derivative liability of $41,9235,455 and $38,6734,078, and $21,48038,673 and $21,48041,923, during the three and nine months ended September 30, 20212022 and 2020,2021, respectively.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the yearyears ended December 31, 2021 and 2020, and the three-month periodperiods ended March 31, 2022 and 2021, the Convertible Notes Payable were in default. The Company is currently in discussions to restructure the terms of the note and recorded default interest of $7,602 and $22,486, and $7,568 and $22,450 during the three and nine months ended September 30, 2022 and 2021, respectively. respectively.
NaN$220,000 Note default interest was recorded for the three and nine month periods ended September 30, 2020.
On September 21, 2020, the Company issued a convertible promissory note in the principal amount of $220,000. The convertible promissory note bears interest at 8% per annum and is due and payable in twenty-four (24) months. The holder of this note has the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05 per share. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.
The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting. The Company therefore performed an analysis to determine if the conversion option was subject to a beneficial conversion feature (“BCF”) and determined that the instrument does have a BCF. A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible, and is recorded as additional paid in capital and as a debt discount in the Balance Sheet. As such, the proceeds of the notes were allocated, based on fair values, as $220,000$220,000 to the debt discount. The debt discount is accreted over the term of the convertible notes to interest expense in the accompanying condensed consolidated Statements of Operations.
The principal balance due at September 30, 20212022 is $220,000$220,000 and is presented as a short-term liability in the balance sheetsheet. The Company has not repaid this convertible note and the convertible note is now in default. The Company is currently in discussions to restructure the terms of $112,712, net of unamortized debt discount of $107,288.the note.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the yearyears ended December 31, 2021 and 2020, and the three-month periodperiods ended March 31, 2022 and 2021, the Convertible Notes Payable were in default. On July 19, 2021, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the Notes related to the Company’s failure to timely file its Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021. In exchange for the Agreement, the Company agreed to pay a one-time interest charge of $11,680$11,680 in the year ended December 31, 2021. The Company is currently in discussions to restructure the terms of the note and recorded default interest of $15,402 and $43,419, and $0 and $0 during the three and nine months ended JuneSeptember 30, 2021.2022 and 2021, respectively.
Long Term$410,000 Note (previously $600,000)
On October 9 and October 16, 2020, the Company issued a convertible promissory note in the principal amount totaling $600,000. The convertible promissory note bears interest at 8% per annum and is due and payable in twenty-four (24) months. The holder of this note has the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05$0.05 per share. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.
The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting. The Company therefore performed an analysis to determine if the conversion option was subject to a beneficial conversion feature (“BCF”) and determined that the instrument does have a BCF. A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible, and is recorded as additional paid in capital and as a debt discount in the Balance Sheet. As such, the proceeds of the notes were allocated, based on fair values, as $600,000$600,000 to the debt discount. The debt discount is accreted over the term of the convertible notes to interest expense in the accompanying condensed consolidated Statements of Operations.
On December 6, 2021, the holder of the note converted $190,000 of the Note into shares of the Company’s common stock. The principal balance of $410,000 is due at October 16, 2022 is $600,000 and is presented as a longshort term liability in the balance sheetsheet. The Company has not repaid this convertible note and the convertible note is now in default. The Company is currently in discussions to restructure the terms of $286,850, net of unamortized debt discount of $313,150.the note.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the yearyears ended December 31, 2021 and 2020, and the three-month periodperiods ended March 31, 2022 and 2021, the Convertible Notes Payable were in default. On July 15, 2021, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the Notes related to the Company’s failure to timely file its Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021. Therefore, noThe Company is currently in discussions to restructure the terms of the note and recorded default interest has been accrued in these financial statements.of $28,285 and $79,720, and $0 and $0 during the three and nine months ended September 30, 2022 and 2021, respectively.
April 2022 Notes
In April 2022, the Company authorized convertible promissory notes (“April 2022 Notes”) that varies from 0% to 10% per annum and are due and payable on various dates from December 31, 2022 through March 31, 2023 for aggregate gross proceeds of $431,500 (including $1,500 against which services were received) during the three and nine months ended September 30, 2022. Subsequent to September 30, 2022, the Company offered and sold an additional $64,100 of the April 2022 Notes paying interest that varies from 0% to 8% per annum and are due and payable on various dates from December 31, 2022 through October 31, 2024. The holders of the April 2022 Notes have the right, at the holder's option, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.07 per share into the Company’s common stock if before any public offering. The Note includes customary events of default, including, among other things, payment defaults and certain events of bankruptcy. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.
The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting.
$40,000,000 Convertible Note
On May 13, 2022, as amended, the Company issued a convertible promissory note to Turvata Holdings Limited in the principal amount totaling $40,000,000 in exchange for RoRa Prime Coins (“Coins”), valued at $800 per Coin. The convertible promissory note bears no interest and is due and payable in twenty-four (24) months. The Holder of this Note has the right, at the holder's option, to convert the principal amount of this Note, in whole or in part, into fully paid and nonassessable shares at a conversion price of $2.00 per share. Conversion rights shall not vest until such time as the holder’s consideration, Coins, are live on a U.S. Exchange and available through a mutually agreed upon cryptocurrency wallet. The Coins are expected to go live in 2023. The Note shall not be enforceable until such time as the Coin is "live" on a US exchange and available through a mutually agreed upon cryptocurrency wallet. The parties agree to establish a time is of the essence date of May 1, 2023 for Holder to meet the "live" requirement. Should Holder not meet the "live" requirement by May 1, 2023, then Borrower shall return all RoRa Prime Coins and Holder shall release all claims on any shares or Convertible Promissory Note. Subsequent to the Coins live date and before the holder coverts the Note, should the Company issue any dilutive security, the conversion price will be reduced to the price of the dilutive issuance. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note as described above.
As a result of the failure to timely file our Form 10-K for the year ended December 31, 2021, and the Form 10-Q for the three-month periods ended March 31, 2022, June 30, 2022, and September 30, 2022, the convertible promissory note was in default. On June 30, 2022, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the convertible promissory note related to the Company’s failure to timely file its 10-K for the year ended December 31, 2021, and Form 10-Q for the three-month periods ended March 31, 2022, June 30, 2022, and September 30, 2022.
The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting.
Promissory Debenture
On February 15, 2020 and on May 14, 2020, the Company entered into Promissory Agreement and Convertible Debentures (“Promissory Debentures”) with Emry for a principal sum of $70,000 (which was paid in two tranches: $50,000, paid on February 15, 2020, and $20,000, paid in April 2020) and $48,000$48,000 (which was paid in three tranches: $23,000, paid on May 14, 2020, $15,000, paid on May 22, 2020, and $10,000, paid on June 8, 2020), respectively. The Promissory Debentures bear interest, both before and after default, at 15% per month, calculated and compounded monthly. At the election of the holder, at any time during the period between the date of issuance and the one-yearone year anniversary of the Promissory Debentures, the Promissory Debentures are convertible into shares of the Company’s common stock at any time at a conversion price of $0.001 per share. In addition, the Promissory Debentures provide for an interest equal to 15% of the TNRG annual sales, payable on the 2nd day following the date of issuance of the Company’s audited financial statements.
On June 24, 2020, Emry, holder of (i) Promissory Debentures in principal amount of $70,000 dated February 15, 2020, and (ii) that certain convertible promissory note in principal amount of $85,766 dated April 22, 2019, sold 50% of each (Promissory Debentures and convertible promissory note), including accrued and unpaid interest, fees and penalties, in separate transactions to third party companies, SP11 Capital Investments and E.L.S.R. CORP, Florida companies, such that SP11 Capital Investments and E.L.S.R. CORP each hold 50% of each respective debt instrument.
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On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 per share into shares of the Company’s common stock.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31,On November 22, 2021, the Promissory Debentures wereloan of $48,000 and accrued and unpaid interest of $573,798 totaling $621,798 was forgiven by EMRY and recorded as a gain on extinguishment of debt in default. On July 15, 2021, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listedOther Expense in the $48,000 note related to the Company’s failure to timely file its Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021. The $35,000 note provides for no default penalties.Condensed Consolidated Statements of Operations.
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Stock
The Company has been authorized to issue 900,000,000 shares of common stock, $0.001 par value. Each share of issued and outstanding common stock shall entitle the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation upon liquidation or dissolution.
On May 14, 2019, the Board of Directors of the Company approved Articles of Amendment to the Company’s Articles of Incorporation that provided for a 1 for 20 reverse stock splitstock-split of the Company’s Common Stock. The Company’s Articles of Amendment were filed with the Secretary of State of the State of Florida on May 17, 2019. All share and per share amounts contained in this Annual Report on Form 10-K and the accompanying Financial Statements have been adjusted to reflect the Reverse Stock Split for all prior periods presented.
On August 14, 2020, the Company issued common shares in conjunction with acquisition (see Note 1).
On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 per share into shares of the Company’s common stock.
On October 13, 2020, the Company issued common shares, valued at $33,232 (based on the Company’s stock price on the date of issuance), to GHS Investments in settlement of services provided to the Company.
On December 6, 2021, the holder of the note converted $190,000 of the Note into shares of the Company’s common stock for a balance due of $410,000 at December 31, 2021 on the Note.
As part of the Purchase, Mr. Shvo submitted shares of restricted common stock to the Company’s treasury for cancellation, in consideration for the transfer to him by TNRG of all of the issued and outstanding membership interests, assets and liabilities of Nature and HP, both of which are wholly-owned subsidiaries of TNRG.
On March 1, 2022, as amended on October 1, 2022, the Company entered into an Employment Agreement with Mr. Ricardo Haynes whereby Mr. Haynes became the sole Director, CEO and Chairman of the Board, and the acting sole officer of the Company. The Employment Agreement is in effect until September 30, 2027. Under this Engagement Agreement, Mr. Haynes will be entitled to a total of common shares, vesting immediately, valued at $750,000 (based on the Company’s stock price on the date of issuance).
On April 6, 2022, the Company entered into a Consulting Agreement with Top Flight Development LLC (“Top Flight”), an entity controlled by the father of the Company’s Director Real Estate Development, to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, Top Flight will be entitled to a total of common shares, valued at $450,000 (based on the Company’s stock price on the date of issuance) and vesting immediately and shall be paid $21,000 per month beginning on the first day of the month following the execution of the agreement. The Company paid Top Flight $67,400 and $105,000 during the three and nine months ended September 30, 2022, respectively, with a balance due of $7,400 as of September 30, 2022.
On April 6, 2022, the Company entered into a Consulting Agreement with a third party to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, the third party will be entitled to a total of common shares, valued at $150,000 (based on the Company’s stock price on the date of issuance) and vesting immediately.
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On April 6, 2022, the Company entered into a Consulting Agreement with a third party to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, the third party will be entitled to a total of common shares, valued at $60,000 (based on the Company’s stock price on the date of issuance) and vesting immediately.
Preferred Stock
The Company has been authorized to issue 50,000,000 shares of $0.001 par value Preferred Stock. The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established, within certain guidelines established in the Articles of Incorporation.
Series A: The certificate of designation for the Preferred A Stock provides that as a class it possesses a number of votes equal to fifteen (15) votes per share and may be converted into ten (10) $0.001 par value common shares.
On October 10, 2013, the Company issued fifty million (50,000,000) shares of our Series “A” Convertible Preferred Stock to Hadronic, a Florida corporation maintaining its principal place of business at 35246 US Highway 19 North, Suite #215, Palm Harbor, Florida 34684. Our previous Directors, Dr. Ruggero M. Santilli and Mrs. Carla Santilli each own fifty percent of the equity in Hadronic. The Series “A” Convertible Preferred Stock has 15 votes per share and is convertible into 10 shares of our common stock at the election of the shareholder. Shares were valued at the par value of the common stock equivalents, $500,000.
On January 9, 2020, Mina Mar (the “Purchaser”) acquired 50,000,000 shares of Series A Convertible Preferred Stock of the Company from Hadronic. Each share of Preferred Stock is entitled to fifteen (15) votes per share and at the election of the holder converts into ten (10) shares of Company common stock, so atAt completion of the stock purchase the Purchaser owns approximately 98.6% of the fully diluted outstanding equity securities of the Company and approximately 99% of the voting rights for the outstanding equity securities. The purchase price of $94,766 for the Preferred Stock was paid by the assumption of a Company note obligation of $85,766 byto Emry, with the balance paid in cash. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser. The purchase of the Preferred Stock was the result of a privately negotiated transaction and consummation of the purchase resulted in a change of control of the Company.
On March 24, 2020, Saveene (“Saveene”) acquired shares of Series A Convertible Preferred Stock of the Company, from Mina Mar. Each share of Preferred Stock is entitled to fifteen (15) votes per share and at the election of the holder converts into ten (10) shares of Company common stock, so atAt the completion of the stock purchase, the PurchaserSaveene owns approximately 98.6% of the fully diluted outstanding equity securities of the Company and approximately 99% of the voting rights for the outstanding equity securities. The purchase price of $500,000 for the Preferred Stock was paid in cash. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser.Saveene. The purchase of the Preferred Stock was the result of a privately negotiated transaction and consummation of the purchase resulted in a change of control of the Company.
On March 24, 2020, the Company held a meeting and voted to create two separate classes of preferred shares. Class “B” and class “C’ preferred shares. One class of shares B would be used to offer securitization for the watercraft while class C preferred shares would be used in conjunction with the securitization of air crafts.
Series B Convertible Preferred Stock was authorized for 10,000,000 shares of the “Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder converts into one thousand (1,000) shares of Company common stock, so at the completion of the stock purchase, Saveene owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to Saveene from the private funds of the principal of Saveene.
Series C Non-Convertible Preferred Stock was authorized for 10,000,000 shares of the Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder. The series C is Non-Convertible Preferred Stock. Saveene owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to Saveene from the private funds of the principal of Saveene.
On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000purchase into shares of series B and shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766.
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On March 24, 2020, Saveene converted the $35,000 $35,000 purchase into shares of series B and shares of series C shares. As a result, thethe Series B and C voting ownership approximates 57% and therefore, the Company has a change in ownership resulting in the recognition of a gain or loss on the sale of the interest sold and on the revaluation of any retained noncontrolling investment in accordance with ASC 810-10-40-5.
The Company’s stock price on March 24, 2020 was $0.03, giving the Company a value of $0.03 per share times 11,244,923 shares outstanding or $337,348. The transaction was booked to loss on extinguishment of change in control and with the off-setting entry to additional paid-in capital due to it being a related party transaction.
Acquisition of TNRG Preferred Stock
Fiscal Year 2022
On July 1, 2020, Yogev Shvo, a third partyFebruary 28, 2022, Mr. Ricardo Haynes, Mr. Eric Collins, Mr. Lance Lehr, Ms. Tori White and Mr. Donald Keer, each as an individual and principal shareholder of Nature personallyBear Village, Inc., a Wyoming corporation, (the “Purchaser”) collectively acquired 100% of the issued and outstanding shares of preferred stock (the “Preferred Stock”) of TNRG from SaveeneThunder Energies Corporation, a Florida corporation, (the “Company” or the “Registrant”) from Mr. Yogev Shvo, an individual domiciled in Florida (the “Seller”) (The(the “Purchase”). The purchase price of $250,000consideration for the Preferred Stock was paid in cash andPurchase was provided fromto the individual private funds of Purchaser.
The Preferred Stock acquiredSeller by the Purchaser consisted of:on behalf of the Shareholders and was recorded as compensation expense (see Note 1).
NOTE 11 – OPERATING LEASES –DISCONTINUED OPERATIONS
The Company adopted ASC 842 as of December 31, 2019. The Company hashad an operating lease for the Company’s warehouse and office and accounts for this lease in accordance with ASC 842. Adoption of the standard resulted in the initial recognition of operating lease ROU asset of $344,203 and operating lease liability of $344,203 as of December 31, 2019.
Effective July 1, 2019, the Company’s customer service and distribution facility is located at 3017 Greene Street, Hollywood, Florida 33020. This facility is leased in monthly installments of approximately $10,319 plus Florida Sales Tax. The monthly rent shall be increased by four percent (4%) per annum each succeeding lease year.
Effective July 1, 2020, the Company’s customer sales office space is located at 3323 NE 163rd Street, Suite 405, North Miami Beach, Florida. This facility is leased in monthly installments of approximately $8,266 plus Florida Sales Tax. The monthly rent shall be increased by three percent (3%) per annum each succeeding lease year. Effective January 1, 2021 up to June 30, 2021, the Company entered into sublease arrangement with a third party for the remaining term of the lease whereby the sublessee is to pay the monthly rent on behalf of the Company to the Head Lessor or to the Company for further payment.
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. Our variable lease payments primarily consist of maintenance and other operating expenses from our real estate leases. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components. We have elected to account for these lease and non-lease components as a single lease component. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.
In December 2021, the Company confirmed with the landlord that as of that time and on a going forward basis, the Company has no rental obligation, or past due rental obligation or any other related liability on its office/ warehouse space located at 3017 Greene Street, Hollywood, Florida.
On October 22, 2021 the Company entered into a lease termination agreement (“Lease Termination”) with Canal Park Office to terminate the Company’s North Miami Beach, Florida office space. The Termination Agreement allows Canal Park Office to retain the security deposit of $24,799 and to be paid $21,000. The Company was released from any other obligations.
See Note 1 for impairment discussion as of December 31, 2021.
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The components of lease expense and supplemental cash flow information related to leases for the period are as follows:
In accordance with ASC 842, the components of lease expense were as follows:
| Schedule of components of lease expense | ||||||||||||||||
| Nine Months ended September 30, | Three Months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating lease expense | $ | 177,720 | $ | 123,243 | $ | 59,240 | $ | 58,821 | ||||||||
| Short term lease cost | $ | 225 | $ | 1,797 | $ | 0 | $ | 674 | ||||||||
| Total lease expense | $ | 177,945 | $ | 125,040 | $ | 59,240 | $ | 59,495 | ||||||||
| Less: Rental income through sub-lease | $ | (49,823 | ) | $ | 0 | $ | 0 | $ | 0 | |||||||
| Net lease expense | $ | 128,122 | $ | 125,040 | $ | 59,240 | $ | 59,495 | ||||||||
In accordance with ASC 842, other information related to leases was as follows:
| Schedule of other information related to leases | ||||||||
| Nine Months ended September 30, | 2021 | 2020 | ||||||
| Operating cash flows from operating leases | $ | 177,720 | $ | 123,243 | ||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 176,784 | $ | 119,744 | ||||
| Weighted-average remaining lease term—operating leases | 1.78 years | 2.60 years | ||||||
| Weighted-average discount rate—operating leases | 8% | 8% | ||||||
In accordance with ASC 842, maturities of operating lease liabilities as of September 30, 2021 were as follows:
| Schedule of maturities of operating lease liabilities | ||||
| Operating | ||||
| Year ending: | Lease | |||
| 2021 (remaining three months) | $ | 59,444 | ||
| 2022 | 170,668 | |||
| 2023 | 106,814 | |||
| Total undiscounted cash flows | $ | 336,926 | ||
| Schedule of Reconciliation of lease liabilities | ||||
| Reconciliation of lease liabilities: | ||||
| Weighted-average remaining lease terms | 1.78 years | |||
| Weighted-average discount rate | 8% | |||
| Present values | $ | 314,835 | ||
| Lease liabilities—current | 187,754 | |||
| Lease liabilities—long-term | 127,081 | |||
| Lease liabilities—total | $ | 314,835 | ||
| Difference between undiscounted and discounted cash flows | $ | 22,091 | ||
| Schedule of components of lease expense | ||||||||||||||||
| In accordance with ASC 842, the components of lease expense were as follows: | ||||||||||||||||
| Nine Months ended September 30, | Three Months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease expense | $ | – | $ | 177,720 | $ | – | $ | 59,240 | ||||||||
| Short term lease cost | – | 225 | – | – | ||||||||||||
| Total lease expense | – | 177,945 | – | 59,240 | ||||||||||||
| Less: Rental income through sub-lease | – | (49,823 | ) | – | – | |||||||||||
| Net lease expense | $ | – | $ | 128,122 | $ | – | $ | 59,240 | ||||||||
Operating lease cost was $0 and $0, and $59,240 and $177,720, and $58,821 and $123,243 (from discontinued operations) for the three and nine months ended September 30, 2022 and 2021, and 2020, respectively.
NOTE 12 – RELATED PARTY TRANSACTIONSRelated Party Transactions
Other than as set forth below, and as disclosed in Notes 6, 7, 8, 10, and 10,16, there have not been any transaction entered into or been a participant in which a related person had or will have a direct or indirect material interest.
On April 2, 2022, the Company entered into a demand note (“Demand Note”) with Bear Village, Inc., a related party, for $36,200. The Demand Note bears no interest, is due on demand, and is unsecured. On September 27, 2022, Bear Village repaid $10,000 for a balance due from Bear Village of $26,200 at September 30, 2022.
On April 6, 2022, the Company entered into a Consulting Agreement with Top Flight, an entity controlled by the father of the Company’s Director Real Estate Development, to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, Top Flight will be entitled to a total of 15,000,000 common shares, valued at $450,000 (based on the Company’s stock price on the date of issuance) and vesting immediately and shall be paid $21,000 per month beginning on the first day of the month following the execution of the agreement. During the three and nine months ended September 30, 2022, the Company paid Top Flight $67,400 and $105,000, respectively, with a balance due of $7,400 as of September 30, 2022.
FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS)(“EPS”) computations.
Basic earnings (loss) per share are computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Basic and diluted earnings (loss) per share are the same since net losses for all periods presented and including the additional potential common shares would have an anti-dilutive effect.
The following potentially dilutive securities were excluded from the calculation of diluted net loss per share because the effects were anti-dilutive based on the application of the treasury stock method and because the Company incurred net losses during the period:
| Schedule of anti dilutive shares | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Options to purchase shares of common stock | – | – | ||||||
| Series A convertible preferred stock | 500,000,000 | 500,000,000 | ||||||
| Series B convertible preferred stock | 5,000,000 | 5,000,000 | ||||||
| Series C convertible preferred stock | 10,000 | 10,000 | ||||||
| Total potentially dilutive shares | 505,010,000 | 505,010,000 | ||||||
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The following table sets forth the computation of basic and diluted net income per share:
| Schedule of earning per share | ||||||||||||||||
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net (loss) profit attributable to the common stockholders | $ | (1,646,633 | ) | $ | 721,556 | $ | (1,323,024 | ) | $ | (101,672 | ) | |||||
| Basic weighted average outstanding shares of common stock | 76,340,735 | 22,128,575 | 76,340,735 | 43,297,429 | ||||||||||||
| Dilutive effect of options and warrants | 0 | 0 | 0 | 0 | ||||||||||||
| Diluted weighted average common stock and common stock equivalents | 76,340,735 | 22,128,575 | 76,340,735 | 43,297,429 | ||||||||||||
| (Loss) profit per share: | ||||||||||||||||
| Basic and diluted | $ | (0.02 | ) | $ | 0.03 | $ | (0.02 | ) | $ | (0.00 | ) | |||||
| Schedule of earning per share | ||||||||||||||||
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Loss from continuing operations | $ | (3,306,660 | ) | $ | (1,697,606 | ) | $ | (1,313,773 | ) | $ | (972,041 | ) | ||||
| Discontinued operations | – | 50,973 | – | (350,983 | ) | |||||||||||
| Net loss | $ | (3,306,660 | ) | $ | (1,646,633 | ) | $ | (1,313,773 | ) | $ | (1,323,024 | ) | ||||
| Basic weighted average outstanding shares of common stock | 70,796,413 | 76,340,735 | 72,140,735 | 76,340,735 | ||||||||||||
| Dilutive effect of options and warrants | – | – | – | – | ||||||||||||
| Diluted weighted average common stock and common stock equivalents | 70,796,413 | 76,340,735 | 72,140,735 | 76,340,735 | ||||||||||||
| Loss per share: | ||||||||||||||||
| Net loss per share from continuing operations, basic and diluted | $ | (0.05 | ) | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
| Net loss per share from discontinued operations, basic and diluted | – | (0.00 | ) | – | (0.00 | ) | ||||||||||
| Net loss per share, basic and diluted | $ | (0.05 | ) | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Operating Leases
On April 24, 2019, we entered into a 3 year lease, commencing July 1, 2019, for 9,525 square feet of office/ warehouse space located at 3017 Greene Street, Hollywood, Florida. The rent per month is $10,319 with rent increasing three percent each year. The rent for the three and nine months ended September 30, 2021 and 2020 was $32,211 and $96,633, and $32,211 and $96,633, respectively, and the lease expires on June 30, 2022. See Note 1 for impairment discussion as of September 30, 2021.
On June 24, 2020, we entered into a 42 month lease, commencing July 1, 2020, for our sales office space located at 3323 NE 163rd Street, Suite 405, North Miami Beach, Florida. The rent per month is $8,266 with rent increasing three percent each year. The rent for the three and nine months ended September 30, 2021 and 2020 was $25,771 and $77,314, $25,771 and $25,771, respectively, and the lease expires on December 31, 2023. Effective January 1, 2021, the Company entered into sublease arrangement whereby the sublessee is to pay the monthly rent on behalf of the Company. The sublessee paid rent of $0 and $49,823, and $0 and $0 for the three and nine months ended September 30, 2021 and 2020, respectively. See Note 1 along with Note 14 for impairment discussion as of September 30, 2021.
Legal
From time to time, various lawsuits and legal proceedings may arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business. We are currently not aware of any legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition or operating results except:
First Capital Venture
On November 3, 2020, First Capital Venture Co., a subsidiary of the client, d/b/a Diamond CBD, filed a civil complaint against the Shvo Defendants and Thunder Energies Corporation (the “Defendants”), in the pending 17th Judicial Circuit Court in and for Broward County, Florida, (the “Florida Court”), Case Number CACE-20-019111 (the “Complaint”).
On January 26, 2021, Plaintiffs were erroneously granted an Order of Default to which the Defendants immediately pointed out to the Court and on February 23, 2021 an Order Vacating the Default was granted in favor of the Defendants. The Plaintiff knew, or should have known, that the Order of Default was not valid but they proceeded on February 9, 2021 to publish false and misleading press releases.
Thunder Energies Corporation is proceeding through discovery and is of the belief the suit will be decided in their favor. A pending Motion to Dismiss is before the Court. Plaintiff’s Complaint is based on a claim for tortious interference and misappropriation of trade secrets. Neither claim is supported by the Complaint.
Thunder Energies Corporation has issued a cease and desist to the Plaintiff and is considering a counter claim concerning the false information and disclosures made by the Plaintiff that may have affected the Company’s business and shareholders.
The Company is unable
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On November 23, 2022 (“Settlement Date”), Mr. Shvo agreed to predictsettle with First Capital Venture on behalf of the financial outcomeDefendants for $11,500 to be paid within ten (10) days from the Settlement Date. As of the date of this matter at this time, and any views formed as tofiling, the viabilitysettlement payment of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have$11,500 has not been reflected in the consolidated financial statements. The Company is confident to obtain a summary judgement in their favor on the trade secret allegations and hence has not provided for any financial exposure. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.paid.
Rocket Systems – Discontinued Operations
On October 13, 2021, Rocket Systems, Inc. (“Plaintiff”) filed a complaint against Nature Consulting LLC (“Nature”) in the pending 17th Judicial Circuit Court in and for Broward County, Florida, (the “Florida Court”), Case Number CACE-21-018840 (the “Complaint”).
The complaint alleges that the Plaintiff paid Nature a deposit of $50,000 for the delivery of Nature products. According to the Complaint, Nature delivered $6,188 of the product but failed to deliver the remaining $43,812 of product.
Plaintiff has demanded that the remainder of the product order be canceled and the refund of $43,8712.$43,812 be issued. In addition, the Plaintiff is seeking prejudgment interest and costs of this action.
The Company is unable to predict the financial outcome of this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements except that Nature has recorded a reserve of $43,812 as of September 30,December 31, 2021. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.
GuaranteesThis contingency will remain with Nature and not be a contingency for the Company per the Bear Village acquisition (see Note 1).
Home Remedies CBD – Discontinued Operations
On November 23, 2021, Home Remedies CBD, LLC (“Plaintiff”) filed a complaint against TheHemplug LLC (“THP”) in the pending 3rd Judicial Circuit Court in and for Wayne County, Michigan, (the “Michigan Court”), Case Number CACE-21-016306-CB (the “Complaint”).
The Company'scomplaint alleges that the Plaintiff paid Nature a deposit of $60,030 for the delivery of THP products. According to the Complaint, Nature delivered $27,600 of the product but failed to deliver the remaining $32,430 of product. In addition, Plaintiff returned $4,575 of product to correct the labeling and that THP failed to correct the labeling and return the product to Plaintiff.
Plaintiff has demanded that the remainder of the product order be canceled and a refund of $37,005. In addition, the Plaintiff is seeking prejudgment interest and costs of this action.
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On July 19, 2022, THP agreed to pay Plaintiff a settlement of $15,000. This contingency will remain with Nature and not be a contingency for the Company per the Bear Village acquisition (see Note 1).
Guarantees – Discontinued Operations
The Company's Promissory Note is collateralized by substantially collateralized by substantially all of the Company's assets and the Company's assets and is personally guaranteed by the Company's CEO.personally guaranteed by the Company's CEO.
Employment Contracts
On March 1, 2022, as amended on October 1, 2022, Mr. Ricardo Haynes, the Company’s Chief Executive Officer and President (“CEO”) entered into an Employment Agreement with the Company. The Employment agreement terminates September 30, 2027 and automatically renews on a year-to-year basis unless terminated by either party on six months’ notice. In addition, Mr. Haynes is entitled to employee reimbursements totaling $820 per month, entitled to six (6) weeks paid vacation each year, provides for medical and dental insurance, and entitled to stock options upon the implementation of a Company employee option plan. Under this Employment agreement, the CEO will be entitled to the following:
| · | $5,700 for services performed from March 1, 2022 – June 30, 2022 | |
| · | Lump Sum payment of $21,299 for services from July 1, 2022 – December 31, 2022 | |
| · | shares of TNRG common stock in the Company which vest immediately. | |
| · | newly issued Preferred A shares of TNRG stock CUSIP (88604Y209) Cert No. 400002 | |
| · | newly issued Preferred B shares of TNRG stock CUSIP (88604Y209), Cert. No. 500002 | |
| · | newly issued Preferred C shares of TNRG stock CUSIP (8860Y209), Cert No. 600002 | |
| · | $7,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| · | RoRa Coins in possession of the Company. |
Investment in Fourth & One
On September 8, 2022, the Company entered into a Membership Interest Purchase Agreement (“Agreement”) with Fourth & One, LLC (“Fourth & One”) with respect to the sale and transfer of 51.5% of Fourth & One’s interest in WC Mine Holdings, LLC (“WCMH”) giving the Company a 30.9% ownership in WCMH for consideration totaling $5,450,000. In exchange, the Company issued Fourth & One a promissory note of $4,000,000 and RoRa Prime digital coins (“Coins”), valued at $1,450,000. The promissory note provides for no interest and matures on October 31, 2022 (“Maturity Date”). In addition, the promissory note provides that the Company may convert all amounts at any time prior to the Maturity Date and after gaining approval by the Securities and Exchange Commission of the Company’s REG A II Offering and Fourth & One may convert all amounts into common stock prior to the Maturity Date at a conversion price of $2.00 per share. The Agreement also provides that should Fourth & One not be able to convert the Coins on or before October 31, 2022 at a conversion ratio of $800 per Coin, the Company will purchase all of the Coins for a total of $1,600,000 (2,000 Coins at $800 per Coin) on October 31, 2022.
On November 1, 2022, the Company and Fourth & One mutually agreed to terminate the Agreement and the Company was released from any obligations.
Financing Engagement Agreement
On August 25, 2022 the Company entered into a Legal Services Agreement with The George Law Group in connection with an issuance of multi-tranched securitization (“Financing”) which shall utilize a pledge of the Company’s stock and other properties currently owned or under the Company’s control. The legal fee shall be one-half of one percent (0.5%) of the par amount of any Financing. The Company paid a retainer of $25,000 at the signing of the Legal Services Agreement which will be applied to any fees incurred in the Financing.
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NOTE 15 – DISCONTINUED OPERATIONS
As a result of the October 14, 2021 Complaint filed against Defendants, the Company determined that Nature would be accounted as a discontinued operation pursuant to ASC 205-20 Discontinued Operations. In determining whether a group of assets that is disposed (or to be disposed) should be presented as a discontinued operation, we analyzed whether the group of assets being disposed represents a component of the Company; that is, whether it had historic operations and cash flows that were clearly distinguished, both operationally and for financial reporting purposes. In addition, we considered whether the disposal represents a strategic shift that has no employment contracts with its key employees.or will have a major effect on our operations and financial results.
The following table reconciles the loss realized from the disposal of discontinued operations:
| Schedule of gain on disposal of discontinued operation | ||||
| December 31, | ||||
| 2021 | ||||
| Accounts payable | $ | 386,129 | ||
| Due to related party | 72,743 | |||
| Customer advance payments | 203,518 | |||
| Short term notes payable | 149,490 | |||
| Accrued interest | 89,120 | |||
| Gain on disposal of discontinued operation | $ | (901,000 | ) | |
Discontinued operations for the year ended December 31, 2021 consist of the operations from Nature.
The following tables lists the assets and liabilities of discontinued operations as of September 30, 2022 and December 31, 2021 and the discontinued operations for Nature for three and nine months ended September 30, 2022 and 2021:
| Schedule of assets and liabilities of discontinued operations | ||||||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | – | $ | 386,129 | ||||
| Due to related party | – | 72,743 | ||||||
| Loan payable to shareholder | – | – | ||||||
| Customer advance payments | – | 203,518 | ||||||
| Short term notes payable | – | 149,490 | ||||||
| Current portion of operating lease liabilities | – | – | ||||||
| Accrued interest | – | 89,120 | ||||||
| Other current liabilities | – | – | ||||||
| Total current liabilities of discontinued operation | – | 901,000 | ||||||
| Total liabilities of discontinued operations | $ | – | $ | 901,000 | ||||
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| For the Nine Months Ended September 30, | For the Three Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | – | $ | 3,777,276 | – | $ | 335,095 | |||||||||
| Cost of sales | – | 1,582,799 | – | 207,133 | ||||||||||||
| Gross profit | – | 2,194,477 | – | 127,962 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Advertising and marketing expenses | – | 391,850 | – | 39,883 | ||||||||||||
| General and administrative | – | 1,726,902 | – | 434,843 | ||||||||||||
| Total operating expenses | – | 2,118,712 | – | 474,726 | ||||||||||||
| Profit (loss) from operations | – | 75,724 | – | (346,764 | ) | |||||||||||
| Other expense (income): | ||||||||||||||||
| Impairment of assets | – | – | – | – | ||||||||||||
| Interest expense | – | 24,751 | – | 4,219 | ||||||||||||
| Other expense | – | – | – | – | ||||||||||||
| Other income | – | – | – | – | ||||||||||||
| Total other expense | – | 24,751 | – | 4,219 | ||||||||||||
| Profit (loss) before income taxes | – | 50,973 | – | (350,983 | ) | |||||||||||
| Income taxes | – | – | – | – | ||||||||||||
| Net profit (loss) of discontinued operations | $ | – | $ | 50,973 | – | $ | (350,983 | ) | ||||||||
NOTE 1516 – SUBSEQUENT EVENTS
OnAs of November 16, 2022, the Company has not repaid three convertible notes totaling $630,000 and the three convertible notes are now in default. The Company is currently in discussions to restructure the terms of the note.
April 2022 Notes
Subsequent to September 30, 2022, the Company offered and sold an additional $64,100 of the April 2022 Notes paying interest that varies from 0% to 8% per annum and are due and payable on various dates from December 31, 2022 through October 13, 2021, Rocket Systems, Inc. (“Plaintiff”) filed a complaint against Nature Consulting LLC (“Nature”) in the pending 17th Judicial Circuit Court in and for Broward County, Florida, (the “Florida Court”), Case Number CACE-21-018840 (the “Complaint”). See31, 2024 (see Note 14 for detailed disclosure.9).
Employment Agreements
On October 14, 2021 Nature Consulting, LLC, a wholly owned subsidiary, filed a complaint in the United States District Court of the Southern District of Florida against Or-El Ben Simon, individually, Adam Levy (previously the Chief Executive Officer of the Company), individually, Solange Baruk (previously a bookkeeper of the Company), individually, DVP Distro, LLC, a Florida limited liability company, Custom Graphics 2011, Inc. a Florida corporation, Beso Group, LLC, a Florida limited liability company, and Tops Consulting, LLC a Florida limited liability company (collectively, the “Defendants”). The complaint alleges that the Defendants assumed control of Nature Consulting, LLC and in doing so:
See Note 1, above for detailed disclosure.
On October 22, 20212022, the Company entered into Employment Agreements with individuals for positions in the Company. Each of the Employment agreements shall begin October 1, 2022 and terminate September 30, 2027 and automatically renews on a lease termination agreement (“Lease Termination”) with Canal Park Officeyear-to-year basis unless terminated by either party on six months’ notice. In addition, each employee is entitled to terminateemployee reimbursements totaling $820 per month, entitled to six (6) weeks paid vacation each year, provides for medical and dental insurance, and entitled to stock options upon the Company’s North Miami Beach, Florida office space. The Termination Agreement allows Canal Park Officeimplementation of a Company employee option plan. Under these Employment agreements, each employee will be entitled to retain the security deposit of $24,799 and to be paid $21,000. following:
| · | Ms. Tori White, Director Real Estate Development. |
| ○ | $24,000 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 4,800 RoRa Coins in possession of the Company. |
| · | Mr. Eric Collins, Chairman and Chief Operations Officer. |
| ○ | $12,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 2,500 RoRa Coins in possession of the Company. |
| · | Mr. Donald Keer, Corporate Counsel |
| ○ | $3,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 700 RoRa Coins in possession of the Company. |
| · | Mr. Lance Lehr, Chief Operating Officer |
| ○ | $2,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 500 RoRa Coins in possession of the Company. |
The Company was released from any other obligations.had been in discussions with the Shareholders for repayment of the Acquisition of Preferred Shares and finalized the Employment Agreements on October 1, 2022 for positions in the Company. As a result, the Company recorded the purchase price as compensation on March 1, 2022 (see Note 1).
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Explanatory Note
On October 14, 2021 Nature Consulting, LLC, a wholly owned subsidiary, filed a complaint in the United States District Court of the Southern District of Florida against Or-El Ben Simon, individually, Adam Levy (previously the Chief Executive Officer of the Company), individually, Solange Baruk (previously a bookkeeper of the Company), individually, DVP Distro, LLC, a Florida limited liability company, Custom Graphics 2011, Inc. a Florida corporation, Beso Group, LLC, a Florida limited liability company, and Tops Consulting, LLC a Florida limited liability company (collectively, the “Defendants”). The complaint alleges that the Defendants assumed control of Nature Consulting, LLC and in doing so:
| (a) | Violated the Electronic Communications Privacy Act, 18 U.S.C. ss2511 |
| (b) | Violated the Stored Communications Act, 18 U.S.C. ss2701 |
| (c) | Violated the Computer Fraud and Abuse Act, 18 U.S.C. ss1030 |
| (d) | Committed Conversion in the taking control of Nature Consulting, LLC’s premises (Ben Simon, DVP, Custom, Beso and Tops) |
| (e) | Committed Tortious Interference with Prospective Economic Opportunities |
| (f) | Committed Breach of Fiduciary Duty of Loyalty (Baruk) |
| (g) | Committed Civil Conspiracy (Ben Simon, Levy and Baruk) |
| (h) | Violated the Defend Trade Secrets Act Theft of Trade Secrets, 18 U.S.C. ss1832 |
Ben Simon and those in active consort with him have effectively hijacked Nature’s assets under the threat of force and physical violence. Moreover, they have systematically divested Nature of its assets, moved into its physical location without reason, and have otherwise converted its assets.
During this time, Defendants also assumed control of all computers belonging to Nature – including its Office365 access and database registered to Nature and using the domains of “@thpcbd.com,” “@thehemplug.com,” and “@natureconsulting.com.”
Additionally, Defendants looted and destroyed the premises leased by Nature, as follows:
| a. | Defendants commandeered all inventory belonging to Nature and refused to distribute to clients; |
| b. | Defendants commandeered a forklift belonging to Nature; |
| c. | Defendants have taken possession of all of Nature’s furniture, computers, printers, packaging, machineries, office supplies, phone systems, televisions, security cameras and other electronics; |
| d. | Defendants have discarded in a large trash container Nature’s merchandise, customer labels, catalogues, business cards, desks, office decorations and other inventory; |
| e. | Defendants destroyed Nature’s property by stripping its headquarters of all aesthetic enhancements and signage; |
| f. | Defendants assumed control of all e-mail accounts belonging to Nature and have intercepted Nature’s communications sent to the domain “@thpcbd.com,” “@thehemplug.com,” and “@natureconsulting.com”; and, |
| g. | Defendants have terminated Nature’s contracts with other vendors – to do this, they have used the commandeered “@thpcbd.com,” “@thehemplug.com,” and “@natureconsulting.com” email addresses. |
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Furthermore, Defendants’ conduct have impeded the fulfillment of orders already paid for by Nature’s clients. This has caused Nature’s clients to threaten Nature with suit and to otherwise end their business relationships with Nature due to Nature’s failure to satisfy orders. Even if Nature wanted to operate, due to the unlawful interception of its communications with clients and vendors, it would be impossible.
Nature Consulting, LLC has demanded a jury trial to adjudicate this complaint.
On February 28,2022, as part of acquisition of TNRG Preferred Stock with Bear Village, other than liabilities specifically identified in the acquisition, no debt or liability is assumed by the Purchaser.
As a result of the actions of the Defendants, the Company recorded an impairment charge of $510,182$195,347 during the three and nine monthyear ended September 30,December 31, 2021 comprised of the following:
| December 31, | ||||
| Impairment charges: | 2021 | |||
| Prepaids | $ | (12,500 | ) | |
| Inventories | (136,309 | ) | ||
| )Net office equipment | (18,586 | ) | ||
| Net computer equipment | (15,283 | ) | ||
| Net machinery and equipment | (21,782 | ) | ||
| Net leasehold improvements | (79,665 | ) | ||
| Net website | (64,100 | ) | ||
| Net operating lease right-of-use assets | (306,902 | ) | ||
| Deposits(2) | (24,799 | ) | ||
| Due to related party(1) | 169,744 | |||
| Current portion of operating lease liabilities(2) (3) | 187,754 | |||
| Operating lease liabilities net of current portion(2) (3) | 127,081 | |||
| Total impairment charges | $ | (195,347 | ) | |
| September 30, | ||||
| Impairment charges: | 2021 | |||
| Prepaids | $ | (12,500 | ) | |
| Inventories | (136,309 | ) | ||
| Net office equipment | (18,586 | ) | ||
| Net computer equipment | (15,283 | ) | ||
| Net machinery and equipment | (21,782 | ) | ||
| Net leasehold improvements | (79,665 | ) | ||
| Net website | (64,100 | ) | ||
| Net operating lease right-of-use assets | (306,902 | ) | ||
| Deposits | (24,799 | ) | ||
| Due to related party(1) | 169,744 | |||
| Total impairment charges | $ | (510,182 | ) | |
_____________________________________
(1)The Company has included due to related party of $169,744 within the impairment charge above as these amounts have been used to settle for the assets, as impaired, which have been commandeered, discarded, destroyed and taken possession of by the defendant. This amount related to working capital loan taken from the defendants.
Special Note Regarding Forward Looking Statements.
This quarterly report on Form 10-Q of Thunder Energies Corporation for the period ended September 30, 20212022 contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward looking statements which, by definition, involve risks and uncertainties. In particular, statements under the Sections; Description of Business, Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward looking statements. Where in any forward-looking statements, the Company expresses an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished.
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The following are factors that could cause actual results or events to differ materially from those anticipated and include but are not limited to: general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in tax laws; and the cost and effects of legal proceedings.
You should not rely on forward looking statements in this quarterly report. This quarterly report contains forward looking statements that involve risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify these forward-looking statements. Prospective investors should not place undue reliance on these forward-looking statements, which apply only as of the date of this quarterly report. Our actual results could differ materially from those anticipated in these forward-looking statements.
Our Business Overview.
Thunder Energies Corporation (“we”, “us”, “our”, “TEC” or the “Company”) was incorporated in the State of Florida on April 21, 2011.
On July 29, 2013, the Company filed with the Florida Secretary of State, Articles of Amendment to its Articles of Incorporation (the “Amendment”) which changed the name of the Company from CCJ Acquisition Corp. to Thunder Fusion Corporation. The Amendment also changed the principal office address of the Company to 150 Rainville Road, Tarpon Springs, Florida 34689. On May 1, 2014, the Company filed with the Florida Secretary of State, Articles of Amendment to its Articles of Incorporation (the “Amendment”) which changed the name of the Company from Thunder Fusion Corporation to Thunder Energies Corporation. The Company subsequently changed its principal office address to 3017 Greene St., Hollywood, Florida 33020.
On March 24, 2020, the Company announced its operational affiliate plans with Saveene.Com Inc. (“Saveene”) the preferred shareholder. Under the agreement, Saveene granted the Company access to several yachts and jets for the purpose of offering these vessels to the end-user and the general public for sale and or charter. Additionally, the Company gained access to several patent-pending technologies and the entire Saveene back office that focuses on the yacht and jet industry sector. This operational affiliate plan with Saveene.Com allowed the Company to offer a white-label type solution and original equipment manufacturer under the Company’s own brand name Nacaeli, dispensing the need to acquire and carry any inventory. All future Company and or Nacaeli brand fulfillment orders general maintenance, and upkeep matters such as mechanical repair, buffering, and similar will be outsourced other than administrative operational and corporate governance tasks.
On March 24, 2020, the Company held a meeting and voted to create two separate classes of preferred shares. Class “B” and class “C’ preferred shares. One class of shares B would be used to offer securitization for the watercraft while class C preferred shares would be used in conjunction with the securitization of air crafts.
Series B Convertible Preferred Stock (the “Preferred Stock”) was authorized for 10,000,000 shares of the Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder converts into one thousand (1,000) shares of Company’s common stock, so at the completion of the stock purchase, the Purchaser owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser.
Series C Non-Convertible Preferred Stock (the “Preferred Stock”) was authorized for 10,000,000 shares of the Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder. The series C is Non-Convertible Preferred Stock. The Purchaser owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser.
On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares into series B and 10,000 shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766 as of September 30, 2021March 31, 2022 and December 31, 2020.2021.
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Acquisition of TNRG Preferred Stock
Fiscal Year 2022
On February 28, 2022, Mr. Ricardo Haynes, Mr. Eric Collins, Mr. Lance Lehr, Ms. Tori White and Mr. Donald Keer, each as an individual and principal shareholder (“Shareholder”) of Bear Village, Inc., a Wyoming corporation, (the “Purchaser”) collectively acquired 100% of the issued and outstanding shares of preferred stock (the “Preferred Stock”) of Thunder Energies Corporation, a Florida corporation, (the “Company” or the “Registrant”) from Mr. Yogev Shvo, an individual domiciled in Florida (the “Seller”) (The “Purchase”). The consideration for the Purchase was provided to the Seller by the Purchaser on behalf of the Shareholders and was recorded as compensation expense.
The Preferred Stock acquired by the Purchaser consisted of:
| 1. | 50,000,000 shares of Series A Convertible Preferred Stock wherein each share is entitled to fifteen (15) votes and converts into ten (10) shares of the Company’s common stock. | |
| 2. | 5,000 shares of Series B Convertible Preferred Stock wherein each share is entitled to one thousand (1,000) votes and converts into one thousand (1,000) shares of the Company’s common stock. | |
| 3. | 10,000 shares of Series C Non-Convertible Preferred Stock wherein each share is entitled to one thousand (1,000) votes and is non-convertible into shares of the Company’s common stock. |
As a result of the Purchase, the Purchaser owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities.
As part of the Purchase, Mr. Shvo submitted 55,000,000 shares of restricted common stock to the Company’s treasury for cancellation, in consideration for the transfer to him by TNRG of all of the issued and outstanding membership interests, assets and liabilities of Nature and THEHEMPLUG, LLC a Florida limited liability company (“HP”), both of which are wholly-owned subsidiaries of TNRG.
The purchase price of $50,000 for the Preferred Stock was paid in cash as of September 30, 2022. The consideration for the purchase was provided to the Seller by the Purchaser on behalf of the Shareholders. The Company had been in discussions with the Shareholders for repayment and finalized the Employment Agreements (“Employment Agreements”) on October 1, 2022 for positions in the Company. As a result, the Company recorded the purchase price as compensation on March 1, 2022. The Purchase of the Preferred Stock was the result of a privately negotiated transaction which consummation resulted in a change of control of the Registrant.
| 1) | Purchaser accepts TNRG subject to the following existing debt and obligations: |
| a. | $35,000 Convertible Note held by ELSR plus accrued interest | |
| b. | $85,766 Convertible Note held by ELSR plus accrued interest | |
| c. | $220,000 Convertible Note held by 109 Canon plus accrued interest | |
| d. | $410,000 Convertible Note held by Moshe Zucker plus accrued interest of which $190,000 has recently been converted into 3,800,000 shares of restricted common stock. | |
| e. | Auditor Invoice estimated at $30,000 past due and $37,000 for completion of 2021 | |
| f. | Accountant Invoice estimated at $42,500 and approximately $4,500 for completion of 2021 | |
| g. | No other debt or liability is being assumed by Purchaser | |
| h. | Purchaser specifically assumes no liability regarding any dispute between Orel Ben Simon and the Seller. Seller shall indemnify Company as required in the body of the Agreement. | |
| i. | Company may be subject to potential liability and legal fees and associated costs regarding the FCV Matter if in excess of the Seller indemnification provisions set forth in Section 11 of the Agreement | |
| j. | Purchaser on behalf of the Company is responsible for assuring the Company’s timely payment of all Company federal and state and any related tax obligations for fiscal year 2021 with the exception of taxes due relating to income, sales, license, business or any other taxes associated with Nature and HP |
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| 2) | The transfer to Seller of all of TNRG’s security ownership interest in each of Nature and HP shall include the following existing Nature debt and related matters: |
| a. | EIDL Loan ($149,490 plus $9,290 accrued interest) | |
| b. | $72,743 note due to Orel Ben Simon plus accrued interest | |
| c. | All cases in action and potential legal liabilities concerning current disputes with Nature, HP, Ben Simon, Seller and any other parties. |
As a result of the Purchase and change of control of the Registrant, the existing officers and directors of the Company, Mr. Adam Levy, Mr. Bruce W.D. Barren, Ms. Solange Bar and Mr. Yogev Shvo (Chairman) have either resigned or been voted out of their positions.
Under the terms of the stock purchase agreement the new controlling shareholder was permitted to elect representatives to serve on the Board of Directors to fill the seat(s) vacated by prior directors. Mr. Ricardo Haynes became the sole Director, CEO and Chairman of the Board of the Registrant, and the acting sole officer of the Company.
Fiscal Year 2020
On July 1, 2020, Yogev Shvo, a third-partythird party individual and principal shareholder of Nature Consulting LLC (“Nature” or “Purchaser”) personally acquired 100% of the issued and outstanding shares of preferred stock (the “Preferred Stock”) of TNRG from Saveene Corporation, a Florida corporation (the “Seller”) (The “Purchase”). The purchasePurchase price of $250,000 for the Preferred Stock was paid in cash and was provided from the individual private funds of Purchaser.
The Preferred Stock acquired by the Purchaser consisted of:
| 1. | 50,000,000 shares of Series A Convertible Preferred Stock wherein each share is entitled to fifteen (15) votes and converts into ten (10) shares of the Company’s common stock. | |
| 2. | 5,000 shares of Series B Convertible Preferred Stock wherein each share is entitled to one thousand (1,000) votes and converts into one thousand (1,000) shares of the Company’s common stock. | |
| 3. | 10,000 shares of Series C Non-Convertible Preferred Stock wherein each share is entitled to one thousand (1,000) votes and is non-convertible into shares of the Company’s common stock. |
Acquisition of Assets of Nature
On August 14, 2020 (the “Closing Date”), TNRG and the members of Nature entered into an Interest Purchase Agreement (the “Interest Purchase Agreement”), which closed on the same date. Pursuant to the terms of the Interest Purchase Agreement, the members of Nature sold all of their membership interests in Nature to TNRG in exchange for sixty million (60,000,000) shares of TNRG’s Common Stock. As a result of this transaction, Nature became a wholly-owned subsidiary of TNRG.
The Interest Purchase Agreement contained customary representations and warranties and pre- and post-closing covenants of each party and customary closing conditions. Breaches of the representations and warranties will be subject to customary indemnification provisions, subject to specified aggregate limits of liability.
The membership Interest Purchase Agreement will be treated as an asset acquisition by the Company for financial accounting purposes. Nature will be considered the acquirer for accounting purposes, and the historical financial statements of Nature, before the membership exchange will replace the historical financial statements of TNRG before the membership exchange and in all future filings with the SEC.
Immediately following the Interest Purchase Agreement, the business of Nature became TNRG’s main operation. The Company
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Recent Developments
TNRG recently engaged three licensed geologists to assess the preliminary value of the minerals at Kinsley Mountain on the 4 patented and 98 unpatented claims by drone surveillance, a small collection of surface samples and historical information at Kinsley Mountain and neighboring geological formations.
Description of Business
TNRG was founded in February 2019.April 2010 and underwent new management as of April 2022. The new team's singular objective is to rapidly increase the current and future shareholder value of its stock by divesting from its stagnant CBD/Hemp retail cannabidiol business model and expanding its investments footprint into the following business sectors to create a diversified portfolio of cash flowing assets such as the following:
| · | Diversified cash flowing assets such as fixed-income | |
| · | Commercial real estate projects that include resorts and associated timeshare and condo developments | |
| · | Entertainment venues including indoor outdoor water parks, family entertainment centers, adventure parks | |
| · | Residential real estate projects that include eco-friendly multi-family housing and | |
| · | Precious metal/mineral mining ventures |
Company Mission
Our mission is to protect our investors through a diversified asset base with various asset classes that allow it to stay liquid and self-sufficient. A diverse balance sheet also helps to head off any unforeseeable market shifts and political changes around the globe, which are critically important in uncertain times. Our new team of experienced leaders have created an exciting vision that is still in the early stages of redevelopment and growth, yet one that promises to offer investors an opportunity to take part in an exciting journey right from the start.
Business Objective
The principal business objective is to generate revenue through strategic partnerships and joint ventures that focus on income generation coupled with capital preservation through proactive portfolio management utilizing a conservative liquidity and investment posture to optimize returns to our shareholders. We achieve this vision through prudent management of borrowed funds together with our capital and shareholders’ equity that is invested primarily in a diversified balance sheet of real estate investments and fixed-income that earns the spread between the yield on our assets and the cost of our borrowings and hedging activities. The business is financed by an appropriate mix of shareholders’ equity and the sale of corporate debt to achieve its primary business objective of an annual return on equity greater than its cost of equity, while maintaining a sound financial structure. This is achieved by rigorous due diligence to vet assets and investments that have significant upside potential while minimizing risks through an investment strategy that pursues an “absolute return” or positive returns to preserve investor capital and returns to our shareholders. We believe that our business objectives are supported through our long-term conservative financial vision, the diversity of our investment strategy and comprehensive risk management approach to preserve investor capital for our shareholders.
Fixed-Income Strategy
This strategy enables the company to maximize profitability by taking advantage of different market cycles, while diversifying risk. The company’s investment objective is to generate consistent capital appreciation over the long-term, with relatively low volatility with the pursuit of an “absolute return” or seeking to achieve positive returns, by, for example, taking long and short positions and by engaging in various hedging strategies, regardless of the performance of the traditional equity and fixed income markets. Additionally, from time to time, the company may use derivative instruments, such as total return swaps or other structured products and may invest, to a limited extent, in registered investment companies, including exchange-traded funds.
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Limited Operating History; Need for Additional Capital
There is limited historical financial information about us on which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, and possible cost overruns due to increases in the cost of services. To become profitable and competitive, we must receive additional capital. We have no assurance that future financing will materialize. If that financing is not available, we may be unable to continue operations.
Overview of Presentation
The following Management’s Discussion and Analysis (“MD&A”) or Plan of Operations includes the following sections:
| · | Plan of Operations | |
| · | Results of Operations | |
| · | Liquidity and Capital Resources | |
| · | Capital Expenditures | |
| · | Going Concern | |
| · | Critical Accounting Policies | |
| · | Off-Balance Sheet Arrangements |
General and administrative expenses consist primarily of personnel costs and professional fees required to support our operations and growth.
Depending on the extent of our future growth, we may experience significant strain on our management, personnel, and information systems. We will need to implement and improve operational, financial, and management information systems. In addition, we are implementing new information systems that will provide better record-keeping, customer service and billing. However, there can be no assurance that our management resources or information systems will be sufficient to manage any future growth in our business, and the failure to do so could have a material adverse effect on our business, results of operations and financial condition.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the Condensed Consolidated Statements of Operations for nine months ended September 30, 2021, to reclass $93,266 of costs to research and development previously classified in general and administrative.
Results of Operations.
The results of operations are based on preparation of financial statements in conformity with accounting principles generally accepted in the United States. The preparation of financial statements requires management to select accounting policies for critical accounting areas as well as estimates and assumptions that affect the amounts reported in the financial statements. The Company’s accounting policies are more fully described in Note 3 to the Notes of Financial Statements.
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Results of Operations for the Three Months Ended September 30, 2022 and 2021
The following discussion represents a comparison of our results of operations for the three months ended September 30, 2022 and 2021. The results of operations for the periods shown in our audited condensed consolidated financial statements are not necessarily indicative of operating results for the entire period. In the opinion of management, the audited condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.
Thunder Energies – Continuing Operations
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | |||||||
| Net revenues | $ | – | $ | – | ||||
| Cost of sales | – | – | ||||||
| Gross Profit | – | – | ||||||
| Operating expenses | 193,226 | 22,620 | ||||||
| Other expense | 1,120,547 | 949,421 | ||||||
| Net loss before income taxes | $ | (1,313,773 | ) | $ | (972,041 | ) | ||
Net Revenues
For the three months ended September 30, 2022 and 2021, we had no revenues.
Cost of Sales
For the three months ended September 30, 2022 and 2021, we had no cost of sales as we had no revenues.
Operating Expenses
For the three months ended September 30, 2022 and 2021, we had operating expenses of $193,226 and $22,620, respectively. For the three months ended September 30, 2022, we had advertising and marketing expenses of $4,743 and general and administrative expenses of $188,483 primarily due to consulting costs of $118,202, professional fees of $60,935, investor relations costs of $5,000, and general and administration costs of $4,346, as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth. For the three months ended September 30, 2021, we had professional fees of $22,620.
Other (Income) Expense
Other expense for the three months ended September 30, 2022 totaled $1,120,547 primarily due to interest expense in conjunction with debt discount of $76,685, the change in derivative liability of $5,455, interest expense on notes payable of $1,049,317. Other expense for the three months ended September 30, 2021 totaled $949,421 primarily due to interest expense in conjunction with debt discount of $103,342, the change in derivative liability of $38,673, impairment of assets of $510,182, and interest expense on notes payable of $374,570.
Net loss before income taxes and discontinued operations
Net loss before income taxes and discontinued operations for the three months ended September 30, 2022 and 2021 totaled $1,313,773 and $972,041 primarily due to other expenses as described above.
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Financial Condition.
Total Assets.
Assets were cash of $29,949, notes receivable – related party of $26,200 (due from Bear Village) as of September 30, 2022, deferred offering costs of $9,000, and prepaid expenses of $30,000.
Total Liabilities.
Liabilities were $4,575,230 as of September 30, 2022. Liabilities consisted primarily of accounts payable of $80,619, derivative liability of $87,482, accrued interest of $3,233,848, and convertible notes payable of $1,173,281, net of unamortized debt discount of $8,985.
Nature – Discontinued Operations
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | |||||||
| Net revenues | $ | – | $ | 335,095 | ||||
| Cost of sales | – | 207,133 | ||||||
| Gross Profit | – | 127,962 | ||||||
| Operating expenses | – | 474,726 | ||||||
| Other expense | – | 4,219 | ||||||
| Net loss before income taxes | $ | – | $ | (350,983 | ) | |||
Net Revenues
Net revenues of $335,095 in customer purchases of our other products in the three months ended September 30, 2021.
Cost of Sales
Cost of sales of $207,133 in customer purchases of our other products in the three months ended September 30, 2021.
Operating Expenses
For the three months ended September 30, 2021, we had marketing expenses of $39,883 and general and administrative expenses of $434,843 primarily due to compensation costs of $168,381, consulting costs of $2,060, travel expenses of $1,904, operating lease costs of $59,240, professional fees of $26,410, shipping charges of $41,251, bad debt expense of $47,357, and general and administration costs of $88,240, as a result of discontinuing our Nature business.
Other Expense
Other expense for the three months ended September 30, 2021 totaled $4,219 primarily due to interest expense on notes payable.
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Net loss before income taxes and discontinued operations
Net loss before income taxes and discontinued operations for the three months ended September 30, 2021 totaled $350,983 primarily due to revenue of $335,095 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, operating lease costs, shipping charges, travel costs, bad debts, and general and administration costs.
Financial Condition - discontinued operations.
Total Assets.
Assets were $0 as of September 30, 2022.
Total Liabilities.
Liabilities were $0 as of September 30, 2022.
Results of Operations for the Nine Months Ended September 30, 2022 and 2021
The following discussion represents a comparison of our results of operations for the three months ended September 30, 2022 and 2021. The results of operations for the periods shown in our audited condensed consolidated financial statements are not necessarily indicative of operating results for the entire period. In the opinion of management, the audited condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.
Thunder Energies – Continuing Operations
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||
| Net revenues | $ | – | $ | – | ||||
| Cost of sales | – | – | ||||||
| Gross Profit | – | – | ||||||
| Operating expenses | 1,756,001 | 89,675 | ||||||
| Other expense | 1,550,659 | 1,607,931 | ||||||
| Net loss before income taxes | $ | (3,306,660 | ) | $ | (1,697,606 | ) | ||
Net Revenues
For the nine months ended September 30, 2022 and 2021, we had no revenues.
Cost of Sales
For the nine months ended September 30, 2022 and 2021, we had no cost of sales as we had no revenues.
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Operating Expenses
For the nine months ended September 30, 2022 and 2021, we had operating expenses of $1,756,001 and $89,675, respectively. For the nine months ended September 30, 2022, we had advertising and marketing expenses of $4,743, stock based compensation of $1,410,000 and general and administrative expenses of $341,258 primarily due to consulting costs of $169,202, professional fees of $89,985, payroll costs of $50,000, investor relations costs of $21,500, and general and administration costs of $10,571, as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
Other Expense
Other expense for the nine months ended September 30, 2022 totaled $1,550,659 primarily due to interest expense in conjunction with debt discount of $232,891, the change in derivative liability of $4,078, interest expense on notes payable of $2,214,690, offset primarily by gain on extinguishment of debt in conjunction with change of control of $901,000. Other expense for the three months ended September 30, 2021 totaled $1,607,931 primarily due to interest expense in conjunction with debt discount of $331,388, the change in derivative liability of $41,923, impairment of assets of $510,182, and interest expense on notes payable of $808,284.
Net loss before income taxes and discontinued operations
Net loss before income taxes and discontinued operations for the nine months ended September 30, 2022 and 2021 totaled $3,306,660 and $1,697,606 primarily due other expense as described above.
Nature – Discontinued Operations
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||
| Net revenues | $ | – | $ | 3,777,276 | ||||
| Cost of sales | – | 1,582,799 | ||||||
| Gross Profit | – | 2,194,477 | ||||||
| Operating expenses | – | 2,118,752 | ||||||
| Other expense | – | 24,751 | ||||||
| Net profit before income taxes | $ | – | $ | 50,973 | ||||
Net Revenues
Net revenues of $3,777,276 in customer purchases of our other products in the nine months ended September 30, 2021.
Cost of Sales
Cost of sales of $1,582,799 in customer purchases of our other products in the nine months ended September 30, 2021.
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Operating Expenses
For the nine months ended September 30, 2021, we had marketing expenses of $391,850 and general and administrative expenses of $1,726,902 primarily due to compensation costs of $766,858, consulting costs of $44,616, travel expenses of $15,194, operating lease costs of $128,122, professional fees of $90,582, depreciation and amortization costs of $52,714, investor relations costs of $1,200, shipping charges of $223,573, bad debt expense of $133,007, and general and administration costs of $271,036, as a result of discontinuing our Nature business.
Other Expense
Other expense for the nine months ended September 30, 2021 totaled $24,751 primarily due to interest expense on notes payable.
Net profit before income taxes and discontinued operations
Net profit before income taxes and discontinued operations for the nine months ended September 30, 2021 totaled $50,973 primarily due to revenue of $3,777,276 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, operating lease costs, shipping charges, travel costs, bad debts, and general and administration costs.
Liquidity and Capital Resources.
General – Overall, we had an increase in cash flows of $29,949 in the nine months ended September 30, 2022 resulting from cash provided by financing activities of $430,000 offset primarily by cash used in operating activities of $400,051.
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:
| Nine Months Ended September 30, 2022 | Nine Months Ended September, 2021 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (400,051 | ) | $ | 82,644 | |||
| Investing activities | – | (15,337 | ) | |||||
| Financing activities | 430,000 | (161,145 | ) | |||||
| Net increase (decrease) in cash | $ | 29,949 | $ | (93,838 | ) | |||
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
Cash Flows from Operating Activities – For the nine months ended September 30, 2022, net cash used in operating activities was $400,051. Net cash used in operations was primarily due to a net loss of $3,306,660, and the changes in operating assets and liabilities of $2,159,140, primarily due to accrued interest of $2,214,692 and accounts payable of $9,648, offset primarily by deferred offering costs of $9,000, prepaid expenses of $30,000, and notes receivable – related party of $26,200. In addition, net cash provided by operating activities was offset primarily by adjustments to reconcile net loss from the accretion of the debt discount of $232,891, change in derivative liability of $4,078, the gain on disposal of discontinued operations of $901,000, stock based compensation of $1,410,000 and convertible note payable issued for services of $1,500.
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For the nine months ended September 30, 2021, net cash provided by operating activities was $82,644. Net cash provided by operations was primarily due to net cash used in operating activities – discontinued activities of $87,203, offset primarily by net cash used in continuing operating activities of $4,559. Net cash used in continuing operating activities was primarily due to a net loss of $1,646,633, and the changes in operating assets and liabilities of $842,427, primarily due to accounts payable of $35,095 and accrued interest of $807,332. In addition, net cash provided by continuing operating activities was offset primarily by adjustments to reconcile net loss from the accretion of the debt discount of $331,388, the change in derivative liability of $41,923, and the impairment of assets of $510,182. Net cash provided by operating activities – discontinued activities was primarily due to the changes in operating assets and liabilities of $34,489, primarily due to accounts receivable of $68,403, inventories of $32,161, prepaid expenses of $189,550, accounts payable of $117,926, and accrued interest of $24,751, offset primarily by the net changes in customer advance payments of $372,240 and other current liabilities of $26,062. In addition, by net cash used in operating activities – discontinued activities was offset primarily by adjustments to reconcile net profit from depreciation expense of $44,959 and amortization expense of $7,755.
Cash Flows from Investing Activities – For the nine months ended September 30, 2022, net cash used in investing activities was $0. For the nine months ended September 30, 2021, net cash used in investing activities was $15,337 due to purchases of equipment.
Cash Flows from Financing Activities – For the nine months ended September 30, 2022, net cash used in financing activities was $430,000 due to proceeds from short-term convertible notes payable. For the nine months ended September 30, 2021, net cash used in financing activities was $161,145 due to repayments of short-term notes payable $51,545, repayments of loan payable to shareholder of $66,600, repayment of due from related party of $243,000, offset primarily by proceeds from long term notes payable of $200,000.
Financing – We expect that our current working capital position, together with our expected future cash flows from operations will be insufficient to fund our operations in the ordinary course of business, anticipated capital expenditures, debt payment requirements and other contractual obligations for at least the next twelve months. However, this belief is based upon many assumptions and is subject to numerous risks, and there can be no assurance that we will not require additional funding in the future.
We have no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies or any other material capital expenditures. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, capital equipment or improvements or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. Due to the ongoing global economic crisis, we believe it may be difficult to obtain additional financing if needed. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
Common Stock
As part of the Purchase, Mr. Shvo submitted 55,000,000 shares of restricted common stock to the Company’s treasury for cancellation, in consideration for the transfer to him by TNRG of all of the issued and outstanding membership interests, assets and liabilities of Nature and HP, both of which are wholly-owned subsidiaries of TNRG.
On March 1, 2022, as amended on October 1, 2022, the Company entered into an Employment Agreement with Mr. Ricardo Haynes whereby Mr. Haynes became the sole Director, CEO and Chairman of the Board, and the acting sole officer of the Company. The Employment Agreement is in effect until September 30, 2027. Under this Employment Agreement, Mr. Haynes will be entitled to a total of 25,000,000 common shares, vesting immediately, valued at $750,000 (based on the Company’s stock price on the date of issuance).
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On April 6, 2022, the Company entered into a Consulting Agreement with Top Flight Development LLC (“Top Flight”), an entity controlled by the father of the Company’s Director Real Estate Development, to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, Top Flight will be entitled to a total of 15,000,000 common shares, valued at $450,000 (based on the Company’s stock price on the date of issuance) and vesting immediately and shall be paid $21,000 per month beginning on the first day of the month following the execution of the agreement. The Company paid Top Flight $67,400 and $105,000 during the three and nine months ended September 30, 2022, respectively, with a balance due of $7,400 as of September 30, 2022.
On April 6, 2022, the Company entered into a Consulting Agreement with a third party to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, the third party will be entitled to a total of 5,000,000 common shares, valued at $150,000 (based on the Company’s stock price on the date of issuance) and vesting immediately.
On April 6, 2022, the Company entered into a Consulting Agreement with a third party to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, the third party will be entitled to a total of 2,000,000 common shares, valued at $60,000 (based on the Company’s stock price on the date of issuance) and vesting immediately.
Convertible Note Payable
Short Term
April 2022 Notes
In April 2022, the Company authorized convertible promissory notes (“April 2022 Notes”) that varies from 0% to 10% per annum and are due and payable on various dates from December 31, 2022 through March 31, 2023 for aggregate gross proceeds of $431,500 (including $1,500 against which services were received) during the three and nine months ended September 30, 2022. Subsequent to September 30, 2022, the Company offered and sold an additional $64,100 of the April 2022 Notes paying interest that varies from 0% to 8% per annum and are due and payable on various dates from December 31, 2022 through October 31, 2024. The holders of the April 2022 Notes have the right, at the holder's option, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.07 per share into the Company’s common stock if before any public offering. The Note includes customary events of default, including, among other things, payment defaults and certain events of bankruptcy. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.
$40,000,000 Convertible Note
On May 13, 2022, as amended, the Company issued a convertible promissory note to Turvata Holdings Limited in the principal amount totaling $40,000,000 in exchange for 50,000 RoRa Prime Coins (“Coins”), valued at $800 per Coin. The convertible promissory note bears no interest and is due and payable in twenty-four (24) months. The Holder of this Note has the right, at the holder's option, to convert the principal amount of this Note, in whole or in part, into fully paid and nonassessable shares at a conversion price of $2.00 per share. Conversion rights shall not vest until such time as the holder’s consideration, Coins, are live on a U.S. Exchange and available through a mutually agreed upon cryptocurrency wallet. The Coins are expected to go live in 2023. The Note shall not be enforceable until such time as the Coin is "live" on a US exchange and available through a mutually agreed upon cryptocurrency wallet. The parties agree to establish a time is of the essence date of May 1, 2023 for Holder to meet the "live" requirement. Should Holder not meet the "live" requirement by May 1, 2023, then Borrower shall return all RoRa Prime Coins and Holder shall release all claims on any shares or Convertible Promissory Note. Subsequent to the Coins live date and before the holder coverts the Note, should the Company issue any dilutive security, the conversion price will be reduced to the price of the dilutive issuance. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note as described above.
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As a result of the failure to timely file our Form 10-K for the year ended December 31, 2021, and the Form 10-Q for the three-month periods ended March 31, 2022, June 30, 2022, and September 30, 2022, the convertible promissory note was in default. On June 30, 2022, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the convertible promissory note related to the Company’s failure to timely file its 10-K for the year ended December 31, 2021, and Form 10-Q for the three-month periods ended March 31, 2022, June 30, 2022, and September 30, 2022.
The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting.
Investment in Fourth & One
On September 8, 2022, the Company entered into a Membership Interest Purchase Agreement (“Agreement”) with Fourth & One, LLC (“Fourth & One”) with respect to the sale and transfer of 51.5% of Fourth & One’s interest in WC Mine Holdings, LLC (“WCMH”) giving the Company a 30.9% ownership in WCMH for consideration totaling $5,450,000. In exchange, the Company issued Fourth & One a promissory note of $4,000,000 and 2,000 RoRa Prime digital coins (“Coins”), valued at $1,450,000. The promissory note provides for no interest and matures on October 31, 2022 (“Maturity Date”). In addition, the promissory note provides that the Company may convert all amounts at any time prior to the Maturity Date and after gaining approval by the Securities and Exchange Commission of the Company’s REG A II Offering and Fourth & One may convert all amounts into common stock prior to the Maturity Date at a conversion price of $2.00 per share. The Agreement also provides that should Fourth & One not be able to convert the Coins on or before October 31, 2022 at a conversion ratio of $800 per Coin, the Company will purchase all of the Coins for a total of $1,600,000 (2,000 Coins at $800 per Coin) on October 31, 2022.
On November 1, 2022, the Company and Fourth & One mutually agreed to terminate the Agreement and the Company was released from any obligations.
Employment Agreements
On March 1, 2022, as amended on October 1, 2022, Mr. Ricardo Haynes, the Company’s Chief Executive Officer and President (“CEO”) entered into an Employment Agreement with the Company. The Employment agreement terminates September 30, 2027 and automatically renews on a year-to-year basis unless terminated by either party on six months’ notice. In addition, Mr. Haynes is entitled to employee reimbursements totaling $820 per month, entitled to six (6) weeks paid vacation each year, provides for medical and dental insurance, and entitled to stock options upon the implementation of a Company employee option plan. Under this Employment agreement, the CEO will be entitled to the following:
| · | $5,700 for services performed from March 1, 2022 – June 30, 2022 | |
| · | Lump Sum payment of $21,299 for services from July 1, 2022 – December 31, 2022 | |
| · | 25,000,000 shares of TNRG common stock in the Company which vest immediately. | |
| · | 7,500,000 newly issued Preferred A shares of TNRG stock CUSIP (88604Y209) Cert No. 400002 | |
| · | 750 newly issued Preferred B shares of TNRG stock CUSIP (88604Y209), Cert. No. 500002 | |
| · | 1,500 newly issued Preferred C shares of TNRG stock CUSIP (8860Y209), Cert No. 600002 | |
| · | $7,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| · | 1,500 RoRa Coins in possession of the Company. |
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On October 1, 2022, the Company entered into Employment Agreements with individuals for positions in the Company. Each of the Employment agreements shall begin October 1, 2022 and terminate September 30, 2027 and automatically renews on a year-to-year basis unless terminated by either party on six months’ notice. In addition, each employee is entitled to employee reimbursements totaling $820 per month, entitled to six (6) weeks paid vacation each year, provides for medical and dental insurance, and entitled to stock options upon the implementation of a Company employee option plan. Under these Employment agreements, each employee will be entitled to the following:
| · | Ms. Tori White, Director Real Estate Development. |
| ○ | $24,000 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 4,800 RoRa Coins in possession of the Company. |
| · | Mr. Eric Collins, Chairman and Chief Operations Officer. |
| ○ | $12,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 2,500 RoRa Coins in possession of the Company. |
| · | Mr. Donald Keer, Corporate Counsel |
| o | $3,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 700 RoRa Coins in possession of the Company. |
| · | Mr. Lance Lehr, Chief Operating Officer |
| ○ | $2,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 500 RoRa Coins in possession of the Company. |
The Company had been in discussions with the Shareholders for repayment of the Acquisition of Preferred Shares and finalized the Employment Agreements on October 1, 2022 for positions in the Company. As a result, the Company recorded the purchase price as compensation on March 1, 2022.
Consulting Agreements
On April 6, 2022, the Company entered into a Consulting Agreement with Top Flight Development LLC (“Top Flight”), an entity controlled by the father of the Company’s Director Real Estate Development, to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, Top Flight will be entitled to a total of 15,000,000 common shares, valued at $450,000 (based on the Company’s stock price on the date of issuance) and vesting immediately and shall be paid $21,000 per month beginning on the first day of the month following the execution of the agreement. The Company paid Top Flight $67,400 and $105,000 during the three and nine months ended September 30, 2022, respectively, with a balance due of $7,400 as of September 30, 2022.
On April 6, 2022, the Company entered into a Consulting Agreement with a third party to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, the third party will be entitled to a total of 5,000,000 common shares, valued at $150,000 (based on the Company’s stock price on the date of issuance) and vesting immediately.
On April 6, 2022, the Company entered into a Consulting Agreement with a third party to provide consulting services to the Company. The consulting agreement is in effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, the third party will be entitled to a total of 2,000,000 common shares, valued at $60,000 (based on the Company’s stock price on the date of issuance) and vesting immediately.
Capital Resources.
We had no material commitments for capital expenditures as of September 30, 2022.
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Fiscal year end
Our fiscal year end is December 31.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $5,327,124 and $2,020,464 at September 30, 2022 and December 31, 2021, respectively, had a working capital deficit of $4,480,081 and $2,583,421 at September 30, 2022 and December 31, 2021, respectively, had net losses of $1,313,773 and $3,306,660, and $1,323,024 and $1,646,633 for the three and nine months ended September 30, 2022 and 2021, respectively, and net cash used in operating activities of $400,051 and net cash provided by operating activities of $82,644 for the nine months ended September 30, 2022 and 2021, respectively, with limited revenue earned since inception, and a lack of operational history. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating cost and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan to obtain such resources for the Company include, obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Critical Accounting Policies
Refer to Note 3 in the accompanying notes to the unaudited condensed consolidated financial statements for critical accounting policies.
Recent Accounting Pronouncements
Refer to Note 3 in the accompanying notes to the condensed consolidated financial statements.
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Future Contractual Obligations and Commitments
Refer to Note 3 in the accompanying notes to the consolidated financial statements for future contractual obligations and commitments. Future contractual obligations and commitments are based on the terms of the relevant agreements and appropriate classification of items under U.S. GAAP as currently in effect. Future events could cause actual payments to differ from these amounts.
We incur contractual obligations and financial commitments in the normal course of our operations and financing activities. Contractual obligations include future cash payments required under existing contracts, such as debt and lease agreements. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related operating activities. Details on these obligations are set forth below.
Convertible Note Payable
$85,766 Note
On April 22, 2019; The Company executed a convertible promissory note with GHS Investments, LLC (“GHS Note”). The GHS Note carries a principal balance of $57,000 together with an interest rate of eight (8%) per annum and a maturity date of February 21, 2020. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share) in accordance with the terms of the note agreement shall be made in lawful money of the United States of America. Any amount of principal or interest on this GHS Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid. As of December 31, 2019, the principal balance outstanding was $57,000.
The holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this note, to convert all or any part of the outstanding and unpaid principal amount into Common Stock. The conversion shall equal sixty-five percent (65%) of the lowest trading prices for the Common Stock during the twenty (20) day trading period ending on the latest complete trading day prior to the conversion date, representing a discount rate of thirty-five percent (35%).
On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares into series B and 10,000 shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766 as of September 30,December 31, 2021.
The Company accounts for an embedded conversion feature as a derivative under ASC 815-10-15-83 and valued separately from the note at fair value. The embedded conversion feature of the note is revalued at each subsequent reporting date at fair value and any changes in fair value will result in a gain or loss in those periods. The Company recorded a derivative liability of $82,257,$87,482 as of September 30, 2022, and recorded a change in derivative liability of $41,923$5,455 and $4,078, and $38,673 and $21,480 and $21,480,$41,923 during the three and nine months ended September 30, 20212022 and 2020,2021, respectively.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the yearyears ended December 31, 2021 and 2020, and the three-month periodperiods ended March 31, 2022 and 2021, the Convertible Notes Payable were in default. The Company is currently in discussions to restructure the terms of the note and recorded default interest of $7,602 and $22,486, and $7,568 and $22,450 during the three and nine months ended September 30, 2022 and 2021, respectively. No default interest was recorded for the three and nine month periods ended September 30, 2020.respectively.
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$220,000 Note
On September 21, 2020, the Company issued a convertible promissory note in the principal amount of $220,000. The convertible promissory note bears interest at 8% per annum and is due and payable in twenty-four (24) months. The holder of this note has the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05 per share. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.
The principal balance due at September 30, 20212022 is $220,000 and is presented as a short-term liability in the balance sheetsheet. The Company has not repaid this convertible note and the convertible note is now in default. The Company is currently in discussions to restructure the terms of $112,712, net of unamortized debt discount of $107,288.the note.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the yearyears ended December 31, 2021 and 2020, and the three-month periodperiods ended March 31, 2022 and 2021, the Convertible Notes Payable were in default. On July 19, 2021, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the Notes related to the Company’s failure to timely file its Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021. In exchange for the Agreement, the Company agreed to pay a one-time interest charge of $11,680 in the year ended December 31, 2021. The Company is currently in discussions to restructure the terms of the note and recorded default interest of $15,402 and $43,419, and $0 and $0 during the three and nine months ended JuneSeptember 30, 2021.2022 and 2021, respectively.
Long Term$410,000 Note (previously $600,000)
On October 9 and October 16, 2020, the Company issued a convertible promissory note in the principal amount totaling $600,000. The convertible promissory note bears interest at 8% per annum and is due and payable in twenty-four (24) months. The holder of this note has the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05 per share. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.
On December 6, 2021, the holder of the note converted $190,000 of the Note into 3,800,000 shares of the Company’s common stock. The principal balance of $410,000 is due at October 16, 2022 is $600,000 and is presented as a longshort term liability in the balance sheetsheet. The Company has not repaid this convertible note and the convertible note is now in default. The Company is currently in discussions to restructure the terms of $286,850, net of unamortized debt discount of $313,150.the note.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the yearyears ended December 31, 2021 and 2020, and the three-month periodperiods ended March 31, 2022 and 2021, the Convertible Notes Payable were in default. On July 15, 2021, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the Notes related to the Company’s failure to timely file its Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021. Therefore, no default interest has been accrued in these financial statements.
Promissory Debenture
On February 15, 2020 and on May 14, 2020, the Company entered into Promissory Agreement and Convertible Debentures (“Promissory Debentures”) with Emry for a principal sum of $70,000 (which was paid in two tranches: $50,000, paid on February 15, 2020, and $20,000, paid in April 2020) and $48,000 (which was paid in three tranches: $23,000, paid on May 14, 2020, $15,000, paid on May 22, 2020, and $10,000, paid on June 8, 2020), respectively. The Promissory Debenture bears interest, both before and after default, at 15% per month, calculated and compounded monthly. At the election of the holder, at any time during the period between the date of issuance and the one-year anniversary of the Promissory Debenture, the Promissory Debenture is convertible into shares of the Company’s common stock at any time at a conversion price of $0.0001 per share. In addition, the Promissory Debenture provides for an interest equal to 15% of the Company’s annual sales, payable on the 2nd day following the date of issuance of the Company’s audited financial statements.
On June 24, 2020, Emry, holder of (i) Promissory Debentures in principal amount of $70,000 dated February 15, 2020, and (ii) that certain convertible promissory note in principal amount of $57,000 dated April 22, 2019, sold 50% of each (Promissory Debentures and convertible promissory note), including accrued and unpaid interest, fees and penalties, in separate transactions to third party companies, SP11 Capital Investments and E.L.S.R. CORP, Florida companies, such that SP11 Capital Investments and E.L.S.R. CORP each hold 50% of each respective debt instrument. The Promissory Debenture bears interest, both before and after default, at 10% per annum.
On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 per share into 3,500,000 shares of the Company’s common stock.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021, the Promissory Debentures were in default. On July 15, 2021, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the $48,000 note related to the Company’s failure to timely file its Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021. The $35,000 note provides for no default penalties.
Common Stock
On October 13, 2020, the Company issued 195,480 common shares, valued at $33,232 (based on the Company’s stock price on the date of issuance), to GHS Investments in settlement of services provided to the Company.
On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 per share into 3,500,000 shares of the Company’s common stock.
On August 14, 2020, the Company issued 60,000,000 common shares in conjunction with acquisition.
Preferred Stock
The Company has been authorized to issue 50,000,000 shares of $0.001 par value Preferred Stock. The Board of Directors is expressly vested with the authority to divide any or all of the Preferred Stock into series and to fix and determine the relative rights and preferences of the shares of each series so established, within certain guidelines established in the Articles of Incorporation.
Series A: The certificate of designation for the Preferred A Stock provides that as a class it possesses a number of votes equal to fifteen (15) votes per share and may be converted into ten (10) $0.001 par value common shares.
On October 10, 2013, the Company issued fifty million (50,000,000) shares of our Series “A” Convertible Preferred Stock to Hadronic, a Florida corporation maintaining its principal place of business at 35246 US Highway 19 North, Suite #215, Palm Harbor, Florida 34684. Our previous Directors, Dr. Ruggero M. Santilli and Mrs. Carla Santilli each own fifty percent of the equity in Hadronic. The Series “A” Convertible Preferred Stock has 15 votes per share and is convertible into 10 shares of our common stock at the election of the shareholder. Shares were valued at the par value of the common stock equivalents, $500,000.
On January 9, 2020, Mina Mar (the “Purchaser”) acquired 50,000,000 shares of Series A Convertible Preferred Stock of the Company from Hadronic. At completion of the stock purchase the Purchaser owns approximately 98.6% of the fully diluted outstanding equity securities of the Company and approximately 99% of the voting rights for the outstanding equity securities. The purchase price of $94,766 for the Preferred Stock was paid by the assumption of a Company note obligation of $85,766 to Emry, with the balance paid in cash. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of the Purchaser. The purchase of the Preferred Stock was the result of a privately negotiated transaction and consummation of the purchase resulted in a change of control of the Company.
On March 24, 2020, Saveene (“Saveene”) acquired 50,000,000 shares of Series A Convertible Preferred Stock of the Company, from Mina Mar. At the completion of the stock purchase, Saveene owns approximately 98.6% of the fully diluted outstanding equity securities of the Company and approximately 99% of the voting rights for the outstanding equity securities. The purchase price of $500,000 for the Preferred Stock was paid in cash. The consideration for the purchase was provided to the Purchaser from the private funds of the principal of Saveene. The purchase of the Preferred Stock was the result of a privately negotiated transaction and consummation of the purchase resulted in a change of control of the Company.
On March 24, 2020, the Company held a meeting and voted to create two separate classes of preferred shares. Class “B” and class “C’ preferred shares. One class of shares B would be used to offer securitization for the watercraft while class C preferred shares would be used in conjunction with the securitization of air crafts.
Series B Convertible Preferred Stock was authorized for 10,000,000 shares of the “Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder converts into one thousand (1,000) shares of Company common stock, so at the completion of the stock purchase, Saveene owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to Saveene from the private funds of the principal of Saveene.
Series C Non-Convertible Preferred Stock was authorized for 10,000,000 shares of the Company. Each share of Preferred Stock is entitled to one thousand (1,000) votes per share and at the election of the holder. The series C is Non-Convertible Preferred Stock. Saveene owns approximately 100% of the fully diluted outstanding equity securities of the Company and approximately 100% of the voting rights for the outstanding equity securities. The consideration for the purchase was provided to Saveene from the private funds of the principal of Saveene.
On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares of series B and 10,000 shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766.
On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares of series B and 10,000 shares of series C shares. As a result, the Series B and C voting ownership approximates 57% and therefore, the Company has a change in ownership resulting in the recognition of a gain or loss on the sale of the interest sold and on the revaluation of any retained noncontrolling investment in accordance with ASC 810-10-40-5.
The Company’s stock price on March 24, 2020 was $0.03, giving the Company a value of $0.03 per share times 11,244,923 shares outstanding or $337,348. The transaction was booked to loss on extinguishment of change in control and with the off-setting entry to additional paid-in capital due to it being a related party transaction.
On July 1, 2020, Yogev Shvo, a third-party individual and principal shareholder of Nature personally acquired 100% of the issued and outstanding shares of preferred stock (the “Preferred Stock”) of TNRG from Saveene Corporation, a Florida corporation (the “Seller”) (The “Purchase”). The purchase price of $250,000 for the Preferred Stock was paid in cash and was provided from the individual private funds of Purchaser.
The Preferred Stock acquired by the Purchaser consisted of:
Operating Lease
On October 22, 2021 the Company entered into a lease termination agreement (“Lease Termination”) with Canal Park Office to terminate the Company’s North Miami Beach, Florida office space. The Termination Agreement allows Canal Park Office to retain the security deposit of $24,799 and to be paid $21,000. The Company was released from any other obligations.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us on which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, and possible cost overruns due to increases in the cost of services. To become profitable and competitive, we must receive additional capital. We have no assurance that future financing will materialize. If that financing is not available, we may be unable to continue operations.
Description of Business, Principal Products, Services
Overview
We are a CBD and hemp company with production and distribution in the United States. We are a leader in the CBD and hemp consumer products segment, which includes the production, distribution and sale of a diverse range of CBD and hemp-based consumer products in the United States. Our mission is to become the leading seed-to-sale manufacturer and supplier of high-quality CBD products.
TNRG operates in the U.S. market for U.S. hemp-derived consumer products through Nature Consulting.
Nature Consulting LLC’s Mission
Our mission is to be the leading seed-to-sale manufacturer and supplier of high-quality CBD and hemp products in the industry. We have identified the following issues as our critical drivers:
Nature Consulting LLC’s Product Portfolio
On August 14, 2020, we announced the closing of the acquisition of Nature Consulting (“Nature”). Nature manufactures, markets and distributes U.S. hemp-derived supplements and cosmetic products through e-commerce and wholesale distribution in the U.S. under the brand The Hemp Plug. Nature is an innovative leader in quality extraction and sourcing, expert brand building, and targeted marketing for retailers and wholesalers throughout the world. From customization to order fulfillment to brand development and label design, THP provides guided support every step of the way through tailored business strategy. It features the largest collection of customizable CBD and hemp products on the market.
We are committed to building a portfolio of iconic brands that responsibly elevate the consumer experience.
In the U.S., we market and distribute solely U.S. hemp-derived supplements and cosmetics products through e-commerce and wholesale distribution under the brands The Hemp Plug.
We sell a variety of CBD and hemp products, including hemp flower, pre-rolls and hemp extracts (in the form of tinctures and vaporizers), U.S. hemp-derived supplements, and cosmetics through wholesale and direct-to-client channels.
The Company has begun its planned principal operations, and accordingly, the Company has prepared its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Distribution Methods Of The Products and Services
Market and Distribution
Through Nature, the Company manufactures, markets and distributes a variety of CBD and hemp products, including hemp flower, pre-rolls and hemp extracts (in the form of tinctures and vaporizers), U.S. hemp-derived supplements and cosmetics products through e-commerce and wholesale distribution ls in the U.S. under the brand, The Hemp Plug. Nature’s products use pure U.S. hemp extract that contains natural phytocannabinoids and terpenes found in the plant. We plan to use our resources to capitalize on the demand to further create and scale U.S. hemp-derived consumer products and brands. We do not engage in any commercial activities related to the cultivation, distribution or possession of U.S. Schedule I cannabis in the U.S. The rate of the Company’s expansion of distribution remains subject to factors that are beyond the Company’s control, including evolving regulations, the development of sufficient supply chain and manufacturing infrastructure and development of distribution and retail channels across the United States.
Supply Chain
In producing our supplement products, we source our ingredients from our suppliers on an ongoing as-needed basis. We have not entered into any contracts that obligate us to purchase a minimum quantity or exclusively from any food service distributor. Our supplements are manufactured at our facilities in Hollywood, Florida following to Good Manufacturing Practices (“GMP”).
We rely on a variety of suppliers. Should the relationship with an industry vendor be interrupted or discontinued, it is believed that alternate component suppliers could be identified to support the continued advancement of the Company.
Branding Strategy
Branding plays a critical role in our success.
We have performed marketing and capabilities landscape assessments based upon consumer immersion and research and designed to understand consumer purchase behaviors and values, assess short and long term socio-cultural and market trends, and analyze the marketplace and competitive landscape.
We have developed comprehensive, consumer-oriented toolkit using consistent language and tone for printed and online media and to target retailers on a sell-in, exclusive basis.
We develop advertisements for print and online media, and sales materials for retail strategic partners. We maintain a graphics library to be used on all touch points.
Social Media
Our marketing team works on several social media initiatives that target current and future consumers and support the promotion and sale of our product brands. Our campaigns are focused on driving a consistent message emphasizing the ethical origins of our products, their everlasting beauty, and overall value. We use various forms of digital and social media outreach to accomplish greater awareness of the value proposition we offer.
Internet Marketing
We maintain presence on Google, Bing, Yahoo and all other online search engines that are used to search for CBD and hemp. We engage in significant search engine optimization marketing efforts to ensure that we have strong results upon natural searches related to our products. We utilize pay per click advertising, display advertising, and article marketing. Our websites display a full catalogue of our products, background information regarding the manufacturing of the products, information about the Company and management team, and contact information. We also maintain a social media presence on Facebook, Twitter, and other social media websites to have an interactive presence.
Public Relations
We engage in activities to gain public awareness and credibility through our internally managed public relations (“PR”) campaigns to establish relationships with the local market. We attend editor events and engage in strategic media outreach planning and strive to be a valued member of the community through community service offerings and support. work to obtain interviews, print articles, and featured spots in leading fashion, luxury, and bridal magazines, industry publications, television news, radio programming, periodicals, and online websites and publications. We have developed short-lead and long-lead editorials and long lead editorials. The purpose of the PR campaign is to highlight the strength and innovation of our products.
Promotions
We activate promotional platforms to include sales during and after holidays, discounted prices on particular products, and discounts for repeat customers.
Competitive Analysis and Strategy
Overall, we believe we have a competitive advantage by providing a range of goods and services to the CBD and hemp industry. This allows us to provide integrated solutions to our customers, as well as sell additional goods and services to customers of a single segment. There is no aspect of our business, however, that is protected by patents or copyrights. As a result, our competitors could duplicate our business model with little effort.
The industry in which we compete is highly competitive. We believe that the most important competitive factors in our industry include the ability to control as much as possible of the supply chain.
We believe that our competitors have certain existing advantages such as history and heritage; strong ecommerce and mobile presence; wholesale and flagship retail presence; strong social presence; a wide range of ancillary product offerings; strong public relations and marketing efforts; a balanced range of price points across the board; and consumer trust and recognition. However, we set ourselves apart with strong brand identity and visuals, unique design and quality and brand awareness through traditional and social media.
Because we are a small company with a limited operating history, we are at a competitive disadvantage against larger and well-capitalized companies which have a track record of success and operations. Therefore, our primary method of competition involves promoting our direct-to-consumer offering.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements Or Labor Contracts, Including Duration
None.
Effect Of Existing Or Probable Governmental Regulations On The Business
The Agriculture Improvement Act of 2018, Public Law 115-334 (the “AIA”), was signed into law on December 20, 2018. It provided a new statutory definition of “hemp” and amended the definition of marihuana under 21 U.S.C. 802(16) and the listing of tetrahydrocannabinols under 21 U.S.C. 812(c). The AIA thereby amends the regulatory controls over marihuana, tetrahydrocannabinols, and other marihuana-related constituents in the Controlled Substances Act (CSA).
This rulemaking makes four conforming changes to the Drug Enforcement Administration’s (“DEA”) existing regulations:
The DEA’s interim rule also includes changes how it implements the CSA:
Changes to the Definition of Tetrahydrocannabinols:
The AIA also modified the listing for tetrahydrocannabinols under 21 U.S.C. 812(c) by stating that the term tetrahydrocannabinols does not include tetrahydrocannabinols in hemp. Specifically, 21 U.S.C. 812(c) Schedule I now lists as schedule I controlled substances: ‘‘Tetrahydrocannabinols, except for tetrahydrocannabinols in hemp (as defined under section 1639o of Title 7).’’ Therefore, the AIA limits the control of tetrahydrocannabinols (for Controlled Substance Code Number 7370). For tetrahydrocannabinols that are naturally occurring constituents of the plant material, Cannabis sativa L., any material that contains 0.3% or less of D9-THC by dry weight is not controlled, unless specifically controlled elsewhere under the CSA. Conversely, for tetrahydrocannabinols that are naturally occurring constituents of Cannabis sativa L., any such material that contains greater than 0.3% of D9-THC by dry weight remains a controlled substance in schedule I. The AIA does not impact the control status of synthetically derived tetrahydrocannabinols (for Controlled Substance Code Number 7370) because the statutory definition of ‘‘hemp’’ is limited to materials that are derived from the plant Cannabis sativa L. For synthetically derived tetrahydrocannabinols, the concentration of D9- THC is not a determining factor in whether the material is a controlled substance. All synthetically derived tetrahydrocannabinols remain schedule I controlled substances. This rulemaking is modifying 21 CFR 1308.11(d) to reflect this statutory change. By this rulemaking, 21 CFR 1308.11(d)(31) is being modified via the addition of subsection (11) which reads: “Tetrahydrocannabinols does not include any material, compound, mixture, or preparation that falls within the definition of hemp set forth in 7 U.S.C. 1639o.”
Stated simply, the above language from the DEA provides that any cannabis or cannabis derivative containing more than 0.3% ∆-9 THC fails to meet the AIA definition of hemp and therefore remains a controlled substance under the CSA. In other words, this proposed rule directly conflicts with the AIA’s definition of hemp which defines hemp as the “plant Cannabis sativa L and any part of that plant including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delat-9 tetrahydrocannabinol concentration of not more than .3 percent on a dry weight basis.” 7 U.S.C definition § 1639o, subsection 1. Further, Congress expressly exempted hemp derivatives and hemp extracts from the federal Controlled Substances Act, as well as “hemp” itself: “(A) Subject to subparagraph (B), the term “marihuana” means all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. (B) The term "marihuana" does not include— (i) hemp, as defined in section 1639o of title 7; or (ii) the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.” See 21 U.S.C. 802, subdivision (16). Further, Congress also expressly exempted the AIA’s definition of “hemp,” “hemp derivatives,” and “hemp extracts” from the Controlled Substances Act list of Schedule 1 drugs providing: “(c) Unless specifically excepted or unless listed in another schedule, any material, compound, mixture, or preparation, which contains any quantity of the following hallucinogenic substances, or which contains any of their salts, isomers, and salts of isomers whenever the existence of such salts, isomers, and salts of isomers is possible within the specific chemical designation: (17) Tetrahydrocannabinols, except for tetrahydrocannabinols in hemp (as defined under section 297A of the Agricultural Marketing Act of 1946 [7 USCS § 1639o]).” See 21 U.S.C. 812, subdivision (C), subpart (17).
Given that Congress explicitly defined “hemp” to include “hemp derivatives” and “hemp extracts,” as long as delta-8 tetrahydrocannabinol (delta- 8 THC) is extracted or derived from hemp or is extracted or derived from extract or derivative of “hemp,” it cannot be criminalized under the federal Controlled Substances Act, until Congress either further amends the AIA of 2018 or amends the existing CSA. There is case law precedent to support the proposition that a government agency, in this case the DEA, cannot make a rule that directly conflicts an existing federal statute. In determining whether to give deference to an agency rule with a federal statute, Courts apply the Chevron Doctrine set forth by the Supreme Court in Chevron U.S.A., Inc. v. Natural Res. Def. Council. See 467 U.S. 837, 842-4 (1984).
Courts must employ a two-step analysis under the Chevron Doctrine. First, if the statute speaks clearly “to the precise question at issue," the Court must give effect to the unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842-43. Second, where the statute is “silent or ambiguous with respect to the specific issue,” the Court must sustain the agency determination if it is based on a “permissible construction” of the statute. Id. at 843. A court does not need to reach this second step if, “employing traditional tools of statutory construction, [it] ascertains that Congress had an intention on the precise question at issue” Id. at 843 n.9. Similarly, in Lamie v. United States Trustee, the Court noted that when a “statute’s language is plain, the sole function of the courts—at least where the disposition required by the text is not absurd—is to enforce it according to its terms.” 540 U.S. 526, 534 (2004). Furthermore, in America's Cmty. Bankers v. F.D.I.C., the Court explained that when a federal statute is clear and unambiguous then there is nothing for an agency to interpret and the court must give effect to that unambiguous expression of Congress. 200 F.3d 822, 833-34 (2000). This remains the case even when the executive agency at issue is the one tasked with enforcing that particular federal statute. Id.
As it pertains to the issue at hand, the DEA cannot promulgate a rule the directly conflicts the will of Congress as expressed by the AIA and the CSA. As previously noted, Congress expressly exempted hemp plants, including hemp derivatives and extracts, from the CSA. This exemption presumably encompasses all products that can be derived from hemp including THCs or salts (to the extent that both products are derived or extracted from hemp). There can be no assurance that the AIA will not be modified to conform to the DEA’s regulations regarding the regulatory controls over marihuana, tetrahydrocannabinols, and other marihuana-related constituents in the CSA.
Estimate Of The Amount Of Money Spent During Each Of The Last Two Fiscal Years On Research And Development
Other than time spent researching our business and proposed markets and segmentation, we have not spent any funds on research and development activities to date. In the event opportunities arise from our operations, we may elect to initiate research and development activities, but we have no plans for any activities to date.
Costs and Effects Of Compliance With Environmental Laws
Our operations are not subject to any environmental laws or regulations.
Number Of Total Employees And Number Of Full-Time Employees
At this time, the Company has 1 full time employee and no persons working part time in various functions.
We do not provide an employer contribution for healthcare, pension, annuity, insurance, profit sharing, or similar benefit plans; however, we may adopt plans in the future.
Implications of Being an Emerging Growth Company
We qualify as an emerging growth company as that term is used in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
We have already taken advantage of these reduced reporting burdens in this Form 10-Q, which are also available to us as a smaller reporting company as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. We are choosing to utilize the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act. This election allows our Company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
We are a reporting company and file all reports required under sections 13 and 15d of the Exchange Act.
Overview of Presentation
The following Management’s Discussion and Analysis (“MD&A”) or Plan of Operations includes the following sections:
Plan of Operations
Our plan of operations consists of:
How We Generate Revenue
The Company generates all of its revenue from contracts with customers. The Company recognizes revenue when we satisfy a performance obligation by transferring control of the promised services to a customer in an amount that reflects the consideration that we expect to receive in exchange for those services. The Company determines revenue recognition through the following steps:
At contract inception, the Company assesses the services promised in our contracts with customers and identifies a performance obligation for each promise to transfer to the customer a service (or bundle of services) that is distinct. To identify the performance obligations, the Company considers all of the services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company allocates the entire transaction price to a single performance obligation.
A description of our principal revenue generating activities are as follows:
Other sales – The Company offers consumer CBD and hemp products through its online websites. During the three and nine months ended September 30, 2021 and 2020, the Company recorded other sales of $335,095 and $3,777,276, and $1,296,431 and $3,522,962, respectively.
Mask sales – As a result of the COVID 19 pandemic, in 2020, the Company entered into the sale of KN95 masks but had to dispose of them at a loss. During the three and nine months ended September 30, 2021 and 2020, the recorded mask sales of $0 and $0, and $0 and $3,054,200, respectively.
The Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when the Company is primarily obligated in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sale price. The Company generally records the net amounts as commissions earned if we are not primarily obligated and do not have latitude in establishing prices.
Revenue is recognized when the product is shipped to the customer, provided that collection of the resulting receivable is reasonably assured. The Company primarily provides for no credit terms as it collects a deposit of 50% upon order and requires the remaining 50% be paid before the order is shipped. When credit terms are granted, terms of up to 120 days are provided, based on credit evaluations. No allowance has been provided for uncollectible accounts. Management has evaluated the receivables and believes they are collectible based on the nature of the receivables, historical experience of credit losses, and all other currently available evidence. Discounts are recorded as a reduction of the transaction price. Revenue excludes any amounts collected on behalf of third parties, including sales taxes.
Results of Operations
Results of Operations for the Three Months ended September 30, 2021 and 2020.
The following discussion represents a comparison of our results of operations for the three months ended September 30, 2021 and 2020. The results of operations for the periods shown in our audited consolidated financial statements are not necessarily indicative of operating results for the entire period. In the opinion of management, the audited consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||
| Net revenues | $ | 335,095 | $ | 1,296,431 | ||||
| Cost of sales | 207,133 | 383,790 | ||||||
| Gross Profit | 127,962 | 912,641 | ||||||
| Operating expenses | 497,346 | 757,577 | ||||||
| Other expense | 953,640 | 256,736 | ||||||
| Net loss before income taxes | $ | (1,323,024 | ) | $ | (101,672 | ) | ||
Net Revenues
Net revenues decreased by $961,336, or 74.2%, to $335,095 for the three months ended September 30, 2021 from $1,296,431 for the three months ended September 30, 2020. The decrease in revenue is primarily the result of a decrease in customer purchases of our other products.
Cost of Sales
Cost of sales decreased by $176,657, or 46.0%, to $207,133 for the three months ended September 30, 2021 from $383,790 for the three months ended September 30, 2020. As a percentage of revenue, other products cost of sales was 61.8% and 29.6% resulting in a gross margin of 38.2% and 70.4% for the three months ended September 30, 2021 and 2020, respectively, primarily due to the increased cost of retail products and the decrease in revenue and a reclassification of manufacturing labor to cost of sales from operating expenses.
Operating expenses
Operating expenses decreased by $260,231, or 34.4%, to $497,346 for the three months ended September 30, 2021 from $757,577 for the three months ended September 30, 2020 primarily due to decreases in marketing costs of $111,717, depreciation and amortization costs of $4,429, professional fees of $48,281, compensation costs of $94,459, consulting costs of $45,627, investor relations of $1,400, and travel expenses of $1,810, offset partially by increases in operating lease costs of $419, bad debt expense of $18,657, and shipping charges of $13,593, and general and administration costs of $14,823, as a result of reorganizing our administrative infrastructure, primarily employee costs, and refocusing our marketing initiatives to generate sales growth.
For the three months ended September 30, 2021, we had marketing expenses of $39,883 and general and administrative expenses of $457,463 primarily due to compensation costs of $168,381, consulting costs of $2,060, travel expenses of $1,904, operating lease costs of $59,240, professional fees of $49,030, shipping charges of $41,251, bad debts of $47,357, and general and administration costs of $88,240, as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
For the three months ended September 30, 2020, we had marketing expenses of $151,600 and general and administrative expenses of $605,977 primarily due to compensation costs of $262,840, consulting costs of $47,687, travel expenses of $3,714, operating lease costs of $58,821, professional fees of $97,311, depreciation and amortization costs of $4,429, shipping charges of $27,658, bad debts of $28,700, investor relations of $1,400, and general and administration costs of $73,417, as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
Other Expense
Other expense for the three months ended September 30, 2021 totaled $953,640 primarily due to interest expense in conjunction with debt discount of $103,342, the change in derivative liability of $38,673, and interest expense on notes payable of $378,789, and impairment of assets of $510,182. Other expense for the three months ended September 30, 2020 totaled $256,736 primarily due to interest expense on notes payable of $117,494, interest expense in conjunction with debt discount of $61,262, the change in derivative liability of $21,480, and other expense of $56,500.
Net loss before income taxes
Net loss before income taxes for the three months ended September 30, 2021 totaled $1,323,024 primarily due to revenue of $335,095 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, operating lease costs, shipping charges, travel costs, bad debts, and general and administration costs compared to a net loss of $101,672 for the three months ended September 30, 2020 primarily due to revenue of $1,296,431 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, operating lease costs, depreciation and amortization, investor relations costs, bad debts, shipping charges, travel costs, and general and administration costs.
Assets and Liabilities
Assets were $3,665 as of September 30, 2021. Assets consisted primarily of cash of $3,665. Liabilities were $3,051,169 as of September 30, 2021. Liabilities consisted primarily of accounts payable of $305,167, due to related party of $72,743, loan payable to shareholder of $1,805, customer advance payments of $150,018, derivative liability of $82,257, accrued interest of 1,206,526, long term notes payable of $349,490, convertible notes payable of $568,328, net of unamortized debt discount of $420,438, and operating lease liabilities of $314,835.
Results of Operations for the Nine Months ended September 30, 2021 and 2020.
The following discussion represents a comparison of our results of operations for the nine months ended September 30, 2021 and 2020. The results of operations for the periods shown in our audited consolidated financial statements are not necessarily indicative of operating results for the entire period. In the opinion of management, the audited consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||
| Net revenues | $ | 3,777,276 | $ | 6,577,162 | ||||
| Cost of sales | 1,582,799 | 3,743,271 | ||||||
| Gross Profit | 2,194,477 | 2,833,891 | ||||||
| Operating expenses | 2,208,428 | 1,828,122 | ||||||
| Other expense | 1,632,682 | 284,213 | ||||||
| Net (loss) profit before income taxes | $ | (1,646,633 | ) | $ | 721,556 | |||
Net Revenues
Net revenues decreased by $2,799,886, or 42.6%, to $3,777,276 for the nine months ended September 30, 2021 from $6,577,162 for the nine months ended September 30, 2020. The decrease in revenue is primarily the result of a decrease in mask sales of $3,054,200, or 100.0%, to $0 for the nine months ended September 30, 2021 from $3,054,200 for the nine months ended September 30, 2020, offset primarily by an increase in customer purchases of our other products of $254,314 or 7.2%, to $3,777,276 for the nine months ended September 30, 2021 from $3,522,962 for the nine months ended September 30, 2020. As a result of the COVID 19 pandemic, in 2020, the Company entered into the sale of KN95 masks but had to dispose of them at a loss.
Cost of Sales
Cost of sales decreased by $2,160,472, or 57.7%, to $1,570,157 for the nine months ended September 30, 2021 from $3,743,271 for the nine months ended September 30, 2020. As a percentage of revenue, other products cost of sales was 41.9% and 14.2% resulting in a gross margin of 58.1% and 85.8% for the nine months ended September 30, 2021 and 2020, respectively, primarily due to reduced cost of retail products, offset partially by the increase in revenue and a reclassification of manufacturing labor to cost of sales from operating expenses. The increased cost of other products was a result of a transition from purchasing manufactured products from suppliers in 2019 to producing our own products in 2020 and a reclassification of manufacturing labor to cost of sales from operating expenses. As a percentage of revenue, mask cost of sales was 0% and 106.2% resulting in a gross margin of 0% and (6.2)% for the nine months ended September 30, 2021 and 2020, respectively.
Operating expenses
Operating expenses increased by $380,306, or 20.8%, to $2,208,428 for the nine months ended September 30, 2021 from $1,828,122 for the nine months ended September 30, 2020 primarily due to increases in marketing costs of $66,605, depreciation and amortization costs of $44,486, professional fees of $66,946, compensation costs of $17,274, operating lease costs of $4,879, shipping charges of $84,550, bad debts of $104,307, and general and administration costs of $99,467, offset partially by decreases in consulting costs of $78,285 and travel expenses of $29,923, as a result of reorganizing our administrative infrastructure, primarily employee costs, and refocusing our marketing initiatives to generate sales growth.
For the nine months ended September 30, 2021, we had marketing expenses of $391,850 and general and administrative expenses of $1,816,578 primarily due to compensation costs of $766,858, consulting costs of $44,616, travel expenses of $15,194, operating lease costs of $128,122, professional fees of $180,257, depreciation and amortization costs of $52,714, investor relations costs of $1,200, shipping charges of $223,573, bad debt of $133,007 and general and administration costs of $271,037, as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
For the nine months ended September 30, 2020, we had marketing expenses of $325,245 and general and administrative expenses of $1,502,877 primarily due to compensation costs of $749,584, consulting costs of $122,901, travel expenses of $45,117, operating lease costs of $123,243, professional fees of $113,311, depreciation and amortization costs of $8,228, shipping charges of $139,023, bad debt of $28,700, and general and administration costs of $171,370, as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
Other Expense
Other expense for the nine months ended September 30, 2021 totaled $1,632,682 primarily due to interest expense in conjunction with debt discount of $331,388, the change in derivative liability of $41,923, and interest expense on notes payable of $833,035, and impairment of assets of $510,182. Other expense for the nine months ended September 30, 2020 totaled $284,213 primarily due to interest expense on notes payable of $147,471, interest expense in conjunction with debt discount of $61,262, the change in derivative liability of $21,480, other expense of $61,000, and other income of $7,000.
Net (loss) profit before income taxes
Net loss before income taxes for the nine months ended September 30, 2021 totaled $1,646,633 primarily due to revenue of $3,777,276 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, investor relations costs, operating lease costs, depreciation and amortization, shipping charges, travel costs, bad debts, and general and administration costs compared to a net profit of $721,556 for the nine months ended September 30, 2020 primarily due to revenue of $6,577,162 and (increases/decreases) in compensation costs, professional fees, consulting costs, marketing costs, operating lease costs, depreciation and amortization, investor relations costs, shipping charges, travel costs, bad debts, and general and administration costs.
Liquidity and Capital Resources.
General – Overall, we had a decrease in cash flows of $93,838 in the nine months ended September 30, 2021 resulting from cash provided by operating activities of $82,644, cash used in investing activities of $15,337, and cash used in financing activities of $161,145.
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | 82,644 | $ | 520,327 | ||||
| Investing activities | (15,337 | ) | (142,262 | ) | ||||
| Financing activities | (161,145 | ) | (358,284 | ) | ||||
| Net increase (decrease) in cash | $ | (93,838 | ) | $ | 19,781 | |||
Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020
Cash Flows from Operating Activities – For the nine months ended September 30, 2021, net cash provided by operating activities was $82,644. Net cash used in operations was primarily due to a net loss of $1,646,633, and the changes in operating assets and liabilities of $876,916, primarily due to the net changes in accrued interest of $832,083, inventories of $32,161, prepaid expenses of $189,550, accounts receivable of $68,403, and accounts payable of $153,021, offset primarily by the change in customer advance payments of $372,240, and other current liabilities of $26,062. In addition, net cash used in operating activities was offset primarily by adjustments to reconcile net profit from the accretion of the debt discount of $331,388, depreciation expense of $44,959, and amortization expense of $7,755, and impairment of assets of $510,182, offset primarily by the change in derivative liability of $41,923.
For the nine months ended September 30, 2020, net cash provided by operating activities was $520,327. Net cash used in operations was primarily due to a net income of $721,556, and the changes in operating assets and liabilities of $291,351, primarily due to the net changes in customer advance payments of $362,863, accrued interest of $147,371, inventories of $5,180, and other current liabilities of $113,956, offset primarily by the change in accounts receivable of $610,204, prepaid expenses of $94,103, accounts payable of $191,615, and other current assets of $24,799. In addition, net cash used in operating activities was offset primarily by adjustments to reconcile net profit from the accretion of the debt discount of $61,262, change in derivative liability of $21,480, depreciation expense of $6,411, and amortization expense of $1,817.
Cash Flows from Investing Activities – For the nine months ended September 30, 2021, net cash used in investing activities was $15,337 due to purchases of equipment. For the nine months ended September 30, 2020, net cash used in investing activities was $142,262 due to purchases of equipment and intangible assets.
Cash Flows from Financing Activities – For the nine months ended September 30, 2021, net cash used in financing activities was $161,145 due to repayments of short-term notes payable $51,545, repayments of loan payable to shareholder of $66,600, repayment of due from related party of $243,000, offset primarily by proceeds from long term notes payable of $200,000. For the nine months ended September 30, 2020, net cash provided by financing activities was $358,284 due to advances from shareholders, net of $57,500, proceeds from short-term notes payable of $221,065, repayments of short-term notes payable of $20,000, proceeds from related party of $182,599, repayments of due to related party of $286,757, the proceeds from convertible notes payable of $220,000, and contributions to members, net of $732,691.
Financing – We anticipate that our future liquidity requirements will arise from the need to fund our growth from operations, pay current obligations and future capital expenditures. The primary sources of funding for such requirements are expected to be raising additional funds from the private sources and/or debt financing. However, we can provide no assurances that we will be able to generate sufficient cash flow from operations and/or obtain additional financing on terms satisfactory to us, if at all, to remain a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately to attain profitability. Our Plan of Operation for the next twelve months is to raise capital to implement our strategy. We do not have the necessary cash and revenue to satisfy our cash requirements for the next twelve months. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then we may not be able to expand our operations. We do not know whether we will issue stock for the loans or whether we will merely prepare and sign promissory notes. Although we are not presently engaged in any capital raising activities, we anticipate that we may engage in one or more private offering of our company’s securities after the completion of this offering. We would most likely rely upon the transaction exemptions from registration provided by Regulation D, Rule 506 or conduct another private offering under Section 4(2) of the Securities Act of 1933. See “Note 2 – Going Concern” in our financial statements for additional information as to the possibility that we may not be able to continue as a “going concern.”
We are not aware of any trends or known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in material increases or decreases in liquidity.
Due to Former Shareholder
On March 1, 2020, the members of Nature entered into the Ownership Interest Purchase Agreement (“Ownership Agreement”) whereby Yogev Shvo, a member of the Company, acquired the remaining 50%-member ownership (“Seller”) giving Mr. Shvo 100%-member ownership of the Company. As consideration for the Ownership Agreement, the Seller received a Promissory Note of $750,000. The Promissory Note bears interest at 15% per annum and March 1, 2022, as amended on June 30, 2021. During the nine months ended September 30, 2021, the Company made repayments of $193,000 and has a balance of $72,743 under Due to Related Parties in the accompanying Balance Sheet at September 30, 2021. The Note is secured with the assets of the Company pursuant to a security agreement dated March 1, 2020. In addition, the Company’s Chairman has personally guaranteed the Note.
Loans Payable
Loan Payable to Shareholder
The Company borrows funds from shareholders from time to time for working capital purposes. During the three and nine months ended March 31, 2021, the Company had no additional borrowings and made repayments of $66,600 and has a balance of $1,805 at September 30, 2021. Advances are non-interest bearing and due on demand.
Economic Injury Disaster Loan
On May 14, 2020, the Company executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the SBA under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business.
Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the Company borrowed an aggregate principal amount of the EIDL Loan of $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum and will accrue only on funds actually advanced from the date of each advance. Installment payments, including principal and interest, are due monthly beginning May 14, 2021 (twelve months from the date of the SBA Note) in the amount of $731. The balance of principal and interest is payable thirty years from the date of the SBA Note. In connection therewith, the Company also received a $7,000 grant, which does not have to be repaid, was recorded in Other Income in the Statements of Operations in April 2020. During the nine months ended September 30, 2021, the Company made repayments of $1,462 and has a balance of $149,490 under Long term notes payable in the accompanying Balance Sheet at September 30, 2021.
In connection therewith, the Company executed (i) a note for the benefit of the SBA (the “SBA Note”), which contains customary events of default and (ii) a Security Agreement, granting the SBA a security interest in all tangible and intangible personal property of the Company, which also contains customary events of default (the “SBA Security Agreement”).
Paycheck Protection Program Loan Round 1
On May 6, 2020, the Company executed a note (the “PPP Note”) for the benefit of TD Bank, N.A. (the “Lender”) in the aggregate amount of $51,065 under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP is administered by the U.S. Small Business Administration (the “SBA”). The interest rate of the loan is 1.00% per annum and accrues on the unpaid principal balance computed on the basis of the actual number of days elapsed in a year of 360 days. Commencing seven months after the effective date of the PPP Note, the Company is required to pay the Lender equal monthly payments of principal and interest as required to fully amortize any unforgiven principal balance of the loan by the two-year anniversary of the effective date of the PPP Note. The PPP Note of $51,065 was repaid in February 2021.
Paycheck Protection Program Loan Round 2
On April 2, 2021, the Company executed a note (the “PPP Note”) for the benefit of First Federal Bank (the “Lender”) in the aggregate amount of $200,000 under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) through a second draw. The PPP is administered by the U.S. Small Business Administration (the “SBA”). The terms of the second draw have the same general loan terms as the first draw PPP loan.
Convertible Note Payable
Short Term
On April 22, 2019; The Company executed a convertible promissory note with GHS Investments, LLC (“GHS Note”). The GHS Note carries a principal balance of $57,000 together with an interest rate of eight (8%) per annum and a maturity date of February 21, 2020. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share) in accordance with the terms of the note agreement shall be made in lawful money of the United States of America. Any amount of principal or interest on this GHS Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid. As of December 31, 2019, the principal balance outstanding was $57,000.
The holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this note, to convert all or any part of the outstanding and unpaid principal amount into Common Stock. The conversion shall equal sixty-five percent (65%) of the lowest trading prices for the Common Stock during the twenty (20) day trading period ending on the latest complete trading day prior to the conversion date, representing a discount rate of thirty-five percent (35%).
On March 24, 2020, the note obligation of $120,766 held by Emry was partially sold $35,000 of the face amount to the preferred shareholder Saveene. On March 24, 2020, Saveene converted the $35,000 purchase into 5,000 shares into series B and 10,000 shares of series C shares. The face amount of the Company note obligation post the aforementioned conversions and purchases is $85,766 as of September 30, 2021.
The Company accounts for an embedded conversion feature as a derivative under ASC 815-10-15-83 and valued separately from the note at fair value. The embedded conversion feature of the note is revalued at each subsequent reporting date at fair value and any changes in fair value will result in a gain or loss in those periods. The Company recorded a derivative liability of $82,257, recorded a change in derivative liability of $41,923 and $38,673, and $21,480 and $21,480, during the three and nine months ended September 30, 2021 and 2020, respectively.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021, the Convertible Notes Payable were in default. The Company is currently in discussions to restructure the terms of the note and recorded default interest of $7,568$28,285 and $22,450$79,720 during the three and nine months ended September 30, 2022 and 2021, respectively. No default interest was recorded
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April 2022 Notes
In April 2022, the Company authorized convertible promissory notes (“April 2022 Notes”) that varies from 0% to 10% per annum and are due and payable on various dates from December 31, 2022 through March 31, 2023 for aggregate gross proceeds of $431,500 (including $1,500 against which services were received) during the three and nine month periodsmonths ended September 30, 2020.
On2022. Subsequent to September 21, 2020,30, 2022, the Company issued a convertible promissory note inoffered and sold an additional $64,100 of the principal amount of $220,000. The convertible promissory note bearsApril 2022 Notes paying interest atthat varies from 0% to 8% per annum and isare due and payable in twenty-four (24) months.on various dates from December 31, 2022 through October 31, 2024. The holderholders of this note hasthe April 2022 Notes have the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05$0.07 per share into the Company’s common stock if before any public offering. The Note includes customary events of default, including, among other things, payment defaults and certain events of bankruptcy. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.
$40,000,000 Convertible Note
On May 13, 2022, as amended, the Company issued a convertible promissory note to Turvata Holdings Limited in the principal amount totaling $40,000,000 in exchange for 50,000 RoRa Prime Coins (“Coins”), valued at $800 per Coin. The convertible promissory note bears no interest and is due and payable in twenty-four (24) months. The Holder of this Note has the right, at the holder's option, to convert the principal amount of this Note, in whole or in part, into fully paid and nonassessable shares at a conversion price of $2.00 per share. Conversion rights shall not vest until such time as the holder’s consideration, Coins, are live on a U.S. Exchange and available through a mutually agreed upon cryptocurrency wallet. The Coins are expected to go live in 2023. The Note shall not be enforceable until such time as the Coin is "live" on a US exchange and available through a mutually agreed upon cryptocurrency wallet. The parties agree to establish a time is of the essence date of May 1, 2023 for Holder to meet the "live" requirement. Should Holder not meet the "live" requirement by May 1, 2023, then Borrower shall return all RoRa Prime Coins and Holder shall release all claims on any shares or Convertible Promissory Note. Subsequent to the Coins live date and before the holder coverts the Note, should the Company issue any dilutive security, the conversion price will be reduced to the price of the dilutive issuance. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020,2021, and the Form 10-Q for the three-month periodperiods ended March 31, 2021,2022, June 30, 2022, and September 30, 2022, the Convertible Notes Payable wereconvertible promissory note was in default. On July 19, 2021,June 30, 2022, the Company entered into a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the Notesconvertible promissory note related to the Company’s failure to timely file its Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020,2021, and Form 10-Q for the three-month periodperiods ended March 31, 2021.2022, June 30, 2022, and September 30, 2022.
Investment in Fourth & One
On September 8, 2022, the Company entered into a Membership Interest Purchase Agreement (“Agreement”) with Fourth & One, LLC (“Fourth & One”) with respect to the sale and transfer of 51.5% of Fourth & One’s interest in WC Mine Holdings, LLC (“WCMH”) giving the Company a 30.9% ownership in WCMH for consideration totaling $5,450,000. In exchange, the Company issued Fourth & One a promissory note of $4,000,000 and 2,000 RoRa Prime digital coins (“Coins”), valued at $1,450,000. The promissory note provides for no interest and matures on October 31, 2022 (“Maturity Date”). In addition, the promissory note provides that the Company may convert all amounts at any time prior to the Maturity Date and after gaining approval by the Securities and Exchange Commission of the Company’s REG A II Offering and Fourth & One may convert all amounts into common stock prior to the Maturity Date at a conversion price of $2.00 per share. The Agreement also provides that should Fourth & One not be able to convert the Coins on or before October 31, 2022 at a conversion ratio of $800 per Coin, the Company will purchase all of the Coins for a total of $1,600,000 (2,000 Coins at $800 per Coin) on October 31, 2022.
On November 1, 2022, the Company and Fourth & One mutually agreed to terminate the Agreement and the Company agreedwas released from any obligations.
Financing Engagement Agreement
On August 25, 2022 the Company entered into a Legal Services Agreement with The George Law Group in connection with an issuance of multi-tranched securitization (“Financing”) which shall utilize a pledge of the Company’s stock and other properties currently owned or under the Company’s control. The legal fee shall be one-half of one percent (0.5%) of the par amount of any Financing. The Company paid a retainer of $25,000 at the signing of the Legal Services Agreement which will be applied to pay a one-time interest charge of $11,680any fees incurred in the three months ended JuneFinancing.
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Employment Agreements
On March 1, 2022, as amended on October 1, 2022, Mr. Ricardo Haynes, the Company’s Chief Executive Officer and President (“CEO”) entered into an Employment Agreement with the Company. The Employment agreement terminates September 30, 2021.2027 and automatically renews on a year-to-year basis unless terminated by either party on six months’ notice. In addition, Mr. Haynes is entitled to employee reimbursements totaling $820 per month, entitled to six (6) weeks paid vacation each year, provides for medical and dental insurance, and entitled to stock options upon the implementation of a Company employee option plan. Under this Employment agreement, the CEO will be entitled to the following:
| · | $5,700 for services performed from March 1, 2022 – June 30, 2022 | |
| · | Lump Sum payment of $21,299 for services from July 1, 2022 – December 31, 2022 | |
| · | 25,000,000 shares of TNRG common stock in the Company which vest immediately. | |
| · | 7,500,000 newly issued Preferred A shares of TNRG stock CUSIP (88604Y209) Cert No. 400002 | |
| · | 750 newly issued Preferred B shares of TNRG stock CUSIP (88604Y209), Cert. No. 500002 | |
| · | 1,500 newly issued Preferred C shares of TNRG stock CUSIP (8860Y209), Cert No. 600002 | |
| · | $7,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| · | 1,500 RoRa Coins in possession of the Company. |
On October 1, 2022, the Company entered into Employment Agreements with individuals for positions in the Company. Each of the Employment agreements shall begin October 1, 2022 and terminate September 30, 2027 and automatically renews on a year-to-year basis unless terminated by either party on six months’ notice. In addition, each employee is entitled to employee reimbursements totaling $820 per month, entitled to six (6) weeks paid vacation each year, provides for medical and dental insurance, and entitled to stock options upon the implementation of a Company employee option plan. Under these Employment agreements, each employee will be entitled to the following:
| · | Ms. Tori White, Director Real Estate Development. |
| ○ | $24,000 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 4,800 RoRa Coins in possession of the Company. |
| · | Mr. Eric Collins, Chairman and Chief Operations Officer. |
| ○ | $12,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 2,500 RoRa Coins in possession of the Company. |
| · | Mr. Donald Keer, Corporate Counsel |
| ○ | $3,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 700 RoRa Coins in possession of the Company. |
| · | Mr. Lance Lehr, Chief Operating Officer |
| ○ | $2,500 loan forgiveness cancelling debt used for the acquisition of shares in the Company. | |
| ○ | 500 RoRa Coins in possession of the Company. |
The Company had been in discussions with the Shareholders for repayment of the Acquisition of Preferred Shares and finalized the Employment Agreements on October 1, 2022 for positions in the Company. As a result, the Company recorded the purchase price as compensation on March 1, 2022 (see Note 1).
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Long TermConsulting Agreements
On October 9 and October 16, 2020, the Company issued a convertible promissory note in the principal amount totaling $600,000. The convertible promissory note bears interest at 8% per annum and is due and payable in twenty-four (24) months. The holder of this note has the right, at the holder's option, upon the consummation of a sale of all or substantially all of the equity interest in the Company or private placement transaction of the Company's equity securities or securities convertible into equity securities, exclusive of the conversion of this note or any similar notes, to convert the principal amount of this note, in whole or in part, plus any interest which accrues hereon, into fully paid and nonassessable shares at a conversion price of $0.05 per share. The Note includes customary events of default, including, among other things, payment defaults, covenant breaches, certain representations and warranties, certain events of bankruptcy, liquidation and suspension of the Company’s Common Stock from trading. If such an event of default occurs, the holders of the Note may be entitled to take various actions, which may include the acceleration of amounts due under the Note and accrual of interest as described above.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021, the Convertible Notes Payable were in default. On July 15, 2021,April 6, 2022, the Company entered into a WaiverConsulting Agreement (the “Agreement”with Top Flight Development LLC (“Top Flight”) waiving, an entity controlled by the default provisions listed in the Notes related to the Company’s failure to timely file its Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021. Therefore, no default interest has been accrued in these financial statements.
Promissory Debenture
On February 15, 2020 and on May 14, 2020, the Company entered into Promissory Agreement and Convertible Debentures (“Promissory Debentures”) with Emry for a principal sum of $70,000 (which was paid in two tranches: $50,000, paid on February 15, 2020, and $20,000, paid in April 2020) and $48,000 (which was paid in three tranches: $23,000, paid on May 14, 2020, $15,000, paid on May 22, 2020, and $10,000, paid on June 8, 2020), respectively. The Promissory Debenture bears interest, both before and after default, at 15% per month, calculated and compounded monthly. At the election of the holder, at any time during the period between the date of issuance and the one-year anniversary of the Promissory Debentures, the Promissory Debentures are convertible into sharesfather of the Company’s common stock at any time at a conversion price of $0.001 per share. In addition,Director Real Estate Development, to provide consulting services to the Promissory Debentures provide for an interest equal to 15% of the Company’s annual sales, payable on the 2nd day following the date of issuance of the Company’s audited financial statements.
On June 24, 2020, Emry, holder of (i) Promissory DebenturesCompany. The consulting agreement is in principal amount of $70,000 dated February 15, 2020, and (ii) that certain convertible promissory note in principal amount of $57,000 dated April 22, 2019, sold 50% of each (Promissory Debentures and convertible promissory note), including accrued and unpaid interest, fees and penalties, in separate transactions to third party companies, SP11 Capital Investments and E.L.S.R. CORP, Florida companies, such that SP11 Capital Investments and E.L.S.R. CORP each hold 50% of each respective debt instrument.
On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 per share into 3,500,000 shares of the Company’s common stock.
As a result of the failure to timely file our Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021, the Promissory Debentures were in default. On July 15, 2021,effect until the Company entered intois profitable with a Waiver Agreement (the “Agreement”) waiving the default provisions listed in the $48,000 note relatedbalance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, Top Flight will be entitled to the Company’s failure to timely file its Form 10-Q for the three-month period ended September 30, 2020, the Form 10-K for the year ended December 31, 2020, and the three-month period ended March 31, 2021. The $35,000 note provides for no default penalties.
Stock Transactions
On October 13, 2020, the Company issued 195,480a total of 15,000,000 common shares, valued at $33,232$450,000 (based on the Company’s stock price on the date of issuance), to GHS Investments in settlement.
On October 4, 2020, SP11 converted $35,000 of its Promissory Debentures at $0.01 and vesting immediately and shall be paid $21,000 per share into 3,500,000 sharesmonth beginning on the first day of the Company’s common stock.
On August 14, 2020,month following the execution of the agreement. The Company issued 60,000,000 common shares in conjunction with acquisition (see Note 1).
Capital Resources.
We had no material commitments for capital expenditures as of September 30, 2021.
Fiscal year end
Our fiscal year end is December 31.
Going Concern
Our condensed consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates, among other things, the realization of assetspaid Top Flight $67,400 and satisfaction of liabilities in the normal course of business. We had an accumulated deficit of approximately $2,295,000 and $648,000 at September 30, 2021 and December 31, 2020, respectively, had a working capital deficit of $2,284,000 and $1,569,000 at September 30, 2021 and December 31, 2020, respectively, had net loss of approximately $1,323,000 and $1,647,000 for$105,000 during the three and nine months ended September 30, 2021,2022, respectively, andwith a net lossbalance due of approximately $102,000 and a net profit$7,400 as of $722,000 for the three and nine months ended September 30, 2020, respectively, and net cash provided by operating activities of approximately $83,000 and $520,000 for the nine months ended September 30, 2021 and 2020, respectively.2022.
The Company has not yet established an ongoing source of revenues sufficient to cover its operating cost and allow it to continue as a going concern. The ability ofOn April 6, 2022, the Company entered into a Consulting Agreement with a third party to continue as a going concernprovide consulting services to the Company. The consulting agreement is dependent on the Company obtaining adequate capital to fund operating lossesin effect until it becomes profitable. If the Company is unableprofitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, the third party will be entitled to obtain adequate capital, it could be forced to cease operations.a total of 5,000,000 common shares, valued at $150,000 (based on the Company’s stock price on the date of issuance) and vesting immediately.
In order to continue as a going concern,On April 6, 2022, the Company will need, among other things, additional capital resources. Management’s planentered into a Consulting Agreement with a third party to obtain such resources for the Company include, obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactoryconsulting services to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, thereThe consulting agreement is no assurance thatin effect until the Company is profitable with a balance sheet of over $200 million or thirty-six (36) months, whichever is longer. Under this consulting agreement, the third party will attain profitability.be entitled to a total of 2,000,000 common shares, valued at $60,000 (based on the Company’s stock price on the date of issuance) and vesting immediately.
The condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Critical Accounting Policies
Refer to Note 3 in the accompanying notes to the condensed consolidated financial statements for critical accounting policies.
Recent Accounting Pronouncements
Refer to Note 3 in the accompanying notes to the condensed consolidated financial statements for recent accounting pronouncements.
Off-Balance Sheet Arrangements
We have made no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation
We do not believe that inflation has had a material effect on our results of operations.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
The registrant qualifies asWe are a smaller reporting company as defined by SEC Rule 229.10(f)(1)12b-2 of the Securities Exchange Act of 1934 and isare not required to provide the information required byunder this Item.item.
Item 4. Controls and Procedures.Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-l5(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Chairman, CEO and Chief Financial Officer ("CFO"), has evaluated the effectiveness of our disclosure controls and procedures as defined in SEC Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report. Based on such evaluation, management identified deficiencies that were determined to be a material weakness.
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Management’s Report on Internal Controls over Financial Reporting
The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-l5(f) of the Securities Exchange Act). Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2021.2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013). Based on that assessment, management believes that, as of March 31, 2021,September 30, 2022, the Company’s internal control over financial reporting was ineffective based on the COSO criteria, due to the following material weaknesses listed below.
The specific material weaknesses identified by the company’s management as of end of the period covered by this report include the following:
| · | we have not performed a risk assessment and mapped our processes to control objectives; | |
| · | we have not implemented comprehensive entity-level internal controls; | |
| · | we have not implemented adequate system and manual controls; and | |
| · | we do not have sufficient segregation of duties. As such, the officers approve their own related business expense reimbursements. |
Despite the material weaknesses reported above, our management believes that our condensed consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Commission that permit us to provide only management’s report in this report.
Management'sManagement’s Remediation Plan
The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.
However, we plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterlyannual report on Form 10-Q,10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the current fiscal year as resources allow:
(i) appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies;
| (i) | appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies; |
The remediation efforts set out herein will be implemented in the current 20212023 fiscal year. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Management believes that despite our material weaknesses set forth above, our condensed consolidated condensed financial statements for the three and nine months ended September 30, 20212022 are fairly stated, in all material respects, in accordance with U.S. GAAP.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarterthree and nine months ended September 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ItemITEM 1. Legal Proceedings.LEGAL PROCEEDINGS.
From time to time, various lawsuits andwe may become party to litigation or other legal proceedings may arise inthat we consider to be a part of the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these, or other matters may arise from time to time that may harm our business. We are not currently not aware of anyinvolved in legal proceedings or claims that it believes willcould reasonably be expected to have a material adverse effect on itsour business, prospects, financial condition or operating results except:of operations. We may become involved in material legal proceedings in the future. To the best our knowledge, none of our directors, officers or affiliates is involved in a legal proceeding adverse to our business or has a material interest adverse to our business.
First Capital Venture
On November 3, 2020, First Capital Venture Co., a subsidiary of the client, d/b/a Diamond CBD, filed a civil complaint against the Shvo Defendants and Thunder Energies Corporation (the “Defendants”), in the pending 17th Judicial Circuit Court in and for Broward County, Florida, (the “Florida Court”), Case Number CACE-20-019111 (the “Complaint”).
On January 26, 2021, Plaintiffs were erroneously granted an Order of Default to which the Defendants immediately pointed out to the Court and on February 23, 2021 an Order Vacating the Default was granted in favor of the Defendants. The Plaintiff knew, or should have known, that the Order of Default was not valid but they proceeded on February 9, 2021 to publish false and misleading press releases.
Thunder Energies Corporation is proceeding through discovery and is of the belief the suit will be decided in their favor. A pending Motion to Dismiss is before the Court. Plaintiff’s Complaint is based on a claim for tortious interference and misappropriation of trade secrets. Neither claim is supported by the Complaint.
Thunder Energies Corporation has issued a cease and desist to the Plaintiff and is considering a counter claim concerning the false information and disclosures made by the Plaintiff that may have affected the Company’s business and shareholders.
The Company is unableOn November 23, 2022 (“Settlement Date”), Mr. Shvo agreed to predict the financial outcome of this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have not been reflected in the consolidated financial statements. The Company is confident to obtain a summary judgement in their favorsettle with First Capital Venture on the trade secret allegations and hence has not provided for any financial exposure. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.
Filing of Complaint Against Certain Former Officers and Other Parties
On October 14, 2021 Nature Consulting, LLC, a wholly owned subsidiary, filed a complaint in the United States District Court of the Southern District of Florida against Or-El Ben Simon, individually, Adam Levy (previously the Chief Executive Officer of the Company), individually, Solange Baruk (previously a bookkeeper of the Company), individually, DVP Distro, LLC, a Florida limited liability company, Custom Graphics 2011, Inc. a Florida corporation, Beso Group, LLC, a Florida limited liability company, and Tops Consulting, LLC a Florida limited liability company (collectively, the “Defendants”). The complaint alleges that the Defendants assumed control of Nature Consulting, LLC and in doing so:
Ben Simon and those in active consort with him have effectively hijacked Nature’s assets under the threat of force and physical violence. Moreover, they have systematically divested Nature of its assets, moved into its physical location without reason, and have otherwise converted its assets.
During this time, Defendants also assumed control of all computers belonging to Nature – including its Office365 access and database registered to Nature and using the domains of “@thpcbd.com,” “@thehemplug.com,” and “@natureconsulting.com.”
Additionally, Defendants looted and destroyed the premises leased by Nature, as follows:
Furthermore, Defendants’ conduct have impeded the fulfillment of orders already paid for by Nature’s clients. This has caused Nature’s clients to threaten Nature with suit and to otherwise end their business relationships with Nature due to Nature’s failure to satisfy orders. Even if Nature wanted to operate, due to the unlawful interception of its communications with clients and vendors, it would be impossible.
Nature Consulting, LLC has demanded a jury trial to adjudicate this complaint.
As a result of the actionsbehalf of the Defendants for $11,500 to be paid within ten (10) days from the Company recorded an impairment charge of $510,182 during the three and nine month ended September 30, 2021 comprisedSettlement Date. As of the following:
| September 30, | ||||
| Impairment charges: | 2021 | |||
| Prepaids | $ | (12,500 | ) | |
| Inventories | (136,309 | ) | ||
| Net office equipment | (18,586 | ) | ||
| Net computer equipment | (15,283 | ) | ||
| Net machinery and equipment | (21,782 | ) | ||
| Net leasehold improvements | (79,665 | ) | ||
| Net website | (64,100 | ) | ||
| Net operating lease right-of-use assets | (306,902 | ) | ||
| Deposits | (24,799 | ) | ||
| Due to related party(1) | 169,744 | |||
| Total impairment charges | $ | (510,182 | ) | |
(1) The Company has included due to related party of $169,744 within the impairment charge above as these amounts have been used to settle the assets, as impaired, which have been commandeered, discarded, destroyed and taken possession of by the defendant. This amount related to working capital loan taken from the defendants.
Rocket Systems
On October 13, 2021, Rocket Systems, Inc. (“Plaintiff”) filed a complaint against Nature Consulting LLC (“Nature”) in the pending 17th Judicial Circuit Court in and for Broward County, Florida, (the “Florida Court”), Case Number CACE-21-018840 (the “Complaint”).
The complaint alleges that the Plaintiff paid Nature a deposit of $50,000 for the delivery of Nature products. According to the Complaint, Nature delivered $6,188 of the product but failed to deliver the remaining $43,812 of product.
Plaintiff has demanded that the remainder of the product order be canceled and the refund of $43,812. In addition, the Plaintiff is seeking prejudgment interest and costsdate of this action.
The Company is unable to predictfiling, the financial outcomesettlement payment of this matter at this time, and any views formed as to the viability of these claims or the financial exposure which could result may change from time to time as the matter proceeds through its course. Accordingly, adjustments, if any, that might result from the resolution of this matter have$11,500 has not been reflected in the consolidated financial statements except that Nature has recorded a reserve of $43,812 as of September 30, 2021. However, no assurance can be made that this matter together with the potential for reputational harm, will not result in a material financial exposure, which could have a material adverse effect on the Company's financial condition, results of operations, or cash flows.paid.
ItemITEM 1A. Risk Factors.RISK FACTORS.
We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ItemITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three months September 30, 2021, the Company issued no shares.None.
ItemITEM 3. Defaults Upon Senior Securities.DEFAULTS UPON SENIOR SECURITIES.
The Company’s convertible notes areAs a result of the failure to timely file our Form 10-K for the year ended December 31, 2021, and the three-month periods ended March 31, 2022, June 30, 2022, and September 30, 2022, the Convertible Notes Payable were in default and thedefault. The Company is currently in discussions to restructure the terms of the convertible notes.
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ItemITEM 4. Mine Safety Disclosure.MINE SAFETY DISCLOSURE.
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities from the Federal Mine Safety and Health Administration, or MSHA, under the Federal Mine Safety and Health Act of 1977, or the Mine Act. During
On September 8, 2022, the quarter ended September 30, 2021,Company entered into a Membership Interest Purchase Agreement (“Agreement”) with Fourth & One, LLC (“Fourth & One”) with respect to the sale and transfer of 51.5% of Fourth & One’s interest in WC Mine Holdings, LLC (“WCMH”) giving the Company a 30.9% ownership in WCMH. Fourth and One created WCMH in Elko County, Nevada, which is regulated by both the U.S. Mine Safety and Health Administration (“MSHA”) and state regulatory agencies, to hold only mining related assets (4 patented claims, 98 unpatented claims, water and mineral rights) were there are no current mining operations.
On November 1, 2022, the Company and Fourth & One mutually agreed to terminate the Agreement and the Company was released from any obligations.
Therefore, we did not have any projects that were in production and as such, were not subject to regulation by MSHA under the Mine Act.
ItemITEM 5. Other Information.OTHER INFORMATION
None.
ItemITEM 6. Exhibits.EXHIBITS
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Exhibit Key
| 3.1 | Incorporated by reference herein to the Company’s Form 10 Registration Statement filed with the Securities and Exchange Commission on July 21, 2011. |
| 3.2 | Incorporated by reference herein to the Company’s Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on November 15, 2013. |
| 3.3 | Incorporated by reference herein to the Company’s Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on November 15, 2013. |
| 3.4 | Incorporated by reference herein to the Company’s Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on August 13, 2018. |
| 3.5 | Incorporated by reference herein to the Company’s Form 10 Registration Statement filed with the Securities and Exchange Commission on July 21, 2011. |
| 10.0 | Incorporated by reference herein to the Company’s Form S-1 Registration Statement filed with the Securities and Exchange Commission on March 2, 2018. |
| 14.0 | Incorporated by reference herein to the Company’s Form 10-Q Quarterly Report filed with the Securities and Exchange Commission on January 17, 2012. |
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
THUNDER ENERGIES CORPORATION
| NAME | TITLE | DATE | ||
| /s/ | Principal Executive Officer, Principal Accounting Officer, Chairman | December 14, 2022 | ||
| Ricardo Haynes | ||||
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants
Which Have Not Registered Securities Pursuant to Section 12 of the Act
None.